Half-year Report
CADOGAN PETROLEUM PLC
Half Yearly Report for the Six Months ended 30 June 2021
(Unaudited and unreviewed)
Highlights
Cadogan Petroleum plc (“Cadogan” or the “Company”), an independent, diversified oil & gas company listed on the main market of the London Stock Exchange, is pleased to announce its unaudited results for the six months ended 30 June 2021.
- H1 2021 has been another semester without LTI and TRI with strict execution of the anti-covid measures implemented by the company at the beginning of the pandemic in 2020, and which resulted in no fatalities due to desease.
- Average production was 331 bpd in H1 2021 (230 bpd in H1 2020), a 44% increase versus H1 2020. This result, the highest net average over the last 10 years, was achieved despite the impact of the covid pandemic with the four wells producing at Blazhiv oil field.
- The company continued defending its positions for the licenses award approval, against the Licensing Authority of Ukraine (State Geological Service), in the Kiev Administrative Court for Bitlyanska and the Supreme Court for Pirkivska.
- During H1 2021, the Company sold 7,56 million m3 of stored gas for $1,74 million (H1 2020: no trading operations).
- The services business continued to support the Group’s activities.
- Proger Manager & Partners failed to comply with their duties for the reimbursement of the Loan with the accumulated interests, which in total amounted Euro 14,857,350 as at February 25, 2021.
- Production revenues increased by 120% versus the same period in 2020, due to a 55% increase in the average realized oil price and a 44% increase of the production volumes. Overall revenues increased by 258% versus the same period in 2020 due to the absence of sales of gas for the first half 2020.
- As a result of the above initiatives, cash position at the period end was $14.7 million (30 June 2020: $11.6 million). This level of cash is sufficient to sustain on-going operations.
Overall, Cadogan continued operating in an unstable environment impacted by the Covid-19 pandemic, and lock-down periods. The Company continued improving performances of its oil production operations and controlling costs, and looking at opportunities to grow.
Key performance indicators
During H1 2021, The Group has monitored its performance in conducting its business with reference to a number of key performance indicators (‘KPIs’):
- to increase oil production measured on the barrels of oil produced per day (‘bpd’);
- to decrease administrative expenses;
- to increase the Group’s basic earnings per share;
- to maintain no lost time incident; and
- to grow and geographically diversify the portfolio.
The Group’s performance during the first six months of 2021, measured against these targets, is set out in the table below, together with the prior year performance data. No changes have been made to the sources of data or calculations used in the period/year. The positive trend in the HSE performances continues with zero incidents.
| Unit | 30 June 2021 | 30 June 2020 | 31 December 2020 | |
| Average production (working interest basis) (a) | Boepd | 331 | 230 | 291 |
| Administrative expenses | $million | 1.7 | 1.5 | 3.8 |
| Basic loss per share (b) | Cent | (0.1) | (0.6) | (0.4) |
| Lost time incidents (c) | Incidents | 0 | 0 | 0 |
| Geographical diversification | New assets | - | - | - |
a. Average production is calculated as the average daily production during the period/year
b. Basic loss per ordinary share is calculated by dividing the net loss for the year attributable to equity holders of the parent company by the weighted average number of ordinary shares during the period
c. Lost time incidents relate to injuries where an employee/contractor is injured and has time off work (IOGP classification)
Enquiries:
| Cadogan Petroleum Plc | |||
| Fady Khallouf Ben Harber |
Chief Executive Officer Company Secretary |
fady.khallouf@cadogan petroleum.com +44 (0) 207 264 4366 |
|
Operations Review
Introduction
The business worldwide and in Ukraine has managed to adjust to operating in new post-Covid-19 volatile reality. However, the turbulence which resulted from the pandemic of coronavirus has continued to affect Ukraine and Cadogan’s activities. At the same time first half of the year witnessed recovery of the Brent oil price reaching $73 per bbl as of June 2021.
The first half of 2021 has been another challenging time for Ukraine. The government has been repeatedly tightening restriction measures to take under control and mitigate Covid-19 pandemic distribution in the country as well as launch vaccination plan for population.
Ukraine pursued efforts to attract new investments, including in its oil and gas sector, by promoting incentives such as “investment nanny’s”, new areas under e-auctions and award of PSA. But at the same time, risks of sanctions have been introduced by National Security and Defence Council of Ukraine towards oil and gas exploration companies by depriving the asset rights. Besides, the State Commission of Ukraine on Mineral Resources announced unscheduled inspections plans to fight against “sleeping licenses” or subsoil licenses the issuance of which is considered doubtful.
In this context, the Group has continued to focus on safely and efficiently operating the existing wells, on controlling its costs in order to preserve cash while continuing to look at opportunities to grow and diversify its portfolio.
In H1 2021, the Group recorded 10 cases of Covid-19 infection. All of them have recovered.
Operations
E&P activity remained focused on maintaining and securing its licenses for the new term and safely and efficiently producing from the existing wells within the Blazhiv oil field. During H1 2021, the average gross production rated at 331 bpd, which is 44% higher than in H1 2020 (230 bpd). The results improvement was due to uninterrupted production of four Blazhiv wells (Blazhiv-3 and Blazhiv-Monasterets-3 had been shut-down during H1 2020 waiting for the renewal by PJSC Ukrnafta of the lease agreements after expiry ) at optimum operational regimes. For the purposes of the geological construction precision of Blazhiv oil field and Monastyretska fold and also the identification of new perspective structures within the license area boundary, Cadogan has launched analyses for the data reprocessing and reinterpretation of old 2D seismic data. Upon works completion, presumably by the end of 2021, it is expected to receive the required data for the field skeleton structural and tectonic modeling.
The structural tectonic and petrophysical modeling of the area, hydrocarbons reserves & resources reassessment as well as hydrodynamic model refining is planned to be conducted after the completion of the seismic reprocessing/ reinterpretation.
Regarding the Bitlyanska 20-year exploration and development license, in May and August 2020 after a deep and complete analyses performed with external legal advisors, Usenco Nadra LLC, a Cadogan Group subsidiary, filed two claims with the Kyiv Administrative Court to challenge the non-granting of the 20-year exploration and production license as acknowledge and unlawful inaction of State Service of Geology (SGS) . Cadogan expects decision on the claim during 2021.
All activities were executed without LTI or TRI[1], with a total of 1,340,000 manhours since the last incident, which occurred to a sub-contractor, in February 2016. Total increase of oil production impacted the emission of Co2 to the atmosphere which amounted 82.47 tons of Co2,e/boe produced, compared to 62.37 tons of Co2,e/boe for the same reporting period of last year.
In Italy, given the on-going moratorium for the approval of new licenses, activity was focused on maintaining liaisons with the local authorities and fulfilling the mandatory license requirements.
Trading
The Company sold at the favourable season all stored gas of 7.56 million m3.
Cadogan continues to monitor the gas markets in Europe and Ukraine, expanding its coverage of gas markets, logistics routes and gas delivery methods to analyze and select the timing and terms of low season purchases for high season sales.
Proger
In February 2021, Cadogan notified Proger Managers & Partners Srl (“PMP”) that according to the Loan Agreement, the Maturity Date occurred on 25 February 2021. As the Call Option was not exercised, PMP must fulfill the payment of EUR 14,857,350, being the reimbursement of the Loan in terms of principal and the accumulated interest. PMP is in default since 25 February 2021. End of March 2021, PMP requested an arbitration to have the Loan Agreement recognised as an equity investment contract, which is rejected by Cadogan as the terms of the Agreement are clear and include the right to repayment at maturity if the Call Option is not exercised. The arbitrators have been nominated by the Arbitral Court and the arbitration process is in course. As at 30 June 2021, Proger Ingegneria holds 96.49 % of Proger Spa after the exit of SIMEST and the purchase by Proger Ingegneria of its stake in Proger Spa.
Financial position
Cash at 30 June 2021 was $14.7 million ($11.6 million at 30 June 2020). The Group continually monitors its exposure to currency risk. It maintains a portfolio of cash mainly in US Dollars (“USD”) and EURO held primarily in the UK.
The Directors believe that the capital available at the date of this report is sufficient for the Group to continue its operations for the foreseeable future.
In H1 2021, the Group held working interests in a conventional gas-condensate and an oil exploration and production licence in the West of Ukraine. These assets are operated by the Group and are located in the prolific Carpathian basin, close to the Ukrainian oil & gas distribution infrastructure.
The Group’s primary focus during the period continued to be on cost optimisation and enhancement of current production, through the existing well stock and new drilling.
| Summary of the Group’s licences (as of 30 June 2021) | |||
|
Working
interest (%) |
Licence | Expiry | Licence type |
| 99.8 | Blazhiv | November 2039 | Production |
| 99.8 | Bitlyanska(1) | December 2019 | Exploration and Development |
(1) The Bitlyanska license expired on 23 December 2019 and its renewal was not granted within the due legal period. The Company is involved in an ongoing court proceeding to defend its rights and challenge the Licensing Authority actions after the rejection by the State Geological Service of its Bitlyanska 20-year production license application.
Below we provide an update to the full Operations Review contained in 2020 Annual Report published on 6 May 2021.
Bitlyanska license
The Company filed to the State Geological Service an application for a 20-year production license 5 months ahead the license expiry date of 23 December 2019. Cadogan secured approval of the Environmental Impact Assessment study by the Ministry of Ecology, the approval of the Reserves Report by the State Commission of Reserves and the approval of the license award by the Lviv Regional Council. Given the delay to award the new license beyond the regular timeline provided by legislation, Cadogan filed two claims with the Administrative Court to challenge the non-granting of the 20-year production license by the Licensing Authority. Cadogan expects decision on the claim during 2021.
All operational activities as well as area farm-out have been put on-hold waiting for the license award.
Blazhiv licence
Through the reporting period the Company has been working to safely and efficiently producing from the existing wells located in the Blazhiv license area. At the end of the reporting period, the average gross production rated at 331 bpd vs 230 bpd in H1 2020. Such result was achieved due to the adjustment and the selection of optimum production regime and an uninterrupted production of the wells at the field.
In the first half of 2021 the Company has completed hydrodynamic surveys of Blazhiv-1, Blazh-3, Blazhiv-Monastyrets-3 and Blazhiv-10 wells. .
For the purpose of geological construction precision of Blazhiv oil field and Monastyretska fold and also identification of new perspective structures within the license area boundary, Cadogan has launched analyses for data reprocessing and reinterpretation of old 2D seismic data. Upon works completion presumably by the end of 2021 it is expected to receive the required data for the field skeleton structural and tectonic modeling.
The structural tectonic and petrophysical modeling of the area, hydrocarbons reserves & resources reassessment as well as hydrodynamic model refining is planned to be conducted after the completion of the seismic reprocessing/ reinterpretation.
East Ukraine
The Pirkivska production license expired in 2015. Astrogaz LLC, a Cadogan Group subsidiary, applied for a new license. After several years and the end of the 3-year period allowed for conversion of the previous license, the Company initiated court proceedings to defend its rights and to challenge the Licensing Authority’s actions. As the result, the Court of First Instance has partly satisfied the claim and confirmed inaction of the Licensing Authority and obliged it to review the application. Astrogaz introduced a claim with the Court of Appeal proposing license award approval. In its decision of February 2021, the Court of Appeal rejected the Astrogaz claim. In March 2021, the Company filed an appeal with the Supreme Court.
Service Company activities
In H1 2021, Cadogan’s 100% owned subsidiary, Astro Service LLC, focused its activities on serving intra-group operational needs in wells’ work-over/ re-entry operations, wells’ survey as well as field on-site activities.
Financial Review
Overview
Income statement
In H1 2021, revenues increased to $4.5 million (H1 2020: $1.2 million), due to $1.7 million gas sales (H1 2020: nil) and the increase in oil sales. Revenues from production increased to $2.8 million (H1 2020: $1.2 million) due to the increase of the realized price by 55% and the increase in the produced volumes of oil by 44%.
The services business concentrated its activities on intra-group services, in particular, for the Blazhivska license.
The cost of sales of the production segment consists of $1.2 million of production royalties ($0.5 million), $0.4 million of operating costs ($0.2 million), $0.4 million of depreciation and depletion of producing wells ($0.3 million), and $0.1 million of direct staff costs for production ($0.1 million).
Half year gross profit from production activities increased to $0.6 million (30 June 2020: $0.2 million), driven by increase in production and higher oil prices.
The Group recorded a $0.6 million interest on Proger Loan. Refer to note 11 for details.
Other administrative expenses were kept under control at $1.7 million (30 June 2020: $1.5 million). They comprise other staff costs, professional fees and expenses, Directors’ remuneration and depreciation charges on non-producing property.
Balance sheet
At 30 June 2021, the cash position of $14.7 million (30 June 2020: $11.6 million) increased compared to the $13.3 million as at 31 December 2020, because of positive cash flows generated from operating activities.
Intangible Exploration and Evaluation (“E&E”) assets of $2.5 million (30 June 2020: $2.6 million, 31 December 2020: $2.4 million) represent the carrying value of the Group’s investment in E&E assets as at 30 June 2021. The Property, Plant and Equipment (“PP&E”) balance of $10 million at 30 June 2021 (30 June 2020: $10.7 million, 31 December 2020: $9.9 million) includes $9.6 million of development and production assets on the Blazhyvska licence and other PP&E of the Group.
Trade and other receivables of $0.9 million (30 June 2020: $2.3 million, 31 December 2020: $1.6 million) include recoverable VAT of $0.8 million[2] (30 June 2020: $2 million, 31 December 2020: $1.5 million), $0.1 million of other receivables and prepayments (30 June 2020: $0.3 million, 31 December 2020: $0.1 million).
The $1.3 million of trade and other payables as of 30 June 2021 (30 June 2020: $0.9 million, 31 December 2020: $1.3 million) represent $0.9 million (30 June 2020: $0.2 million, 31 December 2020: $0.8 million) of other creditors and $0.4 million of accruals (30 June 2020: $0.7 million, 31 December 2020: $0.5 million).
Cash flow statement
The Consolidated Cash Flow Statement shows positive cash-flow from operating activities of $1.5 million (30 June 2020: outflow $1.2 million, 31 December 2020: inflow $0.1 million). Cashflow, before movements in working capital, was an outflow of $44 thousand (30 June 2020: outflow $0.9 million, 31 December 2020: outflow $2.5 million).
Group capital expenditure was $0.1 million on Property, Plant and Equipment which related to the Blazhyvska license.
Commitments
There has been no material change in the commitments and contingencies reported as at 31 December 2020 (refer to page 107 of the Annual Report).
Treasury
The Group monitors continuously its exposure to currency risk. It maintains a portfolio of cash, mainly in both US dollars (‘USD’) and EURO held primarily in the UK, and holds these in call deposits. Production revenues from the sale of hydrocarbons are received in the local currency in Ukraine (‘UAH’) and to date funds from such revenues have been held in Ukraine for further use in operations. When funds are needed for operations, they are transferred to the Company’s subsidiaries in USD, and then converted to UAH.
Going concern
The Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Interim Financial Statements. For further details refer to the detailed discussion of the assumptions outlined in note 2(a) to the Interim Financial Statements.
Cautionary Statement
The business review and certain other sections of this Half Yearly Report contain forward looking statements that have been made by the Directors in good faith based on the information available to them up to the time of their approval of this report. However they should be treated with caution due to inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information and no statement should be construed as a profit forecast.
Risks and uncertainties
There are a number of potential risks and uncertainties inherent in the oil and gas sector which could have a material impact on the long-term performance of the Group and which could cause the actual results to differ materially from expected and historical results. The Company has taken reasonable steps to mitigate these where possible. Full details are disclosed on pages 15 to 18 of the 2020 Annual Financial Report. There have been no changes to the risk profile during the first half of the year. The risks and uncertainties are summarised below.
Operational risks
- Health, safety, and environment
- COVID-19
- Climate change
- Drilling and work-over operations
- Production and maintenance
Subsurface risks
Financial risks
- Changes in economic environment
- Counterparty
- Default on the Proger loan repayment
- Commodity price
Country risk
- Regulatory and licence issues
- Emerging market
Other risks
- Risk of losing key staff members
- Risk of entry into new countries
- Risk of delays in projects related to local communities dialogue
Director’s Responsibility Statement
We confirm that to the best of our knowledge:
(a) the Interim Financial Statements have been prepared in accordance with the UK-adopted IAS 34 ‘Interim Financial Reporting’;
(b) the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year);
(c) the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties’ transactions and changes therein); and
(d) the condensed set of financial statements, which has been prepared in accordance with the applicable set of accounting standards, gives a true and fair view of the assets, liabilities, financial position and profit or loss of the issuer, or the undertakings included in the consolidation as a whole as required by DTR 4.2.4R.
This Half Yearly Report consisting of pages 1 to 24 has been approved by the Board and signed on its behalf by:
Fady Khallouf
Chief Executive Officer
8 September 2021
Consolidated Income Statement
Six months ended 30 June 2021
| Six months ended 30 June |
Year ended
31 December |
|||
|
2021
$’000 |
2020
$ ’000 |
2020
$ ’000 |
||
| Notes | (Unaudited) | (Unaudited) | (Audited) | |
| CONTINUING OPERATIONS | ||||
| Revenue | 3 | 4,517 | 1,266 | 5,105 |
| Cost of sales | 3 | (3,222) | (1,090) | (4,500) |
| Provision against unsold gas inventory | - | (614) | - | |
| Gross profit | 1,295 | ( 438 ) | 605 | |
| Administrative expenses | (1,703) | (1,495) | (3,771) | |
| Reversal of impairment of other assets | - | 4 | 644 | |
| Impairment of other assets | (2) | (125) | (53) | |
| Interest income on loan provided | 11 | 587 | - | - |
| Fair value gain/(loss) on loan and call option | 11 | - | 409 | (334) |
| Net foreign exchange (losses)/gains | (276) | 129 | 1,938 | |
| Other operating (losses)/income,net | (36) | (4) | (71) | |
| Operating (loss)/profit | (135) | (1,5 2 0) | (1,042) | |
| Finance income | 4 | 5 | 45 | 40 |
| (Loss)/profit before tax | (130) | (1,475) | (1,002) | |
| Tax (expense)/benefit | - | - | - | |
| (Loss)/profit for the period/year | (130) | (1,475) | (1,002) | |
| Attributable to: | ||||
| Owners of the Company | 5 | (134) | (1,470) | (996) |
| Non-controlling interest | 4 | (5) | (6) | |
| (130) | (1,475) | (1,002) | ||
| (Loss)/profit per Ordinary share | Cents | Cents | Cents | |
| Basic and diluted | 5 | (0.1) | (0.6) | (0.4) |
Consolidated Statement of Comprehensive Income
Six months ended 30 June 2021
| Six months ended 30 June |
Year ended
31 December |
|||
|
2021
$ ’000 |
2020
$ ’000 |
2020
$ ’000 |
||
| (Unaudited) | (Unaudited) | (Audited) | ||
| (Loss)/profit for the period/year | (130) | (1,475) | (1,002) | |
| Other comprehensive (loss)/profit | ||||
| Items that may be reclassified subsequently to profit or loss | ||||
| Unrealised currency translation differences | 111 | (2,466) | (3,880) | |
| Other comprehensive (loss)/profit | 111 | (2,466) | (3,880) | |
| Total comprehensive profit/(loss) for the period/year | (19) | (3,941) | (4,882) | |
| Attributable to: | ||||
| Owners of the Company | (23) | (3,936) | (4,876) | |
| Non-controlling interest | 4 | (5) | 6 | |
| (19) | (3,941) | (4,882) | ||
Consolidated Statement of Financial Position
Six months ended 30 June 2021
| Six months ended 30 June |
Year ended
31 December |
|||
|
2021
$ ’000 |
2020
$ ’000 |
2020
$ ’000 |
||
| Notes | (Unaudited) | (Unaudited) | (Audited) | |
| ASSETS | ||||
| Non-current assets | ||||
| Intangible exploration and evaluation assets | 2,483 | 2,642 | 2,381 | |
| Property, plant and equipment | 6 | 10,000 | 10,715 | 9,963 |
| Right-of-use assets | 246 | - | 292 | |
| Deferred tax asset | 432 | 501 | 419 | |
| 13,161 | 13,858 | 13,055 | ||
| Current assets | ||||
| Inventories | 7 | 1,182 | 3,079 | 2,156 |
| Trade and other receivables | 8 | 929 | 2,273 | 1,632 |
| Loan classified at fair value through profit and loss | 11 | - | 16,145 | 16,812 |
| Loan provided | 11 | 16,902 | - | - |
| Cash and cash equivalents | 14,651 | 11,601 | 13,253 | |
| 33,664 | 33,098 | 33,853 | ||
| Total assets | 46,825 | 46,956 | 46,908 | |
| LIABILITIES | ||||
| Non-current liabilities | ||||
| Long-term lease liability | (149) | - | (195) | |
| Provisions | (297) | (256) | (223) | |
| (446) | (256) | (418) | ||
| Current liabilities | ||||
| Trade and other payables | 9 | (1,316) | (938) | (1,387) |
| Short-term lease liability | (76) | - | (97) | |
| (1,392) | (938) | (1,484) | ||
| Total liabilities | (1,838) | ( 1,194 ) | (1,902) | |
| Net assets | 44,987 | 45,762 | 45,006 | |
| EQUITY | ||||
| Share capital | 12 | 13,832 | 13,832 | 13,832 |
| Share premium | 514 | 329 | 514 | |
| Retained earnings | 190,829 | 190,489 | 190,963 | |
| Cumulative translation reserves | (162,044) | (160,741) | (162,155) | |
| Other reserves | 1,589 | 1,589 | 1,589 | |
| Equity attributable to equity holders of the parent | 44,720 | 45,498 | 44,743 | |
| Non-controlling interest | 267 | 264 | 263 | |
| Total equity | 44,987 | 45,762 | 45,006 | |
Consolidated Statement of Cash Flows
Six months ended 30 June 2021
| Six months ended 30 June |
Year ended
31 December |
|||
|
2021
$ ’000 |
2020
$ ’000 |
2020
$ ’000 |
||
| (Unaudited) | (Unaudited) | (Audited) | ||
| Operating loss | (135) | (1,520) | (708) | |
| Adjustments for: | ||||
| Depreciation of property, plant and equipment | 398 | 369 | 734 | |
| Impairment of inventories | 2 | 614 | 50 | |
| Impairment/(Reversal of impairment) of receivables | - | (5) | 3 | |
| Impairment/(Reversal of impairment) of VAT recoverable | 2 | 125 | (644) | |
| Interest on loan provided | (587) | - | ||
| Net fair value of convertible loan | - | (409) | 334 | |
| Effect of foreign exchange rate changes | 276 | (129) | (1,938) | |
| Operating cash flows before movements in working capital | (44) | (955) | (2,503) | |
| Decrease/(Increase) in inventories | 1,022 | 279 | 1,624 | |
| Decrease /(Increase) in receivables | 716 | (74) | 930 | |
| (Decrease)/Increase in payables and provisions | (154) | (514) | 34 | |
| Cash from operations | 1,540 | (1,264) | 85 | |
| Interest received | 22 | 9 | 25 | |
| Net cash inflow/(outflow) from operating activities | 1,562 | (1,255) | 110 | |
| Investing activities | ||||
| Purchases of property, plant and equipment | (50) | (132) | (279) | |
| Purchases of intangible exploration and evaluation assets | - | (5) | (32) | |
| Proceeds from sale of property, plant and equipment | - | 4 | - | |
| Interest received | 8 | 36 | 38 | |
| Net cash used in investing activities | (42) | ( 97 ) | (273) | |
| Financing activities | ||||
| Net cash from financing activities | - | - | - | |
| Net increase (decrease) in cash and cash equivalents | 1,520 | (1,352 ) | (163) | |
| Effect of foreign exchange rate changes | (122) | 119 | 582 | |
| Cash and cash equivalents at beginning of period/year | 13,253 | 12,834 | 12,834 | |
| Cash and cash equivalents at end of period/year | 14,651 | 11,601 | 13,253 | |
Consolidated Statement of Changes in Equity
Six months ended 30 June 2021
| Share capital | Share premium account | Retained earnings | Cumulative translation reserves | Other reserves | Equity attributable to owners of the Company | Non-controlling interest | Total | |
| $’000 | $’000 | $’000 | $’000 | $’000 | $’000 | $’000 | $’000 | |
| As at 1 January 2020 | 13,525 | 329 | 19 1 , 959 | (1 58 , 275 ) | 2,081 | 49,619 | 2 69 | 49 , 888 |
| Net loss for the period | - | - | (1,470) | - | - | (1,470) | (5) | (1,475) |
| Other comprehensive loss | - | - | - | (2,466) | - | (2,466) | - | (2,466) |
| Total comprehensive loss for the year | - | - | (1,470) | (2,466) | - | (3,936) | (5) | (3,941) |
| Issue of ordinary shares | 307 | - | - | (492) | (185) | - | (185) | |
| As at 30 June 2020 | 13,832 | 329 | 190,489 | (160,741) | 1,589 | 45,498 | 264 | 45,762 |
| Net profit for the period | - | - | 474 | - | - | 474 | (1) | 473 |
| Other comprehensive profit | - | - | - | (1,414) | - | 1,414 | - | 1,414 |
| Total comprehensive profit for the year | - | - | 474 | (1,414) | - | (940) | (1) | (941) |
| Shares based award | - | 185 | - | - | - | 185 | - | 185 |
| As at 31 December 2020 | 13,832 | 514 | 190,963 | (162,155) | 1,589 | 44,743 | 263 | 45,006 |
| Net loss for the period | - | - | (134) | - | - | (134) | 4 | (130) |
| Other comprehensive profit | - | - | - | 111 | - | 111 | - | 111 |
| Total comprehensive profit for the year | - | - | (134) | 111 | - | (23) | 4 | (19) |
| Issue of ordinary shares | - | - | - | - | ||||
| As at 30 June 2021 | 13,832 | 514 | 190,829 | (162,044) | 1,589 | 44,720 | 267 | 44,987 |
Notes to the Condensed Financial Statements
Six months ended 30 June 2021
1. General information
Cadogan Petroleum plc (the ‘Company’, together with its subsidiaries the ‘Group’), is incorporated in England and Wales under the Companies Act. The address of the registered office is 6th Floor, 60 Gracechurch Street, London EC3V 0HR. The nature of the Group’s operations and its principal activities are set out in the Operations Review on pages 3 to 5 and the Financial Review on pages 6 to 7.
This Half Yearly Report has not been audited or reviewed in accordance with the Auditing Practices Board guidance on ‘Review of Interim Financial Information’.
A copy of this Half Yearly Report has been published and may be found on the Company’s website at www.cadoganpetroleum.com.
2. Basis of preparation
The annual financial statements of the Group are prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and in accordance with international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. On 31 December 2020, IFRS as adopted by the European Union at that date was brought into UK law and became UK-adopted international accounting standards, with future changes being subject to endorsement by the UK Endorsement Board. The Group transitioned to UK-adopted international accounting standards in its consolidated financial statements on 1 January 2021. There was no impact or changes in accounting policies from the transition. These Condensed Financial Statements have been prepared in accordance with the UK-adopted IAS 34 Interim Financial Reporting.
The same accounting policies and methods of computation are followed in the condensed financial statements as were followed in the most recent annual financial statements of the Group except as noted, which were included in the Annual Report issued on 6 May 2021.
The Group has not early adopted any amendment, standard or interpretation that has been issued but is not yet effective. It is expected that where applicable, these standards and amendments will be adopted on each respective effective date.
This consolidated interim financial information does not constitute accounts within the meaning of section 434 and of the Companies Act 2006. Statutory accounts for the year ended 31 December 2020 were approved by the Board of Directors on 5 May 2021 and delivered to the Registrar of Companies. The report of the auditors on those accounts was qualified as the auditors were unable to obtain sufficient and appropriate evidence to conclude as to whether the fair value of the Proger loan instrument of $16.8 million was materially accurate.
(a) Going concern
The Directors have continued to use the going concern basis in preparing these condensed financial statements. The Group's business activities, together with the factors likely to affect future development, performance and position are set out in the Operations Review. The financial position of the Group, its cash flow and liquidity position are described in the Financial Review.
The Group’s cash balance at 30 June 2021 was $14.7 million (31 December 2020: $13.3 million).
The Group’s forecasts and projections, taking into account reasonably possible changes in trading activities, operational performance, flow rates for commercial production and the price of hydrocarbons sold to Ukrainian customers, show that there are reasonable expectations that the Group will be able to operate on funds currently held and those generated internally, for the foreseeable future.
The Group’s farm-out strategy on Bitlyanska license is on-hold waiting for the outcome of the claim introduced against the Licensing Authority for non granting the 20-year production license.
Having considered the Company’s financial position and its principal risks and uncertainties, including the assessment of potential risks associated with Covid-19 including a) restrictions applied by governments, illness amongst our workforce and disruption to supply chain and sales channels; and b) market volatility in respect of commodity prices associated with Covid-19 in addition to geopolitical factors, the Directors have a reasonable expectation that the Group have adequate resources to continue in operational existence for the foreseeable future.
After making enquiries and considering the uncertainties described above, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future and consider the going concern basis of accounting to be appropriate and, thus, they continue to adopt the going concern basis of accounting in preparing the financial statements. In making their statement the Directors have considered the recent political and economic uncertainty in Ukraine.
(b) Foreign currencies
The individual financial statements of each Group company are presented in the currency of the primary economic environment in which it operates (its functional currency). The functional currency of the Company is US dollar. For the purpose of the consolidated financial statements, the results and financial position of each Group company are expressed in US dollars, which is the presentation currency for the consolidated financial statements.
The relevant exchange rates used were as follows:
| 1 £ = xUS$ | Six months ended 30 June |
Year ended
31 Dec 2020 |
|||
| 2021 | 2020 | ||||
| Closing rate | 1.3837 | 1.2322 | 1.3678 | ||
| Average rate | 1.3891 | 1.2613 | 1.2843 | ||
| 1 US$ = xUAH | Six months ended 30 June |
Year ended
31 Dec 2020 |
|||
| 2021 | 2020 | ||||
| Closing rate | 27.5214 | 26.7105 | 28.3700 | ||
| Average rate | 27.9902 | 26.0227 | 27.0034 | ||
| 1 Euro = xUS$ | Six months ended 30 June | Year ended | |||
| 2021 | 2020 | 31 Dec 2020 | |||
| Closing rate | 1.1879 | 1.1235 | 1.2217 | ||
| Average rate | 1.2088 | 1.1024 | 1.1420 | ||
(c) Dividend
The Directors do not recommend the payment of a dividend for the period (30 June 2020: $nil; 31 December 2020: $nil).
(d) Critical accounting judgments and estimates
Impairment indicator assessment for E&E assets
The outcome of ongoing exploration, and therefore the recoverability of the carrying value of intangible exploration and evaluation assets, is inherently uncertain. Management assesses its E&E assets, and perform an impairment test if indicators of impairment are identified. In assessing potential indicators of impairment, management considered factors such as the remaining term of the license, plans for renewal of the license, conversion to a production license, reports on reserves, the net present value of economic models, the results of drilling and exploration in the year and the future plans including farm out proposals. In respect of the renewal and conversion of the license which remains outstanding and overdue management considered the status of license commitments, the status of submissions necessary for the renewal, trends in the relevant region of the Ukraine with respect to license application approval together with legal advice in respect of the standing of the license in the event of delays by the authorities.
Impairment of PP&E
Management assess its development and production assets for impairment indicators and performs an impairment test if indicators of impairment are identified. Management performed an impairment assessment using a value in use discounted cash flow model which required estimates including forecast oil prices, reserves and production, costs and discount rates.
Recoverability and measurement of VAT
Judgment is required in assessing the recoverability of VAT assets and the extent to which historical impairment provisions remain appropriate, particularly noting the recent recoveries against historically impaired VAT. In forming this assessment, the Group consider the nature and age of the VAT, the likelihood of eligible future supplies to VAT, the pattern of recoveries and risks and uncertainties associated with the operating environment.
Loan provided
In February 2019, the Group advanced a Euro 13,385,000 loan to Proger Managers & Partners Srl (“PMP”), a privately owned Italian company whose only interest is a 72.92% participation in Proger Ingegneria Srl (“Proger Ingegneria”), a privately owned company which held a 75.95% participating interest in Proger Spa (“Proger”) at 31 December 2020, and a 96.49% participating interest in Proger Spa at 30 June 2021. The loan carries an entitlement to interest at a rate of 5.5% per year, payable at maturity (which is 24 months after the execution date (February 2019) and assuming that the call option described below is not exercised). The principal of the loan is secured by a pledge over PMP’s current participating interest in Proger Ingegneria Srl, up to a maximum guaranteed amount of Euro 13,385,000.
As part of the instrument, the Group was granted a call option to acquire, at its sole discretion, 33% of participating interest in Proger Ingegneria; the exercise of the option would give Cadogan, through Cadogan Petroleum Holdings BV (“CPHBV”), an indirect 31.84% interest in Proger at 30 June 2021. The call option was granted at no additional cost and could be exercised at any time between the 6th (sixth) and 24th (twenty-fourth) months following the execution date of the Loan Agreement and subject to Cadogan shareholders having approved the exercise of the call option as explained further below. Should CPHBV exercise the call option, the price for the purchase of the 33% participating interest in Proger Ingegneria shall be paid by setting off the corresponding amount due by PMP to CPHBV, by way of reimbursement of the principal, pursuant to the Loan Agreement. If the call option is exercised, then the obligation on PMP to pay interest is extinguished.
Management considered the extent to which the option and rights to representation on the Board of Proger Ingegneria and Proger meant significant influence existed. The requirement to obtain shareholder approval for any exercise of the option was considered to represent a substantive condition such that the option was not ‘currently exercisable’ under IFRS at 31 December 2020. In consequence, the potential voting rights associated with any subsequent exercise of the option were not considered to contribute to significant influence over Proger Ingegneria and Proger.
Under the Group’s accounting policies, the instrument was held at fair value through profit and loss and determination of fair value requires assessment of both key Proger Ingegneria and Proger specific information regarding financial performance and prospects and market information. At 31 December 2020, the determination of fair value is made based on facts and circumstances at that date, notwithstanding that the borrower, PMP, failed to repay the loan at maturity in 2021.
The Group’s original lending decision involved assessment of Proger Spa business plans and analysis with professional advisers including valuations performed using the income method (discounted cash flows) and market approach using both the precedent transactions and trading multiples methods.
Cadogan did not exercise its Call Option under the Loan Agreement within the Maturity Date and the option is expired. Proger Managers & Partners srl failed to reimburse the Loan amount with the accumulated interests at the Maturity Date, 25 February 2021. In case of non-reimbursement, the Loan carries an entitlement to an interest at a rate of 7.5% per year to be accrued on the principle amount and the interests accumulated at the Maturity Date until the total amount is paid.
As the Call Option expired, Cadogan treats the Loan provided to PMP at historical cost plus accrued interests less provision starting from March 2021. The recoverability of the Loan has been assessed in April 2021 for the purpose of Cadogan Annual Report 2020. Since April 2021 there are no additional facts which can lead to recognition of change of value for the period ended 30 June 2021 (Note 11).
3. Segment information
Segment information is presented on the basis of management’s perspective and relates to the parts of the Group that are defined as operating segments. Operating segments are identified on the basis of internal assessment provided to the Group’s chief operating decision maker (“CODM”). The Group has identified its executive management team as its CODM and the internal assessment used by the top management team to oversee operations and make decisions on allocating resources serve as the basis of information presented.
Segment information is analysed on the basis of the type of activity, products sold or services provided. The majority of the Group’s operations are located within Ukraine. Segment information is analyzed on the basis of the types of goods supplied by the Group’s operating divisions.
The Group’s reportable segments under IFRS 8 are therefore as follows:
Exploration and Production
- E&P activities on the production licences for natural gas, oil and condensate
Service
- Drilling services to exploration and production companies
- Construction services to exploration and production companies
Trading
- Import of natural gas from European countries
- Local purchase and sales of natural gas operations with physical delivery of natural gas
The accounting policies of the reportable segments are the same as the Group’s accounting policies. Sales between segments are carried out at market prices. The segment result represents profit under IFRS before unallocated corporate expenses. Unallocated corporate expenses include management and Board remuneration and expenses incurred in respect of the maintenance of Kiev office premises. This is the measure reported to the CODM for the purposes of resource allocation and assessment of segment performance.
The Group does not present information on segment assets and liabilities as the CODM does not review such information for decision-making purposes.
As of 30 June 2021 and for the six months then ended the Group’s segmental information was as follows:
| Exploration and Production | Services | Trading | Consolidated | |
| $’000 | $’000 | $’000 | $’000 | |
| Sales of hydrocarbons | 2,777 | - | 1,738 | 4,515 |
| Other revenue | - | 2 | - | 2 |
| Total revenue | 2,777 | 2 | 1,738 | 4,517 |
| Other cost of sales | (2,138) | - | (1,084) | (3,222) |
| Other administrative expenses | (492) | (35) | (25) | (552) |
| Finance income/costs, net | - | - | 22 | 22 |
| Segment results | 147 | (33) | 651 | 765 |
| Unallocated other administrative expenses | - | - | - | (1,151) |
| Impairment | - | - | - | (2) |
| Net foreign exchange gains | - | - | - | (276) |
| Other income/loss, net | - | - | - | 534 |
| Loss before tax | - | - | - | (130) |
As of 30 June 2020 and for the six months then ended the Group’s segmental information was as follows:
| Exploration and Production | Services(1) | Trading | Consolidated | |
| $’000 | $’000 | $’000 | $’000 | |
| Sales of hydrocarbons | 1,263 | - | - | 1,263 |
| Other revenue | - | 3 | - | 3 |
| Total revenue | 1,263 | 3 | - | 1,266 |
| Other cost of sales | (1,087) | (3) | - | (1,090) |
| Other administrative expenses | (281) | (20) | (27) | (328) |
| Impairment | - | - | (614) | (614) |
| Finance income/costs, net | - | - | 9 | 9 |
| Segment results | (105) | ( 20 ) | ( 634 ) | 757 |
| Unallocated other administrative expenses | - | - | - | (1,167) |
| Net fair value gain on convertible loan | - | - | - | 409 |
| Net foreign exchange gains | - | - | - | 129 |
| Other income, net | - | - | - | (89) |
| Profit before tax | - | - | - | 1,475 |
(1) In first half 2020 and in the first half 2021 the Service business was focused on internal projects, in particular, providing services to Blazhyvska licence.
4. Finance income/(costs), net
| Six months ended 30 June |
Year ended
31 December |
||
| 2021 | 2020 | 2020 | |
| $’000 | $’000 | $’000 | |
| Interest expense on lease | (14) | - | - |
| Total interest expenses on financial liabilities | (14) | - | - |
| Investment revenue | 8 | 36 | 37 |
| Interest income on cash deposit in Ukraine | 22 | 9 | 25 |
| Total interest income on financial assets | 30 | 45 | 62 |
| Unwinding of discount on decommissioning provision | (11) | - | (22) |
| 5 | 45 | 40 | |
5. (Loss)/profit per ordinary share
(Loss)/profit per ordinary share is calculated by dividing the net (loss)/profit for the period/year attributable to Ordinary equity holders of the parent by the weighted average number of Ordinary shares outstanding during the period/year. The calculation of the basic (loss)/profit per share is based on the following data:
| Six months ended 30 June |
Year ended
31 December |
||
| (Loss)/profit attributable to owners of the Company |
2021
$ ’000 |
2020
$ ’000 |
2020
$ ’000 |
| (Loss)/profit for the purposes of basic (loss)/profit per share being net (loss)/profit attributable to owners of the Company | (134) | (1,475) | (996) |
| Number of shares |
Number
‘000 |
Number
‘000 |
Number
‘000 |
| Weighted average number of Ordinary shares for the purposes of basic (loss)/profit per share | 240,628 | 244,128 | 240,628 |
| Cent | Cent | Cent | |
| (Loss)/profit per Ordinary share | |||
| Basic | (0.1) | (0.6) | (0.4) |
6. Proved properties
As of 30 June 2021 the development and production assets balance which forms part of PP&E has increased in comparison to 31 December 2020 due to work-overs at Blazhiv field and Hryvnya exchange rate increase against the US Dollar at the end of the period.
7. Inventories
The Group had volumes of natural gas stored at 31 December 2020 which were sold during the period ended 30 June 2021. No other substantial changes in inventories balances occured.
The impairment provision as at 30 June 2021 of $0.5 million is held to reduce the carrying value of the inventories to net realizable value. No additional provision on inventories has been recognised for the first half 2021.
8. Trade and other receivables
| Six months ended 30 June |
Year ended
31 December |
|||||
|
2021
$ ’000 |
2020
$ ’000 |
2020
$ ’000 |
||||
| VAT recoverable | 755 | 2,067 | 1,500 | |||
| Prepayments | 92 | 114 | - | |||
| Trade receivables | 28 | 14 | - | |||
| Other receivables | 54 | 78 | 132 | |||
| 929 | 2,273 | 1,632 | ||||
VAT recoverable asset was realized through natural gas and crude oil sales during the first half of 2021. The Directors consider that the carrying amount of the other receivables approximates their fair value. Management expects to realise VAT recoverable through the activities of the business segments.
9. Trade and other payables
The $1.3 million of trade and other payables as of 30 June 2021 (30 June 2020: $0.9 million, 31 December 2020: $1.4 million) represent $0.9 million (30 June 2020: $0.2 million, 31 December 2020: $1.2 million) of payables and $0.4 million of accruals (30 June 2020: $0.7 million, 31 December 2020: $0.2 million).
10. Commitments and contingencies
There have been no significant changes to the commitments and contingencies reported on page 107 of the Annual Report.
11. Loan provided
In February 2019, Cadogan used part of its cash (Euro 13.385 million) to enter into a 2-year Loan Agreement with Proger Managers & Partners, with an option to convert it into a direct 33% equity interest in Proger Ingegneria, equivalent to an indirect 25% equity interest in Proger. According to IFRS, the instrument has to be represented in our balance sheet at fair value.
The Group’s original lending decision involved assessment of Proger Spa business plan and analysis with professional advisers including valuations performed using the income method (discounted cash flows) and market approach using both the precedent transactions and trading multiples methods.
Refer to note 2 for details of the terms of the Proger loan recorded as a financial asset at fair value through profit and loss. The instrument is recorded at management’s best estimate of fair value till the Maturity Date as set out in the note 2.
| FVPL | Loan provided | |
| $’000 | $’000 | |
| As at 1 January 2020 | 15,707 | - |
| Movement in FVPL | 409 | - |
| Exchange differences | 29 | - |
| As at 30 June 2020 | 16,145 | - |
| Movement in FVPL | (743) | - |
| Exchange differences | 1,410 | - |
| As at 1 January 2021 | 16,812 | - |
| Transfer from FVPL | (16,812) | - |
| Transfer to loan provided | - | 16,812 |
| Interest | - | 587 |
| Exchange differences | - | (497) |
| As at 30 June 2021 | - | 16,902 |
To represent the option at fair value, the Group has applied a level 3 valuation under IFRS as inputs to the valuation have included assessment of the cash repayments anticipated under the loan terms at maturity, delayed by the arbitration process requested by PMP (the Borrower), historical financial information for the periods prior to 2020 and assessment of the security provided by the pledge over shares together with the impact of the Covid-19 on the activity of Proger. As a result, $16.8 million was determined as the best estimate of fair value as at 31 December 2020, being equal to anticipated receipts and timing thereof discounted at an estimated market rate of interest of 7.8%.
Cadogan did not exercise its Call Option under the Loan Agreement within the Maturity Date and the option has expired. Proger Managers & Partners srl has failed to reimburse the Loan with the accumulated interests in full at the Maturity Date, 25 February 2021. In case of non-reimbursement, the Loan carries an entitlement to an interest at a rate of 7.5% per year to be accrued on principal amount and accumulated interests at the Maturity Date until the total amount is paid. Starting from March 2021, Cadogan treats the Loan provided to PMP at historical cost plus accrued interests and less provision. The recoverability of the Loan has been assessed in April 2021 for the purpose of Cadogan Annual Report 2020. Since April 2021, there are no additional facts which can lead to recognition of a change of value for the period ended 30 June 2021.
12. Share capital
Authorized and issued equity share capital
| 30/06/2021 | 31/12/2020 | |||
| Number | $’000 | Number | $’000 | |
| Authorized Ordinary shares of £0.03 each |
1,000,000 | 57,713 | 1,000,000 | 57,713 |
| Issued Ordinary shares of £0.03 each |
244,128 | 13,832 | 244,128 | 13,832 |
Authorized but unissued share capital of £30 million has been translated into US dollars at the historic exchange rate of the issued share capital. The Company has one class of Ordinary shares, which carry no right to fixed income.
Issued equity share capital
|
Ordinary shares
of £0.03 |
|||
| At 31 December 2017 | 235,729,322 | ||
| Issued during year | - | ||
| At 31 December 2018 | 235,729,322 | ||
| Issued during year | - | ||
| At 31 December 2019 | 235,729,322 | ||
| Issued during year | 8,399,165 | ||
| At 31 December 2020 | 244,128,487 | ||
| Issued during first-half year | - | ||
| At 30 June 2021 | 244,128,487 | ||
On 26 May 2020 the Company issued 8,399,165 ordinary shares of £0.03 each in the capital of the Company for cash on the basis of £0.03 per share:
- 2,270,549 ordinary shares were issued to the previous CEO, Mr Guido Michelotti and satisfied in full using the entire amount of the 2018 and 2019 bonuses due (but which had not yet been paid), totalling €75,900,
- 628,616 ordinary shares were issued to Mr Andriy Bilyy (General Director of Cadogan Ukraine) and satisfied in full using the entire amount of the 2019 bonus due (but which had not yet been paid), totalling $23,040,
- 5,500,000 ordinary shares were issued to the CEO, Mr Fady Khallouf and satisfied in full using the entire amount of the welcome bonus due.
13. Events subsequent to the reporting date
No events subsequent to the reporting date have taken place after 30 June 2021.
[1] Lost Time Incident, Total Recordable Incident
[2] Most of the recoverable VAT is VAT paid on drilling services which will be off-set by VAT due on crude sales in future periods under local legislation
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