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Petroneft Resources (PTR)

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Wednesday 26 September, 2018

Petroneft Resources

Petroneft Resources PLC Interim Results

RNS Number : 9953B
Petroneft Resources PLC
26 September 2018
 

26 September 2018

 

2018 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 2018.

Highlights

•      Gross production from Licence 61 in H1 2018 was 2,135 bopd (1,068 bopd net to PetroNeft).

•      Testing of C-4 well continuing

Testing will continue for several weeks

David Golder, Chairman of PetroNeft Resources plc, commented:

"2018 to date has yielded very positive results from the C-4 well at Cheremshanskoye and good improvement in oil price.  We look forward to updating shareholders with the final results of the C-4 well and with the progress on other value optimisation initiatives over the coming months."

For further information, contact:

Dennis Francis, CEO, PetroNeft Resources plc

+1 713 988 2500

Paul Dowling, CFO, PetroNeft Resources plc

+353 1 647 0280

John Frain/Brian Garrahy, Davy (NOMAD and Joint Broker)

+353 1 679 6363

Henry Fitzgerald-O'Connor, Canaccord Genuity Limited (Joint Broker)

+44 207 523 8000

Joe Heron / Douglas Keatinge, Murray Consultants

+353 1 498 0300

 

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 2018 and provide an update on recent progress. 2018 has seen the drilling of the C-4 delineation well at the Cheremshanskoye oil field, with results to date exceeding pre-drill expectations.

 

As mentioned in the June we had anticipated being in a position to announce a material transaction in the third quarter of 2018. Negotiations have slowed but remain ongoing, however the successful C-4 well has also broadened the options available to the Company.

 

Production and Sales for the period

Gross production at Licence 61 in the six months to 30 June 2018 averaged 2,135 bopd, a small decrease compared to the same period in 2017 (2,347 bopd) with the production decline continuing to be slower than expected. We sold 382,656 (gross) barrels of oil in the six months to 30 June 2018 (H1 2017: 430,421 bbls) and achieved an average Russian Domestic oil price of $44.39 (H1 2017: $32.07), a 38% increase. This welcome price rise was partly offset by higher taxes but did lead to enhanced operating cashflows for the Licence 61 joint venture.

 

Licence 61 Gross Production

H1-2018

Q2-2018

Q1-2018

H1-2017

FY-2017

Total gross production

386,482

183,368

203,114

424,812

816,476

Gross bopd

2,135

2,015

2,257

2,347

2,237

PetroNeft 50% share bopd

1,068

1,008

1,128

1,174

1,118

 

Licence 67 - Cheremshanskoye

The C-4 well, which spudded on 2 August is located on the northern half of the Cheremshanskoye field in Licence 67. The aim of the well was to prove up the northern extent of the field based on the 3D seismic data acquired in 2014. The well is being drilled under the joint venture agreement with our partner for Licence 67, Arawak Energy on a 50:50 basis and operations have progressed smoothly.

 

Based on core and log data the base of the Bazhenov Formation was penetrated at -2,545.5 m TVDSS which is about 9.5 m high to pre-drill estimates.

 

The tertiary objective Upper Jurassic J1-1 sandstone interval encountered 1.6 m of net oil pay from -2,546 to -2,547.6 m TVDSS and coring recovered oil saturated sandstone with very good visual reservoir properties. A short duration open-hole test was run over the interval and the prorated flow was 228 bfpd consisting of 84% good quality light oil ( 35° API) and 16% mud/filtrate. This is a very good initial flow test, without any reservoir stimulation, which exceeds our expectations for the J1-1 interval. 

 

The primary J1-3 interval was also cored, tested and logged. Calculations from the log data show net oil pay of 8.8 m from -2,559.4 to -2,569.2 m TVDSS. A short duration open-hole test was run over the interval and the prorated flow was 171 bfpd consisting of 70% oil and 30% mud/filtrate. This is a good flow test which exceeds our expectations for the J1-3 interval, even though the short flow test indicates some formation damage that restricted the flow rate.

 

The combined open-hole tests achieved a prorated test rate of 399 bfpd; this rate is expected to increase in a longer test once drilling fluids are cleared out from the well.

 

The two open-hole tests combined with the log and core data in the Upper Jurassic are very encouraging. There are currently no reserves booked for the Upper Jurassic at Cheremshanskoye and it is estimated that there could be about 40 million bbls of proven and probable reserves, adjacent to nearby infrastructure, at these horizons based on these results (20 mmbbls net to PetroNeft).

 

Following this, drilling continued in order to target the J-13 and J-14 objectives in the Lower Jurassic. At the J-13 we encountered 7.6m of net oil pay (according to log data), however the reservoir was of low quality.

 

Now we have run casing in the well and have commenced a cased-hole test at the J1-3 interval which  we expect to complete in the coming weeks.

 

Review of PetroNeft loss for the period

The loss for the period narrowed to US$1.2m (H1 2017: US$1.6m). The loss includes PetroNeft's share of the losses on the joint ventures relating to Licences 61 and 67 of US$1.9m and US$0.2m respectively (H1 2017: US$2.2m and US$0.2m). The loss relating to the Licence 61 joint venture is discussed in more detail below. Finance revenue of US$2.0m (H1 2017: US$1.7m) relates primarily to interest receivable on loans to the joint ventures.

 

 PetroNeft Key Financial Metrics

 

Unaudited

 

Audited

 

 

6 months ended 30 June 2018

 

6 months ended 30 June 2017

 

Year ended 31 December 2017

 

 

US$ '000

 

US$ '000

 

US$ '000

Continuing operations

 

 

 

 

 

 

Revenue

 

1,093

 

1,008

 

1,713

Cost of sales

 

(881)

 

(938)

 

(1,550)

Gross profit

 

212

 

70

 

163

Administrative expenses

 

(612)

 

(580)

 

(1,403)

Exchange (loss)/gain on intra-Group loans

 

(57)

 

32

 

52

Operating loss

 

(457)

 

(478)

 

(1,188)

Share of joint venture's net loss - WorldAce Investments Limited

 

(1,920)

 

(2,219)

 

(4,286)

Share of joint venture's net loss - Russian BD Holdings B.V.

 

(231)

 

(184)

 

(382)

Finance revenue

 

1,973

 

1,710

 

3,511

Finance costs

 

(48)

 

-

 

-

Loss for the period for continuing operations before taxation

 

(683)

 

(1,171)

 

(2,345)

Income tax expense

 

(510)

 

(437)

 

(894)

Loss for the period

 

(1,193)

 

(1,608)

 

(3,239)

 

 

 

 

 

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:

 

 

Unaudited

 

Audited

 

 

WorldAce Group

 

WorldAce Group

 

WorldAce Group

 

 

6 months ended 30 June 2018

 

6 months ended 30 June 2017

 

Year ended 31 December 2017

 

 

US$'000

 

US$'000

 

US$'000

Continuing operations

 

 

 

 

 

 

Revenue

 

17,090

 

13,807

 

27,637

Cost of sales

 

(15,078)

 

(12,746)

 

(25,273)

Gross profit

 

2,012

 

1,061

 

2,364

Administrative expenses

 

(1,432)

 

(1,695)

 

(3,093)

Operating profit/(loss)

 

580

 

(634)

 

(729)

Write-off of exploration and evaluation assets

 

-

 

(26)

 

(26)

Finance revenue

 

48

 

22

 

66

Finance costs

 

(4,467)

 

(3,800)

 

(7,883)

Loss for the period for continuing operations before taxation

 

(3,839)

 

(4,438)

 

(8,572)

Income tax

 

-

 

-

 

-

Loss for the period for continuing operations after taxation

 

(3,839)

 

(4,438)

 

(8,572)

PetroNeft's 50% share

 

(1,920)

 

(2,219)

 

(4,286)

 

WorldAce Analysis

 

Unaudited

 

Audited

 

 

WorldAce Group

 

WorldAce Group

 

WorldAce Group

 

 

6 months ended 30 June 2018

 

6 months ended 30 June 2017

 

Year ended 31 December 2017

 

 

US$'000

 

US$'000 

 

US$'000 

Revenue

 

 

 

 

 

 

Oil sales

 

16,987

 

13,795

 

27,590

Other sales

 

103

 

12

 

47

Total revenue

 

17,090

 

13,807

 

27,637

PetroNeft's 50% share

 

8,545

 

6,903

 

13,819

 

 

 

 

 

 

 

Cost of Sales

 

 

 

 

 

 

Mineral Extraction Tax

 

9,491

 

6,666

 

13,747

Pipeline tariff

 

1,602

 

1,744

 

3,390

Staff costs

 

1,014

 

988

 

1,994

Depreciation and amortisation

 

1,451

 

1,544

 

2,916

Other cost of sales

 

1,520

 

1,803

 

3,226

Total cost of sales

 

15,078

 

12,745

 

25,273

PetroNeft's 50% share

 

7,539

 

6,373

 

12,637

 

The detailed Income Statement and Balance Sheet of WorldAce Investments Limited is disclosed at note 9 to these condensed financial statements. Improved oil prices and cost-cutting in H1 2018 have strengthened the margin in 2018 as compared to the same period last year. This led to an operating profit in the L-61 joint venture of US$580k compared to an operating loss in the same period last year of US$634k.

 

Achieving value for Shareholders

The geo-political and investment climate for Russia, along with other emerging markets, remains challenging and this, combined with the current shareholding structure, has resulted in a significant difference between the market capitalization of the company and the true long-term value of its assets and reserves. The Company noted on 12 July 2018 that it was examining a number of options in relation to maximising shareholder value.

 

The Company, in conjunction with its 50/50 joint venture partner, Oil India has engaged financial advisers to evaluate the disposal of Licence 61. While we are only in the early stages of this process and there is no certainty that any transaction will be completed, we have seen an encouraging level of interest from a range of well-financed industry players. Furthermore, once the testing of the C-4 well at Licence 67 is complete we will consider a similar process for Licence 67, working with Arawak.

 

 

We had previously indicated a potential announcement of a material transaction during the third quarter, however commercial discussions are ongoing.  While there can be no certainty that a deal will ultimately be concluded, the C-4 well result has broadened the options available to the Company.  Further announcements will be made in due course.

 

Finance

As detailed in the 2017 Annual Report the Company's finances continue to require close attention.  The US$2m Petrogrand loan agreed in January 2018 matures on 31 December 2018. This loan has allowed us to drill the C-4 well at Cheremshanskoye the results of which have broadened the funding options open to the Company. The Company has to date drawn down US$1m and is in negotiations to re-finance this loan in advance of its current maturity date.

 

Outlook

2018 to date has yielded very positive results from the C-4 well at Cheremshanskoye and good improvement in oil price.  We look forward to updating shareholders with the final results of the C-4 well and with the progress on other value optimisation initiatives over the coming months. 

 

 

 

David Golder

Non-Executive Chairman

 

 

Interim Condensed Consolidated Income Statement

For the 6 months ended 30 June 2018

 

 

 

Unaudited

 

Audited

 

 

 

6 months ended 30 June 2018

 

6 months ended 30 June 2017

 

Year ended 31 December 2017

 

Note

 

US$

 

US$

 

US$

Continuing operations

 

 

 

 

 

 

 

Revenue

 

 

1,092,673

 

1,007,929

 

1,712,574

Cost of sales

 

 

(880,771)

 

(937,686)

 

1,550,119

Gross profit

 

 

211,902

 

70,243

 

162,455

 

 

 

 

 

 

 

 

Administrative expenses

 

 

(612,369)

 

(579,892)

 

(1,402,867)

Exchange (loss)/gain on intra-Group loans

 

 

(56,726)

 

31,901

 

52,093

Operating loss

 

 

(457,193)

 

(477,748)

 

(1,188,319)

 

 

 

 

 

 

 

 

Share of joint venture's net loss - WorldAce Investments Limited

9

 

(1,919,878)

 

(2,218,754)

 

(4,285,833)

Share of joint venture's net loss - Russian BD Holdings B.V.

10

 

(230,178)

 

(184,674)

 

(381,654)

Finance revenue

5

 

1,972,866

 

1,710,060

 

3,510,435

Finance costs

6

 

(48,256)

 

-

 

Loss for the period for continuing operations before taxation

 

 

(682,639)

 

(1,171,116)

 

(2,345,371)

 

 

 

 

 

 

 

 

Income tax expense

 

 

(510,381)

 

(436,788)

 

(893,670)

 

 

 

 

 

 

 

 

Loss for the period attributable to equity holders of the Parent

 

 

(1,193,020)

 

(1,607,904)

 

(3,239,041)

Loss per share attributable to ordinary equity holders of the Parent

 

 

 

 

 

 

 

Basic and diluted - US dollar cent

 

 

(0.17)

 

(0.23)

 

(0.46)

 

Interim Condensed Consolidated Statement of Comprehensive Income

For the 6 months ended 30 June 2018

 

 

 

 

Unaudited

 

Audited

 

 

 

6 months ended 30 June 2018

 

6 months ended 30 June 2017

 

Year ended 31 December 2017

 

 

 

US$

 

US$

 

US$

Loss for the period attributable to equity holders of the Parent

 

 

(1,193,020)

 

(1,607,904)

 

(3,239,041)

Other comprehensive income to be reclassified to profit or loss in subsequent periods:

 

 

 

 

 

 

 

Currency translation adjustments - subsidiaries

 

 

46,256

 

(19,620)

 

(37,190)

Share of joint ventures' other comprehensive income - foreign exchange translation differences

 

 

(4,030,342)

 

1,405,547

 

2,551,042

Total comprehensive loss for the period attributable to equity holders of the Parent

 

 

(5,177,106)

 

(221,977)

 

(725,189)

 

 

 

Interim Condensed Consolidated Balance Sheet

As at 30 June 2018

 

 

 

Unaudited

 

Audited

 

 

 

 

31 December 2017

 

Note

 

US$

 

US$

Assets

 

 

 

 

 

Non-current Assets

 

 

 

 

 

Property, plant and equipment

8

 

56,845

 

88,202

Equity-accounted investment in joint ventures - WorldAce Investments Limited

9

 

-

 

-

Equity-accounted investment in joint ventures - Russian BD Holdings B.V.

10

 

-

 

-

Financial assets - loans and receivables

11

 

45,623,285

 

49,439,502

 

 

 

45,680,130

 

49,527,704

Current Assets

 

 

 

 

 

Inventories

12

 

100,112

 

21,908

Trade and other receivables

13

 

479,911

 

587,601

Cash and cash equivalents

14

 

40,378

 

9,389

 

 

 

620,401

 

618,898

Total Assets

 

 

46,300,531

 

50,146,602

 

 

 

 

 

 

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

 

 

(84,634,511)

 

(83,441,491)

Currency translation reserve

 

 

(32,588,644)

 

(28,604,558)

Other reserves

 

 

336,000

 

336,000

Equity attributable to equity holders of the Parent

 

40,251,465

 

45,428,571

 

 

 

 

 

 

Non-current Liabilities

 

 

 

 

 

Deferred tax liability

 

 

3,484,128

 

3,001,617

 

 

 

3,484,128

 

3,001,617

Current Liabilities

 

 

 

 

 

Interest-bearing loans and borrowings

15

 

1,048,256

 

-

Trade and other payables

16

 

1,516,682

 

1,716,414

 

 

 

2,564,938

 

1,716,414

Total Liabilities

 

 

6,049,066

 

4,718,031

Total Equity and Liabilities

 

 

46,300,531

 

50,146,602

 

 

Interim Condensed Consolidated Statement of Changes in Equity

For the 6 months ended 30 June 2018

 

 

 

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 2017

9,429,182

 

140,912,898

 

7,132,540

 

(31,118,410)

 

(80,202,450)

 

46,153,760

Loss for the year

-

 

-

 

-

 

-

 

(3,239,041)

 

(3,239,041)

Currency translation adjustments - subsidiaries

-

 

-

 

-

 

(37,190)

 

-

 

(37,190)

Share of joint ventures' other comprehensive income - foreign exchange translation differences

-

 

-

 

-

 

2,551,042

 

-

 

2,551,042

Total comprehensive loss for the year

-

 

-

 

-

 

2,513,852

 

(3,239,041)

 

(725,189)

At 31 December 2017

9,429,182

 

140,912,898

 

7,132,540

 

(28,604,558)

 

(83,441,491)

 

45,428,571

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2018

9,429,182

 

140,912,898

 

7,132,540

 

(28,604,558)

 

(83,441,491)

 

45,428,571

Loss for the period

-

 

-

 

-

 

-

 

(1,193,020)

 

(1,193,020)

Currency translation adjustments - subsidiaries

-

 

-

 

-

 

46,256

 

-

 

46,256

Share of joint ventures' other comprehensive income - foreign exchange translation differences

-

 

-

 

-

 

(4,030,342)

 

-

 

(4,030,342)

Total comprehensive loss for the period

-

 

-

 

-

 

(3,984,086)

 

(1,193,020)

 

(5,177,106)

At 30 June 2018

9,429,182

 

140,912,898

 

7,132,540

 

(32,588,644)

 

(84,634,511)

 

40,251,465

 

Interim Condensed Consolidated Cash Flow Statement

For the 6 months ended 30 June 2018

 

 

 

Unaudited

 

Audited

 

 

 

6 months ended 30 June 2018

 

6 months ended 30 June 2017

 

Year ended 31 December 2017

 

 

 

US$

 

US$

 

US$

Operating activities

 

 

 

 

 

 

 

Loss before taxation

 

 

(682,639)

 

(1,171,116)

 

(2,345,371)

Adjustment to reconcile loss before tax to net cash flows

 

 

 

 

 

 

 

Non-cash

 

 

 

 

 

 

 

Depreciation

 

 

25,745

 

31,899

 

62,748

Share of loss in joint ventures

 

 

2,150,056

 

2,403,428

 

4,667,487

Finance revenue

5

 

(1,972,866)

 

(1,710,060)

 

(3,510,435)

Finance costs

6

 

48,256

 

 -

 

 -

Working capital adjustments

 

 

 

 

 

 

 

Decrease in trade and other receivables

 

 

103,454

 

352,199

 

294,434

(Increase)/decrease in inventories

 

 

(78,204)

 

9,295

 

7,066

(Decrease)/increase in trade and other payables

 

(140,482)

 

(83,173)

 

555,937

Income tax paid

 

 

(29,953)

 

(6,980)

 

(9,783)

 Net cash flows used in operating activities

 

 

(576,633)

 

(174,508)

 

(277,917)

Investing activities

 

 

 

 

 

 

 

Loan facilities advanced to joint venture undertakings

(392,000)

 

-

 

(40,000)

Interest received

 

 

685

 

532

 

823

 Net cash (used in)/received from investing activities

 

 

(391,315)

 

532

 

(39,177)

 Financing activities

 

 

 

 

 

 

 

 Proceeds from loan facilities

 

 

1,000,000

 

-

 

-

 Net cash received from financing activities

 

1,000,000

 

-

 

-

 Net increase/(decrease) in cash and cash equivalents

 

 

32,052

 

(173,976)

 

(317,094)

 Translation adjustment

 

 

(1,063)

 

6,488

 

6,865

 Cash and cash equivalents at the beginning of the period

 

 

9,389

 

319,618

 

319,618

 Cash and cash equivalents at the end of the period

14

 

40,378

 

152,130

 

9,389

 

 

 

 

Notes to the Interim Condensed Consolidated Financial Statements

For the 6 months ended 30 June 2018

 

1.         Corporate Information

The interim condensed consolidated financial statements of the Group for the six months ended 30 June 2018 were authorised for issue in accordance with a resolution of the Directors on 25 September 2018.

 

PetroNeft Resources plc ('PetroNeft, 'the Company', or together with its subsidiaries and joint ventures, 'the Group') is a public limited company incorporated in the Republic of Ireland with a company registration number 408101. 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.         Going Concern

As described in the 2017 Annual Report PetroNeft agreed a US$2 million loan facility with Swedish Company Petrogrand AB. To date the Company has drawn down US$1 million. The loan is repayable on 31 December 2018 and the Company is currently in negotiations to re-finance this loan in advance of its current maturity date. The successful C-4 well has broadened the options available to the Company in this regard.

 

The Group has analysed its cash flow requirements through to 31 December 2019 in detail. The cash flow includes estimates for a number of key variables including the timing and availability of any further drawdowns under the Petrogrand Loan, the timing of cash flows of expenditure and management of working capital, including significant deferral and reduction in remuneration of Directors and key management which has been in place since October 2017. The Directors believe that the Group's cash flow forecasts represent the best estimate of the actual cash flows over the forecast period at the date of approval of the financial statements. The cash flow is stress tested to assess the adverse effect arising from reasonable changes in circumstance. The cash flow projections for the period to 31 December 2019 indicate that, provided the Petrogrand loan is re-financed or extended before the maturity date and the deferral and reduction of remuneration of Directors and key management continues the Company will have sufficient cash resources to meet its obligations as they fall due.

 

The Company's obligation to amend, extend or otherwise re-finance the Petrogrand loan prior to the maturity date on 31 December 2018 represents a material uncertainty that may cast significant doubt upon the Group and the Company's ability to continue as a going concern. Nevertheless, after making enquiries, and considering the uncertainty described above, the Directors are confident that the Group and the Company will have adequate resources to continue in operational existence for the foreseeable future. For these reasons, they continue to adopt the going concern basis in preparing these accounts.

 

Accordingly, these financial statements do not include any adjustments to the carrying amount or classification of assets and liabilities that would result if the Group or Company was unable to continue as a going concern.

 

 3.        Accounting Policies

 

3.1       Basis of Preparation

The interim condensed consolidated financial statements for the six months ended 30 June 2018 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 2017 which are available on the Group's website - www.petroneft.com.

 

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

 

 

 

3.2       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 2017.

 

4.         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 2018

 

31 December 2017

 

Non-current assets

 

 

US$

 

US$

 

Russia

 

 

                  45,679,324

 

               49,526,318

 

Ireland

 

 

806

 

1,386

 

 

 

 

45,680,130

 

               49,527,704

 

 

 

               

5.

Finance revenue

 

Unaudited

 

Audited

 

 

 

6 months ended 30 June 2018

 

6 months ended 30 June 2017

 

Year ended 31 December 2017

 

 

 

US$

 

US$

 

US$

 

 

 

 

 

 

 

 

 

Bank interest receivable

 

685

 

532

 

823

 

Interest receivable on loans to Joint Ventures

 

1,972,181

 

1,709,528

 

3,509,612

 

 

 

1,972,866

 

1,710,060

 

3,510,435

 

 

6.

Finance costs

 

Unaudited

 

Audited

 

 

 

6 months ended 30 June 2018

 

6 months ended 30 June 2017

 

Year ended 31 December 2017

 

 

 

US$

 

US$

 

US$

 

 

 

 

 

 

 

 

 

Interest on loans

 

48,256

 

-

 

-

 

 

 

48,256

 

-

 

-

 

 

7.

Income tax

 

 

 

 

 

 

 

Unaudited

 

Audited

 

 

6 months ended 30 June 2018

 

6 months ended 30 June 2017

 

Year ended 31 December 2017

 

 

US$

 

US$

 

US$

 

Current income tax

 

 

 

 

 

 

Current income tax charge

15,425

 

5,398

 

9,182

 

Total current income tax

15,425

 

5,398

 

9,182

 

 

 

 

 

 

 

 

Deferred tax

 

 

 

 

 

 

Relating to origination and reversal of temporary differences

494,956

 

431,390

 

884,488

 

Total deferred tax

494,956

 

431,390

 

884,488

 

Income tax expense reported in the Consolidated Income Statement

510,381

 

436,788

 

893,670

 

 

 

8.

Property, Plant and Equipment

 

 

 

 

 

 

 

 

 

Group

 

 

Plant and machinery

 

 

 

 

US$

 

Cost

 

 

 

 

At 1 January 2017

 

 

945,868

 

Translation adjustment

 

 

47,060

 

At 1 January 2018

 

 

992,928

 

Translation adjustment

 

 

(71,297)

 

At 30 June 2018

 

 

921,631

 

 

 

 

 

 

Depreciation

 

 

 

 

At 1 January 2017

 

 

802,402

 

Charge for the year

 

 

62,748

 

Translation adjustment

 

 

39,576

 

At 1 January 2018

 

 

904,726

 

Charge for the period

 

 

25,745

 

Translation adjustment

 

 

(65,685)

 

At 30 June 2018

 

 

864,786

 

 

 

 

 

 

Net book values

 

 

 

 

At 30 June 2018

 

 

56,845

 

At 31 December 2017

 

 

88,202

 

9.          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 2017

-

 

Elimination of unrealised profit on intra-Group transactions

(27,336)

 

Retained loss

(4,285,833)

 

Translation adjustment

2,356,702

 

Credited against loans receivable from WorldAce Investments Limited (Note 17)

1,956,467

 

At 1 January 2018

-

 

Retained loss

(1,919,878)

 

Translation adjustment

(3,706,547)

 

Credited against loans receivable from WorldAce Investments Limited (Note 17)

5,626,425

 

At 30 June 2018

-

 

 

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

 

The balance sheet position of WorldAce Investments Limited shows net liabilities of US$41,026,114 following a loss in the period of US$3,839,756 together with a negative currency translation adjustment of US$7,413,094. PetroNeft's 50% share is included above and results in a negative carrying value of US$15,829,478. 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$15,829,478 is deducted from other assets associated with the joint venture on the Balance Sheet which are the loans receivable from WorldAce Investments (see Note 11).

 

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

 

 

 

50% Share of WorldAce Group

 

 

Unaudited

 

Audited

 

 

6 months ended 30 June 2018

 

6 months ended 30 June 2017

 

Year ended 31 December 2017

 

 

US$

 

US$

 

US$

 

 

 

 

 

 

 

 

Continuing operations

 

 

 

 

 

 

Revenue

8,545,032

 

6,903,472

 

13,818,415

 

Cost of sales

(7,539,017)

 

(6,373,066)

 

(12,636,469)

 

Gross profit

1,006,015

 

530,406

 

1,181,946

 

Administrative expenses

(716,069)

 

(847,477)

 

(1,546,643)

 

Operating loss

289,946

 

(317,071)

 

(364,697)

 

Write-off of exploration and evaluation assets

-

 

(13,051)

 

(13,051)

 

Finance revenue

23,921

 

11,142

 

33,176

 

Finance costs

(2,233,745)

 

(1,899,774)

 

(3,941,261)

 

Loss for the period for continuing operations before taxation

(1,919,878)

 

(2,218,754)

 

(4,285,833)

 

Income tax expense

-

 

-

 

-

 

Loss for the period

(1,919,878)

 

(2,218,754)

 

(4,285,833)

 

 

 

 

 

 

 

 

Loss for the period

(1,919,878)

 

(2,218,754)

 

(4,285,833)

 

Other comprehensive income to be reclassified to profit or loss in subsequent periods:

 

 

 

 

 

 

Currency translation adjustments

(3,706,547)

 

1,296,301

 

2,356,702

 

Total comprehensive loss for the period

(5,626,425)

 

(922,453)

 

(1,929,131)

 

Finance costs mainly relate to interest on shareholder loans from Oil India International B.V. and PetroNeft. The details of gross interest accrued on loans to PetroNeft are disclosed in Note 17 Related party disclosures.

 

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 depreciated against the US Dollar during the period from RUB57.7:US$1 at 31 December 2017 to RUB62.754:US$1 at 30 June 2018.

 

 

 

 

 

 

 

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

 

 

 

 

50% Share of WorldAce Group

 

 

 

Unaudited

 

Audited

 

 

 

30 June 2018

 

31 December 2017

 

 

 

US$

 

US$

 

Non-current Assets

 

 

 

 

 

Oil and gas properties

 

35,647,329

 

39,312,150

 

Property, plant and equipment

 

155,165

 

184,027

 

Exploration and evaluation assets

 

8,651,388

 

9,321,748

 

Assets under construction

 

830,555

 

824,992

 

 

 

45,284,437

 

49,642,917

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

Inventories

 

715,751

 

605,240

 

Trade and other receivables

 

270,285

 

282,925

 

Cash and cash equivalents

 

469,247

 

68,613

 

 

 

1,455,283

 

956,778

 

 

 

 

 

 

 

Total Assets

 

46,739,720

 

50,599,695

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-current Liabilities

 

 

 

 

 

Provisions

 

(649,681)

 

(658,513)

 

Interest-bearing loans and borrowings

 

(63,474,495)

 

(61,435,277)

 

 

 

(64,124,176)

 

(62,093,790)

 

Current Liabilities

 

 

 

 

 

Interest-bearing loans and borrowings

 

(864,962)

 

(715,405)

 

Trade and other payables

 

(2,263,639)

 

(2,677,132)

 

 

 

(3,128,601)

 

(3,392,537)

 

Total Liabilities

 

(67,252,777)

 

(65,486,327)

 

 

 

 

 

 

 

Net Liabilities

 

(20,513,057)

 

(14,886,632)

 

Interest-bearing loans and borrowings are shareholder loans from Oil India International B.V. and PetroNeft. The details of loans due to PetroNeft are disclosed in Note 17 Related party disclosures.

 

 

 

 

10.       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, through LLC Lineynoye, in Russia.

 

 

 

Share of net assets

 

 

US$

 

 

 

 

At 1 January 2017

-

 

Retained loss

(381,654)

 

Translation adjustment

194,339

 

Credited against loans receivable from Russian BD Holdings BV (Note 17)

187,315

 

At 1 January 2018

-

 

Retained loss

(230,178)

 

Translation adjustment

(323,795)

 

Credited against loans receivable from Russian BD Holdings BV (Note 17)

553,973

 

At 30 June 2018

-


The balance sheet position of Russian BD Holdings B.V. shows net liabilities of US$2,547,952 following a loss in the period of US$460,356 together with a negative currency translation adjustment of US$647,590. PetroNeft's 50% share is included above and results in a negative carrying value of US$1,273,976. 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$1,273,976 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 11).

 

 

 

10.       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:

 

 

 

50% Share of Russian BD Holdings B.V.

 

 

Unaudited

 

Audited

 

 

6 months ended 30 June 2018

 

6 months ended 30 June 2017

 

Year ended 31 December 2017

 

 

US$

 

US$

 

US$

 

Revenue

-

 

-

 

-

 

Cost of sales

-

 

-

 

-

 

Gross profit

-

 

-

 

-

 

Administrative expenses

(42,993)

 

(45,987)

 

(94,626)

 

Operating loss

(42,993)

 

(45,987)

 

(94,626)

 

Finance revenue

360

 

228

 

259

 

Finance costs

(187,545)

 

(138,915)

 

(287,287)

 

Loss for the period for continuing operations before taxation

(230,178)

 

(184,674)

 

(381,654)

 

 

 

 

 

 

 

 

Taxation

-

 

-

 

-

 

 

 

 

 

 

 

 

Loss for the period

(230,178)

 

(184,674)

 

(381,654)

 

 

 

 

 

 

 

 

Loss for the period

(230,178)

 

(184,674)

 

(381,654)

 

Other comprehensive income to be reclassified to profit or loss in subsequent periods:

 

 

 

 

 

 

Currency translation adjustments

(323,795)

 

109,246

194,339

 

Total comprehensive loss for the period

(553,973)

 

(75,428)

 

(187,315)

 

Finance costs comprise of interest on shareholder loans from Belgrave Naftogas B.V. and PetroNeft. The details of gross interest accrued on loans to PetroNeft are disclosed in Note 17 Related party disclosures.

 

 

 

 

 

50% Share of Russian BD Holdings B.V.

 

 

 

 

Unaudited

 

Audited

 

 

 

 

30 June 2018

 

31 December 2017

 

 

 

 

US$

 

US$

 

Non-current assets

 

 

4,499,340

 

4,370,482

 

Current assets

 

 

100,837

 

12,048

 

Total assets

 

 

4,600,177

 

4,382,530

 

 

 

 

 

 

 

 

Non-current liabilities

 

 

(5,539,618)

 

(4,981,608)

 

Current liabilities

 

 

(334,535)

 

(120,925)

 

Total liabilities

 

 

(5,874,153)

 

(5,102,533)

 

 

 

 

 

 

 

 

Net Liabilities

 

 

(1,273,976)

 

(720,003)

 

 

 

 

11.

Financial assets - loans and receivables

 

 

 

 

 

 

 

 

 

Unaudited

 

Audited

 

Group

 

 

30 June 2018

 

31 December 2017

 

 

 

 

US$

 

US$

 

 

 

 

 

 

 

 

Loans to WorldAce Investments Limited (Note 17)

 

57,262,240

 

55,474,668

 

Less: share of WorldAce Investments Limited loss (Note 9)

(15,829,478)

 

(10,203,053)

 

 

 

 

41,432,762

 

45,271,615

 

Loans to Russian BD Holdings B.V. (Note 17)

 

5,464,499

 

4,887,890

 

Less: share of Russian BD Holdings B.V. loss (Note 10)

(1,273,976)

 

(720,003)

 

 

 

 

4,190,523

 

4,167,887

 

 

 

 

45,623,285

 

49,439,502

 

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 2019 at the earliest. The loan is set to mature on 31 December 2025. As at 30 June 2018 the loan was fully drawn down. The loan from the Company to Russian BD Holdings is repayable on demand. Interest currently accrues on the loan at LIBOR plus 5.0% per annum.

 

 

12.

Inventories

 

Unaudited

 

Audited

 

 

 

30 June 2018

 

31 December 2017

 

 

 

US$

 

US$

 

Materials

 

                        100,112

 

                       21,908

 

 

 

100,112

 

21,908

 

 

13.

Trade and other receivables

 

Unaudited

 

Audited

 

 

 

30 June 2018

 

31 December 2017

 

 

 

US$

 

US$

 

Other receivables

 

                          50,664

 

                       21,039

 

Receivable from jointly controlled entity (Note 17)

 

387,302

 

                    503,527

 

Advances to contractors

 

2,218

 

                         1,676

 

Prepayments

 

39,727

 

                       61,359

 

 

 

479,911

 

587,601

 

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

 

 

 

 

 

 

 

 

14.

Cash and Cash Equivalents

 

 

 

 

 

 

 

 

 

Unaudited

 

Audited

 

Group

 

 

30 June 2018

 

31 December 2017

 

 

 

 

US$

 

US$

 

Cash at bank and in hand

 

 

                          40,378

 

                         9,389

 

 

 

 

                          40,378

 

9,389

 

              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.

 

 

15.

Loans and Borrowings

 

 

 

 

 

 

 

 

 

Unaudited

 

Audited

 

Group and Company

Effective interest rate

Contractual maturity date

30 June 2018

 

31 December 2017

 

 

%

 

US$

 

US$

 

Interest-bearing

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Petrogrand AB

11.34%

31-Dec-18

1,048,256

 

-

 

Total current liabilities

 

 

1,048,256

 

-

 

Total loans and borrowings

 

 

1,048,256

 

-

 

 

 

 

 

 

 

 

Contractual undiscounted liability

 

 

1,048,256

 

-

 

              Changes in financial liabilities arising from financing activities:

 

 

 

Unaudited

 

 

6 months ended 30 June 2018

 

 

US$

 

At 1 January 2018

-

 

Cash flows - loan drawdowns

1,000,000

 

Interest accrued but not yet paid

48,256

 

At 30 June 2018

1,048,256

 

 

 

16.

Trade and other payables

 

 

 

 

 

 

 

Unaudited

 

Audited

 

 

 

30 June 2018

 

31 December 2017

 

 

 

US$

 

US$

 

Trade payables

 

                        324,851

 

                    570,476

 

Trade payables to jointly controlled entity (Note 17)

 

30,466

 

                    212,442

 

Trade payables to related parties (Note 17)

 

88,847

 

                                -  

 

Corporation tax

 

54,993

 

                       54,898

 

Other taxes and social welfare costs

 

                       94,230

 

                       83,305

 

Accruals and other payables

 

923,295

 

                    795,293

 

 

 

                   1,516,682

 

                 1,716,414

 

              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.

 

 

 

17.        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 2018 and year ended 31 December 2017:

 

Group

 

Russian BD Holdings BV Group

 

WorldAce Investments Limited Group

 

 

 

US$

 

US$

 

 

 

 

 

 

 

Receivable by PetroNeft Group at 1 January 2017

 

4,080,882

 

44,444,591

 

Advanced during the year

 

360,251

 

-

 

Transactions during the year

 

142,086

 

1,798,417

 

Interest accrued in the year

 

270,773

 

3,238,839

 

Payments for services made during the year

 

(480,723)

 

(2,019,374)

 

Share of joint venture's translation adjustment

 

(187,315)

 

(1,956,467)

 

Translation adjustment

 

32,962

 

5,665

 

At 1 January 2018

 

4,218,916

 

45,511,671

 

Advanced during the period

 

392,000

 

-

 

Transactions during the period

 

158,368

 

986,837

 

Interest accrued in the period

 

184,609

 

1,787,572

 

Payment for services made during the period

 

(1,229)

 

(1,058,051)

 

Share of joint venture's translation adjustment

 

(553,973)

 

(5,626,425)

 

Translation adjustment

 

(7,661)

 

(12,513)

 

At 30 June 2018

 

4,391,030

 

41,589,091

 

 

 

 

 

 

 

Balance at 31 December 2017 comprised of:

 

 

 

 

 

Loans receivable

 

4,167,887

 

45,271,615

 

Trade and other receivables

 

51,029

 

452,498

 

Trade Payables

 

-

 

(212,442)

 

 

 

4,218,916

 

45,511,671

 

Balance at 30 June 2018 comprised of:

 

 

 

 

 

Loans receivable

 

4,190,523

 

41,432,762

 

Trade and other receivables

 

200,507

 

186,795

 

Trade and other payables

 

-

 

(30,466)

 

 

 

4,391,030

 

41,589,091

 

 

 

 

 

 

 

17.       Related party disclosures (continued)

 

Remuneration of key management

Key management comprise the Directors, the Vice Presidents of Business Development and Operations of the Company and the consulting fees paid to HGR Consulting Limited for the services of the CFO. Their remuneration and fees during the year were as follows:

 

 

 Remuneration of key management

 

Unaudited

 

Audited

 

 

 

6 months ended 30 June 2018

 

Year ended 31 December 2017

 

 

 

US$

 

US$

 

 

 

 

 

 

 

Compensation of key management

 

484,183

 

1,103,224

 

Contributions to defined contribution pension plan

 

26,346

 

52,693

 

Consulting fees (HGR Consulting - see below)

 

163,171

 

304,556

 

 

 

673,700

 

1,460,473

 

The following amounts were owed to key management at 30 June 2018 and 31 December 2017

 

 

 

 

Unaudited

 

Audited

 

 

 

 

30 June 2018

 

31 December 2017

 

 

 

 

US$

 

US$

 

Remuneration, fees and expenses due to Directors

 

 

533,235

 

424,564

 

Remuneration due to other key management

 

 

226,996

 

122,946

 

Amounts due to HGR Consulting (see below)

 

 

158,437

 

276,570

 

 

 

 

918,668

 

824,080

 

Details of transactions between the Group and other related parties are disclosed below.

 

Transactions with HGR Consulting Limited

    Paul Dowling, Secretary and Chief Financial Officer of PetroNeft, provides his services through HGR Consulting Limited ("HGR").

 

 

 

17.       Related party disclosures (continued)

 

Transactions with Petrogrand AB

             Pavel Tetyakov, VP of Business Development of PetroNeft, is CEO of Petrogrand AB, Swedish company. In addition, Maxim Korobov, a significant shareholder and Non-Executive Director of Petroneft is also a major shareholder of Petrogrand AB. PetroNeft received a loan from Petrogrand AB in 2018. PetroNeft Group has also purchased construction materials from Petrogrand AB.

            

             The following is a summary of the transactions:

 

 

 

Petrogrand AB

 

 

 

US$

 

Payable by PetroNeft Group at 1 January 2018

 

-

 

Advanced during the period

 

1,000,000

 

Transactions during the period (purchase of materials)

 

97,458

 

Interest accrued in the period

 

48,256

 

Payments for goods made during the period

 

-

 

Translation adjustment

 

(8,611)

 

Payable by PetroNeft Group at 30 June 2018

 

1,137,103

 

 

 

 

 

Balance at 30 June 2018 comprised of:

 

 

 

Loans payable

 

1,048,256

 

Trade and other payables

 

88,847

 

 

 

1,137,103

 

 

 

 

 


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