2016 Interim Results

RNS Number : 0036L

Petroneft Resources PLC

28 September 2016

 

28 September 2016

2016 Interim Results

PetroNeft (AIM: PTR) an oil & gas exploration and production company operating in the Tomsk Oblast, Russian Federation, and 50% owner and operator of Licences 61 and 67 is pleased to report its results for the 6 months ended 30 June 2016.

Highlights

•      Current gross production from Licence 61 is about 3,200 bopd.

•      Represents a 39% increase in production in 2016.

•      New wells drilled at South Arbuzovskoye during period drove production growth.

David Golder, Chairman of PetroNeft Resources plc, commented:

"We have had a busy year so far, with good success in growing production by almost 40% and in enhancing our understanding of Licence 61.

Given that market conditions remain challenging with little sign of improvement in oil prices in the near term, our focus continues to be on growing production, managing costs and positioning the Company for any improvement in market conditions, while we are also investigating opportunities to benefit from current conditions by growing the company through acquisitions or business combinations focussed on producing assets in Russia. We look forward to updating shareholders of our results over the coming year."

For further information, contact:

Dennis Francis, CEO, PetroNeft Resources plc	[phone]
Paul Dowling, CFO, PetroNeft Resources plc	[phone]
John Frain/Brian Garrahy, Davy (NOMAD and Joint Broker)	[phone]
Henry Fitzgerald-O'Connor, Canaccord Genuity Limited (Joint Broker)	[phone]
Martin Jackson/Shabnam Bashir, Citigate Dewe Rogerson	[phone]
Joe Heron / Douglas Keatinge, Murray Consultants	[phone]

The information contained in this announcement has been reviewed and verified by Mr. Dennis Francis, Director and Chief Executive Officer of PetroNeft, for the purposes of the Guidance Note for Mining and Oil & Gas Companies issued by the London Stock Exchange in June 2009. Mr. Francis holds a B.S. Degree in Geophysical Engineering and a M.S. Degree in Geology from the Colorado School of Mines. He has also graduated from the Harvard University Program for Management Development. He is a member of the American Association of Petroleum Geologists and the Society of Exploration Geophysicists. He has over 40 years' experience in oil and gas exploration and development.

Chairman's Statement

Dear Shareholder,

I am pleased to report on the activities of the Group for the six months to 30 June 2016 and provide an update on recent progress. 2016 has been a busy year with a significant work programme undertaken at Licence 61, together with our 50% partner Oil India.  The 2016 campaign delivered considerable production growth from new wells at South Arbuzovskoye but some disappointment with the result of a delineation well at the Sibkrayevskoye oil field.

Production and Sales

Gross production at Licence 61 in the six months to 30 June 2016 averaged 2,366 bopd, a 36% increase compared to the same period in 2015 (1,744 bopd). We sold 421,714 (gross) barrels of oil in the six months to 30 June 2016 (H1 2015: 329,733 bbls) and achieved an average Russian Domestic oil price of $20.56 (H1 2015: $29.87). The fall in price is reflective of the continuing challenges being faced across the oil and gas industry.

Licence 61 Gross Production	H1 2016	Q2-2016	Q1-2016	H1 2015
Total gross production	430,693	223,877	206,816	315,664
Gross bopd	2,366	2,460	2,272	1,744
PetroNeft 50% share bopd	1,183	1,230	1,136	872

Gross production at Licence 61 has grown by 39% in the year to date and is currently approximately 3,200 bopd. This growth came from the new wells at South Arbuzovskoye which came online in June and July 2016. Production is shown quarterly above and we intend to publish quarterly production statements from October 2016 onwards. The actual production for Q3-2016 will be announced in October 2016.

South Arbuzovskoye

The main drilling programme in 2016 was focussed on the southern lobe of Arbuzovskoye. In 2015 we had drilled the A-103 well from Pad 1 in the northern end and acquired some additional 2D seismic on the southern end. Both the well and the seismic gave us confidence in the potential of the southern lobe. The lessons learned from the horizontal drilling at Tungolskoye in 2015 also proved valuable in setting out the drilling programme in South Arbuzovskoye.

We drilled two vertical and two horizontal wells. Our pre-drill estimates were to achieve initial production of 125 bopd from the vertical wells and 600 bopd from the horizontal wells. The results far exceeded these estimates with the vertical wells (A213 & A-216) coming in at over 350 bopd and 175 bopd respectively and the horizontal wells (A-214 & A-215) coming in at over 800 bopd and 650 bopd respectively. With the exception of the A-216 well, the new wells at South Arbuzovskoye continue to perform ahead of expectations. The water cut at A-216 has risen higher than expected and we are examining ways to solve this issue.

Sibkrayevskoye

In 2015 we drilled the S-373 delineation well and carried out a major 2D seismic programme across the northern portion of Licence 61 including Sibkrayevskoye.  Between late January and April 2016 the S-373 well was put on production and averaged 200 bopd during the period. This well, along with the previous wells, S-372 and S-370, forms the basis for the initial development of Sibkrayevskoye at Pad 1which is planned for 2017.  We are currently arranging the necessary studies, permits and approvals to sanction Pad 1 development of Sibkrayevskoye later this year.

In 2016 we sought to ascertain the full potential of Sibkrayevskoye through the drilling of a 10 km step out well, S-374. The well was drilled in July and August 2016 but unfortunately did not encounter commercial oil and was plugged and abandoned. The result, while disappointing, should not affect the current 2P reserve significantly or impact our decision regarding the development of Pad 1 at Sibkrayevskoye which is 10 km to the north.

Review of PetroNeft loss for the period

The loss for the period was US$2.3m (2014: US$1.4m). The loss includes PetroNeft's share of the losses on the joint ventures relating to Licences 61 and 67 of US$2.4m and US$0.2m respectively (H1 2015: US$1.8m and US$0.2m). The loss relating to the Licence 61 joint venture is discussed in more detail below. Finance revenue of US$1.6m (H1 2015: US$1.5m) relates primarily to interest receivable on loans to the joint ventures.

PetroNeft Key Financial Metrics		Unaudited				Audited
		6 months ended 30 June 2016		6 months ended 30 June 2015		Year ended 31  December 2015
		US$		US$		US$
Continuing operations
Revenue		1,362		1,220		19,165
Cost of sales		(1,235)		(1,206)		(15,233)
Gross profit		127		14		3,932
Administrative expenses		(1,073)		(572)		(3,678)
Exchange gain/(loss) on intra-Group loans		(23)		17		(2,402)
Operating loss		(923)		(541)		(2,148)
Share of joint venture's net loss - WorldAce Investments Limited		(2,408)		(1,829)		(304)
Share of joint venture's net loss - Russian BD Holdings B.V.		(173)		(157)		(294)
Finance revenue		1,596		1,504		1,551
Loss for the period for continuing operations before taxation		(1,908)		(1,023)		(8,376)
Income tax expense		(410)		(393)		(408)
Loss for the period for continuing operations before taxation		(2,318)		(1,416)		(8,784)

Licence 61 joint venture - WorldAce Group

The metrics below are an extraction from the financial statements of the WorldAce Group which demonstrate the performance of Licence 61:

		PetroNeft's		PetroNeft's		PetroNeft's
		50% share 6 months ended 30 June 2016		50% share 6 months ended 30 June 2015		50% share year ended 31 December 2015
		US$'000		US$'000		US$'000
Continuing operations
Revenue		4,339		4,925		10,300
Cost of sales		(4,259)		(4,767)		(10,436)
Gross profit		80		158		(136)
Administrative expenses		(917)		(831)		(1,519)
Impairment of oil and gas properties		-		-		(4,550)
Operating loss		(837)		(673)		(6,205)
Finance revenue		4		6		12
Finance costs		(1,575)		(1,162)		(2,572)
Loss for the period for continuing operations before taxation		(2,408)		(1,829)		(8,765)
Income tax credit		-		-		-
Loss for the period for continuing operations before taxation		(2,408)		(1,829)		(8,765)

WorldAce Analysis		50% of WorldAce
		6 months ended 30 June 2016		6 months ended 30 June 2015		12 months ended 31 December 2015
		US$'000		US$'000
Revenue
Oil sales		4,335		4,908		10,276
Other sales		4		16		24
Total revenue		4,339		4,924		10,300
Cost of Sales
Mineral Extraction Tax		2,047		2,495		4,922
Pipeline tariff		820		635		1,493
Staff costs		402		458		840
Depreciation and amortisation		600		517		1,472
Other cost of sales		390		662		1,708
Total cost of sales		4,259		4,767		10,435

The detailed Income Statement and Balance Sheet of WorldAce Investments Limited is disclosed at note 7 to these condensed financial statements. Very low oil prices in late 2015 and the first quarter of 2016 have significantly reduced the margin. With the higher production and improved pricing being achieved in the second half of 2016 we should be able to improve the margin as many of our production costs are fixed.

In March 2016 Oil India agreed to provide 100% of the funding required to carry out the agreed work programmes at Licence 61 in 2016 and 2017. This work programme is expected to require gross funding of at least US$35 million, US$10m in 2016 and US$25m in 2017. The funding is to be provided by way of unsecured loans to the joint venture company WorldAce Investments Limited. The loan agreement for the 2016 requirement of US$10m was executed in March 2016 and the funding fully drawn by July 2016. It is expected that the loan agreement for the 2017 requirement will be executed on substantially similar terms in late 2016.

Licence 67

During 2015, we agreed an exploration programme for Licence 67 for the five years to 2020 with the Russian authorities; based on this, the first significant expenditure required will be in 2017 but we expect to be able to defer this expenditure to at least 2018. We view Licence 67 as having considerable long term potential and we are discussing forward plans with our joint venture partner Belgrave Naftogas (Arawak Energy).

Board Changes

As discussed in the Annual Report, in April 2016 Maxim Korobov, Anthony Sacca and David Sturt joined the Board as non-executive Directors. David Sanders, Gerry Fagan and Paul Dowling left the Board, however Mr. Dowling remains as CFO of the Company and is Company Secretary. 

Business development

In May 2016 Pavel Tetyakov joined the Company as Vice President of Business Development to help bring a renewed focus on Business Development and we are actively pursuing a number of exciting options in this regard.

Outlook

 We have had a busy year so far, with good success in growing production and our longer term development and exploration plans for our portfolio, however market conditions remain challenging and there are few signs of sustained improvement in oil prices in the near term. We are now focussed on commencing the development of our largest field, Sibkrayevskoye in 2017 which, with the expected Oil India loan agreement to be signed, the Company is fully financed for. Our focus continues to be on growing production, managing costs and positioning the Company for any improvement in market conditions, while we are also investigating opportunities to benefit from current conditions by growing the company through acquisitions or business combinations focussed on producing assets in Russia. We look forward to updating shareholders of our results over the remainder of 2016.

David Golder

Non-Executive Chairman

 

Interim Condensed Consolidated Income Statement

For the 6 months ended 30 June 2016

			Unaudited				Audited
			6 months ended 30 June 2016		6 months ended 30 June 2015		Year ended 31  December 2015
	Note		US$		US$		US$
Continuing operations
Revenue			1,362,158		1,220,323		2,398,314
Cost of sales			(1,234,712)		(1,205,656)		(2,370,949)
Gross profit			127,446		14,667		27,365
Administrative expenses			(1,073,237)		(572,017)		(1,379,506)
Exchange loss on intra-Group loans			22,522		16,401		(284,449)
Operating loss			(923,268)		(540,949)		(1,636,590)
Share of joint venture's net loss - WorldAce Investments Limited	7		(2,407,781)		(1,828,719)		(8,765,055)
Share of joint venture's net loss - Russian BD Holdings B.V.	8		(172,677)		(157,470)		(314,859)
Finance revenue	4		1,595,944		1,504,174		3,041,587
Loss for the period for continuing operations before taxation			(1,907,782)		(1,022,964)		(7,674,917)
Income tax expense	5		(409,925)		(392,701)		(799,466)
Loss for the period attributable to equity holders of the Parent			(2,317,707)		(1,415,665)		(8,474,383)
Loss per share attributable to ordinary equity holders of the Parent
Basic and diluted - US dollar cent			(0.33)		(0.20)		(1.20)

Interim Condensed Consolidated Statement of Comprehensive Income

For the 6 months ended 30 June 2016

			Unaudited				Audited
			6 months ended 30 June 2016		6 months ended 30 June 2015		Year ended 31  December 2015
			US$		US$		US$
Loss for the period attributable to equity holders of the Parent			(2,246,207)		(1,415,665)		(8,474,383)
Other comprehensive income to be reclassified to profit or loss in subsequent periods:
Currency translation adjustments - subsidiaries			61,935		19,683		265,640
Share of joint ventures' other comprehensive income - foreign exchange translation differences			5,467,539		909,754		(12,474,502)
Total comprehensive profit/(loss) for the period attributable to equity holders of the Parent			3,211,767		(486,228)		(20,683,245)

Interim Condensed Consolidated Balance Sheet

As at 30 June 2016

			Unaudited		Audited
			30 June 2016		31 December 2015
	Note		US$		US$
Assets
Non-current Assets
Property, plant and equipment	6		167,922		181,703
Equity-accounted investment in joint ventures - WorldAce Investments Limited	7		-		-
Equity-accounted investment in joint ventures - Russian BD Holdings B.V.	8		-		-
Financial assets - loans and receivables	9		47,214,376		42,883,861
			47,382,298		43,065,564
Current Assets
Inventories	10		29,676		54,302
Trade and other receivables	11		2,314,336		1,842,128
Cash and cash equivalents	12		382,546		1,284,212
			2,726,558		3,180,642
Total Assets			50,108,856		46,246,206
Equity and Liabilities
Capital and Reserves
Called up share capital			9,429,182		9,429,182
Share premium account			140,912,898		140,912,898
Share-based payments reserve			6,796,540		6,796,540
Retained loss			(77,092,497)		(74,774,790)
Currency translation reserve			(33,355,674)		(38,885,148)
Other reserves			336,000		336,000
Equity attributable to equity holders of the Parent			47,026,449		43,814,682
Non-current Liabilities
Deferred tax liability			1,693,335		1,286,378
			1,693,335		1,286,378
Current Liabilities
Trade and other payables	13		1,389,072		1,145,146
			1,389,072		1,145,146
Total Liabilities			3,082,407		2,431,524
Total Equity and Liabilities			50,108,856		46,246,206

Interim Condensed Consolidated Statement of Changes in Equity

For the 6 months ended 30 June 2016

	Called up share capital		Share premium account		Share-based payment and other reserves		Currency translation reserve		Retained loss		Total
	US$		US$		US$		US$		US$		US$
At 1 January 2015	9,429,182		140,912,898		7,099,745		(26,676,286)		(66,300,407)		64,465,132
Loss for the year	-		-		-		-		(8,474,383)		(8,474,383)
Currency translation adjustments - subsidiaries	-		-		-		265,640		-		265,640
Share of joint ventures' other comprehensive income - foreign exchange translation differences	-		-		-		(12,474,502)		-		(12,474,502)
Total comprehensive loss for the year	-		-		-		(12,208,862)		(8,474,383)		(20,683,245)
Share-based payment expense	-		-		32,795		-		-		32,795
At 31 December 2015	9,429,182		140,912,898		7,132,540		(38,885,148)		(74,774,790)		43,814,682
At 1 January 2016	9,429,182		140,912,898		7,132,540		(38,885,148)		(74,774,790)		43,814,682
Loss for the period	-		-		-		-		(2,317,707)		(2,317,707)
Currency translation adjustments - subsidiaries	-		-		-		(61,935)		-		(61,935)
Share of joint ventures' other comprehensive income - foreign exchange translation differences	-		-		-		5,467,539		-		5,467,539
Total comprehensive profit for the period	-		-		-		5,529,474		(2,317,707)		3,211,767
At 30 June 2016	9,429,182		140,912,898		7,132,540		(33,355,674)		(77,092,497)		47,026,449

Interim Condensed Consolidated Cash Flow Statement

For the 6 months ended 30 June 2016

		Unaudited				Audited
		6 months ended 30 June 2016		6 months ended 30 June 2015		Year ended 31  December 2015
		US$		US$		US$
Operating activities
Loss before taxation		(1,907,782)		(1,022,964)		(7,674,917)
Adjustment to reconcile loss before tax to net cash flows
Non-cash
Depreciation		36,970		54,575		97,673
Share of loss in joint ventures		2,580,458		1,986,189		9,079,914
Share-based payment expense		-		16,246		32,795
Finance revenue	4	(1,595,944)		(1,504,174)		(3,041,587)
Working capital adjustments
(Increase)/decrease in trade and other receivables		(322,891)		156,081		(548,351)
Decrease/(increase) in inventories		24,626		(36,465)		(39,122)
Increase/(decrease) in trade and other payables		292,234		(458,992)		31,428
Income tax paid		(12,771)		(9,861)		(25,832)
Net cash flows used in operating activities		(905,100)		(819,365)		(2,087,999)
Investing activities
Purchase of property, plant and equipment		-		(13,312)		(19,059)
Interest received		1,480		5,984		10,095
Net cash received from/(used in) investing activities		1,480		(7,328)		(8,964)
Net decrease in cash and cash equivalents		(903,620)		(826,693)		(2,096,963)
Translation adjustment		1,954		(8,481)		(11,594)
Cash and cash equivalents at the beginning of the period		1,284,212		3,392,769		3,392,769
Cash and cash equivalents at the end of the period	12	382,546		2,557,595		1,284,212

Notes to the Interim Condensed Consolidated Financial Statements

For the 6 months ended 30 June 2016

1.         Corporate Information

The interim condensed consolidated financial statements of the Group for the six months ended 30 June 2016 were authorised for issue in accordance with a resolution of the Directors on 27 September 2016.

PetroNeft Resources plc ('the Company', or together with its subsidiaries, 'the Group') is a Company incorporated in Ireland. The Company is listed on the Alternative Investment Market ('AIM') of the London Stock Exchange and the Enterprise Securities Market ('ESM') of the Irish Stock Exchange. The address of the registered office and the business address in Ireland is 20 Holles Street, Dublin 2. The Company is domiciled in the Republic of Ireland.

The principal activities of the Group are oil and gas exploration, development and production. 

 2.        Accounting Policies

2.1       Basis of Preparation

The interim condensed consolidated financial statements for the six months ended 30 June 2016 have been prepared in accordance with IAS 34 Interim Financial Reporting.

The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial statements as at 31 December 2015 which are available on the Group's website - www.petroneft.com.

The interim condensed consolidated financial statements are presented in US dollars ("US$").

2.2       Significant Accounting Policies

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2015.

3.         Segment information

At present the Group has one reportable operating segment, which is oil exploration and production through its joint venture undertakings. As a result, there are no further disclosures required in respect of the Group's reporting segment.

The risk and returns of the Group's operations are primarily determined by the nature of the activities that the Group engages in, rather than the geographical location of these operations.  This is reflected by the Group's organisational structure and the Group's internal financial reporting systems.

Management monitors and evaluates the operating results for the purpose of making decisions consistently with how it determines operating profit or loss in the consolidated financial statements.

Geographical segments

Although the joint venture undertakings WorldAce Investments Limited and Russian BD Holdings B.V. are domiciled in Cyprus and the Netherlands, the underlying businesses and assets are in Russia. Substantially all of the Group's sales and capital expenditures are in Russia.

Assets are allocated based on where the assets are located:

					Unaudited		Audited
					30 June 2016		31 December 2015
	Non-current assets				US$		US$
	Russia				47,379,517		43,062,084
	Ireland				2,781		3,480
					47,382,298		43,065,564

4.	Finance revenue		Unaudited				Audited
			6 months ended 30 June 2016		6 months ended 30 June 2015		Year ended 31 December 2015
			US$		US$		US$
	Bank interest receivable		1,480		5,984		10,095
	Interest receivable on loans to Joint Ventures		1,594,464		1,498,190		3,031,492
			1,595,944		1,504,174		3,041,587

5.	Income tax
			Unaudited				Audited
			6 months ended 30 June 2016		6 months ended 30 June 2015		Year ended 31 December 2015
			US$		US$		US$
	Current income tax
	Current income tax charge		2,968		9,047		24,863
	Total current income tax		2,968		9,047		24,863
	Deferred tax
	Relating to origination and reversal of temporary differences		406,957		383,654		774,603
	Total deferred tax		406,957		383,654		774,603
	Income tax expense reported in the Interim Consolidated Income Statement		409,925		392,701		799,466

6.	Property, Plant and Equipment
				Plant and
				machinery
				US$
	Cost
	At 1 January 2015			996,588
	Additions			19,059
	Translation adjustment			(215,247)
	At 1 January 2016			800,400
	Translation adjustment			104,224
	At 30 June 2016			904,624
	Depreciation
	At 1 January 2015			674,786
	Charge for the year			97,673
	Translation adjustment			(153,762)
	At 1 January 2016			618,697
	Charge for the period			36,970
	Translation adjustment			81,035
	At 30 June 2016			736,702
	Net book values
	At 30 June 2016			167,922
	At 31 December 2015			181,703

7.          Equity-accounted Investment in Joint Venture - WorldAce Investments Limited

PetroNeft Resources plc has a 50% interest in WorldAce Investments Limited, a jointly controlled entity which holds 100% of LLC Stimul-T, an entity involved in oil and gas exploration and the registered holder of Licence 61. The interest in this joint venture is accounted for using the equity accounting method. WorldAce Investments Limited is incorporated in Cyprus and carries out its activities, through LLC Stimul-T, in Russia.

					Share of net assets
					US$
	At 1 January 2015				10,865,156
	Elimination of unrealised profit on intra-Group transactions				(29,326)
	Retained loss				(8,765,055)
	Translation adjustment				(11,587,393)
	Credited against loans receivable from WorldAce Investments Limited (Note 9)				9,516,618
	At 1 January 2016				-
	Elimination of unrealised loss on intra-Group transactions				(151,029)
	Retained loss				(2,407,781)
	Translation adjustment				5,042,837
	Reversal of credit to loans receivable from WorldAce Investments Limited (Note 9)				(2,484,027)
	At 30 June 2016				-

The balance sheet position of WorldAce Investments Limited shows net liabilities of US$23,500,706 following a loss in the period of US$4,815,562 together with a positive currency translation adjustment of US$10,085,675. PetroNeft's 50% share is included above and results in a negative carrying value of US$7,032,591. Therefore, the share of net assets is reduced to Nil and, in accordance with IAS 28 Investments in Associates and Joint Ventures, the amount of US$7,032,591 is deducted from other assets associated with the joint venture on the Balance Sheet which are the loans receivable from WorldAce Investments (see Note 9).

7.          Equity-accounted Investment in Joint Venture - WorldAce Investments Limited (continued)

Additional financial information in respect of PetroNeft's 50% interest in the equity-accounted joint venture entity is disclosed below:

		Unaudited				Audited
		6 months ended 30 June 2016		6 months ended 30 June 2015		Year ended 31  December 2015
		US$		US$		US$
	Continuing operations
	Revenue	4,339,111		4,924,336		10,300,094
	Cost of sales	(4,259,206)		(4,766,524)		(10,435,521)
	Gross profit	79,905		157,812		(135,427)
	Administrative expenses	(916,886)		(830,570)		(1,519,005)
	Impairment of oil and gas properties	-		-		(4,550,000)
	Operating loss	(836,981)		(672,758)		(6,204,432)
	Finance revenue	3,475		5,834		11,694
	Finance costs	(1,574,275)		(1,161,795)		(2,572,317)
	Loss for the period for continuing operations before taxation	(2,407,781)		(1,828,719)		(8,765,055)
	Income tax expense	-		-		-
	Loss for the period	(2,407,781)		(1,828,719)		(8,765,055)
	Loss for the period	(2,407,781)		(1,828,719)		(8,765,055)
	Other comprehensive income to be reclassified to profit or loss in subsequent periods:
	Currency translation adjustments	5,042,837		837,749		(11,587,393)
	Total comprehensive profit/(loss) for the period	2,635,056		(990,970)		(20,352,448)

The currency translation adjustment results from the revaluation of the Russian Rouble during the period. All Russian Rouble carrying values in Stimul-T, the 100% subsidiary of WorldAce are converted to US Dollars at each period end. The resulting gain or loss is recognised through other comprehensive income and transferred to the currency translation reserve. The Russian Rouble appreciated significantly against the US Dollar during the period from RUB73.30:US$1 at 31 December 2015 to RUB64.05:US$1 at 30 June 2016.

7.          Equity-accounted Investment in Joint Venture - WorldAce Investments Limited (continued)

				Unaudited		Audited
				30 June 2016		31 December 2015
				US$		US$
	Non-current Assets
	Oil and gas properties			35,421,820		27,646,307
	Property, plant and equipment			206,001		197,826
	Exploration and evaluation assets			7,048,832		6,044,036
	Assets under construction			2,665,129		2,345,358
				45,341,782		36,233,527
	Current Assets
	Inventories			479,906		257,857
	Trade and other receivables			308,786		259,142
	Cash and cash equivalents			38,018		153,198
				826,710		670,197
	Total Assets			46,168,492		36,903,724
	Non-current Liabilities
	Provisions			(353,646)		(273,278)
	Interest-bearing loans and borrowings			(52,416,272)		(48,366,752)
				(52,769,918)		(48,640,030)
	Current Liabilities
	Trade and other payables			(5,148,927)		(2,649,103)
				(5,148,927)		(2,649,103)
	Total Liabilities			(57,918,845)		(51,289,133)
	Net Liabilities			(11,750,353)		(14,385,409)

8.         Equity-accounted Investment in Joint Venture - Russian BD Holdings B.V.

PetroNeft Resources plc has a 50% interest in Russian BD Holdings B.V., a jointly controlled entity which holds 100% of LLC Lineynoye, an entity involved in oil and gas exploration and the registered holder of Licence 67. The interest in this joint venture is accounted for using the equity accounting method. Russian BD Holdings B.V. is incorporated in the Netherlands and carries out its activities in Russia.

				Share of net assets
				US$
	At 1 January 2015			365,178
	Retained loss			(314,859)
	Translation adjustment			(887,109)
	Credited against loans receivable from Russian BD Holdings BV (Note 9)			836,790
	At 1 January 2016			-
	Retained loss			(172,677)
	Translation adjustment			424,702
	Reversal of credit to loans receivable from Russian BD Holdings BV (Note 9)			(252,025)
	At 30 June 2016			-

The balance sheet position of Russian BD Holdings B.V. shows net liabilities of US$1,169,530 following a loss in the year of US$345,354 together with a currency translation adjustment (gain) of US$849,404. PetroNeft's 50% share is included above and results in a negative carrying value of US$584,765. Therefore, the share of net assets is reduced to Nil and, in accordance with IAS 28 Investments in Associates and Joint Ventures, the amount of US$584,765 is deducted from other assets associated with the joint venture on the Balance Sheet which are the loans receivable from Russian BD Holdings B.V. (Note 9).

8.         Equity-accounted Investment in Joint Venture - Russian BD Holdings B.V. (continued)

Additional financial information in respect of PetroNeft's 50% interest in the equity-accounted joint venture entity is disclosed below:

		Unaudited				Audited
		6 months ended 30 June 2016		6 months ended 30 June 2015		Year ended 31  December 2015
		US$		US$		US$
	Revenue	-		-		-
	Cost of sales	-		-		-
	Gross profit	-		-		-
	Administrative expenses	(56,435)		(58,858)		(106,224)
	Operating loss	(56,435)		(58,858)		(106,224)
	Finance revenue	204		274		434
	Finance costs	(116,446)		(98,886)		(209,069)
	Loss for the period for continuing operations before taxation	(172,677)		(157,470)		(314,859)
	Taxation	-		-		-
	Loss for the period	(172,677)		(157,470)		(314,859)
	Loss for the period	(172,677)		(157,470)		(314,859)
	Other comprehensive income to be reclassified to profit or loss in subsequent periods:
	Currency translation adjustments	424,702		72,005		(887,109)
	Total comprehensive profit/(loss) for the period	252,025		(85,465)		(1,201,968)

		Unaudited			Audited
		30 June 2016			31 December 2015
		US$			US$
	Non-current assets	3,787,327			3,327,327
	Current assets	45,227			71,104
	Total assets	3,832,554			3,398,431
	Non-current liabilities	(4,214,659)			(4,034,780)
	Current liabilities	(202,660)			(200,441)
	Total liabilities	(4,417,319)			(4,235,221)
	Net Liabilities	(584,765)			(836,790)

9.	Financial assets - loans and receivables
				Unaudited		Audited
				30 June 2016		31 December 2015
				US$		US$
	Loans to WorldAce Investments Limited (Note 14)			50,704,823		49,224,805
	Less: share of WorldAce Investments Limited loss			(7,032,591)		(9,516,618)
				43,672,232		39,708,187
	Loans to Russian BD Holdings B.V. (Note 14)			4,126,909		4,012,464
	Less: share of Russian BD Holdings B.V. loss			(584,765)		(836,790)
				3,542,144		3,175,674
				47,214,376		42,883,861

The Company has granted a loan facility to its joint venture undertaking WorldAce Investments Limited of up to US$45 million. This loan facility is US$ denominated and unsecured. Interest currently accrues on the loan at USD LIBOR plus 6.0% but the Company has agreed not to seek payment of interest until H2 2017 at the earliest. The loan is set to mature on 31 December 2022. The loan from the Company to Russian BD Holdings is repayable on demand. Interest currently accrues on the loan at LIBOR plus 6.0% per annum.

10.	Inventories			Unaudited		Audited
				30 June 2016		31 December 2015
				US$		US$
	Materials			29,676		54,302
				29,676		54,302

11.	Trade and other receivables			Unaudited		Audited
				30 June 2016		31 December 2015
				US$		US$
	Other receivables			224,724		147,641
	Receivable from jointly controlled entity (Note 14)			1,852,613		1,628,667
	Advances to contractors			1,992		3,708
	Prepayments			235,007		62,112
				2,314,336		5,069,944

              Other receivables are non-interest-bearing and are normally settled on 60-day terms.

12.	Cash and Cash Equivalents
				Unaudited		Audited
	Group			30 June 2016		31 December 2015
				US$		US$
	Cash at bank and in hand			382,546		1,284,212
				382,546		1,284,212

              Bank deposits earn interest at floating rates based on daily deposit rates. Short-term deposits are made for varying periods of between one day and one month depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates.

13.	Trade and other payables
				Unaudited		Audited
				30 June 2016		31 December 2015
				US$		US$
	Trade payables			334,135		238,570
	Trade payables to jointly controlled entity (Note 14)			388,254		239,228
	Corporation tax			59,439		59,087
	Oil taxes, VAT and employee taxes			44,874		78,293
	Other payables			348,544		212,141
	Accruals			213,826		317,827
				1,389,072		1,145,146

              The Directors consider that the carrying amount of trade and other payables approximates their fair value.

              Trade and other payables are non-interest-bearing and are normally settled on 60-day terms.

              Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs.

14.        Related party disclosures

Transactions with subsidiaries

Transactions between the Group and its subsidiaries, Granite and Dolomite, have been eliminated on consolidation.

Transactions with joint ventures

PetroNeft Resources plc had the following transactions with its joint ventures during the six months ended 30 June 2016 and year ended 31 December 2015:

	Group		Russian BD Holdings BV Group		WorldAce Investments Limited Group
			US$		US$
	Receivable by PetroNeft Group at 1 January 2015		3,882,578		47,341,766
	Transactions during the year		183,333		2,670,250
	Interest accrued in the year		205,189		2,826,303
	Payments for services made during the year		(29,781)		(2,483,727)
	Share of joint venture's translation adjustment		(836,790)		(9,516,618)
	Translation adjustment		(14,821)		45,618
	At 1 January 2016		3,389,708		40,883,592
	Transactions during the period		78,222		1,686,332
	Interest accrued in the period		114,445		1,480,019
	Payment for services made during the period		(2,743)		(1,771,387)
	Share of joint venture's translation adjustment		252,025		2,484,027
	Translation adjustment		7,941		76,554
	At 30 June 2016		3,839,598		44,839,137
	Balance at 31 December 2015 comprised of:
	Loan facility advanced		3,175,674		39,708,187
	Trade and other receivables		214,034		1,414,633
	Trade Payables		-		(239,228)
			3,389,708		40,883,592
	Balance at 30 June 2016 comprised of:
	Loans receivable		3,542,144		43,672,232
	Trade and other receivables		297,454		1,555,159
	Trade and other payables		-		(388,254)
			3,839,598		44,839,137

 

END

 

 

IR EAKNXALNKEFF