Cadogan Petroleum Plc - Half-year Report
Half Yearly Report for the Six Months ended
(Unaudited and unreviewed)
(“Cadogan” or the “Company”), an independent, diversified oil & gas company listed on the main market of the , is pleased to announce its unaudited results for the six months ended .
Overall, the first half of 2020 was impacted by the global impact of covid-19 pandemic, extreme price volatility in oil market, a severe drop down of gas prices, and the shut-down for 5,5 months of the production of Blazhiv-3 and Blazhiv-Monastyrets-3 wells. This affected Cadogan’s strategy in 2020 and constrained the Group to review and partly postpone its investment strategy (incl. new drilling). Looking ahead, the Company is confident that strong management and competent staff will ensure a positive outcome for the company in such uncertain and challenging environment.
Key performance indicators
During H1 2020, The Group has monitored its performance in conducting its business with reference to a number of key performance indicators (‘KPIs’):
The Group’s performance during the first six months of 2020, measured against these targets, is set out in the table below, together with the prior year performance data. No changes have been made to the sources of data or calculations used in the period/year. The positive trend in the HSE performances continues with zero incidents.
An update of the KPI’s table will be proposed to the Board in order to better reflect the current status of the Company and its medium-term objectives. The new KPI’s will become effective from 2021 if approved by the Board.
The world economic crisis which resulted from the pandemic of corona virus and the oil & gas market turbulence has severely affected and Cadogan’s activities. The first half of the year witnessed a substantial drop of the Brent oil price, from more than 65 $/bbl in to 20 $/bbl in April and slight recovery to 35 $/bbl in .
The first semester of 2020 has been another challenging time for . After last year’s presidential and parliament elections, the new empowered officials have not yet been successful in resolving the military confrontation with at the East of as well as in improving the economic situation in the Country. The of Ministers headed by the Prime Minister Olkesiy Goncharuk has been replaced, in , after 6 months of work, by the one of Denys Shmygal.
The continued efforts of to attract new investments in its oil and gas sector, with the modernization of oil and gas regulatory framework, have been countered by the shut down period and the economic turmoil of this market. An amendment to the license award procedure was introduced and took effect on . The new regulatory framework introduced changes in the necessary criteria for the awarding of licenses out of the auction procedure without taking into account the prior licenses’ applications already engaged before that date. This created retroactiveness effects of the new law and led to automatic rejections in the award process on this basis. As for several other companies, this has also affected the Biltyanska 20-year operation license application engaged by Cadogan in 2019.
In this challenging context the Group has continued to focus on safely and efficiently operating the existing wells, on controlling its costs in order to preserve cash while continuing to look at opportunities to grow and diversify its portfolio.
E&P activity remained focused on maintaining and securing its licenses for the new term and safely and efficiently producing from the existing wells within the Blazhiv oil field. During H1 2020,the average gross production rated at 230 bpd, which is 23% lower than in H1 2019 (297 boepd). The production decrease in the reported period was caused by the shut-down of the Blazhiv-3 and Blazhiv-Monasterets-3 wells due to the expiry of the lease agreements with Ukrnafta and the necessary needed time for their renewal. Production in these wells has been resumed on . In order to mitigate oil price volatility and in preparation of the future strategy for the increase of the production, the Company installed on the Blazhiv field additional 350 m3 oil storage tanks .
Regarding the Bitlyanska 20-year exploration and development license, given the delay to award the license by the State Geological Service (SGS) beyond the regular timeline provided by legislation and the further rejection of the application on the basis of the new regulatory framework that took effect on , Cadogan launched a claim before the Administrative Court to challenge the non-granting of the license by the Licensing Authority.
All activities were executed without LTI or TRI, with a total of nearly 1,200,000 manhours since the last incident, which occurred to a sub-contractor, in . Emission to the atmosphere were reduced to 62.37 tons of Co2,e/boe produced, compared to 89.4 tons of Co2,e/boe of the same reporting period of last year.
In , given the on-going moratorium for the approval of new licenses, activity was focused on maintaining liaisons with the local authorities and fulfilling the mandatory license requirements.
The signing of an agreement on gas transportation between and , an abnormally warm winter in and , and the economic impact of the pandemic Covid 19 ended in a further extraordinary decrease of the gas prices.
Cadogan continues to monitor the gas markets in and , in particular the unbundling of gas transmission system operator, with the final stage of the process of separating the gas transmission system of from Naftogaz. The unsold gas during last year was kept in storage with the expectation of higher prices during the following heating season.
During the first half of 2020, Cadogan has been monitoring the protection of its interests in Proger through the Loan Agreement and the Option to convert it, subject to Cadogan’s shareholders approval, into a 33% direct equity position in Proger Ingegneria. This led at the end of in the effective nomination of a new representative of the Group as Board Director of Proger Ingegneria and Proger, and the effective nomination of another Group’s representative as member of the of Proger Ingegneria. Prior to this date, the Company has had no representation on the since the resignation of Guido Michelloti as a Director of the Company in and had been unable to effectively exercise its right to Board representation under the loan agreement. Cadogan has recently received legal and financial information communicated by Proger and related to Proger’s activities for 2019 which the Company is presently analyzing. However, the Company is still to receive information regarding H1 2020 trading and critical information regarding forecasts and the new business plan of Proger for the next years.
 Lost Time Incident, Total Recordable Incident
Cash at was (). The Group continually monitors its exposure to currency risk. It maintains a portfolio of cash mainly in US Dollars (“USD”) and EURO held primarily in the .
The Directors believe that the capital available at the date of this report is sufficient for the Group to continue its operations for the foreseeable future.
Cadogan remains with a solid balance sheet with no debts and a good cash position, with the resources and competences necessary to continue its activities and pursue its development.
In , gas trading, which had become unprofitable, cannot be a major activity for Cadogan. The company is focusing on its oil operations and a more value accretive and comprehensive diversification of its activities.
Additionally, while our assets are robust and cash generative, the situation regarding Covid-19 and its potential impact on the global economy and our operations remains uncertain and is rapidly changing. We continue to monitor the impact of these developments on our industry, our operations and - most importantly - our staff and contractors.
The Company will continue to actively pursue opportunities outside of , to leverage its competence and low-cost structure in order to create long term value for its shareholders. In parallel, the Company will work with Proger to develop all necessary actions to ensure the proper fulfilment of the counterparts’ obligations under this agreement.
In H1 2020, the Group held working interests in two (2019: two) conventional gas-condensate and oil exploration and production licences in the West of . These assets are operated by the Group and are located in the prolific Carpathian basin, close to the Ukrainian oil & gas distribution infrastructure.
The Group’s primary focus during the period continued to be on cost optimisation and enhancement of current production, through the existing well stock and new drilling.
(1) The Bitlyanska license expired on and its renewal was not granted within the due legal period. The Company is involved in ongoing court proceeding to defend its rights and challenge the Licensing Authority actions after the rejection by the State Geological Service of its Bitlyanska 20-year production license application and its Pirkivska exploration and development license application.
Below we provide an update to the full Operations Review contained in 2019 Annual Report published on .
Cadogan has filed to the State Geological Service an application for a 20-year production license 5 months ahead the license expiry date of the 23 and secured all intermediary approvals including Environmental Impact Assessment study by the , the approval of the Reserves Report by the and the approval of the license award by the . Due to the delay to award the new license beyond the regular timeline provided by legislation to the State Geological Service and further rejection of the application on the basis of the new regulatory requirements that were enforced six months after the fully compliance of Cadogan’s application which was submitted according to the previous law, Cadogan launched a claim before the Kiev Administrative Court to challenge the non-granting of the license by the Licensing Authority.rd
All operational activities as well as area farm-out have been put on-hold waiting for the license award.
Through the reporting period the Company has been working to safely and efficiently producing from the existing wells located in the Blazhiv license area. At the end of the reporting period, the average gross production rated at 230 bpd vs 297 bpd in H1 2019. The production decrease was caused by the shut-down of the Blazhiv-3 and Blazhiv-Monastyrets-3 wells, due to the expiry of the lease agreements with Ukrnafta. These agreements have been extended on for a new 3-year term with minor adjustments.
The Company has performed successful work-over on the Blazhiv-10 well with the replacement of the sucker rod pump. Currently, all the four wells are producing with an average rate over 390 bpd as of .
The company has also commissioned additional crude oil storage facilities on the Blazhiv field by increasing the cumulative volume up to 800m3. This should allow to manage favorably short term oil price volatility.
In H1 2020, Cadogan’s 100% owned subsidiary, , focused its activities on serving intra-group operational needs in wells’ work-over/ re-entry operations as well as field on-site activities.
In H1 2020, revenues decreased to (: ), due to the absence of gas trading sales (: ) and the reduced production . Revenues from production decreased to (: ) due to a lower realized price (decrease of 33%) and a decrease in the production volumes by 23%. This latter is mainly due to the delay in obtaining the renewal of the lease agreements for Blazhiv 3 and Blazhiv-Monastyrets 3.
Due to the covid 19 shut-down, the services business concentrated its activities on intra-group services, in particular, for the Blazhivska license.
The cost of sales of the production segment consists of of production royalties (), $0.2 million of operating costs (), of depreciation and depletion of producing wells (), and of direct staff costs for production ().
Half year gross profit from production activities decreased marginally to (: ), driven by decrease in production and lower oil prices.
Provision against gas inventory of (: ) represents the impairment loss on the value of its natural gas in storage due to revaluation to market price at the end of the reporting period.
Impairment of other assets of (: reversal of impairment ) represents movement in provision for recoverable VAT.
The Group recorded a increase in the fair value of the Proger Loan, which is held at fair value through profit and loss under IFRS. Refer to note 11 for details.
Other administrative expenses were kept under control at (: ). They comprise other staff costs, professional fees, Directors’ remuneration and depreciation charges on non-producing property, plant and equipment.
At , the cash position of (: ) decreased compared with the at , because of negative cash flows generated from operating activities.
Intangible Exploration and Evaluation (“E&E”) assets of (: , : ) represent the carrying value of the Group’s investment in E&E assets as at . The Property, Plant and Equipment (“PP&E”) balance of at (: , : ) includes of development and production assets on the Blazhyvska licence and other PP&E of the Group.
Trade and other receivables of (: , : ) include recoverable VAT of  (: , : ), of other receivables and prepayments (: , : ).
The of trade and other payables as of (: , : ) represent (: , : ) of other creditors and of accruals (: , : ).
Cash flow statement
The Consolidated Cash Flow Statement shows negative cash-flow from operating activities of (: inflow , : outflow ). Cashflow, before movements in working capital, was an outflow of (: outflow , : outflow ).
Group capital expenditure was on Property, Plant and Equipment which related to the Blazhyvska license.
There has been no material change in the commitments and contingencies reported as at (refer to page 78 of the Annual Report).
The Group monitors continuously its exposure to currency risk. It maintains a portfolio of cash , mainly in both US dollars (‘USD’) and EURO held primarily in the , and holds these in call deposits. Production revenues from the sale of hydrocarbons are received in the local currency in (‘UAH’) and to date funds from such revenues have been held in for further use in operations. When funds are needed for operations, they are transferred to the Company’s subsidiaries in USD, and then converted to UAH.
The Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Interim Financial Statements. For further details refer to the detailed discussion of the assumptions outlined in note 2(a) to the Interim Financial Statements.
The business review and certain other sections of this Half Yearly Report contain forward looking statements that have been made by the Directors in good faith based on the information available to them up to the time of their approval of this report. However they should be treated with caution due to inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information and no statement should be construed as a profit forecast.
 Most of the recoverable VAT is VAT paid on drilling services which will be off-set by VAT due on crude sales in future periods under local legislation
Risks and uncertainties
There are a number of potential risks and uncertainties inherent in the oil and gas sector which could have a material impact on the long-term performance of the Group and which could cause the actual results to differ materially from expected and historical results. The Company has taken reasonable steps to mitigate these where possible. Full details are disclosed on pages 11 to 13 of the 2019 Annual Financial Report. There have been no changes to the risk profile during the first half of the year. The risks and uncertainties are summarised below.
Director’s Responsibility Statement
We confirm that to the best of our knowledge:
(a) the Interim Financial Statements have been prepared in accordance with IAS 34 ‘;Interim Financial Reporting’
(b) the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year);
(c) the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties’ transactions and changes therein); and
(d) the condensed set of financial statements, which has been prepared in accordance with the applicable set of accounting standards, gives a true and fair view of the assets, liabilities, financial position and profit or loss of the issuer, or the undertakings included in the consolidation as a whole as required by DTR 4.2.4R.
This Half Yearly Report consisting of pages 1 to 24 has been approved by the Board and signed on its behalf by:
Chief Executive Officer
Consolidated Income Statement
Six months ended
*Provision against unsold inventory in H1 2019 was previously classified as an impairment of other assets below gross profit. The provision movement of has been reclassified above gross profit to reflect its nature and provide comparability with the presentation at H1 2020 and FY 2019.
**The net fair value gains on convertible loan for H1 2019 and FY 2019 was previously classified as part of operating profit/(loss) and have been reclassified as a non-operating item in these results for consistency with the H1 2020 presentation. Classification as non-operating is considered applicable as the Company anticipates, at present, repayment of the loan at maturity and the instrument is not considered a core operating activity of the Group.
Consolidated Statement of Comprehensive Income
Six months ended
Consolidated Statement of Financial Position
Six months ended
Consolidated Statement of Cash Flows
Six months ended
Consolidated Statement of Changes in Equity
Six months ended
Notes to the Condensed Financial Statements
Six months ended
1. General information
(the ‘Company’, together with its subsidiaries the ‘Group’), is incorporated in and under the Companies Act. The address of the registered office is 6th Floor, , EC3V 0HR. The nature of the Group’s operations and its principal activities are set out in the Operations Review on pages 3 to 5 and the Financial Review on pages 6 to 7.
This Half Yearly Report has not been audited or reviewed in accordance with the Auditing Practices Board guidance on ‘Review of Interim Financial Information’.
A copy of this Half Yearly Report has been published and may be found on the Company’s website at .www.cadoganpetroleum.com
2. Basis of preparation
The annual financial statements of the Group are prepared in accordance with International Financial Reporting Standards (‘IFRS’) as issued by the (‘IASB’) and as adopted by the (‘EU’). These Condensed Financial Statements have been prepared in accordance with IAS 34 , as issued by the IASB.
The same accounting policies and methods of computation are followed in the condensed financial statements as were followed in the most recent annual financial statements of the Group except as noted, which were included in the Annual Report issued on .
The Group has not early adopted any amendment, standard or interpretation that has been issued but is not yet effective. It is expected that where applicable, these standards and amendments will be adopted on each respective effective date.
The Group has adopted the standards, amendments and interpretations effective for annual periods beginning on or after . The adoption of these standards and amendments did not have a material effect on the financial statements of the Group, including a specific assessment of the impact of IFRS 16 ‘Leases’.
This consolidated interim financial information does not constitute accounts within the meaning of section 434 and of the Companies Act 2006. Statutory accounts for the year ended were approved by the Board of Directors on and delivered to the Registrar of Companies. The report of the auditors on those accounts was qualified as the auditors were unable to obtain sufficient and appropriate evidence to conclude as to whether the fair value of the Proger loan instrument of was materially accurate.
(a) Going concern
The Directors have continued to use the going concern basis in preparing these condensed financial statements. The Group's business activities, together with the factors likely to affect future development, performance and position are set out in the Operations Review. The financial position of the Group, its cash flow and liquidity position are described in the Financial Review.
The Group’s cash balance at was (: ).
The Group’s forecasts and projections, taking into account reasonably possible changes in operational performance, and the price of hydrocarbons sold to Ukrainian customers, show that there are reasonable expectations that the Group will be able to operate on funds currently held and those generated internally, for the foreseeable future.
The Group’s farm-out strategy on Bitlyanska license is on-hold waiting for the outcome of the claim introduced against the Licensing Authority for non granting the 20-year production license.
Having considered the Company’s financial position and its principal risks and uncertainties, including the assessment of potential risks associated with Covid-19 including a) restrictions applied by governments, illness amongst our workforce and disruption to supply chain and sales channels; and b) market volatility in respect of commodity prices associated with Covid-19 in addition to geopolitical factors, the Directors have a reasonable expectation that the Group have adequate resources to continue in operational existence for the foreseeable future.
After making enquiries and considering the uncertainties described above, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future and consider the going concern basis of accounting to be appropriate and, thus, they continue to adopt the going concern basis of accounting in preparing the financial statements. In making its statement the Directors have considered the recent political and economic uncertainty in .
(b) Foreign currencies
The individual financial statements of each Group company are presented in the currency of the primary economic environment in which it operates (its functional currency). The functional currency of the Company is US dollar. For the purpose of the consolidated financial statements, the results and financial position of each Group company are expressed in US dollars, which is the presentation currency for the consolidated financial statements.
The relevant exchange rates used were as follows:
The Directors do not recommend the payment of a dividend for the period (: $nil; : $nil).
(d) Critical accounting judgments and estimates
Impairment indicator assessment for E&E assets
The outcome of ongoing exploration, and therefore the recoverability of the carrying value of intangible exploration and evaluation assets, is inherently uncertain. Management assesses its E&E assets, and perform an impairment test if indicators of impairment are identified . In assessing potential indicators of impairment, management considered factors such as the remaining term of the license, plans for renewal of the license, conversion to a production license, reports on reserves, the net present value of economic models, the results of drilling and exploration in the year and the future plans including farm out proposals. In respect of the renewal and conversion of the license which remains outstanding and overdue management considered the status of license commitments, the status of submissions necessary for the renewal, trends in the relevant region of the with respect to license application approval together with legal advice in respect of the standing of the license in the event of delays by the authorities.
Impairment of PP&E
Management assess its development and production assets for impairment indicators and performs an impairment test if indicators of impairment are identified. Management performed an impairment assessment using a value in use discounted cash flow model which required estimates including forecast oil prices, reserves and production, costs and discount rates.
Recoverability and measurement of VAT
Judgment is required in assessing the recoverability of VAT assets and the extent to which historical impairment provisions remain appropriate, particularly noting the recent recoveries against historically impaired VAT. In forming this assessment, the Group consider the nature and age of the VAT, the likelihood of eligible future supplies to VAT, the pattern of recoveries and risks and uncertainties associated with the operating environment.
Loan classified at fair value through profit and loss
In , the Group advanced a loan to Proger Managers & Partners Srl (“PMP”), a privately owned Italian company whose only interest is a 72.92% participation in Proger Ingegneria Srl (“Proger Ingegneria”), a privately owned company which has a 75.95% participating interest in (“Proger”). The loan carries an entitlement to interest at a rate of 5.5% per year, payable at maturity (which is 24 months after the execution date () and assuming that the call option described below is not exercised). The principal of the loan is secured by a pledge over PMP’s current participating interest in Proger Ingegneria, up to a maximum guaranteed amount of .
As part of the instrument, the Group was granted a call option to acquire, at its sole discretion, a direct 33% equity interest in Proger Ingegneria; the exercise of the option would give Cadogan, through CPHBV, an equivalent indirect 25 interest in Proger. The call option was granted at no additional cost and can be exercised at any time between the 6th (sixth) and 24th (twenty-fourth) months following the execution date of the loan agreement and subject to Cadogan shareholders having approved the exercise of the call option. The Board note that the Group has no current equity interest and the option is not considered to be currently exercisable at given the substantive requirement for shareholder approval. Should CPHBV exercise the call option, the price for the purchase of the 33% participating interest in Proger Ingegneria shall be paid by setting off the corresponding amount due by PMP to CPHBV, by way of reimbursement of the principal, pursuant to the loan agreement. If the call option is exercised, then the obligation on PMP to pay interest is extinguished.
Under the Group’s accounting policies the instrument is held at fair value through profit and loss and determination of fair value requires assessment of both key investee specific information regarding financial performance and prospects and market information.
The Group’s original investment decision involved assessment of Proger’s business plan and analysis with professional advisers including valuations performed using the income method (discounted cash flows) and market approach using both the precedent transactions and trading multiples methods.
Whilst Proger has provided Cadogan information regarding its 2019 financial performance, no information in respect of 2020 or updated forecasts have been provided which are considered necessary to undertake a detailed fair value assessment using the income method or market approach at . As a consequence, management assessed the fair value of the instrument based on the terms of the agreement, including the pledge over shares, together with financial information in respect of prior periods and determined that represented the best estimate of fair value, being equal to anticipated receipts discounted at a market rate of interest of 5.5%. However, the absence of information regarding Proger’s 2020 financial performance and prospects represents a significant limitation on the fair value exercise and, as a result, once received, the fair value could be materially higher or lower than this value. (Note 11).
3. Segment information
Segment information is presented on the basis of management’s perspective and relates to the parts of the Group that are defined as operating segments. Operating segments are identified on the basis of internal assessment provided to the Group’s chief operating decision maker (“CODM”). The Group has identified its executive management team as its CODM and the internal assessment used by the top management team to oversee operations and make decisions on allocating resources serve as the basis of information presented.
Segment information is analysed on the basis of the type of activity, products sold or services provided. The majority of the Group’s operations are located within . Segment information is analyzed on the basis of the types of goods supplied by the Group’s operating divisions.
The Group’s reportable segments under IFRS 8 are therefore as follows:
Exploration and Production
· E&P activities on the production licences for natural gas, oil and condensate
· Drilling services to exploration and production companies
· Construction services to exploration and production companies
· Import of natural gas from European countries
· Local purchase and sales of natural gas operations with physical delivery of natural gas
The accounting policies of the reportable segments are the same as the Group’s accounting policies. Sales between segments are carried out at market prices. The segment result represents profit under IFRS before unallocated corporate expenses. Unallocated corporate expenses include management and Board remuneration and expenses incurred in respect of the maintenance of office premises. This is the measure reported to the CODM for the purposes of resource allocation and assessment of segment performance.
The Group does not present information on segment assets and liabilities as the CODM does not review such information for decision-making purposes.
As of and for the six months then ended the Group’s segmental information was as follows:
As of and for the six months then ended the Group’s segmental information was as follows:
(1) In first half 2019 and in the first half 2020 the Service business was focused on internal projects, in particular, providing services to Blazhyvska licence.
4. Finance income/(costs), net
5. (Loss)/profit per ordinary share
(Loss)/profit per ordinary share is calculated by dividing the net (loss)/profit for the period/year attributable to Ordinary equity holders of the parent by the weighted average number of Ordinary shares outstanding during the period/year. The calculation of the basic (loss)/profit per share is based on the following data:
6. Proved properties
As of the development and production assets balance which forms part of PP&E has increased in comparison to due to the installation of additional 350m3 oil storage tanks at Blazhiv field and decreased due to the exchange rate between UAH and US Dollar, depreciation and depreciation charges for the reporting period.
The Group had volumes of natural gas stored at which were not sold during the six months ended . The Group plan to realise it in the second half of the year, as this represents the start of the heating season which typically sees higher prices. No other substantial changes in inventories balances occured.
The impairment provision as at is made so as to reduce the carrying value of the inventories to net realizable value.
8. Trade and other receivables
The Directors consider that the carrying amount of the other receivables approximates their fair value. Management expects to realise VAT recoverable through the activities of the business segments.
9. Trade and other payables
The of trade and other payables as of (: , : ) represent (: , : ) of payables and of accruals (: , : ).
10. Commitments and contingencies
There have been no significant changes to the commitments and contingencies reported on page 78 of the Annual Report.
11. Loan classified at fair value through profit and loss
In , Cadogan used part of its cash () to enter into a 2-year loan agreement with , with an option to convert it into a direct 33% equity interest in Proger Ingegneria, equivalent to an indirect 25 % equity interest in Proger. According to IFRS, the option has to be represented in our balance sheet at fair value.
The Group’s original investment decision involved assessment of business plan and analysis with professional advisers including valuations performed using the income method (discounted cash flows) and market approach using both the precedent transactions and trading multiples methods.
Financial assets at fair value through profit and loss
Refer to note 2 for details of the terms of the Proger loan recorded as a financial asset at fair value through profit and loss. The instrument is recorded at management’s best estimate of fair value as set out in note 2 although management have not been able to undertake a valuation exercise under the income method or market based method which would incorporate relevant recent financial information on the investee or its prospects.
* Exchange differences are calculaded based on USD/EURO currency exchange rates on the date of transaction which is and end of the period .
The Group has applied a level 3 valuation under IFRS as inputs to the valuation have included assessment of the cash repayments anticipated under the loan terms at maturity, historical financial information for the periods prior to H1 2020 and assessment of the security provided by the pledge over shares.
The Group is still lacking sufficient and reliable information in respect of Proger’s H1 2020 financial performance, forecasts and business plan, post covid-19, taking into account all the effects of the important changes that have occurred in its markets and its customers’ decisions regarding future investments. If the Group had been provided with information to complete a valuation under the income method or market method the key assumptions would have included: a) In terms of the income method: forecast revenues, EBITDA and unlevered free cash flows of the investee including assessment of performance against its original business plan at the time the loan was advanced, revisions to the business plan, growth rates and terminal values, determination of an appropriate discount rate, adjustments to the enterprise value for debt and working capital adjustments; b) In terms of the market method: first semester 2020 EBITDA and information to assess the quality of such earnings, enterprise value multiples based on a basket of comparable transactions and companies, adjustments to the enterprise value for debt and working capital adjustments and other risk adjustment factors.
As a consequence, management assessed the fair value of the instrument based on the terms of the agreement, including the pledge over shares, together with financial information in respect of prior periods and determined that represented the best estimate of fair value, being equal to anticipated receipts discounted at a market rate of interest of 5.5%.
The Group considers that the carrying amount of financial instruments approximates their fair value.
12. Share capital
Authorized and issued equity share capital
Authorized but unissued share capital of £30 million has been translated into US dollars at the historic exchange rate of the issued share capital. The Company has one class of Ordinary shares, which carry no right to fixed income.
Issued equity share capital
On the Company issued 8,399,165 ordinary shares of £0.03 each in the capital of the Company for cash on the basis of £0.03 per share:
- 2,270,549 ordinary shares were issued to the previous CEO, Mr , to be satisfied in full using the entire amount of the 2018 and 2019 bonuses due (but which had not yet been paid), totalling €75,900,
- 628,616 ordinary shares were issued to Mr (General Director of Cadogan Ukraine), to be satisfied in full using the entire amount of the 2019 bonus due (but which had not yet been paid), totalling ,
- 5,500,000 ordinary shares were issued to the CEO, Mr , to be satisfied in full using the entire amount of the welcome bonus due.
-- H1 2020 has been another semester without LTI and TRI with no cases of covid-19 infection among our employees -- Average production was 230bpd in H1 2020 (297 boepd in H1 2019), a 23% decrease versus H1 2019. This was mainly due to the shut-down during this period of the Blazhiv-3 and Blazhiv-Monastyrets-3 wells for 5,5 months. -- License authority of (State Geological Service) rejected in the Biltyanska 20-year exploration and production license application notwithstanding full compliance and timely submission. The Company introduced a claim before the Kiev District Administrative Court to challenge the decision of non granting the license. -- In from January to , hydrocarbon prices decreased significantly compared to the same period in 2019, the price of natural gas decreased by more than 45% and more than 30% for oil and gas condensate. -- Cadogan decided not to sell its stored gas acquired during 2019 waiting for appropriate market prices. -- The services business continued to support the Group’activities, thus retaining funds within the Group. -- Production revenues decreased by 46 % versus the same period in 2019, due to a 33% reduction in the average realized oil price and a 23% decrease of the production volumes. Overall revenues were down by 62% versus the same period in 2019 due to the absence of sales of gas . Cost saving initiatives have been taken to mitigate the negative effects. -- As a result of the above initiatives, cash position at the period end was (: ). This level of cash is sufficient to sustain on-going operations.
Ukraine Ukraine May 2020 July 2020 30 June 2019 $11.6 million $13.7 million
-- to increase oil, gas and condensate production measured on the barrels of oil equivalent produced per day (‘boepd’); -- to decrease administrative expenses; -- to increase the Group’s basic earnings per share; -- to maintain no lost time incident; and -- to grow and geographically diversify the portfolio.
Unit 30 June 2020 30 June 2019 31 December 2019 Average production Boepd 230 297 288 (working interest basis) (a) Administrative expenses $million 1.5 2.0 5.7 Basic (loss)/profit per 1.1 (0.9) share (b) Lost time incidents (c) Incidents 0 0 0 Geographical New assets - - 1(d) diversification
a. Average production is calculated as the average daily production during the period/year b. Basic (loss)/profit per ordinary share is calculated by dividing the net (loss)/profit for the year attributable to equity holders of the parent company by the weighted average number of ordinary shares during the period c. Lost time incidents relate to injuries where an employee/contractor is injured and has time off work (IOGP classification) d. Loan agreement with with its option to convert. The loan was signed in
Proger Management & Partners February 2019
Fady Khallouf Chief Executive Officer [email protected] Ben Harber Company Secretary +44 (0) 207 264 4366
Cadogan Petroleum Plcpetroleum.com
Summary of the Group’s licences (as of ) Working Licence Expiry Licence type interest (%) 99.8 Blazhiv November 2039 Production 99.2 Bitlyanska(1) December 2019 Exploration and Development
30 June 2020
-- Health, safety, and environment -- COVID-19 -- Climate change -- Drilling and work-over operations -- Production and maintenance
-- Changes in economic environment -- Counterparty -- Commodity price
-- Regulatory and licence issues -- Emerging market
-- Risk of losing key staff members -- Risk of entry into new countries -- Risk of delays in projects related to local communities dialogue
Six months ended 30 Year ended June 31 December 2020 2019 2019 $’000 $’000 $’000 Notes (Unaudited) (Unaudited) (Audited) CONTINUING OPERATIONS Revenue 3 1,266 3,319 5,876 Cost of sales 3 (1,090) (2,866) (4,872) Provision against unsold gas inventory (614) (650)* (1,946) Gross profit (438) (197) (942) Administrative expenses (1,495) (2,051) (5,652) Reversal of impairment of other assets 4 330 345 Impairment of other assets (125) - (162) Net foreign exchange gains/(losses) 129 (16) (385) Other operating (losses)/income,net (4) 41 3,972 Operating (loss)/profit (1,929) (1,893) (2,824) Net fair value gain on convertible 11 409 4,421 697 loan** Finance income 4 45 124 25 (Loss)/profit before tax (1,475) 2,652 (2,102) Tax (expense)/benefit - (97) - (Loss)/profit for the period/year (1,475) 2,555 (2,102) Attributable to: Owners of the Company 5 (1,470) 2,550 (2,103) Non-controlling interest (5) 5 1 (1,475) 2,556 (2,102) (Loss)/profit per Ordinary share Cents cents cents Basic and diluted 5 (0.6) 1.1 (0.9)
Six months ended 30 Year ended June 31 December 2020 2019 2019 $’000 $’000 $’000 (Unaudited) (Unaudited) (Audited) (Loss)/profit for the period/year (1,475) 2,555 (2,102) Other comprehensive (loss)/profit Items that may be reclassified subsequently to profit or loss Unrealised currency translation differences (2,466) 1,367 3,541 Other comprehensive (loss)/profit (2,466) 1,367 3,541 Total comprehensive profit/(loss) for the (3,941) 3,922 1,439 period/year Attributable to: Owners of the Company (3,936) 3,917 1,438 Non-controlling interest (5) 5 1 (3,941) 3,922 1,439
Six months ended 30 Year ended June 31 December 2020 2019 2019 $’000 $’000 $’000 Notes (Unaudited) (Unaudited) (Audited) ASSETS Non-current assets Intangible exploration and evaluation 2,642 2,514 2,971 assets Property, plant and equipment 6 10,715 11,442 12,338 Loan classified at fair value through 11 - 20,030 15,707 profit and loss Deferred tax asset 501 405 501 13,858 34,391 31,517 Current assets Inventories 7 3,079 3,322 4,453 Trade and other receivables 8 2,273 2,950 2,639 Loan classified at fair value through 11 16,145 - - profit and loss Cash and cash equivalents 11,601 13,724 12,834 33,098 19,996 19,926 Total assets 46,956 54,387 51,443 LIABILITIES Non-current liabilities Provisions (256) (41) (289) (256) (41) (289) Current liabilities Trade and other payables 9 (938) (2,388) (1,266) (938) (2,388) (1,266) Total liabilities (1,194) (2,429) (1,555) Net assets 45,762 51,958 49,888 EQUITY Share capital 12 13,832 13,525 13,525 Share premium 329 329 329 Retained earnings 190,489 196,612 191,959 Cumulative translation reserves (160,741) (160,449) (158,275) Other reserves 1,589 1,668 2,081 Equity attributable to equity holders 45,498 51,685 49,619 of the parent Non-controlling interest 264 273 269 Total equity 45,762 51,958 49,888
Six months ended 30 June Year ended 31 December 2020 2019 2019 $’000 $’000 $’000 (Unaudited) (Unaudited) (Audited) Operating loss (1,929) (1,893) (2,824) Adjustments for: Depreciation of property, plant and 369 355 653 equipment Reversal of impairment of inventories 614 650 1,946 Impairment of other assets 125 - 162 Reversal of impairment of other assets - (287) (345) Interest received - - (431) Gain on disposal of property, plant and - - (4,000) equipment Effect of foreign exchange rate changes (129) (88) 385 Operating cash flows before movements in (955) (1,263) (4,454) working capital Decrease/(Increase) in inventories 279 597 (971) (Increase)/Decrease in receivables (74) 717 664 Increase/(Decrease) in payables and (514) 1,081 78 provisions Cash from operations (1,264) 1,132 (4,683) Interest received 9 44 480 Net cash inflow/(outflow) from operating (1,255) 1,176 (4,203) activities Investing activities Proceeds from disposal of subsidiaries - - 4,000 Purchases of property, plant and equipment (132) (7,021) (6,952) Purchases of intangible exploration and (5) (11) (241) evaluation assets Loan provided - (15,609) (15,246) Proceeds from sale of property, plant and 4 - 345 equipment Interest received 36 81 140 Net cash used in investing activities (97) (22,560) (17,954) Financing activities Net cash from financing activities - - - Net increase (decrease) in cash and cash (1,352) (21,384) (22,157) equivalents Effect of foreign exchange rate changes 119 (28) (145) Cash and cash equivalents at beginning of 12,834 35,136 35,136 period/year Cash and cash equivalents at end of 11,601 13,724 12,834 period/year
Share Share Retained Cumulative Other Equity Non-controlling Total capital premium earnings translation reserves attributable interest account reserves to owners of the Company $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 As at 1 13,525 329 194,062 (161,816) 1,668 47,768 268 48,036 January 2019 Net profit - - 2,550 - - 2,550 5 2,555 for the period Other - - - 1,367 - 1,367 - 1,367 comprehensive profit Total - - 2,550 1,367 - 3,917 5 3,922 comprehensive profit for the year As at 30 June 13,525 329 196,612 (160,741) 1,668 45,498 264 51,958 2019 Net profit - - (4,653) - - (4,653) (4) (4,657) for the period Other - - - 2,174 - 2,174 - 2,174 comprehensive profit Total - - (4,653) 2,174 - (2,479) (4) (2,483) comprehensive profit for the year Shares based - - - - 413 413 - 413 award As at 31 13,525 329 191,959 (158,275) 2,081 49,619 269 49,888 December 2019 Net loss for - - (1,470) - - (1,470) (5) (1,475) the period Other - - - (2,466) - (2,466) - (2,466) comprehensive profit Total - - (1,470) (2,466) - (3,936) (5) (3,941) comprehensive profit for the year Issue of 307 (492) (185) (185) ordinary shares As at 30 June 13,832 329 190,489 (160,741) 1,589 45,498 264 45,762 2020
1 £ = xUS$ Six months ended 2019 Year ended Closing rate 1.2322 1.2719 1.3263 Average rate 1.2613 1.2943 1.2773 = xUAH Six months ended 2019 Year ended Closing rate 26.7105 26.4487 23.7100 Average rate 26.0227 27.0363 25.9003
30 June 2020 31 Dec 2019 30 June 2020 31 Dec 2019 1 US$
Exploration and Services Trading Consolidated Production $’000 $’000 $’000 $’000 Sales of hydrocarbons 1,263 - - 1,263 Other revenue - 3 - 3 Total revenue 1,263 3 - 1,266 Other cost of sales (1,087) (3) - (1,090) Other administrative (281) (20) (27) (328) expenses Impairment - - (614) (614) Finance income/costs, net - - 9 9 Segment results (105) (20) (634) (757) Unallocated other - - - (1,167) administrative expenses Net fair value gain on - - - 409 convertible loan Net foreign exchange - - - 129 gains Other income/loss, net - - - (89) Loss before tax - - - (1,475)
Exploration and Services(1) Trading Consolidated Production $’000 $’000 $’000 $’000 Sales of hydrocarbons 2,349 - 916 3,265 Other revenue - 54 - 54 Total revenue 2,349 54 916 3,319 Other cost of sales (1,842) (48) (976) (2,866) Other administrative (234) (34) (62) (330) expenses Finance income/costs, net - - 27 27 Segment results 273 (28) (95) 150 Unallocated other - - - (1,721) administrative expenses Net fair value gain on - - - 4,421 convertible loan Net foreign exchange - - - (16) gains Other income, net - - - (182) Profit before tax - - - 2,652
Six months Year ended ended 30 31 December June 2020 2019 2019 $’000 $’000 $’000 Interest expense on short-term borrowings - (9) - Total interest expenses on financial liabilities - (9) - Interest income on receivables,net - 27 36 Investment revenue 36 62 104 Interest income on cash deposit in Ukraine 9 44 49 Total interest income on financial assets 45 133 189 Unwinding of discount on decommissioning provision - - (164) 45 124 25
Six months Year ended ended 30 June 31 December (Loss)/profit attributable to owners of the Company 2020 2019 2019 $’000 $’000 $’000 (Loss)/profit for the purposes of basic (1,475) 2,550 (2,103) (loss)/profit per share being net (loss)/profit attributable to owners of the Company Number Number Number Number of shares ‘000 ‘000 ‘000 Weighted average number of Ordinary shares for the 244,128 235,729 235,729 purposes of basic (loss)/profit per share Cent Cent Cent (Loss)/profit per Ordinary share Basic (0.6) 1.1 (0.9)
Six months Year ended ended 30 31 December June 2020 2019 2019 $’000 $’000 $’000 VAT recoverable 2,067 2,115 2,402 Prepayments 114 285 - Trading prepayments - 31 - Trade receivables 14 404 - Other receivables 78 115 237 2,273 2,950 2,639
$’000 As at - Loan provided 15,246 Movement in FVPL 4,421 Exchange differences * 364 As at 20,030 Movement in FVPL (3,724) Exchange differences (599) As at 15,707 Movement in FVPL 409 Exchange differences 29 As at 16,145
1 January 2019 30 June 2019 1 January 2020 30 June 2020
30/06/2020 31/12/2019 Number $’000 Number $’000 Authorized 1,000,000 57,713 1,000,000 57,713 Ordinary shares of £0.03 each Issued 244,128 13,832 235,729 13,525 Ordinary shares of £0.03 each
Ordinary shares of £0.03 At 235,729,322 Issued during year - At 235,729,322 Issued during year - At 235,729,322 Issued during first-half year 8,399,165 At 244,128,487
31 December 2017 31 December 2018 31 December 2019 30 June 2020
Quick facts: Cadogan Petroleum PLC
Market Cap: £6.71 m
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