TIDMUEN
RNS Number : 2449P
Urals Energy Public Company Limited
30 September 2011
30 September, 2011
Urals Energy Public Company Limited
("Urals Energy" or the "Company")
2011 Half Year Results
Urals Energy (LSE: UEN), the independent exploration and
production company with operations in Russia, today announces its
half year results for the six months ended 30 June 2011.
Highlights
Operational
-- Total production from Arcticneft increased to 126,780 barrels
(121,605 barrels in H1 2010)
-- Total production from Petrosakh of 249,728 barrels (255,655
barrels in H1 2010)
-- Average daily production for the period was 2,080 BOPD (2,084
BOPD H1 2010)
-- Current daily production at Arcticneft increased to 713 BOPD
from an average of 700 BOPD for the six months ended 30 June
2011
-- Current daily levels of production at Petrosakh increased to
1,457 BOPD from an average of 1,380 BOPD for the six months ended
30 June 2011
-- A successful 12 well workover program at Petrosakh stabilized
production decline
-- Ongoing activity in neighbouring blocks may further de-risk
Ural's acreage
Financial
-- Net profit of US$3.6 million (net loss of US$1.6 million for
H1 2010)
-- Net cash position of US$9.1 million at 30 June 2011 (US$2.4
million for H1 2010)
-- Operating loss of US$2.9 million as result of non-cash
transactions (H1 2010 profit of US$1.6 million)
-- Ongoing repayment schedule of payments to Petraco Oil Company
Limited ("Petraco") as per the restructuring agreement
-- Successful implementation of cost reduction programme
-- Ongoing discussions regarding the restructuring of the Taas
loan
Outlook
-- Continuing focus on repayment of outstanding debts and
strengthening of the balance sheet
-- Loading of up to 26,500 metric tons of crude oil for export
from Arcticneft scheduled for October 2011
-- Identifying ways of utilising the upside potential in
downstream and marketing opportunities on the existing acreage
-- Expected revision of export duty from early October 2011 to
give approximately an additional $5/bbl of netback
-- Urals will continue to consider and evaluate possible
acquisition and joint venture targets with a view to expanding and
optimising the Company's asset portfolio
Commenting on today's announcement, Alexei Maximov, CEO,
said;
"I am pleased to report that over the period the Company has
continued its measured advance towards a firm recovery.
Operationally, we have been laying the foundations for maximizing
production from both Arcticneft and Petrosakh. Financially, we
continue to make progress reducing our debt position and fortifying
our balance sheet.
The Company continues to focus on increasing production and cash
generation at both Arcticneft and Petrosakh . With a stronger
balance sheet, we expect to succeed in our operational strategy and
view the future with greater confidence."
Enquiries:
Allenby Capital Limited
Nominated adviser and broker +44 (0)20 3328 5656
Nick Naylor
Alex Price
Pelham PR +44 (0)20 7861 3232
Mark Antelme
Maria Blank
CEO STATEMENT
In December 2010 the Company completed a successful share
placing raising US$9.24million. The placing provided the Company
with sufficient funds to begin the process of fulfilling its 2011
strategic objective of increasing production across the asset
portfolio, as well as being a positive sign that the company is in
recovery mode.
The revenues from the production increase will facilitate the
ongoing Petraco loan repayment. Urals is also in active discussions
regarding the restructuring of the Taas loan and the Board looks
forward to updating the market on this matter at the appropriate
time.
Considerable workovers of the onshore Petrosakh and Arcticneft
licenses commenced in 2011, with a view to investigating the
potential of the surrounding resources. Production in Petrosakh has
increased by 114 BOPD as a result of additional perforation in two
wells and a moderate increase is as a result of back pressure
reduction and draw down increase. This entire work programme is
being performed by existing staff using materials and equipment
kept on site, therefore without additional cost to the Company.
During the first half of 2011 development well #51 was spudded.
Target depth of 1,650 meters was reached in July 2011. However, as
a result of difficult geological conditions, while preparing to run
a production string, drilling equipment jammed the well, which
prevented completion.
A decision was subsequently made to test the upper horizon and a
moderate flow rate of 37 BOPD was recorded, confirming productivity
of the well. Consequently, a parallel well was drilled from a depth
of 1,370 meters. However, at a depth of 1,460 meters the decision
was made to plug and temporarily abandon Well # 51 due to the
difficult drilling conditions.
Further potential may be identified at Arcticneft, as a result
of the planned drilling of a deep exploration well by
ArcticMorNefteGazRazvedka ("AMNGR") in the lower Paleozoic horizon
of the Peschanoozerskoye field. Since both Arcticneft and AMNGR
operate the same field (albeit different blocks), we anticipate
that AMNGR's results may provide a strong indication for the
potential for Urals to increase its reserves in the same area and
formation. We expect to receive a positive result by Q4 2012.
High oil prices in 2011 increased the profitability of the
Company's operations, however at the same time this fact has also
effected the Company's working capital position, especially at
Arcticneft, where oil is produced and production taxes are paid at
a higher tax rate. As was recently announced by the Russian
government, a change in the export duty tax regime is expected to
take place from early October 2011. Based on the preliminary
information available, an expected decrease in export duty for
crude oil may result in approximately $5/bbl of additional net back
to the Company at Brent $100 per bbl. Hence, in order to fully
benefit from the proposed regime, the Company has a planned
delivery of 26,500 metric tons of crude in October.
We will also continue to actively pursue possible acquisition
targets and/or joint venture opportunities to complement the
Company's existing asset portfolio.
I would like to take this opportunity to thank our shareholders,
employees and partners for their on-going support of the Company
and its re-focussed strategy in this new chapter of Urals'
growth.
Financial Results
Operating Environment
The six months ended 30 June 2011 were characterised by stable
crude oil market price at an average level of US$110 per barrel.
Domestic prices for light oil products ranged from US$75 to US$90
per barrel thus securing the Company's operating cash flows at a
level sufficient to maintain its operations and comply with license
requirements at both fields.
There were no deliveries of crude oil exported from Arcticneft
during the reporting period, resulting in 22,000 metric tons of
crude oil that remained in stock. The tanker from Arcticneft is
expected in October 2011.
At the same time, at Petrosakh, the Company accelerated
production and sales of refined products, thus securing the
Company's liquidity during the period of non deliveries from
Arcticneft.
Operating Results
Period ended 30
$ '000 June:
------------------
2011 2010
--------------------------------------------- --------- -------
Gross revenues before excise, export duties 17,139 11,690
Net revenues after excise, export duties
and VAT 15,395 11,078
Gross profit 1,513 2,561
Operating (loss)/profit (2,851) 1,554
Management EBITDA 114 79
Total net finance benefits/(costs) 5,868 (585)
Profit for the period 3,607 1,558
--------------------------------------------- --------- -------
Gross Revenues ($'000)
Period ended 30
June:
----------------------------------------- ------------------
2011 2010
----------------------------------------- -------- --------
Crude oil 1,807 1,523
Export sales - -
Domestic sales (Russian Federation) 1,807 1,523
Petroleum (refined) products - domestic
sales 14,930 9,779
Other sales 402 388
Total gross revenues 17,139 11,690
----------------------------------------- -------- --------
For the six months ended 30 June 2011, total gross revenues
increased by US$5.4 million as a result of growth of sales volumes
totaling 264,092 barrels for the six months ended 30 June 2011
(compared with 210,385 barrels for the six months ended 30 June
2010) and as a result of raise of average net back prices for
petroleum (refined) products of US$47.43 per barrel for the six
months ended 30 June 2011 (US$44.11 for the six months ended 30
June 2010). The increase was partially off-set by a lower crude oil
net back price of US$35.87 per barrel for the six months ended 30
June 2011 (US$40.33 per barrel for the six months ended 30 June
2010). Netback, in the case of domestic crude oil sales, is the
gross sales net of VAT. Netback for domestic product sales is
defined as gross product sales minus VAT, transportation, excise
tax and refining costs.
For the six months ended 30 June 2011 all domestic sales of
crude oil and almost all petroleum (refined) products related to
Petrosakh. During the six months ended 30 June 2011 Arcticneft sold
petroleum (refined) products to FGUP "ArcticMorNefteGazRazvedka"
("AMNGR") for US$302,000 (US$307,000 for the six months ended 30
June 2010).
Summary table: Net backs ($/bbl)
Period ended 30
June:
----------------------------------------------- ------------------
2011 2010
----------------------------------------------- -------- --------
Crude oil 35.87 40.33
Export sales - -
Domestic sales (Russian Federation) 35.87 40.33
Petroleum (refined) products - domestic sales 47.43 44.11
----------------------------------------------- -------- --------
Gross profit (net revenues less cost of sales) for the first
half of 2011 decreased to US$1.5 million from US$2.6 million for
the six months ended 30 June 2010. The main driver of the decline
was the increase of Depreciation, Amortization and Depletion
associated with the impairment release of property, plant and
equipment in Arcticneft and Petrosakh in 2010.
Operating Loss for the first half of 2011 was US$2.9 million,
primarily driven by non-cash transactions associated with the
Depreciation, Amortization and Depletion and by the release of
provisions of US$0.6 million for the first half of 2011, as
compared with an Operating Profit of US$1.6 million for the six
months ended 30 June.
The net finance benefits during the first half of 2011 were
US$5.9 million and net interest benefit was US$1.3 million (for the
six months ended 30 June 2010: net finance costs of US$0.6 million
and net interest benefit of US$1 million).
Increase of Finance benefits for the six months ended 30 June
2011 resulted in a Net Profit of US$3.6 million compared with
US$1.6 million for the six months ended 30 June 2010.
Consolidated Management EBITDA in the six months ended 30 June
2011 was US$114,000 as compared with US$79,000 during the six
months ended 30 June 2010.
Management EBITDA ($'000) - Unaudited
Period ended 30 June:
------------------------
2011 2010
----------------------------------------------- ----------- -----------
Profit for the period 3,607 1,558
Net finance (benefits)/costs (5,868) 585
Income tax (591) (589)
Depreciation, depletion and amortization 2,455 1,238
----------------------------------------------- ----------- -----------
Total non-cash expenses (4,004) 1,234
Share-based payments 290 383
Resignation fees to top-managers 174 -
Loss/(gain) from disposal of property,
plant and
equipment 704 (1,227)
Release of provisions (569) (1,869)
Other non-cash income (88) -
----------------------------------------------- ----------- -----------
Total non-recurrent and non-cash items 511 (2,713)
Normalised EBITDA 114 79
----------------------------------------------- ----------- -----------
Cash Flow
The Company's cash position for the six months ended 30 June
2011 did not change significantly as compared with the six months
ended 30 June 2010. The Group used US$3.3 million on operating
activities, primarily financing production at Arcticneft and
working capital associated with that production (the Company pays
operating expenses and production taxes at the time crude is
produced, whilst the sales of crude at Arcticneft take place only
twice a year due to seasonality of shipments).
During the first half of 2011 the Company repaid $4 million of
debt to Petraco and used $1.6 million in investing activities.
Management believes that with the expected crude oil delivery
from Arcticneft and in the event that world crude oil prices do not
change significantly as compared with the current prices, the
Company will have sufficient funds to make repayment of both
tranches due to Petraco ($8 million in aggregate) by the end of
November 2011.
Net debt Position
As of 30 June 2011 the Company had net cash of US$9.1 million
(calculated as Long-term and Short-term debt plus payables to
Finfund less cash in bank, less loan receivable from Taas and less
Loans issued to related parties). As at 31 December 2010 net cash
was US$13.3 million.
The Company repaid the tranche to Petraco which was due at the
end of December 2010 in amount of $4.0 million in early January
2011.
Accounts payable and accrued expenses of $10.7 million at the
period end mainly represented outstanding accounts payable to
Finfund with the maximum liability of $4.4 million at 30 June 2011
for the pledge fee.
On 2 June 2010 the Company was notified that Finfund Limited had
exercised its rights to acquire 13,000,000 existing Urals Energy
shares with a nominal value of US$0.0063 per share from entities
beneficially owned by two directors (Leonid Y. Dyachenko and
Aleksey V. Ogarev) and another significant shareholder (Vyacheslav
V. Rovneiko) (together the "Pledge Shareholders") pursuant to a
share pledge agreement dated 26 November 2007 (the "Share Pledge
Agreement").
The Share Pledge Agreement was entered into by entities
beneficially owned by the Pledge Shareholders and secured various
obligations of the Company under the terms of a sale and purchase
agreement dated 26 November 2007 (the "SPA") relating to the
acquisition by Urals of Taas-YuriakhNeftegazodobycha (the
"Acquisition"). Such obligations included certain pledge fees which
Finfund Limited are now claiming are owed by the Company. Based on
the Company's alleged defaults in respect of the payment of such
fees, Finfund Limited has chosen to exercise its rights under the
Share Pledge Agreement to acquire 13,000,000 shares in the Company
from entities beneficially owned by the Pledge Shareholders (the
"Pledged Shares").
As of 30 June 2011 and 31 December 2010 the Group impaired a
loan to a formerly related party by $5.5 million and $5.2 million,
respectively. This amount relates to a loan to a shareholder and
former member of management of the Group (Vyatcheslav Rovneiko).
This loan is overdue and is secured by a pledge on an entity whose
primary asset is real estate properties located in Moscow. In
October 2010 the management became aware of the fact that the same
real estate has been additionally pledged to secure funding from
external banks. This fact was divulged to management and was
considered to be misconduct on behalf of the related party
resulting in a devaluation of the Group's collateral. As a result,
the Board immediately informed this related party that it is aware
of this fact and demanded repayment of the full amount by 20 May
2011. By 20 May 2011 the Company did not received any response from
the related party. Taking into account that according to the loan
agreement all disputes are subject to final resolution by
arbitration under the Rules of Arbitration of the London Court of
International Arbitration (the LCIA), the Company filed a claim
with the LCIA in June 2011. In August 2011 the LCIA notified the
appointment of a sole arbitrator to consider the dispute and the
Company confirmed that the Request for Arbitration is a Statement
of Case. The related party is required to file a statement of
defense prior to 10 October 2011 after which the dispute will go
into arbitration, which we believe will be resolved in the
Company's favor within a few months. The Company had an option to
pursue the real estate properties in Moscow, but the Board was of
the view that this course of action would ultimately be a longer
and less certain course of action. For accounting purposes the
management has reassessed the carrying value of the loan and has
impaired it fully. However, this does not reduce the validity of
the legal claim against this related party.
Outlook
Looking ahead, as part of the recovery strategy, the ongoing
strengthening of the balance sheet remains a key priority and the
Company will continue to make further progress with the repayment
of its outstanding debts.
We are shortly going to be loading up to 26,500 metric tons of
crude oil for export from Arcticneft, which is scheduled for
October 2011. Furthermore, the expected revision of export duty
from early October 2011 is expected to give approximately an
additional $5/bbl of netback to the Company.
The Company continues to focus on increasing production and cash
generation at both Arcticneft and Petrosakh. In addition to our
existing operations, we are actively looking at new opportunities,
be it in identifying ways of utilising the upside potential in
downstream and marketing opportunities on the existing acreage, or
evaluating possible acquisition and joint venture targets with a
view to expanding and optimising the portfolio.
With a stronger balance sheet, we expect to succeed in our
operational strategy and, with the management and shareholder's
interests closely aligned, view the future with greater
confidence.
Alexei Maximov
Chief Executive Officer
The accompanying notes are an integral part of these interim
condensed consolidated financial information
Interim Condensed Consolidated Statement of Financial Position
(unaudited)
(presented in US$ thousands)
30 June 31 December
Note 2011 2010
---------- ------------
Assets
Current assets
Cash in bank and on hand 830 987
Accounts receivable and prepayments 4,737 14,928
Inventories 7 21,694 12,911
Total current assets 27,261 28,826
------------------------------------------- ----- ---------- ------------
Non-current assets
Property, plant and equipment 5 135,511 128,817
Supplies and materials for capital
construction 2,852 2,655
Other non-current assets 6 41,263 39,426
------------------------------------------- ----- ---------- ------------
Total non-current assets 179,626 170,898
------------------------------------------- ----- ---------- ------------
Total assets 206,887 199,724
------------------------------------------- ----- ---------- ------------
Liabilities and equity
Current liabilities
Accounts payable and accrued expenses 8 8,742 10,781
Provisions 2,000 2,559
Income tax payable 5,118 5,118
Other taxes payable 8,004 5,151
Short-term borrowings and current
portion of long-term borrowings 10 8,127 12,172
Advances from customers 9 3,844 4,259
Total current liabilities 35,835 40,040
------------------------------------------- ----- ---------- ------------
Long-term liabilities
Long-term borrowings 10 19,356 18,653
Long term finance lease obligations 645 329
Dismantlement provision 1,422 1,232
Deferred tax liability 12,864 12,387
------------------------------------------- ----- ---------- ------------
Total long-term liabilities 34,287 32,601
------------------------------------------- ----- ---------- ------------
Total liabilities 70,122 72,641
------------------------------------------- ----- ---------- ------------
Equity
Share capital 11 1,569 1,543
Share premium 11 656,821 656,444
Translation difference (23,269) (28,858)
Retained earnings (499,401) (503,016)
------------------------------------------- ----- ---------- ------------
Equity attributable to shareholders
of Urals Energy Public Company Limited 135,720 126,113
------------------------------------------- ----- ---------- ------------
Minority interest 1,045 970
------------------------------------------- ----- ---------- ------------
Total equity 136,765 127,083
------------------------------------------- ----- ---------- ------------
Total liabilities and equity 206,887 199,724
------------------------------------------- ----- ---------- ------------
Approved on behalf of the Board of Directors on 29 September
2011
_________________________________________________ __________________________________________
A.D. Maximov G.B. Kazakov
Chief Executive Officer Chief Financial Officer
Interim Condensed Consolidated Statement of Comprehensive Income
(unaudited)
(presented in US$ thousands)
Six months ended 30
June:
--------------------------
Note 2011 2010
---------------------------------------- ----- ------------ ------------
Revenues
Gross revenues 12 17,139 11,690
Less: excise taxes (1,744) (612)
Net revenues after excise taxes 15,395 11,078
Cost of sales 13 (13,882) (8,517)
Gross profit/(loss) 1,513 2,561
Selling, general and administrative
expenses 14 (4,525) (4,647)
Other non-operating income, net 15 161 3,640
Operating loss (2,851) 1,554
Interest income 1,727 2,012
Interest expense (393) (1,043)
Foreign currency gains/(losses) 4,534 (1,554)
Total net finance benefits/(costs) 5,868 (585)
---------------------------------------- ----- ------------ ------------
Profit before income tax 3,017 969
Income tax benefit 590 589
Profit for the period 3,607 1,558
---------------------------------------- ----- ------------ ------------
Profit for the period attributable
to:
- Non-controlling interest (8) (24)
- Shareholders of Urals Energy Public
Company Limited 3,615 1,582
---------------------------------------- ----- ------------ ------------
Loss per share of profit attributable
to
shareholders of Urals Energy Public
Company Limited:
- Basic loss per share (in US dollar
per share) 7 0.0145 0.0086
- Diluted loss per share (in US dollar
per share) 7 0.0145 0.0086
Weighted average shares outstanding
attributable to:
- Basic shares 248,912,887 184,098,227
- Diluted shares 248,912,887 184,098,227
Profit for the period 3,607 1,558
Other comprehensive income/(loss):
- Effect of currency translation 7 5,785 (768)
Total comprehensive profit for the
period 9,392 790
---------------------------------------- ----- ------------ ------------
Attributable to:
- Non-controlling interest 75 (24)
- Shareholders of Urals Energy Public
Company Limited 9,317 814
---------------------------------------- ----- ------------ ------------
Interim Condensed Consolidated Statements of Cash Flows
(unaudited)
(presented in US$ thousands)
Six months ended 30 June:
----------------------------
Note 2011 2010
----------------------------------------- ----- ------------- -------------
Cash flows from operating activities
Profit before income tax 3,017 969
Adjustments for:
Depreciation, depletion and
amortisation 5 5,164 2,317
Decrease of fair value of warrants - 114
Share-based payments 11 290 383
Interest income 10 (1,727) (2,012)
Interest expense 10 393 1,043
Release of provision for inventory 15 (10) (1,869)
Foreign currency losses (4,534) 1,554
Gain from disposal of property,
plant and equipment 15 (704) (1,223)
Other (59) (154)
----------------------------------------- ----- ------------- -------------
Operating cash flows before changes
in working capital 1,830 1,122
Increase in inventories (6,588) (7,071)
(Increase)/decrease in accounts
receivables and prepayments (834) 2,089
Decrease in accounts payable and
accrued expenses (30) (5,788)
(Decrease)/increase in advances from
customers (553) 6,474
Increase/(decrease) in other taxes
payable 3,124 (107)
----------------------------------------- ----- ------------- -------------
Cash used in operations (3,051) (3,283)
Interest received - -
Income tax paid (271) -
----------------------------------------- ----- ------------- -------------
Net cash used in operating activities (3,322) (3,283)
Cash flows from investing activities
Purchase of property, plant and
equipment (1,565) (789)
Proceeds from sale of property, plant
and equipment - 1,771
Net cash (used in)/ generated from
investing activities (1,565) 982
Cash flows from financing activities
Repayments of borrowings (4,000) 565
Finance lease principal payments (104) (396)
Cash proceeds from issuance of ordinary
shares, net 8,750 -
Net cash generated from financing
activities 4,646 169
Effect of exchange rate changes on
cash in bank and on hand 84 7
----------------------------------------- ----- ------------- -------------
Net decrease in cash in bank and
on hand (157) (2,124)
Cash in bank and on hand at the
beginning of the period 987 2,361
----------------------------------------- ----- ------------- -------------
Cash in bank and on hand at the end
of the period 830 237
----------------------------------------- ----- ------------- -------------
Interim Condensed Consolidated Statements of Changes in
Shareholders' Equity (unaudited)
(presented in US$ thousands)
Equity
attributable
to
Difference Shareholders
from of Urals
conversion Energy
of share Cumulative Retained earnings Public
Share Share capital Translation (accumulated Company Non-controlling Total
capital premium into US$ Adjustment deficit) Limited interest equity
Balance at 1
January 2010 1,131 644,248 (113) (28,373) (554,976) 61,917 24 61,941
Effect of
currency
translation - - - (768) - (768) - (768)
Profit for the
period - - - - 1,582 1,582 (24) 1,558
Total
comprehensive
income/(loss) - - - (768) 1,582 814 (24) 790
Share issue
(Note 10) 57 1,944 - - - 2,001 - 2,001
Share-based
payment (Note
11) - 383 - - - 383 - 383
Balance at 30
June 2010 1,188 646,575 (113) (29,141) (553,394) 65,115 - 65,115
--------------- -------- -------- ----------- ------------ ---------------------- ------------- ---------------- --------
Balance at 1
January 2011 1,543 656,557 (113) (28,858) (503,016) 126,113 970 127,083
Effect of
currency
translation - - - 5,702 - 5,702 83 5,785
Profit/(loss)
for the
period - - - - 3,615 3,615 (8) 3,607
--------------- -------- -------- ----------- ------------ ---------------------- ------------- ---------------- --------
Total
comprehensive
income - - - 5,702 3,615 9,317 75 9,392
Share issue 26 (26) - - - - -
Share-based
payment - 290 - - - 290 - 290
Balance at 30
June 2011 1,569 656,821 (113) (23,156) (499,401) 135,720 1,045 136,765
Selected Notes to the Interim Condensed Consolidated Financial
Information(unaudited)
(in US dollars, tabular amounts in US$ thousands, except as
indicated)
1 Activities
Urals Energy Public Company Limited ("Urals Energy" or the
"Company" or "UEPCL") was incorporated as a limited liability
company in Cyprus on 10 November 2003. Urals Energy and its
subsidiaries (the "Group") are primarily engaged in oil and gas
exploration and production in the Russian Federation and processing
of crude oil for distribution on both the Russian and international
markets.
The registered office of Urals Energy is at 31 Evagorou Avenue,
Suite 34, CY-1066, Nicosia, Cyprus. UEPCL's shares are traded on
the AIM (Alternative Investment Market) Market operated by the
London Stock Exchange.
The Group comprises UEPCL and the following main subsidiaries
and joint venture:
Entity Jurisdiction 30 June 2011 31 December 2010
------------------------- ----------------- ------------- -----------------
Exploration and
production
ZAO Petrosakh
("Petrosakh") Sakhalin 97.2% 97.2%
ZAO Arcticneft
("Arcticneft") Nenetsky Region 100% 100%
Management company
OOO Urals Energy Moscow 100% 100%
Urals Energy (UK)
Limited (dormant
starting from May
2007)(1) United Kingdom 100% 100%
1 As at 5 January 2011 Urals Energy (UK) Limited is considered a
liquidated entity. From 6 January 2012 Urals Energy UK will be
struck off of Companies House and will be dissolved.
2 Summary of significant accounting policies
Basis of preparation. The consolidated interim condensed
financial information has been prepared in accordance with
International Accounting Standard No. 34, Interim Financial
Reporting ("IAS 34"). This consolidated interim condensed financial
information should be read in conjunction with the Company
consolidated financial statements as of and for the year ended 31
December 2010 prepared in accordance with International Financial
Reporting Standards ("IFRS"). The 31 December 2010 consolidated
statement of financial position data has been derived from the
audited financial statements.
Use of estimates. The preparation of consolidated interim
condensed financial information in conformity with IFRS requires
management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses, and
the disclosure of contingent assets and liabilities as of the
reporting date and during the reporting period. Estimates have
principally been made in respect to fair values of financial assets
and financial liabilities, impairment provisions, asset retirement
obligation and deferred income taxes. Actual results may differ
from such estimates.
Functional and presentation currency. The United States dollar
("US dollar or US$ or $") is the presentation currency for the
Group's operations as management have used the US dollar accounts
to manage the Group's financial risks and exposures, and to measure
its performance. Financial statements of the Russian subsidiaries
are measured in Russian Roubles, their functional currency.
The functional currency of the Company is the US Dollar as
substantially all the cash flows affecting the Company are in US
Dollars.
Translation to functional currency. Monetary assets and
liabilities denominated in foreign currencies are retranslated into
the functional currency at the rate of exchange ruling at the
reporting date. Any resulting exchange differences are included in
the profit or loss component of the consolidated statement of
comprehensive income. Non-monetary assets and liabilities that are
measured at historical cost and denominated in a foreign currency
are translated into the functional currency using the rates of
exchange as at the dates of the initial transactions. The US dollar
to Russian Rouble exchange rates were 28.0758 and 30.4769 as of 30
June 2011 and 31 December 2010, respectively.
Translation to presentation currency. The Group's financial
statements are presented in US dollars in accordance with IAS 21
(revised 2003), The Effects of Changes in Foreign Exchange Rates.
The results and financial position
of each group entity having a functional currency different from
the presentation currency (the functional currency of none of which
is a currency of a hyperinflationary economy) are translated into
the presentation currency as follows:
(i) Assets and liabilities for each statement of financial
position presented are translated at the closing rate at the date
of that statement of financial position. Monetary assets and
liabilities denominated in foreign currencies are translated into
the functional currency at the rate of exchange ruling at the
reporting date. Any resulting exchange differences are included in
the profit or loss component of the consolidated statement of
comprehensive income. Non-monetary assets and liabilities that are
measured at historical cost and denominated in a foreign currency
are translated into the functional currency using the rates of
exchange as at the dates of the initial transactions. Goodwill and
fair value adjustments arising on the acquisitions are treated as
assets and liabilities of the acquired entity.
(ii) Income and expenses for each statement of comprehensive
income are translated at average exchange rates (unless this
average is not a reasonable approximation of the cumulative effect
of the rates prevailing on the transaction dates, in which case
income and expenses are translated at the dates of the
transactions).
(iii) All resulting exchange differences are recognised as a
separate component of equity.
When a subsidiary is disposed of through sale, liquidation,
repayment of share capital or abandonment of all, or part of, that
entity, the exchange differences deferred in other comprehensive
income are reclassified to the profit and loss.
Comparatives. Where necessary, comparative figures have been
adjusted to conform with changes in presentation in the current
year.
Income tax. Taxes on income in the interim periods are accrued
using the tax rate that would be applicable to expected total
annual earnings.
Accounting standards adopted during the period. In the current
period, the Group has adopted all of the new and revised Standards
and Interpretations issued by the International Accounting
Standards Board (the IASB) and the International Financial
Reporting Interpretations Committee (the IFRIC) of the IASB that
are relevant to its operations and effective for reporting periods
beginning on 1 January 2011.
3 Going concern
A significant portion of the Group's consolidated net assets of
$136,765 thousand comprises undeveloped mineral deposits requiring
significant additional investment. The Group is dependent upon
external debt to fully develop the deposits and realise the value
attributed to such assets.
The Group had net current liabilities of $7.7 million as of 30
June 2011. The largest creditor as of 30 June 2011 was Petraco with
$27.4 million of principal and interest owed as of 30 June 2011 ($8
million - current portion of long-term debt) (Note 10).
Management has prepared monthly cash flow projections for
periods throughout 2011, 2012 and 2013. Judgements with regard to
future oil prices and planned production were required for the
preparation of the cash flow projections and model. Positive
overall cash flows are crucially dependant on future oil prices (a
price of $90 per barrel has been used for 2011 and for 2012) and on
continued cooperation with Petraco.
Despite the above matters, the Group still has funding and
liquidity constraints. Management considers that there is a
material uncertainty which may cast doubt about the Group's ability
to continue as going concern.
Despite the uncertainties and based on cash flow projections
performed, management considers that the application of the going
concern assumption for the preparation of these consolidated
financial statements is appropriate.
4 Critical Accounting Estimates and Judgements in Applying
Accounting Policies
The Group makes estimates and assumptions that affect the
reported amounts of assets and liabilities. Estimates and
judgements are continually evaluated and are based on management's
experience and other factors, including expectations of future
events that are believed to be reasonable under the circumstances.
Management also makes certain judgements, apart from those
involving estimations, in the process of applying the accounting
policies. Judgements that have the most significant effect on the
amounts recognised in the condensed consolidated financial
information and estimates that can cause a significant adjustment
to the carrying amount of assets and liabilities are outlined
below.
Tax legislation. Russian tax and customs legislation is subject
to varying interpretations, and changes, which can occur
frequently. Management's interpretation of such legislation as
applied to the transactions and activity of the Group may be
challenged by the relevant authorities.
Estimation of oil and gas reserves. Engineering estimates of
hydrocarbon reserves are inherently uncertain and are subject to
future revisions. Accounting measures such as depreciation,
depletion and amortization charges, impairment assessments and
asset retirement obligations that are based on the estimates of
proved reserves are subject to change based on future changes to
estimates of oil and gas reserves.
Proved reserves are defined as the estimated quantities of
hydrocarbons which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known
reservoirs under existing economic conditions. Proved reserves are
estimated by reference to available reservoir and well information,
including production and pressure trends for producing reservoirs.
Furthermore, estimates of proved reserves only include volumes for
which access to market is assured with reasonable certainty. All
proved reserves estimates are subject to revision, either upward or
downward, based on new information, such as from development
drilling and production activities or from changes in economic
factors, including product prices, contract terms or development
plans. In some cases, substantial new investment in additional
wells and related support facilities and equipment will be required
to recover such proved reserves. Due to the inherent uncertainties
and the limited nature of reservoir data, estimates of underground
reserves are subject to change over time as additional information
becomes available.
In general, estimates of reserves for undeveloped or partially
developed fields are subject to greater uncertainty over their
future life than estimates of reserves for fields that are
substantially developed and depleted. As those fields are further
developed, new information may lead to further revisions in reserve
estimates. Reserves have a direct impact on certain amounts
reported in the interim condensed consolidated financial
information, most notably depreciation, depletion and amortization
as well as impairment expenses. Depreciation rates on production
assets using the units-of-production method for each field are
based on proved developed reserves for development costs, and total
proved reserves for costs associated with the acquisition of proved
properties. Assuming all variables are held constant, an increase
in proved developed reserves for each field decreases depreciation,
depletion and amortization expenses. Conversely, a decrease in the
estimated proved developed reserves increases depreciation,
depletion and amortization expenses. Moreover, estimated proved
reserves are used to calculate future cash flows from oil and gas
properties, which serve as an indicator in determining whether or
not property impairment is present.
The possibility exists for changes or revisions in estimated
reserves to have a significant effect on depreciation, depletion
and amortization charges and, therefore, reported net profit for
the year.
Impairment provision for receivables. The impairment provision
for receivables is based on management's assessment of the
probability of collection of individual receivables. Significant
financial difficulties of the debtor, probability that the debtor
will enter bankruptcy or financial reorganization, and default or
delinquency in payments are considered indicators that the
receivable is potentially impaired. Actual results could differ
from these estimates if there is deterioration in a debtor's
creditworthiness or actual defaults are higher than the
estimates.
When there is no expectation of recovering additional cash for
an amount receivable, the expected amount receivable is written off
against the associated provision.
Future cash flows of receivables that are evaluated for
impairment are estimated on the basis of the contractual cash flows
of the assets and the experience of management in respect of the
extent to which amounts will become overdue as a result of past
loss events and the success of recovery of overdue amounts. Past
experience is adjusted on the basis of current observable data to
reflect the effects of current conditions that did not affect past
periods and to remove the effects of past conditions that do not
exist currently.
Asset retirement obligations. Management makes provision for the
future costs of decommissioning hydrocarbon production facilities,
pipelines and related support equipment based on the best estimates
of future cost and economic lives of those assets. Estimating
future asset retirement obligations is complex and requires
management to make estimates and judgments with respect to removal
obligations that will occur many years in the future. Changes in
the measurement of existing obligations can result from changes in
estimated timing, future costs or discount rates used in
valuation.
Useful lives of non-oil and gas properties. Items of non-oil and
gas properties are stated at cost less accumulated depreciation.
The estimation of the useful life of an asset is a matter of
management judgement based upon experience with similar assets. In
determining the useful life of an asset, management considers the
expected usage, estimated technical obsolescence, physical wear and
tear and the physical environment in which the asset is operated.
Changes in any of these conditions or estimates may result in
adjustments to future depreciation rates. Useful lives applied to
oil and gas properties may exceed the licence term where management
considers that licences will be renewed. Assumptions related to
renewal of licences can involve significant judgment of
management.
Impairment. Management have estimated the recoverable amount of
cash generating units. Changes in the assumptions used can have a
significant impact on the amount of any impairment charge.
Fair values of acquired assets and liabilities. Since its
inception, the Group has completed several significant
acquisitions. IFRS 3 requires that, at the date of acquisition, all
identifiable assets (including intangible assets), liabilities and
contingent liabilities of an acquired entity be recorded at their
respective fair values. The estimation of fair values requires
management judgement. For significant acquisitions, management
engages independent experts to advise as to the fair values of
acquired assets and liabilities. Changes in any of the estimates
subsequent to the finalisation of acquisition accounting may result
in losses in future periods.
Going Concern. This interim condensed consolidated financial
information has been prepared on the basis that the Group will
continue as a going concern. Preparation of the interim condensed
consolidated financial information on a basis other than going
concern can have a significant impact on the balances recorded in
respect of assets and liabilities.
5 Property, Plant and Equipment
Refinery
Oil and and
gas related Other Assets under
Cost at properties equipment Buildings Assets construction Total
----------------- ----------- ---------- ---------- ------- ------------- --------
1 January 2010 91,991 5,394 1,207 5,096 3,443 107,131
Translation
difference (2,813) (166) (19) (141) (93) (3,232)
Reclassificated
as intangible
assets - - - - (283) (283)
Additions - - - 2 180 182
Transfers 235 40 - 2 (277) -
Disposals (4) - (490) (413) - (906)*
----------------- ----------- ---------- ---------- ------- ------------- --------
30 June 2010 89,409 5,268 698 4,546 2,970 102,891
----------------- ----------- ---------- ---------- ------- ------------- --------
Refinery
Oil and and
gas related Other Assets under
properties equipment Buildings Assets construction Total
--------------- ----------- ---------- ---------- -------- ------------- ---------
Accumulated
Depreciation,
Amortization
and Depletion
at
1 January 2010 (38,783) (2,171) (648) (3,005) - (44,607)
Translation
difference 1,250 70 16 90 - 1,426
Depreciation,
depletion and
amortization (1,871) (99) (8) (203) - (2,181)
Disposals - - 121 238 - 359
--------------- ----------- ---------- ---------- -------- ------------- ---------
30 June 2010 (39,404) (2,200) (519) (2,880) - (45,003)
--------------- ----------- ---------- ---------- -------- ------------- ---------
Refinery
Oil and and
gas related Other Assets under
properties equipment Buildings Assets construction Total
--------- ----------- ---------- ---------- ------- ------------- -------
Net Book
Value
at
--------- ----------- ---------- ---------- ------- ------------- -------
1
January
2010 53,208 3,223 559 2,091 3,443 62,524
--------- ----------- ---------- ---------- ------- ------------- -------
30 June
2010 50,005 3,068 179 1,666 2,970 57,888
--------- ----------- ---------- ---------- ------- ------------- -------
*During the six months period ended 30 June 2010 the Group sold
property, plant and equipment for the total consideration of $1,771
thousand. The net book value on the date of disposal was $547
thousand.
Refinery
Oil and and
gas related Other Assets under
Cost at properties equipment Buildings Assets construction Total
------------- ----------- ---------- ---------- ------- ------------- --------
1 January
2011 153,611 8,601 928 6,010 7,934 177,084
Translation
difference 13,120 735 80 517 702 15,154
Additions - - 39 1,197 1,236
Capitalised
borrowing
costs - - - - 171 171
Transfers 81 - - 12 (93) -
Impairment - - - - - -
Disposals (855) - - (57) - (912)
------------- ----------- ---------- ---------- ------- ------------- --------
30 June 2011 165,957 9,336 1,008 6,521 9,911 192,733
------------- ----------- ---------- ---------- ------- ------------- --------
Average capitalisation rate of capitalised interest expense for
the period ended 30 June 2011 is 3.0%.
Refinery
Oil and and
gas related Other Assets under
properties equipment Buildings Assets construction Total
--------------- ----------- ---------- ---------- -------- ------------- ---------
Accumulated
Depreciation,
Amortization
and Depletion
at
1 January 2011 (42,283) (2,358) (537) (3,089) - (48,267)
Translation
difference (3,703) (206) (46) (270) - (4,225)
Depreciation,
depletion and
amortization (4,594) (213) (13) (255) - (5,075)
Disposals 313 - - 32 - 345
--------------- ----------- ---------- ---------- -------- ------------- ---------
30 June 2011 (50,267) (2,777) (596) (3,582) - (57,222)
--------------- ----------- ---------- ---------- -------- ------------- ---------
Refinery
Oil and and
gas related Other Assets under
properties equipment Buildings Assets construction Total
--------- ----------- ---------- ---------- ------- ------------- --------
Net Book
Value
at
1
January
2011 111,328 6,243 391 2,921 7,934 128,817
--------- ----------- ---------- ---------- ------- ------------- --------
30 June
2011 115,690 6,559 412 2,939 9,911 135,511
--------- ----------- ---------- ---------- ------- ------------- --------
Included within oil and gas properties at 30 June 2011and 31
December 2010 were exploration and evaluation assets:
Transfers
to
tangible
Cost at part of
31 Oil and Additions:
December Gas Impair-ment Translation
2010 Additions properties reverse difference Total
------------- --------- ---------- ----------- ------------ ------------ -------
Exploration
and
evaluation
assets
Arcticneft 16,909 - - - 1,446 18,355
Petrosakh 30,783 - - - 2,633 33,416
------------- --------- ---------- ----------- ------------ ------------ -------
Total cost
of
exploration
and
evaluation
assets 47,692 - - - 4,079 51,771
------------- --------- ---------- ----------- ------------ ------------ -------
The Group's oil fields are situated in the Russian Federation on
land owned by the Russian government. The Group holds mining
licenses and pays production taxes to extract oil and gas from the
fields. The licenses expire between 2012 and 2067, but may be
extended. Management intends to renew the licences as the
properties are expected to remain productive subsequent to the
license expiration date.
Estimated costs of dismantling oil and gas production
facilities, including abandonment and site restoration costs,
amount to $1.4 million and $1.2 million at 30 June 2011 and 31
December 2010, respectively, are included in the cost of oil and
gas properties. The Group has estimated its liability based on
current environmental legislation using estimated costs when the
expenses are expected to be incurred.
At 30 June 2011 and 30 December 2010, no property, plant and
equipment were pledged as collateral for the Group's
borrowings.
6 Other Non-Current Assets
30 June 31 December
2011 2010
----------------------------------------- -------- ------------
Loans receivable 39,482 37,810
Loans issued to related parties (Note
24) 850 834
Intangible assets 526 218
Advances to contractors and suppliers
for construction in process 405 564
Total other non-current assets 41,263 39,426
----------------------------------------- -------- ------------
Loans receivable represent US dollar denominated long-term loans
(interest inclusive) of $39.5 million and $37.8 million at 30 June
2011 and 31 December 2010, respectively, issued by UEPCL to Taas,
as part of the Taas acquisition agreement. The loans were used to
pay organisation fees for a $600.0 million project finance loan
facility provided by Savings Bank of Russian Federation
("Sberbank") for the development of the SRB field, financing of
interest payments and repayment of third party loans at Taas. The
loans bear interest of 12% and mature in February 2015. The fair
value of the loans approximates the carrying value at the reporting
date. These loans are considered to be fully performing as of 30
June 2011 and as of 31 December 2010. The loans are unsecured.
7 Inventories
31 December
30 June 2011 2010
------------------------ ------------- ------------
Crude oil 13,071 4,629
Oil products 3,721 2,135
Materials and supplies 4,902 6,147
------------------------ ------------- ------------
Total inventories 21,694 12,911
------------------------ ------------- ------------
Inventory provision
31 December
30 June 2011 2010
----------------------------------------- ------------- ------------
At 1 January 1,012 1,924
Provision used (948) -
Release of provision - (901)
Release of adjustment on net realizable
value - 9
Effect of currency translation 87 (20)
At 31 December 151 1,012
----------------------------------------- ------------- ------------
8 Accounts Payable and Accrued Expenses
31 December
30 June 2011 2010
---------------------------------------------- ------------- ------------
Payable to Finfund Ltd. 4,431 4,412
Wages and salaries 1,025 1,227
Accounts payable for construction in process 439 691
Trade payables 412 1,588
Advances from and payables to related
parties 13 13
Other payable and accrued expenses 2,422 2,850
---------------------------------------------- ------------- ------------
Total accounts payable and accrued expenses 8,742 10,781
---------------------------------------------- ------------- ------------
9 Advances from customers
31 December
30 June 2011 2010
------------------------------- ------------- ------------
Kresov 1,279 1,855
Melnikov 1,615 1,728
Other 950 676
------------------------------- ------------- ------------
Total advances from customers 3,844 4,259
------------------------------- ------------- ------------
10 Borrowings
Long-term and short-term borrowings. Long-term and short-term
borrowings were as follows at 30 June 2011 and 31 December
2010:
31 December
30 June 2011 2010
----------------------------- ------------- ------------
Long-term borrowings
Petraco
- Principal 17,316 17,316
- Interest 2,040 1,337
Total long-term borrowings 19,356 18,653
Short-term borrowings
Petraco
- Principal 8,000 12,000
- Interest - -
Other 127 172
Total short-term borrowings 8,127 12,172
Total borrowings 27,483 30,825
----------------------------- ------------- ------------
Petraco. In April 2010 the Company has reached agreement with
Petraco relating to the restructuring of the Petraco facility (the
"Restructuring Agreement"). The principal terms of the
Restructuring Agreement are as follows:
Total indebtedness owed by the Company to Petraco, as at 31
March 2010, was $34.3 million, made up as follows:
- capital amount outstanding (the "Capital Outstanding") of
$30.7 million;
- accrued interest outstanding (the "Accrued Interest") of $3.6
million.
As at 1 April 2010, the Capital Outstanding and Accrued Interest
were added together and carried forward as principal ("Principal").
After 1 April 2010 interest will be accrued on the Principal and
will not be compounded. All accrued interest from 1 April 2010 will
be paid once the Principal has been repaid and all payments made by
the Company according to the payment schedule set out below will be
applied against the Principal outstanding. Interest will be charged
on the Principal at a rate of 6 month LIBOR plus 5% per annum,
non-compounding.
As part of the restructuring agreement Petraco converted $2
million of the Capital Outstanding into 8,693,006 ordinary shares
of the Company (recorded in the interim condensed consolidated
statement of changes in shareholders' equity) and received an
option to acquire additional new ordinary shares in the amount of
12,576,688 for $5 million. The fair value of the option in the
amount of $170 thousand as of 30 June 2010 is recorded as
liabilities.
In June 2010 Company pledged 100% of the shares it currently
holds in Arcticneft and 97.2% of shares it currently holds in
Petrosakh to Petraco as security against the restructured Petraco
facility.
The Company and Petraco have reached an agreement to link a
repayment of debt to anticipated loadings of crude oil on export
from Arcticneft and Petrosakh as disclosed in the repayment
schedule below:
Payment date (as amended on Amount to be paid by UEPCL to
August 2011) Petraco
31 October 2011 $4 million
30 November 2011 $4 million
31 July 2012 $6 million
30 November 2012 $5.7 million
31 July 2013 $3 million
30 November 2013 Outstanding balance
Weighted average interest rate. The Group's weighted average
interest rates on short-term borrowings were 5.75% and 4.9% at 30
June 2011 and at 31 December 2010, respectively.
Interest expense and income. Interest expense and income for the
six months ended 30 June 2011 and 30 June 2010 comprised the
following:
Six months ended
30 June:
-------------------
2011 2010
-------------------------------------------------- --------- --------
Interest on loan from Petraco Oil Company
Limited 237 882
- accrued 702 882
- capitalised into PP&E and finished goods (465) -
Finance leases 73 81
Change in dismantlement provision due to passage
of time 83 80
Total interest expense 393 1,043
Interest income
Interest on loan issued to TYNGD 1,672 1,672
Loans issued to the related party (Note 16) 55 340
Total interest income 1,727 2,012
-------------------------------------------------- --------- --------
Net interest income 1,334 969
-------------------------------------------------- --------- --------
11 Equity
At 30 June 2011 authorised share capital was $1,890 thousand
divided into 300 million shares of $0.0063 each and issued share
capital was $1,569 thousand divided into 249.3 million shares of
$0.0063 each.
At 31 December 2010 authorised share capital was $1,543 thousand
divided into 300 million shares of $0.0063 each and issued share
capital was $1,131 thousand divided into 245.2 million shares of
$0.0063 each.
Number of
shares (thousand
Date of Grant of shares) Share capital Share premium
-------------------------- ------------------ -------------- --------------
Balance at 1 January 2011 245,192 1,543 656,557
Shares issued under
restricted stock plans 4,059 26 (26)
Share-based payment under
restricted stock - - 290
Balance at 30 June 2011 249,251 1,569 656,821
-------------------------- ------------------ -------------- --------------
Restricted stock plan. During the six months ended 30 June 2011
and 30 June 2010, $290 thousand and $383 thousand, respectively, of
expense related to share-based payments were recognized in the
interim condensed consolidated statement of comprehensive
income.
At 30 June 2011 and 30 June 2010, restricted stock grants for
4,059,112 shares and 1,432,062 shares were fully issued.
As of 30 June 2011, the number of unvested restricted stock
grants and their respective vesting dates are presented in the
table below.
January January January January
Date of Grant 2009 2010 2011 2012 Total
------------------ -------- -------- ------------ ---------- ------------
Total Restricted
Stock Granted as
of 31 December
2010 354,096 316,671 4,356,716 4,059,112 9,086,595
Vested in the six
months ended 30
June 2011 - - (4,059,112) - (4,059,112)
Total Restricted
Stock Granted as
of 30 June 2011 354,096 316,671 297,604 4,059,112 5,027,483
------------------ -------- -------- ------------ ---------- ------------
Profit per share. Profit per share is calculated by dividing the
profit attributable to equity holders of the Company by the
weighted average number of ordinary shares in issue during the
reporting period.
The profit per share was calculated as following:
Six months ended
30 June:
-------------------
2011 2010
-------------------------------------------------- --------- --------
Profit attributable to equity holders of the
Company 3,615 1,582
Weighted average number of ordinary shares
in issue (thousands) 248,912 184,098
-------------------------------------------------- --------- --------
Basic and diluted profit per share (in US dollar
per share) 0.015 0.009
-------------------------------------------------- --------- --------
12 Revenues
Six months ended
30 June:
----------------------------------------------- -------------------
2011 2010
----------------------------------------------- --------- --------
Petroleum (refined) products - domestic sales 14,930 9,779
Crude oil - domestic sales 1,807 1,523
Other sales 402 388
Total gross revenues 17,139 11,690
----------------------------------------------- --------- --------
13 Cost of Sales
Six months ended
30 June:
-------------------
2011 2010
------------------------------------------ --------- --------
Wages and salaries including payroll
taxes - 6,003 5,186
Unified production tax 7,431 4,823
Depreciation, depletion and amortization 5,164 2,317
Materials 2,601 1,199
Rent, utilities and repair services 731 604
Other taxes 476 507
Oil treating, storage, transportation
and other services 442 227
Other 137 478
Change in finished goods (9,103) (6,824)
------------------------------------------ --------- --------
Total cost of sales 13,882 8,517
------------------------------------------ --------- --------
14 Selling, General and Administrative Expenses
Six months ended
30 June:
-------------------
2011 2010
------------------------------------------- --------- --------
Wages and salaries 1,652 1,503
Transport, loading and storage services 913 579
Audit, legal and professional consultancy
fees 745 998
Share-based payments (Note 11) 290 383
Office rent and other expenses 288 540
Trip expenses and communication services 198 203
Other 439 441
------------------------------------------- --------- --------
Total selling, general and administrative
expenses 4,525 4,647
------------------------------------------- --------- --------
15 Other income, net
Six months ended
30 June:
-------------------
2011 2010
---------------------------------------- --------- --------
Release of provision for inventory 10 1,869
(Loss)/gain from disposal of property,
plant and equipment (704) 1,227
Release of provision for claims 559 -
Other income 296 544
Total other income, net 161 3,640
---------------------------------------- --------- --------
16 Balances and Transactions with Related Parties
Parties are generally considered to be related if one party has
the ability to control the other party, is under common control, or
can exercise significant influence over the other party in making
financial or operational decisions as defined by IAS 24 Related
Party Disclosures. Key management personnel are considered to be
related parties. In considering each possible related party
relationship, attention is directed to the substance of the
relationship, not merely the legal form.
Balances and transactions with related parties
Six months ended
30 June:
--------------------------------------------------- ----------------------
2011 2010
--------------------------------------------------- -------- ------------
Interest income from other related parties 55 340
Total interest income from other related parties 55 340
30 June 31 December
2011 2010
--------------------------------------------------- -------- ------------
Current loan issued to related parties 842 842
Interest receivable from related parties 478 447
Accounts and notes receivable - 1
--------------------------------------------------- -------- ------------
Receivables from related parties 1,320 1,290
--------------------------------------------------- -------- ------------
Advances from and accounts payable to related
parties (13) (13)
--------------------------------------------------- -------- ------------
Compensation to senior management. The Group's senior management
team compensation totaled $1,035 thousand and $953 thousand for the
six months ended 30 June 2011 and 30 June 2010, respectively,
including salary and bonuses. Stock compensation of $290 thousand
and $191 thousand, respectively, were included in the senior
management team compensation.
As of 30 June 2011 and 31 December 2010 the Group impaired loan
to related party by $5.5 million and $5.2 million, respectively.
This amount relates to a loan to shareholder and former member of
management of the Group. This loan is overdue. For accounting
purposes management reassessed the carrying value of the loan and
impaired this fully. However, this does not reduce the validity of
the legal claim against this related party. Management formally
informed this related party and demanded repayment of the full
amount by 20 May 2011. By 20 May 2011 management didn't received
any response from the related party. Considering that according to
the loan agreement all dispute shall finally resolved by
arbitration under the Rules of Arbitration of the London
Court of International Arbitration (the LCIA) the Company filed
the claim to the LCIA in June 2011. In August 2011 the LCIA
notified the appointment of a sole arbitrator to consider the
dispute and the Company confirmed that the Request for Arbitration
is a Statement of Case. Before 21st September 2011 each of the
parties of the arbitration must pay GBP10 thousand to cover
services and expenses of the LCIA. Before 26st September 2011 the
related party has to provide the Statement of Defence.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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