TIDMJKX
RNS Number : 1682U
JKX Oil & Gas PLC
31 March 2021
FOR IMMEDIATE RELEASE
31 March 2021
JKX Oil & Gas plc
('JKX' or the 'Company')
FINAL RESULTS
FOR THE YEARED 31 DECEMBER 2020
JKX Oil & Gas plc (LSE: JKX), announces its results for the
year ended 31 December 2020.
2020 Highlights
Despite the ongoing COVID-19 pandemic and turbulence in the
international commodity markets, JKX has delivered a solid
performance in 2020, demonstrating its resilience in the face of
significant uncertainty.
-- Strong year end cash position of $24.3m (2019:$20.6m)
-- Cash generated from continuing operations of $28.9m
(2019:$41.4m)
-- Final bond payment made in February 2020, making the JKX
Group debt free
-- Average daily production 10,238 boepd (2019:10,748boepd)
-- Revenue of $69.6m (2019:$101.7m)
-- Profit for the year of $19.9m (2019:$22.2m)
For further information please contact:
JKX Oil & Gas plc +44 (0) 20 7323 4464
Dmytro Piddubnyy, CFO
EM Communications +44 (0) 20 7002 7860, +44 (0) 7887 946719
Jeroen van de Crommenacker
Chairman's statement
I am pleased to be writing to you after my first full year as
Chairman of your company.
2020 has been an unexpectedly challenging year for all, and your
company has been no exception. However before considering the
company's performance I would like to acknowledge the resilience
and dedication that our staff and contractors have shown during the
ongoing COVID-19 pandemic.
The measures that we rapidly implemented across the Group in
order to mitigate the threat to our staff, our contractors and our
communities have been largely successful. Whilst the Group has
recorded cases of COVID-19 across our workforce, I am glad to be
able to confirm that at the time of writing all those affected have
made a recovery to a point where they have been able to, or we
anticipate that they will soon be able to, return to work.
We remain committed to the communities in which we operate and
as part of our Corporate Social Responsibility programme we have
also provided funding and material to support the local and
national medical responses in Russia and Ukraine.
Turning then to our performance in 2020, your company has again
managed to deliver a full year profit (2020: $19.9m). Whilst this
is below the 2019 outcome it is a credible result given the
challenges your company has faced, including the postponement of a
number of capital projects in both Russia and Ukraine as a result
of the ongoing pandemic.
Final data shows that Group production volumes fell by 5%
year-on-year during 2020 when compared to the 2019 performance, but
with production levels remaining well above the 2018 result. Sales
prices were also negatively impacted with both gas prices and oil
and condensate prices declining significantly in 2020.
Despite these challenges the company remained profitable during
2020 ending the year with an increase in net cash reserves to $24.3
million, representing a 18% increase over cash reserves at the end
of 2019 (31 December 2019: $20.6 million), further strengthening
your company's financial position and ensuring its increased
resilience in the current challenging environment.
As the Chief Executive Officer explains further in his report,
the company has had its $12.1 million international arbitration
award against the Government of Ukraine recognised in the Ukrainian
courts and will continue to press for rapid settlement. The company
also continues to successfully protect its position in relation to
litigation relating to 2010 and 2015 tax claims.
Outlook.
Our focus on cost control, production optimisation and sound
company management will continue during 2021 and the Board and
executive management remain committed to maximising value from our
core assets.
With the company's growing cash reserves we have increased our
focus on identifying additional growth opportunities, both within
our existing portfolio and as part of an acquisition strategy
focusing on Ukraine - an area in which we have a deep understanding
and a proven track record. In contrast to many companies we remain
willing and able to acquire and develop appropriate assets as
opportunities are identified and evaluated.
Following the unexpected collapse of the sale of our Hungarian
assets the Board will continue to review its options but will
remain focused on areas that present the best opportunities for
your company given its resourcing, knowledge base and experience,
as discussed in more detail by the CEO in his report.
Despite the continuing challenges your company faces, it has
made good progress during 2020. I continue to be optimistic whilst
recognising the magnitude of the issues that JKX, and the industry
as a whole, faces.
Charles Valceschini
Chairman
31 March 2021
Chief Executive's statement
2020 has been another year of challenge, not just for JKX but
for the Oil and Gas industry. Despite the impact of the ongoing
COVID-19 pandemic, the unprecedented decline in global commodity
prices and our inability to execute work as originally planned the
company remained profitable, demonstrated its operational
resilience and maintained liquidity through active cost
management.
This successful outcome results from the rapid HSE, finance and
operational initiatives that we have taken including "socially
distanced" working practices, testing for concerned staff and the
adoption of a revised mid-year budget to protect liquidity and free
cash.
None of this would have been possible without the loyalty and
support of our women and men who have risen to the challenges in an
exemplary manner. Before considering the year in more detail I
would like to recognise their contribution and thank them for their
commitment during a period that has been difficult for all of us.
The dedication and loyalty of the JKX Team has made it possible to
strengthen our shared culture despite the challenges of the last
year.
Our performance
Despite the challenges of 2020 we have managed to achieve a
minimal reduction in production performance compared to 2019. Our
financial performance has however been negatively impacted by the
significant year-on-year fall in oil and gas prices, with average
Ukrainian gas sales prices having fallen from $206/Mcm in 2019 to
$132/Mcm in 2020 and oil prices having decreased from $61/bbl in
2019 to $44/bbl in 2020.
Consequently, despite delivering a positive financial
performance during this unprecedented year our operating profit
before exceptional items was $11.8m in 2020 (2019: $23.1m).
In order to minimise the negative impact of the decline in sales
prices the Group's management implemented austerity measures to
defer capital costs and cut operational and administrative
costs.
These measures were implemented in March 2020 with Poltava
Petroleum Company ("PPC") management salaries temporarily reduced
by up to 25%, PPC's staff number reduced by 15% and a full review
of capital and other costs. In May 2020 the remaining PPC staff
salaries were temporarily reduced with the largest reductions (of
up to 25%) being borne by the highest paid and without changes for
other staff. The Board approved a revised Group budget in June 2020
that cut operating costs by $4.9m or 21% lower than in 2019 (2020:
$17.9m, 2019: $22.8m) and administrative costs decreased by $3.1m
or 23% (2020: $10.1m when 2019: $13.2m).
Our operations
In both Ukraine and Russia we have continued to focus on
operational risk management, developing existing fields step by
step with proven, low risk technology. A particular emphasis of
2020 has been to minimise capex and we consequently decided to
suspend the drilling program from April to October. Despite this
group production was only 5% lower in 2020 than in 2019 (2020:
10,238 boepd, 2019: 10,748 boepd). This was achieved through the
drilling of one high producing well in Ukraine, low cost additional
perforations on existing wells in Ukraine and the continuing
benefits of two Russian workovers that had been completed in
2019.
Despite the suspension of the drilling program described above
we achieved three new wells, two sidetracks and 13 workovers in
Ukraine in 2020. The most successful Ukrainian well in 2020 was
IG143 completed in Q1 which achieved a flow rate of 539 boepd.
Enhancements made to the LPG facility in Ukraine during a
planned shut-down allowed us to increase our LPG yield by 34%,
exceeding expectations. Subsurface studies have now been completed
on the Devonian reservoir in Rudenkivske which has allowed us to
identify a number of potential well locations, and progress is
being made towards drilling at the most prospective of these.
In Ukraine we achieved a 174% reserves replacement ratio,
largely through careful management of the West Mashivska Field and
lower production decline than had been anticipated.
In 2020 PPC successfully converted the Zaplavska exploration
licence into a 20-year production license. Work has commenced to
unlock remaining resource potential in the Devonian and Visean
reservoirs located in this field.
Meanwhile in Russia production has increased by 4% (2020: 5,389
boepd, 2019: 5,158 boepd) despite Well 20 ceasing production in
February 2020. This increase in production is the result of two
successful workovers in 2019 with production from these wells more
than offsetting the loss of production from Well 20. In addition,
production from existing wells has been more stable than expected
enabling us to use a lower cost coiled tubing contractor as less
acid stimulation treatments are now required to maintain
production.
Our financial stability
The Group's financial strength remains robust as evidenced by
the final repayment of the long-term debt of $5.8m in February
2020. Precautionary cost-cutting measures were implemented in March
2020 with operational and administrative expenses reduced across
all locations and capital expenditure postponed until 2021.
Additionally, we continue to defend our legal position and to
enforce the award of US$12.1million made by the International
Tribunal in The Hague. We have had notable success in litigation of
the remaining 2015 rental fee claims and we are still awaiting a
final ruling from the Supreme Court in relation to a claim for
underpayment of rental fees for 2010.
Managing our risks
The maintenance of an adequate internal control framework and
appropriate risk management are essential to our success.
Appropriate policies and procedures are implemented across the
Group and are subject to regular review to ensure that they remain
appropriate and fit for purpose.
Geological and operational risks are essential to our business
and we continue to maintain and to improve our internal expertise
and supplement this with the use of appropriate contractors and
specialists to mitigate these risks.
2020 saw the most severe fall in the gas price in Ukraine in
over 20 years although at the time of writing the trend is more
positive and we continue to rely on the trading expertise of our
commercial team to achieve best sales price.
In the light of this turbulence, we remain focused on the
control of operational and administrative costs and we perform
regular economic analysis of our planned capital projects to ensure
that profitability remains central to our decision making.
Outlook
The Group's focus for 2021 is Ukraine, continuing development of
the Devonian in Ignativske and working up exploration prospects in
our own acreage. We continue to explore new business opportunities
both through the acquisition of new licences through transparent
mechanisms such as online auctions and tenders for production
sharing agreements, as well as continuing with the development of
our current licences.
Whilst 2021 will continue to present us with challenges I take
confidence from our strengthening financial position and the
dedication and skills of our men and women that will be key to the
continuing success of your company.
Victor Gladun
Director
Chief Executive Officer
31 March 2021
Financial review
Revenue
Group revenues 2020 2019 Change %
($m) ($m) ($m) Change
-------------------- ------ ------ ------ --------
Ukraine 52.8 84.3 (31.5) (37%)
Gas 30.5 52.3 (21.8) (42%)
Oil 16.0 24.3 (8.3) (34%)
Liquefied Petroleum
Gas ('LPG') 5.7 6.6 (0.9) (14%)
Other 0.7 1.1 (0.4) (36%)
-------------------- ------ ------ ------ --------
Russia 16.8 17.4 (0.6) (3%)
Gas 16.2 16.7 (0.5) (3%)
Condensate 0.6 0.7 (0.1) (14%)
Total 69.6 101.7 (32.1) (32%)
-------------------- ------ ------ ------ --------
%
2020 2019 Change Change
============== =========== ====== ======== =======
Ukraine
Gas ($/Mcm) 132 206 (74) (36%)
Oil ($/bbl) 44 61 (17) (28%)
LPG ($/tonne) 383 449 (66) (15%)
============== =========== ====== ======== =======
Russia
===========
Gas ($/Mcm) 52 57 (5) (9%)
============== =========== ====== ======== =======
Results for the year
The Group's financial performance for 2020 has been impacted by
the significant decline in oil and gas prices. Operating costs and
G&A costs decreased due to well lease contract re-negotiations,
right-sizing and wages decrease.
However despite these challenges and uncertain economic
environment, the Group still generated profit before tax of
$24.9m compared to $30.4m in 2019. Results for both years
include net movements in respect of provisions for disputed rental
fees for 2010 and 2015 in Ukraine. $13.5m was recognised as a
credit in the 2020 Consolidated income statement (2019: $8.4m
credit) which is the net of a $15.1m reversal of provisions for two
tax cases that have been closed in favour of PPC relating to 2015
claims and of $1.6m interest accrued for the remaining cases that
have not been closed.
Total revenue for 2020 is $69.6m, 31.6% lower than the $101.7m
reported in 2019. The decrease is primarily due to the
significantly lower commodity prices while total average daily
Group production has remained relatively stable (10,238 boepd in
2020 to 10,748 boepd in 2019).
Ukraine revenues
The decrease in total revenues was due to significantly lower
sales prices. The average gas sales price in dollar terms was 36%
lower in 2020 than in 2019. This is in line with international
market trends. Total gas sales volumes decreased by 11.6% from
257,030 Mcm in 2019 to 227,306 Mcm in 2020, due to the gas
production volume having decreased 14.7% from 279,982 Mcm in 2019
to 238,868 Mcm in 2020. Selling gas inventory which reduced from
14,041 Mcm in the beginning of the year to 2,696 Mcm at 31 December
2020 compensated the lower production levels during the year. For
more detail on production trends please refer to the Operations
review.
The average oil sales price reduced from $61/bbl in 2019 to $44/
bbl in 2020 and total oil sales volumes for the year decreased 8.6%
from 382,200 barrels in 2019 to 349,213 barrels in 2020. Oil
production volume decreased 5.4% from 373,616 barrels in
2019 to 353,573 including barrels in 2020, with some levels
being taken to inventory.
LPG sales volumes were 14,699 tonnes in 2020 compared to 13,636
tonnes in 2019, with sale prices being lower in 2020 ($383/ tonne
in 2020 compared to $449/tonne in 2019).
Inventory held at 31 December 2020 (2.7 million cubic metres of
gas and 32.6 thousand barrels of oil) had an estimated sales value
of $2.2m using average sales prices for December 2020.
A portion of production comes from wells owned by third parties,
operated under service agreements with UkrGasVidobuvannya and under
rental agreements with NAK Nadra Ukrayini and Ukrnafta. This
production is subject to sale in the normal way, with payments
being made to the well owners in accordance with the service and
rental agreements .
Russia revenues
Total revenues in Russia decreased due to the lower average gas
prices in US$ terms, which were offset by higher gas production
(2020: 331,303 Mcm, 2019: 316,254 Mcm). The benefit of the 3%
increase in the average rouble gas sales price on 1 August 2020 was
offset by the weaker rouble in 2020.
Cost of sales
Exceptional items relate to provisions for disputed rental fees.
A release of $15.1m of provisions due to the closure of some of the
2015 rental fee claims in favour of our subsidiary was offset by an
additional charge of $1.6m reflecting updated interest
calculations in relation to the rental fee claims still provided
for. This gives a net movement of $13.5m in 2020.
Cost of sales before exceptional items for 2020 totalled $48.8m
(2019:$64.8m), including:
-- $13.8m of production taxes, which were $9.8m lower than in
2019.In Ukraine, production tax expense (before exceptional
charges) decreased by $9.8m from $21.8m to $12.0m mainly due to a
decrease in the average border gas price which is the basis for
calculating gas production taxes. Only $1.7m of the total
production taxes relate to Russia (2019: $1.8m) where the mineral
extraction tax rate for wells deeper than 5,000m has remained at
343 Roubles/Mcm.
-- $17.9m of operating costs, which were $4.9m lower than in
2019. Out of this amount, $9.7m relates to Ukraine (2019:$14.7m)
and $6.1m relates to Russia (2019:$7.0m) and $0.6m to London (2019:
$0.8m) . The decrease in operating costs in Ukraine is mainly due
to a decrease in well lease costs and lower labour costs due to
right-sizing. The cost-cutting plan was designed and implemented by
PPC management as a response to commodity prices drop.
-- Selling inventory volumes in Ukraine resulted in recognition
of a charge of $1.3m (2019: $0.4m), which was added to these
operating costs respectively, gives the $17.8m costs of sales
reported in the income statement.
-- $17.9m of depreciation, depletion and amortisation charge
(2019:$18.4m), of which $12.1m relates to Ukraine (2019: $13.1m)
and Russia $5.6m (2019: $5.3m).
Administrative expenses
Administrative expenses were $10.1m in 2020, comparing
favourably to those of $13.2m in 2019. The decrease is mainly due
to staff cost reductions and wages decrease resulting from a
right-sizing exercise carried out and cost efficiency measures
implemented in the first half of 2020 in response to the current
challenging environment.
Finance income and costs
Finance costs decreased from $2.1m in 2019 to $1.0m in 2020
mainly as a result of the bond interest which reduced from $1.2m to
$0.2m due to the full bond repayment in February 2020. Finance
costs also includes unwinding of discount of provisions for site
restoration of $0.5m (2019: $0.6m).
Finance income of $0.5m (2019: $0.9m) comprises income from bank
deposits.
Taxation
The total tax charge for 2020 is $4.0m (2019: $10.2m) comprising
a current tax charge of $3.3m (2019: $6.6m) which relates to
Ukraine and a deferred tax charge of $0.7m (2019: $3.6m). The
decrease in current tax charge reflects a change in profitability
in Ukraine. The deferred tax relates to movements in various
deferred tax assets and liabilities in Ukraine and Russia as set
out in Note 27, 28 to the financial statements.
Discontinued operation
The discontinued operation is the Hungarian business. The
related result reported reflects the running costs incurred during
2020. A Memorandum of Understanding with a potential buyer was
signed in February 2021. The sale of the business is expected in
2021 for approximately $2.9m.
Cash flows
During the year, the Group's available cash balances in
continuing operations have increased ($24.3m at 31 December 2020
compared to $20.6m at 31 December 2019) while at the same time
making a final settlement of outstanding convertible bond
liability. This was achieved as a result of a strong operating cash
flow of $29.9m (2019: $41.4m) from continuing operations, almost
all of it generated in Ukraine. Use of cash during the year is as
shown in the cash bridge. Net cash outflow from financing
activities in the period mainly relates to the $5.4m final payment
to the bondholders in February 2020. No dividends were paid to
shareholders in the period (2019: nil).
Cash flows ($m)
31 Dec Cash from Income Capex Interest 31 Dec
2019 Cash continuing Interest tax additions Bond received 2020
balance operations paid paid Group repayment and other Cash balance
20.6 28.9 (0.4) (4.3) (13.4) (5.4) (1.7) 24.3
Liquidity outlook
After a final payment of $5.8m to bond holders in February 2020,
the Group is debt free. Our subsidiary in Ukraine still has a
UAH280m ($9.9m) revolving credit line and a UAH50m ($1.8m)
overdraft facility with Tascombank, neither of which are currently
being used and can be drawn down subject to credit approvals by the
bank. Both facilities have been renewed until December 2021 and can
be drawn down subject to credit approvals by the bank. In July 2020
our subsidiary in Ukraine also signed a $5m loan facility agreement
with Alfa-Bank which remains undrawn. For terms and conditions of
this new facility please refer to Note 11 to these financial
statements.
In addition, in the first of half of 2020 we revised the Budget
for 2020 and further improved our liquidity by deferring capital
expenditure and focusing on cost control. We are not burdened by
significant field development commitments in the short or long
term.
We continue to maintain provisions in respect of 2010 and 2015
rental fee claims ($13.8m and $7.2m respectively). The Group's
expectation is that a final hearing with respect to the 2010 rental
fee claim will take place during the coming months and the full
provision for the claim has therefore been reported under current
liabilities. It is expected that some of the final hearings in
respect of the remaining 2015 rental fee claims will take place
before 31 December 2021 and some will take place later. Provisions
in relation to these cases have been allocated between current and
non-current liabilities accordingly based on the expected timing of
any subsequent payments. Of the total provisions of $7.2m for the
2015 rental fee claims, $2.1m has been reported under current
liabilities and $5.1m has been reported under non-current
liabilities.
The international arbitration award, directing the State of
Ukraine to pay $11.8m plus interest and $0.3m costs to JKX as
described in the 2019 Annual Report, has now been successfully
legally recognised in Ukraine and JKX has filed for collection. No
possible future benefit that may result from this award will be
reflected in the accounts until there is further clarity on the
process for, and likely success of, enforcing collection.
Both our Ukrainian and Russian operations remain cash flow
positive despite recent disruption as a result of COVID-19 and the
commodity prices drop. In 2020 the Company generated sufficient
cash to cover the Group's costs and investment
programmes. Operationally the Group's cash flows are forecasted
to be sufficient to manage potential rental fee settlements if they
become due. The Group also has access to the conditional Tascombank
and Alfa-Bank loan facilities or can pursue other options to
maintain liquidity should the need arise.
The consolidated financial statements have been prepared on a
going concern basis (see Note 2 to the consolidated financial
statements).
Dmytro Piddubnyy
Chief Financial Officer
Operations review
Group production
In 2020 Group average production was 10,238 boepd (2019: 10,748
boepd), an overall decrease in production of 5%. The reduction in
production was a result of natural production decline and only one
new well with significant production added in 2020 in Ukraine.
boepd Workovers* Sidetracks New wells
Cash generating unit 2020 2019 2020 2019 2020 2019 2020 2019
------------------------ ------ ------ ----- ----- ----- ----- ----- ----
Novomykolaivske complex 3,563 4,127 13 17 2 0 3 2
Elyzavetivske licence 1,286 1,457 0 2 0 0 0 2
Total Ukraine 4,849 5,584 13 19 2 0 3 4
------------------------ ------ ------ ----- ----- ----- ----- ----- ----
Russia 5,389 5,158 0 2 0 0 0 0
Hungary 0 6 0 0 0 0 0 0
------------------------ ------ ------ ----- ----- ----- ----- ----- ----
Total Group 10,238 10,748 13 21 2 0 3 4
------------------------ ------ ------ ----- ----- ----- ----- ----- ----
* Includes abandonments.
Gas and oil production decreased year-on-year in Ukraine and
increased in Russia.
Gas, Mcmd Oil, bopd boepd
Cash generating 2020 2019 2020 2019 2020 2019
unit
====================== ===== ===== ===== ===== ====== ======
Novomykolaivske
complex 441 527 970 1,025 3,563 4,127
Elyzavetivske licence 212 242 37 33 1,286 1,457
Total Ukraine 653 769 1,007 1,058 4,849 5,584
====================== ===== ===== ===== ===== ====== ======
Russia 905 867 61 59 5,389 5,158
Hungary 0 1 0 1 0 6
====================== ===== ===== ===== ===== ====== ======
Total Group 1,558 1,637 1,068 1,118 10,238 10,748
====================== ===== ===== ===== ===== ====== ======
Ukraine
Novomykolaivske complex production and operations
boepd Workovers Sidetracks New wells
Field name 2020 2019 2020 2019 2020 2019 2020 2019
================ ===== ===== ==== ==== ==== ==== ==== ====
Ignativske 2,431 3,069 6 7 1 0 2 1
Molchanivske 398 355 1 5 0 0 0 0
Novomykolaivske 509 398 2 1 0 0 1 1
Rudenkivske 225 305 2 4 1 0 0 0
Zaplavska 0 0 2 0 0 0 0 0
================ ===== ===== ==== ==== ==== ==== ==== ====
Novomykolaivske
complex 3,563 4,127 13 17 2 0 3 2
================ ===== ===== ==== ==== ==== ==== ==== ====
The decrease in Novomykolaivske complex production year-on-year
was mostly attributed to production decline from IG103 sidetrack
drilled at the end of 2018 and a new well, IG142, drilled in 2019
in the Ignativske field. The increase in production in the
Novomykolaivske field was mostly attributed to a new well, NN81,
drilled in the Novomykolaivske field in 2019.
Outlook
Following the success of IG103 sidetrack, IG142 and, in 2020,
follow-up well IG143 to the Devonian reservoir of the Ignativske
field, further Devonian targets in the Ignativske licence are being
evaluated and de-risked.
In Rudenkivske, the subsurface study on the Devonian was carried
out by an external contractor and is now complete. The work has
resulted in a number of potential drilling locations, therefore the
subsurface concept will be derisked through drilling the first well
location selected as a result of this study. This Devonian well has
the highest chance of success and is planned for 2H 2021 or 1H
2022.
Operational and technical teams continue to evaluate how the
Rudenkivske Visean reservoirs can be developed successfully.
Work has commenced to unlock remaining resource potential, in
the Devonian and Visean, of the Zaplavska licence with subsurface
studies indicating promising targets that will be progressed
further.
Elyzavetivske licence production and operations
boepd Workovers New wells
Field name 2020 2019 2020 2019 2020 2019
====================== ===== ===== ==== ==== ==== ====
Elyzavetivske 773 996 0 0 0 0
West Mashivska 513 462 0 2 0 2
====================== ===== ===== ==== ==== ==== ====
Elyzavetivske Licence 1,286 1,458 0 2 0 2
====================== ===== ===== ==== ==== ==== ====
The reduction in production from the Elyzavetivske licence was
mainly the result of ongoing production decline in the
Elyzavetivske field. West Mashivska production has increased
year-on-year due to WM4, drilled late in 2019, being online for the
whole of 2020.
Outlook
At present there are no plans for future development of this
field.
Russia
Koshekhablskoye licence production and operations
boepd Workovers
Well name 2020 2019 2020 2019
================ ===== ===== ==== ====
Well 5 360 263 0 1
Well 18 1,494 78 0 1
Well 20 57 1,353 0 0
Well 25 1,774 1,735 0 0
Well 27 1,631 1,672 0 0
================ ===== ===== ==== ====
Koshekhablskoye
field* 5,389 5,158 0 2
================ ===== ===== ==== ====
*Includes Well 15 production.
In 2020 despite losing production from Well 20 in Q1 production
has increased as the loss of production from Well 20 has been more
than offset by production from the two new wells added in 2019,
Well 5 and Well 18.
Principal risks and uncertainties
The Board has completed a robust assessment of the most
significant risks and uncertainties which could impact the business
model, long-term performance, solvency or liquidity, and the
results are below.
The principal risks set out on the following page are not set
out in any order of priority, are likely to change and do not
comprise all the risks and uncertainties that the Group faces.
What is the risk? How do we manage it?
---------------------------------------------- ----------------------------------------------
Liquidity, funding, and portfolio Liquidity is accumulated by deferring
management. high-risk investment projects and
Description: As for any other exploration minimising costs. Projects are analysed
and production company, our fields and ranked across the Group and
are prone to natural production capital is allocated accordingly.
decline. Our ability to ensure long-term All significant investment decisions
sustainable production depends on are subject to Board approval and
having sufficient funds to invest are taken with due consideration
in our development and efficient to funding availability. These decisions
allocation of capital on investment are taken within the context of
projects or acquisitions. the longer term field development
It is important to maintain sufficient plans.
liquidity to allow for operational,
technical, commercial, legal, and In December 2019 PPC, our subsidiary
other contingencies. in Ukraine, renewed a 24 month UAH280m
Having sufficient funds to invest ($9.9m) revolving credit line and
in development projects or other a UAH50m ($1.8m) overdraft facility
growth opportunities is subject with Tascombank, neither of which
to not only cash flow generated are currently being used. We are
by existing operations but also confident that these facilities
access to external capital (such can be renewed again for 2022. The
as equity or debt financing) or Alfa bank facility for $5.0m was
ability to carry out corporate transactions added in the middle of 2020. Other
(such as mergers, acquisitions, liquidity tools include the ability
or divestitures). to make forward sales in Ukraine.
Impact: Inability to build or maintain Three of the 2015 rental fee cases
sufficient liquidity may result have been closed in PPC's favour.
in increased risk of having insufficient Furthermore we have improved our
funds on hand to address unanticipated understanding of the 2010 and the
cash outflows, need to suspend planned remaining 2015 rental fee claims
payments to third parties, or other and ensured that we have the resources
unplanned actions to urgently build to meet these potential liabilities
sufficient liquidity. if necessary. In particular, careful
Poor capital allocation decisions, consideration has been given to
inability to access external sources the earliest dates that courts may
of capital or execute corporate conclude that PPC may be required
transactions may result in long-term to settle any or all of the various
decline in production and cash flow claims in the event that court hearings
from existing operations and further proceed without undue delay. The
reduced ability to engage in new Group's expectation is that a final
development projects. hearing with respect to the 2010
Although the Group has been debt rental fee claim will take place
free since February 2020 this risk this year and that final hearings
remains. in respect of the remaining active
2015 rental fee claims will take
place in 2021 and 2022.
During 2020 the average Ukrainian
sales prices achieved for oil and
condensate were significantly lower
than in 2019 (2020 decline: Oil
and condensate: 28%, Gas: 36%) and
the Group responded by revising
the 2020 work programme and budget
focusing on the highest impact,
lowest cost activities.
Despite the Hungarian Authorities
refusal to consent to the sale of
the Group's Hungarian assets the
Board continues to focus on minimising
Hungarian costs and expects to dispose
of it during 2021.
The Board has also reinforced the
Group's New Business Development
team and holds regular review meetings
to consider opportunities.
---------------------------------------------- ----------------------------------------------
Geopolitical and fiscal. The Group's operations and financial
Description: The Group's oil and position may be adversely affected
gas operations are located in Ukraine by the interruption, inspections
and Russia and the oil, gas and and challenges from local authorities,
condensate that we produce are sold which could lead to remediation
into their domestic markets. work, time-consuming negotiations
There are geopolitical risks related and suspension of production licences.
to these countries and the relationship In respect of the 2010 and 2015
between them. rental fee claims, provisions of
Some of such risks may be related $13.8m and $7.2m respectively, have
to changes in taxes, capital controls, been recognised in these financial
laws and regulations, political statements to reflect the Company's
situation, or investor sentiment. estimate of the potential liability.
Both countries have relatively weak Except for this $21.0m provision,
judicial systems that are susceptible the Group's financial statements
to outside influence and it can do not include any other adjustments
take an extended period for the to reflect the possible future effects
courts to reach final judgment. on the recoverability and classification
Both countries display emerging of assets, or the amounts or classifications
market characteristics where the of liabilities that may result from
right to production can be challenged these tax uncertainties.
by State and non-State parties. The Company continues to work through
The business environment is such the proper processes for enforcement
that a challenge may arise at any of collection of the international
time in relation to the Group's arbitration award. A key priority
operations, licence history, compliance for the Group is to maintain transparent
with licence commitments and/or working relationships with all key
local regulations. stakeholders in our significant
Local legislation constantly evolves assets in Ukraine and Russia and
as the governments attempt to manage to improve the methods of regular
the economies and business practices dialogue and on-going communications
regarding taxation, banking operations locally.
and foreign currency transactions. Our strategy is to employ skilled
The constantly evolving legislation local staff working in the countries
can create uncertainty for local of operation and to engage established
operations if guidance or interpretation legal, tax and accounting advisers
is not clear. to assist in compliance, when necessary.
Geopolitical tensions between Ukraine The Group endeavours to comply with
and Russia, political instability all regulations via Group procedures
and military action in parts of and controls or, where this is not
Ukraine have negatively impacted immediately feasible for practical
its economy, financial markets and or logistical considerations, seeks
relations with the Russian Federation. to enter into dialogue with the
Any continuing or escalating military relevant Government bodies.
action in eastern Ukraine could
have a further adverse effect on
the economy.
Impact: If Management's interpretation
of tax legislation does not align
with that of the tax authorities,
the tax authorities may challenge
transactions which could result
in additional taxes, penalties and
fines which could have a material
adverse effect on the Group's financial
position and results of operations.
PPC has at times sought clarification
of their status regarding a number
of rental fees. PPC continues to
defend itself in court against action
initiated by the tax authorities
regarding rental fees for August
to December 2010 and for January
to December 2015. In addition, in
February 2017, the Company was awarded
approximately $11.8m in damages
plus interest and costs of $0.3m
by an international arbitration
tribunal pursuant to a claim made
against Ukraine under the Energy
Charter Treaty. This award has been
recognised in Ukraine and the Group
is following procedures for its
collection.
---------------------------------------------- ----------------------------------------------
Reservoir and operational performance. There is daily monitoring and reporting
Description: Subsurface and operational of the well and plant performance
risks are inherent to our business. at all our fields. Production data
The reservoir performance cannot is analysed by our in-house technical
be predicted with certainty and expertise. This supports well intervention
operations required for hydrocarbon planning and further field development.
production are subject to risks Our subsurface and operations specialists
of interruption or failure. and industry-recognised personnel
Production from our mature fields are part of the daily monitoring
at the Novomykolaivske Complex in and reservoir management process
Ukraine require a high level of of our fields and assets.
maintenance and intervention to Production forecasts generated for
minimise the production decline. future development opportunities
In Russia, acidisation of deep, are risked to take account of geological
high pressure and high temperature uncertainty. Operational risks are
wells and other well maintenance taken account of by adding a percentage
procedures to stabilise production of contingency to the duration and
are required, increasing risk of cost of the planned development
failure. action. The percentage of contingency
Impact: Accurate reservoir performance added is based on both historical
forecasts from fields in Ukraine experience and perceived difficulty
and Russia are critical in achieving of the development action.
the desired economic returns and We continue to focus on low cost,
to determine the availability and high impact operations to ensure
allocation of funds for future investment that the Group obtains best value
into the exploration for, or development for its expenditure.
of, other oil and gas reserves and
resources.
If reservoir performance is lower
than forecast, sufficient finance
may not be available for planned
investment in other development
projects which will result in lower
production, profits and cash flows.
Inability to ensure continuous operation
of wells, flowlines, production
facilities and successful execution
of drilling, workover, repair, enhancement
interventions may result in lower
production, profits and cash flows.
---------------------------------------------- ----------------------------------------------
Financial discipline and governance. During 2018 new financial controls
Description: The Group has presence were implemented and corporate governance
in four countries with major operations was enhanced, including more frequent
in Russia, Ukraine, and the United and detailed management reporting
Kingdom. Such a complex structure to the Board of Directors.
requires complex governance and A Group Policy Manual has been implemented
control procedures to be in place across the Group and updated in
to ensure appropriate level of financial 2020. It is subject to regular review
discipline and controls, as well and revision by the Board to ensure
as delegation of authority along that governance and control procedures
the corporate and management structure. are sufficient to insure the appropriate
From 2015 to 2019 the Group underwent level of financial discipline and
several major Board and management controls, as well as delegation
changes, changes of advisors and of authority along the corporate
contractors, as well as significant and management structure.
reduction of staff across its operations. The appointment of a Group CEO in
These changes have required additional 2019 also helped to consolidate
efforts to ensure proper implementation approval processes and introduce
of governance, controls, and financial a single point of ultimate executive
discipline procedures. control.
Impact: Failure to maintain an appropriate
level of financial discipline, governance
and controls may lead to unnecessary
or inappropriate spending, lack
of control over procurement, contracting,
investment decisions and exposure
to increased legal, regulatory,
or financial risks.
---------------------------------------------- ----------------------------------------------
Health, safety, and environmental Health, safety and the environment
risks. is a priority of the Board who are
Description: We are exposed to a involved in the planning and implementation
wide range of significant health, of continuous improvement initiatives.
safety, security and environmental A London-based Group HSECQ Manager
risks influenced by the geographic reports directly to the Board of
range, operational diversity and Directors and provides a detailed
technical complexity of our oil monthly HSE report.
and gas exploration and production The Group HSECQ Manager is responsible
activities. 195 countries signed for maintaining a strong culture
the historic Paris Agreement to of health, safety and environmental
tackle climate change. Despite this, awareness in all our operational
we know that some changes to the and business activities. The HSECQ
climate are already inescapable Manager reports to the Board with
due to past emissions of greenhouse details of Group performance.
gases. The Paris Agreement commits Operations in Ukraine, Russia and
the international community to reduce Hungary all have a dedicated HSECQ
greenhouse gas emissions in order Team of local personnel led by an
to avoid some of the most severe HSECQ Manager.
impacts of climate change. All locations have HSE Management
Impact: Technical failure, non-compliance Systems modelled on the ISO 9000
with existing standards and procedures, series, OHSAS 18001 and ISO 14001.
accidents, natural disasters and Appropriate insurance policies,
other adverse conditions where we provided by reputable insurers,
operate, could lead to injury, loss are maintained at the Group level
of life, damage to the environment, to mitigate the Group's financial
loss of containment of hydrocarbons exposure to any unexpected adverse
and other hazardous material, as events arising out of the normal
well as the risk of fires and explosions. operations.
Failure to manage these risks effectively Following a fatal accident in Ukraine
could result in loss of certain in 2020 involving a third party
facilities, with the associated contractor, a fatal accident enquiry
loss of production, or costs associated was held and lessons learnt communicated
with mitigation, recovery, compensation across the Group. As a result the
and fines. Poor performance in mitigating HSE aspects of the contractor qualification
these risks could also result in process have been enhanced.
damaging publicity for the Group.
A programme for adaptation to climate
change to address the identified
risks is an ongoing process for
2021/2022.
---------------------------------------------- ----------------------------------------------
Asset integrity. Status of our licences and relevant
Description: Our operations risk licence obligations are monitored
assessment outline the ability of on a country level.
an asset to perform its required In 2018 the deadline for the Callovian
function effectively and efficiently well drilling commitment in Russia,
whilst protecting health and safety which is the Group's largest single
of staff and the environment and commitment, was extended until 2025.
the means of ensuring that the people, The Company continues to monitor
systems, processes, and resources compliance with its gaseous emission
that deliver integrity are in place, levels in Russia and is in the process
in use and will perform when required of identifying a long-term action
over the whole life-cycle of the plan.
asset.
Impact: Failure to comply with licence
obligations and other regulations
or requirements may result in our
licences being suspended or revoked
which will require us to suspend
production and operations. Continuous
improvement of our processes used
to manage assets and to find the
optimal mix of costs, risks and
performance over the whole life
cycle of the assets is an ongoing
process.
---------------------------------------------- ----------------------------------------------
Major breach of business, ethical, The CFO is responsible for compliance
or compliance standards. and, with the support of the Board,
Description: The Company is subject implements compliance-related activities
to numerous requirements and standards and procedures.
including the UK Bribery Act, UK Such activities focus on training,
Listing Rules, UK Corporate Governance monitoring, risk management, due
Code, and the Disclosure and Transparency diligence and regular review of
Rules, among others. Additionally, policies and procedures.
some of our stakeholders, such as We prohibit bribery and corruption
financial institutions, may require in any form by all employees and
us to comply with other requirements by those working for and/or connected
or ask us to provide information with the business. Employees are
on our business, operations, employees expected to report actual, attempted
and shareholders as part of Know or suspected bribery or other issues
Your Client ("KYC") procedures. related to compliance to their line
Impact: Failing to comply with onerous managers or through our independently
regulations and requirements, such managed confidential reporting process,
as failure to implement adequate which is available to all staff
systems to prevent bribery and corruption as well as third parties.
or money laundering, could result In 2017 we engaged an independent
in prosecution, fines or penalties consultant to assess our anti-bribery
imposed on the Company or its officers, and corruption ("ABC") policies,
suspension of operations or listing. procedures and practices and in
Inability to clear KYC procedures 2018 we engaged KPMG to conduct
to satisfaction of the third parties a forensic review of procurement
may result in refusal to engage of legal services and subsequent
in business relationships with the payments made to legal advisors
Company. Given the Group's share in Ukraine in 2017. Recommendations
register the risk of withdrawal arising from both have been implemented
of banking facilities is increasing. to further strengthen our ABC framework.
This included completion of a full
Bribery Risk Assessment. Senior
and higher-risk staff are required
to complete annual declaration statements
confirming that they have understood
the company's ethical policies and
have complied with them.
In dealing with third parties, our
policy is to maximise transparency
and provide all information available
to address KYC-related procedures
and requests.
The Company is in ongoing discussions
with the FCA about the level of
shares in public hands which currently
stands at 21.9, below the 25% level
required by the Listing Rules.
---------------------------------------------- ----------------------------------------------
Commodity prices and FX fluctuations. JKX's policy is not to hedge commodity
Description: JKX is exposed to international price exposure on oil, gas, LPG
oil and gas price movements, policy or condensate and not to hedge foreign
developments in Russia which may exchange risk.
affect the regulated gas price and JKX attempts to maximise its realisations
movements in exchange rates. Such versus relevant benchmarks while
changes will have a direct effect keeping credit risk to a minimum
on the Group's trading results. by selling mostly on spot markets
Gas prices in Ukraine are closely and on a prepayment basis.
aligned with gas prices in Europe. As commodity prices in Ukraine closely
Ukraine does not currently purchase follow international benchmarks,
gas from Russia directly. Change significant changes in the exchange
in gas import flows may have impact rates are reflected in commodity
on gas prices in Ukraine, and a prices providing a natural hedge.
prolonged period of low gas prices In Russia, the vast majority of
would impact the Group's liquidity. gas produced is sold to a single
In Ukraine PPC sells the oil and local gas trading company through
gas it produces at prices determined a long term gas sales contract with
by a combination of the global oil prices set in Roubles. Sales price
market and local market factors. for gas is fixed and is subject
During 2020 the average price achieved to increase according to changes
fell significantly by comparisons in a tariff set by relevant regulatory
to the average price received in bodies. The Company continues to
2019 (2020 decline: Oil and condensate: seek other sales opportunities in
28%, Gas: 36%). Russia to improve realisations.
Foreign exchange risk has increased The Group attempts to match, as
following the significant devaluation far as practicable, receipts and
of the Ukrainian Hryvna and the payments in the same currency and
Russian Rouble through 2020. also follow a range of commercial
Impact: A period of low oil and/or policies to minimise exposures to
gas prices could lead to impairments foreign exchange gains and losses.
of the Group's oil and gas assets
and may impact the Group's ability
to support its field development
plans and reduce shareholder returns.
Continued volatility in the Hryvnia
and Rouble might affect the US Dollar
value of future profits, assets
and cash flows of the Group.
Consolidated income statement
For the year ended 31 December 2020
Note 2020 2019
$000 $000
Revenue 4 69,623 101,744
-------------------------------------------------------------------------------------------- ---- -------- --------
Cost of sales
-------------------------------------------------------------------------------------------- ---- -------- --------
Exceptional item - net reversal of provision for production based taxes 19 13,543 8,410
Other production based taxes 21 (13,783) (23,518)
Other cost of sales 21 (34,997) (41,264)
-------------------------------------------------------------------------------------------- ---- -------- --------
Total cost of sales 21 (35,237) (56,372)
-------------------------------------------------------------------------------------------- ---- -------- --------
Gross profit 34,386 45,372
-------------------------------------------------------------------------------------------- ---- -------- --------
Administrative expenses (10,119) (13,207)
Gain/(loss) on foreign exchange 1,048 (615)
-------------------------------------------------------------------------------------------- ---- -------- --------
Profit from operations before exceptional items 11,772 23,140
-------------------------------------------------------------------------------------------- ---- -------- --------
Profit from operations after exceptional items 25,315 31,550
-------------------------------------------------------------------------------------------- ---- -------- --------
Finance income 22 487 857
Finance costs 23 (951) (2,054)
Fair value movement on derivative liability 12 - 62
-------------------------------------------------------------------------------------------- ---- -------- --------
Profit before tax 24,851 30,415
Taxation - current 27 (3,303) (6,561)
Taxation - deferred
- before the exceptional items 27 3,692 (1,968)
- on the exceptional items 27 (4,370) (1,677)
-------------------------------------------------------------------------------------------- ---- -------- --------
Total taxation 27 (3,981) (10,206)
-------------------------------------------------------------------------------------------- ---- -------- --------
Profit from continuing operations (attributable to equity holders of the parent company) 20,870 20,209
-------------------------------------------------------------------------------------------- ---- -------- --------
(Loss)/profit from discontinued operation (attributable to equity holders of the parent
company),
net of tax 15 (1,002) 2,004
-------------------------------------------------------------------------------------------- ---- -------- --------
Profit for the year attributable to equity shareholders of the parent company 19,868 22,213
-------------------------------------------------------------------------------------------- ---- -------- --------
Note 2020 2019
in cents in cents
Earnings per share for profit from continuing
operations attributable to the ordinary
equity holders of the parent company:
---------------------------------------------- ---- --------- ---------
Basic and diluted profit per 10p ordinary
share
-after exceptional items 29 12.15 12.02
-before exceptional items 29 6.81 8.02
Earnings per share for (loss)/profit from
discontinued operations attributable to
the ordinary equity holders of the parent
company:
---------------------------------------------- ---- --------- ---------
Basic and diluted (loss) /profit per 10p
ordinary share
-after exceptional items 29 (0.58) 1.19
-before exceptional items 29 (0.40) (0.14)
Earnings per share for profit attributable
to the ordinary equity holders of the
parent company:
---------------------------------------------- ---- --------- ---------
Basic and diluted profit per 10p ordinary
share
-after exceptional items 29 11.57 13.21
-before exceptional items 29 6.41 7.88
Consolidated statement of comprehensive income
For the year ended 31 December 2020
2020 2019
$000 $000
Profit for the year 19,868 22,213
------------------------------------------------------------ -------- ------
Other comprehensive (loss)/income to be reclassified
to profit or loss in subsequent periods when specific
conditions are met:
- Currency translation differences (30,431) 21,481
Other comprehensive income that will not be reclassified
to profit or loss in subsequent periods:
- Remeasurements of post-employment benefit obligations (115) (94)
- Changes in the fair value of equity investments
at fair value through other comprehensive income - 500
------------------------------------------------------------ -------- ------
Other comprehensive (loss)/income for the year, net
of tax (30,546) 21,887
------------------------------------------------------------ -------- ------
Total comprehensive (loss)/income for the year attributable
to equity shareholders of the parent company (10,678) 44,100
Continuing operations (9,676) 42,096
------------------------------------------------------------ -------- ------
Discontinued operations (1,002) 2,004
------------------------------------------------------------ -------- ------
Consolidated statement of financial position
As at 31 December 2020
Note 2020 2019
$000 $000
ASSETS
Non-current assets
Property, plant and equipment 5(a) 173,913 215,728
Deferred tax assets 28 9,451 8,012
Investment 6 500 500
------------------------------------------------- ---- --------- ---------
183,864 224,240
------------------------------------------------- ---- --------- ---------
Current assets
Inventories 7 4,358 6,915
Trade and other receivables 8 3,661 3,931
Cash and cash equivalents 9 24,329 20,629
------------------------------------------------- ---- --------- ---------
32,348 31,475
------------------------------------------------- ---- --------- ---------
Assets classified as held for sale 15 3,186 3,187
------------------------------------------------- ---- --------- ---------
Total current assets 35,534 34,662
------------------------------------------------- ---- --------- ---------
Total assets 219,398 258,902
------------------------------------------------- ---- --------- ---------
LIABILITIES
Current liabilities
Current tax liabilities (877) (1,941)
Trade and other payables 10 (9,332) (14,158)
Lease liabilities 13 (401) (1,461)
Borrowings 11 - (5,683)
Provisions 19 (15,911) (15,861)
(26,521) (39,104)
------------------------------------------------- ---- --------- ---------
Liabilities of disposal group classified as held
for sale 15 (286) (287)
------------------------------------------------- ---- --------- ---------
Total current liabilities (26,807) (39,391)
------------------------------------------------- ---- --------- ---------
Non-current liabilities
Provisions 19 (10,931) (31,769)
Defined pension benefit plan 20 (922) (859)
Lease liabilities 13 (358) (628)
Deferred tax liabilities 28 (3,518) -
------------------------------------------------- ---- --------- ---------
(15,729) (33,256)
------------------------------------------------- ---- --------- ---------
Total liabilities (42,536) (72,647)
------------------------------------------------- ---- --------- ---------
Net assets 176,862 186,255
------------------------------------------------- ---- --------- ---------
EQUITY
Share capital 17 26,666 26,666
Share premium 97,476 97,476
Other reserves 18 (181,282) (150,736)
Retained earnings 234,002 212,849
------------------------------------------------- ---- --------- ---------
Total equity 176,862 186,255
------------------------------------------------- ---- --------- ---------
These financial statements were approved by the Board of
Directors on 31 March 2021 and signed on its behalf by:
Victor Gladun Dmytro Piddubnyy
Chief Executive Officer Chief Financial Officer
Consolidated statement of changes in equity
For the year ended 31 December 2020
Attributable to equity shareholders
of the parent
Share Share Retained Other Total
reserves
capital premium Earnings (Note equity
18)
$000 $000 $000 $000 $000
---------------------------------------- ---------- ---------- ---------- --------- --------
At 1 January 2020 26,666 97,476 212,849 (150,736) 186,255
Profit for the year - - 19,868 - 19,868
Exchange differences arising
on translation of overseas operations - - - (30,431) (30,431)
Remeasurement of post-employment
benefit obligations - - - (115) (115)
Total comprehensive (loss)/income
attributable to equity shareholders
of the parent - - 19,868 (30,546) (10,678)
---------------------------------------- ---------- ---------- ---------- --------- --------
Transactions with equity shareholders
of the parent
Sale of shares held by Employee
Benefit Trust (Note 16) - - 1,285 - 1,285
---------- ---------- ---------- --------- --------
Total transactions with equity
shareholders of the parent - - 1,285 - 1,285
---------------------------------------- ---------- ---------- ---------- --------- --------
At 31 December 2020 26,666 97,476 234,002 (181,282) 176,862
---------------------------------------- ---------- ---------- ---------- --------- --------
At 1 January 2019 26,666 97,476 190,163 (172,623) 141,682
Profit for the year - - 22,213 - 22,213
Exchange differences arising
on translation of overseas operations - - - 21,481 21,481
Remeasurement of post-employment
benefit obligations - - - (94) (94)
Changes in the fair value of
equity investments at fair value
through other comprehensive income - - - 500 500
---------------------------------------- ---------- ---------- ---------- --------- --------
Total comprehensive income attributable
to equity shareholders of the
parent - - 22,213 21,887 44,100
---------------------------------------- ---------- ---------- ---------- --------- --------
Transactions with equity shareholders
of the parent
Share-based payment charge - - 14 - 14
Exercise of share options (Note
26) - - 17 - 17
Sale of shares held by Employee
Benefit Trust (Note 16) - - 442 - 442
---------------------------------------- ---------- ---------- ---------- --------- --------
Total transactions with equity
shareholders of the parent - - 473 - 473
---------------------------------------- ---------- ---------- ---------- --------- --------
At 31 December 2019 26,666 97,476 212,849 (150,736) 186,255
---------------------------------------- ---------- ---------- ---------- --------- --------
Share premium represents the amounts received by the Company on
the issue of its shares which were in excess of the nominal value
of the shares.
Retained earnings represent the cumulative net gains and losses
recognised in the statement of comprehensive income less any
amounts reflected directly in other reserves.
Other reserves - please refer to the Note 18 for the
details.
Consolidated statement of cash flows
For the year ended 31 December 2020
Note 2020 2019
$000 $000
Cash flows from operating activities
Cash generated from continuing operations 31 28,938 41,386
Cash generated from/(used) in discontinued operations 15 300 (176)
Interest paid (381) (1,131)
Income tax paid (4,250) (7,090)
------------------------------------------------------ ---- -------- --------
Net cash generated from operating activities 24,607 32,989
------------------------------------------------------ ---- -------- --------
Cash flows from investing activities
Interest received 487 818
Dividend received - 27
Proceeds from sale of property, plant and equipment 120 47
Purchase of property, plant and equipment (13,389) (27,380)
------------------------------------------------------ ---- -------- --------
Net cash used in investing activities (12,782) (26,488)
------------------------------------------------------ ---- -------- --------
Cash flows from financing activities
Restricted cash movement - 211
Exercise of share options - 17
Sale of shares held by Employee Benefit Trust 1,285 442
Repayment of borrowings (5,440) (5,280)
Principal paid on lease liabilities (1,661) (1,776)
------------------------------------------------------ ---- -------- --------
Net cash used in financing activities (5,816) (6,386)
------------------------------------------------------ ---- -------- --------
Increase in cash and cash equivalents in the year 6,009 115
Cash and cash equivalents at 1 January 20,725 19,455
Effect of exchange rates on cash and cash equivalents (2,009) 1,155
------------------------------------------------------ ---- -------- --------
Cash and cash equivalents at 31 December 24,725 20,725
------------------------------------------------------ ---- -------- --------
Cash and cash equivalents in continuing operations
at the end of the year 9 24,329 20,629
------------------------------------------------------ ---- -------- --------
Cash and cash equivalents in discontinued operations
at the end of the year 15 396 96
------------------------------------------------------ ---- -------- --------
Notes to consolidated financial statements
1. General information
JKX Oil & Gas plc (the ultimate parent of the Group
hereafter, 'the Company') is a public limited company listed on the
London Stock Exchange which is domiciled and incorporated in
England and Wales under the UK Companies Act. The registered number
of the Company is 3050645. The registered office is 6 Cavendish
Square, London, W1G 0PD and the principal place of business is
disclosed in the introduction to the Annual Report.
The principal activities of the Company and its subsidiaries
(the 'Group') are the exploration for, appraisal and development of
oil and gas reserves.
2. Basis of preparation
The financial information set out herein does not constitute the
Group's statutory financial statements for the year ended 31
December 2020, but is derived from the Group's audited financial
statements. The auditors have reported on the 2020 financial
statements and their reports were unqualified and did not contain
statements under s498(2) or (3) Companies Act 2006, nor did they
contain a material uncertainty in relation to going concern. The
2020 Annual Report was approved by the Board of Directors on 31
March 2021, and will be mailed to shareholders in April 2021. The
financial information in this statement is audited but does not
have the status of statutory accounts within the meaning of Section
434 of the Companies Act 2006.
The Group's consolidated financial statements, which form part
of the 2020 Annual Report, have been prepared in accordance with
international accounting standards in conformity with the
requirements of the Companies Act 2006. The consolidated financial
statements have been prepared under the historical cost convention
as modified for derivative financial instruments held at fair value
through profit and loss plus equity investments held at fair value
through other comprehensive income. The Group financial information
is presented in US Dollars ($) and rounded to the nearest
thousand.
The Group's financial statements have been prepared and approved
by the directors in accordance with International Financial
Reporting Standards, International Accounting Standards and
Interpretations (collectively "IFRS") applied in accordance with
the provisions of the Companies Act 2006. The Group's financial
statements have been prepared under the historical cost convention,
as modified for derivative instruments held at fair value through
profit or loss plus equity investments at fair value through other
comprehensive income (FVOCI). The principal accounting policies
adopted by the Group are set out below.
Going concern
The Directors note that the Group is debt free and has generated
$29m of operating cash flow in 2020 with $24.3m of cash held at 31
December 2020. In addition, the Group benefits from an undrawn
Tascombank loan facility of UAH280m ($9.9m) and overdraft facility
of UAH50m ($1.8m) that were both renewed in December 2019, although
each draw down is subject to credit approval by the bank.
Additionally, in July 2020 the Group secured a $5.0m facility with
Alfa-Bank, although draw downs are conditional on credit approval
by the bank and tranches are repayable 2 months from draw down.
Please refer to Note 11 for the major terms of the credit
facilities.
In response to the reduced commodity prices in 2020 the Group
has taken measures to reduce operating costs and deferred
discretionary capex whilst implementing rigorous policies and
protocols to enable its Ukrainian and Russian operations to operate
safely and effectively despite the COVID-19 pandemic. Production
has continued without significant disruption through the year and
the Board notes that whilst oil and gas prices remain reduced
compared to the pre-COVID-19 period the market is now
improving.
The Board have reviewed the Group's forecast cash flows,
sensitivities and combined stress case scenarios for a period of at
least the next 12 months. In doing so, the Board considered risks
and uncertainties associated with COVID-19 and the probability of
those occurring noting the additional information available to
assess such risks following the development of the pandemic over
recent months. Factors considered included a) potential for further
government led restrictions, illness amongst our workforce and
disruption to supply chain and sales channels; b) market volatility
in respect of commodity prices; and c) the Group's ability to
utilise its credit facilities.
The forecasts have been based on approved operational budgets.
Gas prices in the regulated Russian market have been forecasted
based on recent prices and contractual terms, oil price assumptions
in Ukraine have been forecast at a discount to current market
forward curves and Ukrainian gas prices have been estimated
conservatively considering market prices, seasonal gas price trends
and market outlooks.
The forecast cash flows reviewed include scenarios where
potential liabilities arise in relation to the rental fee claims in
Ukraine (see Note 27 to the consolidated financial statements) that
the Group continues to contest. This included assessments of the
timing of such potential payments that may fall due in the forecast
period following detailed analysis of Ukrainian legislation and the
status of each claim with internal and external legal and tax
experts, notwithstanding the previous experience of continued
delays in the court proceedings.
The Board further considered separate scenarios including: a)
the effect of reductions in Ukrainian oil and gas prices of 20% on
the base case, noting that the base case pricing is below market
prices, sustained across the forecast period; and b) the impact of
temporary disruption to operations associated with the potential
for localised COVID-19 cases albeit operations have continued
uninterrupted to date and the nature of the operations reduces the
risk of such an eventuality. The rental claims stress test scenario
is based on the estimated earliest payment dates when the payments
fall due. This case was combined with both scenarios listed above.
All reasonably possible forecasts demonstrate that significant cash
balances are maintained under such scenarios and they would be
sufficient to meet such obligations as they fall due.
Based on the Group's cash flow forecasts, the Directors believe
that the combination of its current cash balances, net cash flows
from operations and undrawn facilities mean that the Group will be
able to meet its liabilities and commitments as they fall due
across the forecast period. Accordingly the Board considers it is
appropriate to adopt the going concern basis of accounting in
preparing these financial statements.
Adoption of new and revised standards
New standards, interpretations and amendments effective from 1
January 2020
The disclosed policies have been applied consistently by the
Group for both the current and previous financial year with the
exception of the new standards adopted.
The IFRS financial information has been drawn up on the basis of
accounting policies consistent with those applied in the financial
statements for the year to 31 December 2019, except for the
following:
(a) Definition of Material - Amendments to IAS 1 and IAS 8;
(b) Definition of a Business - Amendments to IFRS 3;
(c) Interest Rate Benchmark Reform - Amendments to IFRS 7, IFRS 9 and IAS 39;
(d) Revised Conceptual Framework for Financial Reporting;
(e) COVID-19-related Rent Concessions - Amendments to IFRS 16.
The application of the above standards has had no impact on the
disclosures or the amounts recognised in the Group's consolidated
financial statements.
New standards, interpretations and amendments not yet
effective
Below is a list of new and revised IFRSs that are not yet
mandatorily effective (but allow early application) for the year
ending 31 December 2020 and have not been early adopted by the
Group. These standards are not expected to have a material impact
on the Group in the future reporting periods and on foreseeable
future transactions.
Effective
for annual
periods
beginning
on or after
------------------------------------------------------------ ------------
Property, Plant and Equipment: Proceeds before intended 01-Jan-22
use - Amendments to IAS 16
------------------------------------------------------------ ------------
Reference to the Conceptual Framework - Amendments to IFRS 01-Jan-22
3
------------------------------------------------------------ ------------
Onerous Contracts - Cost of Fulfilling a Contract Amendments 01-Jan-22
to IAS 37
------------------------------------------------------------ ------------
Annual Improvements to IFRS Standards 2018-2020 01-Jan-22
------------------------------------------------------------ ------------
Classification of Liabilities as Current or Non-current 01-Jan-23
- Amendments to IAS 1
------------------------------------------------------------ ------------
IFRS 17, 'Insurance contracts' 01-Jan-23
------------------------------------------------------------ ------------
3. Significant accounting policies
Basis of consolidation
The consolidated financial statements incorporate the financial
statements of the Company and entities controlled by the Company
(its subsidiaries) made up to 31 December each year. All intragroup
balances, transactions, income and expenses and profits or losses,
including unrealised profits arising from intragroup transactions,
have been eliminated on consolidation.
Subsidiaries are all entities (including structured entities)
over which the Group has control. The Group controls an entity when
the Group is exposed to, or has rights to, variable returns from
its involvement with the entity and has the ability to affect those
returns through its power over the entity. Subsidiaries are fully
consolidated from the date on which control is transferred to the
Group. They are deconsolidated from the date that control ceases.
The consolidated financial statements include all the assets,
liabilities, revenues, expenses and cash flows of the Companies and
their subsidiaries after eliminating intragroup transactions as
noted above. Uniform accounting policies are applied across the
Group.
Foreign currencies
All amounts in these financial statements are presented in
thousands of US dollars, unless otherwise stated. The presentation
currency of the Group is the US Dollar.
Each entity in the Group is measured using the currency of the
primary economic environment in which the entity operates ('the
functional currency'). Foreign currency transactions are translated
into functional currency using the exchange rates prevailing at the
dates of the transactions or valuation where items are re-measured.
Foreign exchange gains and losses resulting from the settlement of
such transactions and from translation at year-end exchange rates
of monetary assets and liabilities denominated in foreign
currencies are recognised in the income statement.
The effect of a change in functional currency is accounted for
prospectively. The Group translates all items into the new
functional currency using the exchange rate at the date of the
change. The resulting translated amounts for non-monetary items are
treated as their historical cost.
On consolidation of subsidiaries and joint operations with a non
US Dollar presentation currency, their statements of financial
position are translated into US Dollar at the closing rate and
income and expenses at the average monthly rate. All resulting
exchange differences arising in the period are recognised in other
comprehensive income, and cumulatively in the Group's translation
reserve. Such translation differences are reclassified to profit or
loss in the period in which any such foreign operation is disposed
of.
Subsidiaries within the Group hold monetary intercompany
balances for which settlement is neither planned nor likely to
occur in the foreseeable future and thus this is considered to be
part of the Group's net investment in the relevant subsidiary. An
exchange difference arises on translation in the company income
statement which on consolidation is recognised in equity, only
being recognised in the income statement on the disposal of the net
investment.
The major exchange rates used for the revaluation of the closing
statement of financial position at 31 December 2020 were $1:GBP0.73
(2019: $1:GBP0.76), $28.27 Hryvnia (2019: $1: 23.69 Hryvnia), $1:
73.88 Roubles (2019: $1: 61.91 Roubles), $1: 296.81 Hungarian
Forint (2019: $1: 294.43 Hungarian Forint).
Goodwill and fair value adjustments arising on acquisition are
treated as assets/liabilities of the foreign entity and translated
at the closing rate.
Property, plant and equipment and other intangible assets
Property plant and equipment comprises the Group's tangible oil
and gas assets together with computer equipment, motor vehicles and
other equipment and are carried at cost, less any accumulated
depreciation and accumulated impairment losses. Cost includes
purchase price and construction costs for qualifying assets,
together with borrowing costs where applicable, in accordance with
the Group's accounting policy. Depreciation of these assets
commences when the assets are ready for their intended use.
Oil and gas assets
Exploration, evaluation and development expenditure is accounted
for under the 'successful efforts' method. The successful efforts
method means that only costs which relate directly to the discovery
and development of specific oil and gas reserves are
capitalised.
Exploration and evaluation costs are valued at costs less
accumulated impairment losses and capitalised within intangible
assets. Development expenditure on producing assets is accounted
for in accordance with IAS 16, 'Property, plant and equipment'.
Costs incurred prior to obtaining legal rights to explore are
expensed immediately to the income statement.
All lease and licence acquisition costs, geological and
geophysical costs and other direct costs of exploration, evaluation
and development are capitalised as intangible assets or property
plant and equipment according to their nature. Intangible assets
are not amortised and comprise costs relating to the exploration
and evaluation of properties which the Directors consider to be
unevaluated until reserves are appraised as commercial, at which
time they are transferred to property plant and equipment following
an impairment review and are depreciated accordingly. Where
properties are appraised to have no commercial value, the
associated costs are treated as an impairment loss in the period in
which the determination is made.
Costs related to hydrocarbon production activities including
production plants and capital spares are depreciated on a field by
field unit of production method based on commercial proved plus
probable reserves of the production licence, except in the case of
assets whose useful life differs from the lifetime of the field,
which are depreciated on a straight-line basis over their
anticipated useful life of up to 10 years.
For assets under construction depreciation begins when the
assets are available for use and continues until the assets are
derecognised, even if it is idle.
The calculation of the 'unit of production' depreciation takes
account of estimated future development costs. The 'unit of
production' rate is set at the beginning of each accounting period.
Changes in reserves and cost estimates are recognised prospectively
applied from the date of the Board approval of revised field
development plans.
Other assets
Depreciation is charged so as to write off the cost, less
estimated residual value, over their estimated useful lives, using
the straight-line method, for the following classes of assets:
Motor vehicles - 4 years
------------------ ---------
Computer equipment - 3 years
------------------ ---------
Other equipment - 5 to
10 years
------------------ ---------
The estimated useful lives of property plant and equipment and
their residual values are reviewed on an annual basis and, if
necessary, changes in useful lives are accounted for prospectively.
Assets under construction are not subject to depreciation until the
date on which the Group makes them available for use.
The gain or loss arising on the disposal or retirement of an
asset is determined as the difference between the sales proceeds
and the carrying amount of the asset and is recognised in the
income statement for the relevant period.
Business combinations
The acquisition of subsidiaries is accounted for using the
purchase method. The cost of the acquisition is measured at the
aggregate of the fair values, at the date of exchange, of assets
given, liabilities incurred or assumed and equity instruments
issued by the Group in exchange for control of the acquiree. The
acquiree's identifiable assets, liabilities and contingent
liabilities that meet the criteria for recognition under IFRS 3
(revised) are recognised at their fair value at the acquisition
date. In a business combination achieved in stages, the previously
held equity interest in the acquiree is re-measured at its
acquisition date fair value and the resulting gain or loss, if any,
is recognised in the income statement. Acquisition costs are
expensed.
Goodwill is recognised as an asset and is initially measured at
cost being the excess of the cost of the business combination over
the Group's share in the net fair value of the acquiree's
identifiable assets, liabilities and contingent liabilities. After
initial recognition, goodwill is measured at cost less any
accumulated impairment losses. Goodwill impairment reviews are
undertaken annually or more frequently if events or changes in
circumstances indicate a potential impairment. Impairment losses on
goodwill are not reversed.
On disposal of a subsidiary or joint arrangement, the
attributable amount of unamortised goodwill, which has not been
subject to impairment, is included in the determination of the
profit or loss on disposal.
Non-current assets held for sale and discontinued operations
A discontinued operation is a component of the entity that has
been disposed of or is classified as held for sale and that
represents a separate major line of business or geographical area
of operations, is part of a single co-ordinated plan to dispose of
such a line of business or area of operations, or is a subsidiary
acquired exclusively with a view to resale.
Non-current assets (or disposal groups) are classified as held
for sale if their carrying amount will be recovered principally
through a sale transaction rather than through continuing use and a
sale is considered highly probable.
For the sale to be highly probable, the appropriate level of
management must be committed to a plan to sell the asset (or
disposal group), and an active programme to locate a buyer and
complete the plan must have been initiated. Further, the asset (or
disposal group) must be actively marketed for sale at a price that
is reasonable in relation to its current fair value. In addition,
the sale should be expected to qualify for recognition as a
completed sale within one year from the date of classification, and
actions required to complete the plan should indicate that it is
unlikely that significant changes to the plan will be made or that
the plan will be withdrawn. The probability of shareholders'
approval should be considered as part of the assessment of whether
the sale is highly probable.
Events or circumstances may extend the period to complete the
sale beyond one year. An extension of the period required to
complete a sale does not preclude an asset (or disposal group) from
being classified as held for sale if the delay is caused by events
or circumstances beyond the entity's control and there is
sufficient evidence that the entity remains committed to its plan
to sell the asset (or disposal group).
Non-current assets held for sale and discontinued operations are
measured at the lower of their carrying amount and fair value less
costs to sell, except for assets such as deferred tax assets, and
financial assets within the scope of IFRS 9, which are specifically
exempt from this requirement. An asset classified as held for sale
is not depreciated.
Non-current assets classified as held for sale and the assets of
a disposal group classified as held for sale are presented
separately from the other assets in the statement of financial
position. The liabilities of a disposal group classified as held
for sale are presented separately from other liabilities in the
statement of financial position.
Any gain or loss from disposal, together with the results of
these operations until the date of disposal, is reported separately
as discontinued operations. The financial information of
discontinued operations is excluded from the respective captions in
the Consolidated financial statements and related notes for all
periods presented. Comparatives in the statement of financial
position are not represented when a non-current asset or disposal
group is classified as held for sale. Comparatives are represented
for presentation of discontinued operations in the Statement of
cash flow and Statement of comprehensive income. Further
information on discontinued operations and non-current assets held
for sale can be found in note 15 "Discontinued operations and
assets classified as held for sale".
Impairment of property, plant and equipment and intangible
assets
Whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable, the Group reviews the
carrying amounts of its property, plant and equipment and
intangible assets to determine whether there is any indication that
those assets have suffered an impairment loss. Individual assets
are grouped together as a cash-generating unit for impairment
assessment purposes at the lowest level at which their identifiable
cash flows, that are largely independent of the cash flows of the
other Groups assets, can be determined. A cash-generating unit is
the smallest group of assets that independently generates cash flow
and whose cash flow is largely independent of the cash flows
generated by other assets.
If any such indication of impairment exists the Group makes an
estimate of its recoverable amount.
The recoverable amount is the higher of fair value less costs of
disposal and value in use. Where the carrying amount of an
individual asset or a cash-generating unit exceeds its recoverable
amount, the asset/cash-generating unit is considered impaired and
is written down to its recoverable amount. Fair value less costs of
disposal is determined by discounting the post-tax cash flows
expected to be generated by the cash-generating unit, net of
associated selling costs, and takes into account assumptions market
participants would use in estimating fair value. In assessing the
recoverable amount, the estimated future cash flows are adjusted
for the risks specific to the asset/cash-generating unit and are
discounted to their present value that reflects the current market
indicators.
Where an impairment loss subsequently reverses, the carrying
amount of the asset/cash-generating unit is increased to the
revised estimate of its recoverable amount, but so that the
increased carrying amount does not exceed the carrying amount that
would have been determined had no impairment loss been recognised
for the asset (cash-generating unit) in prior years. A reversal of
an impairment loss is recognised as income immediately.
Borrowing costs
Borrowing costs directly attributable to the acquisition,
construction or production of qualifying assets, which are assets
that necessarily take a substantial period of time to get ready for
their intended use or sale, are added to the cost of those assets,
until such time as the assets are substantially ready for their
intended use or sale.
All other finance costs, which include interest on borrowings
calculated using the effective interest method, obligations under
leases, the unwinding effect of the effect of discounting
provisions and exchange differences, are recognised in the income
statement in the period in which they are incurred.
JKX Employee Benefit Trust
The JKX Employee Benefit Trust was established in 2013 to hold
ordinary shares purchased to satisfy various new share scheme
awards made to the employees of the Company which will be
transferred to the members of the scheme on their respective
vesting dates subject to satisfying the performance conditions of
each scheme.
When shares are sold or reissued subsequently, the amount
received is recognised as an increase in equity, and the resulting
surplus or deficit on the transaction is presented in retained
earnings. No gain or loss is recognised in the financial statements
on the purchase, sale, issue or cancellation of these shares.
Financial instruments
Financial assets and financial liabilities are recognised in the
consolidated statement of financial position when the Group becomes
party to the contractual provisions of the instrument.
Convertible bonds due 2020 - embedded derivative
The net proceeds received from the issue of convertible bonds at
the date of issue have been split between two elements: the host
debt instrument classified as a financial liability in Borrowings,
and the embedded derivative.
The fair value of the embedded derivative has been calculated
first and the residual value is assigned to the host debt
liability. The difference between the proceeds of issue of the
convertible bonds and the fair value assigned to the embedded
derivative, representing the value of the host debt instrument, is
included as Borrowings and is not remeasured. The host debt
component is then carried at amortised cost and the fair value of
the embedded derivative is determined at inception and at each
reporting date with the fair value changes being recognised in
profit or loss.
Issue costs are apportioned between the host debt element
(included in Borrowings) and the derivative component of the
convertible bond based on their relative carrying amounts at the
date of issue.
The interest expense on the component included in Borrowings is
calculated by applying the effective interest method, with interest
recognised on an effective yield basis.
Upon redemption of convertible bonds by the Company in the
market, the difference between the repurchase cost and the total of
the carrying amount of the liability plus the repurchased embedded
option to convert is recorded in the income statement.
Convertible bonds are removed from the balance sheet when the
obligation specified in the contract is discharged. The difference
between the carrying amount of convertible bonds that has been
settled and the consideration paid, including any non-cash assets
transferred or liabilities assumed, is recognised in profit or loss
as other income or finance costs.
Equity investments at fair value through other comprehensive
income (FVOCI)
Investments in unquoted equity instruments are measured at fair
value through other comprehensive income as allowed by IFRS 9. The
Group has made an irrevocable election at the time of initial
recognition to account for the equity investment at fair value
through other comprehensive income (FVOCI). Movements in the
carrying amount are taken through OCI, except for the recognition
of impairment gains or losses, interest and dividends income and
foreign exchange gains and losses which are recognised in profit or
loss. There was no impact of reclassification on the carrying value
of its unlisted investment. Please refer to Note 6 for details.
Borrowings
Borrowings are initially measured at fair value, net of
transaction costs and are subsequently measured at amortised cost
using the effective interest method, with interest expense
recognised on an effective yield basis. The effective interest
method is a method of calculating the amortised cost of a financial
liability and of allocating interest expense over the relevant
period.
The effective interest rate is the rate that exactly discounts
estimated future cash payments through the expected life of the
financial liability, or, where appropriate, a shorter period.
Trade and other receivables
Trade and other receivables are recognised initially at their
transaction price in accordance with IFRS 9 and are subsequently
measured at amortised cost. The Group applies the simplified
approach to providing for expected credit losses (ECL) prescribed
by IFRS 9, which permits the use of the lifetime expected loss
provision for all trade receivables. Expected credit losses are
assessed on a forward looking basis. The loss allowance is measured
at initial recognition and throughout its life at an amount equal
to lifetime ECL. Any impairment is recognised in the income
statement within 'Administrative expenses'.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and current
balances with banks and similar institutions, which are readily
convertible to known amounts of cash. Cash equivalents are
short-term with an original maturity of less than 3 months.
Restricted cash
Restricted cash is disclosed separately on the face of the
statement of financial position and denoted as restricted when it
is not under the exclusive control of the Group.
Trade and other payables
Trade and other payables are initially measured at fair value,
and are subsequently measured at amortised cost, using the
effective interest rate method if the time value of money is
significant.
Financial liabilities and equity
Financial liabilities and equity instruments are classified
according to the substance of the contractual arrangements entered
into. An equity instrument is any contract that evidences a
residual interest in the assets of the Group after deducting all of
its liabilities. Equity instruments issued by the Company are
recorded at the proceeds received net of direct issue costs.
Inventories
Inventory is comprised of produced oil and gas and certain
materials and equipment that are acquired for future use such as:
parts for cars/trucks, field maintenance, overalls, hand-tools,
general materials, accessories, small value parts for production
equipment. The oil and gas is valued at the lower of average
production cost and net realisable value; the materials and
equipment inventory is valued at purchase cost. Cost comprises
direct materials and, where applicable, direct labour costs plus
attributable overheads based on a normal level of activity and
other costs associated in bringing the inventories to their present
location and condition. Cost is calculated using the weighted
average method. Net realisable value represents the estimated
selling price less all estimated costs of completion and costs to
be incurred in marketing, selling and distribution and any
provisions for obsolescence.
Taxation
Income tax expense represents the sum of current tax payable and
deferred tax.
The current tax payable is based on taxable profit for the year.
Taxable profit differs from net profit as reported in the income
statement because it excludes items of income or expense that are
taxable or deductible in other years and it further excludes items
that are never taxable or deductible. The Group's liability for
current tax is calculated using tax rates that have been enacted or
substantively enacted by the reporting date.
Tax is charged or credited in the income statement, except when
it relates to items charged or credited directly to equity or in
other comprehensive income, in which case the tax is also dealt
with in equity or other comprehensive income respectively.
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amount of assets and liabilities
in the financial statements and the corresponding tax base used in
the computation of taxable profit. Deferred tax liabilities are
generally recognised for all taxable temporary differences and
deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which
deductible temporary differences can be utilised. Such assets and
liabilities are not recognised if the temporary difference arises
from goodwill or from the initial recognition (other than in a
business combination) of other assets and liabilities in a
transaction that affects neither the tax profit nor the accounting
profit.
Deferred tax liabilities are recognised for taxable temporary
differences arising on investments in subsidiaries, and interests
in joint ventures, except where the Group is able to control the
reversal of the temporary difference and it is probable that the
temporary difference will not reverse in the foreseeable
future.
The carrying amount of deferred tax assets is reviewed at each
reporting date and reduced to the extent that it is no longer
probable that sufficient taxable profit will be available to allow
all or part of the asset to be recovered. Any such reduction shall
be reversed to the extent that it becomes probable that sufficient
taxable profit will be available.
Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset
realised based on tax rates and laws substantively enacted by the
reporting date. Deferred tax assets and liabilities are offset when
there exists a legal and enforceable right to offset and they
relate to income taxes levied by the same taxation authority and
the Group intends to settle its current tax assets and liabilities
on a net basis.
Segmental reporting
Operating segments are reported in a manner consistent with the
internal reporting provided to the Chief Operating Decision Maker.
The Chief Operating Decision Maker, who is responsible for
allocating resources and assessing performance of the operating
segments, has been identified as the Executive Directors of the
Group that make the strategic decisions.
Pension obligations
The liability recognised in the balance sheet in respect of
defined benefit pension plans is the present value of the defined
benefit obligation at the end of the reporting period. The defined
benefit obligation is calculated annually by an independent actuary
using the projected unit credit method.
The present value of the defined benefit obligation is
determined by discounting the estimated future cash outflows using
interest rates of government bonds that are denominated in the
currency in which the benefits will be paid (hryvnia), and that
have terms approximating to the terms of the related obligation.
Currently, there is no sufficiently developed market of bonds
denominated in hryvnia with a sufficiently long period of repayment
which would be consistent with an estimated period of payment of
all benefits. In such cases the Standard allows using current
market rates to discount respective short-term payments and
calculating the discount rate for long-term liabilities by
extending the current market rates along the yield curve.
The current service cost of the defined benefit plan, recognised
in the Income Statement, except where included in the cost of an
asset, reflects the increase in the defined benefit obligation
resulting from employee service in the current year, benefit
changes curtailments and settlements. Past-service costs are
recognised immediately in the Income Statement.
The net interest cost is calculated by applying the discount
rate to the net balance of the defined benefit obligation. This
cost is included in employee benefit expense in the Income
statement.
Actuarial gains and losses arising from experience adjustments
and changes in actuarial assumptions are charged or credited to
equity in other comprehensive income in the period in which they
arise.
Share options
The group operates an equity-settled, share-based compensation
plan, under which the Company receives services from Senior
Management as consideration for equity instruments (options) of the
group. The fair value of the services received from Senior
Management in exchange for the grant of the options is recognised
as an expense. The total amount to be expensed is determined by
reference to the fair value of the options granted:
-- including any market performance conditions (for example, the
Company's share price);
-- excluding the impact of any service and non-market
performance vesting conditions (for example, profitability, sales
growth targets and remaining an employee of the entity over a
specified time period); and
-- including the impact of any non-vesting conditions (for
example, the requirement for employees to save).
Non-market performance and service conditions are included in
assumptions about the number of options that are expected to vest.
The total expense is recognised over the vesting period, which is
the period over which all of the specified vesting conditions are
to be satisfied.
In addition, in some circumstances employees may provide
services in advance of the grant date and therefore the grant date
fair value is estimated for the purposes of recognising the expense
during the period between service commencement period and grant
date.
At the end of each reporting period, the group revises its
estimates of the number of options that are expected to vest based
on the non-market vesting conditions. It recognises the impact of
the revision to original estimates, if any, in the income
statement, with a corresponding adjustment to equity.
When the options are exercised, the company issues new shares or
shares held by the JKX Employee Benefit Trust. The proceeds
received net of any directly attributable transaction costs are
credited to share capital (nominal value) and share premium.
The grant by the Company of options over its equity instruments
to the employees of subsidiary undertakings in the group is treated
as a capital contribution. The fair value of employee services
received, measured by reference to the grant date fair value, is
recognised over the vesting period as an increase to investment in
subsidiary undertakings, with a corresponding credit to equity in
the parent entity financial statements.
The social security contributions payable in connection with the
grant of the share options is considered an integral part of the
grant itself, and the charge will be treated as a cash-settled
transaction.
The rules regarding the scheme are described in the Remuneration
Report in Note 26 on share based payments.
Bonus scheme
The Group operates a bonus scheme for its employees. The bonus
payments are made annually, normally in January of each year and
the costs are accrued in the period to which they relate.
Pension costs
The Group contributes to the individual pension scheme of the
qualifying employees' choice. Contributions are charged to the
income statement as they become payable. The Group has no further
payment obligations once the contributions have been paid.
Decommissioning
Provision is made for the cost of decommissioning assets at the
time when the obligation to decommission arises. Such provision
represents the estimated discounted liability for costs which are
expected to be incurred in removing production facilities and site
restoration at the end of the producing life of each field. A
corresponding item of property plant and equipment is also created
at an amount equal to the provision. This is subsequently
depreciated as part of the capital costs of the production
facilities. Any change in the present value of the estimated
expenditure attributable to changes in the estimates of the cash
flow or the current estimate of the discount rate used are
reflected as an adjustment to the provision and the property plant
and equipment. Discount rates are based on governmental bonds which
will be redeemed around the end of field life. The unwinding of the
discount is recognised as a finance cost.
Provisions
Provisions are created where the Group has a present obligation
as a result of a past event, where it is probable that it will
result in an outflow of economic benefits to settle the obligation,
and where it can be reliably measured.
Provisions are measured at the best estimate of the expenditure
required to settle the obligation at the balance sheet date, and
are discounted to present value where the effect is material. Where
amounts provided for attract interest reflecting the appropriate
time value of money no discounting is applicable. The amounts
provided are based on the Group's best estimate of the likely
committed outflow.
Revenue recognition
Revenue from contracts with customers is recognised when or as
the Group satisfies a performance obligation by transferring a
promised good or service to a customer. A good or service is
transferred when the customer obtains control of that good or
service. The transfer of control of oil, natural gas, LPG,
condensate, and other items 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 and the amounts of revenue
recognised relating to performance obligations satisfied over time
are not material.
Revenue is measured at the fair value of the consideration
received, excluding discounts, rebates, value added tax ("VAT") and
other sales taxes or duty. Production based taxes are not included
in revenue, they are paid on production and recorded within cost of
sales.
Amounts received in advance for future gas sales are recorded as
contract liabilities and revenue is recognised as the performance
obligations are met.
Share capital and treasury shares
Ordinary shares are classified as equity. Incremental costs
directly attributable to the issue of ordinary shares are
recognised as a deduction from share premium, net of any tax
effects.
When share capital recognised as equity is repurchased, the
amount of the consideration paid, which includes directly
attributable costs, net of any tax effects, is recognised in
retained earnings.
Repurchased JKX Oil & Gas plc shares are classified as
treasury shares in shareholders' equity and are presented in the
retained earnings. The consideration paid, including any directly
attributable incremental costs is deducted from equity attributable
to the Company's equity holders until the shares are cancelled or
reissued.
When treasury shares are sold or reissued subsequently, the
amount received is recognised as an increase in equity, and the
resulting surplus or deficit on the transaction is presented in
retained earnings. No gain or loss is recognised in the financial
statements on the purchase, sale, issue or cancellation of treasury
shares.
Leases
At inception of a contract, the Group assesses whether a
contract is, or contains, a lease based on whether the contract
conveys the right to control the use of an identified asset for a
period of time in exchange for consideration.
The Group recognises a right-of-use asset and a lease liability
at the lease commencement date. The right-of-use asset is initially
measured based on the initial amount of the lease liability
adjusted for any lease payments made at or before the commencement
date, plus any initial direct costs incurred and an estimate of
costs to dismantle and remove the underlying asset or to restore
the underlying asset or the site on which it is located, less any
lease incentives received.
The asset is depreciated to the earlier of the end of the useful
life of the right-of-use asset or the lease term using the
straight-line method as this most closely reflects the expected
pattern of consumption of the future economic benefits. The lease
term includes periods covered by an option to extend if the Group
is reasonably certain to exercise that option. Lease terms range
from two to three years for offices. Service agreements for
equipment on the working sites are not considered leases as, based
upon an assessment of the terms and nature of their contractual
arrangements, the contracts do not convey the right to control the
use of an identified asset. In addition, the right-of-use asset is
periodically reduced by impairment losses, if any, and adjusted for
certain remeasurements of the lease liability.
The lease liability is initially measured at the present value
of the lease payments that are not paid at the commencement date,
discounted using the interest rate implicit in the lease or, if
that rate cannot be readily determined, entity specific incremental
borrowing rate. Generally, the Group uses entity specific
incremental borrowing rate as the discount rate. The lease
liability is measured at amortised cost using the effective
interest method. It is remeasured when there is a change in future
lease payments arising from a change in an index or rate, if there
is a change in the Group's estimate of the amount expected to be
payable under a residual value guarantee, or if the Group changes
its assessment of whether it will exercise a purchase, extension or
termination option. When the lease liability is remeasured in this
way, a corresponding adjustment is made to the carrying amount of
the right-of-use asset, or the effect is recorded in profit or loss
if the carrying amount of the right-of-use asset has been reduced
to zero.
Lease payments are allocated between principal and finance cost.
The finance cost is charged to profit or loss over the lease period
so as to produce a constant periodic rate of interest on the
remaining balance of the liability for each period.
The Group elected to apply the practical expedient not to
recognise right-of-use assets and lease liabilities for short-term
leases that have a lease term of 12 months or less and leases of
low-value assets. The Group also made use of the practical
expedient to not recognise a right-of-use asset or a lease
liability for leases for which the lease term ends within 12 months
of the date of initial application.
The lease payments associated with these leases are recognised
as an expense on a straight-line basis over the lease term.
The Group's well service and rental arrangements in Ukraine for
oil and gas extraction activities are outside of the scope of IFRS
16.
The Group did not elect to apply the practical expedient to
grandfather the assessment of which transactions are leases on the
date of initial application, as previously assessed under IAS 17
and IFRIC 4. The Group applied the definition of a lease under IFRS
16 to all existing contracts.
Dividends
Interim dividends are recognised when they are paid to the
Company's shareholders. Final dividends are recognised when they
are approved by shareholders.
Exceptional items
Exceptional items comprise items of income and expense,
including tax items, that are material either because of their size
or their nature and unlikely to recur and which merit separate
disclosure in order to provide an understanding of the Group's
underlying financial performance. Examples of events which may give
rise to the disclosure of material items of income and expense as
exceptional items include, but are not limited to litigation claims
by or against the Group and the restructuring of components of the
Group's operations. Exceptional items are disclosed separately in
the notes to the consolidated financial statements.
Critical accounting estimates, assumptions and judgements
The Group makes estimates, assumptions and judgements concerning
the future. The resulting accounting estimates will, by definition,
seldom equal the related actual results. The estimates, assumptions
and judgements that have a risk of causing material adjustment to
the carrying amounts of assets and liabilities within the next
financial year are discussed below.
a) Recoverability of oil and gas assets and intangible oil and
gas costs (Note 5 (a))
Costs capitalised as oil and gas assets in property, plant and
equipment, and intangible assets are assessed for impairment when
circumstances suggest that the carrying value may exceed its
recoverable value. As part of this assessment, management has
carried out an impairment test (ceiling test) on the oil and gas
assets classified as property, plant and equipment, where
indicators of impairment have been identified on a CGU. This test
compares the carrying value of the assets at the reporting date
with the expected discounted cash flows from each project prepared
under the fair value less cost of disposal approach. For the
discounted cash flows to be calculated, management has used a
production profile based on its best estimate of proven and
probable reserves of the assets and a range of assumptions,
including an internal oil and gas price profile benchmarked to mean
analysts' consensus and third party estimates and a discount rate
which, taking into account other assumptions used in the
calculation, management considers to be reflective of the risks.
This assessment involves judgement as to (i) the likely
commerciality of the asset, (ii) proven, probable ('2P') reserves
which are estimated using standard recognised evaluation techniques
(iii) future revenues and estimated development costs pertaining to
the asset, (iv) the discount rate to be applied for the purposes of
deriving a recoverable value including estimates of the relevant
levels of risk premiums applied to the assets. In cases where
impairment tests demonstrate headroom, reversals of impairment
charges are not recognised in the Group income statement if the
existence of the headroom is sensitive to pricing, production or
discount rates.
b) Depreciation of oil and gas assets (Note 5 (a))
Oil and gas assets held in property, plant and equipment are
mainly depreciated on a unit of production basis at a rate
calculated by reference to proved plus probable reserves and
incorporating the estimated future cost of developing and
extracting those reserves. Future development costs are estimated
using assumptions as to the numbers 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 based on the approved field development plans.
c) Taxation including rental fees and deferred tax assets (Notes
27 and 28)
Tax provisions are recognised when it is considered probable
that there will be a future outflow of funds to the tax
authorities. In this case, provision is made/reversed for the
amount that is expected to be settled or won. The provision is
updated at each reporting date by management by interpretation and
application of known local tax laws with the assistance of
established legal, tax and accounting advisors. These
interpretations can change over time depending on precedent set and
circumstances. In addition new laws can come into effect which can
conflict with others and, therefore, are subject to varying
interpretations and changes which may be applied retrospectively. A
change in estimate of the likelihood of a future outflow or in the
expected amount to be settled would result in a charge or credit to
income in the period in which the change occurs.
Tax provisions are based on enacted or substantively enacted
laws. To the extent that these change there would be a charge or
credit to income both in the period of charge, which would include
any impact on cumulative provisions, and in future periods.
Deferred tax assets are recognised only to the extent it is
considered probable that those assets will be recoverable. This
involves an assessment of when those deferred tax assets are likely
to reverse, and a judgement as to whether or not there will be
sufficient taxable profits available to offset the tax assets when
they do reverse. This requires assumptions regarding future
profitability and is therefore inherently uncertain. To the extent
assumptions regarding future profitability change, there can be an
increase or decrease in the level of deferred tax assets recognised
that can result in a charge or credit in the period in which the
change occurs.
d) Provisions for decommissioning costs (Note 19)
Estimates of the cost of future decommissioning and restoration
of production facilities are based on current legal and
constructive requirements, technology and price levels, while
estimates of when decommissioning will occur depend on assumptions
made regarding the economic life of fields which in turn depend on
such factors as oil and gas prices, decommissioning costs, discount
rates and inflation rates. Management reviewed the estimation
process and the basis for the principal assumptions underlying the
cost estimates, noting in particular the reasons for any major
changes in estimates as compared with the previous year. The Group
was satisfied that the approach applied was fair and reasonable.
The Group was also satisfied that the discount and inflation rates
used to calculate the provision were appropriate. The discount
rates were based on government bonds issued in the respective
countries.
e) Judgement used in the fair value of unlisted investments
(Note 6)
The fair value of financial instruments that are not traded in
an active market is determined by using valuation techniques. The
objective of a fair value measurement is to estimate the price at
which an orderly transaction would take place between market
participants under the market conditions that exist at the
measurement date. IFRS 13 requires that valuation techniques
maximise the use of observable inputs and minimise the use of
unobservable inputs. The Group has used a market approach to
estimate fair value of the unlisted investments. The Group used its
judgements to:
(i) select a valuation method - management considered two
valuation methods, market and income, in valuing its investment in
UNB, income approach was not selected based on the wide range of
information required and a high degree of judgement involved;
(ii) make assumptions that are based on market conditions
existing at the end of the reporting period - two other entities
that are similar to the UNB in terms of business activities and
location have been selected, assumptions were based on the latest
financial information available;
(iii) management applied its judgement to determine the point in
a range of values that is 'most representative of a fair value;
(iv) apply discount to each of the criteria to determine the fair value of UNB.
f) Enforcement of arbitration award (Note 27)
No asset has been recognised in respect of the arbitration award
due to the uncertainty inherent in the process for, and likely
success of, enforcing collection.
g) Exceptional items (Notes 19 and 27)
Judgment is required when determining whether items meet the
definition of 'exceptional' under the Group's accounting
policy.
Rental fee demands (Notes 19 and 27)
Provisions and reversals for August to December 2010 and January
to December 2015 rental fee claims have been included in
'exceptional items' due to their material, specific and unusual
nature and the Board considered that it was appropriate to
highlight these items to users of the financial statements. In
particular, the issues are considered to represent isolated
historical disputes that will not recur having related to specific
circumstances and discrete periods of time with production based
taxes currently paid at standard Ukrainian government rates. Whilst
the Board is cognisant that items should not be disclosed as
exceptional when they recur, in this instance the Board considered
items to be exceptional, because the underlying claims are not
anticipated to recur and the additional charges refer to accrual of
interest and penalties of the original claims.
Changes in the judgement about the timing of the provision
releases: during 2019 provisions were maintained for open cases
unless judgments of the Supreme Court of Ukraine had been received
in favour of PPC or appeals to this court were considered remote,
based on assessment of facts and circumstances at the time. During
2020 the Group has determined that it is now appropriate to release
provisions when first and appellate Court rulings have been
received in respect of the case (on its merits) in the Group's
favour. In reaching that conclusion Management have considered
their experience of the legal process to date, the fact that the
Supreme Court checks judgments of the first and appellate Courts
and cannot review any new facts or circumstances and have sought
advice from external counsel. Accordingly the risk of the lower
court judgments on the merits of the case being cancelled are
considered very low. Consequently the Group's Management have
released provisions after court judgments of first and appellate
instances in favour of PPC.
Non-current assets held for sale and discontinued operations
(Note 15)
Reversal of provision for impairment/(provision for impairment)
of Hungary has been included as an exceptional item in the profit
and loss from discontinued operations for 2019 and 2020
respectively as it was deemed non-recurring. The Group is in the
process of disposal of the Hungarian business unit and it is
classified as held for sale. Accordingly, given the divestment and
withdrawal strategy applicable to Hungary reversal of provision for
impairment/(provision for impairment) will not recur.
h) Non-current assets held for sale and discontinued operations
(Note 15)
Hungarian business unit has been classified as held for sale for
the period of more than 12 months. Judgment is required to
determine whether the asset should remain to be classified as held
for sale at 31 December 2020.
An extension of the period required to complete the sale does
not preclude the asset from being classified as held for sale as
the delay is caused by events and circumstances beyond the Group's
control and there is sufficient evidence that the Group remains
committed to its plan to sell the asset. Management reviewed the
classification criteria as defined by IFRS 5 and confirms that the
sale is highly probable and the Group remains committed to its plan
to sell the Hungarian business unit.
In February 2021 the Group signed Memorandum of Understanding
with a new potential buyer. The sale is expected to qualify for
recognition as a completed sale within one year from the date of
this Annual report.
4. Segmental analysis
The Group has one single class of business, being the
exploration for, evaluation, development and production of oil and
gas reserves. Accordingly the reportable operating segments are
determined by the geographical location of the assets and,
therefore all information is being presented for geographical
segments. This is consistent with the revenue information that is
disclosed for each reportable segment under IFRS 8 Operating
Segments.
There are four (2019: four) reportable operating segments which
are based on the internal reports provided to the Chief Operating
Decision Maker ('CODM'), the Group's Board of Directors. Ukraine
and Russia segments are involved with production and exploration;
the 'Rest of World' are involved in exploration, development and
production and the UK is the home of the head office and purchases
material, capital assets and services on behalf of other
segments.
The Group derives revenue from the transfer of goods at a point
in time.
Segment revenue, segment expense and segment results include
transfers between segments. Those transfers are eliminated on
consolidation.
Segment results and assets include items directly attributable
to the segment. Segment assets consist primarily of property, plant
and equipment, inventories and receivables. Capital expenditures
comprise additions to property, plant and equipment and intangible
assets.
UK Ukraine Russia Rest of World(1) Sub Total Eliminations Total
2020 $000 $000 $000 $000 $000 $000 $000
External revenue
Revenue by location of asset:
- Oil - 15,984 610 - 16,594 - 16,594
- Gas - 30,496 16,174 - 46,670 - 46,670
- Liquefied petroleum gas - 5,654 - - 5,654 - 5,654
- Other - 697 8 - 705 - 705
----------------------------------- ------- -------- --------- ---------------- --------- ------------ --------
- 52,831 16,792 - 69,623 - 69,623
----------------------------------- ------- -------- --------- ---------------- --------- ------------ --------
Inter segment revenue:
- Management services/other 503 - - - 503 (503) -
----------------------------------- ------- -------- --------- ---------------- --------- ------------ --------
503 - - - 503 (503) -
----------------------------------- ------- -------- --------- ---------------- --------- ------------ --------
Total revenue 503 52,831 16,792 - 70,126 (503) 69,623
----------------------------------- ------- -------- --------- ---------------- --------- ------------ --------
Profit/(loss) before tax:
Profit/(loss) from operations (4,138) 27,455 2,042 (84) 25,275 40 25,315
Finance income 487 - 487
Finance cost (951) - (951)
24,811 40 24,851
----------------------------------- ------- -------- --------- ---------------- --------- ------------ --------
Assets
Property, plant and equipment 206 96,065 77,642 - 173,913 - 173,913
Investment 500 - - - 500 - 500
Deferred tax - - 9,451 - 9,451 - 9,451
Inventories - 2,976 1,382 - 4,358 - 4,358
Trade and other receivables 245 1,409 2,001 6 3,661 - 3,661
Cash and cash equivalents 2,101 16,378 2,569 3,281 24,329 - 24,329
----------------------------------- ------- -------- --------- ---------------- --------- ------------ --------
Total assets(1) 3,052 116,828 93,045 3,287 216,212 - 216,212
----------------------------------- ------- -------- --------- ---------------- --------- ------------ --------
Total liabilities(1) (1,065) (37,281) (3,899) (5) (42,250) - (42,250)
----------------------------------- ------- -------- --------- ---------------- --------- ------------ --------
Non cash expense (other than
depreciation and impairment) 33 - - - 33 - 33
Exceptional item - net reversal of
provision for production based
taxes - 13,543 - - 13,543 - 13,543
Increase in property, plant and
equipment and intangible assets - 10,564 734 - 11,298 - 11,298
Depreciation, depletion and
amortisation (155) (12,122) (5,635) - 17,912 - 17,912
----------------------------------- ------- -------- --------- ---------------- --------- ------------ --------
(1) Total assets and liabilities exclude assets and liabilities
of the Hungarian disposal group classified as held for sale. Please
refer to Note 15 for details.
Major customers 2020 2019
$000 $000
Ukraine 9,751 -
Russia 16,111 17,231
---------------- ------ ------
There are two customers, one in Ukraine and one in Russia that
exceeds 10% of the Group's total revenues (2019: one customer in
Russia that exceeds 10% of the Group's total revenues).
Rest
UK Ukraine Russia of World(1) Sub Total Eliminations Total
2019 $000 $000 $000 $000 $000 $000 $000
External revenue
Revenue by location of
asset:
- Oil - 24,339 701 - 25,040 - 25,040
- Gas - 52,319 16,750 - 69,069 - 69,069
- Liquefied petroleum
gas - 6,562 - - 6,562 - 6,562
- Other - 1,055 18 - 1,073 - 1,073
------------------------------ --------- -------- ------- ------------ --------- ------------ --------
- 84,275 17,469 - 101,744 - 101,744
------------------------------ --------- -------- ------- ------------ --------- ------------ --------
Inter segment revenue:
- Management services/other 1,650 - - - 1,650 (1,650) -
------------------------------ --------- -------- ------- ------------ --------- ------------ --------
1,650 - - - 1,650 (1,650) -
------------------------------ --------- -------- ------- ------------ --------- ------------ --------
Total revenue 1,650 84,275 17,469 - 103,394 (1,650) 101,744
------------------------------ --------- -------- ------- ------------ --------- ------------ --------
Profit/(loss) before
tax:
Profit/(loss) from operations (6,922) 37,544 1,052 (236) 31,438 112 31,550
Finance income 857 - 857
Finance cost (2,054) - (2,054)
Derivative liability
written-off 62 - 62
------------------------------ --------- -------- ------- ------------ --------- ------------ --------
30,303 112 30,415
------------------------------ --------- -------- ------- ------------ --------- ------------ --------
Assets
Property, plant and equipment 365 116,734 98,629 - 215,728 - 215,728
Investment 500 - - - 500 - 500
Deferred tax - (172) 8,184 - 8,012 - 8,012
Inventories - 5,295 1,620 - 6,915 - 6,915
Trade and other receivables 349 1,603 1,973 6 3,931 - 3,931
Cash and cash equivalents 9,496 9,571 1,414 148 20,629 - 20,629
------------------------------ --------- -------- ------- ------------ --------- ------------ --------
Total assets(1) 10,710 133,031 111,820 154 255,715 - 255,715
------------------------------ --------- -------- ------- ------------ --------- ------------ --------
Total liabilities(1) (7,323) (57,980) (7,027) (30) (72,360) - (72,360)
------------------------------ --------- -------- ------- ------------ --------- ------------ --------
Non cash expense (other
than depreciation and
impairment) 229 214 118 - 561 - 561
Exceptional item - net
reversal of provision
for production based
taxes - 8,410 - - 8,410 - 8,410
Increase in property,
plant and equipment and
intangible assets - 20,850 9,104 - 29,954 - 29,954
Depreciation, depletion
and amortisation 246 13,049 5,922 - 19,217 - 19,217
------------------------------ --------- -------- ------- ------------ --------- ------------ --------
(2) Total assets and liabilities exclude assets and liabilities
of the Hungarian disposal group classified as held for sale. Please
refer to Note 15 for details.
5. Property, plant and equipment and Intangible assets
5.(a) Property, plant and equipment
Right-of
use assets Right-of
Oil and Gas - coil use assets
gas fields field tubing -
Other
Ukraine Russia Russia(1) assets properties(1) Total
2020 $000 $000 $000 $000 $000 $000
Group
Cost
At 1 January 697,472 225,408 2,159 19,001 1,353 945,393
Additions during the year 9,368 505 - 1,248 177 11,298
Foreign exchange (113,186) (36,452) (420) (639) (160) (150,857)
Disposal of property, plant
and equipment - - - (204) - (204)
------------------------------------ ----------- -------- ------------ ------- --------------- ---------
At 31 December 593,654 189,461 1,739 19,406 1,370 805,630
------------------------------------ ----------- -------- ------------ ------- --------------- ---------
Accumulated depreciation, depletion
and amortisation and provision
for impairment
At 1 January 582,383 128,545 1,177 17,228 332 729,665
Depreciation on disposals of
property, plant and equipment - - - (124) - (124)
Foreign exchange (94,425) (20,625) (281) (362) (43) (115,736)
Depreciation charge for the
year 11,724 4,563 843 403 379 17,912
At 31 December 499,682 112,483 1,739 17,145 668 631,717
------------------------------------ ----------- -------- ------------ ------- --------------- ---------
Carrying amount
------------------------------------ ----------- -------- ------------ ------- --------------- ---------
At 1 January 115,089 96,863 982 1,773 1,021 215,728
------------------------------------ ----------- -------- ------------ ------- --------------- ---------
At 31 December 2020 93,972 76,978 - 2,261 702 173,913
------------------------------------ ----------- -------- ------------ ------- --------------- ---------
(3) Right-of use assets relating to the Group's oil and gas
assets and property leases have been reclassified to be presented
separately. Please refer to Note 13 for the full disclosure on the
Right-of-use assets.
Oil and gas fields in Ukraine and Russia include $7.9m and nil
respectively relating to items under construction (2019: $7.8m and
$0.6m).
Oil and gas assets
Right-of
use assets
Oil and Gas - coil Right-of
gas fields field tubing use assets-
Other properties
Ukraine Russia Russia(1) assets (1) Total
2019 $000 $000 $000 $000 $000 $000
-------------------------------------- ----------- ------------ --------------- --------- ------------ -------
Group
Cost
At 1 January 578,094 192,952 - 17,755 - 788,801
Application of IFRS 16 - Right-of-use
assets - - 2,159 - 907 3,066
Additions during the year 19,924 8,887 - 1,143 446 30,400
Foreign exchange 99,454 23,579 - 510 - 123,543
Disposal of property, plant
and equipment - (10) - (407) - (417)
-------------------------------------- ----------- ------------ --------------- --------- ------------ -------
At 31 December 697,472 225,408 2,159 19,001 1,353 945,393
-------------------------------------- ----------- ------------ --------------- --------- ------------ -------
Accumulated depreciation, depletion
and amortisation and provision
for impairment
At 1 January 486,258 110,621 - 16,810 - 613,689
Depreciation on disposals of
property, plant and equipment - (10) - (195) - (205)
Foreign exchange 83,397 13,327 - 240 - 96,964
Depreciation charge for the
year 12,728 4,607 1,177 373 332 19,217
-------------------------------------- ----------- ------------ --------------- --------- ------------ -------
At 31 December 582,383 128,545 1,177 17,228 332 729,665
-------------------------------------- ----------- ------------ --------------- --------- ------------ -------
Carrying amount
-------------------------------------- ----------- ------------ --------------- --------- ------------ -------
At 1 January 91,836 82,331 - 945 - 175,112
-------------------------------------- ----------- ------------ --------------- --------- ------------ -------
At 31 December 2019 115,089 96,863 982 1,773 1,021 215,728
-------------------------------------- ----------- ------------ --------------- --------- ------------ -------
(4) Right-of use assets relating to the Group's oil and gas
assets and property leases have been reclassified to be presented
separately. Please refer to Note 13 for the full disclosure on
Right-of-use assets.
5.(b) Impairment test for property, plant and equipment
A review was undertaken at the reporting date of the carrying
amounts of property, plant and equipment to determine whether there
was any indication of a trigger that may have led to these assets
suffering an impairment loss. Following this review impairment
triggers were noted in relation to the Ukrainian assets due to the
significantly lower gas sales prices in 2020, and in relation to
both Ukrainian and Russian assets due to the carrying amount of the
Group net assets exceeding the Company's market capitalisation.
As there is no readily available market for the Group's oil and
gas properties, fair value is derived as the net present value of
the estimated future cash flows arising from the continued use of
the assets, incorporating assumptions that a typical market
participant would take into account.
The value in use of an oil and gas property is generally lower
than its Fair Value Less Costs of Disposal ('FVLCD') as value in
use reflects only those cash flows expected to be derived from the
asset in its current condition. FVLCD includes appraisal and
development expenditure that a market participant would consider
likely to enhance the productive capacity of an asset and optimise
future cash flows. Consequently, the Group determines recoverable
amount based on FVLCD using a Discounted Cash Flow ('DCF')
methodology.
The DCF was derived by estimating discounted after tax cash
flows for each CGU based on estimates that a typical market
participant would use in valuing such assets.
The impairment tests compared the recoverable amount of the
respective CGUs noted below to the respective carrying values of
their associated assets. The estimates of FVLCD meet the definition
of level three fair value measurements as they are determined from
unobservable inputs. The impairment tests were performed based on
conditions as at year end.
Impairment test for the Ukrainian oil and gas assets
Poltava Petroleum Company ('PPC'), a wholly owned subsidiary of
JKX, holds 100% interest in five production licences (Ignativske,
Movchanivske, Rudenkivske, Novomykolaivske, Elyzavetivske) and one
exploration licence (Zaplavska) in the Poltava region of
Ukraine.
The Ignativske, Movchanivske, Rudenkivske, Novomykolaivske
production licences contain one or more distinct fields which,
together with the Zaplavska exploration licence, form the
Novomykolaivske Complex ('NNC').
The Elyzavetivske production licence is located 45km from the
Novomykolaivske Complex and has its own gas production
facilities.
Ukrainian Cash Generating Units ('CGUs')
In respect of the Group's Ukraine assets the NNC forms a single
CGU as these contain oil and gas fields which are serviced by a
single processing facility and do not have separately identifiable
cash inflows. In addition they have commonality of facilities,
personnel and services.
The Elyzavetivske licence also has its own separate processing
facilities and separately identifiable cash flows and therefore is
a distinct CGU for the purpose of the impairment test. During 2015
an extension to the Elyzavetivske production licence was awarded to
PPC which included the West Mashivska field. Due to the proximity
of the West Mashivska field to the Elyzavetivske plant, production
will be tied back to the Elyzavetivske processing facilities and
therefore forms part of this CGU.
In accordance with IAS 36, the impairment review was undertaken
in Ukrainian hryvnia being the currency in which future cash flows
from NNC and Elyzavetivske will be generated.
Key Assumptions - NNC and Elyzavetivske
The key assumptions used in the impairment testing were:
-- Production profiles: these were based on the latest available
information assessed internally. Such information included 2P
reserves for NNC and Elyzavetivske of 22.4 MMboe and 2.3 MMboe,
respectively.
-- Economic life of field: it was assumed that the title to the
licences is retained based on legal right and that the NNC licence
term will be successfully extended beyond its current 2024
expiration date through to the economic life of the field (expected
to be around 2039). The economic life of the Elyzavetivske field is
currently expected to be around 2034 as per management's current
expectation.
-- Gas prices: during 2015 Ukraine acquired the ability to
purchase gas from Europe rather than being completely dependent on
Russia for imports. As such, Ukrainian gas prices are expected to
be more aligned with European gas prices in future but also
influenced by international oil prices. The gas price used for 2021
is based on estimates of gas prices to be realised by our Ukrainian
subsidiary determined considering external market forecasts as at
year end with consideration given the applicability or otherwise of
relevant pricing adjustments for the local market. For the period
of the model a forward gas price curve was used.
-- Oil prices: the Company used a forward price curve as at year
end for the next ten years and remaining constant thereafter.
-- Production taxes: the Company has assumed production tax
rates of 29% for gas and 31% for oil and condensate. A gas tax rate
of 12% is applied to wells drilled since 1 January 2018.
-- Capital and operating costs: these were based on current
operating and capital costs in Ukraine for both projects. Estimates
were provided by third parties and supported by estimates from our
own specialists, where necessary.
-- Post tax nominal discount rate of 16.6%. This was based on a
Capital Asset Pricing Model analysis consistent with that used in
previous impairment reviews.
Based on the key assumptions set out above:
-- the recoverable amount of NNC's oil and gas assets ($114.5m)
exceeds its carrying amount ($84.4m) by $30.1m and therefore NNC's
oil and gas assets were not impaired.
-- Elyzavetivske's recoverable amount (including the West
Mashivska extension) ($19.1m) exceeds its carrying amount ($9.3m)
by $9.8m, and therefore the CGU's oil and gas assets were not
impaired.
Sensitivity analysis for the NNC and Elyzavetivske
Any impairment is dependent on judgement used in determining the
most appropriate basis for the assumptions and estimates made by
management, particularly in relation to the key assumptions
described above. Sensitivity analysis to potential changes in key
assumptions has therefore been provided below.
The impact on the impairment calculation of applying different
assumptions to gas prices, production volumes, future capital
expenditure and post-tax discount rates, all other inputs remaining
equal, would be as follows:
NNC Elyzavetivske
Increase/(decrease) Increase/(decrease)
in headroom in headroom
of $29.3 for of $9.5m for
NNC CGU Elyzavetivske
$m CGU $m
Impact if gas and oil
prices: increased by 20% 38.7 5
reduced by 20% (38.8) (5.1)
---------------------------------------------------- -------------------- --------------------
Impact if gas and oil
production volumes: increased by 10% 25.5 2.5
decreased by 10% (25.5) (2.5)
---------------------------------------------------- -------------------- --------------------
Impact if future capital
expenditure: increased by 20% (14.2) (0.0)
decreased by 20% 14.2 0.0
---------------------------------------------------- -------------------- --------------------
Impact if post-tax increased by 2 percentage
discount rate: points to 18.6% (10.3) (0.9)
decreased by 2 percentage
points to 14.6% 11.9 1.0
---------------------------------------------------- -------------------- --------------------
Impairment test for Yuzhgazenergie LLC ('YGE'), Russia
Following the 2007 acquisition of YGE in Russia, a technical and
environmental re-evaluation of YGE's Koshekhablskoye gas field
redevelopment was undertaken by the Group. The re-evaluation
resulted in a revised development plan and production profile. The
development plan and production profile have continued to be
refined since that time.
In accordance with IAS 36, the impairment review has been
undertaken in Russian Roubles, which is the functional currency of
YGE.
Key Assumptions - YGE
The key assumptions used in the impairment testing were:
-- Production profiles: these were based on the latest available
information assessed internally including assessment of the results
of external reserve engineer audits in the year. Such information
included 2P reserves for YGE of 58.9 MMboe.
-- Economic life of field: it was assumed that YGE will be
successful in extending the licence term beyond its current 2026
expiration based on available legal right to the economic life of
the field (expected to be around 2063). The discounted cash flow
methodology used has not taken account of any opportunities that
may exist to extract reserves in a shorter timeframe by investing
to increase the current plant capacity.
-- Gas prices: from 1 July 2021 and annually thereafter, the gas
prices have been increased by 3.0% based on historical
experience.
-- Capital and operating costs: these were based on current
operating and capital costs in Russia, project estimates provided
by third parties and supported by estimates from our own
specialists, where necessary.
-- Post tax nominal Rouble discount rate of 12.1%. This was
based on a Capital Asset Pricing Model analysis consistent with
that used in previous impairment reviews.
Based on the key assumptions set out above YGE's recoverable
amount ($96.8m) exceeds it carrying amount of CGU's assets ($89.5m)
by $7.3m and therefore YGE's Koshekhablskoye gas field was not
impaired.
Any impairment is dependent on judgement used in determining the
most appropriate basis for the assumptions and estimates made by
management, particularly in relation to the key assumptions
described above. Sensitivity analysis to potential changes in key
assumptions has therefore been reviewed below.
The impact on the impairment calculation of applying different
assumptions to gas prices, production, future capital expenditure
and post-tax discount rates, all other inputs remaining equal,
would be as follows:
Sensitivity Analysis
Increase/(decrease) in headroom of
$20.0m for Yuzhgazenergie CGU
$m
Impact of Adygean gas price: growth rates increased by 10% annually 8.9
growth rates reduced by 10% annually (8.1)
------------------------------------------------------------------------------ -------------------------------------
Impact of production volumes: Increased by 10% 19.4
Decreased by 10% (19.3)
------------------------------------------------------------------------------ -------------------------------------
Impact of future capital expenditure: Increased by 20% (5.1)
Decreased by 20% 5.2
------------------------------------------------------------------------------ -------------------------------------
Increased by 1 percentage point to
Impact of post-tax discount rate: 13.1% (6.6)
Decreased by 1 percentage point to 11.1% 7.6
------------------------------------------------------------------------------ -------------------------------------
6. Investments
The carrying value of unlisted investments comprises:
2020 2019
$000 $000
PJSC of "Mining Company Ukrnaftoburinnya" - -
------------------------------------------ ------ ------
Linx Telecommunications Holding B.V. 500 500
------------------------------------------ ------ ------
500 500
------------------------------------------ ------ ------
Group unquoted equity investments comprise a 10% holding of the
ordinary share capital of PJSC of "Mining Company Ukrnaftoburinnya"
("UNB"), a Ukrainian oil and gas company, and a 1.43% holding of
the ordinary share capital of Linx Telecommunications Holding B.V.
("Linx"), a Netherlands telecommunications company. These
investments were previously measured at cost as allowed by IAS 39
(paragraph 46 (c)) and were fully impaired at 31 December 2017 and
had been for several years.
As of 1 January 2018 the Group's investments in equity
instruments were reclassified to financial assets at fair value
through other comprehensive income in accordance with the
provisions of IFRS 9. The Group has made an irrevocable election at
the time of initial recognition to account for the equity
investment at fair value through other comprehensive income
(FVOCI).
At 31 December 2020 the carrying value of UNB remained fully
impaired following assessment by the Board considering relevant
available information and valuation techniques, reflecting:
-- the lack of liquidity in the shares of UNB and considerations
regarding the nature of markets for such an investment;
-- the absence of any history of dividends or other returns on
the investment since acquisition in 2006 and the significant
uncertainty regarding future returns;
-- the absence of regular formal communication with UNB;
-- the level of uncertainty regarding any market valuation
method based on quoted Ukrainian oil and gas companies given key
differences in the respective businesses and corporate
structures;
-- the limited number of quoted Ukrainian oil and gas companies
that can be used for the market valuation approach, defined in IFRS
13; and
-- a paper prepared by a specialist third party advisor to the
Board of Directors noted the limited number of likely parties
potentially interested in purchasing the investment and the
difficulties in determining the consideration for which the
investment might be disposed generally.
At 31 December 2020 the carrying value of Linx was reported as
$0.5m (2019: $0.5m), with this valuation being based upon
management's expectation of future and final dividends to be
received from Linx in 2021. Management attends Linx shareholder
meetings and is in regular communication with its management.
Management understands that Linx continues to dispose of its
businesses units and dividend out all proceeds to shareholders
prior to a liquidation of the company. Previously dividends were
received during 2017 and 2019 of $0.1m and $0.03m respectively
after disposals of other business units. During 2020 the management
was informed about the negotiations that are ongoing with a
potential buyer for the other significant business units. The
carrying value of $0.5m is consistent with Linx management
expectations of consideration to be received for disposal of the
remaining business units and also with the most recent financial
statements of Linx.
7. Inventories
2020 2019
$000 $000
Warehouse inventory and materials 3,233 4,056
Oil and gas inventory 1,125 2,859
---------------------------------- ------ ------
4,358 6,915
---------------------------------- ------ ------
During the year there were no obsolete inventories written off
to profit and loss (2019: there were no obsolete inventories
written off to profit and loss).
8. Trade and other receivables
2020 2019
$000 $000
Trade receivables 2,019 2,221
Less: ECLs (348) (423)
------------------------ ------ ------
Trade receivables - net 1,671 1,798
Other receivables 166 160
VAT receivable 228 639
Prepayments 1,596 1,334
------------------------ ------ ------
3,661 3,931
------------------------ ------ ------
As of 31 December 2020, trade and other receivables of $0.3m
(2019: $0.4m) were past due and full expected credit loss ("ECL")
provision was recognised with the asset considered credit impaired.
The amount of the provision was $0.3m (2019: $0.4m). This
receivable relates to a single gas customer, which is more than
four years past due. Legal proceedings were initiated in Q4 of 2016
and finished in Q3 of 2018 in favour of the Company. The Company is
seeking collection of the amount outstanding, but significant
uncertainty remains over the collection ($0.1m was collected in
2019).
As of 31 December 2020, trade and other receivables of $3.6m
(2019: $3.9m) were current and not impaired. There is no difference
between the carrying value of trade and other receivables and their
fair value.
The carrying amounts of the Group's trade and other receivables
are denominated in the following currencies:
2020 2019
$000 $000
US Dollar 6 11
Sterling 3 -
Euros 1 1
Ukrainian Hryvnia 23 148
Russian Roubles 1,804 1,798
------------------ ------ ------
1,837 1,958
------------------ ------ ------
9. Cash and cash equivalents
2020 2019
$000 $000
Cash 22,858 12,495
Short term deposits 1,471 8,134
-------------------- ------- -------
24,329 20,629
-------------------- ------- -------
Short term deposits held comprised amounts held on deposit, but
were readily convertible to cash.
10. Trade and other payables
Note 2020 2019
$000 $000
-------------------------------------- ----- ------ -------
Current
Trade payables 1,218 3,894
Other payables 150 298
Contract liabilities (a) 2,433 2,111
Other taxes and social security costs 1,956 2,435
VAT payable 1,444 1,993
Accruals 2,131 3,427
9,332 14,158
Current
Lease liabilities 401 1,461
--------------------------------------------- ------ -------
Non-Current
Lease liabilities 358 628
--------------------------------------------- ------ -------
(a) Contract liabilities 2020 2019
$000 $000
------ -------
At 1 January 2,111 3,273
------------------------------------------------------------------------------------------ ------ -------
Amounts included in contract liabilities that was recognised as revenue during the period - (1,848)
------------------------------------------------------------------------------------------ ------ -------
Cash received in advance of performance and not recognised as revenue during the period 265 -
------------------------------------------------------------------------------------------ ------ -------
Foreign exchange 57 686
------------------------------------------------------------------------------------------ ------ -------
2,433 2,111
------------------------------------------------------------------------------------------ ------ -------
Contract liabilities are included within "trade and other
payables" on the face of the statement of financial position. They
arise from the Group's oil and gas forward sales, which enter into
contracts that can take a few months to complete.
11. Borrowings
2020 2019
$000 $000
Current
Convertible bonds due 2020 - 5,683
Term-loans repayable within one year - 5,683
------------------------------------- ------ ------
Convertible bonds due 2020 (the final payment to Bondholders was
made on 19 February 2020)
On 19 February 2013 the Company successfully completed the
placing of $40m of guaranteed unsubordinated convertible bonds with
institutional investors which were due 2018 (prior to
restructuring) raising cash of $37.2m net of issue costs.
Prior to restructuring the Bonds had an annual coupon of 8 per
cent per annum payable semi-annually in arrears.
The Bonds were convertible into ordinary shares of the Company
at any time from 1 April 2013 up until seven days prior to their
maturity on 19 February 2020 at a conversion price of 76.29 pence
per Ordinary Share, unless the Company settles the conversion
notice by paying the Bondholder the Cash Alternative Amount (see
below).
The Company made the final payment to Bondholders on 19 February
2020 in accordance with the terms and conditions of the Bond.
Convertible bonds restructured on 3 January 2017
On 3 January 2017 a special resolution was approved by
Bondholders to change the terms and conditions of the Bonds. The
main amendments to the terms and conditions of the Bonds were as
follows:
-- the Bondholder's option to require redemption of all of the
outstanding Bonds on 19 February 2017 was deleted;
-- the final maturity date of the Bonds was extended to 19
February 2020, with the outstanding principal amount of the Bonds
being repaid in three instalments; 33% on 19 February 2018; 33 % on
19 February 2019; and 34% on the 19 February 2020;
-- the coupon rate of the Bonds was increased from 8% to
14%;
-- the covenant which limited new borrowings by the Company was
removed; and
-- the Company were to make two payments to Bondholders in
respect of prior accretion amounts, on 19 February 2017 and on 19
February 2018 of 12.0% and 3.0%, respectively, of the principal
amount of the Bonds.
On 19 February 2018 the Company made a payment of the first
instalment to Bondholders of $5.3m (33% of the principal amount of
the Bonds), together with the final accretion payment of $0.5m
(3.0% of the principal amount of the Bonds) and interest of $1.1m.
On 19 February 2019 the Company made a payment of the second
instalment to Bondholders of $5.3m (33% of the principal amount of
the Bonds), together with $0.7m interest payment in accordance with
the terms and conditions of the Bond. On 19 August 2019 the Company
made interest payment of $0.4m in accordance with the terms and
conditions of the Bond. On 19 February 2020 the Company made the
final payment of the third instalment to Bondholders of $5.4m (34%
of the principal amount of the Bonds), together with $0.4m interest
payment in accordance with the terms and conditions of the
Bond.
Credit facility
On 11 December 2019, PPC, our subsidiary in Ukraine, renewed a
12 month revolving credit line from Tascombank for UAH280m
(originally secured 15 December 2017 for UAH150 m). At 31 December
2020 the total short-term line of credit amounted to $9.9m at an
exchange rate of $1: 28.27 (2019: $11.8m at an exchange rate of $1:
23.69 Hryvnia). The amount outstanding at 31 December 2020 was nil
(2019: nil), so the undrawn portion totaled $9.9m (2019: $11.8m).
The facility will be available through December 2021 (subject to
planned renewal after this date, if required) and draw downs are
subject to certain bank credit approvals. In addition PPC holds a
UAH50m ($1.8m) overdraft facility which remains undrawn and was
renewed until 13 December 2021.
The main terms and conditions of the revolving credit line with
Tascombank are as follows:
-- drawdowns can be made either in USD or UAH and are
individually subject to credit approval by the lender;
-- interest rate cost for USD drawn down is 9%;
-- interest rate cost for UAH drawn down: 17.0% to 30 days,
17.50% 31 to 90 days, 20.00% 91 to 180 days, 21.00% 181 to 365
days;
-- borrowing above UAH90m, equivalent to $3.2m at 31 December
2020 (2019: $3.8m) will require a corporate guarantee from JKX Oil
& Gas Plc. The corporate guarantee provided by the JKX Oil
& Gas plc in respect of the credit facility with Tascombank is
considered to be an insurance contract under the provisions of IFRS
4;
-- assets with a market value of UAH460m, equivalent to $16.3m
at 31 December 2020 (2019: UAH460m, equivalent to $19.4m) have been
identified for use as a collateral, collateral is to be provided
only on a drawdown;
-- amount borrowed will be repaid during the last 4 months, by
equal-sized monthly payments, to be effected on the last day of the
month/the last day of the credit limit period. Last date of
repayment for the last part of amount borrowed is 13 December
2021.
The credit facility of $9.9m (2019: $11.8m) includes two
financial covenants. If the covenants are not met an additional
interest of 2% applies to the facility but failure to meet
covenants does not represent an event of default:
-- to keep gross margin at no less than 50% during the period of
the credit facility agreement, based on PPC's financial reporting
results. This covenant was not met, however this did not result in
additional interest of 2% being applied as the credit facility was
not used during the year ended 31 December 2020.
-- starting from the first quarter of 2019 and during the period
of the credit facility agreement, PPC is to maintain the ratio
between financial (interest) debt and EBITDA (adjusted to the
annual value) at no more than 3.0. This covenant has been met as
PPC had no debt during the year ended 31 December 2020 .
In July 2020 PPC also signed a $5.0m loan facility agreement
with Alfa-Bank valid for 3 years. The loan facility cannot exceed
$5.0m, calculated at a fixed at the date of agreement exchange rate
of $27.6647.
The main terms and conditions of the loan facility with
Alfa-Bank are as follows:
-- drawdowns can be made either in USD, EUR or UAH and are
individually subject to credit approval by the lender;
-- interest rate cost for USD drawn down is 4.9%, based on 2
months repayment;
-- interest rate cost for EUR drawn down 4.4%, based on 2 months
repayment;
-- interest rate cost for UAH drawn down 11.3%, based on 2
months repayment;
-- full loan facility will require a corporate guarantee from
JKX Oil & Gas Plc. The corporate guarantee provided by the JKX
Oil & Gas plc in respect of the credit facility with Alfa-Bank
is considered to be an insurance contract under the provisions of
IFRS 4;
-- collateral shall be properly documented and provided in
advance, the tranche cannot be granted otherwise; and
-- each amount borrowed shall be repaid within 2 months from the
date when the tranche is agreed (agreed by signing of an additional
agreement ). The last date of the agreed loan facility is 21 July
2023.
Significant financial penalties:
-- the non-payment penalty is 0.2% per day of the overdue amount
but no more than National Bank of Ukraine (NBU) double discount
rate;
-- if the covenants are not met (for each case) an additional
interest of 0.1% applies to the facility; and
-- if the amount of the loan facility is not used for the
purpose indicated in the loan facility agreement PPC is liable to
pay 25% of the amount used not for the purpose indicated in the
loan facility agreement.
Significant financial covenants:
All covenants listed below have been met during the year ended
31 December 2020.
-- EBITDA - should not be less than Nil at the end of each
quarter during the period of the loan facility agreement;
-- Debt to EBITDA ratio - should be no more than 3.0 at the end
of each quarter during the period of the loan facility agreement;
and
-- EBITDA to Financial costs (Interest) ratio - should be not
less than 2.0 at the end of each quarter during the period of the
loan facility agreement.
12. Derivatives
2020 2019
$000 $000
Non-current derivative financial instruments
At the beginning of the year - 62
Derivative liability written-off - (62)
At the end of the year - -
--------------------------------------------- ------ ------
Convertible bonds due 2020 - embedded derivatives (the final
payment to Bondholders was made on 19 February 2020)
Company Call Option
The Company could redeem the Bonds at any time in full but not
in part at their principal amount plus one semi-annual coupon plus
any accrued interest. If the Bonds were called prior to 19 February
2020, the redemption price would also include an additional U.S.
$6,000 per Bond.
The Company could redeem the Bonds any time in full but not in
part at their principal amount plus any accrued interest if the
aggregate principal amount of the Bonds outstanding is less than
15% of the aggregate principal amount originally issued.
Fixed exchange rate
The Sterling-US Dollar exchange rate is fixed at GBP1/$1.5809
for the conversion and other features.
Following the final payment of the Bond made to Bondholders on
19 February 2020 (see Note 11) the derivative of $0.1m was written
off to the income statement at 31 December 2019 as its fair value
was negligible at year end.
13. Leases
This note provides information for leases where the Group is a
lessee.
The balance sheet shows the following amounts relating to
leases:
1 January 31 December
2020 Right-of-use asset recognised during the year Foreign exchange on assets recognised Depreciation charge for the year Foreign exchange on depreciation 2020
$000 $000 $000 $000 $000 $000
Oil and gas
asset -
coil
tubing 982 - (420) (843) 281 -
Properties 1,021 177 (160) (379) 43 702
Total 2,003 177 (580) (1,222) 324 702
----------- --------- --------------------------------------------- ------------------------------------- -------------------------------- -------------------------------- -----------
1 January 31 December
2019 Right-of-use asset recognised during the year Depreciation charge for the year 2019
$000 $'000 $000 $000
Oil and gas
asset - coil
tubing 2,159 - (1,177) 982
Properties 907 446 (332) 1,021
Total 3,066 446 (1,509) 2,003
------------- --------- --------------------------------------------- -------------------------------- -----------
31 December 31 December
2020 2019
$000 $000
Lease liabilities
Current 401 1,461
Non-current 358 628
Total 759 2,089
------------------ ----------- -----------
The income statement shows the following amounts relating to
leases:
31 December 31 December
2020 2019
$000 $000
Interest on lease liabilities (included in finance cost) 197 254
Depreciation 1,222 1,509
Expenses relating to short-term leases (included in administrative expenses) 61 235
Expenses relating to low-value assets, excluding short-term leases of low-value assets
(included
in administrative expenses) 37 31
Total 295 520
-------------------------------------------------------------------------------------------- ----------- -----------
31 December 31 December
2020 2019
$000 $000
-------------------------------------------------- ----------- -----------
Amounts recognised in the statement of cash flows
Total cash outflow for leases 1,661 1,776
-------------------------------------------------- ----------- -----------
When measuring lease liabilities, the Group discounted lease
payments using entity specific incremental borrowing rates. The
weighted-average rate applied is 17%.
14. Financial instruments
Fair values of financial assets and financial liabilities -
Group
Set out below is a comparison by category of carrying amounts
and fair values of the Group's financial instruments. Fair value is
the amount at which a financial instrument could be exchanged in an
arm's length transaction. Where available, market values have been
used (this excludes short term assets and liabilities).
Book and Fair
Fair Value Book Value Value
2020 2019 2019
$000 $000 $000
Financial assets
Cash and cash equivalents (Note 9) - classified
at amortised cost 24,329 20,629 20,629
Trade receivables (Note 8) - classified at amortised
cost 1,671 1,798 1,798
Other receivables (Note 8) - classified at amortised
cost 166 160 160
Financial liabilities
Trade payables (Note 10) - carried at amortised
cost 1,218 3,894 3,894
Other payables (Note 10) - carried at amortised
cost 150 298 298
Accruals (Note 10) - carried at amortised cost 1,839 3,080 3,080
Borrowings - convertible bonds due 2020
(Note 11) - carried at amortised cost (current) - 5,683 5,683
Lease liabilities 759 2,089 2,089
----------------------------------------------------- ----------- ---------- ------
The Group had no borrowings at 31 December 2020. Financial
liabilities measured at amortised cost were carried at $4.0m at 31
December 2020 (2019: $15.0m).
Credit risk - Group
The Group has policies in place to ensure that sales of products
are made to customers with appropriate credit worthiness. The Group
limits credit risk by assessing creditworthiness of potential
counterparties before entering into transactions with them and
continuing to evaluate their creditworthiness after transactions
have been initiated. Where appropriate, the use of prepayment for
product sales limits the exposure to credit risk. There is no
difference between the carrying amount of trade and other
receivables and the maximum credit risk exposure.
The maximum financial exposure due to credit risk on the Group's
financial assets, representing the sum of cash and cash
equivalents, trade receivables and other current assets, as at 31
December 2020 was $26.2m (2019: $22.6m).
Capital management - Group
The Directors determine the appropriate capital structure of the
Group specifically, how much is raised from shareholders (equity)
and how much is borrowed from financial institutions (debt) in
order to finance the Group's business strategy.
The Group's policy as to the level of equity capital and
reserves is to ensure that it maintains a strong financial position
and low gearing ratio which provides financial flexibility to
continue as a going concern and to maximise shareholder value. The
capital structure of the Group consists of shareholders' equity
together with net cash. The Group's funding requirements are met
through a combination of equity and operational cash flow. The
Group is debt free and benefits from undrawn credit facilities (see
Note 11).
Net cash
Net cash comprises: borrowings disclosed in Note 11 and total
cash in Note 9 and excludes derivatives. Equity attributable to the
shareholders of the Company comprises issued capital, other
reserves and retained earnings (see Consolidated statement of
changes in equity).
The capital structure of the Group is as follows:
2020 2019
$000 $000
Convertible bonds due 2020 (Note 11) - (5,683)
Total cash (Note 9) 24,329 20,629
Net cash 24,329 14,946
------------------------------------- ------- -------
Total shareholders' equity 176,862 186,255
------------------------------------- ------- -------
Liquidity risk - Group
The treasury function is responsible for liquidity, funding and
settlement management under policies approved by the Board of
Directors. Liquidity needs are monitored using regular forecasting
of operational cash flows and financing commitments. The Group
maintains a mixture of cash and cash equivalents and committed
facilities in order to ensure sufficient funding for business
requirements.
The following tables set out details of the expected contractual
maturity of non-derivative financial liabilities. The tables
include both interest and principal cash flows on an undiscounted
basis. To the extent that interest flows are floating rate, the
undiscounted amount is derived from interest rate curves at the
reporting date.
The maturity analysis for financial liabilities was as
follows:
3 months
Within 3 months - 1year 1 - 2 years 2 - 5 years
Group - 31 December 2020 $000 $000 $000 $000
Maturity of financial liabilities
Trade payables (Note 10) 1,218 - - -
Other payables (Note 10) 150 - - -
Accruals (Note 10) 1,839 - - -
Lease liabilities 149 382 258 211
---------------------------------- --------------- -------- ----------- ------------
3 months
Within 3 months - 1year 1 - 2 years 2 - 5 years
Group - 31 December 2019 $000 $000 $000 $000
---------------------------------------- --------------- -------- ----------- ------------
Maturity of financial liabilities
Trade payables (Note 10) 3,894 - - -
Other payables (Note 10) 298 - - -
Accruals (Note 10) 3,080 - - -
Borrowings - Convertible bonds due 2020 5,683 - - -
Lease liabilities 484 1,294 392 342
---------------------------------------- --------------- -------- ----------- ------------
Interest rate risk profile of financial assets and liabilities -
Group
Fixed rate interest was charged on the Group's convertible bond
(see Note 11). The interest rate profile of the other financial
assets and liabilities of the Group as at 31 December is as follows
(excluding short-term assets and liabilities, non-interest
bearing):
2020 2019
Within 1 Year Within 1 Year
Group - 31 December $000 $000
Floating rate
Short term deposits (Note 9) 1,471 8,134
Other receivables (Note 8) 1,671 160
Other payables (Note 10) 150 298
----------------------------- -------------- --------------
Floating rate financial assets comprise cash deposits placed on
money markets at call, seven day and monthly rates.
Interest rate sensitivity - Group
The sensitivity analysis below has been determined based on the
exposure to interest rates on our short term deposits at the
reporting date.
If interest rates had been 1 per cent higher/lower and all other
variables were held constant, the Group's profit (2019: profit)
after tax and net assets for the year ended 31 December 2020 would
increase/decrease by $5,000 (2019: $12,000). 1 per cent is the
sensitivity rate used as it best represents management's assessment
of the possible change in interest rates that could apply to the
Group.
Foreign currency exposures - Group
The table below shows the extent to which the Group has monetary
assets and liabilities in currencies other than the functional
currency of the operating company involved. These exposures give
rise to the net currency gains and losses recognised in the income
statement.
As at 31 December the asset/(liability) foreign currency
exposures were:
2020 2019
$000 $000
------------------ ------ ------
Sterling 700 675
Euros 4,254 1,086
Ukrainian Hryvnia 4,395 5,470
Bulgarian Leva - 41
Russian Roubles 4,164 (368)
Total net 13,513 6,904
------------------ ------ ------
(1) Foreign currency exposures do not include Hungarian Forints,
as Hungary is included under "assets held for sale" in the
Statement of financial position.
Foreign currency sensitivity - Group
The Group is mainly exposed to the currency fluctuations of
Ukraine (Hryvnia), Russia (Rouble) and UK (Sterling). The
sensitivity analysis principally arises on money market deposits
and working capital items held at the reporting date.
The following table details the Group's sensitivity to a 19 per
cent (2019: 10 per cent) increase and decrease in the US Dollar
against Sterling and against Hryvnia and Rouble, all other
variables were held constant. Due to the historically significant
foreign currency fluctuation in the UK, Ukraine and Russia 19 per
cent has been used to calculate sensitivity for Sterling, Hryvnia
and Rouble. 19 per cent (2019: 10 per cent) is the sensitivity rate
that best represents management's assessment of the possible change
in the foreign exchange rates affecting the Group. A positive
number below indicates an increase in profit and equity when the US
Dollar weakens against the relevant currency. For a strengthening
of the US Dollar against the relevant currency, there would be an
equal and opposite impact on the profit and other equity, and the
balances below would be negative.
Hryvnia Hryvnia Rouble Rouble Sterling Sterling
2020 2019 2020 2019 2020 2019
$000 $000 $000 $000 $000 $000
Profit/(loss) for the year and Equity
19 per cent strengthening of the US Dollar/ (2019: 10 per cent) (835) (547) (791) 37 (133) (67)
19 per cent weakening of the US Dollar/(2019: 10 per cent) 835 547 791 (37) 133 67
---------------------------------------------------------------- ------- ------- ------ ------ -------- --------
Commodity risk and sensitivity - Group
The Group's earnings are exposed to the effect of fluctuations
in oil, gas and condensate prices. The Group's oil, gas and
condensate is sold to local trading companies through market
related contracts.
The Group is a price taker and does not enter into commodity
hedge agreements unless required for borrowing purposes which may
occur from time to time. Therefore no sensitivity analysis has been
prepared on the exposure to oil, gas or condensate prices for
outstanding monetary items at the 31 December 2020 as there is no
impact on any outstanding amounts.
15. Discontinued operations and assets classified as held for
sale
In early February 2018 the Group announced its intention to exit
its oil and gas operations in Hungary and initiated an active
programme to dispose of its Hungarian business.
On 9 March 2020 the company announced that it had agreed terms
for the disposal of the entire share capital of Hungarian business.
Following pandemic related delays the Group received notification
that the relevant Hungarian authorities have refused the necessary
consent to the transaction pursuant to legislation introduced as a
result of the current COVID-19 pandemic. Consequently, the
transaction did not proceed.
The Hungarian business unit has been classified as held for sale
for the period of more than 12 months.
An extension of the period required to complete the sale does
not preclude the asset from being classified as held for sale as
the delay is caused by events and circumstances beyond the Group's
control. Management reviewed the classification criteria as defined
by IFRS 5 and confirms that the sale is highly probable and the
Group remains committed to its plan to sell the Hungarian business
unit.
In February 2021 the Group signed Memorandum of Understanding
with a new potential buyer in the amount of $2.9m. The purpose of
this Memorandum is to establish the responsibilities/next steps of
the parties in order to successfully conclude the possible deal,
subject to the agreement and execution of a legally binding
acquisition agreement.
The associated assets and liabilities were presented as held for
sale in the financial statements at 31 December 2018 and remains as
such at 31 December 2019 and 31 December 2020. Prior to the
reclassification assets were measured at the lower of carrying
amount and fair value less costs to sell.
The financial performance and cash flow information presented
are for periods ended 31 December 2020 and 31 December 2019.
31 December
2020 31 December 2019
$000 $000
Revenue - 133
Exceptional item - reversal of provision for impairment of Hungary - 2,232
Royalties - (25)
Other cost of sales - (369)
------------------------------------------------------------------- ----------- ----------------
Total cost of sales - 1,971
Exceptional item - provision for impairment of Hungary (322) -
Administrative expenses (669) (11)
(Loss)/gain on foreign exchange (11) 44
------------------------------------------------------------------- ----------- ----------------
(Loss)/profit from operations and before tax (1,002) 2,004
------------------------------------------------------------------- ----------- ----------------
(Loss)/profit for the year (1,002) 2,004
------------------------------------------------------------------- ----------- ----------------
Net cash inflow/(outflow) from operating activities 300 (176)
Effect of exchange rates on cash and cash equivalents - -
------------------------------------------------------ -------- -------
Net cash generated/(used) by the subsidiary 300 (176)
The following assets and liabilities were classified as held for
sale in relation to the discontinued operation as at 31 December
2020 and 2019.
31 December 31 December
2020 2019
Assets and liabilities of disposal group classified
as held for sale $000 $000
Assets classified as held for sale
Property, plant and equipment 1,911 2,232
Trade and other receivables 879 859
Cash 396 96
Total assets of disposal group held for sale 3,186 3,187
----------------------------------------------------- ----------- -----------
Liabilities of the disposal group classified as held
for sale
Trade and other payables (86) (87)
Abandonment provision (200) (200)
----------------------------------------------------- ----------- -----------
Total liabilities of disposal group held for sale (286) (287)
----------------------------------------------------- ----------- -----------
Net assets 2,900 2,900
----------------------------------------------------- ----------- -----------
16. JKX Employee Benefit Trust
In 2013, JKX Employee Benefit Trust was established and acquired
5,000,000 of shares in JKX Oil & Gas plc at a cost of $4.0m for
the purpose of making awards under the Group's employee share
schemes and these shares have been classified in the statement of
financial position as treasury shares within retained earnings.
During 2019 JKX Employee Benefit Trust sold 1,186,547 shares at
an average price of GBP0.30 per share. 180,525 shares were used in
2019 to settle share options, out of which 48,660 were sold in
order to cover National insurance cost, therefore at 31 December
2019 JKX Employee Benefit Trust held 3,632,928 shares in JKX Oil
& Gas plc. During January 2020 JKX Employee Benefit Trust sold
its remaining 3,632,928 shares at an average price of GBP0.28 per
share.
17. Share capital
Equity share capital, denominated in Sterling, was as
follows:
2020 2020 2020 2019 2019 2019
Number GBP000 $000 Number GBP000 $000
Authorised
Ordinary shares of 10p each 300,000,000 30,000 - 300,000,000 30,000 -
------------------------------------- ----------- -------- ------ ----------- -------- ------
Allotted, called up and fully paid
Balance at 1 January and 31 December 172,125,916 17,212 26,666 172,125,916 17,212 26,666
------------------------------------- ----------- -------- ------ ----------- -------- ------
Of which the following are shares held in treasury:
Treasury shares held
at
1 January and 31
December 402,771 40 77 402,771 40 77
--------------------- ------- -------
The Company did not purchase any treasury shares during 2020
(2019: none) and no treasury shares were used in 2020 (2019: none)
to settle share options. There are no shares reserved for issue
under options or contracts. As at 31 December 2020 the market value
of the treasury shares held was $0.2m (2019: $0.1m).
18. Other reserves
Foreign Post-employment Equity
Capital currency benefit investments
Merger redemption translation obligation with FVOCI
reserve reserve reserve reserve reserve Total
$000 $000 $000 $000 $000 $000
At 1 January
2020 30,680 587 (182,054) (449) 500 (150,736)
Exchange
differences
arising
on translation
of overseas
operations - - (30,431) - - (30,431)
Remeasurement of
post-employment
benefit
obligations - - - (115) - (115)
Changes in the - - - - - -
fair value
of equity
investments at
fair value
through other
comprehensive
income
---------------- ------- ---------- ---------------------------------- --------------- --------------------- ----------------------
At 31 December
2020 30,680 587 (212,485) (564) 500 (181,282)
---------------- ------- ---------- ---------------------------------- --------------- --------------------- ----------------------
At 1 January
2019 30,680 587 (203,535) (355) - (172,623)
Exchange
differences
arising
on translation
of overseas
operations - - 21,481 - - 21,481
Remeasurement of
post-employment
benefit
obligations - - - (94) - (94)
Changes in the
fair value
of equity
investments at
fair value
through other
comprehensive
income - - - - 500 500
---------------- ------- ---------- ---------------------------------- --------------- --------------------- ----------------------
At 31 December
2019 30,680 587 (182,054) (449) 500 (150,736)
---------------- ------- ---------- ---------------------------------- --------------- --------------------- ----------------------
Merger reserve was created on 30 May 1995 when JKX Oil & Gas
plc acquired the issued share capital of JP Kenny Exploration &
Production Limited for the issue of ordinary shares and represents
the difference between the fair value of consideration given for
the shares and the nominal value of those instruments.
Capital redemption reserve relates to the buyback of shares in
2002, there have been no additional share buy-backs since this
time.
Equity investments with FVOCI reserve includes movements that
relate to changes in the fair value of unlisted investments in
equity.
Foreign currency translation reserve includes movements that
relate to the retranslation of the subsidiaries whose functional
currencies are not the US Dollar.
During 2020, the Russian Rouble ('RR') weakened by approximately
19% from RR61.91/$ to RR73.88/$ (2019: strengthened by
approximately 11% from RR69.47/$ to RR61.91/$). Ukrainian Hryvnia
('UAH') weakened by approximately 19% from UAH 23.69/$ to UAH
28.27/$ (2019: strengthened by approximately 14% from UAH 27.69/$
to UAH 23.69/$). Currency translation differences of US$30.4m
(2019: US$21.4m) included in the Consolidated statement of
comprehensive income arose on the translation of property, plant
and equipment denominated in RR and UAH and amounted to $15.8m and
$18.8m respectively (see Note 5 (a)), $4.2m relates to the
translation of the liabilities in RR and UAH.
Post-employment benefit obligation reserve relates to a
remeasurement of liability for defined benefit pension plan in PPC,
our subsidiary in Ukraine. Please refer to Note 20 for the
details.
19. Provisions
The provision for production based taxes, is in respect of
claims against PPC for additional rental fees for the periods
August to December 2010 and January to December 2015. $13.5m was
recognised as a credit in the 2020 Consolidated income statement
(2019: $8.4m credit) which is the net of a $15.1m reversal of
provisions for two tax cases that have been closed in favour of PPC
relating to January to December 2015 claims and of $1.6m interest
accrued for the remaining cases that have not been closed, of which
$0.5m charge relates to the August to December 2010 claim
(2019:$1.3m charge) and $1.1m charge relate to January to December
2015 claims (2019:$4.7m). Remaining claims are being contested in
the Ukrainian courts (see Note 27). The amount is denominated in
Ukrainian Hryvnia ('UAH') and is stated above at its US$-equivalent
amount using the 2020 year end rate of UAH28.27/$ (2019:
UAH23.69/$).
Case 816/1191/16, amounting to $2.1m and related to January to
December 2015 claims was reclassified from non-current to current
at 31 December 2020.
The provision for rental fee claims at 31 December 2020 includes
estimated interest and penalties. Judgement is applied regarding
application of the relevant legislation to determine estimates of
the interest and penalties, together with aspects of the underlying
claims which are considered overstated based on the legislation on
which the claims are based, should this legislation be applied,
notwithstanding that the Group disputes the claims in their
entirety.
Changes in the judgement about the timing of the provision
releases: during 2019 provisions were maintained for open cases
unless judgments of the Supreme Court of Ukraine had been received
in favour of PPC or appeals to this court were considered remote,
based on assessment of facts and circumstances at the time. During
2020 the Group has determined that it is now appropriate to release
provisions when first and appellate Court rulings have been
received in respect of the case (on its merits) in the Group's
favour. In reaching that conclusion Management have considered
their experience of the legal process to date, the fact that the
Supreme Court checks judgments of the first and appellate Courts
and cannot review any new facts or circumstances and have sought
advice from external counsel. Accordingly the risk of the lower
court judgments on the merits of the case being cancelled are
considered very low. Consequently the Group's Management have
released provisions after court judgments of first and appellate
instances in favour of PPC.
The Board believes that the claims are without merit under
Ukrainian law and the Company will continue to contest them
vigorously. Whilst provisions are held by the Group, additional
contingent liabilities exist in respect of the rental fee claims
given the judgments required in forming the provisions and
alternative potential outcomes.
Production based taxes Total
Current provisions $000 $000
--------------------------------------------- ---------------------- -------
At 1 January 2020 15,861 15,861
Amount provided in the year 515 515
Foreign currency translation (2,573) (2,573)
Reclassification from non-current provisions 2,108 2,108
At 31 December 2020 15,911 15,911
--------------------------------------------- ---------------------- -------
Production based taxes Total
Non-current provisions $000 $000
--------------------------------------- ---------------------- -----------
At 1 January 2020 25,405 25,405
Amount provided in the year 1,101 1,101
Amount released in the year (15,159) (15,159)
Foreign currency translation (4,159) (4,159)
Reclassification to current provisions (2,108) (2,108)
At 31 December 2020 5,080 5,080
--------------------------------------- ---------------------- -----------
Non-current provisions Ukraine Russia Total
Provision on decommissioning $000 $000 $000
Provision for site restoration
At 1 January 2020 3,978 2,386 6,364
Foreign exchange adjustment (656) (388) (1,044)
Revision in estimates 199 (198) 1
Unwinding of discount (Note 23) 390 140 530
At 31 December 2020 3,911 1,940 5,851
-------------------------------- --------- -------- ---------
The provision in respect of Ukraine represents the present value
of the well and site restoration costs that are expected to be
incurred up to 2034 (2019: 2034). The Russia provision results from
the decommissioning of 15 wells (2019:15) and removal of plant as
required by the licence obligation and is due to start from 2064
(2019: 2050). The provisions are made using the Group's internal
estimates that management believe form a reasonable basis for the
expected future costs of decommissioning.
20. Defined pension benefit plan
2020 2019
$000 $000
At 1 January 2020 859 577
Service cost 40 34
Interest expense 87 94
Benefit payments (41) (35)
Employer contribution 115 95
Foreign exchange (138) 94
---------------------- ------ ------
At 31 December 2020 922 859
---------------------- ------ ------
The Group operates a defined benefit pension plan in PPC, our
subsidiary in Ukraine. PPC participates in a mandatory Ukrainian
State-defined retirement benefit plan, which provides for early
pension benefits for employees working in certain workplaces with
hazardous and unhealthy working conditions. The plan defines an
amount of pension benefit that an employee will receive on
retirement, usually dependent on one or more factors such as age,
years of service and compensation.
The Group has no further payment obligation towards the local
government pension scheme once the contributions have been
paid.
The liability recognised in the Statement of Financial position
in respect of defined benefit pension plan is the present value of
the defined benefit obligation at the end of the reporting period.
There is no pension asset given the nature of the scheme.
PPC has jobs with hazardous working conditions (hereinafter
referred to as the "list II"). Upon early retirement the pensioners
are entitled to a pension which is financed by their employers
until they enrol into a regular pension scheme financed by a
Pension Fund of Ukraine. The early pension benefit (in the form of
a monthly annuity) is payable by employers only until the employee
has reached the statutory retirement age (60 - for males and
females). The right to pension emerges once a number of conditions
pertaining to pension insurance service record and service record
in hazardous jobs have been met and a certain age has been reached.
Once employees from the list II have reached 55 years of age, PPC
would compensate to Pension Fund of Ukraine pension obligation for
the next 5 years on a monthly basis. The employer is responsible
for 100% for "list II" categories of early pensioners. Pensions are
calculated using a formula based on the employee's salary, pension
insurance service record, and total length of past service at
specific types of workplaces ("list II" category) and, thus, the
pension plan is a defined benefit plan by its nature.
21. Cost of sales
2020 2019
$000 $000
Operating costs 17,867 22,752
Depreciation, depletion and amortisation 17,130 18,512
Other production based taxes 13,783 23,518
------------------------------------------------------- -------- -------
48,780 64,782
------------------------------------------------------- -------- -------
Exceptional item - production based taxes credit (Note
19) (13,543) (8,410)
35,237 56,372
------------------------------------------------------- -------- -------
The cost of inventories (calculated by reference to production
costs) expensed in cost of sales in 2020 was $2.8m (2019:
$3.0m).
22. Finance income
2020 2019
$000 $000
Interest income on deposits 487 857
487 857
---------------------------- ------ ------
23. Finance costs
2020 2019
$000 $000
---------------------------------------------------- ------ ------
Borrowing costs 224 1,183
Interest on lease liabilities 197 254
Unwinding of discount on site restoration (Note 19) 530 617
---------------------------------------------------- ------ ------
951 2,054
---------------------------------------------------- ------ ------
24. Profit from operations - analysis of costs by nature
Profit from operations derives solely from continuing operations
and is stated after charging/(crediting) the following:
2020 2019
$000 $000
Depreciation - other assets (Note 5. (a)) 782 705
Depreciation, depletion and amortisation - oil and
gas assets (Note 5. (a)) 17,130 18,512
Staff costs (none was capitalised during the year
(2019: nil), Note 25) 7,265 9,051
Foreign exchange (gain)/loss (1,048) 615
--------------------------------------------------- ------- ------
During the year the Group (including its overseas subsidiaries)
obtained the following services from the Company's auditors:
2020 2019
$000 $000
Audit of the parent company and consolidated financial
statements 267 294
Fees payable to company's auditors for other services:
- Audit of the Company's subsidiaries 170 231
- Audit related assurance services 92 80
529 605
------------------------------------------------------- ------ ------
No non-audit services were provided in 2020 and 2019.
25. Staff costs
2020 2019
$000 $000
Wages and salaries 7,265 8,741
UK social security costs 77 130
Other pension costs 142 166
Share based payments (equity-settled) (Note 26) - 14
------------------------------------------------ ------ ------
7,484 9,051
------------------------------------------------ ------ ------
No staff costs were capitalised for the year ended 31 December
2020.
During the year, the average monthly number of employees
was:
2020 2019
Number Number
Management/operational 453 492
Administration support 77 82
----------------------- ------- -------
530 574
----------------------- ------- -------
There is one Director on a service contract included within
management/operational (2019: nil). Further details of the
Directors and their remuneration are included are included in the
Remuneration Report.
26. Share-based payments
According to the 2010 Performance Share Plan (PSP) that is
currently in place, the Remuneration Committee has the ability to
grant awards of nil-cost options annually to senior management of
the Group, conditional on the Group's performance over a period of
at least three years. No consideration is required to be paid for
the grant or exercise of an Option. Vesting of the options is
dependent upon certain criteria, including comparison of the
Group's TSR against the FTSE Fledgling index and the All-Share Oil
& Gas Producers index. Options lapse when certain criteria are
not met and may be forfeited when employees cease to be employed by
the Group. The plan rules are described in the Directors'
Remuneration Report. All share-based payments are equity
settled.
During 2019 180,525 share options were exercised at nil cost per
share and 75,625 shares lapsed, none granted in accordance with the
PSP. The weighted average share price at the date of exercise of
these shares was 23 pence. There were no outstanding options under
the PSP at 31 December 2019.
No share options were exercised or granted during 2020.
The following table illustrates the number and weighted average
exercise prices ('WAEP') of, and movements in, share options during
the year.
2020 2020 2019 2019
Number WAEP Number WAEP
Outstanding at 1 January - - 151,250 0.00p
Exercisable at 1 January - - 104,900 0.00p
Lapsed/forfeited during the year - - (75,625) 0.00p
Exercise of share options - - (180,525) 0.00p
---------------------------------- ------- ----- --------- -----
Outstanding and exercisable at 31 - - - -
December
---------------------------------- ------- ----- --------- -----
27. Taxation
2020 2019
Analysis of tax on loss $000 $000
Current tax
UK - current tax - -
Overseas - current year 3,303 6,561
------------------------ ----------- ------
Current tax expense 3,303 6,561
------------------------ ----------- ------
Deferred tax
Overseas - prior year - -
Overseas - current year 678 3,645
------------------------ ----------- ------
Deferred tax benefit 678 3,645
------------------------ ----------- ------
Income tax expense 3,981 10,206
------------------------ ----------- ------
Factors that affect the total tax charge
The total tax charge for the year of $4.0m (2019: $10.2m charge)
is lower (2019: lower) than the average rate of UK corporation tax
of 19.00% (2019: 19.00%). The differences are explained below:
2020 2019
Total tax reconciliation $000 $000
Profit before tax from continuing operations 24,851 30,415
----------------------------------------------------- ----------- ------
(Loss)/profit before tax from discontinued operation (1,002) 2,004
----------------------------------------------------- ----------- ------
Tax calculated at 19.00% (2019: 19.00%) 4,722 5,779
Movement in recognised tax losses 368 474
Effect of tax rates in foreign jurisdictions 138 355
Rental fee provision (1,904) 1,677
Other non-deductible expenses 812 1,745
Other (155) 176
----------------------------------------------------- ----------- ------
Total tax charge from continuing operations 3,981 10,206
----------------------------------------------------- ----------- ------
Total taxation from discontinued operation - -
----------------------------------------------------- ----------- ------
The total tax charge for the year was $4.0m (2019: $10.2m
charge) comprising a current tax charge of $3.3m (2019: $6.6m
charge) in respect of Ukraine, a deferred tax charge before
exceptional items of $3.7m (2019: credit of $2.0m) and a deferred
tax credit of $4.4m in respect of exceptional items (2019: credit
of $1.7m). The increase in current tax charge reflects a lower
profit in Ukraine. In Ukraine, the corporate tax rate for 2019 was
18% and remains at this level in 2020.
In May 2020 the Tax Code in Ukraine has changed introducing the
clarification and amendment of tax differences used to increase the
pre-taxed financial result, regarding the amount of fines,
penalties imposed by the controlling bodies, and other public
authorities for violations of the law. As a result of amendments,
PPC recognised the total penalties in respect of rental cases
provision accrued by the controlling bodies as permanent tax
differences (previously deductible in future periods) amounted to
$10.6m which led to reduction of deferred tax asset of $1.9m.
At Budget 2020, the government announced that the Corporation
Tax main rate (for all profits except ring fence profits) for the
years starting 1 April 2020 and 2021 would remain at 19%.
The Company's profits for this accounting year are taxed at an
effective rate of 19.00%.
Factors that may affect future tax charges
A significant proportion of the Group's income will be generated
overseas. Profits made overseas will not be able to be offset by
costs elsewhere in the Group. This could lead to a higher than
expected tax rate for the Group.
Changes to the UK corporation tax rates were substantively
enacted as part of Finance Bill 2015 and Finance Bill 2016. These
include a reduction to the main rate from 19% to 17% from 1 April
2020. The impact of the rate reduction is not expected to have a
material impact on UK current taxation.
Taxation in Ukraine - production taxes
Since Poltava Petroleum Company's ('PPC's') inception in 1994
the Company has operated in a regime where conflicting laws have
existed, including in relation to effective taxes on oil and gas
production.
In order to avoid any confusion over the level of taxes due, in
1994, PPC entered into a licence agreement with the Ukrainian State
Committee on Geology and the Utilisation of Mineral Resources ('the
Licence Agreement') which set out expressly in the Licence
Agreement that PPC would pay Rental Fees on production at a rate of
only 5.5% of sales value for the duration of the Licence
Agreement.
Pursuant to the Licence Agreement, PPC was granted an
exploration licence and four 20-year production licences, each in
respect of a particular field. In 2004, PPC's production licences
were renewed and extended until 2024, Subsoil Use Agreements were
signed and attached to the licences and operations continued as
before.
In December 1994, a new fee on the production of oil and gas
(known as a 'Rental Payment' or 'Rental Fee') was introduced
through Ukrainian regulations. On 30 December 1995, JKX, together
with its Ukrainian subsidiaries (including PPC), was issued with a
Joint Decision of the Ministry of Economy, the Ministry of Finance
and the State Committee for the Oil and Gas ('the Exemption
Letter'), which established a zero rent payment rate for oil and
natural gas produced in Ukraine by PPC for the duration of the
Licence Agreement for Exploration and Exploitation of the Fields.
Based on the Exemption Letter PPC did not expect to pay any Rental
Fees until the new law on Rental Fees was enacted in 2011.
Rental Fees paid since 2011
In 2011 a new law was enacted which established new mechanisms
for the determination of the Rental Fee. Notwithstanding the
Exemption Letter, in January 2011 PPC began to pay the Rental Fee
in order to avoid further issues with the Ukrainian authorities but
without prejudice to its right to challenge the validity of the
demands.
Rental fees paid have been recorded in cost of sales in each of
the accounting periods to which they relate.
International arbitration proceedings
In 2015, the Company and its wholly-owned Ukrainian and Dutch
subsidiaries commenced arbitration proceedings against Ukraine
under the Energy Charter Treaty, the bilateral investment treaties
between Ukraine and the United Kingdom and the Netherlands,
respectively. In these proceedings, the Company sought repayment of
more than $180 million in Rental Fees that PPC had paid on
production of oil and gas in Ukraine since 2011, in addition to
damages to the business.
During 2015 Rental Fees in Ukraine were increased to 55% and
capital control restrictions were introduced. On 14 January 2015,
an Emergency Arbitrator issued an Award ordering Ukraine not to
collect Rental Fees from PPC in excess of 28% on gas produced by
PPC, pending the outcome of the application to a full tribunal for
the Interim Award. On 23 July 2015 an international arbitration
tribunal issued an Interim Award requiring the Government of
Ukraine to limit the collection of Rental Fees on gas produced by
PPC to a rate of 28%.
The Interim Award was to remain in effect until final judgement
was rendered on the main arbitration case, which was heard in early
July 2016. A decision from the tribunal was awarded on 6 February
2017.
The tribunal did not find in favour of the Company in respect of
the Rental Fees but awarded the Company damages of $11.8 million
plus interest, and costs of $0.3 million in relation to subsidiary
claims.
In March 2017, Ukraine's Ministry of Justice filed a claim with
the High Court of the United Kingdom naming JKX as a defendant in
an application seeking to set aside the arbitration award for
damages against Ukraine and in favour of JKX.
In October 2017 the High Court of the United Kingdom, ordered
that the application brought by Ukraine seeking to set aside the
recent arbitration award against Ukraine and in favour of JKX be
dismissed. The Government of Ukraine is therefore still liable to
pay to JKX the sum of USD11.8 million plus interest, and costs of
USD0.3 million in relation to subsidiary claims, as previously
ordered. The Judge also ordered that Ukraine should pay JKX's costs
of $0.1 million.
The arbitration award has now been legally recognised in Ukraine
and in December 2019 JKX filed for its collection. No recognition
will be made in the financial statements of any possible future
benefit that may result from this award until there is further
clarity on the process for, and likely success of, enforcing
collection.
Rental Fee demands
The Group currently has two claims (2019: two) for additional
Rental Fees being contested through the Ukrainian court process.
These arise from disputes over the amount of Rental Fees paid by
PPC for certain periods since 2010, which in total amount to
approximately $21.0million (2019: $41.3 million) (including
interest and penalties), as detailed below. All amounts are being
claimed in Ukrainian Hryvnia ('UAH') and are stated below at their
US$-equivalent amounts using the year end rate of $1:UAH 28.27
(2019: $1: UAH 23.69).
-- August - December 2010: approximately $13.8 million (2019:
$15.9 million) (including $9.5 million (2019: $10.7 million) of
interest and penalties). On 11 March 2014 PPC won the case in the
Poltava Court. The tax office appealed and the Kharkiv Appellate
Administrative Court reversed the earlier decision. PPC then lost
an appeal in the High Administrative Court of Ukraine and the
Supreme Court rejected PPC's application for the appeal. PPC has
discovered that there were in fact certain procedures that were not
followed regarding the tax notifications that formed the basis of
the original claims against PPC. Certain documentation was found to
be missing from the files of the tax authorities. In April 2017 the
Poltava Circuit Administrative Court found in favour of PPC and
cancelled the tax notification decisions on the grounds that due
process had not been followed. On 1 June 2017 the Kharkiv Appellate
Administrative Court upheld the judgment of the Poltava Circuit
Administrative Court. In July 2017 the Poltava Joint State Tax
Inspectorate ("PJSTI") filed a cassation complaint against the
previous court judgements of lower courts in PPC's favour. This
cassation hearing at the Supreme Court of Ukraine is expected in
the 1st Q 2021. Whilst PPC has been successful in the April, June
and July 2017 court hearings, the Board considers it appropriate to
maintain a provision notwithstanding that PPC disputes the claim
basis, given assessment of all relevant facts and
circumstances.
-- January - December 2015: approximately $7.2 million (2019:
$25.4 million) (including $5.4 million (2019: $16.7 million) of
interest and penalties). Following the commencement of
international arbitration proceedings at the beginning of 2015 (see
above), from July 2015 PPC reverted to paying a 28% Rental Fee for
gas production (instead of the revised official rate of 55%) as a
result of the awards granted under the arbitration. PPC also
declared part of its Rental Fee payments at 55% for the first 6
months of 2015 as overpayments and consequently stopped paying the
Rental Fee for gas in order to align the total payments made in
2015 with the 28% rate awarded made under the arbitration
proceedings. The Ukrainian tax authorities have issued PPC with the
series of claims for the difference between 28% and 55%, which were
being contested in eight separate cases. Six of these cases have
now been resolved in PPC's favour and the others continue to be
contested:
Open 2015 cases for which provisions held:
Management have specifically assessed whether the success on
cases during 2019 and 2020 provides a sufficient precedent to
release the remaining provisions for the 2015 claims. It was
concluded that given the inherent uncertainty associated with the
Ukrainian Court system and political environment it remains
appropriate to retain the remaining provisions.
-- On 18 November 2020 the Poltava Circuit Administrative Court
found in favour of PPC in case No. 816/1191/16 for a total of
$2.1m. PJSTI filed appellate complaint and the Kharkiv Appellate
Administrative Court accepted it. The consideration is expected to
be held in March 2021.
-- Case No. 816/685/16 for $5.1m has already been suspended.
PJSTI have filed cassation complaint with the Supreme Court to
unsuspend it. The hearing is expected to take place in the 1st half
of 2021.
2015 cases closed in favour of the Group for which provisions
released in prior periods:
-- Case No. 816/845/16 for principal of $0.3m. In December 2018
the Poltava Circuit Administrative Court, and in May 2019 the
Kharkiv Appellate Administrative Court, found in favour of PPC and
both ruled that Tax Notification Decisions previously issued
against PPC were illegal and were cancelled. It was expected that
PJSTI would file cassation complaint. In July 2019 the Supreme
Court of Ukraine refused to accept the cassation complaint of the
PJSTI for procedural reasons, meaning that these decisions will not
be appealed. This case is therefore closed in favour of PPC.
-- Case No. 816/688/16 for principal of $1.8m. In April 2019,
the Poltava Circuit Administrative Court, found in favour of PPC
and ruled that Tax Notification Decisions previously issued against
PPC were illegal and were cancelled. As PJSTI did not file an
appeal within the required time, the judgement of the Poltava
Circuit Administrative Court is now binding. This case is therefore
closed in favour of PPC.
-- Case No. 816/846/16 for $2.2m: On 14 November 2019 the
Poltava Circuit Administrative Court found in favour of PPC as well
as ruled that Tax Notification Decisions previously issued against
PPC were illegal and were cancelled. The KHAC by its judgment of 5
October 2020 and the Supreme Court by its judgment of 17 March 2021
upheld the judgment of the first instance court - thus, the case is
fully closed in favour of PPC.
Pending 2015 cases for which provisions released:
Notwithstanding that for the three cases below there are further
cassation complaints from PJSTI, the Group's position that once
there is a judgment of the first and appellate instance court in
favour of PPC, tax notification decision in respective case is
cancelled and the provision released.
-- On 4 May 2020 the Poltava Circuit Administrative Court found
in favour of PPC in case No. 816/687/16 for $4.7m. The Kharkiv
Appellate Administrative Court on 15 October 2020 turned down
PJTI's appellate complaint. PJSTI filed a cassation complaint,
however on 19 November 2020 the Supreme Court returned it to the
PJTI stating that it sees no grounds on reconsideration of the
lower instance courts. PJTI, ignoring the ruling of the Supreme
Court, refiled another cassation complaint. The Supreme Court
accepted it and commenced the cassation proceedings. The
consideration is expected at the end of 2021. The provision was
released in 2020.
-- Case No. 816/844/16 for $2.8m: On 14 November 2019 the
Poltava Circuit Administrative Court found in favour of PPC as well
as ruled that Tax Notification Decisions previously issued against
PPC were illegal and were cancelled. The Kharkiv Appellate
Administrative Court on 15 July 2020 turned down PJTI's appellate
complaint on merits. PJSTI filed cassation complaint and the
Supreme Court accepted it. The consideration is expected at the end
of 2021. The provision was released in 2019.
-- On 22 December 2020 the Poltava Circuit Administrative Court
found in favour of PPC in case No. 816/686/16 for $10.4m. PJSTI
filed an appellate complaint and the Kharkiv Appellate
Administrative Court accepted it. On 12 March 2021 Kharkiv
Appellate Administrative Court found in favour of PPC and cancelled
the tax notification decisions recognizing them as illegal. We
expect that PJSTI will file the cassation complaint against the
above judgments within the following months. The provision was
released in 2020.
Case 816/1191/16 amounting to $2.1m and related to January to
December 2015 claims was reclassified from non-current to current
at 31 December 2020. This case is expected to be considered on
merits by the courts during the next twelve months.
It is expected that the process of hearings in respect of the
remaining outstanding 2015 rental fee claims will continue into
2022 and possibly beyond. Full provisions are made for claim
816/1191/16, 816/685/16 and the 2010 cases.
Changes in the judgement about the timing of the provision
releases: during 2019 provisions were maintained for open cases
unless judgments of the Supreme Court of Ukraine had been received
in favour of PPC or appeals to this court were considered remote,
based on assessment of facts and circumstances at the time. During
2020 the Group has determined that it is now appropriate to release
provisions when first and appellate Court rulings have been
received in respect of the case (on its merits) in the Group's
favour. In reaching that conclusion Management have considered
their experience of the legal process to date, the fact that the
Supreme Court checks judgments of the first and appellate Courts
and cannot review any new facts or circumstances and have sought
advice from external counsel. Accordingly the risk of the lower
court judgments on the merits of the case being cancelled are
considered very low. Consequently the Group's Management have
released provisions after court judgments of first and appellate
instances in favour of PPC.
In 2020 the Group has released provisions totalling $15.1m
(inclusive of interest and penalties) associated with the two of
the 2015 cases, $4.7m in respect of Case No. 816/687/16 and $10.4m
in respect of Case 816/686/16 for which the 2ndInstance Court has
rejected appeals lodged by the tax authorities on the case merits.
A cassation appeal for one case has now been filed and is expected
to be heard at the end of 2021. A cassation appeal for case
816/686/16 has not yet been filed but is anticipated in due course.
In line with the Group's revised position on provisioning the
related reserves for these cases have been released.
In 2019 the Group has released provisions totalling $14.4m
(inclusive of interest and penalties) associated with four of the
2015 cases, $0.6m in respect of Case No. 816/845/16, $4.8m in
respect of Case No. 816/688/16, $5.3m in respect of Case No.
816/846/16 and $3.7m in respect of Case No. 816/844/16, as all four
cases have been closed in PPC's favour.
An exceptional item of $13.5m has been credited to the
Consolidated income statement in the year (2019: $8.4 million
credit), being the net of provisions reversed for cases closed in
PPC's favour and interest accrued on the remaining August -
December 2010 and January - December 2015 claims (see Note 19).
--
28. Deferred tax
Assets Liability Net
-------------- ---------------- ---------------
2020 2019 2020 2019 2020 2019
$000 $000 $000 $000 $000 $000
---------------------- ------ ------ ------- ------- ------- ------
Continuing operations
Ukraine 2,576 8,108 (6,095) (8,280) (3,519) (172)
Russia 12,312 12,033 (2,861) (3,849) 9,451 8,184
The balance comprises temporary differences attributable to:
Assets Liability Net
-------------- ----------------- -----------------
2020 2019 2020 2019 2020 2019
$000 $000 $000 $000 $000 $000
------------------------- ------ ------ ------- -------- ------- --------
Property, plant and
equipment - - (8,956) (12,128) (8,956) (12,128)
Inventory 539 614 - - 539 614
Provision for disputed
rental fees 1,099 6,528 - - 1,099 6,528
Provision for site
restoration 1,025 1,131 - - 1,025 1,131
Tax losses 11,924 11,556 - - 11,924 11,556
Other 301 311 - (1) 301 310
------------------------- ------ ------ ------- -------- ------- --------
Deferred tax asset
/(liability) recognised 14,888 20,141 (8,956) (12,129) 5,932 8,012
------------------------- ------ ------ ------- -------- ------- --------
1 January exchange differences to profit 31 December 2020
2020 $000 or loss $000
$000 $000
Deferred tax liabilities
Property, plant and equipment (12,128) 1,965 1,207 (8,956)
Other (1) - - -
----------------------------------- --------- -------------------- --------- ----------------
Deferred tax assets
Inventory 614 (100) 25 539
Provision for disputed rental fees 6,528 (1,057) (4,372) 1,099
Provision for site restoration 1,131 (106) - 1,025
Tax losses 11,556 (2,104) 2,472 11,924
Other 310 0 (10) 301
----------------------------------- --------- -------------------- --------- ----------------
Net deferred tax 8,012 (1,402) (678) 5,932
----------------------------------- --------- -------------------- --------- ----------------
* Note there are minor differences in the tables due to rounding
effects
1 January exchange differences to profit 31 December 2019
2019 $000 or loss $000
$000 $000
Deferred tax liabilities
Property, plant and equipment (9,635) (1,511) (982) (12,128)
Other (269) 32 236 (1)
----------------------------------- --------- -------------------- --------- ----------------
Deferred tax assets
Inventory 1,206 191 (783) 614
Provision for disputed rental fees 7,038 1,188 (1,698) 6,528
Provision for site restoration 1,058 160 (87) 1,131
Tax losses 10,721 1,310 (474) 11,556
Other 300 (132) 143 310
----------------------------------- --------- -------------------- --------- ----------------
Net deferred tax 10,419 1,238 (3,645) 8,012
----------------------------------- --------- -------------------- --------- ----------------
The deferred tax assets include an amount of $11.9m (2019:
$11.6m) which relates to carried forward tax losses of our Russian
subsidiary. The Group concluded that the deferred tax assets will
be recoverable using the estimated future income based on the
approved business plans and budgets for the subsidiary
notwithstanding historic losses. The subsidiary is expected to
generate taxable income from 2021 onwards.
2020 2019
Unprovided deferred taxation $000 $000
Tax losses (11,385) (12,547)
Property, plant and equipment - -
Other temporary differences - -
------------------------------ -------- --------
(11,385) (12,547)
------------------------------ -------- --------
There is no expiry date on the remaining losses as at 31
December 2020. At Budget 2020, the government announced that the
Corporation Tax main rate (for all profits except ring fence
profits) for the years starting 1 April 2020 and 2021 would remain
at 19%.
29. Earnings per share
The calculation of the basic and diluted earnings per share
attributable to the owners of the parent is based on the weighted
average number of shares in issue during the year of 171,723,145
(2019 168,090,217), including shares purchased by the Company and
held as treasury shares of 402,771 (2019: 402,771), shares held to
satisfy the Group's employee share schemes, of which there were no
remaining at the year end (2019: 3,632,928) and the profit for the
relevant year.
Profit before exceptional items in 2020 of $11,016,481 (2019
profit: $13,246,738) is calculated from the 2020 profit of
$19,867,727 (2019: $22,212,692) adjusted for exceptional items of
$13,221,048 (2019: $10,642,954) and the related deferred tax on the
exceptional items of $4,370,000 (2019: $1,677,000).
There are no dilutive instruments.
2020 2019
Cents Cents
Earnings per share for profit from continuing operations
attributable to the ordinary equity holders of the
parent company:
--------------------------------------------------------- ------- ----------
Basic and diluted profit per 10p ordinary share
-after exceptional items 12.15 12.02
-before exceptional items 6.81 8.02
Earnings per share for (loss)/profit from discontinued
operations attributable to the ordinary equity holders
of the parent company:
--------------------------------------------------------- ------- ----------
Basic and diluted (loss) /profit per 10p ordinary
share
-after exceptional items (0.58) 1.19
-before exceptional items (0.40) (0.14)
Total earnings per share for profit attributable to
the ordinary equity holders of the parent company:
--------------------------------------------------------- ------- --------
Basic and diluted profit per 10p ordinary share
-after exceptional items 11.57 13.21
-before exceptional items 6.41 7.88
--------------------------------------------------------- ------- --------
2020 2019
Reconciliations of earnings used in calculating earnings
per share $000 $000
Profit from continuing operations for the purpose
of basic and diluted earnings per share (profit for
the year attributable to the owners of the parent):
- After exceptional item 20,870 20,209
- Before exceptional item 11,696 13,475
---------------------------------------------------------------- ----------- ------------
(Loss)/profit from discontinued operations for the
purpose of basic and diluted earnings per share ((loss)/profit
for the year attributable to the owners of the parent):
- After exceptional item (1,002) 2,004
- Before exceptional item (680) (228)
---------------------------------------------------------------- ----------- ------------
Total profit for the purpose of basic and diluted
earnings per share (profit for the year attributable
to the owners of the parent):
- After exceptional item 19,868 22,213
- Before exceptional item 11,016 13,247
---------------------------------------------------------------- ----------- ------------
Number of shares 2020 2019
---------------------------------------------------------------- ----------- ------------
Basic weighted average number of shares 172,125,916 172,125,916
Treasury shares (402,771) (402,771)
Shares held in Employee Benefit Trust (Note 16) (3,632,928) (5,000,000)
Sale of shares held by Employee Benefit Trust (Note
16) 3,632,928 1,186,547
Exercise of share options (Note 26) - 180,525
---------------------------------------------------------------- ----------- ------------
Weighted average number of shares 171,723,145 168,090,217
---------------------------------------------------------------- ----------- ------------
30. Dividends
No interim dividend was paid or declared for 2020 (2019: nil).
In respect of the full year 2020, the directors do not propose a
final dividend (2019: no final dividend paid or declared).
31. Reconciliation of profit from operations to net cash inflow
from operations
2020 2019
$000 $000
Profit from operations (continuing operations) 25,315 31,550
(Loss)/profit from operations (discontinued operations) (1,002) 2,004
Depreciation, depletion and amortisation 17,912 19,217
Gain on disposal of fixed assets (113) (98)
Exceptional item -for production based taxes, including
forex (13,543) (8,410)
Increase/(decrease) in provision for impairment of
Hungary 322 (2,232)
Share-based payment charge - 14
----------------------------------------------------------- -------- -------
Cash generated from operations before changes in working
capital 28,891 42,045
Decrease in operating trade and other receivables 272 1,156
(Decrease)/increase in operating trade and other payables (3,794) 1,811
Decrease/(increase) in inventories 3,867 (3,802)
----------------------------------------------------------- -------- -------
Net cash generated from continuing operations 28,938 41,386
Net cash generated from/ (used) in discontinued operations
(Note 15) 300 (176)
----------------------------------------------------------- -------- -------
Changes in liabilities from financing activities
The table below details changes in the Group's liabilities
arising from financing activities, including both cash and non-cash
changes. Liabilities arising from financing activities are those
for which cash flows were, or future cash flows will be, classified
in the Group's consolidated cash flow statement as cash flows from
financing activities.
Borrowings Leases
$000 $000
---------------------------------- ---------- -------
At 1 January 2020 5,683 2,089
Cash flows
- Payment of principal (5,440) (1,661)
- Payment of interest (381) -
Non-cash flows
* Foreign exchange - 134
- Interest accruing in the period 138 197
At 31 December 2020 - 759
---------------------------------- ---------- -------
Borrowings Leases
$000 $000
---------------------------------- ---------- -------
At 1 January 2019 11,003 3,511
Cash flows
- Payment of principal (5,280) (1,776)
- Payment of interest (1,131) -
Non-cash flows
* Accruals - 134
* Foreign exchange - (34)
- Interest accruing in the period 1,091 254
At 31 December 2019 5,683 2,089
---------------------------------- ---------- -------
32. Capital commitments
Under the work programs for the Group's exploration and
development licences the Group had committed $0.3m to future
capital expenditure on drilling rigs and facilities at 31 December
2020 (2019: nil).
33. Related party transactions
Key management compensation
Key management personnel are considered to comprise only the
Directors. The remuneration of Directors during the year was as
follows:
2020 2019
$000 $000
Short-term employee benefits 1,156 1,141
Share-based payments charge - 14
----------------------------- ------ ------
1,156 1,155
----------------------------- ------ ------
Further information about the remuneration of individual
Directors, together with the Directors' interests in the share
capital of JKX Oil & Gas plc, is provided in the audited part
of the Remuneration Report and in the Directors Report.
Three Non Executive Directors joined the Board during 2019
following removal of two Non Executive Directors at 2019 Annual
General meeting (AGM) and resignations of the other two Non
Executive Directors after 2019 AGM. Victor Gladun was appointed as
an Executive Director of the Company at the AGM and on 20 September
he was additionally appointed as the CEO of the JKX Group. Please
refer to the Remuneration Report for the disclosure on the bonus
awarded to the Group CEO for 2020 (2019: nil).
Share-based payments represents the expenses arising from
share-based payments included in the income statement, determined
based on the fair value of the related awards at the date of grant
(Note 26).
Transactions with related parties
The transactions between the Company and its subsidiaries, which
are related parties, have been eliminated on consolidation.
PJSC "Mining Company Ukrnaftoburinnya" ("UNB"), a Ukrainian oil
and gas company in which Group holds a 10% of the ordinary share
capital was considered a related party at 31 December 2020. One of
the Group's Non Executive Directors, Michael Bakunenko, a member of
Audit and Nomination Committees, is also a Chairman of the Board of
UNB.
The following transactions were carried out with UNB:
2020 2019
$000 $000
Gas sales 2,498 1,330
---------------------------------------------- ------ ------
Sale of property, plant and equipment (pipes) - 135
---------------------------------------------- ------ ------
2020 2019
$000 $000
Natural gas liquids (NGLs) purchase 30 -
------------------------------------ ------ ------
Gas, oil and property, plant and equipment are sold and
purchased on normal commercial terms and conditions.
Subsidiary undertakings and joint operations
The Company's principal subsidiary undertakings including the
name, country of incorporation, registered address and proportion
of ownership interest for each are disclosed in Note C to the
Company's separate financial statements which follow these
consolidated financial statements.
Transactions between subsidiaries and between the Company and
its subsidiaries are eliminated on consolidation.
34. Audit exemptions for subsidiary companies
The Group has elected to take advantage of the full extent of
the exemptions available under Section 479A of the Companies Act
2006. Exemption from mandatory audit in section 479A of the act is
available for qualifying subsidiaries that fulfil a set of
conditions. As a result, statutory financial statements will not be
audited for the following UK entities: JKX Services Limited, JKX
Georgia Ltd, JKX (Ukraine) Ltd, Baltic Energy Trading Ltd, EuroDril
Limited, JP Kenny Exploration & Production Limited, Page Gas
Ltd, Trans-European Energy Services Limited, JKX Limited.
35. Events after the reporting date
On 12 March 2021 Kharkiv Appellate Administrative Court found in
favour of PPC in case No. 816/686/16 and cancelled the tax
notification decisions recognising them as illegal. Consequently
the provision of $10.4m (including interest and penalties) was
released to profit and loss account for the year ended 31 December
2020. Please refer to Note 27 for the full disclosure.
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END
FR JBMJTMTTJBIB
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