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G3 Exploration Ltd (G3E)

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Tuesday 18 September, 2018

G3 Exploration Ltd

Interim Results for Six Months ended 30 June 2018

RNS Number : 0963B
G3 Exploration Limited
18 September 2018
 

 

18 September 2018

G3 Exploration LTD.

 

    ("G3E", "G3 Exploration" or the "Company")

 

          Interim Results for the Six Months Ended 30 June 2018

 

 

Financial and Operational Highlights

 

 

G3 Exploration

 

·      Guizhou Block exploration programme was successfully accomplished, next phase being discussed with PetroChina.

·      Jiangxi, Anhui, Shanxi exploration blocks' development potential re-assessed with non-prospective acreage identified.

·      Composition of board of directors enhanced with the addition of Bryan Smart and Zhao LiGuo.

 

 Green Dragon Gas (Held for sale disposal group)

 

·      Revenue of US$13.7 million (H1 2017 - US$11.2 million).

·      Gross revenue of US$8.7/mcf (H1 2017 - US$7.2/mcf).

·      Of the 200 G3E operated wells, 130 wells are online with 105 connected to sales infrastructure.

·      EBITDA of US$8.7 million (H1 2017 - US$6.0 million).

·      Substantial infrastructure progress with 1,063 wells of 1,453 connected to pipelines.

 

 

 

2018 OUTLOOK

 

Recapitalise balance sheet. Increase production cash flow. Drive development programme.

 

Divest main producing assets (blocks GSS and GCZ) into a new Hong Kong listed company.

 

G3 Exploration

           

·      Expect to repay two bond creditors from debt and equity issuance in Green Dragon Gas.

·      Conclude evolution to exploration and development business.

·      Finalise dividend in specie for producing assets.

·      First gas in Guizhou Block.

·      Expand into additional geography.

 

Green Dragon Gas (Held for sale disposal group)

 

·      Infrastructure focus to monetise invested capital.

·      Work alongside Chinese partner CNOOC on GSS block for the connection of all existing 1,139 drilled wells to the sales infrastructure.

·      Increase gas sales volumes on GSS block from GDG existing producing wells through better compression management infrastructure.

·      Launch GSS LiFaBriC drilling programme to further increase sales volumes.

·      Commence GCZ ODP to drill 147 wells through yearend 2019.



 

CHAIRMAN'S STATEMENT

 

I am pleased to report continued operational progress across our two producing commercial blocks in Shanxi as well as our six exploration blocks in Anhui, Guizhou, Jiangxi and Shanxi.

 

Most notably is the progress being made in the GSS block since the conclusion of the Supplementary Agreements with CNOOC which were accepted with determined cost recovery amounts by the Joint Management Committee at March end. Since the signing of the agreements, the parties are working closely together into rapidly advancing the producing wells and are focused on monetising the gas sales within the GSS commercial producing block. This focus has seen gas sales increase 63% at CNOOC operated wells from January to the end of August. Of the total 1,139 existing drilled wells by CNOOC, 889 or 78% have been connected to the newly built pipeline infrastructure while 330 of the wells are already contributing to the gas sales, in addition to the 105 operated by us. We expect the connected wells to be a foundation of increasing gas sales for many years to come as wells successfully dewater the coal seam and convert to gas production. At our flagship GSS block, of the total 1,453 drilled wells, we now have 1,063 or 73% connected to a pipeline network spanning 586.8 km across the 388sqkm gas block with three operational gas gathering compressor stations.

 

Our producing GCZ block with CNPC continued its commercial gas sales while the collaborative Joint Operating Team concluded its Overall Development Plan. The plan previously approved by CNPC received the NDRC Energy department approval in August and is expected to have final NDRC approval this month. This ODP commits the drilling of 147 wells by yearend 2019, with drilling anticipated to start in the fourth quarter. The expected gas production following this ODP execution forecasts production in GCZ to be 6 BCFPY which will counter the current decline curve as no wells have been drilled on the block since 2010.

 

In addition to our CNOOC and CNPC partnership on the two producing blocks, we continue to progress our PetroChina partnership in the Guizhou (GGZ) exploration block. The team is focused on concluding the production and completion plan on the twelve successful wells drilled by 2017 yearend.  We expect to commence test gas sales this year so as to progress the asset into development next year.

 

Our exploration teams re-evaluated all the acreage within the six exploration blocks. This targeted task specifically delineated the prospective development acreage and identified non-prospective acreage within the vast exploration area. The technical teams are progressing discussions on their conclusions with our partners CNOOC and PetroChina. We expect to collaboratively establish the exploration plans over the six vast blocks during the fourth quarter and launch the programmes in 2019.

 

Concurrent to the operational progress, the management team has stayed focused on the balance sheet re-vitalisation. A structured process is underway, led by an energy specialist investment bank to conclude up to $200m financing over Green Dragon Gas assets. We expect to conclude such financing so as to progress the dividend in specie of Green Dragon Gas shares to our shareholders and conclude a full deleveraging of G3 Exploration. We look forward to a full repayment of all our bonds timely.

 

I look forward to monetising the value in our producing assets, developing our exploration assets and committing to incremental geographies where our deep knowledge in CBM is of accretive value to our shareholders.

 

 

 

 

 

Randeep S. Grewal

Founder & Chairman

 

 

About G3E

 

G3E is a leading independent gas producer with operations in China and is listed on the main market of the London Stock Exchange (LSE: G3E). The Company has 559Bcf of 2P reserves and 2,386Bcf of 3P reserves across eight production blocks covering over 7,566km² of license area in the Shanxi, Jiangxi, Anhui and Guizhou provinces. It holds six Production Sharing Agreements with strong, highly capitalised Chinese partners including CNOOC, CNPC and PetroChina, and has infrastructure in place to support multiple routes to monetise gas production.

 

The Company is committed to an exploration and appraisal focused business plan in coal bed methane development across three geographies concurrently. It has a well-established track record and demonstrated perseverance in going the distance to monetise shareholder value through the below key basic principles:

 

·      Focus on core intellectual aptitude in developing coal bed methane

·      Develop assets in an environmentally and socially prudent manner

·      Protect accreted shareholder value

 

 

Condensed Consolidated Statement of Comprehensive Income         

Six months ended 30 June 2018



 

Six months ended 30 June 2018

 

Six months ended 30 June 2017 Restated*

 

Year ended

31 December 2017


Notes

US$'000

US$'000

US$'000



Unaudited

Unaudited

Audited

Continuing operations





Revenue

3

-

-

-

Cost of sales

3

-

-

-

Gross profit


-

-

-

Other income

4

7

-

13

Selling and distribution costs


-

-

-

Administrative expenses

3

(1,649)

(1,660)

(4,144)

Profit from operations


(1,642)

(1,660)

(4,131)

Finance income

4

1,618

4,822

4,457

Finance costs

13,14

(10,822)

(7,435)

(17,426)

Profit (loss) before income tax


(10,846)

(4,273)

(17,100)

Income tax /credit


24

22

46

 (Loss) for the period from continuing operations


 

(10,822)

 

(4,251)

 

(17,054)

Discontinued operations





Gain/(loss) for the period from discontinued operations

5

4,484

 

4,652

 

(7,522)

 

Profit/(loss) for the period attributable to owners of the company


 

(6,338)

 

401

 

(24,576)

Other comprehensive expense, net of tax:





Items that may be reclassified to profit or loss:





Exchange differences arising on

translating foreign operations


 

(13,795)

 

14,543

 

57,328

Total comprehensive income/(expense)

for the period attributable to owners of the company


 

(20,133)

 

14,944

 

32,752

Basic and diluted earnings/(loss) per share from continuing operations (US$)

 

6

(0.069)

(0.027)

(0.109)

Basic and diluted earnings/(loss) per share from discontinued operations (US$)

 

6

0.029

0.030

(0.048)

Basic and diluted earnings/(loss) per share (US$)

6

(0.040)

0.003

(0.157)

 

 

*  Certain amounts shown here do not correspond to the 2017 financial statements and reflect adjustments made in respect to assets held for sale, refer to note 5.

 



Condensed Consolidated Statement of Financial Position

At 30 June 2018




 

As at

30 June 2018

 

As at

31 December 2017


Notes


US$'000

US$'000




Unaudited

Audited

Assets





Non-current assets





Property, plant and equipment

8


273

33

Gas exploration and appraisal assets

9


613,793

617,900

Long term prepaid expenses



-

299

Deferred tax asset

17


337

317




614,403

618,549






Current assets





Trade and other receivables

10


8,364

8,167

Restricted cash



1,000

1,000

Cash and cash equivalents

11


1,087

1,347




10,451

10,514

Assets of disposal group classified as held-for-sale

5


 

372,029

 

380,133




382,480

390,647






Total assets



996,883

1,009,196








 




 

As at

 30 June 2018

 

As at

31 December 2017


Notes


US$'000

US$'000




Unaudited

Audited

Liabilities





Current liabilities





Trade and other payables

12


9,498

10,198

Convertible notes

13


55,905

53,132

Bonds

14


103,981

95,932

Current tax liabilities



-

-




169,384

159,262

Liabilities of disposal group classified

as held-for-sale

5


50,004

 

50,548

 




219,388

209,810

Non-current liabilities





Deferred tax liability

17


123,997

124,137

Share buyback option liability

13


1,851

3,469




125,848

127,606






Total liabilities



345,236

337,416

Total net assets



651,647

671,780






Capital and reserves





Share capital

16


16

16

Share premium



808,981

808,981

Share redemption reserve



(8,255)

(8,255)

Convertible note equity reserve



2,851

2,851

Share-based payment reserve



-

-

Foreign exchange reserve



24,586

38,381

Retained deficit



(176,532)

(170,194)

Total equity attributable to owners of the parent



651,647

671,780

Total equity



651,647

671,780


Condensed Consolidated Statement of Changes in Equity

Six months ended 30 June 2018


Share capital

Share premium

Share buyback option reserve

Convertible note equity reserve

Share based payment reserve

Foreign exchange reserve

Retained deficit

Equity attributable to owners of the parent


US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000










At 1 January 2017

16

808,981

(8,255)

2,851

-

(18,947)

(145,618)

639,028










Profit for the period

-

-

-

-

-

-

401

401

Exchange differences on

translating foreign

operations

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

14,543

 

 

-

 

 

14,543

Total comprehensive

expense for the period

 

-

 

-

 

-

 

-

 

-

 

14,543

 

401

 

14,944

Transfer to retained deficit

-

-

-

-

-

-

-

-










At 30 June 2017

  (unaudited)

16

808,981

(8,255)

2,851

-

(4,404)

(145,217)

653,972










At 1 January 2018

16

808,981

(8,255)

2,851

-

38,381

(170,194)

671,780

Loss for the period

-

-

-

-

-

-

(6,338)

(6,338)

Exchange differences on

translating foreign

operations

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(13,795)

 

 

-

 

 

(13,795)










Total comprehensive

income for the period

 

-

 

-

 

-

 

-

 

-

(13,795)

-

(6,338)

-

(20,133)

-

Transfer to retained deficit

-

-

-

-

-

-

-

-










At 30 June 2018

  (unaudited)

16

808,981

(8,255)

2,851

-

24,586

(176,532)

651,647



 


Condensed Consolidated Statement of Cash Flows

Six months ended 30 June 2018

 



Six months ended 30 June 2018

Six months ended 30 June 2017

 

Year ended

 31 December 2017

 



US$'000

US$'000

US$'000


Notes

Unaudited

Unaudited

Audited

Cash flows used in continuing operating activities





(Loss)/profit after tax

3

(10,822)

1,822

(17,054)

Adjustments for:





Depreciation


11

2,160

22

Other income and finance income

4

(1,618)

(4,999)

(4,475)

Finance costs

13,14

10,822

7,435

17,426

Accelerated finance charge


-

-

-

Taxation


(24)

(245)

(46)

Cash used in from operating

activities before changes in

working capital


 

 

(1,631)

 

 

6,173

 

 

(4,153)

Movement in inventory


-

-

-

Movement in trade and other receivables


(197)

(3,679)

4,690

Movement in trade and other payables


(709)

2,568

5,258

Net cash generated from operations


(2,537)

5,062

5,795

Income tax


-

-

-

Net cash used in

 continuing operating activities


 

(2,537)

 

5,062

 

5,795

Net cash used in

 discontinued operating activities

 

5

 

2,307

 

(1,870)

 

11,731

Net cash used in

 operating activities


 

(230)

 

3,192

 

17,526



 

 



 



Six months ended 30 June 2018

Six months ended

30 June 2017

Year ended

 31 December 2017



US$'000

US$'000

US$'000


Notes

Unaudited

Unaudited

Audited

Investing activities





Payments for purchase of property,

Plant and equipment

 

8

 

(273)

 

(29)

 

-

Payments for exploration activities


-

(6,565)

(6,259)

Interest received


-

2

4

Refund of deposit received from PetroChina


 

 

 

500

 

1,000

Net cash used in continuing

 investing activities


 

(273)

 

(6,092)

 

(5,255)

Net cash used in discontinued

 investing activities

 

5

 

(1,503)

 

(77)

 

(12,192)

Net cash used in

 investing activities


 

(1,776)

 

(6,169)

 

(17,447)






Financing activities





Interest paid


-

(4,400)

(4,400)

Repayment received from Investing in Discontinued Operations


 

2,583

 

-

 

-

Net cash used in continuing

 financing activities


 

2,583

 

(4,400)

 

(4,400)

Net cash used in discontinued

 financing activities

5

 

(2,583)

 

-

 

-

Net cash used in

 financing activities


 

-

 

(4,400)

 

(4,400)






Net decrease in cash

  and cash equivalents


 

(2,006)

 

(7,377)

 

(4,321)

Cash and cash equivalents

  at beginning of period


 

3,175

 

7,324

 

7,324



1,169

(53)

3,003

Effect of foreign exchange rate changes


(33)

826

172

Cash and cash equivalents

  at the end of period

 

 

 

1,136

 

773

 

3,175

Attributable to continuing activities

11

1,087

72

1,347

Attributable to discontinued activities

5

49

701

1,828



Notes to Condensed Interim Financial Statements

 

1       GENERAL INFORMATION

 

The condensed financial information for the six months ended 30 June 2018 and 30 June 2017 is unaudited and does not constitute a set of statutory financial statements. The consolidated unaudited interim financial information set out in this report represents the consolidated financial statements of G3E Ltd. and its subsidiary companies (together referred to as the 'Group'). The condensed consolidated financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2017, which have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS"). The comparative financial information for the full year ended 31 December 2017 presented here is not the Group's full annual accounts for that period but has been derived from the annual financial statements for that period.  The auditors' report on those accounts was unqualified and includes reference to a matter to which the auditors drew attention by way of Material uncertainty related to going concern paragraph on the Group's ability to continue as a going concern without qualifying their report.

 

2       ACCOUNTING POLICIES

 

IFRS 9 'Financial Instruments'

 

IFRS 9 (2014) - as issued in July 2014 reflects the final version of the IASB's work on the replacement of IAS 39 and will be effective for annual periods beginning on or after 1 January 2018. Early application is permitted but the Group has not early adopted IFRS 9. IFRS 9, Financial Instruments, covers mainly: i) the classification and measurement of financial assets and financial liabilities, ii) the new impairment model for the recognition of expected credit losses, and iii) the new hedge accounting model.

 

The Group adopted IFRS 9 in the financial reporting period commencing 1 January 2018. IFRS 9 determines the measurement and presentation of financial instruments depending on their contractual cash flows and business model under which they are held. The impairment requirements are based on an expected credit loss ("ECL") model that replaces the IAS 39 incurred loss model. The Group made an assessment of all the account receivables specifically relating to credit risk and expected credit losses; the Group has not found significant impact on adoption of IFRS 9's impairment requirements.

 

For financial liabilities, the existing classification and measurement requirements of IAS 39 are largely retained by IFRS 9. The accounting treatment of the group's current financial liabilities (notes 13, 14) is based on IAS 39.

 

Therefore, the Group does not have a significant impact on adoption of IFRS 9's financial assets and liabilities.

 

IFRS 15 'Revenue from Contracts with Customers'

 

IFRS 15, Revenue from Contracts with Customers, outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. IFRS 15 Revenue from Contracts with Customers replaces IAS 11 Construction Contracts, IAS 18 Revenue and related interpretations and will be effective for annual periods beginning on or after 1 January 2018. It applies to all entities that enter into contracts to provide goods or services to their customers, unless the contracts are in the scope of other IFRS, such as IAS 17 Leases. The standard also provides a model for the measurement and recognition of gains and losses on the sale of certain non-financial assets, such as property or equipment. Extensive disclosures will be required, including disaggregation of total revenue; information about performance obligations; changes in contract asset; and liability account balances between periods and key judgments and estimates.

 

The Group has applied this new standard for the contracts that are currently booked. The transfer of control natural gas sold by the group usually coincides with title passing to the customer and the customer taking physical possession. The group principally satisfies its performance obligations at a point in time of gas delivered to customer. Although, according written clauses in selling contracts, the group will give discount if there was a quality issue; however, the situation is uncommon. The Group does not meet a significant impact on adoption of IFRS 15 during the first half of 2018.

 

IFRS 16 'Leases'

 

IFRS 16 is effective for the 31 December 2019 financial year-end. IFRS 16 'Leases' provides a new model for lessee accounting in which all leases, other than short-term leases and leases of low-value items, will be accounted for by the recognition under a single on-balance sheet model of a right-to-use asset and a lease liability, similar to finance leases under IAS 17. The subsequent amortization of the right-to-use asset and the interest expense related to the lease liability will be recognized separately in profit or loss over the lease term. Lessor accounting is substantially unchanged from today's accounting under IAS 17. A lessee can choose to apply the standard using either a full retrospective or a modified retrospective transition approach. The standard's transition provisions permit certain reliefs. Early application is permitted, but not before an entity applies IFRS 15.

 

The group will continue to assess all lease agreements. The group expects that IFRS 16 will have a non-material effect on the group's financial statements after its adoption, as the total amount of lease agreement is insignificant.

 

Basis of preparation and going concern

 

These financial statements have been prepared on a going concern basis.

 

Included in current liabilities as at the 30 June 2018 are two specific instruments;

 

The Company has a $50.0 million convertible loan note which is due for repayment on 31 December 2020. On the 23 October 2017 an extension to the one-time early redemption option was agreed with the note holder such that is now exercisable at any time up to 20 November 2018, and would require early repayment of the whole amount due no earlier than 20 November 2018. The option to require early repayment is at the note holder's sole discretion. Further details of the terms of the instrument are included in note 13.

 

The Company has an $88.0 million bond which was due for repayment in November 2017. The bond has not been repaid, the due date has passed. On 22 December 2017 the Bond Trustee reported that it was instructed by one or more bondholders representing a majority of the outstanding bond that they were in discussions with the Company regarding amongst other things an amendment to the bond agreement to extend the maturity date. Furthermore, the Bond Trustee was instructed by those majority bondholders not to take any action to recover amounts due and, until further notice, and as long as no conflicting instruction is received, they will not declare the bond to be in default or demand immediate payment.  Further details of the terms of the instrument are included in note 14.

 

The Company also has other payables due to third parties of approximately $16.4 million, due immediately. The Company is managing these payables through continuing negotiation with suppliers.

 

In considering the appropriateness of the going concern basis, the Board gave consideration to the following:

 

The Company is currently in negotiation with a bank in order to re-finance the $88.0 million bond, the $50.0 million convertible loan note and settle all other liabilities and fund commitments. The Company has received a draft term sheet and the Company expects that a bank will complete its appropriate due diligence process and confirm debt financing in due course.

 

The Company plans to divest its main producing assets (blocks GSS and GCZ) into a new Hong Kong listed company, Green Dragon Gas (GDG), and at the same time raise sufficient cash from new equity to repay all of the Company's existing debt. The remaining development and exploration blocks are planned to stay in G3E, which in turn will remain listed in London. The Hong Kong listing and concurrent equity raise is subject to approval from the Hong Kong Stock Exchange (HKEX) and confirmation of investment from potential new shareholders, however the Board is confident this will be completed.

 

The Company's major shareholder and CEO, Randeep S. Grewal, has confirmed that he will provide sufficient financial support in respect to other current payables of $16.4 million, prior to the expected fundraising through debt or the IPO, if required.

 

The Directors have informed the Bondholder Trustee of the Company's intention to raise financing through the issue of debt or equity from the Hong Kong listing and to use the new financing to repay the $88.0 million bond. The Company notes that discussions continue and a major bondholder has also signed a non-binding draft agreement to defer the due date to November 2018. To date the Company is not aware of any immediate intention of the Bond Trustee to take action to recover amounts due. On the basis of the above, the Company does not expect the bondholders to put the bond into default before additional funding is received. However, the bondholders have given no written assertions that they will not put the bond into default.

 

The Company is confident that the $50.0 million note holder will continue to support the Company as it acts to refinance the bond, such that the note holder will not be motivated to act on their early redemption option available until 20 November 2018. However, the note holder has not given any written assertions that they will not exercise their early redemption option.

 

The Company expects to use the proceeds from the Hong Kong listing and the new debt finance to repay all of the Company's debts. Based on the above, the Company expects to be able to meet its liabilities as they fall due for a period not less than one year.

 

However, as at the date of this report, there were no binding debt re-financing agreements in place, the HKEX have not yet approved the Hong Kong Listing and investors have not committed to provide equity financing. Therefore there can be no certainty that re-financing will be successful. There can also be no certainty that the $50.0 million note holder will continue to support the Company and not exercise their right to early redemption, or that no default notice will be issued in respect of the $88.0 million bond.

 

Notwithstanding the confidence that the Board has, the Directors, in accordance with Financial Reporting Council guidance in this area, conclude that at this time there is material uncertainty that such finance can be procured and failure to do so might cast significant doubt upon the Group's ability to continue as a going concern and that the Group may therefore be unable to realise their assets and discharge their liabilities in the normal course of business. These Financial Statements do not include the adjustments that would result if the Group was unable to continue as a going concern. 

 

3       REVENUE AND SEGMENTAL INFORMATION

 

The Group's reportable segments are as set out below. The operating results of each of these segments are regularly reviewed by the Group's chief operating decision-makers in order to make decisions about the allocation of resources and assess their performance.

 

During the period, the revenue of US$13.7 million (30 June 2017: US$11.2 million) was recognised by the upstream discontinued business. The average RMB/USD exchange rate for the period is 5% higher compared to the equivalent period in the prior year. The average RMB/USD exchange rate for the period ended 30 June 2018, and used for translating income statement RMB transactions for the purposes of this financial information was 6.8610 as compared to 6.5557 in the equivalent period of the prior year.



 

For the period ended 30 June 2018 (unaudited)

 

Upstream continuing operations

Upstream discontinued operations

Downstream discontinued operation

Corporate

Sub-total

Eliminations

Consolidated

 

 

(G3E)US$'000

(GDG)US$'000

(GGD)US$'000

(G3E)US$'000

US$'000

US$'000

US$'000

Segment revenue:








Sales to external customers

-

13,727

1,525

-

15,252

(15,252)

-

Inter-segment sales

-

-

-

-

-

-

-

 

-

13,727

1,525

-

15,252

(15,252)

-









Depreciation

-

(3,353)

(158)

(11)

(3,522)

3,511

(11)

Amortisation

-

-

-

-

-

-

-

Impairment

-

-

-

-

-

-

-

Profit/(loss) from operation

-

5,327

(715)

(1,642)

2,970

(4,612)

(1,642)

Finance income

-

1

-

1,618

1,619

(1)

1,618

Finance cost

-

-

(129)

(10,822)

(10,951)

129

(10,822)

Income tax

24

-

-

-

24

-

24

Profit/(Loss) for the period

24

5,328

(844)

(10,846)

(6,338)

(4,484)

(10,822)









Assets

 121,360

 369,416

 2,613

 503,494

996,883

 (372,029)

 624,854

Liabilities

 135,360

 47,391

 2,613

 159,872

 345,236

 (50,004)

 295,232

PPE additions

273

156

-

-

429

(156)

273

Gas exploration additions

-

1,503

-

-

1,503

(1,503)

-

 

For the period ended 30 June 2017 (unaudited)

 

Upstream continuing operations

Upstream discontinued operations

Downstream discontinued operation

Corporate

Sub-total

Eliminations

Consolidated

 

(G3E)US$'000

(GDG)US$'000

(GGD)US$'000

(G3E)US$'000

US$'000

US$'000

US$'000

Segment revenue:

 

 

 

 

 

 

 

Sales to external customers

-

11,200

1,753

-

12,953

(12,953)

-

Inter-segment sales

-

6,694

364

-

7,058

(7,058)

-


-

17,894

2,117

-

20,011

(20,011)

-

 








Depreciation

-

(1,620)

(278)

(22)

(1,920)

1,898

(22)

Amortisation

-

-

(356)

-

(356)

356

-

Impairment

-

-

-

-

-

-

-

Profit/(loss) from operation

-

4,525

(186)

(1,660)

2,679

(4,339)

(1,660)

Finance income

-

2

233

4,822

5,057

(235)

4,822

Finance cost

-

-

-

(7,435)

(7,435)

-

(7,435)

Income tax

22

-

78

-

100

(78)

22

Profit/(Loss) for the period

22

4,527

125

(4,273)

401

(4,652)

(4,251)









Assets

121,350

351,078

44,744

858,418

1,375,590

(386,346)

989,244

Liabilities

125,949

24,440

71,078

500,151

721,618

(378,909)

342,709

PPE additions

29

80

-

-

109

(80)

29

Gas exploration additions

722

8,223

-

-

8,945

(8,223)

722



For the year ended 31 December 2017 (audited)

 

 

Upstream continuing operations

Upstream discontinued operations

Downstream discontinued operation

Corporate

Sub-total

Eliminations

Consolidated

 

(G3E)US$'000

(GDG)US$'000

(GGD)US$'000

(G3E)US$'000

US$'000

US$'000

US$'000

Segment revenue:

 

 

 

 

 

 

 

Sales to external customers

-

14,618

11,039

-

25,657

(25,657)

-

Inter-segment sales

-

12,500

646

-

13,146

(13,146)

-

 

-

27,118

11,685

-

38,803

(38,803)

-

Depreciation

-

(7,623)

(1,524)

(22)

(9,169)

9,147

(22)

Amortisation

-

-

1,066

-

1,066

(1,066)

-

Impairment

-

-

(13,095)

-

(13,095)

13,095

-

Profit/(loss) from operation

-

7,577

(18,195)

(4,131)

(14,749)

10,618

(4,131)

Finance income

12

1

2

4,445

4,460

(3)

4,457

Finance cost

-

-

580

(17,426)

(16,846)

(580)

(17,426)

Income tax

46

2,347

166

-

2,559

(2,513)

46

Profit/(Loss) for the year

58

9,925

(17,447)

(17,112)

(24,576)

7,522

(17,054)









Assets

127,550

377,513

2,619

501,513

1,009,195

(380,133)

629,062

Liabilities

132,296

47,928

2,619

154,570

337,413

(50,548)

286,865

PPE additions

-

-

162

3

165

(161)

4

Gas exploration additions

9,261

3,970

-

-

13,231

(3,970)

9,261

 

 

4       OTHER INCOME AND FINANCE INCOME



Six months ended 30

June 2018

Six months ended 30

June 2017

 

Year ended

31 December 2017



US$'000

US$'000

US$'000



Unaudited

Unaudited

Audited

Revaluation of share buyback option


1,618

4,817

4,455

Others


7

7

2

 

 


 

1,625

 

4,822

 

4,457

 

5       NON-CURRENT ASSETS HELD-FOR-SALE AND DISCONTINUED OPERATION

 

The assets and liabilities relating to the carve-out of the producing blocks (GSS & GCZ) of Greka Energy (International) B.V., a 100% wholly-owned subsidiary of the Company, have been presented as held for sale following the board decision to launch GSS & GCZ blocks IPO listing in the Hong Kong Stock Exchange. Management expects GSS & GCZ blocks to be sold within the next 12 months.

 

The assets and liabilities relating to Greka Gas Distribution Ltd, a 100% wholly-owned subsidiary of the Company, have been presented as held for sale following the announcement made to sell Greka Gas Distribution Ltd in the PRC. Management expects Greka Gas Distribution Ltd to be sold within the next 6 months.



 

(a)   Assets of disposal group classified as held-for-sale

 


Note

As at

30 June 2018

As at

30 June 2018

As at

30 June 2018



Upstream group

Downstream group

Subtotal



US$'000

US$'000

US$'000

Property, plant and equipment

8

140,365

-

140,365

Gas exploration and appraisal assets

9

216,284

-

216,284

Long term prepaid expenses


-

579

579

Deferred tax asset

17

4,244

-

4,244

Trade and other receivables


8,511

1,997

10,508

Cash and cash equivalents

 

12

37

49



369,416

2,613

372,029

 


Note

As at

31 December 2017

As at

31 December 2017

As at

31 December 2017



Upstream group

Downstream group

Subtotal



US$'000

US$'000

US$'000

Property, plant and equipment

8

141,445

-

141,445

Gas exploration and appraisal assets

9

223,713

-

223,713

Long term prepaid expenses


-

579

579

Deferred tax asset

17

4,268

-

4,268

Trade and other receivables


7,478

822

8,300

Cash and cash equivalents

 

609

1,219

1,828



377,513

2,620

380,133

 

(b)   Liabilities of disposal group classified as held-for-sale

 


Note

As at

30 June 2018

As at

30 June 2018

As at

30 June 2018



Upstream group

Downstream group

Subtotal



US$'000

US$'000

US$'000

Trade and other payables


(18,533)

(3,248)

(21,781)

Deferred tax liabilities

17

(28,945)

(145)

(29,090)

Current tax liabilities


2

865

867



(47,476)

(2,528)

(50,004)

 


Note

As at

31 December 2017

As at

31 December 2017

As at

31 December 2017



Upstream group

Downstream group

Subtotal



US$'000

US$'000

US$'000

Trade and other payables


(19,061)

(3,340)

(22,401)

Deferred tax liabilities

17

(28,806)

(145)

(28,951)

Current tax liabilities

 

(61)

865

804



(47,928)

(2,620)

(50,548)

 

(c)    Analysis of the results of discontinued operations is as follows:

 

 



As at

30 June 2018

As at

30 June 2018

As at

30 June 2018


Note

Upstream group

Downstream group

Subtotal



US$'000

US$'000

US$'000

Revenue:

3

13,727

1,525

15,252

Profit/(loss) from operation

3

5,327

(715)

4,612

Finance income

3

1

-

1

Finance cost

3

-

(129)

(129)

Income tax

3

-

-

-

Gain/(Loss )after tax of discontinued operations attributable to owners of the company


5,328

(844)

4,484

 

 



As at

30 June 2017

As at

30 June 2017

As at

30 June 2017


Note

Upstream group

Downstream group

Subtotal



US$'000

US$'000

US$'000

Revenue:

3

11,200

1,797

12,997

Profit/(loss) from operation

3

4,525

(186)

4,339

Finance income

3

2

233

235

Finance cost

3

-

-

-

Income tax

3

-

78

78

Gain/(Loss )after tax of discontinued operations attributable to owners of the company


4,527

125

4,652






 

(d)   Cash flow from (used in) discontinued operations:



As at

30 June 2018

As at

30 June 2018  

As at

30 June 2018  



US$'000

US$'000

US$'000



Upstream group

Downstream group

Subtotal

Net cash used in operating activities


2,879

(572)

2,307

Net cash generated from investing activities


(1,503)

-

(1,503)

Net cash generated from financing activities


(2,583)

-

(2,583)

Net cash inflow/(outflow)


(1,207)

(572)

(1,779)

 

 



As at

30 June 2017

As at

30 June 2017

As at

30 June 2017



US$'000

US$'000

US$'000



Upstream group

Downstream group

Subtotal

Net cash used in operating activities


970

5,158

6,128

Net cash generated from investing activities


(7,700)

(77)

(7,777)

Net cash generated from financing activities


-

-

-

Net cash inflow/(outflow)


(6,730)

5,081

(1,649)

 

6       EARNINGS AND (LOSS) PER SHARE

 

The calculation of basic and diluted profit/(loss) per share attributable to the owners of the Company is based on the following data:

 


Six months ended

 30 June 2018

Six months ended

 30 June 2017

Year ended

 31 December 2017


US$'000

US$'000

US$'000


Unaudited

Unaudited

Audited





Loss for the period attributable to the owners of the Company used in basic and diluted earnings/(loss) per share from:

Continuing operations

(10,822)

(4,251)

(17,054)

 

Discontinued operations

4,484

4,652

(7,522)

 

Continuing and discontinued operations

(6,338)

401

(24,576)





Weighted average number of ordinary shares

for the basic and diluted loss/earnings per share

156,072,289

156,072,289

156,072,289

 

Basic and diluted earnings/(loss) per share from continuing operations (US$)


(0.069)

(0.027)

(0.109)

Basic and diluted earnings/(loss) per share from discontinued operations (US$)


0.029

0.030

(0.048)

Basic and diluted earnings/(loss) per share (US$)


(0.040)

0.003

(0.157)

 

Profit/(loss) per share is based on the loss attributable to ordinary equity holders of the Company of divided by the weighted average of ordinary shares in issue during the corresponding period.

 

No separate calculation of diluted profit/(loss) per share has been presented as, at the date of this financial information, no options, warrants or other instruments that could have a dilutive effect on the share capital of the Company were outstanding.

 

7       DIVIDENDS

 

The Directors do not recommend the payment of an interim dividend during the period ended 30 June 2018 and year ended 31 December 2017.



 

8       PROPERTY, PLANT AND EQUIPMENT

 


 

 

Gas assets

 

Building and structures

 

Construction in progress

 

Motor vehicles

Fixtures, fittings and equipment

 

 

Total


US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

Cost







At 1 January 2017

285,869

1,220

1,493

3,802

4,751

297,135

Additions

-

15

51

43

56

165

Share of CUCBM additions

7,726

-

-

-

-

7,726

Change in estimate of CUCBM provision

(145,945)

-

-

-

-

(145,945)

Disposals

-

-

-

-

-

-

Transferred to disposal group classified as held for sale (note 5)

(170,045)

(1,295)

(1,636)

(4,024)

(4,412)

(181,412)

Exchange differences

22,395

60

92

179

208

22,934

Balance as at 31 December 2017

-

-

-

-

603

603

Additions

-

-

-

-

305

305

Exchange differences

-

-

-

-

(3)

(3)

At 30 June 2018

-

-

-

-

905

905








Depreciation







At 1 January 2017

19,771

579

-

2,128

2,074

24,552

Provided for the year

7,623

101

-

1,163

282

9,169

Impairments loss

-

580

1,636

603

2,536

5,355

Transferred to disposal group classified as held for sale (note 5)

(28,600)

(1,295)

(1,636)

(4,024)

(4,412)

(39,967)

Exchange differences

1,206

35

-

130

90

1,461

Balance as at 31 December 2017

-

-

-

-

570

570

Provided for the period

-

-

-

-

63

63

Exchange differences

-

-

-

-

(1)

(1)

At 30 June 2018

-

-

-

-

632

632








Net book value







At 30 June 2018

-

-

-

-

273

273

 

At 31 December 2017

-

-

-

-

33

33

 



 

9        GAS EXPLORATION AND APPRAISAL ASSETS

         

Cost


US$'000




At 1 January 2017


1,034,117

Additions


13,231

Capitalisation of internal costs


3,461

Share of gas exploration and appraisal assets from CUCBM


 

13,886

Reversal of Share of gas exploration and appraisal assets from CUCBM


 

(288,872)

Classified as held for sale(note 5)


(223,713)

Exchange differences


65,790

 

At 31 December 2017 (audited)


 

617,900




Capitalisation of internal costs


1,601

Exchange differences


(5,708)

 

At 30 June 2018 (unaudited)


 

613,793

                           

10     TRADE AND OTHER RECEIVABLES



As at

 30 June

 2018

As at

 31 December

2017



US$'000

US$'000



Unaudited

Audited

Trade receivables


-

-

Prepayments


-

72

Other receivables


2,869

1,928

Amount due from related parties


5,495

6,167



8,364

8,167

 

 

11     CASH AND CASH EQUIVALENTS

 

An analysis of the balances of cash and cash equivalents is as follows:

             



As at

 30 June

 2018

As at

 31 December

2017



US$'000

US$'000



Unaudited

Audited

Cash and bank balances


1,087

1,347





Significant non-cash transactions are as follows:

 


US$'000

Unaudited

US$'000

Audited





Investing activities


-

-

 - Change in estimate relating to CUCBM provision


-

(410,313)


 

Current loans and borrowing


USD'000

At 1 January 2018

149,064

Cash flows

-

Accrued interest

10,822

At 30 June 2018

159,886



At 1 January 2017

136,142

Cash flows

(4,400)

Accrued interest

17,322

At 31 December 2018

149,064

 

12     TRADE AND OTHER PAYABLES



As at

 30 June

 2018

As at

 31 December

2017



US$'000

US$'000



Unaudited

Audited

Trade payables


7,659

6,712

Amounts due to related parties


1,839

3,486



9,498

10,198

 

13      CONVERTIBLE NOTES



As at

 30 June

 2018

As at

 31 December

2017



US$'000

US$'000



Unaudited

Audited

Brought forward from prior year


47,347

Accrued interest


5,785



55,905

53,132

 

As at 30 June 2018, the Company had one (31 December 2017: one) convertible note in issue repayable within 1 year.

 

Convertible note issued 2014

US$50 million 7% coupon convertible note due 2017

On 2 June 2014, the Company issued a three-year convertible note having a face value of US$50,000,000 with a maturity date of 1 June 2017. The note bears interest at 7% per annum, payable on a semi-annual basis. At the Maturity Date, the total sum of 100% of the outstanding principal amount of the convertible note and the accrued interest shall become payable, unless previously converted or redeemed.

 

The convertible note can be converted into Ordinary Shares of the Company at the note holder's option at any time prior to the Maturity Date at US$9.34 per share.

 

Convertible note amendment

US$50 million 10% coupon convertible note due 2020

In December 2016, the Company reached agreement with the note holder to extend the maturity of the US$50 million convertible note entered into in June 2014. Under the agreement, the note remains unsecured, has a revised coupon of 10% and a maturity date extended to 31 December 2020. The Company issued an option for the note holder to require (one-time) early repayment on the original maturity date, the option being exercisable at the discretion of the note holder by 28 April 2017. The conversion price of the note was amended to US$2.83 per share representing a 25% premium over the 13 December 2016 closing price.

 

During the year ended 31 December 2017, the company reached agreement with the note holder to extend the period during which the put option is exercisable to 20 November 2018.

 

At final maturity of the note, the note holder has the right to require the Company to purchase all of its share holdings up to a maximum limit of 10,775,578 shares or 6.69% of the entire issued share capital of the Company at a price based on the 90 day VWAP calculated as of 31 December 2020 and to be settled prior to 30 April 2021. See the share buyback option liability below.

*Share buyback option liability



As at

 30 June

 2018

As at

 31 December

2017



US$'000

US$'000



Unaudited

Audited

Brought forward from prior year


3,469

7,924

Revaluation of share buyback option


(1,618)

(4,455)



1,851

3,469

 

(a)   Accounting for convertible notes

 

On initial recognition, the fair value of the liability component of the convertible loan note was determined using the prevailing market interest rate of similar debts without conversion option and early redemption options. For the note issued during 2014, the rate considered to be comparable was 10%. The loan note is subsequently carried at amortised cost.

 

The equity element arising from the conversion option of their convertible notes, being the residual value at initial recognition, is presented in the equity heading "convertible note equity reserve", as disclosed in note 24 to the financial statements.

 

On the amendment of the convertible note, the original financial liability was extinguished and the convertible reserve was transferred to retained earnings through reserves. The fair value of the liability component of the amended convertible loan was determined using the prevailing market interest rate of similar debts without conversion option and early redemption options. the rate considered to be comparable was 12%. The loan note is subsequently carried at amortised cost.

 

The equity element arising from the conversion option of the convertible notes, being the residual value at initial recognition, is presented in the equity heading "convertible note equity reserve", as disclosed in note 24 to the financial statements.

 

The terms of the convertible note include a clause whereby if another loan held by the Company becomes in default then the convertible note would also be in default. At the balance sheet date, no other loans were in default but there was a breach of covenants on the Company's public corporate bond

 

14      BONDS AND DERIVATIVE FINANCIAL INSTRUMENT


On 8 December 2014, G3E issued a public corporate bond (the "Bond") in the amount of US$88,000,000. The bond was issued at a discount of 2.5% and is senior secured three-year paper due on 20 November 2017. The Bond carries a 10% coupon payable semi-annually and also carries a redemption premium of 2% at maturity. The Bond is secured by a pledge over the shares of Greka Gas China, a wholly-owned subsidiary of G3E. The bond was initially recorded at fair value and is subsequently carried at amortised cost. Issue fees of US$1,893,000 were offset against the principal amount of the bond and will be amortised as part of the effective interest rate charge to the maturity date. The redemption premium is amortised as part of the effective interest rate charge to the maturity date. The following table summarises the movements in the bond:



As at

 30 June

 2018

As at

 31 December

2017



US$'000

US$'000



Unaudited

Audited

Brought forward from prior year


95,932

88,795

Accrued interest


8,049

11,537

Interest payment


-

(4,400)



103,981

95,932

 

As disclosed in the Company's 2017 annual report, due to the non-inclusion of CUCBM's revenue and related costs, the Company's 2017 financial statements failed to meet two of the bonds' financial covenants. The bonds are disclosed as a current liability at the period end of 2017 and 2018 as they are due on November 2017 and are therefore overdue.

 

15     PROVISIONS

 

The cost recovery provision accounted for in upstream discontinued operations (Note 5) also includes US$13,000,000 (2016: US$13,000,000) in respect of exploration costs incurred by CUCBM prior to the PSC period. The Group has an option to increase its participating interest in the GSS Block from its current 60% to 70% by investing two installments of US$6,500,000, one prior to 31 December 2017, and the second prior to 31 December 2018. The amount is unsecured and does not bear interest. Discounting is considered to be immaterial. See note 19 for more information.

 

16     SHARE CAPITAL AND RESERVES

 


Authorised

Issued and fully paid


Number


Number



of shares

US$

of shares

US$

At 1 January 2017, 31 December 2017 and 30 June 2018 ordinary shares of US$0.0001 each

500,000,000

50,000

156,072,289

15,607

 

Nature and purpose of reserves

 

(i)          Share premium

The amount relates to subscription for or issue of shares in excess of nominal value. The application of the share premium account is governed by the Companies Law of the Cayman Islands.

 

(ii)         Share redemption reserve

The amount represents the initial value of the liability in respect of the option the company has granted to buy back shares.

 

(iii)        Convertible note equity reserve

The amount represents the value of the unexercised equity component of the convertible note issued by the Company recognised in accordance with the Group's accounting policy.

 

(iv)         Share based payment reserve

The amount relates to the fair value of the share options that have been expensed through the income statement less amounts, if any, that have been transferred to the retained earnings/deficit upon exercise.

 

(v)          Foreign exchange reserve

The amount represents gains/losses arising from the translation of the financial statements of foreign operation the functional currency of which is different from the presentation currency of the Group.

 

(vi)         Retained deficit

The amount represents cumulative net gains and losses recognised in consolidated profit or loss less any amounts reflected directly in other reserves.

 

17     DEFERRED TAXATION

 

(a) Deferred tax assets



US$'000




At 1 January 2017


2,079

Additions


2,347

Exchange differences


159

Classified as held for sale(note 5)


(4,268)

At 31 December 2017 - audited


317

Movement in classified as held for sale(note 5)


24

Exchange differences


(4)

At 30 June 2018 (unaudited)


337

 

(b) Deferred tax liabilities



US$'000




At 1 January 2017


144,831

Reversal of temporary difference


(177)

Exchange differences


8,434

Classified as held for sale(note 5)


(28,951)

At 31 December 2017 - audited


124,137

Movement in classified as held for sale(note 5)


(139)

Reversal of temporary difference


-

Exchange differences


(1)

At 30 June 2018 (unaudited)


123,997

 


 

 

 

As at

30 June

2018

US$'000

As at

31 December 2017

US$'000



Unaudited

Audited

Recognised deferred tax (liabilities) and assets at PRC rate of 25%




Deferred tax assets and liabilities are attributable to the following:




Fair value adjustments in exploration and evaluation assets


 

(123,997)

 

(124,137)





Tax losses - overseas


337

317





Unrecognised deferred tax assets




Deferred tax assets have not been recognised in respect of the following:




Tax losses - overseas


-

-

Potential unrecognised tax benefit at PRC rate of 25%


 

-

 

-

 

The deductible temporary timing differences do not expire under current tax legislation. PRC tax losses expire after five years. Deferred tax assets have not been recognised in respect of the full value of these items because at this point in the Groups development it is not virtually certain that future taxable profits will be available against which the Group companies can utilise the benefits of these tax losses in the near future. The Group has not offset deferred tax assets and liabilities across different jurisdictions.

18     SUBSIDIARIES

 

The principal subsidiaries of the Company, all of which have been included in these consolidated financial statements, are as follows:




As at 30 June 2018Percentage of ownershipinterest held

As at 31 December 2017
Percentage of ownershipinterest held

Name

Place of incorporation

Principal activities

Directly

Indirectly

Directly

Indirectly








Greka Gas China Limited

Cayman Islands

Investment holding

100%

-

100%

-

Greka Energy(International).B.V.

Amsterdam,Netherlands

Exploration, development and production of coal bed methane

-

100%

-

100%

GDGF Ltd

British Virgin Islands

Investment holding

-

100%

-

-

Greka GSN Ltd

British Virgin Islands

Exploration, development and production of coal bed methane

-

100%

-

100%

Greka Integrated Products Ltd

British Virgin Islands

Investment holding

-

100%

-

100%

Greka GFC Ltd

British Virgin Islands

Exploration, development and production of coal bed methane

-

100%

-

100%

Greka Gas Distribution Ltd

British Virgin Islands

Investment holding

-

100%

-

100%

Greka GQY Ltd

British Virgin Islands

Exploration, development and production of coal bed methane

-

100%

-

100%

Greka Exploration and Production Ltd

Cayman Islands

Investment holding

-

100%

-

100%

Greka GPX Ltd

British Virgin Islands

Exploration, development and production of coal bed methane

-

100%

-

100%

Zhengzhou Greka Gas Co.,Ltd.

The PRC

Supply and distribution of natural gas

-

100%

-

100%

PingDingShan Greka Gas Co.,Ltd

The PRC

Supply and distribution of natural gas

-

100%

-

100%

Gongyi Greka Transportation Co.,Ltd

The PRC

Investment holding

-

100%

-

100%

Greka Guizhou E&P Ltd

British Virgin Islands

Exploration, development and production of coal bed methane

-

100%

-

100%

Yanjin Changda Gas Station

The PRC

Supply and distribution of natural gas

-

100%

-

100%

 

19     JOINT ARRANGEMENTS

 

The Group currently operates under six (2017: six) production sharing contracts ("PSCs") for the exploration and development of CBM gas in the PRC.

 

Background

 

On 8 January 2003, the Group entered into four PSCs with CUCBM to explore, develop and produce coal bed methane in five blocks comprising Shizhuang South ("GSS"), Chengzhuang ("GCZ"), Shizhuang North ("GSN"), Qinyuan ("GQY") and Panxie East ("GPX"). GSS, GCZ, GSN and GQY are located in Shanxi Province with PanxieEast located in Anhui Province.

 

In 2003 the Group also obtained the rights as foreign contractor related to the Fengcheng ("GFC") PSC. This PSC, dated 13 August 1999, was originally entered between Saba Petroleum Inc. as foreign contractor and CUCBM. Saba Petroleum Inc. was a related company of the Group by way of the common controlling shareholder, Mr. Randeep S. Grewal. The GFC block is located in Jiangxi Province.

 

Under the terms of these five PSCs the Group, as operator, agreed to provide funds and apply its technology and managerial experience and to cooperate with CUCBM to explore, develop and produce coal bed methane from the license areas. CUCBM as a state-owned enterprise is eligible to apply for the exclusive rights for the exploitation of coal bed methane in the areas as defined in the contracts.

 

The PSCs provide that all costs incurred in the exploration stage shall be borne by the Group. The terms of the PSCs require the Group to cooperate with the state partner to submit the Overall Development Plan to the relevant authorities. Upon approval of the ODP by the Chinese authorities, the PSC operations are determined to have entered the development stage. However, as detailed in Note 2in circumstances when the approval of ODP is delayed other factors, including the substantive nature of operations and cash generation, may be considered to determine whether the development stage has been reached regardless of formal ODP approval.

 

Where it is determined that an asset is in the development stage based on facts and circumstances then the associated investment balance is reclassified from the exploration and appraisal category to the property, plant and equipment category of fixed assets. The responsibility for procuring approval of the ODP lies with the State partner. Once formally in the development stage the cost sharing mechanisms within the PSCs become effective and development and operating costs are borne by the partners in accordance with their respective equity interests in the relevant PSCs. Once production commences the cost recovery mechanism within the PSCs provides that the proceeds of production output (after deduction of value-added tax and any royalty payable to the Chinese tax authority) are allocated as follows:

 

·      firstly towards operating costs recovery in the proportion above mentioned (the "Sharing Proportion");

·      secondly to exploration cost recovery; and

·      thirdly to development cost recovery (including deemed interest as appropriate).

Any unallocated revenue after cost recovery is allocated to the partners in accordance with their equity participation in the PSC after calculating a final royalty payable to the Chinese Authorities. The final royalty is based on a sliding scale from 0% to the maximum payable of 15% and calculated over total block production.

 

The five PSCs each have a term of 30 years, with a production period of not more than 20 consecutive years commencing on a date determined by the Joint Management Committee but aligned with the approval date of ODP. The JMC is established in accordance with the PSC between the Group and CUCBM to oversee the operations in the contracted area. Currently all the six blocks covered by these five production sharing contracts are formally in the exploration stage based on the Chinese requirement for ODP approval before transition to development. In 2015 the assets associated with area 4 within the GSS block were reclassified as property, plant and equipment due to the substantive nature of the production operations and associated cash generation from this area.

 

PSCs held with PetroChina (CNPC)

 

Chengzhuang block ("GCZ")

In August 2014, the Group finalised and signed the Cooperation Agreement with PetroChina in respect of the GCZ block in accordance with a memorandum of understanding previously entered in December 2013. GCZlies within the GSS licence area and prior to the Cooperation Agreement was governed by the GSS PSC. The Cooperation Agreement reaffirms the rights of the Group contained in the PSC over the GCZ block. The Cooperation Agreement confirms the Group's 47% participating interest in the block and defines the term of the agreement as running from March 2010 to March 2033.

 

The Cooperation Agreement confirmed the Group's contribution to cumulative capital expenditure and its share of net revenue. The Cooperation Agreement also confirmed the Group's entitlement to its share of the downstream infrastructure assets in place, including the gas gathering station, together with the Group's funding obligation for those assets. The Group recorded US$10,900,000 within property, plant and equipment in respect of its 47% share in these assets in 2014 based on the final agreement of the costs associated with the downstream infrastructure. The Group also elected to settle its obligation for all historic amounts due to PetroChina through its share of future production.

 

In 2015 PetroChina achieved cost recovery in respect of its historic investment in the GCZ block. Following cost recovery by PetroChina the Group is receiving its proportion of revenue in cash each month. As a result, the billing arrangements for GCZ have moved to a full joint operations basis where the Group receives its share of revenue on the conclusion of each month and is separately cash-called for its share of opex and capex on a month-ahead basis. Cash calls are reconciled to actual expenditure quarterly.

 

The following table summarises the Group's share of the capital expenditure and net revenues arising from the GCZ block for the current period and prior year.

 


 

 

 

30 June

2018

US$'000

Unaudited

31 December

2017

US$'000

Audited





Capital expenditure


-

-

 

Revenue and other income


 

6,142

 

10,692

Total operational costs and expenses


(2,109)

(6,776)

 

Net Profit


4,033

3,916





Amount due from/(to) PetroChina




Opening balance


3,935

1,487

Capital expenditure for GCZ block


-

-

Share of profit for GCZ block


2,010

3,917

Cash received


(5,300)

(1,469)

 

Closing balance


645

3,935

 

The balance due from PetroChina is included within trade and other receivables, is unsecured and interest free.

 

Baotian-Qingshan block ('GGZ')

In addition, Greka Guizhou E&P Ltd., a subsidiary of the Company, is party to a PSC with PetroChina to explore for and develop coal bed methane resources in Guizhou Province. The Group has a 60% participating interest in GGZ and has provided a performance bond against its pilot exploration programme commitment in the amount of US$1,000,000 (31 December 2017: US$1,000,000). At 30 June 2018, the cumulative net investment made by the Group in GGZ was US$36,566,000 (31 December 2017: US$35,960,000), of which US$606,000 was invested in the six months ended 30 June 2018.

 

PetroChina is a subsidiary of state-owned China National Petroleum Corporation (CNPC), headquartered in Dongcheng District, Beijing.

 

PSCs held with CUCBM (CNOOC)

 

Framework Agreement with CUCBM

On 31 March 2014, and following the identification of unauthorised drilling activities across several of the Group's blocks by CUCBM, the Group entered a Framework Agreement CUCBM the purpose of which was to amend and clarify the rights of both the Group and CUCBM in relation to the PSCs jointly held between the parties. Under the terms of the Framework agreement, the Group's percentage share in the relevant blocks were updated and confirmed as follows:

 

PSC

G3E share

CUCBM share


Shizhuang South

60%

40%

G3E share increasing to 70% on payment of US$13,000,000 to CUCBM

Shizhuang North

50%

50%


Quinyan Area A

10%

90%


Quinyan Area B

60%

40%


Fengcheng

49%*

51%


Panxie East

60%*

40%



* unchanged

 

The Framework Agreement reaffirmed the status of the PSC's. Under the PSCs, the exploration costs were due to be incurred by the Group, with the Group carrying the exploration risk and the associated costs being recovered from future production. Notwithstanding the terms of the PSC, CUCBM undertook significant unauthorised exploration work within the license area incurring gross expenditure of US$611,300,000 related to the drilling of wells and the establishment of certain infrastructure across the PSC blocks.

 

In the prior year a provision for a potential liability to CUCBM was recognised on the basis of there being a dispute over the historic wells drilled by CUCBM. The provision represented the best estimate of the Group's obligation to settle its share of the costs of the disputed wells.

 

Upon finalisation of the Supplemental Agreements in 2017, the original dispute that arose is now settled, and the outcome is that CUCBM will recover its historic costs through potential future production. As described in the accounting policies, the Group's oil and gas assets are accounted for as joint operations and the Group therefore accounts for its share of income and expenditure. As such, it is no longer appropriate for the Group to recognise CUCBM's historic costs. As the disputed wells are no longer subject to a settlement obligation, it is deemed appropriate to reduce the provision to $nil. The original recognition of the provision had no impact on the income statement and therefore the reversal of the provision also has no impact on the income statement, and is recognised as a reduction to the Group's exploration assets. The change in provision represents a change in accounting estimate as a result of the Supplemental Agreements executed in 2017.

 

The following table summarises the cost recovery provision which also represents the Group's cumulative share of capital expenditure:

 


As at

30 June

2018

US$'000

Unaudited

As at

31 December

2017

US$'000

audited




Opening balance

-

401,702

Capital additions in the period

-

21,612

Reclassified to payable

-

(13,000)*

FX (gain)/loss

-

24,503

Change in estimate of CUCBM provision

-

(434,817)

Closing provision for amounts due to CUCBM

-

-

 

* $13 million has been reclassified to payables due to management's intention to exercise the option to obtain a higher share rate.

 

The cumulative expenditure by CUCBM across the PSCs, which the Group is reimbursing through future production, bears interest at 9%. No discounting of the provision applies given the interest bearing nature.

 

Under the original Shizhuang South PSC and as reaffirmed by the Framework Agreement US$13,000,000 included within provisions (2017: US$13,000,000) represent amounts payable to CUCBM in respect of exploration costs incurred by CUCBM on GSS prior to the original PSC between the parties. The Group has an option to increase its participating interest in the GSS Block from its current 60% to 70% by investing two installments of US$6,500,000, one prior to 31 December 2017, and the second prior to 31 December 2018. The balance is unsecured, and interest-free. Discounting is considered immaterial. The obligation is classified as a provision given the option to increase its participating interest in the GSS Block is at the Company.

 

Shizhuang North PSC

Under the terms of the Framework Agreement, the Group agreed to reduce its interest in the GSN Block by 10% in return for CUCBM providing the Group with a carried interest of US$100,000,000 related to exploration and development expenditure across the block. The Group has incurred US$7,700,000 on the block which is currently held as exploration asset. No gain in respect of the committed future expenditure as compared to the 10% interest in the Group's existing assets has been recognised under the Group's accounting policy.

 

Fengcheng PSC

According to the Supplementary Agreement signed in September 2017, the exploration period is from 15 April 2014 to 14 April 2019. The group is required to undertake $8.9 million discretionary capital expenditure prior to the expiry of the exploration period.

 

Panxie PSC

According to the Supplementary Agreement signed in September 2017, the exploration period is from 15 April 2014 to 14 April 2019. The group is required to undertake $4.2 million discretionary capital expenditure prior to the expiry of the exploration period.

 

Qinyuan PSC

According to the Supplementary Agreement signed in September 2017, the exploration period is from 15 April 2014 to 14 April 2019. The group is required to undertake $27 million discretionary capital expenditure prior to the expiry of the exploration period.

 

According to the supplementary agreement, the Group will pay CUCBM for any unfulfilled balance of the minimum commitment converted into cash, together with relinquishment of certain percentage of the block. Based on the Group's assessments, it is confident that future minimum commitments will be fulfilled accordingly.

 

CUCBM is majority owned by China National Offshore Oil Corp and is headquartered in Dongcheng District, Beijing.

 

Baotian-Qingshan block ('GGZ')

 

In addition, Greka Guizhou E&P Ltd, a subsidiary of the Company, is party to a PSC with PetroChina to explore for and develop coal bed methane resources in Guizhou Province. The Group is entitled to earn a 60% interest in GGZ by funding up to US$8,000,000 in respect of an exploration pilot programme and has provided a performance bond against this commitment in the amount of US$1,000,000 (31 December 2017: US$1,000,000). At 30 June 2018, the cumulative net investment made by the Group in GGZ was US$36,566,000 (31 December 2017: US$35,960,000), of which US$606,000 was invested in the six months ended 30 June2018.

PetroChina is a subsidiary of state-owned China National Petroleum Corporation (CNPC), headquartered in Dongcheng District, Beijing.

 

20          RELATED PARTY TRANSACTIONS

Save as disclosed in notes 10, 11, 13 and 18, there were no other related party transactions that are required to be disclosed. Transactions between the company and its subsidiary undertakings, which are related parties, have been eliminated on consolidation and are not disclosed in this note. The related party transactions of the Group during the period include the following

 

·      Amounts due from related parties of US$5,495,000 (31 December 2017: US$6,167,000) and amounts due to related parties of US$1,839,000 (31 December 2017: US$3,486,000) are companies that are subsidiaries of Greka Drilling Ltd., Greka Engineering & Technology Ltd., and Greka CBM Comprehensive Utilization Co., Ltd (Party B) which are companies under common control. The Group has contracts with both companies regarding drilling services and gas processing respectively. All amounts due from related parties are unsecured, interest free and repayable on demand.

·      Amounts due from CNPC of US$645,000 (31 December 2017: Amounts due from CNPC of US$3,935,000), which is a party to the production sharing contracts on the activities of exploration, development and production of coal bed methane, in respect of exploration costs incurred. The balance is unsecured and interest-free.

·      Amounts due to CUCBM under the Framework Agreement. These are detailed in note 19.

·      Drilling costs of US$560,000 (31 December 2017: US$6,890,000) on services provided by wholly-owned subsidiaries of Greka Drilling Limited.

·      Incurred infrastructure services costs of US$3,470,000 (31 December 2017: US$6,250,600) from wholly-owned subsidiaries of Greka Engineering and Technology Limited.

·      Sold gas of US$1,007,000 (31 December 2017: US$1,454,000) to a wholly-owned subsidiary of Greka Engineering and Technology Limited for power generation.

·      Sold gas of US$5,383,000 (31 December 2017: US$nil) to a wholly-owned subsidiary of Greka Engineering and Technology Limited for gas supply.

 

21     OPERATING LEASE COMMITMENTS

 

At the reporting dates, the Group had commitments, as lessee, for future minimum lease payments under non-cancellable operating lease in respect of land and buildings which fall due as follows:

 



As at

30 June 2018

Year ended

31 December 2017



2018

2017



USD'000

Unaudited

USD'000

Audited

No Later than 1 year


1,543

1,944

Later than 1 year and no later than 5 years


864

1,071



2,407

3,015

 

 

22     CAPITAL COMMITMENTS

 



As at

30 June 2018

Year ended

31 December 2017



2018

2017



USD'000

Unaudited

USD'000

Audited

Capital expenditure contracted but not provided for in respect of

-additions to exploration costs and appraisal assets


7,011

7,017

-acquisition of property , plant and equipment


-

-



7,011

7,017

 

 

The Group is required to undertake certain discretionary capital expenditures upon signing supplementary agreements with CUCBM on certain blocks, details of which are disclosed in note 19.

 

For disclosure of discretionary commitments under the CUCBM supplementary agreement, see note 19.

 



 

23     FINANCIAL INSTRUMENTS

 

Financial Assets


As at

30 June 2018

Year ended

31 December 2017


2018

2017


USD'000

Unaudited

USD'000

Audited

Loans and receivable:




Trade and other receivables


8,364

8,167

Restricted Cash


1,000

1,000

Cash and cash equivalents


1,087

1,347

Total financial assets


10,451

10,514

 

Financial Liabilities


As at

30 June 2018

Year ended

31 December 2017


2018

2017


USD'000

Unaudited

USD'000

Audited

At amortised cost:




Trade and other payables


9,498

10,198

Convertible notes


55,905

53,132

Bonds


103,981

95,932

Share buyback option liabilities


1,851

3,469

Total financial liabilities


171,235

162,731

 

The carrying value of the financial asset and liabilities is approximately equal to their fair value at 30 June 2018 and 31 December 2017.

 

Interest rate risk

 

The Group's income and operating cash flows are substantially independent of changes in market interest rates. The Group's bond and convertible loan note bear fixed interest. The Group has not entered into any cash flow interest rate hedging contracts or any other derivative financial instruments for hedging purposes. However, the management closely monitors its exposure to future cash flow as a result of changes in market interest rates, and will consider hedging such changes should the need arise.

 

The interest rate profile of the Group's financial assets at each year end was as follows:



As at

30 June 2018

Year ended

31 December 2017


2018

2017


USD'000

Unaudited

USD'000

Audited

Cash and cash equivalents



USD

Non-interest bearing

2

2

USD

Floating rate

1,001

1,056

GBP

Non-interest bearing

1

1

GBP

Floating rate

3

3

CAD

Floating rate

1

1

RMB

Non-interest bearing

52

135

RMB

Floating rate

2

1,731

HKD

Non-interest bearing

24

245

HKD

Floating rate

1

1

Other financial assets



USD

Non-interest bearing

3,267

2,396

RMB

Non-interest bearing

5,603

14,579

HKD

Non-interest bearing

494

489


10,451

20,639

 

The weighted average interest rate earned during the year was 0.15% (2017: 0.20%) on floating rate US dollar cash balances, 0.03% (2017: 0.05%) on floating rate GBP balances and 0.45% (2017: 0.52%) on floating rate RMB balances. At the year end, the Group had cash on short-term deposit for periods of between over-night and one week.

 

The interest rate profile of the Group's financial liabilities at each year end was as follows:



As at

30 June 2018

Year ended

31 December 2017


2018

2017


USD'000

Unaudited

USD'000

Audited

Loans and borrowings, convertible notes and bonds financial liability



USD

Fixed rate

159,886

149,064

Other financial liabilities



USD

Non-interest bearing

5,387

5,085

RMB

Non-interest bearing

5,903

30,776

GBP

Non-interest bearing

49

49

HKD

Non-interest bearing

10

154


11,349

36,064

 

 

The interest rates payable during the year was 10% (2017: 10%) on US dollars convertible notes and 12% (2017: 10%) on US dollars bonds. If all interest rates had been 50 basis points higher/lower, with all other variables held constant, post-tax profit would have been US$nil (2017: US$nil) higher/lower and there will be no impact on other components of equity.

Foreign currency risk

While the Group continually monitors its exposure to movements in currency rates, it does not utilise hedging instruments to protect against currency risks. The main currency exposure risk to the Group has been in relation to the trade payable and other payables denominated in RMB. The Directors consider the foreign currency exposure to be limited. Receivables are generated in RMB, operational cash balances are held in RMB, revenues and future revenues from certain subsidiary operations will be generated in RMB.

 

As at 30 June 2018 (Unaudited)

In NOK

In CAD

In USD

In RMB

In GBP

IN HKD

Total in USD


US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

Financial Assets








Trade and other receivables

-

-

2,267

5,603

-

494

8,364

Restricted cash

-

-

1,000

-

-

-

1,000

Cash and cash equivalents

-

-

1,004

53

5

25

1,087


-

-

4,271

5,656

5

519

10,451

 

Financial Liabilities








Financial Assets








Trade and other payables

49

-

3,536

5,903

-

10

9,498

Convertible notes and bonds

-

-

159,886

-

-

-

159,886

Derivative financial liabilities

-

-

1,851

-

-

-

1,851


49

-

165,273

5,903

-

10

171,235

 

As at 31 December 2017 (Audited)

In NOK

In CAD

In USD

In RMB

In GBP

IN HKD

Total in USD


US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

Financial Assets








Trade and other receivables

-

-

1,396

6,281

-

489

8,167

Restricted cash

-

-

1,000

-

-

-

1,000

Cash and cash equivalents

-

-

1,059

39

4

246

1,347


-

-

3,455

6,320

4

735

10,514

 

Financial Liabilities








Trade and other payables

49

-

1,616

8,373

-

154

10,192

Convertible notes and bonds

-

-

149,064

-

-

-

149,064

Derivative financial liabilities

-

-

3,469

-

-

-

3,469


49


154,149

8,373

-

154

162,725

            

The above RMB cash, trade and other receivables, trade and other payables and other financial liabilities balances are denominated in a currency other than US dollars. A 3% decrease in the US dollar/RMB exchange rate would result in reported profits for the year ended 30 June 2018 being US$265,000 (31 December 2017: 537,000) higher or lower respectively.

 

Liquidity risk

The liquidity risk of each group entity is managed centrally by the group treasury function. The investment budgets and work plans are set by the operating teams in the PRC and agreed by the Board annually in advance, enabling the Group's cash requirements to be anticipated. Where facilities of group entities need to be increased, approval must be sought from the Board. Further disclosures on liquidity risk and going concern are included in note 2.

 

All surplus cash is held centrally to maximise the returns on deposits through economies of scale while required cash will be remitted to the PRC based on monthly cash-call basis.

 

The maturity profile of the Group's financial liabilities at the reporting dates based on contractual undiscounted payments are summarised below:

 


Six months or less

Six months to one year

Within one to five years

Over five years

Undiscounted payments

Adjustments

Carrying balance


US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

At 30 June 2018 (unaudited)








Trade and other payables

9,499

-

-

-

9,499


9,499

Convertible notes and bonds

9,822

150,064

-

-

159,886


159,886

Share buyback option liabilities

-

-

4,400

-

4,400

(2,549)

1,851


19,321

150,064

4,400

-

173,785

(2,549)

171,236

 



 


Six months or less

Six months to one year

Within one to five years

Over five years

Undiscounted payments

Adjustments

Carrying balance


US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

At 31 December 2017 (Audited)








Trade and other payables

10,198

-

-

-

10,198

-

10,198

Convertible notes and bonds

6,900

156,844

-

-

164,744

(14,680)

150,064

Share buyback option liabilities

-

-

4,400

-

4,400

(971)

3,469


17,098

156,844

4,400

-

179,382

(15,651)

163,731

 

Notes:

(i) Undiscounted payments are drawn up based on the earliest date on which the Group can be required to pay. They include both principal and interest cash outflows.

(ii) In the period ended 30 June 2018 and 31 December 2017, the adjustment to the convertible notes and bonds represents the impact of the unamortised transaction costs and future interest.

(iii) Carrying balance represents the balance per consolidated statement of financial position at the end of each reporting period.

 

Credit risk

The Group's maximum exposure to credit risk by class of individual financial instrument is shown below:

 



30 June 2018 (Unaudited)

31 Dec 2017 (Audited)



Carrying value

Maximum

Carrying value

Maximum



value

exposure

value

exposure

Current asset

USD$'000

USD$'000

USD$'000

USD$'000

Trade and other receivables

8,364

8,364

8,167

8,167

Restricted cash

1,000

1,000

1,000

1,000

Cash and cash equivalents

1,087

1,087

1,347

1,347


10,451

10,451

10,514

10,514

 

In relation to its cash and cash equivalents, the Group has to manage its currency exposures and the credit risk associated with the credit quality of the financial institutions in which the Group maintains its cash resources. As at 31 December 2017, the Group holds approximately 91% (2017: 19%) of its cash in US dollars and 1% (2017: 6%) in British Pound with Baa2 (2017: Baa2) or higher (Moody's) rated institutions. The Group continues to monitor its treasury management to ensure an appropriate balance of the safety of funds and maximisation of yield.

 

None of trade and other receivables, including the amount due from related parties, had been impaired. Trade and other receivables are predominantly non-interest bearing. The Group does not hold any collateral as security and the Group does not hold any significant provision in the impairment account for trade and other receivables as they mainly relate to customers with no default history. The Group has current receivables of due from a related party of US$5,495,000 (2017: US$6,166,000), the recovery of which is dependent on the future profits of the related party. The Group expects to fully recover its receivable based on the profit forecasts of the related party.

 

Capital risk management

The Group's objectives when managing capital are to ensure the ability of the entities in the Group to continue as a going concern in order to provide returns for equity holders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain the capital structure, the Group considers the macro economic conditions, prevailing borrowing rates in the market and adequacy of cash flows generated from operations and may adjust the amount of dividends paid or payable to equity holders, raise funding through capital market, adjust the amount of other borrowings as necessary. No changes were made to the objectives or policies during the year/period.

 

The Group monitors capital on the basis of the debt-to-equity ratio. This ratio is calculated as net debts divided by equity attributable to the Company's equity holders. Net debt includes current and non-current liabilities less cash and cash equivalents, as shown in the consolidated statements of financial position. Equity includes equity attributable to equity holders of the Company. Debt-to-equity ratios at 30 June 2018 and 31 December 2017are as follows:



Period ended
30 June 2018

Year ended 31 December 2017



USD'000

Unaudited

USD'000

Audited

Current liabilities


169,384

159,262

Non-current liabilities


125,848

127,606

Cash and cash equivalents


(1,087)

(1,347)

Net debt


294,145

285,521

Equity


651,647

671,780

Debt-to-equity ratio


0.45

0.43

 

Fair Value

The carrying amounts of significant financial assets and liabilities approximate their respective fair values as at 30 June 2018 and 31 December 2017.

The carrying values of cash and bank balances, trade and other receivables, and trade and other payables approximate their respective fair values because of their short maturities. The carrying amounts of other liabilities approximate their fair value as the effect of discounting is immaterial. The carrying amounts of loan and borrowings and convertible notes approximate their fair values because the effective interest rates of the debts are approximate to the prevailing market interest rates at the reporting dates for similar borrowings available to the Group.

 

24     EVENTS AFTER REPORTING DATE

 

There is no subsequent event after the balance sheet date which requires disclosure in the financial statements.



 

RESPONSIBILITY STATEMENT

 

We confirm that to the best of our knowledge:

 

(a) the Condensed Financial Statements have been prepared in accordance with IAS 34 Interim Financial Reporting, as adopted by the European Union, and give a true and fair view of the assets, liabilities, financial position and profit of the Group; and

 

(b) The Interim Management Report includes a fair review of the information required by FCA's Disclosure Guidance and Transparency Rules (DTR 4.2.7 R and 4.2.8 R).

 

On behalf of the Board

 

Randeep S. Grewal

Founder & Chairman

 

17 September 2018



 

INDEPENDENT REVIEW REPORT TO G3 EXPLORATION LIMITED

 

Introduction

 

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2018 which comprises the condensed consolidated statement of comprehensive income, condensed consolidated statement of financial position, condensed consolidated statement of changes in equity, the condensed consolidated statement of cash-flows and the related notes.

 

We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

 

Directors' responsibilities

 

The half-yearly financial report is the responsibility of and has been approved by the directors.  The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

As disclosed in note 2, the annual financial statements of the group are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union.  The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, ''Interim Financial Reporting'', as adopted by the European Union.

 

Our responsibility

 

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

 

Our report has been prepared in accordance with the terms of our engagement to assist the Company in meeting its responsibilities in respect of half-yearly financial reporting in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.

 

Scope of review

 

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, ''Review of Interim Financial Information Performed by the Independent Auditor of the Entity'', issued by the Financial Reporting Council for use in the United Kingdom.  A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.  A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit.  Accordingly, we do not express an audit opinion.

 

Conclusion

 

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2018 is not prepared, in all material respects, in accordance with International Accounting Standard 34, as adopted by the European Union, and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

Material uncertainty related to going concern

 

We draw attention to note 2 to the financial statements, which indicates that the group's debt and liabilities may be due immediately and therefore require refinancing, which is yet to be agreed.  As stated in note 2.1, these events or conditions, along with other matters as set out in note 2, indicate that a material uncertainty exists that may cast significant doubt on the group's ability to continue as a going concern. Our opinion is not modified in respect of this matter.

 

 

 

BDO LLP
Chartered Accountants United Kingdom

17 September 2018

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).



 

DIRECTORS, COMPANY SECRETARY AND ADVISORS

 

DIRECTORS

 

Randeep S. Grewal

Executive Director, Chairman and CEO

 

Bryan Smart

Non-Executive Director

 

Wayne Roberts

Non-Executive Director

 

Zhao Li Guo

Non-Executive Director

 

Gong Da Bing

Non-Executive Director

 

 

LEGAL ADVISORS

 

As to Chinese Law

 

Guantao Law Firm

17/F, Tower 2,

YingtaiCenter, NO. 28,

Finance Street, Xicheng District,

Beijing 100140, P R China

 

As to Cayman Islands & BVI Law

 

Conyers Dill & Pearman

29th Floor

One Exchange Square

8 Connaught Place

Central Hong Kong

 

As to English Law

 

Memery Crystal LLP

44 Southampton Buildings

London WC2A 1AP

 



REGISTERED OFFICE

 

PO Box 2681

Cricket Square

Hutchins Drive

Grand Cayman KY1 -1111

Cayman Islands

 

 

COMPANY SECRETARY

 

International Corporation Services Ltd.

 

 

AUDITORS

 

BDO LLP

55 Baker Street

London W1U 7EU

 

 

INVESTOR RELATIONS

 

FTI Consulting

200 Aldersgate

Aldersgate Street

London EC1A 4HD

 


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