TIDMCAD
RNS Number : 1589Y
Cadogan Petroleum PLC
28 August 2009
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CADOGAN PETROLEUM PLC
Half Yearly Report for the Six Months ended 30 June 2009
(Unaudited and Unreviewed)
_______________________________________________________________________________
_
Cadogan Petroleum plc, an independent oil and gas exploration, development and
production company with onshore gas, condensate and oil assets in Ukraine,
announces its results for the six months ended 30 June 2009.
Summary
* Significant management changes, including the appointment of Ian Baron as
Interim Chief Executive Officer
* Initiation of a full strategic and operational review
* Commencement of litigation against certain former executives and suppliers
* Reduced operating expenses through minimising rig operations and lowering head
count
* Drilling on Borynya 3 continues with target depth expected in September 2009
* Currently re-evaluating data across all fields
* Continued vigorous defence of Pirkovskoe and Zagoryanska licences and with an
extension received for the latter to 2014
* Total capital expenditure of GBP20.8 million during the first half of 2009 (30
June 2008: GBP22.5 million)
Enquiries
+--------------------+--------------------+--------------------+--------------------+
| | |
+-----------------------------------------+-----------------------------------------+
| | |
+-----------------------------------------+-----------------------------------------+
| Cadogan Petroleum plc | +44 20 7245 0801 |
+-----------------------------------------+-----------------------------------------+
| Ian Baron, Interim Chief Executive | |
| Officer | |
+-----------------------------------------+-----------------------------------------+
| | |
+--------------------+--------------------+--------------------+--------------------+
+--------------------+--------------------+--------------------+--------------------+
| Pelham PR | |
+-----------------------------------------+-----------------------------------------+
| James Henderson | +44 20 7337 1501 |
+-----------------------------------------+-----------------------------------------+
| Evgeniy Chuikov | +44 20 7337 1513 |
+-----------------------------------------+-----------------------------------------+
| Philip Dennis | +44 20 7337 1516 |
+--------------------+--------------------+--------------------+--------------------+
Introduction
The non-executive Directors progressively lost confidence in the management team
during the latter part of 2008 and the beginning of 2009 and assumed effective
operational control of the Company shortly thereafter in March 2009. Following
the resignation of the former Chief Executive Officer, the Board appointed Ian
Baron as Interim Chief Executive Officer to undertake both a detailed review of
the operations and an evaluation of the potential commercial viability of the
Group's assets. Soon after, the Company launched an investigation into
procurement procedures and, as a result of early findings of that investigation,
initiated litigation that is expected to be heard in the High Court of London in
early 2010. Between March and June 2009 all the previous executive Directors
resigned both as executives and as Directors of the Company.
Litigation
Subsequent to the departure of the former Chief Executive Officer, the Board
commenced an internal investigation into potential procurement irregularities
within the Group. As a result of this process, the Board has to date identified
certain payments that were inappropriately capitalised in the Company's
Consolidated Financial Statements for the years ended 31 December 2006, 2007 and
2008.
In June 2009, the Company and three of its subsidiaries commenced litigation in
the High Court of London against the former Chief Executive Officer and Chief
Operating Officer and certain third parties. This action was initiated to seek a
return of funds to the Company associated with the procurement of and payment
for certain assets and services.
Operations
The Company has so far not been successful in capitalising on the potential of
its asset base in the Pokrovskoe, Pirkovskoe and Zagoryanska licence areas in
eastern Ukraine. Well results have demonstrated flow rates much lower than
anticipated, leaving questions as to the potential of the fields in eastern
Ukraine. Due to these disappointing results, the Board has curtailed the
strategy outlined at the time of the Initial Public Offer ('IPO') in 2008 of
concurrently drilling a large number of wells with significant expenditure on
each of its licences. The Board has also initiated a review to indentify the
primary reasons for the poor test results, which includes further analysis of
reservoir characteristics for all major fields. Drilling operations on the
Pirkovskoe, Pokrovskoe and Zagoryanska licences will remain suspended until
further data evaluation is complete, including seismic re-processing and
interpretation and the evaluation of well tests to understand the key issues
inhibiting the production of gas from these fields. Subject to the results of
the data evaluation, the Board may seek to farm-out the retained assets to
reduce the Group's upfront capital commitments whilst retaining upside from
commercial production. Contingent on results from this analysis, a decision will
be taken as to both the commercial viability of the oil and gas zones tested and
the possible development alternatives.
While this evaluation is underway, drilling operations continue only on Borynya
3 on the Bitlyanska licence in western Ukraine where it is expected to reach
target depth ('TD') in September 2009. The well had encouraging test results
from a secondary target interval at approximately 3,700 metres. Restricting
drilling to Borynya 3 requires the use of only one rig, which has significantly
reduced the Group's capital commitments and operating costs. The Board is
evaluating the merits of further seismic data acquisition and interpretation for
the Bitlyanska licence to enable a better understanding of its potential.
Work on the Group's other minor fields will be limited to production operations
and technical updates required to market these assets.
Significant changes have also been made to technical and operational practices
and organisational structures within Ukraine. A personnel reduction of
approximately 25% was made in the first six months of 2009.
A physical check of the Group's inventory is currently underway, which is
expected to be complete by September 2009, thereafter the Directors expect to
pursue the orderly sale of surplus inventory.
The Board will commission a new third party Competent Persons Report ('CPR') to
incorporate all the new well data and related information so that it can
accurately value the Group's asset base. Until receipt of the new CPR, the
Directors do not believe it is practical or appropriate to assess whether there
is a need to provide for any impairment, in the current or previous accounting
periods, to the carrying value of the Group's oil and gas assets. This report is
expected to be available by the end of 2009.
Political and licence issues
As previously reported, during 2008 the Group was faced with indirect challenges
to the Zagoryanska and Pirkovskoe licences. The Group immediately embarked on an
extensive programme of court actions and political lobbying to protect its
interests. A number of successful court hearings followed. However, in February
2009 the High Administrative Court of Ukraine ('High Administrative Court')
ruled in favour of the original indirect challenge to the Pirkovskoe licence.
The Group, supported by the Prosecutor General of Ukraine, lodged an appeal to
the Supreme Court of Ukraine ('the Supreme Court') in relation to the Pirkovskoe
licence and on 16 June 2009 the Supreme Court cancelled the February 2009 ruling
of the High Administrative Court. In addition, the Supreme Court instructed the
High Administrative Court to reconsider their earlier ruling against the Group
without taking any further evidence into consideration. The Group has not yet
been advised of the date for the new hearing in the High Administrative Court.
There will no longer be a hearing at the Supreme Court for the Zagoryanska
licence as similar to the verdict on Pirkovskoe, the Supreme Court referred the
earlier ruling back to the High Administrative Court. The Group has also not yet
been advised of the date for the new hearing in the High Administrative Court.
In addition, the Board obtained a second independent opinion from a leading
Ukrainian law firm that had not been previously involved in the case, confirming
the legal validity of the Group's licences. The Directors believe that,
notwithstanding the previous uncertainties, the validity of the Group's licences
will be reconfirmed and that the challenges are entirely without merit.
Overview of financial position and restatement of 2008 Annual Financial Report
Based on the uncertainties relating to the effects of potential procurement
irregularities within the Group, the outcome of litigation in the High Court of
London and any potential adjustment to the carrying value of the Group's oil and
gas assets as a result of the new CPR report, the Board has doubts about the
validity and appropriateness of accounting treatments previously applied to
certain items of expenditure. Accordingly, in June 2009, the Board withdrew the
2008 Annual Financial Report with a view to restating it as issues not known at
the date of issuance were subsequently identified that had a material impact on
the accuracy, validity and completeness of the report. Certain revisions to
previously applied accounting treatments have been reflected in this unaudited
and unreviewed Half Yearly Report ('the Half Yearly Report') based on the
Board's investigations to date. As a result of the litigation process and the
internal investigation, further irregularities may also be identified that could
further impact accounting treatments and disclosures applied for the six months
ended 30 June 2009 and the years ended 31 December 2006, 2007 and 2008. As
described in more detail on page 11, while there are still uncertainties
regarding the recognition, measurement and presentation of some of the Group's
assets and expenditure, the Board is still able to assess its cash position as
at 30 June 2009 and manage effectively the Group's financial position. The Board
anticipates issuing a restated 2008 Annual Financial Report in October 2009 to
be considered by shareholders at the Annual General Meeting scheduled for 11
November 2009 as adjusted for errors identified as of the date this is approved
by the Board.
At the date of this report, the Group has cash and cash equivalents of
approximately GBP40.1million. The Directors believe that the capital available
at the date of this report is sufficient for the Group to continue operations
for the foreseeable future.
Outlook
The Company will continue to: rationalise its asset portfolio by selling or
relinquishing all licences which are non-strategic; reduce expenditure and
commitments, in line with the reduced operational activity levels; and realise
cash from disposal of surplus inventory.
The Board is actively seeking ways to distribute surplus cash to shareholders.
This will need to take account of the amount and timing of receipt of funds from
surplus inventory sales and the probability and quantum of funds recovered from
the litigation process. The Directors are currently working with advisers to
devise an arrangement that will provide maximum flexibility to return such
surplus cash, as is available, in a tax efficient manner.
The Group owns and operates working interests in 11 gas, condensate and oil
exploration and production licences throughout east and west Ukraine. The assets
lie in two of the three hydrocarbon basins in Ukraine: the Carpathian Basin and
the Dnieper-Donets Basin, both of which have extensive gas transportation
infrastructure.
In western Ukraine, the Group has interests in six exploration and development
and two production licences within the Carpathian Basin. In eastern Ukraine, the
Group operates the Pokrovskoe, Zagoryanska and Pirkovskoe licences in the
Poltava region. These licences lie in the Dnieper-Donets basin, a prolific oil
and gas basin. The Group's primary focus is on the Bitlyanska licence in western
Ukraine and the Pokrovskoe, Zagoryanska and Pirkovskoe fields in eastern
Ukraine.
Reserves and resources
The Group's reserve and resource estimates as at 30 June 2009 and 31 December
2008 are based on a reserve report produced by an independent reservoir
engineer, Gaffney, Cline & Associates Ltd, dated 30 November 2008. The Directors
will commission a new CPR providing an independent evaluation of the Group's
reserves and resources estimates. This new CPR is not expected to be produced
until the end of 2009 and, as a result, no changes for additions, disposals,
revisions or production have been incorporated into the Group's reserves and
resources estimates for the six months ended 30 June 2009. The following is a
reserves summary from the CPR of November 2008:
+---------------------------------+------------+------------+-----------+-----------+
| | Working interest basis (1) |
+---------------------------------+-------------------------------------------------+
| | Gas |Condensate | Oil | Total |
| | Bcf(2) | mmbbl | mmbbl | mmboe |
+---------------------------------+------------+------------+-----------+-----------+
| Proved and probable reserves | | | | |
+---------------------------------+------------+------------+-----------+-----------+
| At 31 December 2008 and 30 June | 330.5 | 22.7 | 0.8 | 83.0 |
| 2009 | | | | |
+---------------------------------+------------+------------+-----------+-----------+
| Possible reserves | | | | |
+---------------------------------+------------+------------+-----------+-----------+
| At 31 December 2008 and 30 June | 284.0 | 21.2 | 0.9 | 73.1 |
| 2009 | | | | |
+---------------------------------+------------+------------+-----------+-----------+
| Contingent resources | | | | |
+---------------------------------+------------+------------+-----------+-----------+
| At 31 December 2008 and 30 June | 1,583.2 | 48.0 | 1.5 | 334.5 |
| 2009 | | | | |
+---------------------------------+------------+------------+-----------+-----------+
| Prospective resources | | | | |
+---------------------------------+------------+------------+-----------+-----------+
| At 31 December 2008 and 30 June | 1,192.0 | 50.2 | 15.7 | 280.5 |
| 2009 | | | | |
+---------------------------------+------------+------------+-----------+-----------+
| Total reserves and resources | 3,389.7 | 142.1 | 18.9 | 771.1 |
+---------------------------------+------------+------------+-----------+-----------+
(1) Information is presented based on the Group's working interest share in
the fields to which the Group has an
interest.
(2) Conversion factor: bcf to mmboe at a factor of 0.18.
Bitlyanska licence area
The Bitlyanska exploration and development licence covers an area of 390 square
kilometres and expires in December 2009. The Group is in the process of applying
for a five year extension to this licence. The Group has a 96.5 per cent to 97.1
per cent working interest in the licence, varying on production. There are three
hydrocarbon discoveries in this licence area; Bitlya, Borynya and Vovchenska.
The Borynya and Bitlya fields respectively hold 188.6 mmboe (2007: 188.6 mmboe)
and 114.0 mmboe (2007: 114.0 mmboe) of contingent resources, while no reserves
or resources have yet been attributed to the Vovchenska field.
Key developments
Borynya 3
The well was spudded on 15 December 2007 and is currently drilling at 4,514
metres. Drilling operations continue towards a proposed TD of 5,200 metres,
expected to be reached in September 2009. Borynya 3 is a licence obligation well
and during drilling has encountered significant gas indications. An open-hole
drill stem test at approximately 3,700 metres produced encouraging volumes of
gas to surface, during a limited duration test. The well is designed to test the
main target reservoir in the Verchovinsky formation at a projected depth below
4,800 metres.
Should Borynya 3 confirm production capability of this primary target reservoir
it would indicate a potentially major gas discovery. Based on the reserve report
produced by an independent reservoir engineer, Gaffney, Cline & Associates Ltd,
dated 30 November 2008, 186 mmboe of contingent resources were attributed to the
Borynya licence.
Bitlya 2
This well is located on a 3,000 metre normally pressured gas field which has
previously been drilled by a third party. This structure was identified by
Soviet era 2D seismic that has been re-processed and re-interpreted using modern
geophysical techniques. The Bitlya 2 well is planned to be drilled during the
extension period of the Bitlyanskya licence once awarded.
Pokrovskoe licence area
All wells on the Pokrovskoe licence are currently suspended, pending the outcome
of the ongoing review. The Group has a 100 per cent working interest in the
Pokrovskoe licence which holds 58.6 mmboe (2007: 58.6 mmboe) of prospective
resources. The exploration licence covers 49.5 square kilometres and runs until
August 2011. There is a work commitment of four wells and a 3D seismic programme
under this licence. The processing of the previously acquired 3D seismic data
over the entire field is now complete and two wells, Pok 1 and Pok 2, have been
drilled to date.
Key developments
Pok 2
This was the first exploration well drilled on the Pokrovskoe structure and was
spudded in late 2006. During drilling and coring operations across the Visean
(V17 to V22) formations, there were several strong indications in the well. The
main objectives of this well are to determine the productivity of the upper and
lower Visean formations and to convert prospective resources to reserves.
The well has been temporarily suspended at 5,185 metres in order to review test
results and integrate these with 3D Seismic in order to evaluate the licence.
Pok 1
This is the second exploration well on the licence, which was spudded in early
2008. Drilling was suspended in May 2009 at 5,004 metres pending evaluation of
the well test data obtained and integration with 3D seismic.
Pirkovskoe licence
All wells on the Pirkovskoe licence have been suspended. The Group has a 97 per
cent working interest in the Pirkovskoe licence which holds 82.4 mmboe (2007:
79.7 mmboe) of proved and probable reserves, 73.0 mmboe (2007: 68.9 mmboe) of
possible reserves and 190.6 mmboe (2007: 194.96 mmboe) of contingent and
prospective resources. The exploration and appraisal licence covers 71.6 square
kilometres and runs until October 2010. The required work programme includes the
workover of Pirk 460 and the drilling of two additional wells. The workover of
Pirk 460 and drilling of Pirk 1 is complete. However, the second well has not
yet been drilled.
Key developments
Pirk 1
This well was drilled in the northern part of the Pirk licence to TD of 5,710
metres in the Devonian D3 formation. The well tested several shallower
Carboniferous reservoirs which were oil and gas bearing but considered marginal
from the V-16 formation. During June 2009, the well produced an average of 11
cubic metres of oil per day (70 boepd). The Group farmed out the cost of
completing this well for production.
Pirk 2
This well has now reached 4,580 metres, but has been put on temporary suspension
until the results of the well test evaluation have been completed.
Pirk 460
Initial well testing was completed in the first half of 2008. It was interpreted
that the poor condition of the well was impacting production due to water influx
from surrounding horizons. As a result, the well has been plugged and abandoned.
Facilities and infrastructure programme
The Group owns the Kraznozayarska gas treatment plant, on the Pirkovskoe licence
area, which is connected to the UkrTransGas system. Its capacity was upgraded in
July 2007 to 300,000 cubic metres per day of gas and 150 tonnes per day of
condensate.
Zagoryanska licence
All wells on the Zagoryanska licence have been suspended and completion of the
work programme will be undertaken before expiry of the licence. The Group has a
90 per cent working interest in the Zagoryanska licence area, which holds 44.5
mmboe (2007: 44.4 mmboe) of contingent and prospective resources and is located
immediately to the east of the Pirkovskoe licence. The exploration and
production licence covers 49.6 square kilometres. In January 2009 the Group
received a five year extension for this licence which now expires in April 2014.
The required work programme includes the acquisition of 3D seismic data, which
was completed in the first quarter of 2009 and the testing of well Zag 3, which
is currently in progress. The workover of Zag 2 and the drilling of a new
appraisal well are yet to be completed.
Key developments
Zag 3
The well has been drilled to a TD of 5,110 metres in the lower Visean (V26) and
has been temporarily suspended in order to evaluate the well test data. Several
potential gas bearing reservoirs were tested in the Carboniferous. Negotiations
are currently being pursued with potential partners in order to complete some of
the zones in the well and possibly commence production.
On successful completion of this well and conclusion of the data evaluation,
management will consider the workover of the previously drilled wells, Zag 2 and
8.
Minor fields
The Group has a number of minor assets all located in western Ukraine. These
include the following:
* Debeslavtska licence area
* Cheremkhivska licence area
* Slobodo-Rungerske licence area
* Monastyretske licence area
* Krasnoilska licence area
* Malynovetske licence area
* Mizhrichenska licence area
The minor fields and assets add limited strategic and economic benefit to the
long-term future of the business. The Group is currently pursuing options to
dispose of its interests in these non-strategic assets by either relinquishing
or selling the licence.
Restatement
Subsequent to the departure of the former Chief Executive Officer, the Board
commenced an internal investigation into potential procurement irregularities
within the Group. As a result of this process, the Board has identified to date
certain payments that were inappropriately capitalised in the Company's
consolidated financial statements for the years ended 31 December 2006, 2007 and
2008. Accordingly, an adjustment has been made retrospectively, reducing
Exploration and evaluation assets by GBP4.3 million and Property, plant and
equipment by GBP0.6 million with a corresponding decrease in equity as at 31
December 2008 of GBP4.9 million.
The Board investigations are ongoing and the possibility that further accounting
adjustments may be necessary cannot be ruled out. Note 2(a) to the unudited and
unreviewed Condensed Financial Statements ('the Condensed Financial Statements')
presents a description of the fundamental uncertainties associated with this
report and note 5 details a summary of the adjustments made to restate the prior
period/year comparative financial information.
Income statement
The Group, being in an exploration and development stage, continued to operate
at a loss in 2009, recognising a loss before tax of GBP17.1 million (30 June
20081: GBP8.5 million; 31 December 20081: GBP24.4 million). Revenue of GBP1.1
million (30 June 2008: GBP0.8 million; 31 December 2008: GBP1.8 million)
consisted of the sale of gas from well testing and from the producing wells in
the Debeslavetska and Cheremkhivskoe minor fields. A zero net margin is
reflected on test production during an evaluation programme. This has resulted
in a gross profit from the Group's hydrocarbons sales of GBP0.1 million (30 June
2008: GBP0.1 million; 31 December 2008: loss GBP0.2 million).
Administrative expenses of GBP17.6 million (30 June 20081: GBP9.9 million; 31
December 20081: GBP27.0 million) consist of staff costs, professional fees,
Directors' remuneration, depreciation charges for the Group's property, plant
and equipment and its other intangible assets, any currency effects from
operating transactions or from the currency-related restatement of the value of
monetary assets or liabilities. In addition to recurring administrative
expenses, GBP0.8 million (30 June 2008: GBPnil; 31 December 2008: GBPnil) of
professional costs were recognised in relation to the litigation process
currently underway; GBP0.8 million (30 June 2008: GBPnil; 31 December 2008:
GBP6.4 million) of consultancy fees incurred to defend the legal challenges
indirectly associated with the Pirkovskoe and Zagoryanska licences and also to
extend the Zagoryanska licence; GBP13.5 million (30 June 2008: GBPnil; 31
December 2008: GBP0.8 million) relates to the provision for Value Added Tax
('VAT') recoverable associated with Ukraine operations as the Directors are no
longer certain that these amounts will be recovered (see note 8 to the Condensed
Financial Statements for further details); and GBP0.8 million (30 June 2008:
GBP0.4 million expense; 31 December 2008: GBP0.2 million expense) relates to the
reversal of equity-settled share-based payment transactions previously expensed
due to certain options being forfeited and a change in the estimated period of
vesting for the remaining options.
Investment revenue decreased during the six months ended 30 June 2009 to GBP0.3
million (30 June 2008: GBP1.3 million; 31 December 2008: GBP2.9 million) due
mainly to a reduction in interest income earned on funds held.
Cash flow statement
The Consolidated Cash Flow Statement on page 17 shows expenditure of GBP12.0
million (30 June 20081: GBP12.6 million; 31 December 20081: GBP38.3 million) on
intangible exploration and evaluation assets and GBP8.7 million (30 June 20081:
GBP10.2 million; 31 December 20081: GBP32.3 million) on property, plant and
equipment. No asset acquisitions were made in the six months ended 30 June 2009
(30 June 2008: GBP2.4 million; 31 December 2008: GBP2.4 million).
1 Restated and unaudited, see note 2(a) for further details
Balance sheet
As at 30 June 2009, the Group had a net cash and cash equivalents of GBP45.9
million (30 June 2008: GBP151.4 million; 31 December 2008: GBP72.0 million) and
no external borrowings. Intangible exploration and evaluation assets of GBP55.1
million (30 June 20081: GBP41.9 million; 31 December 20081: GBP47.9 million)
represent the carrying value of the Group's investment of exploration and
evaluation assets throughout Ukraine. The property, plant and equipment balance
of GBP43.6 million at 30 June 2009 (30 June 20081: GBP32.6 million; 31 December
20081: GBP38.9 million) relates primarily to the cost of developing fields with
commercial reserves to bring them into production. Net assets have decreased by
GBP30.1 million to GBP173.3 million at 30 June 2009 from GBP203.4 million at 31
December 20081.
Related party transactions
Following the former Chief Executive Officer's departure, the Board initiated
legal actions against the former Chief Executive Officer and Chief Operating
Officer and certain third parties in order to obtain redress for the Company
arising from potential irregularities surrounding the procurement of and payment
for certain assets and services contracted for by the Group.
Commitments
In July 2008, the Group entered into agreements to build two gas treatment
plants; the first to process the anticipated production from the Bitlyanska
licence area (containing the Bitlya and Borynya fields) and the second to
process the anticipated production from the Pirkovskoe field. The total price
contracted for the two gas processing plants is USD54.4 million (GBP32.9
million), of which USD10.9 million (GBP6.6 million) has not been paid. Due to
concerns surrounding potential procurement irregularities, the Company has
entered into litigation against the supplier of these gas plants and it is
expected that the hearing will take place in the High Court of London in January
2010.
Treasury
The Group continually monitors its exposure to currency risk. It maintains a
portfolio of cash and cash equivalents in both USD and GBP held primarily in the
UK and holds these mostly in term deposits depending on the Group's operational
requirements. Production revenues from the sale of hydrocarbons are received in
the local currency in Ukraine ('UAH') and to date funds from such revenues have
been held in Ukraine for further use in operations rather than being remitted to
the UK. Funds are primarily converted to USD and transferred to the Company's
subsidiaries to fund operations at which time the funds are converted to UAH.
Some payments are made on behalf of the subsidiaries from the UK.
Key performance indicators
The Group monitors its performance implementing its strategy with reference to
clear targets set out for four key financial and one key non-financial
performance indicators ('KPIs'):
* to increase oil, gas and condensate production measured on number of barrels of
oil equivalent produced per day ('boepd');
* to increase the Group's oil and gas reserves by de-risking possible resources
and contingent reserves into proved plus probable reserves ('2P'). This is
measured in million barrels of oil equivalent ('mmboe');
* to increase the realised price for natural gas per 1,000 cubic metres;
* to decrease the cost per barrel for exploration and acquisition related
expenditure; and
* to reduce the number of lost time incidents.
1 Restated and unaudited, see note 2(a) for further details
These KPIs are applied on a Group wide basis. The Group's performance in 2009
against these targets is set out in the table below, together with the prior
year performance data. No changes have been made to the source of data or
calculation used in the year.
+-------------------------------------+-----------+---------+---------+---------+
| | Unit | First | First | Full |
| | | half | half | Year |
| | | 2009 | 2008 | 2008 |
+-------------------------------------+-----------+---------+---------+---------+
| Financial KPIs | | | | |
+-------------------------------------+-----------+---------+---------+---------+
| Average production (working | boepd | 239 | 273 | 263 |
| interest basis) (1) | | | | |
+-------------------------------------+-----------+---------+---------+---------+
| 2P reserves (2) | mmboe | 83.0 | 80.4 | 83.0 |
+-------------------------------------+-----------+---------+---------+---------+
| Finding and development cost per | GBP | N/A | N/A | 16.13 |
| barrel (3) | | | | |
+-------------------------------------+-----------+---------+---------+---------+
| Realised price per 1,000 cubic | GBP | 300.0 | 104.4 | 104.1 |
| metres (4) | | | | |
+-------------------------------------+-----------+---------+---------+---------+
| Non-financial KPIs | | | | |
+-------------------------------------+-----------+---------+---------+---------+
| Lost time incidents (5) |Incidents | Nil | Nil | 1 |
+-------------------------------------+-----------+---------+---------+---------+
(1) Average production is calculated as the average daily monthly production
during the year.
(2) Quantity of proved plus probable ('2P') reserves as at 30 June 2009 and
31 December 2008 is based on Gaffney, Cline &
Associates
independent reserves report dated 30 November 2008. Quantity of 2P reserves as
at 30 June 2008 is based on
Gaffney, Cline & Associates independent
reserves report dated 31 January 2008. Conversion factor: bcf to mmboe at a
factor
of 0.18.
(3) Calculated as exploration and acquisition expenditures paid during the
year divided by 2P reserves additions in the year.
First half of
2009 and 2008 are N/A as there were no 2P reserves additions in the period.
(4) This represents the average price received for gas sold during the year
(excluding VAT).
(5) Lost time incidents relate to injuries where an employee/contractor is
injured and has time off work.
The Board reviewed the principal financial and non-financial risks and
uncertainties at the time that the 2008 Annual Financial Report was published.
That report contained a detailed analysis of the risk mitigation procedures in
place. As discussed in note 1 and 2 to the Condensed Financial Statements, this
report was withdrawn in June 2009 and the Board intends to reissue the 2008
Annual Financial Report in October 2009. A full review of the principal risks
and uncertainties will be contained in the restated document.
As at the date that the 2008 Annual Financial Report was approved the principal
financial risks and uncertainties facing the Group were as follows:
* Validity of the Group's licences
* Recoverability of the Group's assets
* Commodity price risk management
* Inflation risk management
* Foreign exchange risk management
* Credit risk management
* Interest rate risk management
* Liquidity risk management and going concern assumption
The principal non-financial risks and uncertainties facing the Group were as
follows:
* Operating environment
* Regulatory and licence issues
* Political risks
* Economic environment
* Drilling and workover activities
* Reserves and resources
The Board has identified further risks that the business is currently facing,
since the review was undertaken in April 2009, as follows:
* Fundamental uncertainties In 2009, the former Chief Executive Officer and Chief Operating Officer resigned
as Directors of the Company and, subsequent to the departure of the Chief
Executive Officer, the Board commenced an internal investigation into potential
procurement irregularities within the Group. During 2009, the Chief Financial
Officer and Asset Development Director also resigned. During the Board's investigation, subsequent to the issuance of the 2008 Annual
Financial Report, certain payments were identified that were inappropriately
capitalised in the Company's consolidated financial statements for the years
ended 31 December 2006, 2007 and 2008. Consequently, an adjustment for these
payments has been made, reducing Exploration and evaluation assets by GBP4.3
million and Property, plant and equipment by GBP0.6 million with a corresponding
decrease in equity as at 31 December 2008 of GBP4.9 million. Refer to note 5 to
the Condensed Financial Statements for a summary of the adjustments made
retrospectively in the years ended 31 December 2007, 2008 and the six months
ended 30 June 2008. In June 2009 the Company and three of its subsidiaries, commenced litigation in
the High Court of London, against the former Chief Executive Officer and Chief
Operating Officer and certain third parties in order to obtain redress for the
Company arising from potential irregularities surrounding the procurement of and
payment for certain assets and services contracted for by the Group. A physical check of the Group's inventory is currently underway, which is
expected to be complete by September 2009, which may result in further
adjustments to the carrying value of the Group's assets Based on the uncertainties relating to the effects of the potential procurement
irregularities within the Group, the outcome of litigation in the High Court of
London and any potential adjustment to the carrying value of the Group's oil and
gas assets as a result of the new CPR report, the Board has doubts concerning
the validity and appropriateness of accounting treatments previously applied to
expenditure incurred throughout the Group. Accordingly, in June 2009, the Board
withdrew the 2008 Annual Financial Report with the view to restating it, as
issues not known at the date of issuance were subsequently identified that have
a material impact on the accuracy, validity and completeness of the report. In
addition to the restatement adjustment already reflected in this Half Yearly
Report, as a result of the ongoing litigation process and the internal
investigation, further irregularities may also be identified that could further
impact the accounting treatments and disclosures applied for the six months
ended 30 June 2009 and the years ended 31 December 2006, 2007 and 2008. The value attributable to the Group's E&E and PP&E assets as at 31 December 2008
was supported by the reserve report produced by an independent reservoir
engineer, Gaffney, Cline & Associates Ltd, dated November 2008. IAS 36
Impairment of assets and IFRS 6 Exploration for and evaluation of mineral
resource require that a review for impairment be carried out if events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. In order to assess the value of the Group's E&E and PP&E assets,
the Directors will commission a new CPR providing an independent evaluation of
the Group's reserves and resources estimates which is expected to be produced by
the end of 2009. Until receipt of the new CPR, the Directors do not believe it
is practical or appropriate to assess and provide for any impairment. The Directors advise the users of these financial statements to take into
account, that when considering the accuracy, completeness and validity of these
financial statements, potential additional restatement and or disclosures may be
required as a result of the litigation process, internal investigations
currently underway, and any potential adjustment to carrying value of the
Group's oil and gas assets as a result of the new CPR report. While there are still uncertainties regarding the recognition, measurement and
presentation of some of the Group's assets and expenditure, the Board is still
able to assess its cash position as at 30 June 2009 and manage effectively the
Group's financial position.
* Litigation risk The Group has commenced major litigation against, among others, its former Chief
Executive Officer and Chief Operating Officer and certain suppliers. As with all
commercial litigation the costs are high and there is no certainty of recovering
sums claimed or costs incurred or the timing of any recoveries.
* Staffing and personnel Since March 2009 significant changes to senior and middle management have been
implemented. Although the Directors believe that the management team has been
strengthened significantly, the business is dependent on a limited number of key
staff and there is a risk that certain corporate knowledge might have been lost.
The Board continues to maintain a close review of these areas to mitigate the
potential impact of these risks.
Directors' Responsibility Statement
_______________________________________________________________________________
_______
We confirm that to the best of our knowledge:
(a) the Condensed set of Financial Statements has been prepared in accordance
with IAS 34 'Interim
Financial Reporting';
(b) the interim management report includes a fair review of the information
required by DTR 4.2.7R
(indication of important events during the
first six months and description of principal risks and
uncertainties for the remaining six months of the year); and
(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).
This Half Yearly Report consisting of pages 1 to 27 has been approved by the
Board and signed on its behalf by:
Stefan Bort
Company Secretary
27 August 2009
Condensed Consolidated Income Statement
For the six months ended 30 June 2009
_______________________________________________________________________________
_______
+--------------------------------------------------------------+--------+--------------+-------------+-------------+
| | | Unaudited | Restated and unaudited |
+--------------------------------------------------------------+--------+--------------+---------------------------+
| | Notes | | | Year |
| | | 30 June | 30 June | December |
| | | 2009 | 2008 | 2008 |
| | | GBP000 | GBP000 | GBP000 |
+--------------------------------------------------------------+--------+--------------+-------------+-------------+
| CONTINUING OPERATIONS | | | | |
+--------------------------------------------------------------+--------+--------------+-------------+-------------+
| Revenue | | 1,064 | 793 | 1,792 |
+--------------------------------------------------------------+--------+--------------+-------------+-------------+
| Cost of sales | | (936) | (724) | (1,966) |
+--------------------------------------------------------------+--------+--------------+-------------+-------------+
| Gross profit/ (loss) | | 128 | 69 | (174) |
+--------------------------------------------------------------+--------+--------------+-------------+-------------+
| | | | | |
+--------------------------------------------------------------+--------+--------------+-------------+-------------+
| Administrative expenses: | | | | |
+--------------------------------------------------------------+--------+--------------+-------------+-------------+
| IPO fees expensed | | - | (4,275) | (4,399) |
+--------------------------------------------------------------+--------+--------------+-------------+-------------+
| Other administrative expenses | | (17,590) | (5,634) | (22,584) |
+--------------------------------------------------------------+--------+--------------+-------------+-------------+
| Operating loss | | (17,462) | (9,840) | (27,157) |
+--------------------------------------------------------------+--------+--------------+-------------+-------------+
| | | | | |
+--------------------------------------------------------------+--------+--------------+-------------+-------------+
| Investment revenue | | 335 | 1,340 | 2,850 |
+--------------------------------------------------------------+--------+--------------+-------------+-------------+
| Finance costs | | (5) | (5) | (56) |
+--------------------------------------------------------------+--------+--------------+-------------+-------------+
| Loss before tax | | (17,132) | (8,505) | (24,363) |
+--------------------------------------------------------------+--------+--------------+-------------+-------------+
| | | | | |
+--------------------------------------------------------------+--------+--------------+-------------+-------------+
| Tax | | (269) | (352) | (514) |
+--------------------------------------------------------------+--------+--------------+-------------+-------------+
| Loss for the period/year | 6 | (17,401) | (8,857) | (24,877) |
+--------------------------------------------------------------+--------+--------------+-------------+-------------+
| | | | | |
+--------------------------------------------------------------+--------+--------------+-------------+-------------+
| Attributable to: | | | | |
+--------------------------------------------------------------+--------+--------------+-------------+-------------+
| Equity holders of the parent | | (16,868) | (8,872) | (24,039) |
+--------------------------------------------------------------+--------+--------------+-------------+-------------+
| Minority interest | | (533) | 15 | (838) |
+--------------------------------------------------------------+--------+--------------+-------------+-------------+
| | | (17,401) | (8,857) | (24,877) |
+--------------------------------------------------------------+--------+--------------+-------------+-------------+
| | | | | |
+--------------------------------------------------------------+--------+--------------+-------------+-------------+
| Loss per ordinary share | | GBP | GBP | GBP |
+--------------------------------------------------------------+--------+--------------+-------------+-------------+
| Basic and diluted | 7 | (0.07) | (0.06) | (0.17) |
+--------------------------------------------------------------+--------+--------------+-------------+-------------+
Condensed Consolidated Statement of Comprehensive Income
For the six months ended 30 June 2009
_______________________________________________________________________________
_____
+---------------------------------------------------------------+------+--------------+-------------+-------------+
| | | Unaudited | Restated and unaudited |
+---------------------------------------------------------------+------+--------------+---------------------------+
| | | | | Year |
| | | 30 June | 30 June | December |
| | | 2009 | 2008 | 2008 |
| | | GBP000 | GBP000 | GBP000 |
+---------------------------------------------------------------+------+--------------+-------------+-------------+
| | | | | |
+---------------------------------------------------------------+------+--------------+-------------+-------------+
| Loss for the period/year | | (17,401) | (8,857) | (24,877) |
+---------------------------------------------------------------+------+--------------+-------------+-------------+
| | | | | |
+---------------------------------------------------------------+------+--------------+-------------+-------------+
| Unrealised currency translation differences | | (11,585) | 5,381 | (9,486) |
+---------------------------------------------------------------+------+--------------+-------------+-------------+
| | | | | |
+---------------------------------------------------------------+------+--------------+-------------+-------------+
| Total comprehensive loss for the period/year | | (28,986) | (3,476) | (34,363) |
+---------------------------------------------------------------+------+--------------+-------------+-------------+
Condensed Consolidated Balance Sheet
As at 30 June 2009
_______________________________________________________________________________
_
+---------------------------------------------+------+-----------+-+----------+-----------+
| | | Unaudited | Restated and unaudited |
| | | | |
+---------------------------------------------+------+-----------+------------------------+
| |Note | 30 June | 30 June | December |
| | | 2009 | 2008 | 2008 |
| | | GBP'000 | GBP'000 | GBP'000 |
+---------------------------------------------+------+-------------+----------+-----------+
| ASSETS | | | | |
+---------------------------------------------+------+-------------+----------+-----------+
| Non-current assets | | | | |
+---------------------------------------------+------+-------------+----------+-----------+
| Goodwill | | 2,243 | 3,114 | 2,508 |
+---------------------------------------------+------+-------------+----------+-----------+
| Intangible exploration and | | 55,080 | 41,924 | 47,870 |
| evaluation assets | | | | |
+---------------------------------------------+------+-------------+----------+-----------+
| Other intangible assets | | 37 | 39 | 144 |
+---------------------------------------------+------+-------------+----------+-----------+
| Property, plant and equipment | | 43,605 | 32,578 | 38,923 |
+---------------------------------------------+------+-------------+----------+-----------+
| Other receivables | 8 | 294 | 4,106 | 18,866 |
+---------------------------------------------+------+-------------+----------+-----------+
| | | 101,259 | 81,761 | 108,311 |
+---------------------------------------------+------+-------------+----------+-----------+
| Current assets | | | | |
+---------------------------------------------+------+-------------+----------+-----------+
| Inventories | | 7,539 | 2,544 | 8,156 |
+---------------------------------------------+------+-------------+----------+-----------+
| Trade and other receivables | 8 | 28,688 | 10,797 | 21,489 |
+---------------------------------------------+------+-------------+----------+-----------+
| Cash and cash equivalents | | 45,927 | 151,408 | 72,026 |
+---------------------------------------------+------+-------------+----------+-----------+
| | | 82,154 | 164,749 | 101,671 |
+---------------------------------------------+------+-------------+----------+-----------+
| Total assets | | 183,413 | 246,510 | 209,982 |
+---------------------------------------------+------+-------------+----------+-----------+
| | | | | |
+---------------------------------------------+------+-------------+----------+-----------+
| LIABILITIES | | | | |
+---------------------------------------------+------+-------------+----------+-----------+
| Non-current liabilities | | | | |
+---------------------------------------------+------+-------------+----------+-----------+
| Deferred tax liabilities | | (1,274) | (1,762) | (1,238) |
+---------------------------------------------+------+-------------+----------+-----------+
| Long-term provisions | | (318) | (873) | (469) |
+---------------------------------------------+------+-------------+----------+-----------+
| | | (1,592) | (2,635) | (1,707) |
+---------------------------------------------+------+-------------+----------+-----------+
| Current liabilities | | | | |
+---------------------------------------------+------+-------------+----------+-----------+
| Trade and other payables | | (7,941) | (8,660) | (4,325) |
+---------------------------------------------+------+-------------+----------+-----------+
| Current tax liabilities | | (20) | - | (55) |
+---------------------------------------------+------+-------------+----------+-----------+
| Current provisions | | (555) | (581) | (450) |
+---------------------------------------------+------+-------------+----------+-----------+
| | | (8,516) | (9,241) | (4,830) |
+---------------------------------------------+------+-------------+----------+-----------+
| Total liabilities | | (10,108) | (11,876) | (6,537) |
+---------------------------------------------+------+-------------+----------+-----------+
| | | | | |
+---------------------------------------------+------+-------------+----------+-----------+
| Net assets | | 173,305 | 234,634 | 203,445 |
+---------------------------------------------+------+-------------+----------+-----------+
| | | | | |
+---------------------------------------------+------+-------------+----------+-----------+
| EQUITY | | | | |
+---------------------------------------------+------+-------------+----------+-----------+
| Share capital | | 6,933 | 6,933 | 6,933 |
+---------------------------------------------+------+-------------+----------+-----------+
| Share premium account | | 250,373 | 250,422 | 250,373 |
+---------------------------------------------+------+-------------+----------+-----------+
| Accumulated deficit | | (66,345) | (34,310) | (49,477) |
+---------------------------------------------+------+-------------+----------+-----------+
| Cumulative translation reserves | | (21,582) | 4,870 | (9,997) |
+---------------------------------------------+------+-------------+----------+-----------+
| Other reserves | | 5,093 | 6,500 | 6,247 |
+---------------------------------------------+------+-------------+----------+-----------+
| Equity attributable to equity | | 174,472 | 234,415 | 204,079 |
| holders of the parent | | | | |
+---------------------------------------------+------+-------------+----------+-----------+
| Minority interest | | (1,167) | 219 | (634) |
+---------------------------------------------+------+-------------+----------+-----------+
| Total equity | | 173,305 | 234,634 | 203,445 |
+---------------------------------------------+------+-----------+-+----------+-----------+
Condensed Consolidated Cash Flow Statement
For the six months ended 30 June 2009
_____________________________________________________________________________
+---------------------------------------------+-+----+-+----------+-+----------+----------+
| | | | Restated and |
| | | | unaudited |
+-----------------------------------------------+------+----------+-----------------------+
| |Note | Unaudited | 30 June | Year |
| | | 30 June | 2008 | December |
| | | 2009 | GBP'000 | 2008 |
| | | GBP'000 | | GBP'000 |
+-----------------------------------------------+------+------------+----------+----------+
| Net cash outflow from operating | 9 | (3,924) | (9,405) | (42,532) |
| activities | | | | |
+---------------------------------------------+------+--------------+----------+----------+
| | | | | |
+---------------------------------------------+------+--------------+----------+----------+
| Investing activities | | | | |
+---------------------------------------------+------+--------------+----------+----------+
| Acquisition of subsidiaries | | - | (2,416) | (2,416) |
+---------------------------------------------+------+--------------+----------+----------+
| Purchases of property, plant and | | (8,743) | (10,236) | (32,295) |
| equipment | | | | |
+---------------------------------------------+------+--------------+----------+----------+
| Purchases of intangible exploration | | (12,007) | (12,642) | (38,329) |
| and evaluation assets | | | | |
+---------------------------------------------+------+--------------+----------+----------+
| Purchase of other intangible assets | | (4) | (26) | (149) |
+---------------------------------------------+------+--------------+----------+----------+
| Proceeds from sale of property, | | 75 | - | 5 |
| plant and equipment | | | | |
+---------------------------------------------+------+--------------+----------+----------+
| Interest received | | 424 | 1,184 | 2,761 |
+---------------------------------------------+------+--------------+----------+----------+
| Net cash used in investing | | (20,255) | (24,136) | (70,423) |
| activities | | | | |
+---------------------------------------------+------+--------------+----------+----------+
| | | | | |
+---------------------------------------------+------+--------------+----------+----------+
| Financing activities | | | | |
+---------------------------------------------+------+--------------+----------+----------+
| Proceeds from issue of shares | | - | 171,453 | 171,404 |
+---------------------------------------------+------+--------------+----------+----------+
| Net cash from financing activities | | - | 171,453 | 171,404 |
+---------------------------------------------+------+--------------+----------+----------+
| | | | | |
+---------------------------------------------+------+--------------+----------+----------+
| Net (decrease)/increase in cash and | | (24,179) | 137,912 | 58,449 |
| cash equivalents | | | | |
+---------------------------------------------+------+--------------+----------+----------+
| Effect of foreign exchange rate | | (1,920) | (461) | (380) |
| changes | | | | |
+---------------------------------------------+------+--------------+----------+----------+
| Cash and cash equivalents at | | 72,026 | 13,957 | 13,957 |
| beginning of period /year | | | | |
+---------------------------------------------+------+--------------+----------+----------+
| Cash and cash equivalents at end of | | 45,927 | 151,408 | 72,026 |
| period /year | | | | |
+---------------------------------------------+-+----+-+----------+-+----------+----------+
Condensed Consolidated Statement of Changes in Equity
For the six months ended 30 June 2009
_______________________________________________________________________________
_____
+------------------+---------+---------+---------+-------------+--------------+----------+-----------+----------+
| | Share | Share | Shares | Accumulated | Cumulative | Other | Minority | Total |
| | capital | premium | to be | deficit | translation | reserves | interest | GBP'000 |
| | GBP'000 | account | issued | GBP'000 | reserves | GBP'000 | GBP'000 | |
| | | GBP'000 | GBP'000 | | GBP'000 | | | |
+------------------+---------+---------+---------+-------------+--------------+----------+-----------+----------+
| As at 1 January | 4,169 | 78,028 | 2,260 | (21,518) | (492) | 5,564 | 204 | 68,215 |
| 2008 as | | | | | | | | |
| previously | | | | | | | | |
| stated | | | | | | | | |
+------------------+---------+---------+---------+-------------+--------------+----------+-----------+----------+
| Restatement | - | - | - | (3,920) | (19) | - | - | (3,939) |
| (note 5) | | | | | | | | |
+------------------+---------+---------+---------+-------------+--------------+----------+-----------+----------+
| As at 1 January | 4,169 | 78,028 | 2,260 | (25,438) | (511) | 5,564 | 204 | 64,276 |
| 2008 restated | | | | | | | | |
+------------------+---------+---------+---------+-------------+--------------+----------+-----------+----------+
| | | | | | | | | |
+------------------+---------+---------+---------+-------------+--------------+----------+-----------+----------+
| Issue of equity | 2,709 | 179,423 | - | - | - | - | - | 182,132 |
| shares | | | | | | | | |
+------------------+---------+---------+---------+-------------+--------------+----------+-----------+----------+
| Equity shares to | 55 | 2,205 | (2,260) | - | - | - | - | - |
| be issued | | | | | | | | |
+------------------+---------+---------+---------+-------------+--------------+----------+-----------+----------+
| Expenses of | - | (9,095) | - | - | - | - | - | (9,095) |
| issue of equity | | | | | | | | |
| shares | | | | | | | | |
+------------------+---------+---------+---------+-------------+--------------+----------+-----------+----------+
| Share-based | - | (139) | - | - | - | 936 | - | 797 |
| payments | | | | | | | | |
+------------------+---------+---------+---------+-------------+--------------+----------+-----------+----------+
| Net loss for the | - | - | - | (8,872) | - | - | 15 | (8,857) |
| period as | | | | | | | | |
| restated (note | | | | | | | | |
| 5) | | | | | | | | |
+------------------+---------+---------+---------+-------------+--------------+----------+-----------+----------+
| Exchange | - | - | - | - | 5,381 | - | - | 5,381 |
| translation | | | | | | | | |
| differences on | | | | | | | | |
| foreign | | | | | | | | |
| operations | | | | | | | | |
+------------------+---------+---------+---------+-------------+--------------+----------+-----------+----------+
| | | | | | | | | |
+------------------+---------+---------+---------+-------------+--------------+----------+-----------+----------+
| As at 30 June | 6,933 | 250,422 | - | (34,310) | 4,870 | 6,500 | 219 | 234,634 |
| 2008 restated | | | | | | | | |
+------------------+---------+---------+---------+-------------+--------------+----------+-----------+----------+
| | | | | | | | | |
+------------------+---------+---------+---------+-------------+--------------+----------+-----------+----------+
| Expenses of | - | (50) | - | - | - | - | - | (50) |
| issue of equity | | | | | | | | |
| shares | | | | | | | | |
+------------------+---------+---------+---------+-------------+--------------+----------+-----------+----------+
| Share-based | - | 1 | - | - | - | (253) | - | (252) |
| payments | | | | | | | | |
+------------------+---------+---------+---------+-------------+--------------+----------+-----------+----------+
| Net loss for the | - | - | - | (15,167) | - | - | (853) | (16,020) |
| period as | | | | | | | | |
| restated (note | | | | | | | | |
| 5) | | | | | | | | |
+------------------+---------+---------+---------+-------------+--------------+----------+-----------+----------+
| Exchange | - | - | - | - | (14,867) | - | - | (14,867) |
| translation | | | | | | | | |
| differences on | | | | | | | | |
| foreign | | | | | | | | |
| operations | | | | | | | | |
+------------------+---------+---------+---------+-------------+--------------+----------+-----------+----------+
| | | | | | | | | |
+------------------+---------+---------+---------+-------------+--------------+----------+-----------+----------+
| As at 31 | 6,933 | 250,373 | - | (49,477) | (9,997) | 6,247 | (634) | 203,445 |
| December 2008 | | | | | | | | |
| restated | | | | | | | | |
+------------------+---------+---------+---------+-------------+--------------+----------+-----------+----------+
| | | | | | | | | |
+------------------+---------+---------+---------+-------------+--------------+----------+-----------+----------+
| Share-based | - | - | - | - | - | (1,154) | - | (1,154) |
| payments | | | | | | | | |
+------------------+---------+---------+---------+-------------+--------------+----------+-----------+----------+
| Net loss for the | - | - | - | (16,868) | - | - | (533) | (17,401) |
| period | | | | | | | | |
+------------------+---------+---------+---------+-------------+--------------+----------+-----------+----------+
| Exchange | - | - | - | - | (11,585) | - | - | (11,585) |
| translation | | | | | | | | |
| differences on | | | | | | | | |
| foreign | | | | | | | | |
| operations | | | | | | | | |
+------------------+---------+---------+---------+-------------+--------------+----------+-----------+----------+
| | | | | | | | | |
+------------------+---------+---------+---------+-------------+--------------+----------+-----------+----------+
| As at 30 June | 6,933 | 250,373 | - | (66,345) | (21,582) | 5,093 | (1,167) | 173,305 |
| 2009 | | | | | | | | |
+------------------+---------+---------+---------+-------------+--------------+----------+-----------+----------+
Notes to the Condensed Financial Statements
For the six months ended 30 June 2009
_______________________________________________________________________________
______
1. General information
Cadogan Petroleum plc (the 'Company', together with its subsidiaries the
'Group'), is incorporated in Great Britain under the Companies Act 1985 and
began trading on the London Stock Exchange on 23 June 2008.
The financial information for the year ended 31 December 2008 does not
constitute statutory accounts as defined in section 240 of the Companies Act
1985, but is derived from those accounts. The auditors reported on those
accounts; their reports were unqualified and did not contain statements under
Section 237(2) or (3) of the Companies Act 1985, but included a matter of
emphasis in relation to the current status of legal proceedings contesting the
validity of certain of the Group's licences in Ukraine. As discussed in note
2(a), the 2008 Annual Financial Report, issued on 21 April 2009, was withdrawn
by the Board on 26 June 2009, as a result of known errors identified by the
Company subsequent to its release. The restated 2008 Annual Financial Report, as
adjusted for errors identified as at the date it is approved by the Board, will
be delivered to the Registrar of Companies following the Company's Annual
General Meeting in November 2009 and will be made available on the Company's
website. Certain revisions to previously applied accounting treatments have been
reflected in this Half Yearly Report based on the Board's investigation to date.
The audit of the restated amounts has not yet been completed, and therefore the
2008 comparatives included within this report are unaudited.
This Half Yearly Report has not been audited or reviewed pursuant to the
Auditing Practices Board guidance on 'Review of Interim Financial Information'.
A copy of the 2009 Half Yearly Report has been published and is available on the
Company's website.
2. Basis of preparation
The annual financial statements of Cadogan are prepared in accordance with
International Financial Reporting Standards ('IFRS') as adopted by the European
Union. The condensed set of financial statements included in this Half Yearly
Financial Report has been prepared in accordance with International Standards 34
Interim Financial Reporting, as adopted by the European Union, subject to the
matters discussed in note (a) below.
The same accounting policies and presentation methods are followed in the
condensed set of financial statements as applied in the Group's latest annual
financial statements. However, refer to note 1 above and note (a) below for a
discussion on the withdrawal of these financial statements. During the period
ended 30 June 2009, the Group adopted IFRS 8 Operating Segments and
International Accounting Standard ('IAS') 1 (revised 2007) Presentation of
Financial Statements. Adoption of IFRS 8 did not result in any changes to the
disclosures made by the Group and the principal change instituted as a result of
the adoption of IAS 1 (revised 2007) was the presentation of a condensed
consolidated statement of comprehensive Income as a primary statement.
(a) Fundamental uncertainty
In 2009, the former Chief Executive Officer and Chief Operating Officer resigned
as Directors of the Company and, subsequent to the departure of the former Chief
Executive Officer, the Board commenced an internal investigation into potential
procurement irregularities within the Group. During 2009, the Chief Financial
Officer and Asset Development Director also resigned.
During the Board's investigation, subsequent to the issuance of the 2008 Annual
Financial Report, certain payments were identified that were inappropriately
capitalised in the Company's consolidated financial statements for the years
ended 31 December 2006, 2007 and 2008. Consequently, an adjustment for these
payments has been made, reducing Exploration and evaluation ('E&E') assets by
GBP4.3 million and Property, plant and equipment ('PP&E') by GBP0.6 million with
a corresponding decrease in equity as at 31 December 2008 of GBP4.9 million.
Refer to note 5 for a summary of the adjustments made retrospectively in the
years ended 31 December 2007, 2008 and the six months ended 30 June 2008.
In June 2009 the Company and three of its subsidiaries commenced litigation in
the High Court of London, against the former Chief Executive Officer and Chief
Operating Officer and certain third parties regarding potential irregularities
surrounding the procurement of and payment for certain assets and services
contracted for by the Group.
A physical check of the Group's inventory is currently underway, which is
expected to be complete by September 2009 which may result in further
adjustments to the carrying value of the Group's assets.
Following the former executives' departure and the legal actions initiated, the
Board now has doubts concerning the validity and appropriateness of accounting
treatments previously applied to expenditure incurred throughout the Group.
Accordingly, in June 2009 the Board withdrew the 2008 Annual Financial Report
with the view to restating it, as issues not known at the date of issuance were
subsequently identified that have a material impact on the accuracy, validity
and completeness of the report. In addition to the restatement adjustment
already reflected in this Half Yearly Report, as a result of the litigation
process and internal investigation further irregularities may also be identified
that could further impact the accounting treatments and disclosures applied for
the six months ended 30 June 2009 and the years ended 31 December 2006, 2007 and
2008.
The value attributable to the Group's E&E and PP&E assets as at 31 December 2008
was supported by the reserve report produced by an independent reservoir
engineer, Gaffney, Cline & Associates Ltd, dated November 2008. IAS 36
Impairment of assets and IFRS 6 Exploration for and evaluation of mineral
resources require that a review for impairment be carried out if events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. In order to assess the value of the Group's E&E and PP&E assets,
the Directors will commission a new Competent Person's Report ('CPR') providing
an independent evaluation of the Group's reserves and resources estimates which
it is expected will be produced by the end of 2009. Until receipt of the new
CPR, the Directors do not believe it is practical or appropriate to assess and
provide for any impairment.
The Directors advise the users of these financial statements to take into
account, that when considering the accuracy, completeness and validity of these
financial statements, potential additional restatement and or disclosures may be
required as a result of the litigation process and internal investigations
currently underway.
While there are still uncertainties regarding the recognition, measurement and
presentation of some of the Group's assets and expenditure, the Board is still
able to assess its cash position as at 30 June 2009 and manage effectively the
Group's financial position.
(b) Going concern
The Group's business activities, together with the factors likely to affect
future development, performance and position are set out in the Business Review.
The financial position of the Group, its cash flow and liquidity position are
described in the Financial Review.
The Group holds GBP45.9 million of cash and cash equivalents as at 30 June 2009,
with no external debt financing to date and the Directors believe that the
capital available at the date of the issue of this report is sufficient for the
Group to manage its business risks successfully despite the current uncertain
economic outlook.
The Group's forecasts and projections, taking into account reasonably possible
changes in operational performance, start dates and flow rates for commercial
production and the price of hydrocarbons sold to Ukrainian customers, show that
the Directors have reasonable expectation that the Group will be able to operate
on funds currently held and those generated internally, for the foreseeable
future, without the requirement to seek external financing.
The Group is currently faced with legal challenges associated with its interests
in the Pirkovskoe and Zagoryanska licences, which could adversely affect the
cash flows of the Group if Cadogan was not successful in defending its position.
In the event that the Group lost these licences or made a strategic decision not
to pursue these licences any further, this impact alone will not affect the
Group's ability to operate as a going concern.
After making enquiries, the Directors have a reasonable expectation that the
Company and the Group have adequate resources to continue in operational
existence for the foreseeable future. Accordingly, they continue to adopt the
going concern basis in preparing the annual report and financial statements.
(c) Legal proceedings surrounding the validity of the Pirkovskoe and
Zagoryanska licences
The Group is currently involved in legal proceedings, surrounding the validity
of the Pirkovskoe and Zagoryanska licences. On 17 June 2008, the Poltava
Regional Commercial Court ('Poltava Court') made written rulings, following a
hearing on 12 June 2008, in favour of Poltavanaftogazgeology ('PNG'), a
subsidiary of the Group's joint venture partner, NJSC Nadra Ukraine, a
state-owned company ('Nadra'), in relation to the earlier licences held by PNG,
relating to the Pirkovskoe and Zagoryanska fields. The court rulings: (a)
declared as invalid the licences re-registered to Nadra (which were subsequently
re-registered to the Group); and (b) recognised as valid the earlier licences
held by PNG.
On 28 July 2008, the Ministry of Environmental Protection of Ukraine (the
'Ministry') issued an order, making reference to the decisions of the Poltava
Court on 17 June 2008, in favour of PNG, invalidating the Group's licences for
its Pirkovskoe and Zagoryanska fields.
The following developments have occurred as a result of legal action taken by
the Group to protect its licences:
(1) on 29 September 2008, the Administrative Court cancelled the written
rulings of the Poltava Court of 17 June 2008. The Administrative Court rejected
in full the claim filed by PNG that the special permit which was issued to Nadra
was invalid and that the earlier licences held by PNG remained valid;
(2) on 7 October 2008, following a court judgment, Cadogan received written
confirmation that, the Ministry revoked its earlier orders nullifying the
Pirkovskoe and Zagoryanska licences and declared the special permit dated 19
October 2007, issued to Cadogan's subsidiary LLC Astroinvest-Ukraine and LLC
Astro Gas JAA for the Pirkovskoe licence and LLC Astroinvest-Energy for the
Zagoryanska licence, as valid;
(3) on 7 October 2008, Cadogan signed a co-operation agreement with the
Ministry demonstrating the Ministry's support for Cadogan's rights to licences;
(4) in January 2009, the Group received from the Ministry a five year
extension for the Zagoryanska licence now expiring in April 2014;
(5) on 25 February 2009, the Higher Administrative Court of Ukraine (the
'Administrative Court') found in favour of PNG in the appeal hearing in relation
to the transfer of the Pirkovskoe licence to Nadra in June 2007 (the
'Decision'). Notwithstanding this decision, Cadogan's licence to operate the
Pirkovskoe field remains valid and there has to date been no direct legal
challenge to Cadogan's interest in this licence. Cadogan has been advised that
new legal proceedings would need to be brought against Cadogan and would need to
succeed before Cadogan's interests in its licences would be affected. Cadogan
has yet to receive a date for the PNG initiated appeal hearing with respect to
the Zagoryanska licence;
(6) in support of Cadogan's position, on 30 March 2009, the Prosecutor
General of Ukraine ('Prosecutor General') submitted a case to the Supreme Court
of Ukraine ('Supreme Court') arguing that the High Administrative Court had been
mistaken in reaching its decision and that the ruling is therefore invalid; and
(7) Cadogan then, supported by the Prosecutor General, lodged an appeal to
the Supreme Court on the Pirkovskoe licence and an initial hearing took place on
2 June 2009 where the case was adjourned to 16 June 2009. The Supreme Court
upheld the claim made by the Prosecutor General and Cadogan and cancelled the
ruling of the Administrative Court dated 25 February 2009.
The Supreme Court will not now hear the Zagoryanska licence or whether the case
will be returned to the Administrative Court, as the verdict is similar to the
ruling made on the Pirkovskoe licence.
As noted above, Cadogan's licences remain valid and effective despite the
Decision. The Board remains firmly of the view that the challenges to the
licences previously held by PNG, are wholly unwarranted but, were PNG to
succeed, this would pose an unacceptable risk to Cadogan.
The Directors have considered the implications of the above legal proceedings
with respect to IAS 36 Impairment of assets, and IFRS 6 Exploration for and
evaluation of mineral resources, and have concluded that recognition of
impairment is not appropriate on the basis that the Directors believe that,
notwithstanding the uncertainties described above, the validity of the Group's
licences is expected to be reconfirmed. However, the ultimate outcome is
uncertain, and should the Courts in Ukraine ultimately rule that the licences
were improperly awarded and further annul the existing licences, the Group would
be required to impair the value of these assets in Ukraine. The amounts
capitalised within intangible exploration and evaluation assets and property,
plant and equipment in respect of these licences at 30 June 2009 was GBP38.1
million (30 June 20081: GBP38.3million; 31 December 20081: GBP43.3million).
1 Restated and unaudited, see note 2(a) for further details
3. Business and geographical segments
The Group has one principal business activity being the exploration and
development of oil and gas revenues. The Group's operations are located in
Ukraine and form the basis on which the Group reports its segment information.
4. Dividend
The Directors do not recommend the payment of a dividend for the period (30 June
2008: GBPnil; 31 December 2008: GBPnil).
5. Restatement
As discussed in note 2(a), subsequent to the issuance of the 2008 Annual
Financial Report, the Board identified certain payments that were
inappropriately capitalised in the Company's consolidated financial statements
for the years ended 31 December 2006, 2007 and 2008. Accordingly, an adjustment
has been made retrospectively reducing E&E assets by GBP4.3 million and PP&E by
GBP0.6 million with a corresponding decrease in equity as at 31 December 2008 of
GBP4.9 million.
As a result, the comparative financial information for the six months ended 30
June 2008 and the years ended 31 December 2008 have been restated with the
adjustments made to the opening balances of assets, liabilities and equity for
prior period restatements that occurred before the earliest period presented. A
summary of the adjustments made to restate the prior period/year financial
statements is as follows:
Balance sheet
+-------------------------------------------+---------+----------+-------------+-------------+
| | Unaudited |
+-------------------------------------------+------------------------------------------------+
| | E&E | PP&E | Accumulated | Cumulative |
| | GBP'000 | GBP'000 | deficit | translation |
| | | | GBP'000 | reserves |
| | | | | GBP'000 |
+-------------------------------------------+---------+----------+-------------+-------------+
| At 1 January 2008 as previously stated | 28,687 | 22,733 | (21,518) | (492) |
+-------------------------------------------+---------+----------+-------------+-------------+
| Inappropriate amounts capitalised | (3,663) | (276) | (3,920) | (19) |
+-------------------------------------------+---------+----------+-------------+-------------+
| As at 1 January 2008 restated | 25,024 | 22,457 | (25,438) | (511) |
+-------------------------------------------+---------+----------+-------------+-------------+
| | | | | |
+-------------------------------------------+---------+----------+-------------+-------------+
| At 30 June 2008 as previously stated | 47,221 | 32,966 | (29,166) | 5,411 |
+-------------------------------------------+---------+----------+-------------+-------------+
| Inappropriate amounts capitalised | (5,297) | (388) | (5,144) | (541) |
+-------------------------------------------+---------+----------+-------------+-------------+
| As at 30 June 2008 restated | 41,924 | 32,578 | (34,310) | 4,870 |
+-------------------------------------------+---------+----------+-------------+-------------+
| | | | | |
+-------------------------------------------+---------+----------+-------------+-------------+
| At 31 December 2008 as previously stated | 52,136 | 39,543 | (43,963) | (10,625) |
+-------------------------------------------+---------+----------+-------------+-------------+
| Inappropriate amounts capitalised | (4,266) | (620) | (5,514) | 628 |
+-------------------------------------------+---------+----------+-------------+-------------+
| As at 31 December 2008 restated | 47,870 | 38,923 | (49,477) | (9,997) |
+-------------------------------------------+---------+----------+-------------+-------------+
Income statement
+------------------------------------------------+----------------+-------------+-----------+
| | Unaudited |
+------------------------------------------------+------------------------------------------+
| | Other | Loss for | Loss per |
| | administrative | the | share |
| | expenses | period/year | GBP'000 |
| | GBP'000 | GBP'000 | |
+------------------------------------------------+----------------+-------------+-----------+
| For the six months ended 30 June 2008 as | (4,410) | (7,633) | (0.05) |
| previously stated | | | |
+------------------------------------------------+----------------+-------------+-----------+
| Inappropriate amounts capitalised | (1,224) | (1,224) | (0.01) |
+------------------------------------------------+----------------+-------------+-----------+
| For the six months ended 30 June 2008 restated | (5,634) | (8,857) | (0.06) |
+------------------------------------------------+----------------+-------------+-----------+
| | | | |
+------------------------------------------------+----------------+-------------+-----------+
| For the year ended 31 December 2008 as | (20,990) | (23,283) | (0.16) |
| previously stated | | | |
+------------------------------------------------+----------------+-------------+-----------+
| Inappropriate amounts capitalised | (1,594) | (1,594) | (0.01) |
+------------------------------------------------+----------------+-------------+-----------+
| For the year ended 31 December 2008 restated | (22,584) | (24,877) | (0.17) |
+------------------------------------------------+----------------+-------------+-----------+
Statement of comprehensive income
+------------------------------------------------+-------------+-------------+---------------+
| | Unaudited |
+------------------------------------------------+-------------------------------------------+
| | Loss for | Unrealised | Total |
| | the | currency | comprehensive |
| | period/year | translation | loss for the |
| | GBP'000 | difference | period/year |
| | | GBP'000 | GBP'000 |
+------------------------------------------------+-------------+-------------+---------------+
| For the six months ended 30 June 2008 as | (7,633) | 5,903 | (1,730) |
| previously stated | | | |
+------------------------------------------------+-------------+-------------+---------------+
| Inappropriate amounts capitalised | (1,224) | (522) | (1,746) |
+------------------------------------------------+-------------+-------------+---------------+
| For the six months ended 30 June 2008 restated | (8,857) | 5,381 | (3,476) |
+------------------------------------------------+-------------+-------------+---------------+
| | | | |
+------------------------------------------------+-------------+-------------+---------------+
| For the year ended 31 December 2008 as | (23,283) | (10,133) | (33,416) |
| previously stated | | | |
+------------------------------------------------+-------------+-------------+---------------+
| Inappropriate amounts capitalised | (1,594) | 647 | (947) |
+------------------------------------------------+-------------+-------------+---------------+
| For the year ended 31 December 2008 restated | (24,877) | (9,486) | (34,363) |
+------------------------------------------------+-------------+-------------+---------------+
Cash flow statement
+-------------------------------------------+------------+-----------+-----------+------------+
| | Unaudited |
+-------------------------------------------+-------------------------------------------------+
| | Net | Purchases | Purchases | Net cash |
| | cash | of PP&E | of E&E | used in |
| | outflow | GBP'000 | GBP'000 | investing |
| | from | | | activities |
| | operating | | | GBP'000 |
| | activities | | | |
| | GBP'000 | | | |
+-------------------------------------------+------------+-----------+-----------+------------+
| For the six months ended 30 June 2008 as | (8,094) | (10,318) | (13,871) | (25,447) |
| previously stated | | | | |
+-------------------------------------------+------------+-----------+-----------+------------+
| Inappropriate amounts capitalised | (1,311) | 82 | 1,229 | 1,311 |
+-------------------------------------------+------------+-----------+-----------+------------+
| For the six months ended 30 June 2008 | (9,405) | (10,236) | (12,642) | (24,136) |
| restated | | | | |
+-------------------------------------------+------------+-----------+-----------+------------+
| | | | | |
+-------------------------------------------+------------+-----------+-----------+------------+
| For the year ended 31 December 2008 as | | (32,668) | (39,319) | (71,786) |
| previously stated | (41,169) | | | |
+-------------------------------------------+------------+-----------+-----------+------------+
| Inappropriate amounts capitalised | (1,363) | 373 | 990 | 1,363 |
+-------------------------------------------+------------+-----------+-----------+------------+
| As at 31 December 2008 restated | (42,532) | (32,295) | (38,329) | (70,423) |
+-------------------------------------------+------------+-----------+-----------+------------+
6. Loss for the year
The loss for the period/ year has been arrived at after charging/(crediting):
+----------------------------------------------+--------+----------+----+----------+----------+
| | | | Restated and |
| | | | unaudited |
+----------------------------------------------+--------+----------+--------------------------+
| | | Unaudited | 30 June | Year |
| | | 30 June | 2008 | December |
| | | 2009 | GBP'000 | 2008 |
| | | GBP'000 | | GBP'000 |
+----------------------------------------------+--------+---------------+----------+----------+
| Depreciation of property, plant and equipment | 518 | 364 | 1,044 |
+-------------------------------------------------------+---------------+----------+----------+
| Amortisation of other intangible assets | 6 | - | 23 |
+-------------------------------------------------------+---------------+----------+----------+
| Loss on disposal of property, plant and equipment | 45 | - | 112 |
+-------------------------------------------------------+---------------+----------+----------+
| Write-off of VAT recoverable | 13,498 | - | 833 |
+-------------------------------------------------------+---------------+----------+----------+
| Consultancy fees | 780 | - | 6,358 |
+-------------------------------------------------------+---------------+----------+----------+
| Staff costs | 1,312 | 793 | 3,715 |
+-------------------------------------------------------+---------------+----------+----------+
| Net foreign exchange (gains)/ losses | (3,748) | (54) | 1,482 |
+----------------------------------------------+--------+----------+----+----------+----------+
Consultancy fees relate to consultancy fees paid in order to defend the legal
issues over the Pirkovskoe and Zagoryanska licences and with the successful
extension of the Zagoryanska licence.
Included within staff costs, is income of GBP0.8 million (30 June 2008: GBP0.4
million expense; 31 December 2008: GBP0.2 million expense) relating to the
reversal of equity-settled share-based payment transactions previously expensed
due to the forfeiture of options previously recognised and a change in the
estimated period of vesting for the remaining options.
7. Loss for the year
Loss per ordinary share is calculated by dividing the net loss for the
period/year attributable to Ordinary equity holders of the parent by the
weighted average number of Ordinary shares outstanding during the period/year.
The calculation of the basic and diluted loss per share is based on the
following data:
+----------------------------------------------+------+-----------+----------+----------+
| | | | Restated and |
| | | | unaudited |
+----------------------------------------------+------+-----------+---------------------+
| Losses | | Unaudited | 30 June | Year |
| | | 30 June | 2008 | December |
| | | 2009 | GBP'000 | 2008 |
| | | GBP'000 | | GBP'000 |
+----------------------------------------------+------+-----------+----------+----------+
| Loss for the purposes of basic loss per | (16,868) | (8,872) | (24,039) |
| share being net loss attributable to equity | | | |
| holders of the parent | | | |
+-----------------------------------------------------+-----------+----------+----------+
| | | | |
+-----------------------------------------------------+-----------+----------+----------+
| Number of shares | Number | Number | Number |
| | '000 | '000 | '000 |
+-----------------------------------------------------+-----------+----------+----------+
| Weighted average number of Ordinary shares | 231,092 | 153,780 | 139,721 |
| for the purposes of basic loss per share | | | |
+-----------------------------------------------------+-----------+----------+----------+
| | | | |
+-----------------------------------------------------+-----------+----------+----------+
| | GBP | GBP | GBP |
+-----------------------------------------------------+-----------+----------+----------+
| Loss per Ordinary share | | | |
+-----------------------------------------------------+-----------+----------+----------+
| Basic and diluted | (0.07) | (0.06) | (0.17) |
+----------------------------------------------+------+-----------+----------+----------+
Dilutive loss per Ordinary share equals basic loss per Ordinary share as, due to
the losses incurred in the six months ended 2009 and 2008 and the year ended 31
December 2008, there is no dilutive effect from the subsisting share warrants
and share options.
8. Trade and other receivables
Other non-current receivables
+--------------------------------------------+--------+-----------+----------+----------+
| | | | Restated and |
| | | | unaudited |
+--------------------------------------------+--------+-----------+---------------------+
| | | Unaudited | 30 June | Year |
| | | 30 June | 2008 | December |
| | | 2009 | GBP'000 | 2008 |
| | | GBP'000 | | GBP'000 |
+--------------------------------------------+--------+-----------+----------+----------+
| Other receivables | 294 | 4 | 301 |
+-----------------------------------------------------+-----------+----------+----------+
| VAT recoverable | - | 4,102 | 8,153 |
+-----------------------------------------------------+-----------+----------+----------+
| Prepayments | - | - | 10,412 |
+-----------------------------------------------------+-----------+----------+----------+
| | 294 | 4,106 | 18,866 |
+--------------------------------------------+--------+-----------+----------+----------+
Trade and other receivables
+---------------------------------------------------------------------------------------+
| Restated and |
| unaudited |
| Unaudited 30 June Year |
| 30 June 2008 December |
| 2009 GBP'000 2008 |
| GBP'000 GBP'000 |
| Other receivables 226 1,001 304 |
| VAT recoverable 200 4,283 1,814 |
| Prepayments 28,262 5,513 19,371 |
| 28,688 10,797 21,489 |
| |
+---------------------------------------------------------------------------------------+
All sales are made on a prepayment basis, so there are no trade receivables.
Value Added Tax ('VAT') recoverable from Ukraine authorities will only be
recovered once significant production commences. As at 30 June 2009, the
Directors are uncertain as to the commercial viability of the Group's major
fields and therefore believe it inappropriate to present these amounts as assets
given the uncertainties surrounding the expectation for recovery. A provision of
GBP13.5 million has been recognised as at 30 June 2009 (30 June 2008: GBPnil; 31
December 2008: GBP0.8 million) as the Directors are no longer certain that VAT
previously recognised as an asset will be recovered.
9. Notes to the cash flow statement
+----------------------------------------------+----+-----------+++---------+----------+
| | | | Restated and |
| | | | unaudited |
+----------------------------------------------+----+-----------+----------------------+
| | | Unaudited | 30 June | Year |
| | | 30 June | 2008 | December |
| | | 2009 | GBP'000 | 2008 |
| | | GBP'000 | | GBP'000 |
+----------------------------------------------+----+------------+----------+----------+
| Operating loss | (17,462) | (9,840) | (27,157) |
+---------------------------------------------------+-------------+---------+----------+
| Adjustments for: | | | |
+---------------------------------------------------+-------------+---------+----------+
| Depreciation of property, plant and | 518 | 364 | 1,044 |
| equipment | | | |
+---------------------------------------------------+-------------+---------+----------+
| Amortisation of other intangible assets | 6 | - | 23 |
+---------------------------------------------------+-------------+---------+----------+
| Loss on disposal of property, plant and | 45 | - | 112 |
| equipment | | | |
+---------------------------------------------------+-------------+---------+----------+
| Share-based payments | (814) | 418 | 205 |
+---------------------------------------------------+-------------+---------+----------+
| Effect of foreign exchange rate changes | (599) | 411 | (3,961) |
+---------------------------------------------------+-------------+---------+----------+
| Operating cash flows before movements in working | (18,306) | (8,647) | (29,734) |
| capital | | | |
+---------------------------------------------------+-------------+---------+----------+
| Decrease / (increase) in inventories | 617 | (729) | (6,494) |
+---------------------------------------------------+-------------+---------+----------+
| Decrease / (increase) in receivables | 10,406 | (5,701) | (7,408) |
+---------------------------------------------------+-------------+---------+----------+
| Increase in payables | 3,484 | 5,729 | 1,383 |
+---------------------------------------------------+-------------+---------+----------+
| Cash used in operations | (3,799) | (9,348) | (42,253) |
+---------------------------------------------------+-------------+---------+----------+
| Income taxes paid | (125) | (57) | (279) |
+---------------------------------------------------+-------------+---------+----------+
| Net cash outflows from continuing operations | (3,924) | (9,405) | (42,532) |
+----------------------------------------------+----+-----------+++---------+----------+
Cash and cash equivalents (which are presented as a single class of assets on
the balance sheet) comprise cash at bank and other short term highly liquid
investments that are readily convertible to a known amount of cash and which are
subject to an insignificant risk of change in value.
10. Commitments
In July 2008, the Group entered into agreements to build two gas treatment
plants; the first to process the anticipated production from the Bitlyanska
licence area (containing the Bitlya and Borynya fields) and the second to
process the anticipated production from the Pirkovskoe field. The total price
contracted for the two gas processing plants is USD54.4 million (GBP32.9
million), of which USD10.9 million (GBP6.6 million) has not been paid. Due to
potential procurement irregularities, the Company has entered into litigation
against the supplier of these gas plants and it is anticipated that the hearing
will be in January 2010. The Company is taking all measures to recover damages
arising from these potential irregularities.
11. Related party transactions
Following the departure of the former Chief Executive Officer, the Board
initiated legal actions against the former Chief Executive Officer and Chief
Operating Officer and certain third parties in order to obtain redress for the
Company arising from potential irregularities surrounding the procurement of and
payment for certain assets and services contracted for by the Group. There is a
possibility that through the litigation process, related party transactions will
be identified, but at the date of this report, the Directors believe that no
related party transactions have taken place in the six months ended 30 June 2009
that have materially affected the financial position or the performance of the
Group during the period.
Refer to note 2(a) for an overview of the fundamental uncertainties surrounding
this report.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR DBGDICUDGGCR
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