TIDMRPT
RNS Number : 9609Q
Regal Petroleum PLC
18 September 2017
18 September 2017
REGAL PETROLEUM PLC
2017 INTERIM RESULTS
Regal Petroleum plc (the "Company", and with its subsidiaries,
the "Group"), the AIM-quoted (RPT) oil and gas exploration and
production group, today announces its unaudited results for the six
month period ended 30 June 2017.
Principal Developments
Ukraine Operations
-- Average production from the MEX-GOL and SV
fields over the six month period to 30 June
2017 was 133,951 m(3) /d of gas, 35.7 m(3)
/d of condensate and 18.9 m(3) /d of LPG (1,140
boepd in aggregate) (1H 2016: 167,541 m(3)
/d of gas, 42.4 m(3) /d of condensate and
19.8 m(3) /d of LPG (1,395 boepd in aggregate))
-- Average gas and condensate production from
the VAS field for the six month period to
30 June 2017 was 86,770 m3/d of gas and 6.7
m3/d of condensate (612 boepd in aggregate)
-- MEX-109 well, utilising improved drilling
and completion techniques, put on production
in June 2017, and the workover of SV-2 well
completed and put on production in August
2017, together nearly doubling production
volumes from the MEX-GOL and SV fields
Finance
-- Revenue for the six month period to 30 June
2017 of $12.4 million (1H 2016: $10.4 million)
-- Operating profit for the six month period
to 30 June 2017 of $1.0 million (1H 2016:
$0.2 million loss)
-- Loss for the six month period to 30 June
2017 of $0.3 million (1H 2016: $0.9 million
loss)
-- Foreign exchange translation gain recorded
in equity for the period of $1.6 million
(1H 2016: $1.7 million loss) mainly due to
appreciation of the Ukrainian Hryvnia against
the US Dollar during the period
-- Cash generated from operations during the
period of $5.5 million (1H 2016: $3.8 million)
-- Average realised gas, condensate and LPG
prices in Ukraine for the six month period
to 30 June 2017 of $226/Mm3 (UAH6,060/Mm3),
$59/bbl and $49/bbl respectively (1H 2016:
$209/Mm3 (UAH5,315/Mm3) gas, $42/bbl condensate
and $29/bbl LPG)
-- Cash and cash equivalents at 30 June 2017
of $24.5 million (31 December 2016: $20.0
million), with cash and cash equivalents
at 15 September 2017 of $27.0 million, held
as to $8.6 million equivalent in Ukrainian
Hryvnia and the balance of $18.4 million
equivalent predominately in US Dollars and
Sterling
Outlook
-- Improving geopolitical outlook in Ukraine
has led to a gradual increase in developmental
planning during 2017
-- Focus during the second half of 2017 at MEX-GOL
and SV fields on completion of geophysical
studies on existing seismic data, finalising
workover of GOL-2 well, installation of additional
compression equipment, further upgrading
of gas processing facilities and pipeline
network, and remedial work on existing wells
-- Focus during the second half of 2017 at VAS
field on re-interpretation of existing seismic
data, and planning for acquisition of new
3D seismic and drilling of VAS-10 well
-- Funding of remaining 2017 development programme
anticipated to be from existing cash and
cash equivalents and operational cash flow
This announcement contains inside information for the purposes
of Article 7 of EU Regulation 596/2014.
For further information, please contact:
Regal Petroleum plc Tel: 020 3427
3550
Keith Henry, Chairman
Sergei Glazunov, CEO
Strand Hanson Limited Tel: 020 7409
3494
Rory Murphy / Richard Tulloch
Citigate Dewe Rogerson Tel: 020 7638
9571
Louise Mason-Rutherford /
Shabnam Bashir
Philip Frank, PhD Geology, Chartered Geologist, FGS, PESGB,
consultant to the Company, has reviewed and approved the technical
information contained within this press release in his capacity as
a qualified person, as required under the AIM Rules for
Companies.
Definitions
bbl barrel
boe barrels of oil equivalent
boepd barrels of oil equivalent per
day
LPG liquefied petroleum gas
m(3) cubic metres
m(3)/d cubic metres per day
MEX-GOL Mekhediviska-Golotvshinska
% per cent
SV Svyrydivske
$ United States Dollar
UAH Ukrainian Hryvnia
VAS Vasyschevskoye
Chairman's Review
The Group is continuing with the development of its MEX-GOL, SV
and VAS gas and condensate fields in north-eastern Ukraine, which
are each held under 100% owned and operated production
licences.
Production at the fields was reasonably stable during the first
half of 2017, averaging 1,752 boepd in aggregate from all fields.
In June 2017, the new MEX-109 well, utilising improved drilling and
completion techniques developed as a result of the recent studies,
was completed successfully and put on production, and in August
2017, following completion of its workover, the SV-2 well in the SV
field was also put on production. Together, these successes have
nearly doubled output from the MEX-GOL-SV licence areas. With the
contribution from these new wells, current aggregate production
from all fields is 2,879 boepd, an improvement of approximately 64%
on the average production rates in the first half of 2017.
The fiscal and economic situation in Ukraine is improving
slowly, with a better economic outlook, GDP growth, slightly lower
rates of inflation and improved stability in the Ukrainian Hryvnia
exchange rates. The Ukrainian Government has implemented a number
of reforms in the oil and gas industry, which include the
deregulation of the gas supply market in late 2015. Nevertheless,
there continue to be stresses in the economy and weaknesses in the
Ukrainian banking sector.
The deregulation of the gas supply market, supported by
electronic gas trading platforms and improved pricing transparency,
has meant that the market gas prices now broadly correlate to the
imported gas prices. During the first half of 2017, gas prices were
reasonably stable, allowing for some seasonal variation, and were
higher than in the first half of 2016. Furthermore, condensate and
LPG prices were also higher by comparison with the same period last
year.
As regards the Group's financial performance in the six months
ended 30 June 2017, the Group made an operating profit of $1.0
million (1H 2016: $0.2 million loss), and cash generated from
operations during the period was positive at $5.5 million (1H 2016:
$3.8 million). Overall, the Group made a reduced loss of $0.3
million (1H 2016: $0.9 million loss) during the period, mainly due
to improved revenues as a result of higher hydrocarbon prices
offset by a higher income tax charge.
Average daily production of gas, condensate and LPG from the
MEX-GOL and SV fields for the six months ended 30 June 2017 was
133,951 m(3) /d of gas, 35.7 m(3) /d of condensate and 18.9 m(3) /d
of LPG (1,140 boepd in aggregate) (1H 2016: 167,541 m(3) /d of gas,
42.4 m(3) /d of condensate and 19.8 m(3) /d of LPG (1,395 boepd in
aggregate)), which was lower compared to the first half of 2016 due
to normal field decline.
The average daily production of gas and condensate from the VAS
field for the six months ended 30 June 2017 was 86,770 m(3) /d of
gas and 6.7 m(3) /d of condensate (612 boepd in aggregate), adding
material volumes to the Group's production output.
The average daily production from the MEX-GOL and SV fields for
the period from 1 July 2017 to 14 September 2017 was 238,216 m(3)/d
of gas, 61.6 m(3)/d of condensate and 31.7 m(3)/d of LPG, which
equates to a combined total oil equivalent of 2,007 boepd. The
average daily production from the VAS field for same period was
83,903 m(3) /d of gas and 6.3 m(3)/d of condensate (591 boepd in
aggregate).
The slowly improving geopolitical and economic climate in
Ukraine is cause for some optimism and the Group is now stepping up
its planning for the further development of the MEX-GOL, SV and VAS
fields.
At the MEX-GOL and SV fields, the Group is utilising the results
of P.D.F Limited's comprehensive re-evaluation study to plan
additional development of the MEX-GOL and SV fields. The study has
provided an enhanced understanding of the subsurface at the fields,
as well as recommendations for future development work. Further
geophysical studies using the latest processing technology to
analyse existing seismic data are approaching completion. This,
together with further analysis and new well data, will enable the
Group to refine its strategies for further development of these
fields, including the timing and level of future capital investment
required to exploit the hydrocarbon resources.
In addition, the Group is finalising the workover of the GOL-2
well, and planning the installation of additional compression
equipment, further upgrading of the gas processing facilities and
pipeline network, and remedial work on existing wells.
At the VAS field, following the reinterpretation of existing 3D
seismic data, the Group plans to commence drilling a new well,
VAS-10, and to acquire new 3D seismic over the 2017/18 winter
period.
I would like to congratulate Sergei Glazunov on his appointment
as Chief Executive Officer and welcome Yevhen (Gene) Palyenka as
Chief Financial Officer, with both appointments becoming effective
on 1 August 2017.
I would also like to welcome Bruce Burrows to the Board
following his appointment as a Non-executive Director on 29 August
2017, and to express my appreciation to Adrian Coates, who stepped
down from the Board on the same day, for his valued contribution
over the last nine years.
In conclusion, on behalf of the Board, I would like to thank all
of our staff for the continued dedication and support they have
shown over the period.
Keith Henry
Chairman
15 September 2017
Finance Review
The Group made an operating profit of $1.0 million (1H 2016:
$0.2 million loss) during the period ended 30 June 2017, and
overall, a reduced loss of $0.3 million (1H 2016: $0.9 million
loss), mainly as a result of improved revenue offset by a higher
income tax charge. Revenue in the first half of 2017, derived from
the sale of the Group's Ukrainian gas, condensate and LPG
production, was higher at $12.4 million (1H 2016: $10.4 million)
primarily due to improved realisations as a result of higher
hydrocarbon prices and the contribution from the sale of production
from the VAS field.
Cash generated from operations during the period was $5.5
million (1H 2016: $3.8 million), which was higher due to higher
hydrocarbon prices and the contribution from the sale of production
from the VAS field.
For the six month period ended 30 June 2017, the average
realised gas, condensate and LPG prices were $226/Mm(3)
(UAH6,060/Mm(3) ), $59/bbl and $49/bbl respectively (1H 2016:
$209/Mm(3) (UAH5,315/Mm(3) ) gas, $42/bbl condensate and $29/bbl
LPG).
During the period from 1 July 2017 to 15 September 2017, the
average realised gas, condensate and LPG prices were $228/Mm(3)
(UAH5,890/Mm(3) ), $66/bbl and $63/bbl respectively. The current
realised gas price is $238/Mm(3) (UAH6,239/Mm(3) ).
Since the deregulation of the gas supply market in Ukraine in
October 2015, the market price for gas has broadly correlated to
the price of imported gas, which generally reflects trends in
European gas prices. Gas prices are also subject to seasonal
variation. During in the first half of 2017, gas prices were
reasonably stable, allowing for some seasonal variation, and were
higher than in the first half of 2016, as were condensate and LPG
prices by comparison with the same period in 2016.
In the first half of 2017, the Group commenced selling all of
its gas production to LLC Smart Energy ("Smart Energy"), which is
part of the PJSC Smart-Holding Group, which is ultimately
controlled by Mr Vadim Novinskiy, who also controls an indirect 54%
majority shareholding in the Group. This arrangement came about as
a consequence of the introduction of a number of new taxation
regulations in Ukraine, which significantly increased the
regulatory burden on affected companies. Due to the corporate
structure of the Group, a substantial proportion of its gas
production is produced by a non-Ukrainian subsidiary of the Group,
which operates in Ukraine as a branch, or representative office as
it is classified in Ukraine. As a result, the new tax regulations
impose additional regulatory obligations on the Group's potential
customers, who may be less inclined to purchase the Group's gas
and/or may seek discounts on sales prices. In light of this
situation, the Group and Smart Energy reached an agreement under
which Smart Energy will purchase all of the Group's gas production
and assume responsibility for the regulatory obligations under the
Ukrainian tax regulations, as well as combining the Group's gas
production with Smart Energy's own gas production so as to sell
such gas as combined volumes, which should result in higher sales
prices due to the larger sales volumes. In order to cover Smart
Energy's sales, administration and regulatory compliance costs, the
Group sells its gas to Smart Energy at a discount of 0.5% to the
gas sales prices achieved by Smart Energy, who sell the combined
volumes in line with market prices. The terms of sale for the
Group's gas to Smart Energy are (i) payment for one third of the
estimated monthly volume of gas by the 20(th) of the month of
delivery, and (ii) payment of the remaining balance by the 10(th)
of the month following the month of delivery. As a consequence of
their common ultimate control, the Company and Smart Energy are
deemed to be related parties under the AIM Rules for Companies, and
more details of this arrangement are set out in the announcement
made on 30 June 2017, as well as in Note 3 below.
The subsoil taxes rates applicable to gas and condensate
production have been stable during the first half of 2017 at 29%
for gas produced from deposits at depths above 5,000 metres and 14%
for gas produced from deposits below 5,000 metres, and 45% for
condensate produced from deposits above 5,000 metres and 21% for
condensate produced from deposits below 5,000 metres.
With effect from 1 April 2017, a transmission tariff of
UAH296.80/Mm(3) ($11.00/Mm(3) ) for use of the Ukrainian national
pipeline system became applicable to oil and gas producers in
Ukraine, including the Group. However, on 13 June 2017, the tariff
was suspended following a legal challenge to the imposition of the
tariff, and it is currently uncertain if and/or when the tariff
will be reinstated.
Cost of sales for the six months ended 30 June 2017 was higher
at $9.2 million (1H 2016: $8.2 million), mainly due to the
inclusion of the cost of sales of hydrocarbons from the VAS field
of $2.8 million (1H 2016: nil).
Administrative expenses for the period were slightly lower at
$2.2 million (1H 2016: $2.4 million), primarily as a result of the
inclusion of administrative expenses relating to LLC Prom-Enerho
Produkt ("PEP"), the owner of the VAS field, of $1.5 million (1H
2016: nil) being offset by the absence of expenditure on
consultants in connection with the acquisition of PEP as was the
case in 2016.
The tax charge for the six month period ended 30 June 2017 of
$2.0 million (1H 2016: $1.2 million charge) comprises a current tax
charge of $0.9 million (1H 2016: $0.7 million) and a deferred tax
charge of $1.1 million (1H 2016: $0.5 million charge).
The Group has recognised a deferred tax asset of $10.2 million
at 30 June 2017 (31 December 2016: $11.1 million). This comprises a
deferred tax asset of $2.2 million (31 December 2016: $3.7 million)
in relation to UK tax losses carried forward, and $8.0 million (31
December 2016: $7.4 million) relating to the Group's MEX-GOL and SV
asset in Ukraine, which is recognised on the tax effect of
temporary timing differences between the carrying value of such
asset and its tax base, following its impairment in 2013. The
reduction in the deferred tax asset in the first half of 2017 is
primarily due to a decrease of forecasted taxable income for the
following five years caused by impairment and partial settlement of
intra-group loans receivable by the Company. The Group has also
recognised a deferred tax liability of $1.1 million at 30 June 2017
31 December 2016: 1.2) relating to the Group's VAS asset in
Ukraine, which is recognised on the tax effect of temporary timing
differences between the carrying value of such asset and its tax
base mainly due to revaluation of the VAS asset at the date of
acquisition by the Group.
Increased capital investment of $2.1 million reflects investment
in the Group's oil and gas development and production assets during
the period (1H 2016: $0.4 million), primarily the expenditure
associated with the drilling of the MEX-109 well.
Under the agreement between the Group and NJSC Ukrnafta relating
to the SV-2 well, which was a suspended well owned by NJSC Ukrnafta
located within the Group's SV licence area, the Group agreed to
carry out a workover of the well and, if successful, to operate,
produce and sell the gas and condensate from the well under an
equal net profit sharing arrangement with NJSC Ukrnafta. The
workover was successful and production from this well commenced in
August 2017.
Cash and cash equivalents held at 30 June 2017 were $24.5
million (31 December 2016: $20.0 million). The Group's cash and
cash equivalents balance at 15 September 2017 was $27.0 million,
held as to $8.6 million equivalent in Ukrainian Hryvnia and the
balance of $18.4 million equivalent predominantly in US Dollars and
Pounds Sterling.
Since early 2014, the Ukrainian Hryvnia has devalued
significantly against the US Dollar, falling from UAH8.3/$1.00 on 1
January 2014 to UAH26.1/$1.00 on 30 June 2017, which resulted in
substantial foreign exchange translation losses for the Group over
that period, and in turn adversely impacted the carrying value of
the MEX-GOL and SV asset due to the translation of two of the
Group's subsidiaries from their functional currency of Ukrainian
Hryvnia to the Group's presentation currency of US Dollars. However
in the first half of 2017, the exchange rate between the Ukrainian
Hryvnia and the US Dollar has been reasonably stable averaging
UAH26.8/$1.00 during the period (rate as at 31 December 2016:
UAH27.2/$1.00). Nevertheless, further devaluation of the Ukrainian
Hryvnia against the US Dollar may affect the carrying value of the
Group's assets in the future.
Cash from operations has funded the capital investment during
the period, and the Group's current cash position and positive
operating cash flow are the sources from which the Group expects to
fund the development programmes for its assets in the remainder of
2017.
Operational Environment, Principal Risks and Uncertainties
The Group has a risk evaluation methodology in place to assist
in the review of the risks across all material aspects of its
business. This methodology highlights technical, operational,
external and fiduciary risks and assesses the level of risk and
potential consequences. It is periodically presented to the Audit
Committee and the Board for review, to bring to their attention
potential concerns and, where possible, propose mitigating actions.
Key risks recognised are detailed below:-
Risks relating to Ukraine
In recent years, the Ukrainian economy has been characterised by
high political and economic risks, but more recently there have
been gradual improvements in the political and economic environment
in Ukraine. Nevertheless, as a developing economy, in addition to
the impact of local political and economic issues, Ukraine's
economy is vulnerable to market downturns and economic slowdowns
elsewhere in the world.
Since late 2013, the political and economic situation in Ukraine
has experienced significant instability and uncertainty, which has
led to a deterioration of Ukrainian State finances, volatility of
financial markets, illiquidity on capital markets, high inflation
and a substantial depreciation of the Ukrainian Hryvnia against
major foreign currencies. This instability and uncertainty
continued during 2016 and 2017, but to a lesser extent than during
2014 - 2015. During the first half of 2017, the economic
improvement in Ukraine continued with Ukraine's GDP growing at a
rate of 2% and annual inflation declining slightly to 12.2% (2016:
GDP increased by 1%; annual inflation at 12.4%).
The conflict in parts of eastern Ukraine, which started in
spring 2014, has not been resolved to date. However, there has been
no substantial escalation of the conflict since the signing of a
ceasefire agreement in February 2015. Russia continues to occupy
Crimea and has commenced the construction of a bridge directly
between Russia and Crimea.
The Group has no assets in Crimea or the areas of conflict in
the east of Ukraine, nor do its operations rely on sales or costs
incurred there.
The conflict in the region has put further pressure on relations
between Ukraine and Russia, and the political tensions have had an
adverse effect on the Ukrainian financial markets, hampering the
ability of Ukrainian companies and banks to obtain funding from the
international capital and debt markets.
The relationship between Ukraine and Russia has remained
strained. On 1 January 2016, the agreement on the free trade area
between Ukraine and the European Union came into force. The Russian
Government reacted to this event by implementing a trading embargo
on many key Ukrainian export products. In response, the Ukrainian
Government implemented similar measures against Russian
products.
The banking system in Ukraine remains fragile due to its weak
level of capital, low asset quality caused by the economic
situation, currency depreciation, changing regulations and other
economic pressures generally.
The International Monetary Fund has continued to support the
Ukrainian Government under the four-year Extended Funding Facility
aggregating $17.5 billion approved in March 2015. The terms of this
funding package stipulated a number of fiscal and economic reforms,
including reforms in the banking and energy sectors. Since then,
Ukraine has received four tranches under the funding programme
totalling $8.4 billion, with the most recent tranche of $1 billion
in April 2017. Further disbursements of International Monetary Fund
tranches depend on the implementation of Ukrainian Government
reforms, and other economic, legal and political factors.
Despite some improvements in 2016 and 2017, the final resolution
and the ongoing effects of the political and economic situation in
Ukraine are difficult to predict but they may have severe effects
on the Ukrainian economy and the Group's business.
These events have not materially affected the Group's production
operations to date, but the instability has disrupted the Group's
development and operational planning for its assets. Furthermore,
the political, fiscal and economic instability has impacted the
Group's normal business activities, and increased the risks
relating to its business operations, financial status, access to
secure banking facilities and maintenance of its Ukrainian
production licences.
The Ukrainian Government is keen to develop the country's
domestic production of hydrocarbons since Ukraine imports a
significant proportion of its gas. While this should put the Group
in a well-placed position, as experienced previously, there are
significant risks to carrying out business in the country. It is
considered that the involvement of Energees Management Limited, as
a major shareholder with extensive experience in Ukraine, has
helped to mitigate such risks.
Going concern risk
The Group is exposed to risks relating to Ukraine as well as
production, hydrocarbon price and other risks, as detailed in this
Operational Environment, Principal Risks and Uncertainties section.
In view of this, the Group prepares monthly cash flow forecasts
which take into account the risks facing the business, to assess
its ability to meet its obligations as they fall due, taking into
account the risks of variances in revenues.
Having reviewed the financial statements, budgets and forward
plans (including sensitivity analysis), the latest operational
results, the risks outlined herein, and having taken into account
the Group's cash holdings, the current practice of contracting for
drilling services on a fixed-price basis for each well, the
assessment of well results prior to entering into firm commitments
for future drilling operations and the lower committed expenditure
in Ukraine, the Directors continue to believe that the Group is
able to manage its business risks successfully despite the current
uncertain political and economic outlook. The Directors have a
reasonable expectation that the Group has adequate resources to
continue in operational existence for the foreseeable future
regarded as at least 12 months from the date of signing of the
Group's financial statements. Therefore they continue to adopt the
going concern basis of accounting in preparing the financial
statements.
Production risks
Producing gas and condensate reservoirs are generally
characterised by declining production rates which vary depending
upon reservoir characteristics and other factors. Future production
of the Group's gas and condensate reserves, and therefore the
Group's cash flow and income, are highly dependent on the Group's
success in operating existing producing wells, drilling new
production wells and efficiently developing and exploiting any
reserves, and finding or acquiring additional reserves. The Group
may not be able to develop, find or acquire reserves at acceptable
costs. The experience gained from drilling undertaken to date
highlights such risks as the Group targets the appraisal and
production of these hydrocarbons. During 2016, the Group engaged
external technical consultants to undertake a comprehensive review
and re-evaluation study of the MEX-GOL and SV fields in order to
gain an improved understanding of the geological aspects of the
fields and reservoir engineering, drilling and completion
techniques, and the results of this study and further planned
technical work will be used by the Group in the future development
of these fields.
Risks relating to further development and operation of the
Group's gas and condensate fields in Ukraine
The planned development and operation of the Group's gas and
condensate fields in Ukraine is susceptible to appraisal,
development and operational risk. This could include, but is not
restricted to, delays in delivery of equipment in Ukraine, failure
of key equipment, lower than expected production from wells that
are currently producing, or new wells that are brought on-stream,
problematic wells and complex geology which is difficult to drill
or interpret. The generation of significant operational cash is
dependent on the successful delivery and completion of the
development and operation of the fields. These risks have been
demonstrated by the previous downgrade in the Group's remaining
reserves which resulted in the reduction in the value in use, and
consequent impairment loss relating to the Group's MEX-GOL and SV
asset in Ukraine. Furthermore, the optimisation of the Group's
assets is dependent on maintaining constructive relationships
between all business stakeholders.
Exposure to credit, liquidity and cash flow risk
The Group does not currently have any loans outstanding. Local
customers are managed in Ukraine and their financial position, the
Group's past experience and other factors are evaluated. Internal
financial projections are regularly made based on the latest
estimates available, and various scenarios are run to assess the
robustness of the liquidity of the Group. The Group currently holds
sufficient cash and cash equivalents for the anticipated short to
medium term needs of the business. Whilst much of the future
capital requirement is expected to be derived from operational cash
generated from production, including from wells yet to be drilled,
there is a risk that in the longer term insufficient operational
cash is generated, or that additional funding, should the need
arise, cannot be secured. As the risk to future capital funding is
inherent in the oil and gas exploration and development industry
and reliant in part on future development success, it is difficult
for the Group to take any particular measures at this time to
mitigate this risk, other than tailoring its development activities
to its available capital funding from time to time.
Risks relating to the Ukrainian banking sector
The instability in Ukraine in recent years led to a significant
deterioration of Ukraine's finances, volatility in financial
markets, illiquidity on capital markets and a substantial
depreciation of the Ukrainian Hryvnia against major foreign
currencies. As a result, significant external financing is required
to maintain the country's economic stability. During 2014 - 2015,
the National Bank of Ukraine, amongst other measures, imposed
comprehensive restrictions on the processing of client payments by
banks, on the purchase of foreign currency on the inter-bank market
and on the remittance of funds outside Ukraine, with particular
restrictions on operations with foreign currency including
temporary bans on the payment of dividends in foreign currency and
the early repayment of debts to non-residents and the mandatory
sale of 75% of revenue in foreign currency. However, during 2017,
there was some further easing of these restrictions, with the
required share of foreign currency for mandatory sale being reduced
to 50%, the settlement period for export-import transactions in
foreign currency being increased from 120 to 180 days and Ukrainian
companies continuing to be permitted to pay dividends to
non-residents up to a limit
of $5 million per month.
These banking restrictions and the many other economic issues in
Ukraine during the period since 2013 put great strain on the
Ukrainian banking system, with increased risks in the capital
strength, liquidity and creditworthiness of a number of banks, and
very high rates in the wholesale and overnight markets. In
addition, there have been significant deposit outflows from the
banking system and widespread restructuring of bank clients'
maturing liabilities, as well as the failure and/or bail out of a
number of Ukrainian banks.
The Extended Funding Facility from the International Monetary
Fund approved in March 2015, required significant reforms to the
Ukrainian banking sector, which are now being implemented. The
reforms are being overseen by the National Bank of Ukraine and
involve all banks being inspected and assessed, with particular
emphasis on lending to a bank's related parties. The inspections
are designed to enable the National Bank to assess the financial
strength and liquidity of the banks in Ukraine, and may lead to the
National Bank imposing remedial measures, ranging from the
imposition of requirements for a bank to bolster its capital
strength, requirements for a bank to reduce its exposure to related
party lending, the appointment of an administrator to manage the
priority of payments by a bank, or in the most extreme cases, the
liquidation of a bank.
The creditworthiness and potential risks relating to the banks
in Ukraine are regularly reviewed by the Group, but the
geopolitical and economic events since 2013 in Ukraine have
significantly weakened the Ukrainian banking sector. In light of
this, the Group has taken and continues to take steps to diversify
its banking arrangements between a number of banks in Ukraine.
These measures are designed to spread the risks associated with
each bank's creditworthiness, and the Group endeavours to use banks
that have the best available creditworthiness. Nevertheless, and
despite some recent improvements, the Ukrainian banking sector
remains weakly capitalised and so the risks associated with the
banks in Ukraine remain significant, including in relation to the
banks with which the Group operates bank accounts.
Currency risk
The Group's main activities are (i) investment into the
development of the Group's Ukrainian gas and condensate assets;
(ii) the production and sale of gas, condensate and LPG; and (iii)
the continued exploration for further hydrocarbon reserves.
The Group receives sales proceeds in Ukrainian Hryvnia, and the
majority of the capital expenditure costs for the 2017 investment
programme will be incurred in Ukrainian Hryvnia, thus the currency
of revenue and costs are largely matched. As with all currencies,
the value of the Ukrainian Hryvnia is subject to foreign exchange
fluctuations, but as the Ukrainian Hryvnia does not benefit from
the range of currency hedging instruments which are available in
more developed economies, the Group has adopted a policy that,
where possible, funds not required for use in Ukraine be retained
on deposit in the United Kingdom, principally in US Dollars.
Furthermore, since the beginning of 2014, the Ukrainian Hryvnia
has significantly devalued against major world currencies,
including the US Dollar, where it has fallen from UAH8.3/$1.00 on 1
January 2014 to UAH26.1/$1.00 on 30 June 2017. However, the
Ukrainian Hryvnia has appreciated slightly during the first half of
2017, strengthening from UAH27.2/$1.00 on 31 December 2016. As at
15 September 2017, the Ukrainian Hryvnia was trading at
UAH26.2/$1.00. The devaluation since 2014 was one of the main
reasons for the imposition of the abovementioned banking
restrictions by the National Bank of Ukraine. In addition, the
events in Ukraine over recent years, as outlined above in "Risks
relating to Ukraine", are likely to continue to impact the
valuation of the Ukrainian Hryvnia against major world currencies.
Further devaluation of the Ukrainian Hryvnia against the US Dollar
will affect the carrying value of the Group's assets.
Ukraine Production Licences
The Group operates in a region where the right to production can
be challenged by State and non-State parties. During 2010, this
manifested itself in the form of a Ministry Order instructing the
Group to suspend all operations and production from its MEX-GOL and
SV production licences, which was not resolved until mid-2011. In
2013, new rules relating to the updating of production licences led
to further challenges being raised by the Ukrainian authorities to
the production licences held by independent oil and gas producers
in Ukraine, including the Group, which may result in requirements
for remediation work, financial penalties and/or the suspension of
such licences, which, in turn, may adversely affect the Group's
operations and financial position. All such challenges affecting
the Group have thus far been successfully defended through the
Ukrainian legal system. However, the business environment is such
that these types of challenges may arise at any time in relation to
the Group's operations, licence history, compliance with licence
commitments and/or local regulations. The Group endeavours to
ensure compliance with commitments and regulations through Group
procedures and controls or, where this is not immediately feasible
for practical or logistical considerations, seeks to enter into
dialogue with the relevant Government bodies with a view to
agreeing a reasonable time frame for achieving compliance or an
alternative, mutually agreeable course of action.
The Group's production licences for the MEX-GOL and SV fields
currently expire in 2024. However, in the estimation of its
reserves, it is assumed that licence extensions will be granted in
accordance with current Ukrainian legislation and that consequently
the fields' development will continue until the end of the fields'
economic life in 2036. Despite such legislation, it is possible
that licence extensions will not be granted, which would affect the
achievement of full economic field development and consequently the
carrying value of the Group's MEX-GOL and SV asset in the
future.
Hydrocarbon price risk
The Group derives its revenue principally from the sale of its
Ukrainian gas, condensate and LPG production. These revenues are
subject to commodity price volatility and political influence. A
prolonged period of low gas, condensate and LPG prices may impact
the Group's ability to maintain its long-term investment programme
with a consequent effect on growth rate, which in turn may impact
the share price or any shareholder returns. Lower gas, condensate
and LPG prices may not only decrease the Group's revenues per unit,
but may also reduce the amount of gas, condensate and LPG which the
Group can produce economically, as would increases in costs
associated with hydrocarbon production, such as subsoil taxes and
royalties.
The overall economics of the Group's key assets (being the net
present value of the future cash flows from its Ukrainian projects)
are far more sensitive to long term gas, condensate and LPG prices
than short-term price volatility. However, short-term volatility
does affect liquidity risk, as, in the early stage of the projects,
income from production revenues is offset by capital
investment.
Production based taxes
At the end of July 2014, the Ukrainian Government approved
emergency fiscal measures designed to assist in alleviating the
fiscal and economic pressures affecting the economy of Ukraine.
These imposed significant increases to the subsoil tax rates
payable on gas and condensate production, and were imposed for the
period from 1 August 2014 to 31 December 2015. With effect from 1
January 2016, the subsoil tax rates relating to gas production
reverted to substantially the same levels as prior to the temporary
increases, but it is possible that similar significant increases to
subsoil tax rates may be implemented in the future.
With effect from 1 April 2017, a transmission tariff for use of
the Ukrainian national pipeline system was introduced for oil and
gas producers in Ukraine, including the Group. However, on 13 June
2017, the tariff was suspended following a legal challenge to the
imposition of the tariff, and it is currently uncertain if and/or
when the tariff will be reinstated.
Industry risks
The Group's ability to execute its strategy is subject to risks
which are generally associated with the oil and gas industry. For
example, the Group's ability to pursue and develop its projects and
development programmes depends on a number of uncertainties,
including the availability of capital, seasonal conditions,
regulatory approvals, gas, oil, condensate and LPG prices,
development costs and drilling success. As a result of these
uncertainties, it is unknown whether potential drilling locations
identified on proposed projects will ever be drilled or whether
these or any other potential drilling locations will be able to
produce gas, oil or condensate. In addition, drilling activities
are subject to many risks, including the risk that commercially
productive reservoirs will not be discovered. Drilling for
hydrocarbons can be unprofitable, not only due to dry holes, but
also as a result of productive wells that do not produce
sufficiently to be economic. In addition, drilling and production
operations are highly technical and complex activities and may be
curtailed, delayed or cancelled as a result of a variety of
factors. Furthermore, whilst the Group is committed to maintaining
the highest standards of health, safety, environmental and security
in its operational activities, hydrocarbon drilling and production
operations carry inherent risks, which in the event of an incident
may significantly affect the operational, production, financial
and/or business activities of the Group.
Financial Markets and Economic Outlook
The performance of the Group will be influenced by global
economic conditions and, in particular, the conditions prevailing
in the United Kingdom and Ukraine. The economies in these regions
have been subject to volatile pressures during the period, with the
global economy having experienced a long period of difficulties,
and more particularly the events that have occurred in Ukraine over
recent years. If these events recur, the Group may be exposed to
increased counterparty risk as a result of business failures in
Ukraine or elsewhere and will continue to be exposed if
counterparties fail or are unable to meet their obligations to the
Group. The precise nature of all the risks and uncertainties the
Group faces as a result of these risks cannot be predicted and many
of these are outside of the Group's control.
Risks relating to key personnel
The Group has a relatively small team of executives and senior
management. Whilst this is sufficient for a group of this nature,
there is a dependency risk relating to the loss of key individuals.
However, the Group has developed relationships with a number of
technical and other professional experts and advisers, who are used
to provided specialist services as required.
Condensed Interim Consolidated Income Statement
6 months 6 months 12 months
ended ended ended
30 Jun 30 Jun 31 Dec
17 16 16
(unaudited) (unaudited) (audited)
Note $000 $000 $000
Revenue 3 12,389 10,433 25,659
Cost of sales (9,197) (8,237) (18,633)
------------------------------- ----- ------------ ------------ ----------
Gross profit 3,192 2,196 7,026
Administrative expenses (2,236) (2,402) (4,681)
Other operating gains 69 37 30
Operating profit / (loss) 1,025 (169) 2,375
Finance income 742 476 770
Finance costs (62) (28) (185)
Other gains and (losses),
net 9 42 (121)
Profit on ordinary activities
before taxation 1,714 321 2,839
Income tax charge 4 (1,992) (1,197) (4,098)
------------------------------- ----- ------------ ------------ ----------
Loss for the period (278) (876) (1,259)
------------------------------- ----- ------------ ------------ ----------
Loss per share (cents)
Basic and diluted 5 (0.1c) (0.3c) (0.4c)
------------------------------- ----- ------------ ------------ ----------
The Notes set out below are an integral part of these condensed
interim consolidated financial statements.
Condensed Interim Consolidated Statement of Comprehensive
Income
6 months 6 months 12 months
ended ended ended
30 Jun 30 Jun 31 Dec
17 16 16
(unaudited) (unaudited) (audited)
$000 $000 $000
Loss for the period (278) (876) (1,259)
Other comprehensive income/(expense):
Items that may be subsequently
reclassified to profit or
loss:
Equity - foreign currency
translation 1,554 (1,741) (5,900)
Items that will not be subsequently
reclassified to profit or
loss:
Re-measurements of post-employment
benefit obligations - - (104)
--------------------------------------- ------------ ------------ ----------
Total other comprehensive
income/(expense) 1,554 (1,741) (6,004)
Total comprehensive income/(expense)
for the period 1,276 (2,617) (7,263)
--------------------------------------- ------------ ------------ ----------
The Notes set out below are an integral part of these condensed
interim consolidated financial statements.
Condensed Interim Consolidated Balance Sheet
30 Jun 31 Dec
17 16
(unaudited) (audited)
Note $000 $000
Assets
Non-current assets
Property, plant and
equipment 6 20,227 21,354
Intangible assets 7 6,460 6,530
Corporation tax receivable 38 54
Deferred tax asset 4 10,223 11,121
36,948 39,059
Current assets
Inventories 9 1,666 1,200
Trade and other receivables 8 3,322 4,243
Cash and cash equivalents 11 24,480 19,966
------------------------------- ----- ------------ ----------
29,468 25,409
Total assets 66,416 64,468
------------------------------- ----- ------------ ----------
Liabilities
Current liabilities
Trade and other payables (1,789) (1,435)
Corporation tax payable (450) (300)
------------------------------- ----- ------------ ----------
(2,239) (1,735)
------------------------------- ----- ------------ ----------
Net current assets 27,229 23,674
------------------------------- ----- ------------ ----------
Non-current liabilities
Provision for decommissioning 10 (2,151) (1,915)
Defined benefit liability (314) (303)
Deferred tax liability 4 (1,108) (1,187)
(3,573) (3,405)
Total liabilities (5,812) (5,140)
------------------------------- ----- ------------ ----------
Net assets 60,604 59,328
------------------------------- ----- ------------ ----------
Equity
Called up share capital 28,115 28,115
Share premium account 555,090 555,090
Foreign exchange reserve (98,130) (99,684)
Other reserves 4,273 4,273
Accumulated losses (428,744) (428,466)
------------------------------- ----- ------------ ----------
Total equity 60,604 59,328
------------------------------- ----- ------------ ----------
The Notes set out below are an integral part of these condensed
interim consolidated financial statements.
Condensed Interim Consolidated Statement of Changes in
Equity
Called up Share Capital Foreign
share premium Merger contributions exchange Accumulated
capital account reserve reserve reserve* losses Total equity
$000 $000 $000 $000 $000 $000 $000
As at 1
January 2017
(audited) 28,115 555,090 (3,204) 7,477 (99,684) (428,466) 59,328
Loss for the
period - - - - - (278) (278)
Other
comprehensive
income
- exchange
differences - - - - 1,554 - 1,554
--------------- ------------- ------------- --------- -------------- ------------- -------------- -------------
Total
comprehensive
income - - - - 1,554 (278) 1,276
As at 30 June
2017
(unaudited) 28,115 555,090 (3,204) 7,477 (98,130) (428,744) 60,604
--------------- ------------- ------------- --------- -------------- ------------- -------------- -------------
Called up Share Capital Foreign
share premium Merger contributions exchange Accumulated
capital account reserve reserve reserve* losses Total equity
$000 $000 $000 $000 $000 $000 $000
As at 1
January 2016
(audited) 28,115 555,090 (3,204) 7,477 (93,784) (427,103) 66,591
Loss for the
period - - - - - (876) (876)
Other
comprehensive
expense
- Exchange
differences - - - - (1,741) - (1,741)
--------------- ------------- ------------- --------- -------------- ------------- -------------- -------------
Total
comprehensive
expense - - - - (1,741) (876) (2,617)
As at 30 June
2016
(unaudited) 28,115 555,090 (3,204) 7,477 (95,525) (427,979) 63,974
--------------- ------------- ------------- --------- -------------- ------------- -------------- -------------
* Predominantly as result of exchange differences on
retranslation, where the subsidiaries functional currency is not US
Dollar
The Notes set out below are an integral part of these condensed
interim consolidated financial statements.
Condensed Interim Consolidated Statement of Cash Flows
6 months ended 6 months ended 12 months ended
30 Jun 17 30 Jun 16 31 Dec 16
(unaudited) (unaudited) (audited)
Note $000 $000 $000
Operating activities
Cash generated from operations 12 5,451 3,809 9,971
Taxation paid (737) (978) (2,219)
Interest received 399 495 809
------------------------------------------------------ ----- --------------- --------------- ----------------
Net cash inflow from operating activities 5,113 3,326 8,561
------------------------------------------------------ ----- --------------- --------------- ----------------
Investing activities
Acquisition of subsidiary, net of cash acquired - - (11,560)
Purchase of property, plant and equipment (1,011) (2,494) (7,242)
Purchase of intangible assets (62) (23) (60)
Proceeds from sale of property, plant and equipment - 11 11
Other short-term investments - 241 12,635
------------------------------------------------------ ----- --------------- --------------- ----------------
Net cash outflow from investing activities (1,073) (2,265) (6,216)
------------------------------------------------------ ----- --------------- --------------- ----------------
Financing activities
Repayment of non-interest bearing borrowings - - (1,095)
------------------------------------------------------ ----- --------------- --------------- ----------------
Net cash outflow from financing activities - - (1,095)
------------------------------------------------------ ----- --------------- --------------- ----------------
Net increase in cash and cash equivalents 4,040 1,061 1,250
Cash and cash equivalents at beginning of the period 11 19,966 19,920 19,920
Effect of foreign exchange rate changes 474 (218) (1,204)
Cash and cash equivalents at end of the period 11 24,480 20,763 19,966
------------------------------------------------------ ----- --------------- --------------- ----------------
The Notes set out below are an integral part of these condensed
interim consolidated financial statements.
Notes to the Condensed Interim Consolidated Financial
Statements
1. General Information and Operational Environment
Regal Petroleum plc (the "Company") and its subsidiaries
(together the "Group") is a gas, condensate and LPG production
group.
Regal Petroleum plc is a company quoted on the AIM Market of
London Stock Exchange plc and incorporated in England and Wales
under the Companies Act 2006. The Company's registered office is at
16 Old Queen Street, London SW1H 9HP, United Kingdom and its
registered number is 4462555.
As of 30 June 2017 and 2016, the Company's immediate parent
company was Energees Management Limited, which is 100% owned by
Pelidona Services Limited, which is 100% owned by Lovitia
Investments Ltd, which is 100% owned by Mr V Novinskiy.
Accordingly, the Company's ultimate Parent Company was Lovitia
Investments Ltd and the Company was ultimately controlled by Mr V
Novinskiy.
The Group's gas, condensate and LPG extraction and production
facilities are located in Ukraine. The ongoing political and
economic instability in Ukraine, which commenced at the end of 2013
and led to a deterioration of Ukrainian State finances, volatility
of financial markets, illiquidity on capital markets, higher
inflation and depreciation of the national currency against major
foreign currencies, has continued in both 2016 and 2017, though to
a lesser extent as compared to 2014 and 2015.
The inflation rate in Ukraine has slightly decreased to 12.2%
during the first half of 2017 (as compared to 12.4% in 2016), while
GDP continued to grow at 2% during the same period (after growth of
1% in 2016).
To date during 2017, the Ukrainian Hryvnia has appreciated
slightly against the US Dollar. As at 15 September 2017, the
official National Bank of Ukraine exchange rate of the Ukrainian
Hryvnia to the US Dollar was UAH26.2/$1.00, compared to
UAH26.1/$1.00 as at 30 June 2017 (31 December 2016:
UAH27.2/$1.00).
In 2017, there has been a further easing of the currency control
restrictions that were introduced by the National Bank of Ukraine
during 2014 - 2015. In particular, the required share of foreign
currency for mandatory sale was decreased from 65% to 50% from 4
April 2017, and the settlement period for export-import
transactions in foreign currency was increased from 120 to 180 days
from 26 May 2017. In addition, from 13 June 2016, Ukrainian
companies were permitted to pay dividends to non-residents with a
limit of $5 million per month.
Further details of risks relating to Ukraine can be found within
the Operational Environment, Principal Risks and Uncertainties
section earlier in this announcement.
For the reasons outlined in the Operational Environment,
Principal Risks and Uncertainties section of this announcement, the
Directors have a reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable
future regarded as at least 12 months from the date of this
announcement. Accordingly, the going concern basis has been adopted
in preparing these condensed interim consolidated financial
statements for the period ended 30 June 2017. The use of this basis
of accounting takes into consideration the Company's and the
Group's current and forecast financing position.
The condensed interim consolidated financial statements for the
six month period ended 30 June 2017 have been prepared in
accordance with International Accounting Standard 34 'Interim
Financial Reporting' as adopted by the European Union. The
condensed interim consolidated financial
statements do not include all the notes of the type normally
included in annual financial statements. Accordingly, this report
should be read in conjunction with the annual consolidated
financial statements for the year ended 31 December 2016, which
have been prepared in accordance with International Financial
Reporting Standards (hereinafter "IFRSs") as adopted by the
European Union.
These condensed interim consolidated financial statements do not
comprise statutory accounts within the meaning of section 434 of
the Companies Act 2006. Statutory accounts for the year ended 31
December 2016 were approved by the Board of Directors on 27 April
2017 and subsequently filed with the Registrar of Companies. The
Auditor's Report on those accounts was not qualified and did not
contain any statement under section 498 of the Companies Act
2006.
The Auditor has carried out a review of the condensed interim
consolidated financial statements for the six month period ended 30
June 2017 and its report is shown at the end of this
announcement.
2. Accounting Policies
The accounting policies and methods of computation and
presentation used are consistent with those used in the Group's
Annual Report and Financial Statements for the year ended 31
December 2016, with the exception of the following new or revised
standards and interpretations:
New and amended standards adopted by the Group
A number of new or amended standards became applicable for the
current reporting period. However, the Group did not have to change
its accounting policies or make retrospective adjustments as a
result of adopting these standards.
-- Amendment to IAS 12, 'Income taxes', regarding
recognition of deferred tax assets for unrealised
losses
-- Amendment to IAS 7, 'Cash flow statements',
regarding the Disclosure initiative
-- Annual improvements 2014-2016 IFRS 12, 'Disclosure
of interests in other entities'
The adoption of these amendments is not likely to affect future
periods.
Impact of standards issued but not yet applied by the Group
Certain new accounting standards and interpretations have been
published that are not mandatory for 2017 reporting periods and
have not been early adopted by the Group. The Group's assessment of
the impact of these new standards and interpretations is set out
below:
-- IFRS 9, 'Financial instruments', addresses
the classification, measurement and recognition
of financial assets and financial liabilities.
The complete version of IFRS 9 was issued
in July 2014. It replaces the guidance in
IAS 39 that relates to the classification
and measurement of financial instruments.
IFRS 9 retains but simplifies the mixed
measurement model and establishes three
primary measurement categories for financial
assets: amortised cost, fair value through
other comprehensive income ("OCI") and fair
value through profit and loss. The basis
of classification depends on the entity's
business model and the contractual cash
flow characteristics of the financial asset.
Investments in equity instruments are required
to be measured at fair value through profit
or loss with the irrevocable option at inception
to present changes in fair value in OCI
not recycling. There is now a new expected
credit losses model that replaces the incurred
loss impairment model used in IAS 39. For
financial liabilities there were no changes
to classification and measurement except
for the recognition of changes in own credit
risk in OCI, for liabilities designated
at fair value through profit or loss. IFRS
9 relaxes the requirements for hedge effectiveness
by replacing the bright line hedge effectiveness
tests. It requires an economic
relationship between the hedged item and
hedging instrument and for the 'hedged ratio'
to be the same as the one management actually
use for risk management purposes. Contemporaneous
documentation is still required but is different
to that currently prepared under IAS 39.
The Group has decided not to adopt IFRS
9 until it becomes mandatory on 1 January
2018. The Group continues to assess the
impact of the new guidance on the classification
and measurement of its financial assets
and liabilities.
The new standard also introduces expanded
disclosure requirements and changes in presentation.
These are expected to change the nature
and extent of the Group's disclosures about
its financial instruments particularly in
the year of the adoption of the new standard.
-- IFRS 15, 'Revenue from contracts with customers'
deals with revenue recognition and establishes
principles for reporting useful information
to users of financial statements about the
nature, amount, timing and uncertainty of
revenue and cash flows arising from an entity's
contracts with customers. Revenue is recognised
when a customer obtains control of a good
or service and thus has the ability to direct
the use and obtain the benefits from the
good or service. The standard replaces IAS
18 'Revenue' and IAS 11 'Construction contracts'
and related interpretations. The standard
is effective for first interim periods within
annual reporting periods beginning on or
after 1 January 2018. The Group will adopt
the new standard from 1 January 2018.
-- IFRS 16 'Leases' was issued in January 2016.
It will result in almost all leases being
recognised on the balance sheet, as the
distinction between operating and finance
leases is removed. Under the new standard,
an asset (the right to use the leased item)
and a financial liability to pay rentals
are recognised. The only exceptions are
short-term and low-value leases. The accounting
for lessors will not significantly change.
The standard will affect primarily the accounting
for the Group's operating leases. As at
the reporting date, the Group has non-cancellable
operating lease commitments of $31,000.
However, the Group has not yet determined
to what extent these commitments will result
in the recognition of an asset and a liability
for future payments and how this will affect
the Group's profit and classification of
cash flows. Some of the commitments may
be covered by the exception for short-term
and low-value leases and some commitments
may relate to arrangements that will not
qualify as leases under IFRS 16. The standard
is mandatory for first interim periods within
annual reporting periods beginning on or
after 1 January 2019. At this stage, the
Group does not intend to adopt the standard
before its effective date.
-- IFRS 9, 'Financial instruments', addresses
the classification, measurement and recognition
of financial assets and financial liabilities.
The complete version of IFRS 9 was issued
in July 2014. It replaces the guidance in
IAS 39 that relates to the classification
and measurement of financial instruments.
IFRS 9 retains but simplifies the mixed
measurement model and establishes three
primary measurement categories for financial
assets: amortised cost, fair value through
other comprehensive income ("OCI") and fair
value through profit and loss. The basis
of classification depends on the entity's
business model and the contractual cash
flow characteristics of the financial asset.
Investments in equity instruments are required
to be measured at fair value through profit
or loss with the irrevocable option at inception
to present changes in fair value in OCI
not recycling. There is now a new expected
credit losses model that replaces the incurred
loss impairment model used in IAS 39. For
financial liabilities there were no changes
to classification and measurement except
for the recognition of changes in own credit
risk in OCI, for liabilities designated
at fair value through profit or loss. IFRS
9 relaxes the requirements for hedge effectiveness
by replacing the bright line hedge effectiveness
tests. It requires an economic
relationship between the hedged item and
hedging instrument and for the 'hedged ratio'
to be the same as the one management actually
use for risk management purposes. Contemporaneous
documentation is still required but is different
to that currently prepared under IAS 39.
The Group has decided not to adopt IFRS
9 until it becomes mandatory on 1 January
2018. The Group continues to assess the
impact of the new guidance on the classification
and measurement of its financial assets
and liabilities.
The new standard also introduces expanded
disclosure requirements and changes in presentation.
These are expected to change the nature
and extent of the Group's disclosures about
its financial instruments particularly in
the year of the adoption of the new standard.
-- IFRS 15, 'Revenue from contracts with customers'
deals with revenue recognition and establishes
principles for reporting useful information
to users of financial statements about the
nature, amount, timing and uncertainty of
revenue and cash flows arising from an entity's
contracts with customers. Revenue is recognised
when a customer obtains control of a good
or service and thus has the ability to direct
the use and obtain the benefits from the
good or service. The standard replaces IAS
18 'Revenue' and IAS 11 'Construction contracts'
and related interpretations. The standard
is effective for first interim periods within
annual reporting periods beginning on or
after 1 January 2018. The Group will adopt
the new standard from 1 January 2018.
-- IFRS 16 'Leases' was issued in January 2016.
It will result in almost all leases being
recognised on the balance sheet, as the
distinction between operating and finance
leases is removed. Under the new standard,
an asset (the right to use the leased item)
and a financial liability to pay rentals
are recognised. The only exceptions are
short-term and low-value leases. The accounting
for lessors will not significantly change.
The standard will affect primarily the accounting
for the Group's operating leases. As at
the reporting date, the Group has non-cancellable
operating lease commitments of $31,000.
However, the Group has not yet determined
to what extent these commitments will result
in the recognition of an asset and a liability
for future payments and how this will affect
the Group's profit and classification of
cash flows. Some of the commitments may
be covered by the exception for short-term
and low-value leases and some commitments
may relate to arrangements that will not
qualify as leases under IFRS 16. The standard
is mandatory for first interim periods within
annual reporting periods beginning on or
after 1 January 2019. At this stage, the
Group does not intend to adopt the standard
before its effective date.
The Group and the Directors are currently assessing the full
impact of the new standards, amendments and interpretations not yet
adopted, and their potential impact on the financial statements of
the Group.
There are no other IFRSs or IFRIC interpretations that are not
yet effective that would be expected to have a material impact on
the Group in the current or future reporting periods and on
foreseeable future transactions.
Exchange differences on intra-group balances with foreign
operation
The Group has certain inter-company monetary balances of which
the Company is the beneficial owner. These monetary balances are
payable by a subsidiary that is a foreign operation and are
eliminated on consolidation.
In the consolidated financial statements, exchange differences
arising on such payables because the transaction currency differs
from the subsidiary's functional currency are recognised initially
in other comprehensive income if the settlement of such payables is
continuously deferred and is neither planned nor likely to occur in
the foreseeable future.
In such cases, the respective receivables of the Company are
regarded as an extension of the Company's net investment in that
foreign operation, and the cumulative amount of the abovementioned
exchange differences recognised in other comprehensive income is
carried forward within the foreign exchange reserve in equity and
is reclassified to profit or loss only upon disposal of the foreign
operation.
When the subsidiary that is a foreign operation settles its
quasi-equity liability due to the Company, but the Company
continues to possess the same percentage of the subsidiary, i.e.
there has been no change in its proportionate ownership interest,
such settlement is not regarded as a disposal or a partial
disposal, and therefore cumulative exchange differences are not
reclassified.
The designation of inter-company monetary balances as part of
the net investment in a foreign operation is re-assessed when
management's expectations and intentions on settlement change due
to a change in circumstances.
Where, because of a change in circumstances, a receivable
balance, or part thereof, previously designated as a net investment
into a foreign operation is intended to be settled, the receivable
is de-designated and is no longer regarded as part of the net
investment.
The exchange differences arising on the subsidiary's payable
following de-designation are recognised within finance costs /
income in profit or loss, similar to foreign exchange differences
arising from financing.
During February - June 2017, a Group subsidiary, Regal Petroleum
Corporation (Ukraine) Limited, has settled $4,555,000 of
intra-group liability of which the Company is the beneficial owner.
A further amount of $5,015,000 has been settled since the end of
the first half, and the remaining $930,000 is expected to be
settled by the end of 2017. As such, a foreign exchange difference
of $334,000 accumulated on the intra-group balance of $10,500,000
since the date of de-designation of this balance as the Company's
net investment in the foreign operation up to 30 June 2017 was
recognised in profit or loss in these condensed interim
consolidated financial statements. No reclassification of the
foreign exchange difference, accumulated in equity prior to
de-designation, was made as there has been no change in the
Company's proportionate ownership interest in the foreign operation
and therefore no disposal or partial disposal of the foreign
operation. There were no changes in management's plans or
intentions regarding the payment of intra-group balances unsettled
as at 30 June 2017, other than the abovementioned amounts of
$5,015,000 and $930,000, and as such, a foreign exchange difference
of $4,591,000 related to the balance designated as net investment
in a foreign operation was recognised in other comprehensive income
for the six month period ended 30 June 2017.
Estimates
The preparation of the condensed interim consolidated financial
statements requires management to make judgements, estimates and
assumptions that affect the application of accounting policies and
the reported amounts of assets and liabilities, income and
expenses. Actual results may differ from these estimates.
In preparing these condensed interim consolidated financial
statements, the significant judgements made by management in
applying the Group's accounting policies and the key sources of
estimation uncertainty were the same as those that applied to the
consolidated financial statements for the year ended 31 December
2016.
3. Segmental Information
In line with the Group's internal reporting framework and
management structure, the key strategic and operating decisions are
made by the Board of Directors, who review internal monthly
management reports, budgets and forecast information as part of
this process. Accordingly, the Board of Directors is deemed to be
the Chief Operating Decision Maker within the Group.
The Group's only class of business activity is oil and gas
exploration, development and production. The Group's operations are
located in Ukraine, with its head office in the United Kingdom.
These geographical regions are the basis on which the Group reports
its segment information. The segment results as presented represent
operating profit / (loss) before depreciation and amortisation.
6 months ended 30 June 17 (unaudited)
Ukraine United Kingdom Total
$000 $000 $000
Revenue
Gas sales 8,983 - 8,983
Condensate sales 2,685 - 2,685
Liquefied Petroleum Gas sales 721 - 721
------------------------------- -------- --------------- ---------
Total revenue 12,389 - 12,389
Segment result 6,174 (664) 5,510
Depreciation and amortisation (4,485)
------------------------------- -------- --------------- ---------
Operating profit 1,025
------------------------------- -------- --------------- ---------
Segment assets 50,237 16,179 66.416
Capital additions* 2,130 - 2,130
There are no inter-segment sales within the Group and all
products are sold in the geographical region in which they are
produced. The Group is not significantly impacted by
seasonality.
During the first half of 2017, the Group commenced selling all
of its gas production to its related party, LLC Smart Energy
("Smart Energy"). Smart Energy has oil and gas operations in
Ukraine and is part of the PJSC Smart-Holding Group, which is
ultimately controlled by Mr Vadim Novinskiy, who also controls an
indirect 54% majority shareholding in the Group.
This arrangement came about as a consequence of the Ukrainian
Government introducing a number of new provisions into the
Ukrainian Tax Code over the last two years, including transfer
pricing regulations for companies operating in Ukraine. The
introduction of the new regulations has meant that there is an
increased regulatory burden on affected companies in Ukraine who
must prepare and submit reporting information to the Ukrainian Tax
Authorities. Due to the corporate structure of the Group, a
substantial proportion of its gas production is produced by a
non-Ukrainian subsidiary of the Group, which operates in Ukraine as
a branch, or representative office as it is classified in Ukraine.
Under the new tax regulations, this places additional regulatory
obligations on each of the Group's potential customers who may be
less inclined to purchase the Group's gas and/or may seek discounts
on sales prices. As a result of discussions between the Company and
Smart Energy, Smart Energy agreed to purchase all of the Group's
gas production and to assume responsibility for the regulatory
obligations under the Ukrainian tax regulations. Furthermore, Smart
Energy has agreed to combine the Group's gas production with its
own gas production, and to sell such gas as combined volumes, which
should result in higher sales prices due to the larger sales
volumes. In order to cover Smart
Energy's sales, administration and regulatory compliance costs,
the Group has agreed to sell its gas to Smart Energy at a discount
of 0.5% to the gas sales prices achieved by Smart Energy, who sell
the combined volumes in line with market prices. The terms of sale
for the Group's gas to Smart Energy are (i) payment for one third
of the estimated monthly volume of gas by the 20(th) of the month
of delivery, and (ii) payment of the remaining balance by the
10(th) of the month following the month of delivery.
6 months ended 30 June 16 (unaudited)
Ukraine United Kingdom Total
$000 $000 $000
Revenue
Gas sales 6,971 - 6,971
Condensate sales 2,211 - 2,211
Liquefied Petroleum Gas sales 1,251 - 1,251
------------------------------- -------- --------------- ---------
Total revenue 10,433 - 10,433
Segment result 5,225 (1,296) 3,929
Depreciation and amortisation (4,098)
------------------------------- -------- --------------- ---------
Operating loss (169)
------------------------------- -------- --------------- ---------
Segment assets 47,893 18,631 66,524
Capital additions* 393 - 393
12 months ended 31 December 16 (audited)
Ukraine United Kingdom Total
2016 2016 2016
$000 $000 $000
Revenue
Gas sales 16,529 - 16,529
Condensate sales 5,696 - 5,696
Liquefied Petroleum Gas sales 3,434 - 3,434
------------------------------ ------- -------------- -------
Total revenue 25,659 - 25,659
Segment result 13,773 (2,257) 11,516
Depreciation and amortisation (9,141)
Operating profit 2,375
Segment assets 50,960 13,508 64,468
Capital additions* 21,453 - 21,453
*Comprises additions to property, plant and equipment and
intangible assets (Notes 6 and 7).
4. Taxation
The income tax charge of $1,992,000 for the six month period
ended 30 June 2017 relates to a urrent tax charge of $906,000 and a
deferred tax charge of $1,086,000 (six month period ended 30 June
2016: current tax charge of $717,000 and deferred tax charge of
$480,000).
The movement in the period was as follows:
6 months ended 6 months ended 12 months ended
30 Jun 17 30 Jun 16 31 Dec 16
(unaudited) (unaudited) (audited)
$000 $000 $000
Deferred tax asset recognised on tax losses - Company and Group
At beginning of the period 3,717 4,470 4,470
Charged to Income Statement - current year (1,495) (818) (753)
At end of the period 2,222 3,652 3,717
----------------------------------------------------------------- --------------- --------------- ----------------
Deferred tax asset recognised relating to development and production asset - Group
At beginning of the period 7,404 9,963 9,963
Credited to Income Statement - current period 283 338 250
Charged to Income Statement - prior period - - (1,847)
Effect of exchange difference 314 (335) (962)
------------------------------------------------------------------------------------
At end of the period 8,001 9,966 7,404
------------------------------------------------------------------------------------ ------ ------ --------
Deferred tax liability recognised relating to development and production asset - Group
At beginning of the period (1,187) - -
Acquisition of subsidiary - - (1,499)
Credited to Income Statement - current period 126 - 191
Effect of exchange difference (47) - 121
----------------------------------------------------------------------------------------
At end of the period (1,108) - (1,187)
---------------------------------------------------------------------------------------- -------- --------
Taxes on income in the interim periods are accrued using the tax
rate that would be applicable to the expected total annual profit
or loss.
At 30 June 2017, the Group recognised a deferred tax asset of
$2,222,000 in relation to UK tax losses carried forward (31
December 2016: $3,717,000). There was a further $90 million (31
December 2016: $85 million) of unrecognised UK tax losses carried
forward for which no deferred tax asset has been recognised. These
losses can be carried forward indefinitely, subject to certain
rules regarding capital transactions and changes in the trade of
the Company. The Directors consider it appropriate to recognise
deferred tax assets resulting from accumulated tax losses at 30
June 2017 to the extent that it is probable that there will be
sufficient future taxable profits.
The deferred tax asset relating to the Group's development and
production assets at 30 June 2017 of $8,001,000 (31 December 2016:
$7,404,000) was recognised on the tax effect of the temporary
differences between the carrying value of the Group's development
and production asset at the MEX-GOL and SV gas and condensate
fields, and its tax base. This is deemed recoverable on the
projected future profits generated by the Group's operations in
Ukraine.
The deferred tax liability relating to the Group's development
and production assets at 30 June 2017 of $1,108,000 (31 December
2016: $1,187,000) was recognised on the tax effect of the temporary
differences between the carrying value of the Group's development
and production asset at the VAS gas and condensate fields, and its
tax base.
UK Corporation tax change
A change to the UK corporation tax rate was announced in the
Chancellor's Budget on 16 March 2016. The change announced is to
reduce the main tax rate to 17% from 1 April 2020. Changes to
reduce the UK corporation tax rate to 19% from 1 April 2017 and to
18% from 1 April 2020 were substantively enacted on 26 October
2015. Changes to reduce the UK corporation tax rate to 17% from 1
April 2020 were substantially enacted on 6 September 2016 and the
effect of these changes are included in these condensed interim
consolidated financial statements.
5. Loss per Share
The calculation of basic and diluted earnings per ordinary share
has been based on the loss for the six month period ended 30 June
2017 and 320,637,836 ordinary shares (six month period ended 30
June 2016: 320,637,836), being the average number of shares in
issue for the period. There are no dilutive instruments.
6. Property, Plant and Equipment
6 months ended 30 Jun 17 12 months ended 31 Dec 16
(unaudited) (audited)
------------------------------------------- ---------------------------------------------
Development and Other Development and Production Other
Production assets fixed assets fixed
Ukraine assets Total Ukraine assets Total
Group $000 $000 $000 $000 $000 $000
Cost
At beginning of the
period 100,490 902 101,392 99,254 719 99,973
Additions 1,979 39 2,018 5,973 229 6,202
Additions due to
acquisition of
subsidiary - - - 7,610 87 7,697
Change in
decommissioning
provision 92 - 92 359 - 359
Disposals (17) (5) (22) (153) (17) (170)
Exchange differences 4,290 38 4,328 (12,553) (116) (12,669)
At end of the period 106,834 974 107,808 100,490 902 101,392
Accumulated depreciation
and impairment
At beginning of the
period 79,649 389 80,038 81,114 356 81,470
Charge for the period 4,027 57 4,084 8,620 68 8,688
Disposals (9) (5) (14) (1) (11) (12)
Exchange differences 3,456 17 3,473 (10,084) (24) (10,108)
At end of the period 87,123 458 87,581 79,649 389 80,038
Net book value at the
beginning of the period 20,841 513 21,354 18,140 363 18,503
-------------------------- ------------------------- ------- ------- -------------------------- ------- --------
Net book value at end of
the period 19,711 516 20,227 20,841 513 21,354
-------------------------- ------------------------- ------- ------- -------------------------- ------- --------
At 30 June 2017, the Group performed an assessment of external
and internal indicators to ascertain whether there was any
indication of potential impairment. As part of this assessment, the
assumptions used in the impairment testing undertaken as at 31
December 2016, which was completed for the Group's financial
statements in April 2017, were reviewed and it was noted that no
significant changes had occurred to the assumptions to which the
value of the Group's development and production assets are most
sensitive. Based on the analysis performed, the Group concluded
that no external or internal impairment indicators existed as at 30
June 2017, and accordingly no impairment testing was required as at
that date.
7. Intangible assets
6 months ended 30 Jun 17 12 months ended 31 Dec 16
(unaudited) (audited)
Mineral reserve Other intangible Mineral reserve Other intangible
rights assets Total rights assets Total
Group $000 $000 $000 $000 $000 $000
Cost
At beginning of
the period 6,832 144 6,976 - 94 94
Additions - 112 112 - 71 71
Additions due to
acquisition of
subsidiary - - - 7,479 4 7,483
Disposals - - - - (9) (9)
Exchange
differences 286 9 295 (647) (16) (663)
------------------- ------------------- ------------------- ------ ------------------- ------------------- -----
At end of the
period 7,118 265 7,383 6,832 144 6,976
------------------- ------------------- ------------------- ------ ------------------- ------------------- -----
Accumulated amortisation
and impairment
At beginning of
year 393 53 446 - 31 31
Charge for year 408 37 445 417 36 453
Disposals - - - - (9) (9)
Exchange
differences 28 4 32 (24) (5) (29)
------------------- ------------------- ------------------- ------ ------------------- ------------------- -----
At end of year 829 94 923 393 53 446
------------------- ------------------- ------------------- ------ ------------------- ------------------- -----
Net book value at
beginning of the
period 6,439 91 6,530 - 63 63
------------------- ------------------- ------------------- ------ ------------------- ------------------- -----
Net book value at
end of the
period 6,289 171 6,460 6,439 91 6,530
------------------- ------------------- ------------------- ------ ------------------- ------------------- -----
Intangible assets consist mainly of the hydrocarbon production
licence relating to the VAS gas and condensate field which is held
by LLC Prom-Enerho Produkt. The Group amortises this intangible
asset using the straight-line method over the term of the licence
until 2024.
At 30 June 2017, the Group performed an assessment of external
and internal indicators to ascertain whether there was any
indication of potential impairment. As part of this assessment, the
assumptions used in the impairment testing undertaken as at 31
December 2016, which was completed for the Group's financial
statements in April 2017, were reviewed and it was noted that no
significant changes had occurred to the assumptions to which the
value of the Group's intangible assets are most sensitive. Based on
the analysis performed, the Group concluded that no external or
internal impairment indicators existed as at 30 June 2017, and
accordingly no impairment testing was required as at that date.
8. Trade and Other Receivables
30 Jun 17 31 Dec 16
(unaudited) (audited)
$000 $000
Trade receivables 1,988 2,203
Prepayments and accrued income 780 1,300
VAT receivable 304 543
Other receivables 250 197
3,322 4,243
Due to the short-term nature of the current trade and other
receivables, their carrying amount is assumed to be the same as
their fair value. All trade and other receivables, except those
provided for, are considered to be of high credit quality.
All of the trade receivables are from a related party company,
Smart Energy, that purchases all of the Group's gas production (see
Note 3). The applicable payment terms are payment for one third of
the estimated monthly volume of gas by the 20(th) of the month of
delivery, and payment of the remaining balance by the 10(th) of the
month following the month of delivery. The trade receivables were
paid in full after the end of the period.
An impairment provision of $31,000 was charged against trade and
other receivables during the six month period ended 30 June 2017
(31 December 2016: $64,000).
Current VAT receivable in respect of the Group includes $304,000
(31 December 2016: $543,000) relating to capital expenditure in
Ukraine which is expected to be recovered via an offset against VAT
payable on future sales in that country. The Group expects to
offset the total amount of VAT receivable at 30 June 2017 during
the 2017 year, and therefore no VAT receivable was included within
non-current trade and other receivables.
9. Inventories
30 Jun 17 31 Dec 16
(unaudited) (audited)
$000 $000
Materials 1,407 1,150
Finished goods 179 50
Goods for resale 80 -
1,666 1,200
Inventories consist of materials, finished goods and goods for
resale. Materials are represented by spare parts that were not
assigned to any new wells as at 30 June 2017, production raw
materials and fuel at the storage facility. Finished goods consist
of produced gas held in underground gas storage facilities and
condensate and LPG held at the processing facility prior to sale.
Goods for resale are represented by tubing which the Group did not
plan to use in the future, which was sold after the period end.
All inventories are measured at the lower of cost or net
realisable value. There was no write down of materials inventory as
at 30 June 2017.
10. Provision for Decommissioning
30 Jun 17 31 Dec 16
(unaudited) (audited)
$000 $000
Group
At beginning of the period 1,915 831
Amounts provided - 49
Amounts provided due to acquisition of subsidiary - 816
Unwinding of discount 62 82
Change in estimate 92 310
Exchange differences 82 (173)
-------------------------------------------------- ------------ ----------
At end of the period 2,151 1,915
The provision for decommissioning is based on the net present
value of the Group's estimated liability for the removal of the
Ukraine production facilities and well site restoration at the end
of production life.
The non-current provision of $2,151,000 (31 December 2016:
$1,915,000) represents a provision for the decommissioning of the
Group's MEX-GOL, SV and VAS production facilities, including site
restoration. It is based on the net present value of the Group's
estimated liability, and these costs are expected to be incurred by
2036 on the MEX-GOL and SV gas and condensate fields and by 2024 on
the VAS gas and condensate field (31 December 2016: by 2036 and
2024 respectively), although if the costs on the MEX-GOL and SV gas
and condensate fields were to be incurred at the current expiry of
the production licences in 2024, the provision for decommissioning
at 30 June 2017 would be $3,373,000 (31 December 2016: $2,943,000).
None of the provision was utilised during the reporting period
(2016: none).
11. Financial Instruments
The Group's financial instruments comprise cash and cash
equivalents and various items such as debtors and creditors that
arise directly from its operations. The Group has bank accounts
denominated in British Pounds, US Dollars, Euros, Canadian Dollars
and Ukrainian Hryvnia. The Group does not have any borrowings. The
main future risks arising from the Group's financial instruments
are currently currency risk, interest rate risk, liquidity risk and
credit risk.
The Group's financial assets and financial liabilities, measured
at amortised cost, which approximates their fair value comprise the
following:
30 Jun 17 31 Dec 16
(unaudited) (audited)
$000 $000
Financial assets
Cash and cash equivalents 24,480 19,966
Trade and other receivables 2,084 2,224
-----------
26,564 22,190
Financial Liabilities
Trade and other payables 210 -
Accruals 245 345
-----------
455 345
All assets and liabilities of the Group where fair value is
disclosed are of level 2 value hierarchy and valued using current
cost accounting techniques.
At 30 June 2017, the Group held cash and cash equivalents in the
following currencies:
30 Jun 17 31 Dec 16
(unaudited) (audited)
$000 $000
US Dollars 13,540 9,497
Ukrainian Hryvnia 10,594 9,992
British Pounds 342 471
Euros 2 4
Canadian Dollars 2 2
------------------- ------------- -----------
24,480 19,966
------------------- ------------- -----------
All of the cash and cash equivalents held in Ukrainian Hryvnia
is held in banks within Ukraine, and all other cash and cash
equivalents are held in banks within the United Kingdom.
12. Reconciliation of Operating Profit / (Loss) to Operating Cash Flow
6 months ended 6 months ended 12 months ended
30 Jun 17 30 Jun 16 31 Dec 16
(unaudited) (unaudited) (audited)
$000 $000 $000
Operating profit / (loss) 1,025 (169) 2,375
Depreciation, amortisation and impairment charges 4,485 4,098 9,141
Gain on sales of current assets, net (94) - (91)
Loss from provision for doubtful debts 31 64
Gain from write off of non-current assets - (4) (14)
Movement in provisions (6) (1) (20)
(Increase) / decrease in inventory (344) 90 90
Decrease / (Increase) in receivables 230 89 (1,730)
Increase / (decrease) in payables 124 (294) 156
--------------------------------------------------- --------------- --------------- ------------------
Cash generated from operations 5,451 3,809 9,971
--------------------------------------------------- --------------- --------------- ------------------
13. Contingencies and Commitments
Amounts contracted in relation to the Group's 2017 investment
programme at the MEX-GOL and SV gas and condensate fields in
Ukraine, but not recorded in the condensed interim consolidated
financial statements at 30 June 2017, were $498,000, the majority
of which were denominated in Ukrainian Hryvnia (31 December 2016:
$1,212,000).
At 30 June 2017, the Group had purchase commitments of $225,000
which related to well insurance and field development supervision
(31 December 2016: nil).
During 2010 - 2017, the Group has been in dispute with the
Ukrainian tax authorities in respect of VAT receivables on imported
leased equipment, with a disputed liability of up to UAH8,487,219
($325,000) inclusive of penalties and other associated costs. There
is a level of ambiguity in the
interpretation of the relevant tax legislation, and the position
adopted by the Group has been challenged by the Ukrainian tax
authorities, which has led to legal proceedings to resolve the
issue.
The Group had been successful in three court cases in respect of
this dispute in ourts of different levels.
On 20 September 2016, a hearing was held in the Supreme Court of
Ukraine of an appeal of the Ukrainian tax authorities against the
decision of the Higher Administrative Court of Ukraine, in which
the appeal of the Ukrainian tax authorities was upheld. As a result
of this appeal decision, all decisions of the lower courts were
cancelled, and the case was remitted to the first instance court
for a new trial.
On 1 December 2016 and 7 March 2017, the Group received positive
decisions in the first and second instance court, but further legal
proceedings may arise.
Since as at the end of the period, the Group had been successful
in previous court cases in respect of this dispute in ourts of
different levels, the date of the next legal proceedings has not
been set and as management believes that adequate defences exist to
the claim, no liability has been recognised in these condensed
interim consolidated financial statements for the six months ended
30 June 2017 (31 December 2017: nil).
14. Related Party Disclosures
Key management personnel of the Group are considered to comprise
only the Directors. Remuneration of the Directors for the six month
period ended 30 June 2017 was $327,000 (six month period ended 30
June 2016: $361,000).
During the period, Group companies entered into the following
transactions with related parties which are not members of the
Group:
6 months ended 6 months ended 12 months ended
30 Jun 17 30 Jun 16 31 Dec 16
(unaudited) (unaudited) (audited)
$000 $000 $000
Sale of goods / services 8,983 59 65
Purchase of goods / services 130 49 230
Amounts owed by related partied 1,988 47 -
Amounts owed to related parties 15 10 20
--------------------------------- --------------- --------------- -----------------
All related party transactions were with subsidiaries of the
ultimate Parent Company, and primarily relate to the sale of gas,
the rental of office facilities and a vehicle and the sale of
equipment. The amounts outstanding were unsecured and have been or
will be settled in cash.
As of 30 June 2017 and 2016, the Company's immediate parent
company was Energees Management Limited, which is 100% owned by
Pelidona Services Limited, which is 100% owned by Lovitia
Investments Ltd, which is 100% owned by Mr V Novinskiy.
Accordingly, the Company's ultimate Parent Company was Lovitia
Investments Ltd and the Company was ultimately controlled by Mr V
Novinskiy.
The Group operates bank accounts in Ukraine with a related party
bank, Unex Bank, which is ultimately controlled by Mr V Novinskiy.
There were the following transactions and balances with Unex Bank
during the period:
6 months ended 6 months ended 12 months ended
30 Jun 17 30 Jun 16 31 Dec 16
(unaudited) (unaudited) (audited)
$000 $000 $000
Interest income - 309 365
Bank charges 3 4 1
Other short-term investments - 12,333 -
Closing cash balance 89 - -
At the date of this announcement, none of the Company's
controlling parties prepares consolidated financial statements
available for public use.
15. Post Balance Sheet Events
There are no post balance sheet events, other than as referred
to earlier in this announcement.
Independent review report to Regal Petroleum plc
Report on the condensed interim consolidated financial
statements
Our conclusion
We have reviewed Regal Petroleum plc's condensed interim
consolidated financial statements (the "interim financial
statements") in the interim results of Regal Petroleum plc for the
6 month period ended 30 June 2017. Based on our review, nothing has
come to our attention that causes us to believe that the interim
financial statements are not prepared, in all material respects, in
accordance with International Accounting Standard 34, 'Interim
Financial Reporting', as adopted by the European Union and the AIM
Rules for Companies.
What we have reviewed
The interim financial statements comprise:
-- the condensed interim consolidated balance
sheet as at 30 June 2017;
-- the condensed interim consolidated income
statement and condensed interim consolidated
statement of comprehensive income for the
period then ended;
-- the condensed interim consolidated statement
of cash flows for the period then ended;
-- the condensed interim consolidated statement
of changes in equity for the period then
ended; and
-- the explanatory notes to the interim financial
statements.
The interim financial statements included in the interim results
have been prepared in accordance with International Accounting
Standard 34, 'Interim Financial Reporting', as adopted by the
European Union and the AIM Rules for Companies.
As disclosed in Note 1 to the interim financial statements, the
financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Group is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The interim results, including the interim financial statements,
is the responsibility of, and has been approved by, the Directors.
The Directors are responsible for preparing the interim results in
accordance with the AIM Rules for Companies which require that the
financial information must be presented and prepared in a form
consistent with that which will be adopted in the Company's annual
financial statements.
Our responsibility is to express a conclusion on the interim
financial statements in the interim results based on our review.
This report, including the conclusion, has been prepared for and
only for the Company for the purpose of complying with the AIM
Rules for Companies and for no other purpose. We do not, in giving
this conclusion, accept or assume responsibility for any other
purpose or to any other person to whom this report is shown or into
whose hands it may come save where expressly agreed by our prior
consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the interim
results and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
15 September 2017
a) The maintenance and integrity of the Regal Petroleum plc
website is the responsibility of the Directors; the work carried
out by the Auditors does not involve consideration of these matters
and, accordingly, the Auditors accept no responsibility for any
changes that may have occurred to the interim financial statements
since they were initially presented on the website.
b) Legislation in the United Kingdom governing the preparation
and dissemination of financial statements may differ from
legislation in other jurisdictions.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR EAFNKFDNXEFF
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