CADOGAN PETROLEUM PLC
Half Yearly Report
for the Six Months ended 30 June
2021
(Unaudited and
unreviewed)
Highlights
Cadogan Petroleum plc (“Cadogan” or the “Company”), an
independent, diversified oil & gas company listed on the main
market of the London Stock Exchange, is pleased to announce its
unaudited results for the six months ended 30 June 2021.
- H1 2021 has been another semester without LTI and
TRI with strict execution of the anti-covid measures implemented by
the company at the beginning of the pandemic in 2020, and which
resulted in no fatalities due to desease.
- Average production was 331 bpd in H1 2021 (230
bpd in H1 2020), a 44% increase versus H1 2020. This result, the
highest net average over the last 10 years, was achieved despite
the impact of the covid pandemic with the four wells producing at
Blazhiv oil field.
- The company continued defending its positions for
the licenses award approval, against the Licensing Authority of
Ukraine (State Geological
Service), in the Kiev Administrative Court for Bitlyanska and the
Supreme Court for Pirkivska.
- During H1 2021, the Company sold 7,56 million m3
of stored gas for $1,74 million (H1
2020: no trading operations).
- The services business continued to support the
Group’s activities.
- Proger Manager & Partners failed to comply
with their duties for the reimbursement of the Loan with the
accumulated interests, which in total amounted Euro 14,857,350 as at February 25, 2021.
- Production revenues increased by 120% versus the
same period in 2020, due to a 55% increase in the average realized
oil price and a 44% increase of the production volumes. Overall
revenues increased by 258% versus the same period in 2020 due to
the absence of sales of gas for the first half 2020.
- As a result of the above initiatives, cash
position at the period end was $14.7
million (30 June 2020:
$11.6 million). This level of cash is
sufficient to sustain on-going operations.
Overall, Cadogan continued
operating in an unstable environment impacted by the Covid-19
pandemic, and lock-down periods. The Company continued
improving performances of its oil production operations and
controlling costs, and looking at opportunities to grow.
Key performance indicators
During H1 2021, The Group has monitored its performance in
conducting its business with reference to a number of key
performance indicators (‘KPIs’):
- to increase oil production measured on the
barrels of oil produced per day (‘bpd’);
- to decrease administrative expenses;
- to increase the Group’s basic earnings per
share;
- to maintain no lost time incident; and
- to grow and geographically diversify the
portfolio.
The Group’s performance during the first six months of 2021,
measured against these targets, is set out in the table below,
together with the prior year performance data. No changes have been
made to the sources of data or calculations used in the
period/year. The positive trend in the HSE performances continues
with zero incidents.
|
Unit |
30
June 2021 |
30
June 2020 |
31
December 2020 |
|
|
|
|
|
Average production
(working interest basis) (a) |
Boepd |
331 |
230 |
291 |
Administrative
expenses |
$million |
1.7 |
1.5 |
3.8 |
Basic loss per share
(b) |
Cent |
(0.1) |
(0.6) |
(0.4) |
Lost time incidents
(c) |
Incidents |
0 |
0 |
0 |
Geographical
diversification |
New
assets |
- |
- |
- |
a. Average production is calculated as
the average daily production during the period/year
b. Basic loss per ordinary share is
calculated by dividing the net loss for the year attributable to
equity holders of the parent company by the weighted average number
of ordinary shares during the period
c. Lost time incidents relate to
injuries where an employee/contractor is injured and has time off
work (IOGP classification)
Enquiries:
Cadogan Petroleum
Plc |
|
|
Fady
Khallouf
Ben Harber |
Chief
Executive Officer
Company Secretary |
fady.khallouf@cadogan petroleum.com
+44 (0) 207 264 4366 |
Operations Review
Introduction
The business worldwide and in Ukraine has managed to adjust to operating in
new post-Covid-19 volatile reality. However, the turbulence which
resulted from the pandemic of coronavirus has continued to affect
Ukraine and Cadogan’s activities.
At the same time first half of the year witnessed recovery of the
Brent oil price reaching $73 per bbl
as of June 2021.
The first half of 2021 has been another challenging time for
Ukraine. The government has been
repeatedly tightening restriction measures to take under control
and mitigate Covid-19 pandemic distribution in the country as well
as launch vaccination plan for population.
Ukraine pursued efforts to
attract new investments, including in its oil and gas sector, by
promoting incentives such as “investment nanny’s”, new areas under
e-auctions and award of PSA. But at the same time, risks of
sanctions have been introduced by National Security and Defence
Council of Ukraine towards oil and
gas exploration companies by depriving the asset rights. Besides,
the State Commission of Ukraine on
Mineral Resources announced unscheduled inspections plans to fight
against “sleeping licenses” or subsoil licenses the issuance of
which is considered doubtful.
In this context, the Group has continued to focus on safely and
efficiently operating the existing wells, on controlling its costs
in order to preserve cash while continuing to look at opportunities
to grow and diversify its portfolio.
In H1 2021, the Group recorded 10 cases of Covid-19 infection.
All of them have recovered.
Operations
E&P activity remained focused on maintaining and securing
its licenses for the new term and safely and efficiently producing
from the existing wells within the Blazhiv oil field. During H1
2021, the average gross production rated at 331 bpd, which is 44%
higher than in H1 2020 (230 bpd). The results improvement was due
to uninterrupted production of four Blazhiv wells (Blazhiv-3 and
Blazhiv-Monasterets-3 had been shut-down during H1 2020 waiting for
the renewal by PJSC Ukrnafta of the lease agreements after expiry )
at optimum operational regimes. For the purposes of the geological
construction precision of Blazhiv oil field and Monastyretska fold
and also the identification of new perspective structures within
the license area boundary, Cadogan
has launched analyses for the data reprocessing and
reinterpretation of old 2D seismic data. Upon works completion,
presumably by the end of 2021, it is expected to receive the
required data for the field skeleton structural and tectonic
modeling.
The structural tectonic and petrophysical modeling of the area,
hydrocarbons reserves & resources reassessment as well as
hydrodynamic model refining is planned to be conducted after the
completion of the seismic reprocessing/ reinterpretation.
Regarding the Bitlyanska 20-year exploration and development
license, in May and August 2020 after
a deep and complete analyses performed with external legal
advisors, Usenco Nadra LLC, a Cadogan Group subsidiary, filed two
claims with the Kyiv Administrative Court to challenge the
non-granting of the 20-year exploration and production license
as acknowledge and unlawful inaction of State Service
of Geology (SGS) . Cadogan expects
decision on the claim during 2021.
All activities were executed without LTI or
TRI[1], with a total of 1,340,000 manhours
since the last incident, which occurred to a sub-contractor, in
February 2016. Total increase of oil
production impacted the emission of Co2 to the atmosphere which
amounted 82.47 tons of Co2,e/boe produced, compared to 62.37 tons
of Co2,e/boe for the same reporting period of last year.
In Italy, given the on-going
moratorium for the approval of new licenses, activity was focused
on maintaining liaisons with the local authorities and fulfilling
the mandatory license requirements.
Trading
The Company sold at the favourable season all stored gas of 7.56
million m3.
Cadogan continues to monitor
the gas markets in Europe and
Ukraine, expanding its coverage of
gas markets, logistics routes and gas delivery methods to analyze
and select the timing and terms of low season purchases for high
season sales.
Proger
In February 2021, Cadogan notified Proger Managers &
Partners Srl (“PMP”) that according to the Loan Agreement, the
Maturity Date occurred on 25 February
2021. As the Call Option was not exercised, PMP must fulfill
the payment of EUR 14,857,350, being
the reimbursement of the Loan in terms of principal and the
accumulated interest. PMP is in default since 25 February 2021. End of March 2021, PMP requested an arbitration to have
the Loan Agreement recognised as an equity investment contract,
which is rejected by Cadogan as
the terms of the Agreement are clear and include the right to
repayment at maturity if the Call Option is not exercised. The
arbitrators have been nominated by the Arbitral Court and the
arbitration process is in course. As at 30
June 2021, Proger Ingegneria holds 96.49 % of Proger Spa
after the exit of SIMEST and the purchase by Proger Ingegneria of
its stake in Proger Spa.
Financial position
Cash at 30 June 2021 was
$14.7 million ($11.6 million at 30 June
2020). The Group continually monitors its exposure to
currency risk. It maintains a portfolio of cash mainly in US
Dollars (“USD”) and EURO held primarily in the UK.
The Directors believe that the capital available at the date of
this report is sufficient for the Group to continue its operations
for the foreseeable future.
In H1 2021, the Group held working interests in a conventional
gas-condensate and an oil exploration and production licence in the
West of Ukraine. These assets are
operated by the Group and are located in the prolific Carpathian
basin, close to the Ukrainian oil & gas distribution
infrastructure.
The Group’s primary focus during the period continued to be on
cost optimisation and enhancement of current production, through
the existing well stock and new drilling.
Summary of the Group’s licences (as of 30 June
2021) |
Working
interest (%) |
Licence |
Expiry |
Licence type |
99.8 |
Blazhiv |
November 2039 |
Production |
99.8 |
Bitlyanska(1) |
December 2019 |
Exploration and
Development |
(1) The Bitlyanska license expired on 23
December 2019 and its renewal was not granted within
the due legal period. The Company is involved in an ongoing court
proceeding to defend its rights and challenge the Licensing
Authority actions after the rejection by the State Geological
Service of its Bitlyanska 20-year production license
application.
Below we provide an update to the full Operations Review
contained in 2020 Annual Report published on 6 May 2021.
Bitlyanska license
The Company filed to the State Geological Service an application
for a 20-year production license 5 months ahead the license expiry
date of 23 December 2019.
Cadogan secured approval of the
Environmental Impact Assessment study by the Ministry of Ecology,
the approval of the Reserves Report by the State Commission of
Reserves and the approval of the license award by the Lviv Regional
Council. Given the delay to award the new license beyond the
regular timeline provided by legislation, Cadogan filed two claims with the
Administrative Court to challenge the non-granting of the 20-year
production license by the Licensing Authority. Cadogan expects decision on the claim during
2021.
All operational activities as well as area farm-out have been
put on-hold waiting for the license award.
Blazhiv licence
Through the reporting period the Company has been working to
safely and efficiently producing from the existing wells located in
the Blazhiv license area. At the end of the reporting period, the
average gross production rated at 331 bpd vs 230 bpd in H1 2020.
Such result was achieved due to the adjustment and the selection of
optimum production regime and an uninterrupted production of the
wells at the field.
In the first half of 2021 the Company has completed hydrodynamic
surveys of Blazhiv-1, Blazh-3, Blazhiv-Monastyrets-3 and Blazhiv-10
wells. .
For the purpose of geological construction precision of Blazhiv
oil field and Monastyretska fold and also identification of new
perspective structures within the license area boundary,
Cadogan has launched analyses for
data reprocessing and reinterpretation of old 2D seismic data. Upon
works completion presumably by the end of 2021 it is expected to
receive the required data for the field skeleton structural and
tectonic modeling.
The structural tectonic and petrophysical modeling of the area,
hydrocarbons reserves & resources reassessment as well as
hydrodynamic model refining is planned to be conducted after the
completion of the seismic reprocessing/ reinterpretation.
East
Ukraine
The Pirkivska production license expired in 2015. Astrogaz LLC,
a Cadogan Group subsidiary, applied for a new license. After
several years and the end of the 3-year period allowed for
conversion of the previous license, the Company initiated court
proceedings to defend its rights and to challenge the Licensing
Authority’s actions. As the result, the Court of First Instance has
partly satisfied the claim and confirmed inaction of the Licensing
Authority and obliged it to review the application. Astrogaz
introduced a claim with the Court of Appeal proposing license award
approval. In its decision of February
2021, the Court of Appeal rejected the Astrogaz claim. In
March 2021, the Company filed an
appeal with the Supreme Court.
Service Company
activities
In H1 2021, Cadogan’s 100% owned subsidiary, Astro Service LLC,
focused its activities on serving intra-group operational
needs in wells’ work-over/ re-entry operations, wells’ survey as
well as field on-site activities.
Financial Review
Overview
Income statement
In H1 2021, revenues increased to $4.5
million (H1 2020: $1.2
million), due to $1.7 million
gas sales (H1 2020: nil) and the increase in oil sales. Revenues
from production increased to $2.8
million (H1 2020: $1.2
million) due to the increase of the realized price by 55%
and the increase in the produced volumes of oil by 44%.
The services business concentrated its activities on intra-group
services, in particular, for the Blazhivska license.
The cost of sales of the production segment consists of
$1.2 million of production royalties
($0.5 million), $0.4 million of
operating costs ($0.2 million),
$0.4 million of depreciation and
depletion of producing wells ($0.3
million), and $0.1 million of
direct staff costs for production ($0.1
million).
Half year gross profit from production activities increased to
$0.6 million (30 June 2020: $0.2
million), driven by increase in production and higher oil
prices.
The Group recorded a $0.6 million
interest on Proger Loan. Refer to note 11 for details.
Other administrative expenses were kept under control at
$1.7 million (30 June 2020: $1.5
million). They comprise other staff costs, professional fees
and expenses, Directors’ remuneration and depreciation charges on
non-producing property.
Balance sheet
At 30 June 2021, the cash position
of $14.7 million (30 June 2020: $11.6
million) increased compared to the $13.3 million as at 31
December 2020, because of positive cash flows generated from
operating activities.
Intangible Exploration and Evaluation (“E&E”) assets of
$2.5 million (30 June 2020: $2.6
million, 31 December 2020:
$2.4 million) represent the carrying
value of the Group’s investment in E&E assets as at
30 June 2021. The Property, Plant and
Equipment (“PP&E”) balance of $10
million at 30 June 2021
(30 June 2020: $10.7 million, 31 December
2020: $9.9 million) includes
$9.6 million of development and
production assets on the Blazhyvska licence and other PP&E of
the Group.
Trade and other receivables of $0.9
million (30 June 2020:
$2.3 million, 31 December 2020: $1.6
million) include recoverable VAT of $0.8 million[2]
(30 June 2020: $2 million, 31 December
2020: $1.5 million),
$0.1 million of other receivables and
prepayments (30 June 2020:
$0.3 million, 31 December 2020: $0.1
million).
The $1.3 million of trade and
other payables as of 30 June 2021
(30 June 2020: $0.9 million, 31 December
2020: $1.3 million) represent
$0.9 million (30 June 2020: $0.2
million, 31 December 2020:
$0.8 million) of other creditors and
$0.4 million of accruals
(30 June 2020: $0.7 million, 31 December
2020: $0.5 million).
Cash flow statement
The Consolidated Cash Flow Statement shows positive cash-flow
from operating activities of $1.5
million (30 June 2020: outflow
$1.2 million, 31 December 2020: inflow $0.1 million). Cashflow, before movements in
working capital, was an outflow of $44
thousand (30 June 2020:
outflow $0.9 million, 31 December 2020: outflow $2.5 million).
Group capital expenditure was $0.1
million on Property, Plant and Equipment which related to
the Blazhyvska license.
Commitments
There has been no material change in the commitments and
contingencies reported as at 31 December
2020 (refer to page 107 of the Annual Report).
Treasury
The Group monitors continuously its exposure to currency risk.
It maintains a portfolio of cash, mainly in both US dollars (‘USD’)
and EURO held primarily in the UK, and holds these in call
deposits. Production revenues from the sale of hydrocarbons are
received in the local currency in Ukraine (‘UAH’) and to date funds from such
revenues have been held in Ukraine
for further use in operations. When funds are needed for
operations, they are transferred to the Company’s subsidiaries in
USD, and then converted to UAH.
Going concern
The Directors have a reasonable expectation that the Company and
the Group have adequate resources to continue in operational
existence for the foreseeable future. Accordingly, they continue to
adopt the going concern basis in preparing the Interim Financial
Statements. For further details refer to the detailed discussion of
the assumptions outlined in note 2(a) to the Interim Financial
Statements.
Cautionary Statement
The business review and certain other sections of this Half
Yearly Report contain forward looking statements that have been
made by the Directors in good faith based on the information
available to them up to the time of their approval of this report.
However they should be treated with caution due to inherent
uncertainties, including both economic and business risk factors,
underlying any such forward-looking information and no statement
should be construed as a profit forecast.
Risks and uncertainties
There are a number of potential risks and uncertainties inherent
in the oil and gas sector which could have a material impact on the
long-term performance of the Group and which could cause the actual
results to differ materially from expected and historical results.
The Company has taken reasonable steps to mitigate these where
possible. Full details are disclosed on pages 15 to 18 of the 2020
Annual Financial Report. There have been no changes to the risk
profile during the first half of the year. The risks and
uncertainties are summarised below.
Operational risks
- Health, safety, and environment
- COVID-19
- Climate change
- Drilling and work-over operations
- Production and maintenance
Subsurface risks
Financial risks
- Changes in economic environment
- Counterparty
- Default on the Proger loan repayment
- Commodity price
Country risk
- Regulatory and licence issues
- Emerging market
Other risks
- Risk of losing key staff members
- Risk of entry into new countries
- Risk of delays in projects related to local
communities dialogue
Director’s Responsibility
Statement
We confirm that to the best of our knowledge:
(a) the
Interim Financial Statements have been prepared in accordance with
the UK-adopted IAS 34 ‘Interim Financial Reporting’;
(b) the
interim management report includes a fair review of the information
required by DTR 4.2.7R (indication of important events during the
first six months and description of principal risks and
uncertainties for the remaining six months of the year);
(c)
the interim management report includes a fair review of the
information required by DTR 4.2.8R (disclosure of related
parties’ transactions and changes therein); and
(d) the
condensed set of financial statements, which has been prepared in
accordance with the applicable set of accounting standards, gives a
true and fair view of the assets, liabilities, financial position
and profit or loss of the issuer, or the undertakings included in
the consolidation as a whole as required by DTR 4.2.4R.
This Half Yearly Report consisting of pages 1 to 24 has been
approved by the Board and signed on its behalf by:
Fady Khallouf
Chief Executive Officer
8 September 2021
Consolidated Income Statement
Six months ended 30 June
2021
|
|
Six
months ended 30 June |
Year ended
31 December |
|
|
2021
$’000 |
2020
$’000 |
2020
$’000 |
|
Notes |
(Unaudited) |
(Unaudited) |
(Audited) |
CONTINUING OPERATIONS |
|
|
|
|
Revenue |
3 |
4,517 |
1,266 |
5,105 |
Cost of sales |
3 |
(3,222) |
(1,090) |
(4,500) |
Provision against unsold gas
inventory |
|
- |
(614) |
- |
Gross profit |
|
1,295 |
(438) |
605 |
|
|
|
|
|
Administrative expenses |
|
(1,703) |
(1,495) |
(3,771) |
Reversal of impairment of other
assets |
|
- |
4 |
644 |
Impairment of other assets |
|
(2) |
(125) |
(53) |
Interest income on loan
provided |
11 |
587 |
- |
- |
Fair value gain/(loss) on loan and
call option |
11 |
- |
409 |
(334) |
Net foreign exchange
(losses)/gains |
|
(276) |
129 |
1,938 |
Other operating
(losses)/income,net |
|
(36) |
(4) |
(71) |
Operating (loss)/profit |
|
(135) |
(1,520) |
(1,042) |
|
|
|
|
|
Finance income |
4 |
5 |
45 |
40 |
(Loss)/profit before tax |
|
(130) |
(1,475) |
(1,002) |
|
|
|
|
|
Tax (expense)/benefit |
|
- |
- |
- |
(Loss)/profit for the
period/year |
|
(130) |
(1,475) |
(1,002) |
|
|
|
|
|
Attributable to: |
|
|
|
|
Owners of the Company |
5 |
(134) |
(1,470) |
(996) |
Non-controlling interest |
|
4 |
(5) |
(6) |
|
|
(130) |
(1,475) |
(1,002) |
|
|
|
|
|
(Loss)/profit per Ordinary
share |
|
Cents |
Cents |
Cents |
Basic and diluted |
5 |
(0.1) |
(0.6) |
(0.4) |
Consolidated Statement of Comprehensive Income
Six months ended 30 June
2021
|
|
Six
months ended 30 June |
Year ended
31 December |
|
|
2021
$’000 |
2020
$’000 |
2020
$’000 |
|
|
(Unaudited) |
(Unaudited) |
(Audited) |
(Loss)/profit for the
period/year |
|
(130) |
(1,475) |
(1,002) |
Other comprehensive
(loss)/profit |
|
|
|
|
Items that may be reclassified
subsequently to profit or loss |
|
|
|
|
Unrealised currency translation
differences |
|
111 |
(2,466) |
(3,880) |
Other comprehensive
(loss)/profit |
|
111 |
(2,466) |
(3,880) |
Total comprehensive profit/(loss)
for the period/year |
|
(19) |
(3,941) |
(4,882) |
|
|
|
|
|
Attributable to: |
|
|
|
|
Owners of the Company |
|
(23) |
(3,936) |
(4,876) |
Non-controlling interest |
|
4 |
(5) |
6 |
|
|
(19) |
(3,941) |
(4,882) |
Consolidated Statement of Financial Position
Six months ended 30 June
2021
|
|
Six
months ended 30 June |
Year ended
31 December |
|
|
2021
$’000 |
2020
$’000 |
2020
$’000 |
|
Notes |
(Unaudited) |
(Unaudited) |
(Audited) |
ASSETS |
|
|
|
|
Non-current assets |
|
|
|
|
Intangible exploration and
evaluation assets |
|
2,483 |
2,642 |
2,381 |
Property, plant and equipment |
6 |
10,000 |
10,715 |
9,963 |
Right-of-use assets |
|
246 |
- |
292 |
Deferred tax asset |
|
432 |
501 |
419 |
|
|
13,161 |
13,858 |
13,055 |
Current assets |
|
|
|
|
Inventories |
7 |
1,182 |
3,079 |
2,156 |
Trade and other receivables |
8 |
929 |
2,273 |
1,632 |
Loan classified at fair value
through profit and loss |
11 |
- |
16,145 |
16,812 |
Loan provided |
11 |
16,902 |
- |
- |
Cash and cash equivalents |
|
14,651 |
11,601 |
13,253 |
|
|
33,664 |
33,098 |
33,853 |
Total assets |
|
46,825 |
46,956 |
46,908 |
|
|
|
|
|
LIABILITIES |
|
|
|
|
Non-current liabilities |
|
|
|
|
Long-term lease liability |
|
(149) |
- |
(195) |
Provisions |
|
(297) |
(256) |
(223) |
|
|
(446) |
(256) |
(418) |
Current liabilities |
|
|
|
|
Trade and other payables |
9 |
(1,316) |
(938) |
(1,387) |
Short-term lease liability |
|
(76) |
- |
(97) |
|
|
(1,392) |
(938) |
(1,484) |
Total liabilities |
|
(1,838) |
(1,194) |
(1,902) |
|
|
|
|
|
Net assets |
|
44,987 |
45,762 |
45,006 |
|
|
|
|
|
EQUITY |
|
|
|
|
Share capital |
12 |
13,832 |
13,832 |
13,832 |
Share premium |
|
514 |
329 |
514 |
Retained earnings |
|
190,829 |
190,489 |
190,963 |
Cumulative translation reserves |
|
(162,044) |
(160,741) |
(162,155) |
Other reserves |
|
1,589 |
1,589 |
1,589 |
Equity attributable to equity
holders of the parent |
|
44,720 |
45,498 |
44,743 |
Non-controlling interest |
|
267 |
264 |
263 |
Total equity |
|
44,987 |
45,762 |
45,006 |
Consolidated Statement of Cash Flows
Six months ended 30 June
2021
|
Six months ended 30 June |
Year ended
31 December |
|
2021
$’000 |
2020
$’000 |
2020
$’000 |
|
(Unaudited) |
(Unaudited) |
(Audited) |
Operating
loss |
(135) |
(1,520) |
(708) |
Adjustments for: |
|
|
|
Depreciation of
property, plant and equipment |
398 |
369 |
734 |
Impairment of
inventories |
2 |
614 |
50 |
Impairment/(Reversal of
impairment) of receivables |
- |
(5) |
3 |
Impairment/(Reversal of
impairment) of VAT recoverable |
2 |
125 |
(644) |
Interest on loan
provided |
(587) |
- |
|
Net fair value of
convertible loan |
- |
(409) |
334 |
Effect of foreign
exchange rate changes |
276 |
(129) |
(1,938) |
Operating cash flows
before movements in working capital |
(44) |
(955) |
(2,503) |
Decrease/(Increase) in
inventories |
1,022 |
279 |
1,624 |
Decrease
/(Increase) in receivables |
716 |
(74) |
930 |
(Decrease)/Increase
in payables and provisions |
(154) |
(514) |
34 |
Cash from
operations |
1,540 |
(1,264) |
85 |
Interest received |
22 |
9 |
25 |
Net cash
inflow/(outflow) from operating activities |
1,562 |
(1,255) |
110 |
|
|
|
|
|
Investing activities |
|
|
|
|
Purchases of property, plant and
equipment |
|
(50) |
(132) |
(279) |
Purchases of intangible exploration
and evaluation assets |
|
- |
(5) |
(32) |
Proceeds from sale of property,
plant and equipment |
|
- |
4 |
- |
Interest received |
|
8 |
36 |
38 |
Net cash used in investing
activities |
|
(42) |
(97) |
(273) |
|
|
|
|
|
Financing activities |
|
|
|
|
Net cash from financing
activities |
|
- |
- |
- |
|
|
|
|
|
Net increase (decrease) in cash
and cash equivalents |
|
1,520 |
(1,352) |
(163) |
Effect of foreign exchange rate
changes |
|
(122) |
119 |
582 |
Cash and cash equivalents at
beginning of period/year |
|
13,253 |
12,834 |
12,834 |
Cash and cash equivalents at end
of period/year |
|
14,651 |
11,601 |
13,253 |
Consolidated Statement of Changes in Equity
Six months ended 30 June
2021
|
Share
capital |
Share
premium account |
Retained earnings |
Cumulative translation reserves |
Other
reserves |
Equity attributable to owners of the Company |
Non-controlling interest |
Total |
|
$’000 |
$’000 |
$’000 |
$’000 |
$’000 |
$’000 |
$’000 |
$’000 |
As at 1 January
2020 |
13,525 |
329 |
191,959 |
(158,275) |
2,081 |
49,619 |
269 |
49,888 |
Net loss for the
period |
- |
- |
(1,470) |
- |
- |
(1,470) |
(5) |
(1,475) |
Other comprehensive
loss |
- |
- |
- |
(2,466) |
- |
(2,466) |
- |
(2,466) |
Total comprehensive
loss for the year |
- |
- |
(1,470) |
(2,466) |
- |
(3,936) |
(5) |
(3,941) |
Issue of ordinary
shares |
307 |
|
- |
- |
(492) |
(185) |
- |
(185) |
As at 30 June
2020 |
13,832 |
329 |
190,489 |
(160,741) |
1,589 |
45,498 |
264 |
45,762 |
Net profit for the
period |
- |
- |
474 |
- |
- |
474 |
(1) |
473 |
Other comprehensive
profit |
- |
- |
- |
(1,414) |
- |
1,414 |
- |
1,414 |
Total comprehensive
profit for the year |
- |
- |
474 |
(1,414) |
- |
(940) |
(1) |
(941) |
Shares based
award |
- |
185 |
- |
- |
- |
185 |
- |
185 |
As at 31 December
2020 |
13,832 |
514 |
190,963 |
(162,155) |
1,589 |
44,743 |
263 |
45,006 |
Net loss for the
period |
- |
- |
(134) |
- |
- |
(134) |
4 |
(130) |
Other comprehensive
profit |
- |
- |
- |
111 |
- |
111 |
- |
111 |
Total comprehensive
profit for the year |
- |
- |
(134) |
111 |
- |
(23) |
4 |
(19) |
Issue of ordinary
shares |
- |
|
|
|
- |
- |
|
- |
As at 30 June
2021 |
13,832 |
514 |
190,829 |
(162,044) |
1,589 |
44,720 |
267 |
44,987 |
Notes to the Condensed Financial Statements
Six months ended 30 June
2021
1. General
information
Cadogan Petroleum plc (the ‘Company’, together with its
subsidiaries the ‘Group’), is incorporated in England and Wales under the Companies Act. The address of
the registered office is 6th Floor, 60 Gracechurch Street,
London EC3V 0HR. The nature of the
Group’s operations and its principal activities are set out in the
Operations Review on pages 3 to 5 and the Financial Review on pages
6 to 7.
This Half Yearly Report has not been audited or reviewed in
accordance with the Auditing Practices Board guidance on ‘Review of
Interim Financial Information’.
A copy of this Half Yearly Report has been published and may be
found on the Company’s website at www.cadoganpetroleum.com.
2. Basis of preparation
The annual financial statements of the Group are prepared in
accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006 and in accordance
with international financial reporting standards adopted pursuant
to Regulation (EC) No 1606/2002 as it applies in the European
Union. On 31 December 2020, IFRS as
adopted by the European Union at that date was brought into UK law
and became UK-adopted international accounting standards, with
future changes being subject to endorsement by the UK Endorsement
Board. The Group transitioned to UK-adopted international
accounting standards in its consolidated financial statements on
1 January 2021. There was no impact
or changes in accounting policies from the transition. These
Condensed Financial Statements have been prepared in accordance
with the UK-adopted IAS 34 Interim Financial Reporting.
The same accounting policies and methods of computation are
followed in the condensed financial statements as were followed in
the most recent annual financial statements of the Group except as
noted, which were included in the Annual Report issued on
6 May 2021.
The Group has not early adopted any amendment, standard or
interpretation that has been issued but is not yet effective. It is
expected that where applicable, these standards and amendments will
be adopted on each respective effective date.
This consolidated interim financial information does not
constitute accounts within the meaning of section 434 and of the
Companies Act 2006. Statutory accounts for the year ended
31 December 2020 were approved by the
Board of Directors on 5 May 2021 and
delivered to the Registrar of Companies. The report of the auditors
on those accounts was qualified as the auditors were unable to
obtain sufficient and appropriate evidence to conclude as to
whether the fair value of the Proger loan instrument of
$16.8 million was materially
accurate.
(a) Going concern
The Directors have continued to use the going concern basis in
preparing these condensed financial statements. The Group's
business activities, together with the factors likely to affect
future development, performance and position are set out in the
Operations Review. The financial position of the Group, its cash
flow and liquidity position are described in the Financial
Review.
The Group’s cash balance at 30 June
2021 was $14.7 million
(31 December 2020: $13.3 million).
The Group’s forecasts and projections, taking into account
reasonably possible changes in trading activities, operational
performance, flow rates for commercial production and the price of
hydrocarbons sold to Ukrainian customers, show that there are
reasonable expectations that the Group will be able to operate on
funds currently held and those generated internally, for the
foreseeable future.
The Group’s farm-out strategy on Bitlyanska license is on-hold
waiting for the outcome of the claim introduced against the
Licensing Authority for non granting the 20-year production
license.
Having considered the Company’s financial position and its
principal risks and uncertainties, including the assessment of
potential risks associated with Covid-19 including a) restrictions
applied by governments, illness amongst our workforce and
disruption to supply chain and sales channels; and b) market
volatility in respect of commodity prices associated with Covid-19
in addition to geopolitical factors, the Directors have a
reasonable expectation that the Group have adequate resources to
continue in operational existence for the foreseeable future.
After making enquiries and considering the uncertainties
described above, the Directors have a reasonable expectation that
the Company and the Group have adequate resources to continue in
operational existence for the foreseeable future and consider the
going concern basis of accounting to be appropriate and, thus, they
continue to adopt the going concern basis of accounting in
preparing the financial statements. In making their statement the
Directors have considered the recent political and economic
uncertainty in Ukraine.
(b) Foreign currencies
The individual financial statements of each Group company are
presented in the currency of the primary economic environment in
which it operates (its functional currency). The functional
currency of the Company is US dollar. For the purpose of the
consolidated financial statements, the results and financial
position of each Group company are expressed in US dollars, which
is the presentation currency for the consolidated financial
statements.
The relevant exchange rates used were as follows:
1 £ =
xUS$ |
Six
months ended 30 June |
Year
ended
31 Dec 2020 |
|
|
2021 |
2020 |
|
|
Closing rate |
1.3837 |
1.2322 |
1.3678 |
|
Average rate |
1.3891 |
1.2613 |
1.2843 |
|
|
|
|
|
1 US$ = xUAH |
Six
months ended 30 June |
Year
ended
31 Dec 2020 |
|
|
2021 |
2020 |
|
|
Closing rate |
27.5214 |
26.7105 |
28.3700 |
|
Average rate |
27.9902 |
26.0227 |
27.0034 |
|
|
|
|
|
|
1 Euro = xUS$ |
Six
months ended 30 June |
Year
ended |
|
|
2021 |
2020 |
31 Dec
2020 |
|
Closing rate |
1.1879 |
1.1235 |
1.2217 |
|
Average rate |
1.2088 |
1.1024 |
1.1420 |
|
|
|
|
|
|
|
|
|
|
|
(c) Dividend
The Directors do not recommend the payment of a dividend for the
period (30 June 2020: $nil;
31 December 2020: $nil).
(d) Critical
accounting judgments and estimates
Impairment indicator assessment for
E&E assets
The outcome of ongoing exploration, and therefore the
recoverability of the carrying value of intangible exploration and
evaluation assets, is inherently uncertain. Management assesses its
E&E assets, and perform an impairment test if indicators of
impairment are identified. In assessing potential indicators of
impairment, management considered factors such as the remaining
term of the license, plans for renewal of the license, conversion
to a production license, reports on reserves, the net present value
of economic models, the results of drilling and exploration in the
year and the future plans including farm out proposals. In respect
of the renewal and conversion of the license which remains
outstanding and overdue management considered the status of license
commitments, the status of submissions necessary for the renewal,
trends in the relevant region of the Ukraine with respect to license application
approval together with legal advice in respect of the standing of
the license in the event of delays by the authorities.
Impairment of PP&E
Management assess its development and production assets for
impairment indicators and performs an impairment test if indicators
of impairment are identified. Management performed an impairment
assessment using a value in use discounted cash flow model which
required estimates including forecast oil prices, reserves and
production, costs and discount rates.
Recoverability and measurement of
VAT
Judgment is required in assessing the recoverability of VAT
assets and the extent to which historical impairment provisions
remain appropriate, particularly noting the recent recoveries
against historically impaired VAT. In forming this assessment, the
Group consider the nature and age of the VAT, the likelihood of
eligible future supplies to VAT, the pattern of recoveries and
risks and uncertainties associated with the operating
environment.
Loan provided
In February 2019, the Group
advanced a Euro 13,385,000 loan to
Proger Managers & Partners Srl (“PMP”), a privately owned
Italian company whose only interest is a 72.92% participation in
Proger Ingegneria Srl (“Proger Ingegneria”), a privately owned
company which held a 75.95% participating interest in Proger Spa
(“Proger”) at 31 December 2020, and a
96.49% participating interest in Proger Spa at 30 June 2021. The loan carries an entitlement to
interest at a rate of 5.5% per year, payable at maturity (which is
24 months after the execution date (February
2019) and assuming that the call option described below is
not exercised). The principal of the loan is secured by a pledge
over PMP’s current participating interest in Proger Ingegneria Srl,
up to a maximum guaranteed amount of Euro
13,385,000.
As part of the instrument, the Group was granted a call option
to acquire, at its sole discretion, 33% of participating interest
in Proger Ingegneria; the exercise of the option would give
Cadogan, through Cadogan Petroleum
Holdings BV (“CPHBV”), an indirect 31.84% interest in Proger at
30 June 2021. The call option was
granted at no additional cost and could be exercised at any time
between the 6th (sixth) and 24th (twenty-fourth) months following
the execution date of the Loan Agreement and subject to
Cadogan shareholders having
approved the exercise of the call option as explained further
below. Should CPHBV exercise the call option, the price for the
purchase of the 33% participating interest in Proger Ingegneria
shall be paid by setting off the corresponding amount due by PMP to
CPHBV, by way of reimbursement of the principal, pursuant to the
Loan Agreement. If the call option is exercised, then the
obligation on PMP to pay interest is extinguished.
Management considered the extent to which the option and rights
to representation on the Board of Proger Ingegneria and Proger
meant significant influence existed. The requirement to obtain
shareholder approval for any exercise of the option was considered
to represent a substantive condition such that the option was not
‘currently exercisable’ under IFRS at 31
December 2020. In consequence, the potential voting rights
associated with any subsequent exercise of the option were not
considered to contribute to significant influence over Proger
Ingegneria and Proger.
Under the Group’s accounting policies, the instrument was held
at fair value through profit and loss and determination of fair
value requires assessment of both key Proger Ingegneria and Proger
specific information regarding financial performance and prospects
and market information. At 31 December
2020, the determination of fair value is made based on facts
and circumstances at that date, notwithstanding that the borrower,
PMP, failed to repay the loan at maturity in 2021.
The Group’s original lending decision involved assessment of
Proger Spa business plans and analysis with professional advisers
including valuations performed using the income method (discounted
cash flows) and market approach using both the precedent
transactions and trading multiples methods.
Cadogan did not exercise its
Call Option under the Loan Agreement within the Maturity Date and
the option is expired. Proger Managers & Partners srl failed to
reimburse the Loan amount with the accumulated interests at the
Maturity Date, 25 February 2021. In
case of non-reimbursement, the Loan carries an entitlement to an
interest at a rate of 7.5% per year to be accrued on the principle
amount and the interests accumulated at the Maturity Date until the
total amount is paid.
As the Call Option expired, Cadogan treats the Loan provided to PMP at
historical cost plus accrued interests less provision starting from
March 2021. The recoverability of the
Loan has been assessed in April 2021
for the purpose of Cadogan Annual Report 2020. Since April 2021 there are no additional facts which
can lead to recognition of change of value for the period ended
30 June 2021 (Note 11).
3. Segment
information
Segment information is presented on the basis of management’s
perspective and relates to the parts of the Group that are defined
as operating segments. Operating segments are identified on the
basis of internal assessment provided to the Group’s chief
operating decision maker (“CODM”). The Group has identified its
executive management team as its CODM and the internal assessment
used by the top management team to oversee operations and make
decisions on allocating resources serve as the basis of information
presented.
Segment information is analysed on the basis of the type of
activity, products sold or services provided. The majority of the
Group’s operations are located within Ukraine. Segment information is analyzed on
the basis of the types of goods supplied by the Group’s operating
divisions.
The Group’s reportable segments under IFRS 8 are therefore as
follows:
Exploration and Production
- E&P activities on the production licences for
natural gas, oil and condensate
Service
- Drilling services to exploration and production
companies
- Construction services to exploration and
production companies
Trading
- Import of natural gas from European
countries
- Local purchase and sales of natural gas
operations with physical delivery of natural gas
The accounting policies of the reportable segments are the same
as the Group’s accounting policies. Sales between segments are
carried out at market prices. The segment result represents profit
under IFRS before unallocated corporate expenses. Unallocated
corporate expenses include management and Board remuneration and
expenses incurred in respect of the maintenance of Kiev office premises. This is the measure
reported to the CODM for the purposes of resource allocation and
assessment of segment performance.
The Group does not present information on segment assets and
liabilities as the CODM does not review such information for
decision-making purposes.
As of 30 June 2021 and for the six
months then ended the Group’s segmental information was as
follows:
|
Exploration and
Production |
Services |
Trading |
Consolidated |
|
$’000 |
$’000 |
$’000 |
$’000 |
Sales of hydrocarbons |
2,777 |
- |
1,738 |
4,515 |
Other revenue |
- |
2 |
- |
2 |
Total revenue |
2,777 |
2 |
1,738 |
4,517 |
Other cost of sales |
(2,138) |
- |
(1,084) |
(3,222) |
Other administrative expenses |
(492) |
(35) |
(25) |
(552) |
Finance income/costs, net |
- |
- |
22 |
22 |
Segment results |
147 |
(33) |
651 |
765 |
Unallocated other administrative
expenses |
- |
- |
- |
(1,151) |
Impairment |
- |
- |
- |
(2) |
Net foreign exchange gains |
- |
- |
- |
(276) |
Other income/loss, net |
- |
- |
- |
534 |
Loss before tax |
- |
- |
- |
(130) |
As of 30 June 2020 and for the six
months then ended the Group’s segmental information was as
follows:
|
Exploration and
Production |
Services(1) |
Trading |
Consolidated |
|
$’000 |
$’000 |
$’000 |
$’000 |
Sales of hydrocarbons |
1,263 |
- |
- |
1,263 |
Other revenue |
- |
3 |
- |
3 |
Total revenue |
1,263 |
3 |
- |
1,266 |
Other cost of sales |
(1,087) |
(3) |
- |
(1,090) |
Other administrative expenses |
(281) |
(20) |
(27) |
(328) |
Impairment |
- |
- |
(614) |
(614) |
Finance income/costs, net |
- |
- |
9 |
9 |
Segment results |
(105) |
(20) |
(634) |
757 |
Unallocated other administrative
expenses |
- |
- |
- |
(1,167) |
Net fair value gain on convertible
loan |
- |
- |
- |
409 |
Net foreign exchange gains |
- |
- |
- |
129 |
Other income, net |
- |
- |
- |
(89) |
Profit before tax |
- |
- |
- |
1,475 |
(1) In first half 2020 and in the first
half 2021 the Service business was focused on internal projects, in
particular, providing services to Blazhyvska licence.
4. Finance income/(costs),
net
|
Six months ended 30 June |
Year
ended
31 December |
|
2021 |
2020 |
2020 |
|
$’000 |
$’000 |
$’000 |
Interest expense on
lease |
(14) |
- |
- |
|
|
|
|
Total interest
expenses on financial liabilities |
(14) |
- |
- |
|
|
|
|
Investment
revenue |
8 |
36 |
37 |
Interest income on
cash deposit in Ukraine |
22 |
9 |
25 |
|
|
|
|
Total interest
income on financial assets |
30 |
45 |
62 |
|
|
|
|
Unwinding of discount
on decommissioning provision |
(11) |
- |
(22) |
|
5 |
45 |
40 |
5. (Loss)/profit per
ordinary share
(Loss)/profit per ordinary share is calculated by dividing the
net (loss)/profit for the period/year attributable to Ordinary
equity holders of the parent by the weighted average number of
Ordinary shares outstanding during the period/year. The calculation
of the basic (loss)/profit per share is based on the following
data:
|
Six
months ended 30 June |
Year ended
31 December |
(Loss)/profit attributable to
owners of the Company |
2021
$’000 |
2020
$’000 |
2020
$’000 |
(Loss)/profit for the purposes of
basic (loss)/profit per share being net (loss)/profit attributable
to owners of the Company |
(134) |
(1,475) |
(996) |
Number of shares |
Number
‘000 |
Number
‘000 |
Number
‘000 |
Weighted average number of Ordinary
shares for the purposes of basic (loss)/profit per share |
240,628 |
244,128 |
240,628 |
|
Cent |
Cent |
Cent |
(Loss)/profit per Ordinary
share |
|
|
|
Basic |
(0.1) |
(0.6) |
(0.4) |
6.
Proved properties
As of 30 June 2021 the development
and production assets balance which forms part of PP&E has
increased in comparison to 31 December
2020 due to work-overs at Blazhiv field and Hryvnya exchange
rate increase against the US Dollar at the end of the period.
7.
Inventories
The Group had volumes of natural gas stored at 31 December 2020 which were sold during the
period ended 30 June 2021. No other
substantial changes in inventories balances occured.
The impairment provision as at 30 June
2021 of $0.5 million is held
to reduce the carrying value of the inventories to net realizable
value. No additional provision on inventories has been recognised
for the first half 2021.
8. Trade
and other receivables
|
|
Six months ended 30 June |
Year ended
31 December |
|
|
2021
$’000 |
2020
$’000 |
2020
$’000 |
VAT recoverable |
|
755 |
2,067 |
1,500 |
Prepayments |
|
92 |
114 |
- |
Trade receivables |
|
28 |
14 |
- |
Other receivables |
|
54 |
78 |
132 |
|
|
929 |
2,273 |
1,632 |
|
|
|
|
|
|
|
VAT recoverable asset was realized through natural gas and crude
oil sales during the first half of 2021. The Directors consider
that the carrying amount of the other receivables approximates
their fair value. Management expects to realise VAT recoverable
through the activities of the business segments.
9. Trade
and other payables
The $1.3 million of trade and
other payables as of 30 June 2021
(30 June 2020: $0.9 million, 31 December
2020: $1.4 million) represent
$0.9 million (30 June 2020: $0.2
million, 31 December 2020:
$1.2 million) of payables and
$0.4 million of accruals
(30 June 2020: $0.7 million, 31 December
2020: $0.2 million).
10. Commitments and
contingencies
There have been no significant changes to the commitments and
contingencies reported on page 107 of the Annual Report.
11. Loan provided
In February 2019, Cadogan used part of its cash (Euro 13.385 million) to enter into a 2-year Loan
Agreement with Proger Managers & Partners, with an option to
convert it into a direct 33% equity interest in Proger Ingegneria,
equivalent to an indirect 25% equity interest in Proger. According
to IFRS, the instrument has to be represented in our balance sheet
at fair value.
The Group’s original lending decision involved assessment of
Proger Spa business plan and analysis with professional advisers
including valuations performed using the income method (discounted
cash flows) and market approach using both the precedent
transactions and trading multiples methods.
Refer to note 2 for details of the terms of the Proger loan
recorded as a financial asset at fair value through profit and
loss. The instrument is recorded at management’s best estimate
of fair value till the Maturity Date as set out in the note 2.
|
FVPL |
Loan
provided |
|
$’000 |
$’000 |
As at 1 January
2020 |
15,707 |
- |
Movement in FVPL |
409 |
- |
Exchange
differences |
29 |
- |
As at 30 June
2020 |
16,145 |
- |
Movement in FVPL |
(743) |
- |
Exchange
differences |
1,410 |
- |
As at 1 January
2021 |
16,812 |
- |
Transfer from
FVPL |
(16,812) |
- |
Transfer to loan
provided |
- |
16,812 |
Interest |
- |
587 |
Exchange
differences |
- |
(497) |
As at 30 June
2021 |
- |
16,902 |
To represent the option at fair value, the Group has applied a
level 3 valuation under IFRS as inputs to the valuation have
included assessment of the cash repayments anticipated under the
loan terms at maturity, delayed by the arbitration process
requested by PMP (the Borrower), historical financial information
for the periods prior to 2020 and assessment of the security
provided by the pledge over shares together with the impact of the
Covid-19 on the activity of Proger. As a result, $16.8 million was determined as the best estimate
of fair value as at 31 December 2020,
being equal to anticipated receipts and timing thereof discounted
at an estimated market rate of interest of 7.8%.
Cadogan did not exercise its
Call Option under the Loan Agreement within the Maturity Date and
the option has expired. Proger Managers & Partners srl has
failed to reimburse the Loan with the accumulated interests in full
at the Maturity Date, 25 February
2021. In case of non-reimbursement, the Loan carries an
entitlement to an interest at a rate of 7.5% per year to be accrued
on principal amount and accumulated interests at the Maturity Date
until the total amount is paid. Starting from March 2021, Cadogan treats the Loan provided to PMP at
historical cost plus accrued interests and less provision. The
recoverability of the Loan has been assessed in April 2021 for the purpose of Cadogan Annual
Report 2020. Since April 2021, there
are no additional facts which can lead to recognition of a change
of value for the period ended 30 June
2021.
12. Share capital
Authorized and issued equity share
capital
|
30/06/2021 |
31/12/2020 |
|
Number |
$’000 |
Number |
$’000 |
Authorized
Ordinary shares of £0.03 each |
1,000,000 |
57,713 |
1,000,000 |
57,713 |
Issued
Ordinary shares of £0.03 each |
244,128 |
13,832 |
244,128 |
13,832 |
Authorized but unissued share capital of £30 million has been
translated into US dollars at the historic exchange rate of the
issued share capital. The Company has one class of Ordinary shares,
which carry no right to fixed income.
Issued equity share capital
|
|
Ordinary shares
of £0.03 |
At 31 December
2017 |
|
|
235,729,322 |
Issued during
year |
|
|
- |
At 31 December
2018 |
|
|
235,729,322 |
Issued during
year |
|
|
- |
At 31 December
2019 |
|
|
235,729,322 |
Issued during
year |
|
|
8,399,165 |
At 31 December
2020 |
|
|
244,128,487 |
Issued during
first-half year |
|
|
- |
At 30 June
2021 |
|
|
244,128,487 |
On 26 May 2020 the Company issued
8,399,165 ordinary shares of £0.03 each in the capital of the
Company for cash on the basis of £0.03 per share:
- 2,270,549 ordinary shares were issued to the previous
CEO, Mr Guido Michelotti and
satisfied in full using the entire amount of the 2018 and 2019
bonuses due (but which had not yet been paid), totalling
€75,900,
- 628,616 ordinary shares were issued to Mr Andriy Bilyy (General Director of Cadogan
Ukraine) and satisfied in full using the entire amount of the 2019
bonus due (but which had not yet been paid), totalling $23,040,
- 5,500,000 ordinary shares were issued to the CEO, Mr
Fady Khallouf and satisfied in full using the entire amount of the
welcome bonus due.
13. Events
subsequent to the reporting date
No events subsequent to the reporting date have taken place
after 30 June 2021.
[1] Lost Time Incident, Total Recordable Incident
[2] Most of the recoverable VAT is VAT paid on drilling services
which will be off-set by VAT due on crude sales in future periods
under local legislation