Half-yearly Report

CADOGAN PETROLEUM PLC Half Yearly Report for the Six Months ended 30 June 2014 (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 2014. - Significant, further reductions to the Company's cost base to maintain financial strength pending results from operations. - Cadogan's shale gas joint venture Westgasinvest ("WGI") is implementing the procurement and permitting with a view to field activity in 2015. - Monastyretska production surpassed previous levels and continued to rise further. - Continued production from the Debeslavetska and Cheremkivska licences at a combined rate of about 14 mcm/day of gas and on Blazhiv field of the Bitlyanska licence about 45-50 bopd of oil. - Coordinates for drilling in Debeslavetska have been determined ahead of drilling, which is expected to commence November 2014, with a further two wells to be drilled thereafter. - Ukrainian Hryvnia, functional currency of the Group's Ukrainian subsidiaries, depreciated against the USD, reporting currency of the Group, by around 40%, resulting in significant decrease of USD reported values of Exploration and Evaluation assets ("E&E") and Property Plant and Equipment ("PPE"). - Net cash and cash equivalents at 30 June 2014 of $47.9 million(31 December 2013: $56.5 million) excluding $1.0 million (31 December 2013: $0.2 million) of Cadogan's share of cash and cash equivalents in joint ventures and excluding $5.0 million of yield generating investment. 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 Introduction During the first half of 2014 the Group continued to focus on developing and reassessing its assets in Ukraine, while remaining vigilant to the continuing political uncertainty. Significant, further reductions were made to the Company's cost base to maintain its financial strength pending results from operations. Pursuant to management's focus on production initiatives, the significant re-evaluation and re-assessment of our assets by the Group's technical team has resulted in the identification of new prospects and horizons in existing licences. 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 licence areas in the Lviv Basin of Ukraine, which cover 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. Procurement and permitting activity continues in line with the agreed programme of activity and drilling activity start-up is expected by mid 2015. 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 The Company is pleased to reiterate that there have been no disruptions to its operations or to the effective management of its licences during the recent period of instability. Recent changes to the fiscal regime in Ukraine will not have any material impact on the Group's financial position, operations or work programme. The Company's eastern licences analysis showed great promise in the upper intervals, in particular in Pirkovskoe. Following a thorough study of Direct Hydrocarbon Indicators (DHI) and 3D Amplitude Versus Offset (AVO) reconnaissance, a new lead has been identified and its characterization to a drillable prospect is currently underway, showing good prospectivity and significant potential size. In the Pirkovskoe licence, following an initial period of rig-less testing on Pirk 1, work-over activity - comprising deep, high pressure and temperature testing, logging and shooting of intervals in the upper Tournaisian interval down to 5,100m - commenced on 20th May 2014. Work-over activity is expected to conclude in September 2014. Over in the west of the country in Debeslavetska, all the updated DHI reconnaissance technologies were similarly applied with interesting results. Following minor delays due to instability in the region, planned 2D seismic acquisition was completed at the end of March 2014. Four new drillable prospects were identified with the best of these, comprising 3 different levels down to a depth of approximately 350m, targeted for drilling to commence in November 2014. A second prospect was already selected and permitting for rig site preparation is ongoing in parallel. If drilling on the first drillable prospect proves successful, the Company anticipates drilling to commence before the end of 2014. Analysis continues on the remaining 2 identified prospects. Some relatively deeper (circa. 600m) potential horizons also appear likely and if the Company's analysis proves correct, these will significantly improve potential resources in the area. In Monastyretska the planned formation light stimulation was successfully completed in mid March 2014, immediately increasing production from 20 to 30 bopd. Installation of a sucker rod pump on 13 May 2014 resulted in a further increase in production to 40-45 bopd. Stable production subsequently increased further to approximately 50 bopd. Performance tests continue and options to further optimise production are being investigated. Negotiations with local operators for the acquisition of two additional, existing wells, are continuing with the intention being to bring them back to production. Performance monitoring of these three wells is expected to give the Company a better understanding of the reservoir characteristics and behaviour, allowing it to formulate future plans to further increase production. Financial position At the date of this report, the Group had cash and cash equivalents of approximately $46.8 million excluding $0.9 million of Cadogan's share of cash and cash equivalents in the joint ventures and excluding $5.0 million of yield generating investment. 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 Following extensive re-evaluation and de-risking of current assets and work programmes allied to significant reductions to its cost base, the Company maintains its strong financial position while Ukraine continues to provide many opportunities for the Company to put its capital and expertise to work. The Board remains confident that the democratic process in Ukraine will overcome any short term obstacles and believes that the Group's established presence in Ukraine, its skilled staff and its adherence to transparency and the highest standards of corporate governance, leave it ideally positioned to make full use of its existing human and financial resources. The Company remains uniquely placed to afford international oil companies an opportunity to commence or expand their presence in Ukraine in a secure environment working alongside people who know and understand the country, its people and its culture. At the same time the Company continues to leverage on its expanding, international relationships and remains responsive to new opportunities that continue to arise inside and outside of Ukraine. At 30 June 2014 the Group held working interests in eight(2013: nine) gas, condensate and oil exploration and production licences in the East and West of Ukraine; out of those, Zagoryanska expired in April 2014 and the Group is assessing possibilities to renew this licence. 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 re-evaluation of the existing assets to define the best drillable prospects. Summary of the Group's licences (as of 30 June 2014) Working Licence Expiry Licence type(1) interest (%) Major licences 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 2013 published on 30 April 2014[1]: Zagoryanska licence The Group had 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 expired in 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 still on-going to assess and value all the possible reserves potential, as well as the re-entry in the wells Zagoryanska 3 and 11, subject to licence renewal. Cadogan is interested in re-entering the licence and further actions are 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), with 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 continues after the successful conclusion of the 3D seismic re-interpretation. The Pokrovskoe licence shows five interesting objects: one, already defined as a drillable prospect, is 2,200m deep, bearing 5 Bcf (P50) while the preliminary volumetric definition of the other four identified leads amounts up to 18Bcf (P50). Pirkovskoe licence The Group has a 100 per cent working interest in the Pirkovskoe licence which holds 2.5 mmboe of Proved and Probable Reserves. This exploration and appraisal licence covers 71.6 square kilometres. Following the promising results obtained in Pokrovskoe and the knowledge acquired by the study of Direct Hydrocarbon Indicators (DHI) and 3D Amplitude Versus Offset (AVO) reconnaissance our recent analysis shows great promise in the upper intervals. A very attractive lead has been identified and its characterization is currently underway to be proposed as a drillable prospect. Initial volumetric estimation is quite exciting, in the range of over 2,000 Bscf in place (P50). In Pirk 1 the well re-entry activity continues and currently the work-over for testing the intervals around 5,000m depth is ongoing. 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 - 2013: 219.2 mmboe) and 117.3 mmboe (100 per cent - 2013: 117.3 mmboe) of Contingent Resources respectively, while no Reserves and Resources have been attributed to the depleted Vovchenska field. Borynya 3 well re-entry and Krasno 1 interval testing confirmed the presence of several interesting gas bearing zones. The decision was made to put the fracturing job on hold due to lack of data from the previous drilling activity. 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 (2013: 0.2 mmboe). The field is currently producing 11,500 scm of gas per day (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 is considered quite promising in shallow gas production potential. Following the positive G&G results (AVO & Inversion Analysis), four prospects at depths in the range of 150 to 350m have been identified, out of which two are planned for drilling. Expected producible reserves per prospect are in the range of 120 to 150 Million scm of gas. The first one is scheduled for drilling by November 2014 and the second will be drilled immediately after if the first proves successful. - Cheremkhivska Production licence area A production licence, containing 0.1 mmboe of 3P Reserves (2013: 0.1 mmboe). This licence is currently producing 3,000 scm of gas per day (18 boepd). This licence presents the same targets opportunities as Debeslavetska and its further shallow gas exploration potential is under evaluation. - Slobodo-Rungerska licence area This licence includes several old shallow oil wells, now abandoned or temporarily shut-in. The same formation chemical wash technology successfully applied in Blazh 1 seems appealing for the shallow depleted oil reservoirs in Slobodo and possible candidates for intervention are under scrutiny. - Monastyretska licence area An exploration and development licence, with no booked Reserves or Resources (2013: nil). The Blazhiv 1 well was re-entered and a sucker rod pump was installed; after a chemical wash intervention production increased to 45 bopd and following pump adjustments for production optimization it is currently producing at a rate of 50 bopd, among the highest rate since inception. To better understand the reservoir characteristics and eventually plan further actions, negotiations with a local operator for the acquisition of two further, existing wells, with the aim to bring them back to production, are continuing. (1)All reserves and Resources 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. Service Company activities Astroservice LLC, a 100 % owned subsidiary, successfully participated in several tenders with local and major international companies. Due to the uncertain political situation in Ukraine, operators' plans are currently being kept on hold and are planned to restart during the next year. AstroserviceLLC continues to develop its servicing and supporting strategies to be competitive and proactive. Overview Income statement Loss before tax was $3.7 million (30 June 2013: $2.0 million, 31 December 2013: $14.4 million). Revenues of $1.6 million (30 June 2013: $1.9 million, 31 December 2013: $3.8 million) comprised sales of gas from the Debeslavetska and Cheremkhivska fields, and oil sales from Monastyretska field,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 $1.2 million (30 June 2013: $1.3 million, 31 December 2013: $3.0 million)resulting in a gross profit of $0.4 million (30 June 2013: $0.6 million, 31 December 2013: $0.8 million). - Other administrative expenses of $3.6 million (30 June 2013: $4.5 million, 31 December 2013: $8.9 million) comprise staff costs, professional fees, Directors' remuneration, and depreciation charges on non-producing property, plant and equipment. - Share of losses in joint ventures of $0.9 million (30 June 2013: $1.9 million, 31 December 2013: $6.6 million) relates to the result of operations of joint ventures LLC Astroinvest-energy, LLC Gazvydobuvannya and LLC Westgasinvest, which have been accounted for using the equity method in accordance with IFRS 11: it was previously accounted for using the proportionate consolidation method. - Other operating loss of $1.1 million (30 June 2013: income of $3.7 million, 31 December 2013: loss of $0.3 million) mainly relates to net foreign exchange losson the translation of the USD denominated monetary assets of the Group's UK entities which have GBP as the functional currency and UAH denominated monetary assets of the Group's Ukrainian assets. Cash flow statement Net cash outflow from operations was $1.3 million during the six months ended 30 June 2014 (30 June 2013: inflow of $29.7 million, 31 December 2013: inflow of $25.6 million mainly as a result of the cash received from settlement with GPS in April 2013). Capital expenditures were $0.3 million (30 June 2013: $0.3 million, 31 December 2013: $3.0 million) on intangible Exploration and Evaluation assets (E&E) and $0.7 million (30 June 2013: $0.4 million, 31 December 2013: $0.8 million) on Property, plant and equipment (PP&E). In addition, the Group invested $2.8 million (30 June 2013: $4.3 million, 31 December 2013: $4.7 million) into its joint ventures LLC Astroinvest-energy and LLC Gazvydobuvannya. A large proportion of the funds invested into the Joint Ventures were used to repay to the Group the outstanding management charges. During the reported period the Group has made a yield generating investment of $5.0 million which amortises during 2 years from the investment date. The outstanding principle and interest receivable from OAGSG in the amount of $1.3 million was repaid in full during six months ended 30 June 2014. Balance sheet As at 30 June 2014 intangible E&E assets of $4.6 million (30 June 2013: $3.4 million, 31 December 2013: $6.0 million) represent the carrying value of the Group's investment in exploration and appraisal assets, mainly for the Bitlyanska licence. The PP&E balance of $31.1 million (30 June 2013: $44.3 million, 31 December 2013: $43.9 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. The decrease in both E&E and PP&E assets is mainly a result of the local currency in Ukraine devaluation and subsequent translation from UAH, the functional currency of the Ukrainian subsidiaries, into USD which is the reporting currency of the Group. Investments in joint ventures of $52.5 million (30 June 2013: $70.7 million, 31 December 2013: $66.0 million) represents Group's share of net assets of joint ventures LLC Astroinvest-energy, LLC Gazvydobuvannya and LLC Westgasinvest, that the Group jointly owns with its partner, Eni. The decrease in Investments in joint ventures is mainly a result of the Ukrainian local currency devaluation and subsequent translation of JVs E&E and PP&E assets from UAH, the functional currency of the Ukrainian subsidiaries, into USD which is the reporting currency of the Group. Other financial assets of $3.7 million represent the non-current portion of the yield generating investment made during the reported period. Trade and other receivables of $5.3 million (30 June 2013: $6.8 million, 31 December 2013: $6.9 million) includes $2.1 which is a current portion of a yield generating investment and $1.8 million receivables from the joint ventures. The Group had net cash and cash equivalents of $47.9 million (30 June 2013: $63.4 million, 31 December 2013: $56.5 million), this amount excludes the funds held by the jointly controlled entities which are accounted using equity method.$2.5 million of trade payables and other payables include trade payables, payables to the JV and other current liabilities. Related party transactions From 1 January 2013, the Group has implemented the new IFRS 11 standard, under which joint ventures must be accounted for using the 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 2013 (refer to page 86 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 ended 30 June 2014 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 the calculation used in the period/year. Unit 30 June 2014 30 June 2013 31 December 2013 Financial KPIs Average production (working interest basis) (1) boepd 93 90 88 2P reserves (2) mmboe 2.6 2.6 2.6 Realised price per 1,000 cubic $ 418.1 485.4 483.8 metres (3) Basic and diluted loss per share cent (1.6) (0.9) (6.3) (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 2014 and 31 December 2013 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 2014, 30 June 2013 and 31 December 2013 respectively. (3) This represents the average price received for gas sold during the period (including VAT), the realised price in May and June went back up to the level of $460/mcm 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. Production revenues from the sale of hydrocarbons are received in the local currency in Ukraine (`UAH'), however the hydrocarbon prices are linked to the USD denominated gas and oil prices. 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. 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. 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 14 to 15 of the 2013 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 - Ukrainian political risk - Ukraine has experienced heightened political instability in recent months. These events have not affected the Group's operations to date - 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 has been approved by the Board and signed on its behalf by: Laurence Sudwarts Company Secretary 26 August 2014 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. Six months ended Year ended 30 June 31 December 2014 2013 2014 $'000 $'000 $'000 Notes (Unaudited) (Unaudited) (Audited) CONTINUING OPERATIONS Revenue 1,573 1,919 3,772 Cost of sales (1,215) (1,281) (3,019) Gross profit 358 638 753 Administrative expenses: Other administrative expenses (3,585) (4,451) (8,919) Reversal of impairment /(Impairment) of 609 (112) 234 other assets (2,976) (4,563) (8,685) Share of losses in joint ventures (834) (1,854) (6,630) Other operating (expenses)/income 4 (1,136) 3,746 (266) Operating loss (4,588) (2,033) (14,828) Investment revenue 179 87 434 Finance income/(costs) 667 (7) (6) Loss before tax (3,742) (1,953) (14,400) Tax credit/(charge) 112 (144) (289) Loss for the period/year 5 (3,630) (2,097) (14,689) Attributable to: Owners of the Company (3,609) (2,079) (14,660) Non-controlling interest (21) (18) (29) (3,630) (2,097) (14,689) Loss per Ordinary share cent cent cent Basic and diluted 6 (1.6) (0.9) (6.3) Six months ended Year ended 30 June 31 December 2014 2013 2013 $'000 $'000 $'000 (Unaudited) (Unaudited) (Audited) Items that may be reclassified subsequently to profit and loss Loss for the period/year (3,630) (2,097) (14,689) Unrealised currency translation differences (29,590) (7,121) (3,551) Total comprehensive loss for the period/year (33,220) (9,218) (18,240) Attributable to: Owners of the Company (33,199) (9,200) (18,211) Non-controlling interest (21) (18) (29) (33,220) (9,218) (18,240) Six months ended Year ended 30 June 31 December 2014 2013 2013 $'000 $'000 $'000 Notes (Unaudited) (Unaudited) (Audited) ASSETS Non-current assets Intangible exploration and evaluation assets 4,637 3,367 5,958 Property, plant and equipment 31,169 44,316 43,886 Investments in joint ventures 52,522 70,741 65,965 Other financial assets 3,763 - - 92,091 118,424 115,809 Current assets Inventories 2,196 3,164 2,951 Trade and other receivables 7 5,329 6,761 6,879 Cash and cash equivalents 47,908 63,426 56,484 55,433 73,351 66,314 Total assets 147,524 191,775 182,123 LIABILITIES Non-current liabilities Deferred tax liabilities (447) (534) (675) Long-term provisions (512) (573) (195) (959) (1,107) (870) Current liabilities Trade and other payables (2,475) (4,308) (3,442) Current provisions (12) (58) (513) (2,487) (4,366) (3,955) Total liabilities (3,446) (5,473) (4,825) Net assets 144,078 186,302 177,298 EQUITY Share capital 13,337 13,337 13,337 Retained earnings 279,262 295,341 282,871 Cumulative translation reserves (150,428) (124,408) (120,838) Other reserves 1,589 1,682 1,589 Equity attributable to equity 143,760 185,952 176,959 holders of the parent Non-controlling interest 318 350 339 Total equity 144,078 186,302 177,298 Six months ended Year ended 30 June 31 December 2014 2013 2013 $'000 $'000 $'000 Note (Unaudited) (Unaudited) (Audited) Net cash (outflow)/inflow from operating activities 8 (1,339) 29,667 25,554 Investing activities Investments in joint ventures (2,800) (4,267) (4,687) Purchases of property, plant and equipment (670) (439) (783) Purchases of intangible exploration and evaluation assets (310) (349) (3,069) Proceeds from sale of property, plant and equipment 108 15 127 Acquisition of financial assets (5,000) (1,666) (2,590) Proceeds from financial assets 1,295 - 1,030 Interest received 179 87 434 Net cash used in investing activities (7,198) (6,619) (9,538) Net (decrease)/increasein cash and cash equivalents (8,537) 23,048 16,016 Effect of foreign exchange rate changes (39) (99) (9) Cash and cash equivalents at beginning of period/year 56,484 40,477 40,477 Cash and cash equivalents at end of period/year period/year 47,908 63,426 56,484 Other reserves Cumulative Share Retained translation Share-based Re- Non-controlling capital earnings reserves payment organisation interest Total $'000 $'000 $'000 $'000 $'000 $'000 $'000 As at 1 January 2013 13,337 297,438 (117,287) 93 1,589 368 195,538 Net loss for the period - (2,079) - - - (18) (2,097) Exchange translation differences on foreign operations - - (7,121) - - (7,121) As at 30 June 2013 13,337 295,359 (124,408) 93 1,589 350 186,320 Net loss for the period - (12,581) - - - (11) (12,592) Exchange translation differences on foreign operations - - 3,570 - - - 3,570 Share-based payments - 93 - (93) - - - As at 1 January 2014 13,337 282,871 (120,838) - 1,589 339 177,298 Net loss for the period - (3,609) - - - (21) (3,630) Exchange translation differences on foreign operations - - (29,590) - - - (29,590) As at 30 June 2014 13,337 279,262 (150,428) - 1,589 318 144,078 1. General information Cadogan Petroleum plc (the `Company', together with its subsidiaries the `Group'), is incorporated in England and Wales under the Companies Act 2006. The address of the registered office is 1st Floor, 40 Dukes Place, London, EC3A 7NH. The nature of the Group's operations and its principal activities are set out in the Operations Review on pages 4to 6 and the Financial Review on pages 7 to 9. The financial information for the year ended 31 December 2013 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 2013 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. The report of the auditor on those accounts was unqualified and contained an emphasis of matter paragraph relating to significant uncertainty over political and economic turmoil in Ukraine. This Half Yearly Report has not been audited or reviewed in accordance withthe 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 policiesandmethods 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 28 April 2014. 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. A number of other amendments to accounting standards issued by the International Accounting Standards Board also apply for the first time in 2014. 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: (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 4to6. 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 2014was $47.9 million (31 December 2013: $56.5 million) excluding $1.0 million (31 December 2013: $0.2 million) of Cadogan's share of cash and cash equivalents in joint ventures with no external debt and the Directors believe that the funds available at the date of issue of this financial information is sufficient for the Group to manage its business risks successfully. The Group's forecasts and projections, taking into account reasonably possible changes in operational performance, start dates and flow rates for commercial production and the price of hydrocarbons sold to Ukrainian customers, show that there are reasonable expectations that the Group will be able to operate on funds currently held and those generated internally, for the foreseeable future, without taking into account receivables from litigation and without the requirement to seek external financing. After making enquiries and considering the uncertainties described above, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future and consider the going concern basis of accounting to be appropriate. Thus they continue to adopt the going concern basis of accounting in preparing the financial information. (b) Foreign currencies The individual financial statements of each Group company are presented in the currency of the primary economic environment in which it operates (its functional currency). The functional currency of the Company is pounds sterling. For the purpose of the consolidated financial statements, the results and financial position of each Group company are expressed in US dollars, which is the presentation currency for the consolidated financial statements. The relevant exchange rates used were as follows: Year ended 1 US$ = £ Six months ended 30 June 31 Dec 2013 2014 2013 Closing rate 1.7048 1.5216 1.6491 Average rate 1.6692 1.5449 1.5648 Year ended 1 US$ = UAH Six months ended 30 June 31 Dec 2013 2014 2013 Closing rate 11.8333 8.2992 8.3920 Average rate 10.6536 8.2332 8.2545 The effect of foreign currency sensitivity on shareholders' equity is equal to that reported in the statement of comprehensive income. During the six months ended 30 June 2014, the Ukrainian Hryvnia depreciated against the USD by 41.0%. As a result, during the six months ended 30 June 2014 the Group recognized a net foreign exchange loss in the amount of $29.6 million in the consolidated statement of comprehensive income, which arose mostly on translation of E&E and PP&E assets from functional currency UAH to the Group's reporting currency USD in the amount of $14.1 million and on translation of E&E and PP&E assets of JV from functional currency UAH to the Group's reporting currency USD in the amount of $15.5 million. (c) Dividend The Directors do not recommend the payment of a dividend for the period (30 June 2013: $nil;31 December 2013: $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 (expenses)/income Six months ended 30 Year ended June 31 December 2014 2013 2013 $'000 $'000 $'000 Out of court settlements - - 65 Transactions with JV partner 321 (362) (60) Net foreign exchange (losses)/gains (1,457) 4,108 (271) (1,136) 3,746 (266) Net foreign exchange loss of $1.5 million mainly relates to the revaluation of the USD-denominated monetary assets of the Group's UK entities which have GBP as a functional currency. 5. Profit/(Loss) for the period/year The profit/(loss) for the period/year is stated after crediting/(charging): Six months ended 30 Year ended June 31 December 2014 2013 2013 $'000 $'000 $'000 Depreciation of property, plant and equipment (394) (562) (1,352) Loss on disposal of property, plant and equipment (157) (427) (227) Reversal of impairment of other assets 609 394 234 Staff costs (2,103) (2,441) (4,790) Net foreign exchange (loss)/gain (1,457) 4,108 (271) 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: Six months ended 30 June Year ended 31 December 2014 2013 2013 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 (3,609) (2,079) (14,660) 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 - Weighted average number of Ordinary shares for the purposes of diluted profit per share 231,092 231,179 231,092 cent cent cent Loss per Ordinary share Basic (1.6) (0.9) (6.3) Diluted (1.6) (0.9) (6.3) 7. Trade and other receivables Six months ended 30 Year ended June 31 December 2014 2013 2013 $'000 $'000 $'000 Loans issued 2,185 1,666 1,559 Receivable from joint venture 1,798 3,667 4,077 Other receivables 682 881 591 Prepayments 322 381 401 VAT recoverable 342 166 251 5,329 6,761 6,879 Loans issued of $2.2 million as at 30 June 2014 includes: - $0.3 million of the loan issued in June 2013 to Oil and Gas Management Services Group Limited ("OAGSG"), as part of $3 million Loan Facility on a fully secured basis against receivables due to OAGSG with the term of loan of 24 months and annual interest of 15%. This loan has been repaid in full on 9 July 2014. - $1.9 million of the present value of short-term portion of a $5 million fully secured 24 month term loan made in April 2014 to a third party in the European energy sector. The loan bears a fixed coupon plus a production-linked return based on certain minimum annual production targets. The Group has accounted for the loan as financial asset at amortised cost. Long-term portion of the loan is recognised as non-current other financial asset in the amount of $3.8 million. Effective interest rate is 19%. $1.8 million (30 June 2013: $3.7 million, 31 December 2013: $4.1 million) of receivables from joint venture relate to the recharged costs from the Group to the joint ventures, LLC Astroinvest-energy and LLC Gazvydobuvannya. $0.3 million prepayments (30 June 2013: $0.4 million, 31 December 2013: $0.4 million) mostly relate to prepayments made to contractors in Ukraine in the course of the Group's operational activity. 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 Six months ended 30 Year ended June 31 December 2014 2013 2013 $'000 $'000 $'000 (Unaudited) (Unaudited) (Audited) Operating loss (4,588) (2,033) (14,828) Adjustments for: Depreciation of property, plant and equipment 394 562 1,201 Share of losses in joint ventures 834 1,924 6,630 Reversal of impairment/(Impairment) of inventories 32 (25) (97) Reversal of impairment of VAT recoverable (641) (369) (137) Loss on disposal of property, plant and equipment 157 427 103 Effect of foreign exchange rate changes (243) (5,620) (1,571) Operating cash flows before movements in working capital (4,055) (5,134) (8,699) Decrease in inventories 882 343 628 Decrease in receivables 2,803 32,072 34,439 (Decrease)/Increase in payables and provisions (967) 2,538 (645) Cash (used in)/received from operations (1,337) 29,819 25,723 Income taxes paid (2) (152) (169) Net cash (outflow)/inflowfrom operating activities (1,339) 29,667 25,554 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 venturesLLC 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: Six months ended 30 Year ended June 31 December 2014 2013 2013 $'000 $'000 $'000 Revenues from services provided and 460 1,332 1,892 sales of goods Purchases of goods 16 75 22 Amounts owed by related parties 1,798 3,667 4,077 Amounts owed to related parties 110 130 801 The amounts outstanding are unsecured and will be settled in cash. No provisions have been made for doubtful debts on the amounts owed by related parties. 10. Post balance sheet events No post balance sheet events requiring adjustment or disclosure in these consolidated financial statements have taken place after 30 June 2014. 11. Commitments and contingencies There have been no significant changes to the commitments and contingencies reported on page 86 of the Annual Report.

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