Half-yearly Report

CADOGAN PETROLEUM PLC Half Yearly Report for the Six Months ended 30 June 2013 (Unaudited and Unreviewed) ______________________________________________________________________________ Highlights Cadogan Petroleum plc ("Cadogan" or the "Company"), an independent oil and gas exploration, development and production company with onshore gas, condensate and oil assets in Ukraine, announces its unaudited results for the six months ended 30 June 2013. - Continued production from the Debeslavetska and Cheremkivska licences at a combined rate of about 14.5 mcm/day of gas and on Blazhiv field of the Bitlyanska licence about 20 bopd of oil. - Cadogan's shale gas joint venture Westgasinvest ("WGI") is implementing the procurement and permitting with a view to field activity in last quarter 2013/first quarter 2014. - Borynya 3 well re-entry is on-going; logs run and confirm the presence of interesting gas bearing zones. Three promising intervals have been identified for testing. - Memorandum of understanding ("MoU") with Oil and Gas Management Services Limited (OAGSG), the largest Oil Country Tubular Goods ("OCTG") business operator in Kurdistan, to assist Cadogan in developing a presence in the Kurdistan region and further develop respective, existing services businesses in Ukraine and Kurdistan. - Negotiations on-going with major International Oil Companies ("IOCs") operating in Ukraine, offering state-of-the-art technologies and services. - $29.5 million received in full and final settlement of the GPS litigation. - Net cash and cash equivalents at 30 June 2013 of $63.4 million (31 December 2012: $40.5 million) excluding $0.7 million (31 December 2012: $1.9 million) of Cadogan's share of cash and cash equivalents in joint ventures Commenting on the results, Bertrand des Pallieres Chief Executive Officer said: "The first half of 2013 has been broadly positive for Cadogan with settlement of the GPS litigation, the MOU with OAGSG, progress with our shale gas JV and completion of the overhaul of the Group's technical team. The Company remains in a strong financial position, with no debt and substantial cash resources already being put to work at Borynya 3 with, so far, promising results." Enquiries: Cadogan Petroleum Plc +380(44)591 0390 Bertrand des Pallieres Chief Executive Officer Laurence Sudwarts Company Secretary Cantor Fitzgerald Europe +44 (0) 20 7894 7000 David Porter Richard Redmayne Bankside +44 (0) 207 397 8888 Simon Rothschild BOARD STATEMENT Introduction During the first half of 2013 the Group continued to focus on developing its assets in Ukraine. A significant re-evaluation and re-assessment of our assets by the Group's recently overhauled technical team is developing renewed interest in existing licences and bolstering management's focus on production initiatives. LLC Westgasinvest, a joint venture with Eni S.p.A. ("Eni") and NAK Nadra ("Nadra") in which Cadogan has a 15% shareholding, currently holds subsoil rights to nine unconventional (shale) gas license areas in the Lviv Basin of Ukraine, totalling approximately 3,800 square kilometres of acreage. The Lviv Basin is considered to be one of the most attractive basins in Europe for the exploration of unconventional gas, being a continuation of the Lublin Basin in Poland which has already attracted substantial interest from the hydrocarbon industry. Procurement and permitting activity continues in line with the agreed program of activity and field activity start-up is expected by the end of 2013 / beginning of 2014. Cadogan remains the operator for its existing conventional activities at Debeslavetska and Cheremkhivska and will retain the economic benefit from the conventional activities on these two licences. Operations During the period to 30 June 2013 the Group continued to operate safely and efficiently. Operations at Zagoryanska, Pokrovskoe and Pirkovskoe continue to fulfil the work commitments and the monitoring of the existing wells. The Borynya 3 well re-entry is on-going, logs have been run and correlations confirmed the presence of interesting gas bearing zones. Three intervals have been identified for testing. The first one, at circa 2980m, showed evidence of damage caused by previous operations and will be re-considered in light of testing on subsequent intervals. The second interval (circa 2700 m) was opened and testing is underway. The third interval (circa 2400 m) will be considered for testing at a later stage. In the first half of 2013 the Group continued its comprehensive re-evaluation of the potential of its existing assets. In particular, seismic re-interpretation using state-of-the-art technologies led to the identification of new exploration targets in previously explored horizons and, most interestingly, in stratigraphic sequences never previously considered. Particular focus is now being dedicated to the definition of a target to be shortly assessed in the Pokrovskoe license. Following the purchase of some vintage seismic lines, an additional seismic campaign has been planned and is expected to start by the end of the year. One shallow well is expected to be drilled in Debeslavetska by the year end. On the basis of the geological and geophysical results a new drilling campaign will be proposed in the Western area. Production from the Blazhiv, Debeslavetska and Cheremkivska licences continued at a combined rate of approximately 14.5 mcm/day of gas and 20 bopd of oil. Our business in the oil and gas services sector remains very promising negotiations are on-going with major IOC's operating in Ukraine, which are attracted by the state-of-the-art technologies and solutions we offer. Areas of interest are at present being developed in the drilling fluids, waste treatment, civil works, rig location engineering and construction, logistics and transportation areas. Possible scenarios on other appealing services presently not delivered in the Ukraine are under evaluation. The negotiation for shallow drilling with our existing light rig is on-going. Litigation Following an English High Court judgment in favour of Cadogan in relation to its litigation against Global Process Systems LLC ("GPS") in February 2013, including dismissal of a counterclaim against Cadogan, on 18 April 2013 the Company announced receipt of sale proceeds of $29.5 million for the sale to GPS of the two gas plants the subject of the litigation, in full and final settlement of all claims and proceedings. Financial position At the date of this report, the Group had cash and cash equivalents of approximately $61.0 million excluding $0.6 million of Cadogan's share of cash and cash equivalents in the joint ventures. The Directors believe that the capital available at the date of this report is sufficient for the Company and the Group to continue operations for the foreseeable future. Outlook With entry into Ukraine of not only Eni, with whom Cadogan shares joint ventures, but also Exxon, Chevron, Shell, OMV, Vitol since 2012 and the accompanying re-rating of Ukraine's oil and gas sector and valuations the Board reaffirms its belief that Cadogan, which is long established and highly regarded in Ukraine, is well-positioned to take advantage both through farm- ins to its acreage, which it continues to assess, but also on new ventures both on-shore and off-shore. The final, positive settlement of the GPS litigation and the consequent freeing up of management time, together with further expansion of the nascent service business, allows Cadogan to put significant resources to work in further developing its core business in Ukraine, as well as overseas in regions where the Company has existing relationships. OPERATIONS REVIEW In 2013 the Group held working interests in nine (2012: nine) gas, condensate and oil exploration and production licences in the East and West of Ukraine. All these assets are operated by the Group and are located in either the Carpathian basin or the Dnieper-Donets basin, in close proximity to the Ukrainian gas distribution infrastructures. The Group's primary focus during the period continued to be on the four most promising licences where the main reserve and resource potential is located: Zagoryanska, Pokrovskoe, and Pirkovskoe in the Dnieper-Donets basin of East Ukraine and Bitlyanska, in the Carpathian Basin of West Ukraine. Summary of the Group's licences (as of 30 June 2013) Working interest (%) Licence Expiry Licence type(1) Major licences 40.0 Zagoryanska April 2014 E&D 70.0 Pokrovskoe August 2016 E&D 100.0 Pirkovskoe October 2015 E&D 99.8 Bitlyanska December 2014 E&D Minor licences 99.2 Debeslavetska(2) November 2026 Production 99.2 Debeslavetska(2) September 2016 E&D 53.4 Cheremkhivska(2) May 2018 Production 100.0 Slobodo-Rungerska April 2016 E&D 99.2 Monastyretska November 2014 E&D (1) E&D = Exploration and Development. (2) Debeslavetska and Cheremkhivska licences are held by WGI, in which the Group has a 15% interest. The Group has 99.2% and 53.4% of economic benefit in conventional activities in Debeslavetska and Cheremkhivska licences respectively through Joint Activity Agreements ("JAA"). In addition to the above licences the Group has a 15% interest in WGI, which holds the Reklynetska, Zhuzhelianska, Cheremkhivsko-Strupkivska, Debeslavetska Exploration, Debeslavetska Production, Baulinska, Filimonivska, Kurinna, Sandugeyivska and Yakovlivska licences for unconventional activities. The following is an update to the full Operations Review contained in the Annual Financial Report for 2012 published on 25 April 2013. All reserves and Resources are stated herein are made with reference to the independent report by Gaffney Cline and Associates of February 2010, adjusted for volumes produced and changes in working interest since the date of publication. Zagoryanska licence The Group has a 40 per cent working interest in the Zagoryanska licence area, the remainder held by Eni pursuant to a joint venture formed in July 2011 (the "JV"). The exploration and development licence covers 49.6 square kilometres and the licence was extended in 2009 until April 2014. The work obligations have been fulfilled. Following disappointing results in 2012, an extensive revision and re-interpretation of the 3D seismic and Geology and Geophysics ("G&G") studies is on-going to assess and value all the possible reserves potential. Studies are still in the early stage and remain insufficiently mature to precisely define future action, however, possible re-entry in the wells Zagoryanska 3 and 11 is under evaluation. Pokrovskoe licence The Group holds a 70 per cent working interest in the Pokrovskoe licence which holds 51.1 mmboe of 3P Total Prospective Resources (2012: 51.1 mmboe), the remainder held by Eni pursuant to the JV. The exploration licence covers 49.5 square kilometres and the initial licence was extended until August 2016. Our investigation of the area has continued through the first half of 2013, including successful conclusion of the preliminary 3D seismic re-interpretation. The Pokrovskoe licence shows some interesting objects and a volumetric definition of the identified leads is currently under way. The Company is in the process of defining a potential program of activity for the most interesting lead, to be presented for Board approval in the final quarter of 2013. Pirkovskoe licence No new activity to report up to the date of this report. Bitlyanska licence area The Bitlyanska exploration and development licence covers an area of 390 square kilometres and the Group's interest approximates to 99.8 per cent, varying with production. There are three hydrocarbon discoveries in this licence area; namely Bitlyanska, Borynya and Vovchenska. The Borynya and Bitlyanska fields hold 219.2 mmboe (100 per cent - 2012: 219.2 mmboe) and 117.3 mmboe (100 per cent - 2012: 117.3 mmboe) of Contingent Resources respectively, while no Reserves and Resources have been attributed to the depleted Vovchenska field. Based on an integrated data set focused primarily on the southern part of the licence, interpreted with the benefit of recent, surface, geological mapping and balanced section generation, a series of prospects for future exploration drilling were identified and an internal re-evaluation and estimate of the resources in Bitlyanska and Borynya areas was concluded in the first half of 2013. Rig mobilization to the Borynya 3 well site utilising the Company's light work-over rig was completed on 4 July and spud work-over operations commenced on 10 July. Following running in a drill-pipe string to assess well integrity, an updated interpretation of the original data successfully identified other intervals not previously evident or highlighted. A petrophysical re-evaluation highlighted for the interval 2699m to 2745m, 25 meters of net pay with an average porosity of 15% and average water saturation of 35%. Borynya 3 well re-entry is still on-going . New wire-line logs have been run and correlations confirmed the presence of several interesting gas bearing zones. Three intervals have been identified for testing in the upper section. The first and deepest interval at circa 2980 m showed evidence of damage from previous operations and will be re-considered in light of results from the other two intervals in the upper section. The second interval at circa 2700m was opened and testing continues The third interval at circa 2400 m will subsequently be considered for testing. The deeper intervals will be re-entered in the future utilising a suitable rig. The purchase of existing seismic data has been completed and the acquisition of 50 linear km of 2D seismic lines to better access and re-estimate the existing potential on Vovchenska area is in the tendering phase. Minor fields The Group has a number of minor licence areas located in western Ukraine. These include the following: - Debeslavetska Production licence area A production licence, containing 0.2 mmboe of Proved, Probable and Possible (`3P') Reserves (2012: 0.2 mmboe). The field is currently producing 68 boepd. The new compressor unit and dehydration facilities are reducing fuel consumption and air emissions. - Debeslavetska Exploration licence area An exploration licence surrounding the Debeslavetska Production licence area which is considered quite promising in shallow gas production potential. Following the positive preliminary results (AVO & Inversion Analysis), the purchase of vintage seismic data has been completed and the acquisition of 80 linear Km of 2D seismic lines to assess the identified prospects is in the tendering phase. The satellite radar waves "InSar" technology is currently on-going and one shallow well is planned for drilling by year end. - Cheremkhivska Production licence area A production licence, containing 0.1 mmboe of 3P Reserves (2012: 0.1 mmboe). This licence is currently producing 22boepd (2012: 23.9 boepd). A contingent program to purchase vintage seismic lines and the acquisition of 30 linear Km of 2D seismic lines to assess and estimate the reserves is planned by end 2013 early 2014. - Slobodo-Rungerska licence area No new activity to report up to the date of this report - Monastyretska licence area An exploration and development licence, with no booked Reserves or Resources (2012: nil). The Blazhiv 1 well was re-entered and a sucker rod pump was installed; currently producing at a rate of 20 boepd, it is under monitoring for production optimization. 35 linear Km of 2D seismic lines to assess and estimate the reserves is expected to be acquired by year-end. Service Company activities Proactive negotiations are successfully on-going with major IOC's operating in Ukraine, offering western state-of-the-art technologies and solutions. Certification documents and procedures for western products and equipment importation are in the final stage. Areas of interest are at present being developed in the areas of drilling fluids; wastes treatment; civil works, rig location engineering and construction; logistics and transportation. Possible scenarios on other appealing services presently not delivered in the country are under evaluation. The negotiation for shallow drilling with our existing light rig is on-going. FINANCIAL REVIEW Overview During the six months ended 30 June 2013 the final settlement amount of $29.5 million was received from GPS, which was a primary reason for the cash position to increase to $63.4 million as at 30 June 2013 from $40.5 million as at 31 December 2012. From 1 January 2013, the Group has applied IFRS 11 Joint Arrangements ("IFRS 11") and IAS 28 Investment in Associates and Joint Ventures. The application of IFRS11 standard has resulted in the existing joint ventures LLC Astroinvest-energy, LLC Gazvydobuvannya and LLC Westgasinvest being accounted for under the equity method. Previously, these joint ventures were proportionately consolidated into the Group's financial statements. The Group has applied IFRS 11 retrospectively in accordance with the transitional provisions and the 2012 results have been restated accordingly. Further detail of the impact on the Group financial statements for the six months ended 30 June 2012 and the year ended 31 December 2012 is set out in note 10. Other new standards adopted do not have material impact on the financial statements of the Group. Income statement Loss before tax was $2.0 million (30 June 2012: $7.1 million, 31 December 2012: $92.9 million). Revenues of $1.9 million (30 June 2012: $1.6 million, 31 December 2012: $3.7 million) comprised sales of gas from the Debeslavetska and Cheremkhivska fields operated by the Group and the service business. Cost of sales, which represents production royalties and taxes, depreciation and depletion of producing wells and direct staff costs amounted to $1.3 million (30 June 2012: $0.8 million, 31 December 2012: $2.6 million) to give a gross profit of $0.6 million (30 June 2012: $0.8 million, 31 December 2012: $1.1 million). - Other administrative expenses of $4.5 million (30 June 2012: $4.1 million, 31 December 2012: $7.9 million) comprise staff costs, professional fees, Directors' remuneration, depreciation charges on non-producing property, plant and equipment. In addition to the recurring administrative expenses, $0.3 million of professional fees were incurred in relation to the litigation and subsequent settlement with GPS and $0.4 million of loss on disposal of surplus fixed assets. - Other losses of $1.9 million (30 June 2012: $3.1 million, 31 December 2012: $58.3 million) relates to the result of operations of joint ventures LLC Astroinvest-energy and LLC Gazvydobuvannya, which have been accounted using equity method in accordance with IFRS 11, previously accounted using proportionate consolidation method. - Other operating income of $3.7 million (30 June 2012: loss of $0.6 million, 31 December 2012: loss of $2.9 million) mainly relates to net foreign exchange gain on the translation of the USD denominated monetary assets of the Group's UK entities which have GBP as the functional currency. Cash flow statement The Condensed Consolidated Cash Flow Statement on page 15 shows expenditure of $0.2 million (30 June 2012: $0.9 million, 31 December 2012: $0.1 million) on intangible Exploration and evaluation assets (E&E) and $0.9 million (30 June 2012: $0.9 million, 31 December 2012: $1.1 million) on Property, plant and equipment (PP&E). In addition, the Group invested $4.3 million (30 June 2012: $14.5 million, 31 December 2012: $22.5 million) into its joint ventures LLC Astroinvest-energy and LLC Gazvydobuvannya. Net cash inflow from operations has increased to $30.0 million during six months ended 2013 from $2.4 million in the same period of 2012 as the result of the cash received from settlement with GPS in April 2013. Balance sheet As at 30 June 2013, the Group had net cash and cash equivalents of $63.4 million (30 June 2012: $50.4 million, 31 December 2012: $40.5 million). Intangible E&E assets of $3.4 million (30 June 2012: $2.9 million, 31 December 2012: $3.0 million) represent the carrying value of the Group's investment in exploration and appraisal assets, mainly for the Bitlyanska license. The PP&E balance of $44.3 million (30 June 2012: $47.9 million, 31 December 2012: $46.4 million), comprised of the cost of developing fields with commercial reserves and bringing them into production and mainly includes the Pirkovskoe, Debeslavetskoe and Cheremkhivske licences. Investments in joint ventures of $70.7 million (30 June 2012: $115.7 million, 31 December 2012: $67.9 million) represents Group's share of net assets of joint ventures LLC Astroinvest-energy, LLC Gazvydobuvannya, LLC Westgasinvest, that Group jointly owns with its partner Eni. Trade and other receivables of $6.8 million (30 June 2012: $59.8 million, 31 December 2012: $37.3 million) includes $3.3 million receivables from the joint ventures and $1.7 million receivable from OAGSG. $4.3 million of trade payables and other payables include trade payables, accrued income on OAGSG loan, payables to the JV and other current liabilities. Related party transactions Starting 1 January 2013, the Group has implemented the new IFRS 11 standard, which is prescribed to account joint ventures using equity method. This resulted in disclosing operations with LLC Astroinvest-energy and LLC Gazvydobuvannya as transactions with related parties (for details please refer to note 9 of this report). Commitments There has not been any significant change to the commitments and contingencies reported as at 31 December 2012 (refer to page 62 of the Annual Report). Key performance indicators The Group monitors its performance in implementing its strategy with reference to clear targets set out for four key financial and one key non-financial performance indicators (`KPIs'): - to increase oil, gas and condensate production measured on number of barrels of oil equivalent produced per day (`boepd'); - to increase the Group's oil and gas reserves by de-risking possible resources and contingent reserves into 2P Reserves. This is measured in million barrels of oil equivalent (`mmboe'); - to increase the realised price per 1,000 cubic metres; - to increase the Group's basic and diluted earnings per share; and - to reduce the number of lost time incidents. The Group's performance during the six months 2013 against these targets is set out in the table below, together with the prior year performance data. No changes have been made to the source of data or calculation used in the period/year. Unit 30 June 30 June 31 December 2013 2012 2012 Financial KPIs Average production (working interest basis) (1) boepd 90 210 181 2P reserves (2) mmboe 2.6 2.6 2.6 Realised price per 1,000 cubic metres (3) $ 485.4 489.9 486.0 Basic and diluted loss per share cent (0.7) (3.1) (40.3) (4) Non-financial KPIs Lost time incidents (5) incidents - - - (1) Average production is calculated as the average daily production during the period. (2) Quantities of 2P reserves as at 30 June 2013 and 31 December 2012 are based on Gaffney, Cline & Associates' independent reserves report on 2P Reserves as at 31 December 2009, dated 16 March 2010, as adjusted for the actual production until 30 June 2013, 30 June 2012 and 31 December 2012 respectively. (3) This represents the average price received for gas sold during the period (including VAT). (4) Basic and diluted loss per Ordinary share is calculated by dividing the net loss for the period attributable to Ordinary equity holder of the parent by the weighted average number of Ordinary shares during the period. (5) Lost time incidents relate to injuries where an employee/contractor is injured and has time off work. Treasury The Group continually monitors its exposure to currency risk. It maintains a portfolio of cash and cash equivalent balances mainly in US dollars (`USD') held primarily in the UK and holds these mostly in term deposits depending on the Group's operational requirements. 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 rather than being remitted to the UK. Funds are transferred to the Company's subsidiaries in USD to fund operations at which time the funds are converted to UAH. Some payments are made on behalf of the subsidiaries from the UK. Going concern After making enquiries, 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 Condensed Consolidated and Company Financial Statements. For further detail refer to the detailed discussion of the assumptions outlined in note 2(a) to the Condensed Consolidated Financial Statements. 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 12 to 13 of the 2012 Annual Financial Report. There have been no changes to the risk profile during the first half of the year. These are summarised below: Operational risks - Health, safety, and environment - Drilling operations - Production and maintenance - Work over and abandonment - Subsurface risks Financial risks - Recoverability of the Group's assets - Liquidity risk, management and going concern assumption - Regulatory and tax compliance risk - Fraud risk - Foreign exchange risk - Inflation risk - Credit risk - Commodity price risk Corporate risks - Regulatory and licence issues - Emerging market risk - Insurance risk We confirm that to the best of our knowledge: (a) the Condensed set of Financial Statements has been prepared in accordance with 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 26 has been approved by the Board and signed on its behalf by: Laurence Sudwarts Company Secretary 30 August 2013 ______________________________________________________________________________ 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. CONDENSED CONSOLIDATED INCOME STATEMENT for the six months ended 30 June 2013 Year ended 31 Six months ended 30 June December 2013 2012 2012 $'000 $'000 $'000 (Unaudited) (Unaudited and (Audited Notes restated) and restated) CONTINUING OPERATIONS Revenue 1,919 1,558 3,761 Cost of sales (1,281) (782) (2,616) Gross profit 638 776 1,145 Administrative expenses: Other administrative expenses (4,451) (4,139) (7,456) Impairment of oil and gas assets - - (25,717) (Impairment)/reversal of impairment of other assets (112) (61) 669 (4,563) (4,200) (32,504) Other losses (1,854) (3,108) (58,277) Other operating income/(expenses) 4 3,746 (629) (2,926) Operating loss (2,033) (7,161) (92,562) Investment revenue 87 85 118 Finance (costs)/income (7) (5) 34 Loss before tax (1,953) (7,081) (92,410) Tax (144) 2 (251) Loss for the period/year 5 (2,097) (7,079) (92,661) Attributable to: Owners of the Company (2,079) (7,079) (92,631) Non-controlling interest (18) - (30) (2,097) (7,079) (92,661) Loss per Ordinary share cent cent cent Basic and diluted 6 (0.9) (3.1) (40.3) CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME for the six months ended 30 June 2013 Year ended Six months ended 30 June 31 December 2013 2012 2012 $'000 $'000 $'000 (Unaudited) (Unaudited (Audited and and restated) restated) Items that will not be reclassified subsequently to profit and loss Loss for the period/year (2,097) (7,079) (92,661) Unrealised currency translation differences (7,121) 152 4,384 Total comprehensive loss for the period/year (9,218) (6,927) (88,277) Attributable to: Owners of the Company (9,200) (6,927) (88,247) Non-controlling interest (18) - (30) (9,218) (6,927) (88,277) CONDENSED CONSOLIDATED BALANCE SHEET as at 30 June 2013 Year ended Six months ended 30 June 31 December 2013 2012 2012 $'000 $'000 $'000 (Unaudited (Audited Notes (Unaudited) and restated) and restated) ASSETS Non-current assets Intangible exploration and evaluation assets 7 3,367 2,959 3,017 Property, plant and equipment 7 44,317 47,912 46,378 Investments in joint ventures 70,741 115,650 67,908 Other financial assets - 37 - 118,424 166,558 117,303 Current assets Inventories 3,164 3,923 3,482 Trade and other receivables 8 6,761 59,822 37,304 Cash and cash equivalents 63,426 50,433 40,477 73,351 114,178 81,263 Total assets 191,775 280,736 198,566 LIABILITIES Non-current liabilities Deferred tax liabilities (534) (470) (586) Long-term provisions (573) (394) (219) (1,107) (864) (805) Current liabilities Trade and other payables (4,308) (2,911) (1,770) Current provisions (58) (134) (453) (4,366) (3,045) (2,223) Total liabilities (5,473) (3,909) (3,028) Net assets 186,302 276,827 195,538 EQUITY Share capital 13,337 13,337 13,337 Retained earnings 295,341 381,787 297,438 Cumulative translation reserves (124,408) (121,519) (117,287) Other reserves 1,682 2,823 1,682 Equity attributable to equity holders of the parent 185,952 276,429 195,170 Non-controlling interest 350 398 368 Total equity 186,302 276,827 195,538 CONDENSED CONSOLIDATED CASH FLOW STATEMENT for the six months ended 30 June 2013 Year ended Six months ended 30 June 31 December 2013 2012 2012 $'000 $'000 $'000 (Unaudited) (Unaudited and (Audited and Note restated) restated) Net cash inflow/(outflow) from operating activities 9 29,667 2,401 (407) Investing activities Investments in joint ventures (4,267) (14,542) (22,478) Purchases of property, plant and equipment (439) (868) (1,083) Purchases of intangible exploration and evaluation (349) (898) (87) assets Proceeds from sale of property, plant and equipment 15 2 227 Acquisition of financial assets (1,666) - - Interest received 87 85 - Net cash used in investing activities (6,619) (16,221) (23,421) Financing activities Net cash used in financing activities - - - Net increase/(decrease) in cash and cash equivalents 23,048 (13,820) (23,828) Effect of foreign exchange rate changes (99) (48) 4 Cash and cash equivalents at beginning of period/year 40,477 64,301 64,301 Cash and cash equivalents at end of period/year 63,426 50,433 40,477 CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY for the six months ended 30 June 2013 Other reserves Cumulative Share- Non- Share Retained translation based controlling capital earnings reserves payment Reorganisation interest Total $'000 $'000 $'000 $'000 $'000 $'000 $'000 As at 1 January 2012 13,337 389,734 (123,784) 1,755 1,589 398 283,029 Adoption of new standard - (1,327) 2,113 - - - 786 As at 1 January 2012 (restated) 13,337 388,407 ( 121,671) 1,755 1,589 398 283,815 Share-based payments - 521 - (521) - - - Net loss for the period - (7,141) - - - - (7,141) Exchange translation differences on foreign operations - - 152 - - - 152 As at 30 June 2012 (restated) 13,337 381,787 (121,519) 1,234 1,589 398 276,826 Share-based payments - 1,141 - (1,141) - - - Net loss for the period - (85,965) - - - (30) (85,995) Exchange translation differences on foreign 4,232 - operations - - - - 4,232 Adoption of new standard - 475 - - 475 As at 1 January 2013 (restated) 13,337 297,438 (117,287) 93 1,589 368 195,538 Net loss for the period - (2,097) - - - (18) (2,115) Exchange translation differences on foreign operations - - (7,121) - - (7,121) As at 30 June 2013 13,337 295,341 (124,408) 93 1,589 350 186,302 NOTES TO THE CONDENSED FINANCIAL STATEMENTS for the six months ended 30 June 2013 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 Ibex House 42-47 Minories, London EC3N 1DX. The nature of the Group's operations and its principal activities are set out in the Operations Review on pages 4 to 6 and the Financial Review on pages 7 to 10. The financial information for the year ended 31 December 2012 does not constitute statutory accounts as defined in section 434 of the Companies Act 2006, but is derived from those accounts. Statutory accounts for the year ended 31 December 2012 have been delivered to the Registrar of Companies. The auditor's report on those accounts was not qualified. The auditor's report did not contain a statement under section 498(2) (unable to determine whether adequate accounting records had been kept) or 498(3) (failure to obtain necessary information and explanations) of the Companies Act 2006. 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. 2. Basis of preparation The annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards (`IFRS') as issued by the International Accounting Standards Board (`IASB') and as adopted by the European Union (`EU'). These Condensed Financial Statements have been prepared in accordance with IAS 34 Interim Financial Reporting, as issued by the IASB. 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, which were included in the Annual Report issued on 24 April 2013. The following accounting amendments, standards and interpretations became effective in the current reporting period: - IAS 1 Presentation of Items of Other Comprehensive Income - Amendments to IAS 1 - IAS 19 (revised) Employee Benefits - IFRS 13 Fair Value Measurement - IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine The following accounting amendments, standards and interpretations were not yet effective in the current reporting period but were early adopted: - IFRS 10 Consolidated Financial Statements - IAS 27 Separate Financial Statements - IFRS 11 Joint Arrangements - IAS 28 Investment in Associates and Joint Ventures - IFRS 12 Disclosure of Interests in Other Entities The Group has not early adopted any other 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. A number of other amendments to accounting standards issued by the International Accounting Standards Board also apply for the first time in 2013. These do not have a significant impact on the accounting policies, methods of computation or presentation applied by the Group. The nature and the impact of each new amendment, standard or interpretation are described below: IFRS 10 Consolidated Financial Statements and IAS 27 Separate Financial Statements IFRS 10 replaces the parts of the previously existing IAS 27 that dealt with consolidated financial statements. The new standard changes the definition of control such that an investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to control those returns through its power over the investee. The adoption of IFRS 10 has had no impact on the consolidation of investments held by the Group. IFRS 11 Joint Arrangements and IAS 28 Investment in Associates and Joint Ventures IFRS 11 replaces IAS 31 Interests in Joint Ventures and SIC-13 Jointly-controlled Entities - Non-monetary Contributions by Venturers and changes the classifications for joint arrangements. Under IFRS 11, investments in joint arrangements are classified as either joint ventures or joint operations based on the rights and obligations of the parties to the arrangement. When a joint arrangement has been structured through a separate vehicle, consideration is given to the legal form of the separate vehicle, the terms of the contractual arrangement and, when relevant, other facts and circumstances. When the activities of an arrangement are primarily designed for the provision of output to the parties and the parties are substantially the only source of cash flows contributing to the continuity of the operations of the arrangement, this indicates the parties to the arrangement have rights to the assets and obligations for the liabilities. The Group has considered these facts and circumstances, among others, in assessing whether the arrangement is a joint operation or a joint venture. The standard removes the option to account for joint ventures using proportionate consolidation and instead joint arrangements that meet the definition of a joint venture under IFRS 11 must be accounted for using the equity method. The application of this standard has resulted in the existing joint ventures LLC Astroinvest-energy, LLC Gazvydobuvannya and LLC Westgasinvest being accounted for under the equity method. No other material joint arrangements within the Group were affected. The Group has applied IFRS 11 retrospectively in accordance with the transitional provisions and the 2012 results have been restated accordingly. Further detail of the impact on the Group financial statements for the six months ended 30 June 2012 and the year ended 31 December 2012 is set out in note 10. (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 on pages 4 to 6. The financial position of the Group, its cash flow and liquidity position are described in the Financial Review on pages 7 to 9. The Group's cash balance as at 30 June 2013 was $63.4 million (31 December 2012: $40.5 million) excluding $0.7 million (31 December 2012: $1.9 million) of Cadogan's share of cash and cash equivalents in joint ventures with no external debt and the Directors believe that the funds available at the date of issue of this financial information is sufficient for the Group to manage its business risks successfully. The Group's forecasts and projections, taking into account reasonably possible changes in operational performance, start dates and flow rates for commercial production and the price of hydrocarbons sold to Ukrainian customers, show that there are reasonable expectations that the Group will be able to operate on funds currently held and those generated internally, for the foreseeable future, without taking into account receivables from litigation and without the requirement to seek external financing. After making enquiries and considering the uncertainties described above, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future and consider the going concern basis of accounting to be appropriate. Thus they continue to adopt the going concern basis of accounting in preparing the financial information. (b) Foreign currencies The individual financial statements of each Group company are presented in the currency of the primary economic environment in which it operates (its functional currency). The functional currency of the Company is pounds sterling. For the purpose of the consolidated financial statements, the results and financial position of each Group company are expressed in US dollars, which is the presentation currency for the consolidated financial statements. The relevant exchange rates used were as follows: Year ended 31 Dec 2012 1US$=£ Closing rate 1.5216 Average rate 1.5449 (c)Dividend The Directors do not recommend the payment of a dividend for the period (30 June 2012: $nil; 31 December 2012: $nil). 3. Business and geographical segments The Directors continue to consider there to be only one business segment, the exploration and development of oil and gas revenues and only one geographical segment, being Ukraine. 4. Other operating income/(expenses) Year ended Six months ended 30 June 31 December 2013 2012 2012 (restated) (restated) $'000 $'000 $'000 Out of court settlements - - 597 Transactions with JV partner (362) (223) 88 Net foreign exchange gains/(losses) 4,108 (406) (3,611) 3,746 (629) (2,926) 5. Profit/(Loss) for the period/year The profit/(loss) for the period/year is stated after crediting/(charging): Year ended Six months ended 30 June 31 December 2012 2012 2013 (restated) (restated) $'000 $'000 $'000 Depreciation of property, plant and equipment (562) (437) (1,352) Loss on disposal of property, plant and equipment (427) (23) (282) Impairment of other assets 394 (42) 1,781 Impairment of oil and gas assets - - (25,717) Staff costs (2,660) (2,379) (4,753) Net foreign exchange gain/(loss) 4,108 (406) (3,611) 6. Loss per ordinary share Loss per ordinary share is calculated by dividing the net loss 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 and diluted loss per share is based on the following data: Year ended Six months ended 30 June 31 December 2013 2012 2012 (restated) (restated) Loss attributable to owners of the Company $'000 $'000 $'000 Loss for the purposes of basic profit per share being net loss attributable to owners of the Company (2,079) (7,079) (92,631) Number Number Number Number of shares `000 `000 `000 Weighted average number of Ordinary shares for the purposes of basic loss per share 231,092 231,092 231,092 Effect of dilutive potential ordinary shares: Options and warrants outstanding 88 90 93 Weighted average number of Ordinary shares for the purposes of diluted profit per share 231,179 231,182 231,185 cent cent cent Loss per Ordinary share Basic (0.9) (3.1) (40.1) Diluted (0.9) (3.1) (40.1) 7. Trade and other receivables Year ended Six months ended 30 June 31 December 2012 2012 2013 (restated) (restated) $'000 $'000 $'000 Other receivables 2,547 57,629 29,102 Receivable from joint venture 3,667 1,193 7,284 VAT recoverable 166 72 81 Prepayments 381 928 837 6,761 59,822 37,304 All sales of hydrocarbons are made on a prepayment basis, so there are no trade debtors. Other receivable have been significantly decreased as a result of the judgement in favour of the Group of the High Court in London and subsequent agreement with GPS on purchase of two gas processing plants by GPS completed on 18 April 2013 for the sum of $29.5 million, following receipt in full by Cadogan of the agreed consideration. $3.3 million (30 June 2012: $1.1 million, 31 December 2012: $7.3 million) of receivables from joint venture relate to the recharged costs from the Group to the joint ventures, LLC Astroinvest-energy and LLC Gazvydobuvannya. VAT recoverable relates to the UK VAT recoverable. VAT recoverable in Ukraine is impaired in full as the Board considers that such VAT is only recoverable on commencement of significant production, while cash recovery is not considered likely due to Ukrainian budgetary issues. The amount of the impairment provision against Ukrainian VAT recoverable as at 30 June 2013 is $9.2 million (30 June 2012: $10.9 million, 31 December 2012: $10.1 million). $0.2 million prepayments (30 June 2012: $0.9 million, 31 December 2012: $0.8 million) mostly relate to prepayments made to contractors in Ukraine for the drilling and work over campaign. The Directors consider that the carrying amount of the remaining other receivables approximates their fair value and none of which are past due. 8. Notes to the condensed cash flow statement Year ended Six months ended 30 June 31 December 2013 2012 2012 $'000 $'000 $'000 (Unaudited) (Unaudited (Audited and and restated) restated) Operating loss (2,033) (7,161) (92,562) Adjustments for: Depreciation of property, plant and equipment 562 437 1,352 Other (gains) and losses 1,924 8,309 63,987 Reversal of impairment of inventories (25) (18) (787) (Reversal of impairment)/Impairment of VAT recoverable (369) 60 (994) Loss on disposal of property, plant and equipment 427 23 282 Effect of foreign exchange rate changes (5,620) 701 4,536 Operating cash flows before movements in working (5,134) 2,351 (24,186) capital Decrease in inventories 343 215 1,429 Decrease in receivables 32,072 150 23,759 Increase/(Decrease) in payables and provisions 2,538 (268) (1,409) Cash from/(used in) operations 29,819 2,448 (407) Income taxes paid (152) (47) - Net cash inflow/(outflow) from operating activities 29,667 2,401 (407) 9. Related party transactions Transactions between the Group and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. The application of IFRS 11 has resulted in the existing joint ventures LLC Astroinvest-energy, LLC Gazvydobuvannya and LLC Westgasinvest being accounted for under the equity method and disclosed as related parties. During the period, Group companies entered into the following transactions with related parties who are not members of the Group: Year ended Six months ended 30 June 31 December 2013 2012 2012 (restated) (restated) $'000 $'000 $'000 Revenues from services provided and sales of goods 1,332 367 4,487 Purchases of goods 75 35 51 Amounts owed by related parties 3,667 1,193 7,284 Amounts owed to related parties 130 38 43 The amounts outstanding are unsecured and will be settled in cash. No provisions have been made for doubtful debts on the amounts owed be related parties. 10. Accounting policy changes - adoption of IFRS 11 As discussed in note 2, the Group has restated the financial performance and position of the Group for the six months ended 30 June 2012 and the year ended 31 December 2012 to reflect the adoption of IFRS 11. The quantitative impact of adopting these standards on the prior year consolidated financial statements is set out in the tables below: Adjustments to the Consolidated Income Statements Six months ended 30 June 2012 Year ended 31 December 2012 as as previously previously reported IFRS 11 restated reported IFRS 11 restated $'000 $'000 $'000 $'000 $'000 $'000 CONTINUING OPERATIONS Revenue 2,740 (1,182) 1,558 5,653 (1,892) 3,761 Cost of sales (1,917) 1,135 (782) (4,158) 1,542 (2,616) Gross profit 823 (47) 776 1,495 (350) 1,145 Administrative expenses: Other administrative expenses (4,895) 756 (4,139) (10,783) 3,327 (7,456) Impairment of oil and gas assets - - - (83,584) 57,867 (25,717) (Impairment)/reversal of impairment (2,009) 1,948 (61) (2,684) 3,353 669 of other assets (6,904) 2,704 (4,200) (97,051) 64,547 (32,504) Gain on disposal of subsidiaries - - - - - - Other losses - (3,108) (3,108) 5,417 (63,694) (58,277) Other operating income/(expenses) (1,082) 453 (629) (2,940) 14 (2,926) Operating loss (7,163) 2 (7,161) (93,079) 517 (92,562) Investment revenue 91 (6) 85 128 (10) 118 Finance costs (7) 2 (5) 67 (33) 34 Loss before tax (7,079) (2) (7,081) (92,884) 474 (92,410) Tax - 2 2 (252) 1 (251) Loss for the period/year (7,079) - (7,079) (93,136) 475 (92,661) Adjustments to the Consolidated Balance Sheets Six months ended 30 June 2012 Year ended 31 December 2012 as as previously IFRS 11 previously IFRS 11 reported adjustments restated reported adjustments restated $'000 $'000 $'000 $'000 $'000 $'000 ASSETS Non-current assets Intangible exploration and evaluation assets 71,706 (68,747) 2,959 78,231 (75,214) 3,017 Property, plant and equipment 107,865 (59,953) 47,912 46,627 (249) 46,378 Investments in joint ventures - 115,650 115,650 - 67,908 67,908 Other financial assets 37 - 37 - - - 179,608 (13,050) 166,558 124,858 (7,555) 117,303 Current assets Inventories 6,465 (2,542) 3,923 5,177 (1,695) 3,482 Trade and other receivables 58,457 1,364 59,822 35,537 1,767 37,304 Cash and cash equivalents 51,317 (884) 50,433 42,404 (1,927) 40,477 116,239 (2,062) 114,178 83,118 (1,855) 81,263 Total assets 295,847 (15,112) 280,736 207,976 (9,410) 198,566 LIABILITIES Non-current liabilities Deferred tax liabilities (11,554) 11,084 (470) (4,553) 3,967 (586) Long-term provisions (597) 203 (394) (414) 195 (219) (12,151) 11,287 (864) (4,967) 4,162 (805) Current liabilities Trade and other payables (7,129) 4,218 (2,911) (7,793) 6,023 (1,770) Current provisions (527) 393 (134) (939) 486 (453) (7,656) 4,611 (3,045) (8,732) 6,509 (2,223) Total liabilities (19,807) 15,898 (3,909) (13,699) 10,671 (3,028) Net assets 276,040 786 276,827 194,277 1,261 195,538 EQUITY Share capital 13,337 - 13,337 13,337 - 13,337 Retained earnings 383,114 (1,327) 381,788 298,290 (852) 297,438 Cumulative translation reserves (123,632) 2,113 (121,519) (119,400) 2,113 (117,287) Other reserves 2,823 - 2,823 1,682 - 1,682 Equity attributable to equity holders of the 275,642 786 276,429 193,909 1,261 195,170 parent Non-controlling interest 398 - 398 368 - 368 Total equity 276,040 786 276,827 194,277 1,261 195,538 Adjustments to the Consolidated Cash Flow Statements Six months ended 30 June 2012 Year ended 31 December 2012 as as previously IFRS 11 previously IFRS 11 reported adjustments restated reported adjustments restated $'000 $'000 $'000 $'000 $'000 $'000 Net cash (outflow)/inflow from (2,165) 4,566 2,401 (5,609) 5,202 (407) operating activities Investing activities Disposal of subsidiaries 4,142 (4,142) - 4,142 (4,142) - Investments in joint ventures - (14,542) (14,542) - (22,478) (22,478) Purchases of property, plant and (10,024) 9,156 (868) (15,749) 14,666 (1,083) equipment Purchases of intangible (6,140) 5,242 (898) (6,239) 6,152 (87) exploration and evaluation assets Proceeds from sale of property, 459 (457) 2 688 (461) 227 plant and equipment Acquisition of financial assets (37) 37 - - - - Interest received 91 (6) 85 128 (128) - Net cash used in investing (11,509) (4,712) (16,221) (17,030) (6,391) (23,421) activities Financing activities Proceeds from short-term - - - - - - borrowings Net cash used in financing - - - - - - activities Net increase/(decrease) in cash (13,674) (146) (13,820) (22,639) (1,189) (23,828) and cash equivalents Effect of foreign exchange rate (48) - (48) 4 - 4 changes Cash and cash equivalents at 65,039 (738) 64,301 65,039 (738) 64,301 beginning of period/year Cash and cash equivalents at end 51,317 (884) 50,433 42,404 (1,927) 40,477 of period/year Adjustments to Notes to the condensed cash flow statements Six months ended 30 June 2012 Year ended 31 December 2012 as as previously IFRS 11 previously IFRS 11 reported adjustments restated reported adjustments restated $'000 $'000 $'000 $'000 $'000 $'000 Operating loss (7,163) 2 (7,161) (93,079) 517 (92,562) Adjustments for: Depreciation of property, plant and 871 (434) 437 1,967 (615) 1,352 equipment Impairment of oil and gas assets - - - 83,584 (83,584) - Gain on acquisition of jointly - - - (5,454) 5,454 - controlled entity / disposal of subsidiaries Loss from investments into joint - 8,309 8,309 - 63,987 63,987 ventures Reversal of impairment of (45) 27 (18) 291 (1,078) (787) inventories (Reversal of impairment)/Impairment 2,054 (1,994) 60 2,394 (3,388) (994) of VAT recoverable (Gain)/loss on disposal of property, (41) 64 23 52 230 282 plant and equipment Effect of foreign exchange rate 684 17 701 4,014 522 4,536 changes Operating cash flows before (3,640) 5,991 2,351 (6,231) (17,955) (24,186) movements in working capital Decrease in inventories 73 142 215 1,269 160 1,429 Decrease/(increase) in receivables 1,871 (1,721) 150 (766) 24,525 23,759 (Decrease)/Increase in payables and (422) 154 (268) 241 (1,650) (1,409) provisions Cash (used in)/from operations (2,118) 4,566 2,448 (5,487) 5,080 (407) Income taxes paid (47) - (47) (122) 122 - Net cash inflow/(outflow) from (2,165) 4,566 2,401 (5,609) 5,202 (407) operating activities 11. Post balance sheet events No post balance sheet events have taken place after 30 June 2013. 12. Commitments and contingencies There have been no significant changes to the commitments and contingencies reported on page 64 of the Annual Report.

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