Half Yearly Report

 

TIDMCAD 
 
RNS Number : 6490R 
Cadogan Petroleum PLC 
26 August 2010 
 

                              CADOGAN PETROLEUM PLC 
                                   Half Yearly Report for the Six Months ended 
30 June 2010 
                           (Unaudited and Unreviewed) 
_______________________________________________________________________________ 
_______ 
 
                                   Highlights 
 
Cadogan Petroleum plc, an independent oil and gas exploration, development and 
production company with onshore gas, condensate and oil assets in Ukraine, 
announces its unaudited results for the six months ended 30 June 2010. 
 
·     Profit before tax of GBP0.4 million for first half of year (30 June 2009: 
loss before tax GBP17.1 million) 
·     Commenced commercial production in August from Zagoryanska 3 well at about 
50 mcm/day 
·     Prepared programme for deepening of Pokrovska 1 well by 800 metres 
·     Commenced development project to increase gas production from 
Debeslavetska field 
·     Total capital expenditure of GBP1 million during the first half of 2010 
(30 June 2009: GBP20.8 million) 
·     SAE Capital Holdings S.A. became a substantial shareholder 
·     Alessandro Benedetti and Bertrand des Pallieres of SAE Capital Holdings 
S.A., appointed to the Board 
·     Net cash and cash equivalents at 30 June 2010 of GBP27.1 million 
 
Commenting on the results, Ian Baron Chief Executive Officer said "The work 
undertaken over the past 12 months has significantly strengthened the Group's 
technical and commercial position in Ukraine, although Cadogan still needs to 
demonstrate its full potential. The Group is poised to further develop its 
assets in Ukraine and to take full advantage of the attractive growth 
opportunities available to it." 
 
Enquiries 
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|                                   |                  | 
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|                                   |                  | 
+-----------------------------------+------------------+ 
| Cadogan Petroleum plc             | [phone] | 
+-----------------------------------+------------------+ 
| Ian Baron,Chief Executive Officer |                  | 
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|                                   |                  | 
+-----------------------------------+------------------+ 
| Stefan Bort, Company Secretary    |                  | 
+-----------------------------------+------------------+ 
 
+-----------------------------------+------------------+ 
| Bankside                          | [phone] | 
+-----------------------------------+------------------+ 
| Simon Rothschild                  |                  | 
+-----------------------------------+------------------+ 
| Rose Oddy                         |                  | 
+-----------------------------------+------------------+ 
 
 
 
Introduction 
Following the recommendation of the Board, the decision taken by shareholders at 
the Company's Annual General Meeting on 30 June 2010 not to return capital but 
to build on the work undertaken by the new management team, has allowed the 
Company to move ahead in developing its assets in Ukraine. As a consequence of 
this decision, the Board approved several initiatives that are already proving 
beneficial to the Company. The first of these was the hook up of the Zagoryanska 
3 well to the Ukraine gas pipeline network allowing production of gas and 
condensate to commence on 1 August 2010. The revenue from this well, together 
with existing production revenue elsewhere, should allow the Group to cover 
ongoing general and administrative costs (excluding litigation costs) during the 
latter part of 2010.  The Board believes that, as a consequence of the actions 
taken by the new management team, there remains a significant opportunity for 
value to be created from the Group's sub-surface assets in Ukraine. 
 
In June 2010, the 29.12% shareholding built up by a US institutional shareholder 
was purchased by SAE Capital Holdings S.A. ("SAE"). The Board has had 
discussions with the representatives of SAE and is pleased to announce the 
appointment of Alessandro Benedetti and Bertrand des Pallieres as directors of 
the Company with immediate effect. As SAE is the Company's largest shareholder, 
the Board does not consider them independent in accordance with The UK Corporate 
Governance Code ("the Code"). However, as a Smaller Company as defined under the 
Code, the membership of the Board continues to comply with the Code, as the 
Board will continue to have three independent non-executive Directors. Both 
appointees have declined to receive fees. 
 
Operations 
 
The re-structuring of the Group's in-house technical team during 2009 has 
resulted in a much improved understanding of the sub-surface within our 
licences. The re-analysis of existing and new data, and the consolidation of the 
Group's data resources in Kiev, has enabled improved analysis, design and 
planning of commercially viable development projects. 
 
Following extensive testing on Zagoryanska 3, the well was tied in by pipeline 
to a sales point in the Ukraine gas transportation system. This project cost 
$216,000, was completed on time and to budget, and initial production from this 
well is currently around 50 mcm/day (1.75 million scf/day) of gas and 15 cubic 
metres/day (120 bb/day) of condensate. 
 
The Pokrovska 1 well which was suspended in March 2009 to conserve cash and 
enable further seismic analysis, will be deepened by 800 metres to test a target 
identified on the 3D seismic data. Drilling is planned for September and is 
budgeted to cost in the region of $2 million plus a further $2 million for 
testing, if warranted. In the event of commercial success, a further $3.5 
million ($1.5 million of which comes from inventory) will be required for 
facilities and to tie the well in to a production sales point. This project has 
very attractive economics and if successful the investment should be recovered 
within 12 months. 
 
Three new production wells will be drilled on the Debeslavetska field over the 
next three months at a total cost of $1.08 million using the Group's drilling 
rig. Gas production continues from the Group's Cheremkhivska field at the rate 
of 7 mcm / day. 
 
The Group is preparing for the acquisition of a 2D seismic programme on the 
Bitylanskya licence, where in 2009 the Bornyna 3 well was drilled. In a limited 
duration drill stem test Borynya 3 tested gas from a secondary reservoir at a 
maximum flow rate of 128 mcm/day. This $1.25 million programme, which is 
expected to be completed by November 2010 seeks to identify suitable targets for 
further drilling, and fulfils a licence obligation. 
 
 
The Group continues to discuss the possibility of farming out some of its major 
assets. These discussions were hampered by the uncertainty over the Company's 
future ownership. This issue has now been resolved. In the interim, there have 
been material changes to the business, which have encouraged the Board to review 
the farm-out programme to ensure that it is appropriate. For example, in August 
2010 the Zagoryanska 3 discovery was put on commercial production; the Pokrovska 
1 well is to be deepened; the Group is now in a position to manage its drilling 
obligations until the end of 2011 and, has sufficient financial resources to 
support expenditure on existing fields that will enhance value or generate 
production revenues. The Board will continue to seek farm out arrangements in 
order to manage risk on any major drilling obligations. 
 
Political and licence issues 
 
There have been no further developments in the Group's licence disputes (refer 
to note 2c on page 18).  As reported in October 2009 Cadogan has been advised by 
the Ministry for the Protection of the Environment in Ukraine that there are no 
grounds for invalidation or annulment, or any doubts as to the validity of the 
Group's special permits or licences for any of its assets. The Company continues 
to wait for a further hearing in the Higher Administrative court of Ukraine to 
reconsider their previous ruling, with no further evidence being taken into 
account, as instructed by the Supreme Court in June 2009 with regard to the 
indirect challenge to the Pirkovskoe licence. 
 
The temporary suspension of the Debeslavetska licence remains in place.  Earlier 
in the year minor non-compliance issues were identified and resolved, however, 
the local authorities did not report this to the State authorities and, as a 
consequence, the field was shut-in in early June 2010. The Group has received a 
letter from the Ministry for the Protection of the Environment in Ukraine 
confirming that the alleged non-compliance had been resolved and that as soon as 
an inter-departmental committee had been formed, the lifting of the suspension 
order would be submitted for approval. Prior to shut-in net revenues from the 
field averaged $137,000 per month. The Board currently believes that the lost 
production from this well can be recovered during the year. 
 
Amendments to the Pokrovskoe work programme, the Slobodo - Rungurska work 
programme, extension of the Pirkovskoe licence which expired in June 2010 (refer 
to Operations Review on page 6) and extension of the Monastyretska licence are 
also held up by the delay in appointing the inter-departmental committee. 
 
Litigation 
Progress continues to be made in the Company's litigation against its former 
officers and various related parties and the Company has been advised that it 
has excellent prospects of success. To date the litigation against third parties 
has secured $16 million of value. The Board expects the Group to recover a 
further $36.5 million in connection with the resale of gas plants manufactured 
by Global Processing Systems in accordance with the payment schedule agreed with 
them. 
 
Financial position 
 
At the date of this report, the Group had cash and cash equivalents of 
approximately GBP26.4 million. 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 (refer to note 2b on page 19). 
 
 
Outlook 
The Board strongly believes that there remains a significant opportunity for 
value to be created from the Group's assets in Ukraine. Going forward it will 
review and develop plans to build value from its existing assets in 2011 by 
developing projects that will enhance reserves and generate production revenue. 
As part of this review the Board will consider the level of farm-out of major 
obligations that is appropriate for the Group to carry in order to reduce the 
risk profile. 
 
 
Simon Duffy 
Non-executive Chairman 
 
 
Reserves and resources 
Following the management changes in March 2009, the capital intensive drilling 
operations of the Group were safely curtailed in a manner that would maintain 
the licences legally and leave maximum flexibility in the event further studies 
revealed scope for additional work on the wells. Greater effort was applied to 
developing and understanding the hydrocarbon potential and the risks on the 
Group's licences through work carried out by the Group's new subsurface team 
based in Kiev. Additionally the team focused on building the technical database 
and developing a farm-out programme designed to balance the risk profile of the 
asset base through finding partners to fund future work programmes, in return 
for part of Cadogan's equity in the licences. 
At the beginning of 2010 the Group held working interests in eight (2009: 
eleven) gas, condensate and oil exploration and production licences in the east 
and west of Ukraine. All these assets are operated by the Group and are located 
in either the Carpathian basin or the Dnieper-Donets basin, proximal to the 
Ukrainian gas distribution infrastructure. The Group's primary focus is on the 
Bitlyanska licence, (Carpathian Basin, west Ukraine), Pokrovskoe, Zagoryanska 
and Pirkovskoe licences (Dnieper-Donets basin, east Ukraine) where the Group's 
main reserve and resource potential is located. 
 
+-----------+-------------------+----------------+--------------+ 
|                                                               | 
+---------------------------------------------------------------+ 
|  Working  |      Licence      |    Expiry      |   Licence    | 
| interest  |                   |                |   type(1)    | 
|    (%)    |                   |                |              | 
+-----------+-------------------+----------------+--------------+ 
| Major     |                   |                |              | 
| licences  |                   |                |              | 
+-----------+-------------------+----------------+--------------+ 
|   96.5    |  Bitlyanksa(2)    | December 2014  |     E&D      | 
+-----------+-------------------+----------------+--------------+ 
|  100.0    |    Pokrovskoe     |  August 2011   |     E&D      | 
+-----------+-------------------+----------------+--------------+ 
|   90.0    |   Zagoryanska     |  April 2014    |     E&D      | 
+-----------+-------------------+----------------+--------------+ 
|   97.0    |  Pirkovskoe(3)    |   June 2010    |     E&D      | 
+-----------+-------------------+----------------+--------------+ 
| Minor     |                   |                |              | 
| licences  |                   |                |              | 
+-----------+-------------------+----------------+--------------+ 
|   98.3    |  Debeslavetska    |  October 2026  |  Production  | 
+-----------+-------------------+----------------+--------------+ 
|   49.8    |  Cheremkhivska    |    May 2018    |  Production  | 
+-----------+-------------------+----------------+--------------+ 
|  100.0    |Slobodo-Rungurska  |  April 2011    |     E&D      | 
+-----------+-------------------+----------------+--------------+ 
(1)  E&D = Exploration and Development. 
(2)  The working interest on the Bitlyanska licence declines on a stepped basis, 
every five years after the commencement of production on each well. The Joint 
Activity Agreement ("JAA") also distinguishes working interests on new wells and 
work over wells with the former offering a higher share to the Group. Effective 
working interests are shown above. 
(3)  The Pirkovskoe licence expired in June 2010 and all the necessary paperwork 
for its extension has been submitted to the State authorities. 
 
 
 
 
The following are updates to the full Operations Review contained in the Annual 
Financial Report for 2009: 
 
Bitlyanska licence area 
 
A 2D seismic acquisition programme will commence on this licence area in 
September 2010. The outcome of this seismic survey will assist with our 
understanding of the potential of this highly attractive, but geologically 
complex asset. The programme is budgeted to cost $1.25 million and is planned to 
be completed by November 2010. 
 
Pokrosvkoe licence area 
 
The Pokrovska 1 well, which was suspended in March 2009 for 3D seismic 
evaluation and to conserve cash, will be deepened by 800 metres and deviated so 
that a target identified on the seismic can be reached. The rig is on site and 
is being upgraded and it is planned to start drilling in September and reach 
total depth within 60 days. 
 
Zagoryanska licence 
 
Following the successful testing of the Visean V-18 interval in the Zagoryanska 
3 well, the Group has invested $216,000 to tie the well into a production sales 
point. The project was completed on time and to budget and commenced commercial 
production on 1 August 2010. Production from this well is currently averaging 50 
mcm/day (1.75 million scf/day) of gas and 15 t/day (120 bb/day) of condensate. 
It is expected that production will stabilise over time to about 35 mcm/day of 
gas. The extent of the V-18 reservoir in the Zagoryanska 3 area has still to be 
fully mapped and confirmed, but it is anticipated that additional wells will be 
required to exploit fully this discovery. 
 
Although the current focus is on the V-18 discovery, a report from the 
Ukrainian State GeologicalExploration Institute also points out that, despite 
the previously announced unsuccessful tests on the Tournasian and Lower Visean 
intervals of the Zagoryanska 3 well, there could also be commercial production 
from those intervals. This would require utilising proper test procedures, an 
appropriate completion string and a series of stimulation treatments. Management 
continues to review this opportunity as well as evaluating the potential for the 
possible work-over of two previously drilled wells on the Zagoryanska field. 
 
Pirkovskoe licence area 
 
The Pirkovskoe licence expired in June 2010 and all the necessary paperwork for 
its extension has been submitted to the State authorities. Like many other 
licences in Ukraine, the recommendation to approve the Pirkovskoe licence 
extension has been delayed pending the appointment of the ministries 
Inter-Departmental Work group. This was established in late July after a series 
of delays due to changes in appointments in the Ministry of Environmental 
Protection and the first meeting is to be held shortly. 
 
The Board is confident that this licence will be extended and as a result do not 
consider there to be any impairment to the carrying value of the assets 
connected with this licence as at the period end. 
 
The amount capitalised within property, plant and equipment ("PP&E") in respect 
of this licence at period end was GBP21.9 million. In the event that the 
extension is not permitted these costs would be impaired. 
 
 
Minor fields 
 
Three new shallow production wells will be drilled on the Debeslavetska field 
over the next three months at a cost of $1.08 million using the Group's drilling 
rig. The Debeslavestska field in western Ukraine currently has 9 producing wells 
and current production is about 27 mcm/ day. Re-analysis of the seismic and 
geophysical data already available to the Company indicated further potential in 
this field and accordingly three wells to around 400metres will be drilled 
between September and December 2010 to increase production. Production also 
continues from the Cheremkhivska field at about 7 mcm/day. 
 
The Company previously reported that it had allowed the Monaststreytska licence 
to expire. However following discussions with the Ministry for the Protection of 
the Environment in Ukraine the licence will be re-acquired on favourable terms 
and studies are underway to bring one well back to oil production as soon as 
possible. 
There is no production from the Slobodo-Rungurska licence area where six old 
wells the Group took over are being plugged and abandoned. 
 
 
Income statement 
The income statement of the Group for the six months to 30 June 2010 shows a 
small profit before tax for the period of GBP0.4 million, largely deriving from 
income from out of court settlements and other non-trading income offset by 
administrative expenses (30 June 2009: loss of GBP17.1 million; 31 December 
2009: loss of GBP107.2 million). 
During the period, the activities of the Group largely remained on stand-by as 
most exploration and development activities were suspended, and the staff 
reduction programme was completed. Revenue in the period of GBP0.8 million (30 
June 2009: GBP1.1 million; 31 December 2009: GBP2.3 million) comprised sale of 
gas from the producing wells in the Debeslavetska and Cheremkhivskoe minor 
fields only. The reduction of revenue on the previous periods arose because 
these periods also included revenue from the minor fields at Blazhiv and 
Slobodo, and additionally test production of oil from the field at Pirkovskoe. 
These sales produced a gross profit of GBP0.1 million (30 June 2009: GBP0.1 
million; 31 December 2009: GBP0.3 million). 
Administrative expenses of GBP4.4 million (30 June 2009: GBP4.1 million; 31 
December 2009: GBP20.7 million) comprised staff costs, Directors' remuneration, 
legal and professional fees, depreciation charges for the Group's property, 
plant, equipment and intangible assets, and other operational or administrative 
costs. In the six months to 30 June 2010, they also included realised losses of 
GBP0.9 million on sales of surplus inventories. Expenditure in the period on 
legal items related to the litigation process was GBP2.2 million, of which 
GBP1.9 million had been accrued as at 31 December 2009 (litigation costs to 30 
June 2009: GBP0.8 million; 31 December 2009: GBP6.1 million). Professional and 
consultancy fees of GBP0.4 million charged in the period mainly related to the 
farm-out campaign and ongoing corporate costs, while in 2009 the costs charged 
under this category (30 June 2009: GBP0.8 million: 31 December GBP0.8 million) 
mainly related to fees incurred to defend the legal challenges indirectly 
associated with the Pirkovskoe and Zagoryanska licences and to extend the 
Zagoryanska licence. No reversal of equity-settled share-based payment 
transactions previously expensed took place in the period (30 June 2009: GBP0.8 
million; 31 December 2009: GBP0.8 million). These reversals had resulted from 
certain options being forfeited and a change in the estimated period of vesting 
for the remaining options. 
Other income comprised income from out of court settlements, exchange gains on 
long-term receivables and movement on the provision against Ukrainian VAT 
receivable. The income of GBP2.9 million from out of court settlements 
represented the income of $4.5 million which was received under the settlement 
with Smith Eurasia.. The movement in the VAT provision represented Ukrainian VAT 
of GBP1.1 million recovered during the period, less write-off of new VAT of 
GBP0.7 million. The recoveries mostly related to sales of inventories. In 2009 
the full impairment of Ukrainian VAT receivable resulted in charges of GBP13.5 
million for the period to 30 June 2009, and GBP13.2 million for the year. 
Investment revenue decreased during the six months ended 30 June 2010 to GBP0.1 
million (30 June 2009: GBP0.3 million; 31 December 2009: GBP0.4 million) due 
mainly to a reduction in interest rates. 
Cash flow statement 
The Consolidated Cash Flow Statement on page 15 shows net cash outflow from 
operating activities of GBP3.2 million (30 June 2009: GBP3.9 million; 31 
December 2009: GBP19.0 million), expenditure of GBP0.8 million (30 June 2009: 
GBP12.0 million; 31 December 2009: GBP15.9 million) on intangible exploration 
and evaluation assets and GBP0.2 million (30 June 2009: GBP8.7 million; 31 
December 2009: GBP7.6 million) on property, plant and equipment. No asset 
acquisitions were made in the six months ended 30 June 2010 (30 June 2009: 
GBPnil; 31 December 2009: GBPnil million). 
 
Balance sheet 
As at 30 June 2010, the balance of the unrestricted cash and cash equivalents of 
the Group was GBP27.1 million (31 December 2009: GBP30.5 million). No external 
borrowings were held by the Group at either date.  Intangible exploration and 
evaluation assets of GBP1.0 million (31 December 2009: GBPnil) represent the 
investment in such assets made in the six months to 30 June 2010 only, due to 
the full impairment of the net book value as at 31 December 2009. Property, 
plant and equipment of GBP32.6 million at 30 June 2010 (31 December 2009: 
GBP32.0 million) represents principally the cost of developing fields with 
commercial reserves to bring them into production. The total receivable of $36.5 
million from the settlement with GPS (GBP24.2 million as at 30 June 2010, 
GBP22.9 million as at 31 December 2009) is apportioned between non-current and 
current assets in accordance with the relevant periods in which the amounts fall 
due at each balance sheet date. During the six month period a substantial 
portion of this amount became receivable within one year. Trade and other 
payables have reduced from GBP7.2 million as at 31 December 2009 to GBP2.1 
million as at 30 June 2010 as accrued legal costs and amounts previously 
disputed, which were taken up as at 31 December 2009 were discharged during the 
period. Net assets have increased by GBP3.0 million to GBP86.6 million at 30 
June 2010 from GBP83.6 million at 31 December 2009 largely as a result 
favourable exchange movements and from reductions to outgoings and liabilities. 
Related party transactions 
No material transactions have taken place with related parties during the six 
months to 30 June 2010. The Board continues to undertake legal actions 
previously reported against the former Chief Executive Officer, 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, some of which may 
have given rise to related party transactions not disclosed in the Financial 
Statements for the year to 31 December 2009. 
Commitments 
The Group has not entered into any material commitments during the six months 
ended 30 June 2010. 
Treasury 
The Group continually monitors its exposure to currency risk. It maintains a 
portfolio of cash and cash equivalents in both $ and GBPheld 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 $ 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 
In the six months to 30 June 2010, the main objectives of the Group were to 
complete the programme of scaling back activities as previously reported and to 
improve income from the producing fields such that activities could become 
self-financing. For this reason, reference was not made to such key performance 
indicators ('KPIs) as are normally associated with oil and gas activities, but 
rather to those related to cash flow, cost reduction and numbers employed. 
During the six months to 30 June 2010, the average monthly cash outflow from 
operating and investing activities was GBP0.6 million (30 June 2009: GBP3.1 
million; 31 December 2009: GBP3.5 million). The number of staff as at 30 June 
2010 was 119 (30 June 2009: 480: 31 December 2009: 153). 
 
 
 
 
 
There are a number of potential risks and uncertainties which could have a 
material impact on the long-term performance of the Group and which could cause 
the actual results to differ materially from expected and historical results. 
Full details are disclosed on pages 13 to 16 of the 2009 Annual Financial 
Report. There have been no changes to the risk profile during the first half of 
the year. These are summarised below: 
Financial risks 
·     Validity of the Group's licences 
·     Recoverability of the Group's assets 
·     Liquidity risk, management and going concern assumption 
·     Regulatory and tax compliance risk 
·     Fraud risk 
·     Litigation risk 
·     Budgeting risk 
·     Procurement and commitment risk 
·     Foreign exchange risk management 
·     Inflation risk management 
·     Credit risk management 
·     Validity and appropriateness of accounting policies 
Non-financial risks 
·     Operating environment 
·     Regulatory and licence issues 
·     Political risk 
·     Economic environment 
·     Drilling and work-over activities 
·     Reserves and resources 
·     Information system, integrity, access and availability risk 
·     Health, safety and environment 
·     Social responsibilities 
 
 
 
 
 
                      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). 
(d)          the condensed set of financial statements, which has been prepared 
in accordance with the applicable set of accounting standards, gives a true and 
fair view of the assets, liabilities, financial position and profit or loss of 
the issuer, or the undertakings included in the consolidation as a whole as 
required by DTR 4.2.4R 
 
This Half Yearly Report consisting of pages 1 to 24 has been approved by the 
Board and signed on its behalf by: 
 
 
Stefan Bort 
Company Secretary 
26 August 2010 
 
 
 
 
_______________________________________________________________________________ 
_______ 
Cautionary Statement 
The business review and certain other sections of this Half Yearly Report 
contain forward looking statements that have been made by the directors in good 
faith based on the information available to them up to the time of their 
approval of this report. However they should be treated with caution due to 
inherent uncertainties, including both economic and business risk factors, 
underlying any such forward-looking information and no statement should be 
construed as a profit forecast. 
 
Condensed Consolidated Income Statement 
For the six months ended 30 June 2010 
_______________________________________________________________________________ 
                                    _______ 
+----------------------------------------+-------+-----------+-----------------+-----------+ 
|                                        |       |           |                             | 
+----------------------------------------+-------+-----------+-----------------------------+ 
|                                        |Notes  |           |                 |           | 
|                                        |       | Unaudited |       Unaudited |     Year  | 
|                                        |       |   30 June |         30 June |  December | 
|                                        |       |      2010 |            2009 |      2009 | 
|                                        |       |           |         GBP'000 |   GBP'000 | 
|                                        |       |   GBP'000 |                 |           | 
+----------------------------------------+-------+-----------+-----------------+-----------+ 
|                                        |       |           |                 |           | 
+----------------------------------------+-------+-----------+-----------------+-----------+ 
| Revenue                                |       |       820 |           1,064 |     2,342 | 
+----------------------------------------+-------+-----------+-----------------+-----------+ 
| Cost of sales                          |       |     (704) |           (936) |   (2,022) | 
+----------------------------------------+-------+-----------+-----------------+-----------+ 
| Gross profit                           |       |       116 |             128 |       320 | 
+----------------------------------------+-------+-----------+-----------------+-----------+ 
|                                        |       |           |                 |           | 
+----------------------------------------+-------+-----------+-----------------+-----------+ 
| Administrative expenses - other        |       |   (4,387) |         (7,840) |  (25,299) | 
| expenses                               |       |           |                 |           | 
+----------------------------------------+-------+-----------+-----------------+-----------+ 
| - impairment of oil and gas assets     |       |         - |               - |  (63,499) | 
+----------------------------------------+-------+-----------+-----------------+-----------+ 
| - impairment of other assets           |       |         - |        (13,498) |  (23,752) | 
+----------------------------------------+-------+-----------+-----------------+-----------+ 
|                                        |       |   (4,387) |        (21,338) | (112,550) | 
+----------------------------------------+-------+-----------+-----------------+-----------+ 
| Other operating income                 |  4    |     4,621 |           3,748 |     4,641 | 
+----------------------------------------+-------+-----------+-----------------+-----------+ 
| Operating profit / (loss)              |       |       350 |        (17,462) | (107,589) | 
+----------------------------------------+-------+-----------+-----------------+-----------+ 
|                                        |       |           |                 |           | 
+----------------------------------------+-------+-----------+-----------------+-----------+ 
| Investment revenue                     |       |        63 |             335 |       407 | 
+----------------------------------------+-------+-----------+-----------------+-----------+ 
| Finance costs                          |       |      (11) |             (5) |       (8) | 
+----------------------------------------+-------+-----------+-----------------+-----------+ 
| Profit / (loss) before tax             |       |       402 |        (17,132) | (107,190) | 
+----------------------------------------+-------+-----------+-----------------+-----------+ 
|                                        |       |           |                 |           | 
+----------------------------------------+-------+-----------+-----------------+-----------+ 
| Tax                                    |       |       162 |           (269) |     (113) | 
+----------------------------------------+-------+-----------+-----------------+-----------+ 
| Profit / (loss) for the period/year    |  5    |       564 |        (17,401) | (107,303) | 
+----------------------------------------+-------+-----------+-----------------+-----------+ 
|                                        |       |           |                 |           | 
+----------------------------------------+-------+-----------+-----------------+-----------+ 
| Attributable to:                       |       |           |                 |           | 
+----------------------------------------+-------+-----------+-----------------+-----------+ 
| Equity holders of the parent           |       |       564 |        (16,868) | (107,303) | 
+----------------------------------------+-------+-----------+-----------------+-----------+ 
| Minority interest                      |       |         - |           (533) |         - | 
+----------------------------------------+-------+-----------+-----------------+-----------+ 
|                                        |       |       564 |        (17,401) | (107,303) | 
+----------------------------------------+-------+-----------+-----------------+-----------+ 
|                                        |       |           |                 |           | 
+----------------------------------------+-------+-----------+-----------------+-----------+ 
| Profit / (loss) per ordinary share     |       |       GBP |             GBP |       GBP | 
+----------------------------------------+-------+-----------+-----------------+-----------+ 
| Basic and diluted                      |  6    |    0.0024 |          (0.07) |    (0.46) | 
+----------------------------------------+-------+-----------+-----------------+-----------+ 
 
 
 
 
Condensed Consolidated Statement of Comprehensive Income 
For the six months ended 30 June 2010 
_______________________________________________________________________________ 
                                    _______ 
+-----------------------------------------+----+-----------+-----------+-----------+ 
|                                         |    |           |                       | 
+-----------------------------------------+----+-----------+-----------------------+ 
|                                         |    |           |           |           | 
|                                         |    | Unaudited | Unaudited |     Year  | 
|                                         |    |   30 June |   30 June |  December | 
|                                         |    |      2010 |      2009 |      2009 | 
|                                         |    |   GBP'000 |   GBP'000 |   GBP'000 | 
+-----------------------------------------+----+-----------+-----------+-----------+ 
|                                         |    |           |           |           | 
+-----------------------------------------+----+-----------+-----------+-----------+ 
| Profit / (loss) for the period/year     |    |       564 |  (17,401) | (107,303) | 
+-----------------------------------------+----+-----------+-----------+-----------+ 
|                                         |    |           |           |           | 
+-----------------------------------------+----+-----------+-----------+-----------+ 
| Unrealised currency translation         |    |     2,465 |  (11,585) |  (11,377) | 
| differences                             |    |           |           |           | 
+-----------------------------------------+----+-----------+-----------+-----------+ 
|                                         |    |           |           |           | 
+-----------------------------------------+----+-----------+-----------+-----------+ 
| Total comprehensive profit / (loss) for |    |     3,029 |  (28,986) | (118,680) | 
| the period/year                         |    |           |           |           | 
+-----------------------------------------+----+-----------+-----------+-----------+ 
 
 
 
 
 
Condensed Consolidated Balance Sheet 
As at 30 June 2010 
_______________________________________________________________________________ 
                                    _______ 
+----------------------------------------+-------+--------+----------+----------+----------+ 
|                                        |       |        |       Unaudited                | 
+----------------------------------------+-------+--------+--------------------------------+ 
|                                        |Notes  |                   |  30 June |       31 | 
|                                        |       |                   |     2010 | December | 
|                                        |       |                   |  GBP'000 |     2009 | 
|                                        |       |                   |          |  GBP'000 | 
+----------------------------------------+-------+-------------------+----------+----------+ 
| ASSETS                                 |       |                   |          |          | 
+----------------------------------------+-------+-------------------+----------+----------+ 
| Non-current assets                     |       |                   |          |          | 
+----------------------------------------+-------+-------------------+----------+----------+ 
| Intangible exploration and evaluation  |       |                   |    1,040 |        - | 
| assets                                 |       |                   |          |          | 
+----------------------------------------+-------+-------------------+----------+----------+ 
| Property, plant and equipment          |       |                   |   32,638 |   32,009 | 
+----------------------------------------+-------+-------------------+----------+----------+ 
| Other non-current receivables          |  8    |                   |    6,635 |   18,835 | 
+----------------------------------------+-------+-------------------+----------+----------+ 
| Restricted cash                        |  9    |                   |      405 |      450 | 
+----------------------------------------+-------+-------------------+----------+----------+ 
|                                        |       |                   |   40,718 |   51,294 | 
+----------------------------------------+-------+-------------------+----------+----------+ 
| Current assets                         |       |                   |          |          | 
+----------------------------------------+-------+-------------------+----------+----------+ 
| Inventories                            |  7    |                   |    3,175 |    5,522 | 
+----------------------------------------+-------+-------------------+----------+----------+ 
| Trade and other receivables            |  8    |                   |   19,333 |    5,390 | 
+----------------------------------------+-------+-------------------+----------+----------+ 
| Current tax receivables                |       |                   |       16 |        - | 
+----------------------------------------+-------+-------------------+----------+----------+ 
| Cash and cash equivalents              |       |                   |   27,091 |   30,505 | 
+----------------------------------------+-------+-------------------+----------+----------+ 
|                                        |       |                   |   49,615 |   41,417 | 
+----------------------------------------+-------+-------------------+----------+----------+ 
| Total assets                           |       |                   |   90,333 |   92,711 | 
+----------------------------------------+-------+-------------------+----------+----------+ 
|                                        |       |                   |          |          | 
+----------------------------------------+-------+-------------------+----------+----------+ 
| LIABILITIES                            |       |                   |          |          | 
+----------------------------------------+-------+-------------------+----------+----------+ 
| Non-current liabilities                |       |                   |          |          | 
+----------------------------------------+-------+-------------------+----------+----------+ 
| Deferred tax liabilities               |       |                   |    (839) |    (973) | 
+----------------------------------------+-------+-------------------+----------+----------+ 
| Long-term provisions                   |       |                   |    (232) |    (176) | 
+----------------------------------------+-------+-------------------+----------+----------+ 
|                                        |       |                   |  (1,071) |  (1,149) | 
+----------------------------------------+-------+-------------------+----------+----------+ 
| Current liabilities                    |       |                   |          |          | 
+----------------------------------------+-------+-------------------+----------+----------+ 
| Trade and other payables               |  10   |                   |  (2,061) |  (7,237) | 
+----------------------------------------+-------+-------------------+----------+----------+ 
| Current tax liabilities                |       |                   |        - |     (16) | 
+----------------------------------------+-------+-------------------+----------+----------+ 
| Current provisions                     |       |                   |    (561) |    (698) | 
+----------------------------------------+-------+-------------------+----------+----------+ 
|                                        |       |                   |  (2,622) |  (7,951) | 
+----------------------------------------+-------+-------------------+----------+----------+ 
| Total liabilities                      |       |                   |  (3,693) |  (9,100) | 
+----------------------------------------+-------+-------------------+----------+----------+ 
|                                        |       |                   |          |          | 
+----------------------------------------+-------+-------------------+----------+----------+ 
| Net assets                             |       |                   |   86,640 |   83,611 | 
+----------------------------------------+-------+-------------------+----------+----------+ 
|                                        |       |                   |          |          | 
+----------------------------------------+-------+-------------------+----------+----------+ 
| EQUITY                                 |       |                   |          |          | 
+----------------------------------------+-------+-------------------+----------+----------+ 
| Share capital                          |       |                   |    6,933 |    6,933 | 
+----------------------------------------+-------+-------------------+----------+----------+ 
| Retained earnings / (accumulated       |       |                   |   94,157 |   93,593 | 
| deficit)                               |       |                   |          |          | 
+----------------------------------------+-------+-------------------+----------+----------+ 
| Cumulative translation reserves        |       |                   | (18,909) | (21,374) | 
+----------------------------------------+-------+-------------------+----------+----------+ 
| Other reserves                         |       |                   |    5,093 |    5,093 | 
+----------------------------------------+-------+-------------------+----------+----------+ 
| Equity attributable to equity holders  |       |                   |   87,274 |   84,245 | 
| of the parent                          |       |                   |          |          | 
+----------------------------------------+-------+-------------------+----------+----------+ 
| Non-controlling interest               |       |                   |    (634) |    (634) | 
+----------------------------------------+-------+-------------------+----------+----------+ 
| Total equity                           |       |                   |   86,640 |   83,611 | 
+----------------------------------------+-------+-------------------+----------+----------+ 
|                                        |       |        |          |          |          | 
+----------------------------------------+-------+--------+----------+----------+----------+ 
 
Condensed Consolidated Cash Flow Statement 
For the six months ended 30 June 2010 
_______________________________________________________________________________ 
                                    _______ 
+----------------------------------------+----+-+-----------+-----------+----------+ 
|                                        |    |             |                      | 
+----------------------------------------+----+-------------+----------------------+ 
|                                        |Note  |           |           |          | 
|                                        |      | Unaudited | Unaudited |    Year  | 
|                                        |      |   30 June |   30 June | December | 
|                                        |      |      2010 |      2009 |     2009 | 
|                                        |      |   GBP'000 |   GBP'000 |  GBP'000 | 
+----------------------------------------+------+-----------+-----------+----------+ 
| Net cash outflow from operating        | 11 |     (3,174) |   (3,924) | (18,952) | 
| activities                             |    |             |           |          | 
+----------------------------------------+----+-------------+-----------+----------+ 
|                                        |    |             |           |          | 
+----------------------------------------+----+-------------+-----------+----------+ 
| Investing activities                   |    |             |           |          | 
+----------------------------------------+----+-------------+-----------+----------+ 
| Purchases of property, plant and       |    |       (162) |   (8,743) |  (7,569) | 
| equipment                              |    |             |           |          | 
+----------------------------------------+----+-------------+-----------+----------+ 
| Purchases of intangible exploration    |    |       (832) |  (12,011) | (15,896) | 
| and evaluation assets                  |    |             |           |          | 
+----------------------------------------+----+-------------+-----------+----------+ 
| Proceeds from sale of property, plant  |    |         615 |        75 |      432 | 
| and equipment                          |    |             |           |          | 
+----------------------------------------+----+-------------+-----------+----------+ 
| Interest received                      |    |          52 |       424 |      501 | 
+----------------------------------------+----+-------------+-----------+----------+ 
| Net cash used in investing activities  |    |       (327) |  (20,255) | (22,532) | 
+----------------------------------------+----+-------------+-----------+----------+ 
|                                        |    |             |           |          | 
+----------------------------------------+----+-------------+-----------+----------+ 
| Net cash from financing activities     |    |           - |         - |        - | 
+----------------------------------------+----+-------------+-----------+----------+ 
|                                        |    |             |           |          | 
+----------------------------------------+----+-------------+-----------+----------+ 
| Net decrease in cash and cash          |    |     (3,501) |  (24,179) | (41,484) | 
| equivalents                            |    |             |           |          | 
+----------------------------------------+----+-------------+-----------+----------+ 
| Effect of foreign exchange rate        |    |          87 |   (1,920) |     (37) | 
| changes                                |    |             |           |          | 
+----------------------------------------+----+-------------+-----------+----------+ 
| Cash and cash equivalents at beginning |    |      30,505 |    72,026 |   72,026 | 
| of period /year                        |    |             |           |          | 
+----------------------------------------+----+-------------+-----------+----------+ 
| Cash and cash equivalents at end of    |    |      27,091 |    45,927 |   30,505 | 
| period /year                           |    |             |           |          | 
+----------------------------------------+----+-------------+-----------+----------+ 
|                                        |    | |           |           |          | 
+----------------------------------------+----+-+-----------+-----------+----------+ 
 
Condensed Consolidated Statement of Changes in Equity 
For the six months ended 30 June 2010 
_______________________________________________________________________________ 
                                    _______ 
+----------------+---------+-----------+--------------+--------------+---------+-----------------+-----------------+----------+ 
|                |         |           |              |              |         |                 |                 |          | 
|                |         |           |              |              |         |                 |                 |          | 
|                |         |           | (Accumulated |              |         |                 |                 |          | 
|                |         |  Share    |    deficit)/ |  Cumulative  | Share-  |                 |                 |          | 
|                |  Share  |  premium  |     retained | translation  |  based  |Reorganis-ation  |Non-controlling  |          | 
|                |capital  |  account  |     earnings |  reserves    |payment  |    GBP'000      |     interest    |  Total   | 
|                |GBP'000  |  GBP'000  |      GBP'000 |   GBP'000    |GBP'000  |                 |    GBP'000      | GBP'000  | 
+----------------+---------+-----------+--------------+--------------+---------+-----------------+-----------------+----------+ 
| As at 1        |   6,933 |   250,373 |     (49,477) |      (9,997) |   5,357 |             890 |           (634) |  203,445 | 
| January 2009   |         |           |              |              |         |                 |                 |          | 
+----------------+---------+-----------+--------------+--------------+---------+-----------------+-----------------+----------+ 
|                |         |           |              |              |         |                 |                 |          | 
+----------------+---------+-----------+--------------+--------------+---------+-----------------+-----------------+----------+ 
| Share-based    |       - |         - |            - |            - | (1,154) |               - |               - |  (1,154) | 
| payments       |         |           |              |              |         |                 |                 |          | 
+----------------+---------+-----------+--------------+--------------+---------+-----------------+-----------------+----------+ 
| Net loss for   |       - |         - |     (16,868) |            - |       - |               - |           (533) | (17,401) | 
| the period     |         |           |              |              |         |                 |                 |          | 
+----------------+---------+-----------+--------------+--------------+---------+-----------------+-----------------+----------+ 
| Exchange       |       - |         - |            - |     (11,585) |       - |               - |               - |          | 
| translation    |         |           |              |              |         |                 |                 | (11,585) | 
| differences on |         |           |              |              |         |                 |                 |          | 
| foreign        |         |           |              |              |         |                 |                 |          | 
| operations     |         |           |              |              |         |                 |                 |          | 
+----------------+---------+-----------+--------------+--------------+---------+-----------------+-----------------+----------+ 
|                |         |           |              |              |         |                 |                 |          | 
+----------------+---------+-----------+--------------+--------------+---------+-----------------+-----------------+----------+ 
| As at 30 June  |   6,933 |   250,373 |     (66,345) |              |   4,203 |             890 |         (1,167) |  173,305 | 
| 2009           |         |           |              |     (21,582) |         |                 |                 |          | 
+----------------+---------+-----------+--------------+--------------+---------+-----------------+-----------------+----------+ 
|                |         |           |              |              |         |                 |                 |          | 
+----------------+---------+-----------+--------------+--------------+---------+-----------------+-----------------+----------+ 
| Net loss for   |       - |         - |     (90,435) |            - |       - |               - |             533 | (89,902) | 
| the period     |         |           |              |              |         |                 |                 |          | 
+----------------+---------+-----------+--------------+--------------+---------+-----------------+-----------------+----------+ 
| Capital        |       - | (250,373) |      250,373 |            - |       - |               - |               - |        - | 
| reorganisation |         |           |              |              |         |                 |                 |          | 
+----------------+---------+-----------+--------------+--------------+---------+-----------------+-----------------+----------+ 
| Exchange       |       - |         - |            - |          208 |       - |               - |               - |          | 
| translation    |         |           |              |              |         |                 |                 |      208 | 
| differences on |         |           |              |              |         |                 |                 |          | 
| foreign        |         |           |              |              |         |                 |                 |          | 
| operations     |         |           |              |              |         |                 |                 |          | 
+----------------+---------+-----------+--------------+--------------+---------+-----------------+-----------------+----------+ 
|                |         |           |              |              |         |                 |                 |          | 
+----------------+---------+-----------+--------------+--------------+---------+-----------------+-----------------+----------+ 
| As at 31       |   6,933 |         - |       93,593 |              |   4,203 |             890 |           (634) |   83,611 | 
| December 2009  |         |           |              |     (21,374) |         |                 |                 |          | 
+----------------+---------+-----------+--------------+--------------+---------+-----------------+-----------------+----------+ 
|                |         |           |              |              |         |                 |                 |          | 
+----------------+---------+-----------+--------------+--------------+---------+-----------------+-----------------+----------+ 
| Share-based    |       - |         - |            - |            - |       - |               - |               - |        - | 
| payments       |         |           |              |              |         |                 |                 |          | 
+----------------+---------+-----------+--------------+--------------+---------+-----------------+-----------------+----------+ 
| Net profit for |       - |         - |          564 |            - |       - |               - |               - |      564 | 
| the period     |         |           |              |              |         |                 |                 |          | 
+----------------+---------+-----------+--------------+--------------+---------+-----------------+-----------------+----------+ 
| Exchange       |       - |         - |            - |              |       - |               - |                 |    2,465 | 
| translation    |         |           |              |              |         |                 |                 |          | 
| differences on |         |           |              |        2,465 |         |                 |               - |          | 
| foreign        |         |           |              |              |         |                 |                 |          | 
| operations     |         |           |              |              |         |                 |                 |          | 
+----------------+---------+-----------+--------------+--------------+---------+-----------------+-----------------+----------+ 
| As at 30 June  |   6,933 |         - |       94,157 |     (18,909) |   4,203 |             890 |           (634) |   86,640 | 
| 2010           |         |           |              |              |         |                 |                 |          | 
+----------------+---------+-----------+--------------+--------------+---------+-----------------+-----------------+----------+ 
 
 
Notes to the Condensed Financial Statements 
For the six months ended 30 June 2010 
_______________________________________________________________________________ 
                                    _______ 
1.         General information 
Cadogan Petroleum plc (the 'Company', together with its subsidiaries the 'Group' 
or 'Cadogan'), is incorporated in England and Wales under the Companies Act. The 
address of the registered office is 5th floor, 4/5 Grosvenor Place, London SW1X 
7HJ. The nature of the Group's operations and its principal activities are set 
out in the Operations Review on pages 5 to 7 and the Financial Review on pages 9 
to 10. 
The financial information for the year ended 31 December 2009 and the period to 
30 June 2010 does not constitute Statutory accounts as defined in section 435 of 
the Companies Act 2006, but is derived from those accounts. Statutory accounts 
for the year ended 31 December 2009 have been delivered to the Registrar of 
Companies. The auditors reported on those accounts; their report on the 2009 
accounts was qualified in respect of the limitation to obtain sufficient 
appropriate audit evidence regarding the carrying values of assets as at 31 
December 2008 and regarding the completeness and accuracy of the disclosures of 
related party transactions and directors' remuneration (refer to note 2(a) to 
those accounts). This qualification extends to the Consolidated Income 
Statement, Consolidated Statement of Comprehensive Income, Consolidated and 
Parent Company Cash Flow Statements, Consolidated and Parent Company Statement 
of Changes in Equity and related notes for the year ended 31 December 2009. The 
report contained a statement under sections 498(2) (accounting records 
inadequate) and (3) (failure to obtain necessary information and explanations or 
equivalent preceding legislation) and an emphasis of matter in relation to the 
current status of legal proceedings surrounding the validity of certain of the 
Group's licences in Ukraine (refer to note 2(c) to those accounts). 
This Half Yearly Report has not been audited or reviewed in accordance with the 
Auditing Practices Board guidance on 'Review of Interim Financial Information'. 
 
A copy of this Half Yearly Report has been published and may be found on the 
Company's website. 
2.         Basis of preparation 
The annual financial statements of the Group are prepared in accordance with 
International Financial Reporting Standards ('IFRS') as issued by the 
International Accounting Standards Board ('IASB') and as adopted by the European 
Union ('EU').  These Condensed Financial Statements have been prepared in 
accordance with IAS 34 Interim Financial Reporting, as issued by the IASB. 
The same accounting policies and methods of computation are followed in the 
condensed financial statements as were followed in the most recent annual 
financial statements of the Group, which were included in the Annual Report 
issued on 27 April 2010, subject to the matter discussed at point (a) below 
concerning comparative amounts. 
(a)  Comparative amounts 
As reported in the Annual Report issued on 27 April 2010, because of the events 
and circumstances which occurred in Cadogan during 2009, as set out in the 
Chairman's Statement on pages 4 to 7 of the Annual Report, the Board took the 
following actions in the second half of 2009: 
·     Commissioned a Reserves and Resources Evaluation to support the carrying 
value of Exploration and Evaluation ('E&E'), Property, Plant and Equipment 
('PP&E') and Goodwill assets as at 31 December 2009. This evaluation resulted in 
 significant impairment charges to these categories of assets in the 
Consolidated Income Statement for the year to that date; 
 
·     Evaluated, long-term receivables, inventories and other assets of the 
Group for impairment, giving rise to further significant impairment charges in 
the same Consolidated Income Statement; 
 
·     Initiated and continued litigation against certain former officials and 
suppliers of the Group; 
 
 
 
Basis of preparation (continued) 
(a)  Comparative amounts (continued) 
 
·     Performed internal investigations into procurement irregularities and 
adjusted all known payments inappropriately capitalised in the Consolidated 
Financial Statements of the Group for the years ended 31 December 2006, 2007 and 
2008; 
As a result of the above actions, significant impairments were made to the 
carrying values of assets as at 31 December 2009 in the consolidated balance 
sheet as at that date, which, in accordance with IAS 34 is shown as the 
comparative to the Condensed Consolidated Balance Sheet as at 30 June 2010. The 
comparative Condensed Consolidated Statement of Changes in Equity also reflects 
the above impairments. Under IAS 34, the comparative statements to the Condensed 
Consolidated Income Statement, the Condensed Consolidated Statement of 
Comprehensive Income and the Condensed Consolidated Cash Flow Statement, would 
normally be the respective statements to 30 June 2009 which were issued on 27 
August 2009. However, these statements did not reflect the above impairments 
(apart from an impairment to VAT recoverable) as they had not been taken up as 
that time. The statements for the full year to 31 December 2009 are therefore 
given as comparatives. The Board does not consider that an exercise to restate 
the statements for the six months to 30 June 2009 to take up the appropriate 
portions of impairment as at that date would be an effective use of the Group's 
resources and so such an exercise has not been performed. 
(b)  Going concern 
The Directors have continued to use the going concern basis in preparing these 
condensed financial statements. The Group's business activities, together with 
the factors likely to affect future development, performance and position are 
set out in the Operations Review on pages 5 to 7. The financial position of the 
Group, its cash flow and liquidity position are described in the Financial 
Review on pages 8 to 10. 
The Group's unrestricted cash balance as at 30 June 2010 was GBP27.1 million (31 
December 2009: GBP30.5 million) with no external debt financing to date and the 
Directors believe that the capital available at the date of issue of these 
financial statements 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 
there are reasonable expectations 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 uncertainties referred to in the Chairman's Statement on pages 5 to 7 of the 
Annual Report for the year to 31 December 2009, and again in the Notes to the 
Financial Statements on page 45 of the same report, concerning proposals by the 
Company's then largest shareholder to return almost all of the available cash to 
shareholders were resolved in June by the purchase of the shares of that 
shareholder by a new investor, as set out in the Chairman's Statement on page 2 
of this report. 
 
(c)   Legal proceedings surrounding the validity of the Pirkovskoe and 
Zagoryanska licences 
As reported as at 31 December 2009 and in prior years, the Group has been 
involved in legal proceedings surrounding the validity of the Pirkovskoe and 
Zagoryanska licences since 12 June 2008, when the Poltava Regional Commercial 
Court ('Poltava Court') made a ruling in favour of Poltavanaftogazgeology 
('PNGG'), a subsidiary of the Group's joint venture partner, the State-owned 
company NJSC Nadra Ukraine, ('Nadra'), in relation to the licences held formerly 
by PNGG relating to the Pirkovskoe and Zagoryanska fields. These licences had 
been re-registered from PNGG to Nadra prior to re-registration to the Group. The 
court: (a) declared as invalid the re-registration of the licences from PNGG to 
Nadra; and (b) recognised as valid the earlier licences held by PNGG. 
On 28 July 2008, the Ministry of Environmental Protection of Ukraine (the 
'Ministry') then issued an order, making reference to the decisions of the 
Poltava Court on 17 June 2008, in favour of PNGG, invalidating the Group's 
licences for its Pirkovskoe and Zagoryanska fields. 
The above decision and order were overturned on appeal by the Group to the 
Kharkiv Appeal Court (the 'Appeal Court') on 29 September 2008 and the licences 
were confirmed by the Ministry on 7 October 2008. Then in January 2009, the 
Group received from the Ministry a five year extension for the Zagoryanska 
licence to April 2014. 
However PNGG and Nadra both appealed separately against the decision of the 
Appeal Court to the High Administrative Court of Ukraine (the 'High Court'). 
This appeal was heard on 25 February 2009, when the High Court found in favour 
of PNGG in relation to the transfer of the Pirkovskoe licence to Nadra in June 
2007. Cadogan has yet to receive a date for the hearing of the appeal as regards 
the Zagoryanska licence. 
On 23 March 2009, LLC Astro Gas, which is the group company which holds the 
Pirkovskoe licence, appealed against the High Court decision to the Supreme 
Court of Ukraine ('the Supreme Court') supported by a claim dated 30 March 2009 
by the Prosecutor General Office of Ukraine (the 'Prosecutor General Office), 
arguing that the High Court had been mistaken in reaching this decision and that 
the ruling was therefore invalid. 
On 16 June 2009, the Supreme Court upheld the claim made by the Prosecutor 
General Office and partially upheld the claim of LLC Astro Gas. The resolution 
of the High Court dated 25 February 2009 was cancelled and the case was returned 
to the High Court, for further consideration. On 11 December 2009, the High 
Court commenced the process of reconsidering its earlier ruling regarding the 
Pirkovskoe licence. An initial hearing is scheduled to take place shortly. 
No further developments have occurred in the case concerning the Zagoryanska 
licence. 
The Group's licences remain valid and effective despite the above. The Board 
remains firmly of the view that the challenges to the licences previously held 
by PNGG, are wholly unwarranted and, if successful, would result in a 
curtailment of a significant part of the Group's operations. 
As at the date of this financial information, the above outcomes remain subject 
to court decision. 
The Directors have considered the implications of IAS 36 Impairment of Assets 
and IFRS 6 Exploration for and Evaluation of Mineral Resources, and have 
concluded that recognition of impairment in respect of these matters 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 further 
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 2010 was GBP21.9 million (31 December 
2009: GBP22.7 million). 
 
(d)  Impairment of E&E, PP&E and Goodwill 
Intangible Exploration and Evaluation costs 
The Group applies the full cost method of accounting for E&E costs, having 
regard to the requirements of IFRS 6 Exploration for and Evaluation of Mineral 
Resources. Under the full cost method of accounting, costs of exploring for and 
evaluating oil and gas properties are accumulated by reference to appropriate 
cost centres, being the oil or gas property, but are tested for impairment on a 
cost pool basis as described below. 
E&E assets comprise costs of (i) E&E activities which are ongoing at the balance 
sheet date, pending determination of whether or not commercial reserves exist 
and (ii) costs of E&E which, while representing part of the E&E activities 
associated with adding to the commercial reserves of an established cost pool, 
did not result in the discovery of commercial reserves. 
Costs incurred prior to having obtained the legal rights to explore an area are 
expensed directly to the income statement as they are incurred. 
E&E costs include directly attributable overheads including the depreciation of 
PP&E assets utilised in E&E activities. E&E costs are not amortised prior to the 
conclusion of appraisal activities. 
E&E assets related to each exploration licence/prospect are carried forward, 
until the existence or otherwise of commercial reserves has been determined. If 
commercial reserves have been discovered, the related E&E assets are assessed 
for impairment on a cost pool basis as set out below and any impairment loss is 
recognised in the income statement. The carrying value, after any impairment 
loss, of the relevant E&E assets is then reclassified as development and 
production assets. 
Development and production assets 
Development and production assets are accumulated generally on a field by field 
basis and represent the cost of developing the commercial reserves and bringing 
them into production, together with E&E expenditures incurred in finding 
commercial reserves transferred from intangible E&E assets. The net book values 
of producing assets are depreciated generally on a field-by-field basis on a 
unit of production method in proportion to the ratio of production in the year 
and the related proved and probable reserves of the field, taking into account 
future development expenditures necessary to bring those reserves into 
production. 
Impairment 
Both E&E and development and production assets are assessed for impairment when 
facts and circumstances suggest that their carrying amounts may exceed their 
recoverable amounts. In the case of E&E assets, where the assets fall within the 
scope of an established full cost pool, they are tested for impairment together 
with all development and production assets associated with that cost pool, as a 
single cash generating unit. For E&E assets, the Group considers the whole of 
Ukraine to be one cost pool and therefore aggregates all E&E assets for the 
purposes of determining whether they have incurred impairment. For development 
and production assets, the cash generating unit is generally the relevant field, 
except that a number of the field interests may be grouped as a single cash 
generating unit where the cash flow of each field is interdependent. 
Impairment in 2009 
Arising from the events of 2009, including poor test results on wells drilled to 
that time, and the Group's strategy of suspending operations on major licences, 
the Board commissioned an independent Reserves and Resources Evaluation (the 
'Report') to assess the carrying value of the Group's E&E, production and 
development assets and goodwill. The Report was then used in order to assess 
impairment as at 31 December 2009. For the purposes of the impairment test, 
commercial reserves were defined as the Proved and Probable ('2P') reserves 
identified by the Report. The Report made significant downward revisions to the 
Group's 2P reserves. 
No 2P reserves were assigned by the report to the oil and gas licences included 
within E&E assets, as the reserves for these areas were reclassified as either 
prospective ('3P') or contingent. Consequently, E&E assets were impaired in full 
as at 31 December 2009. The charge for this impairment was GBP56.3 million. 
For Development and Production assets included in PP&E, the aggregate carrying 
value of each cash generating unit was compared with the expected recoverable 
amount of the related asset, by reference to the net present value of the future 
cash flows expected to be derived from the production of 2P reserves from that 
unit. On that basis, an impairment of GBP4.9 million was charged against PP&E 
assets reducing their carrying value to GBP32 million as at 31 December 2009. 
The goodwill of the Group, which had been allocated to the cost of Ukraine, and 
which had a carrying value of GBP2.3 million was also impaired in full. 
The total impairment charge to the income statement in 2009 was thus GBP63.5 
million. The Board do not consider that any further amounts have become impaired 
in the six months to 30 June 2010. 
 
(e)  Other impairments 
In addition to the impairment charges made against goodwill, E&E and PP&E 
assets, the Group made further impairments in the income statement for the year 
to 31 December 2009. These were GBP6.6 million to reduce the carrying value of 
the inventory of the Group to its net realisable value, GBP3.9 million to reduce 
the carrying value of non-current and other receivables relating to the 
settlement with GPS to recoverable amount, and GBP13.2 million against the 
carrying value of Ukrainian VAT receivable. The total charge for other 
impairments in the income statement for the year to 31 December 2009 was GBP23.7 
million, giving a total charge of GBP87.2 million for all impairments. The Board 
does not consider it necessary to make further impairment charges in respect of 
these or any other items as at 30 June 2010. 
(f)   Dividend 
The Directors do not recommend the payment of a dividend for the period (30 June 
2009: GBPnil; 31 December 2009: GBPnil). 
 
3.         Business and geographical segments 
 
Following the adoption of IFRS 8 Operating Segments with effect from 1 January 
2009, the Directors continue to consider there to be only one business segment, 
the exploration and development of oil and gas revenues and only one 
geographical segment, being Ukraine. 
4.       Other operating income 
+-----------------------------------------+-------+---------+-+-----------+----------+ 
|                                         |       |         |                        | 
+-----------------------------------------+-------+---------+------------------------+ 
|                                         |       | Unaudited | Unaudited |    Year  | 
|                                         |       |   30 June |   30 June | December | 
|                                         |       |      2010 |      2009 |     2009 | 
|                                         |       |   GBP'000 |   GBP'000 |  GBP'000 | 
+-----------------------------------------+-------+-----------+-----------+----------+ 
| Out of court settlements                        |     2,892 |         - |        - | 
+-------------------------------------------------+-----------+-----------+----------+ 
| Net foreign exchange gains                      |     1,374 |     3,748 |    4,641 | 
+-------------------------------------------------+-----------+-----------+----------+ 
| Net movement on VAT provision                   |       425 |         - |        - | 
+-------------------------------------------------+-----------+-----------+----------+ 
|                                                 |     4,691 |     3,748 |    4,641 | 
+-------------------------------------------------+-----------+-----------+----------+ 
|                                         |       |         | |           |          | 
+-----------------------------------------+-------+---------+-+-----------+----------+ 
Out of court settlements represent income of $ 4.5 million received in respect 
of the settlement with Smith Eurasia Ltd. The net movement on the VAT provision 
comprises Ukrainian VAT of GBP1.1 million of VAT recovered on the sale of 
inventories less new provisions of GBP0.7 million. 
5.         Profit / (loss) for the period / year 
The profit / (loss) for the period/ year is stated after charging/(crediting): 
+-----------------------------------------+-------+--------+--+-----------+----------+ 
|                                         |       |        |                         | 
+-----------------------------------------+-------+--------+-------------------------+ 
|                                         |       | Unaudited | Unaudited |    Year  | 
|                                         |       |   30 June |   30 June | December | 
|                                         |       |      2010 |      2009 |     2009 | 
|                                         |       |   GBP'000 |   GBP'000 |  GBP'000 | 
+-----------------------------------------+-------+-----------+-----------+----------+ 
| Depreciation of property, plant and equipment   |       520 |       524 |    1,135 | 
+-------------------------------------------------+-----------+-----------+----------+ 
| Loss on disposal of property, plant and         |       151 |        45 |    5,000 | 
| equipment                                       |           |           |          | 
+-------------------------------------------------+-----------+-----------+----------+ 
| Loss on disposal of surplus inventories         |       890 |         - |        - | 
+-------------------------------------------------+-----------+-----------+----------+ 
| Impairment                                      |         - |    13,498 |   87,251 | 
+-------------------------------------------------+-----------+-----------+----------+ 
| Professional and consultancy fees               |       414 |       780 |      785 | 
+-------------------------------------------------+-----------+-----------+----------+ 
| Staff costs                                     |     1,284 |     1,312 |    2,748 | 
+-------------------------------------------------+-----------+-----------+----------+ 
|                                         |       |        |  |           |          | 
+-----------------------------------------+-------+--------+--+-----------+----------+ 
Included within staff costs is income of GBPnil (30 June 2009: GBP0.8 million 
expense; 31 December 2009: GBP0.8 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. 
6.         Profit / (loss) per ordinary share 
Profit/(loss) per ordinary share is calculated by dividing the net profit/(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: 
+-----------------------------------------+-----+-----------+-----------+-----------+ 
|                                         |     |           |                       | 
+-----------------------------------------+-----+-----------+-----------------------+ 
| Profit / (loss)                         |     | Unaudited | Unaudited |     Year  | 
|                                         |     |   30 June |   30 June |  December | 
|                                         |     |      2010 |      2009 |      2009 | 
|                                         |     |   GBP'000 |   GBP'000 |   GBP'000 | 
+-----------------------------------------+-----+-----------+-----------+-----------+ 
| Profit / (loss) for the purposes of basic     |           |           |           | 
| profit / (loss) per share being net profit or |       564 |  (16,868) | (107,303) | 
| loss attributable to equity holders of the    |           |           |           | 
| parent                                        |           |           |           | 
+-----------------------------------------------+-----------+-----------+-----------+ 
|                                               |           |           |           | 
+-----------------------------------------------+-----------+-----------+-----------+ 
|                                               |    Number |    Number |    Number | 
| Number of shares                              |      '000 |      '000 |      '000 | 
+-----------------------------------------------+-----------+-----------+-----------+ 
| Weighted average number of Ordinary shares    |           |           |           | 
| for the purposes of basic loss per share      |   231,092 |   231,092 |   231,092 | 
+-----------------------------------------------+-----------+-----------+-----------+ 
| Weighted average number of Ordinary shares    |           |           |           | 
| for the purposes of diluted loss per share    |   236,979 |   231,092 |   231,092 | 
+-----------------------------------------------+-----------+-----------+-----------+ 
|                                               |           |           |           | 
+-----------------------------------------------+-----------+-----------+-----------+ 
|                                               |       GBP |       GBP |       GBP | 
+-----------------------------------------------+-----------+-----------+-----------+ 
| Profit/(loss) per Ordinary share              |           |           |           | 
+-----------------------------------------------+-----------+-----------+-----------+ 
| Basic and diluted                             |    0.0024 |    (0.07) |    (0.46) | 
+-----------------------------------------+-----+-----------+-----------+-----------+ 
 
7.         Inventories 
+---------------------------------------+------+-------+-----------+----------+ 
|                                       |      |       |                      | 
+---------------------------------------+------+-------+----------------------+ 
|                                       |      |       | Unaudited |    Year  | 
|                                       |      |       |   30 June | December | 
|                                       |      |       |      2010 |     2009 | 
|                                       |      |       |   GBP'000 |  GBP'000 | 
+---------------------------------------+------+-------+-----------+----------+ 
| Cost                                         |       |     5,447 |   12,108 | 
+----------------------------------------------+-------+-----------+----------+ 
| Less: impairment provision                   |       |   (2,272) |  (6,586) | 
+----------------------------------------------+-------+-----------+----------+ 
|                                              |       |     3,175 |    5,522 | 
+---------------------------------------+------+-------+-----------+----------+ 
 
The impairment provision is made so as to reduce the carrying value of 
inventories to net realisable value. 
8.         Trade and other receivables 
 
Other non-current receivables 
+---------------------------------------+------+-------+-----------+----------+ 
|                                       |      |       |                      | 
+---------------------------------------+------+-------+----------------------+ 
|                                       |      |       | Unaudited |    Year  | 
|                                       |      |       |   30 June | December | 
|                                       |      |       |      2010 |     2009 | 
|                                       |      |       |   GBP'000 |  GBP'000 | 
+---------------------------------------+------+-------+-----------+----------+ 
| Receivable from GPS settlement - portion     |       |     6,635 |   18,835 | 
| over one year                                |       |           |          | 
+----------------------------------------------+-------+-----------+----------+ 
|                                              |       |     6,635 |   18,835 | 
+---------------------------------------+------+-------+-----------+----------+ 
 
 
 
8.         Trade and other receivables (continued) 
 
Trade and other receivables 
+----------------------------------------------------------------------------+ 
| Unaudited      Year                                                        | 
| 30 June   December                                                         | 
| 2010       2009                                                            | 
| GBP'000    GBP'000                                                         | 
| Receivable from GPS settlement - portion less               17,583   4,123 | 
| than one year                                                              | 
| VAT recoverable                                                246   336   | 
| Prepayments and other receivables                            1,504   931   | 
| 19,333   5,390                                                             | 
|                                                                            | 
+----------------------------------------------------------------------------+ 
 
All sales of hydrocarbons are made on a prepayment basis, so there are no trade 
debtors. 
 
The amounts shown as receivable from the settlement agreement with GPS are 
stated after impairment of GBP3.9 million representing the difference between 
the original prepayment to this company and the amount receivable from it in 
accordance with the settlement. 
 
VAT recoverable represents UK VAT only. VAT recoverable in Ukraine is impaired 
in full as the Board considers that such VAT is only recoverable on commencement 
of significant production, while cash recovery is not considered likely due to 
Ukrainian budgetary problems.  The amount of the impairment provision as at 30 
June 2010 is GBP14.1 million (31 December 2009:GBP14.5 million). 
 
Prepayments and other receivables as at 30 June 2010 include GBP1.1 million 
receivable in respect of sales of surplus inventories. This amount has been 
received in the period since that date. 
 
The Directors consider that the carrying amount of the remaining other 
receivables approximates to their fair value. 
 
9.         Restricted cash 
 
Restricted cash of GBP0.4 million represents an amount of Euro 0.5 million held 
in escrow by the Group's lawyers in Cyprus to support a bank guarantee provided 
to the Cypriot court in relation to obtaining a freezing order in Cyprus 
associated with the litigation against one of the former executive Directors. 
The movement during the period represents the movement in the foreign exchange 
rate only. 
10.       Trade and other payables 
Trade and other payables as at 31 December 2009 included payables of GBP1.8 
million to LLC Smith Ukraine which were discharged during the six months to 30 
June 2010 in accordance with the settlement made with Smith Eurasia, and accrued 
legal costs of GBP2.1 million which were also materially discharged during the 
period. 
11.       Notes to the cash flow statement 
+-----------------------------------------+---+----------+----------+--+----------+-----------+ 
|                                         |   |          |                                    | 
+-----------------------------------------+---+----------+------------------------------------+ 
|                                         |   |           Unaudited |   Unaudited |     Year  | 
|                                         |   |             30 June |     30 June |  December | 
|                                         |   |                2010 |        2009 |      2009 | 
|                                         |   |             GBP'000 |     GBP'000 |   GBP'000 | 
+-----------------------------------------+---+---------------------+-------------+-----------+ 
| Operating profit / (loss)                   |                    350 | (17,462) | (107,589) | 
+---------------------------------------------+------------------------+----------+-----------+ 
| Adjustments for:                            |                        |          |           | 
+---------------------------------------------+------------------------+----------+-----------+ 
| Depreciation of property, plant and         |                    520 |      524 |     1,112 | 
| equipment                                   |                        |          |           | 
+---------------------------------------------+------------------------+----------+-----------+ 
| Impairment of other receivables             |                      - |        - |     3,925 | 
+---------------------------------------------+------------------------+----------+-----------+ 
| Impairment of E&E and PP&E assets           |                      - |        - |    61,241 | 
+---------------------------------------------+------------------------+----------+-----------+ 
| Impairment of goodwill                      |                      - |        - |     2,258 | 
+---------------------------------------------+------------------------+----------+-----------+ 
| Movement on provision for impairment of     |                      - |        - |     6,586 | 
| inventories                                 |                        |          |           | 
+---------------------------------------------+------------------------+----------+-----------+ 
| Movement on provision for impairment of VAT |                  (424) |        - |    13,241 | 
| recoverable                                 |                        |          |           | 
+---------------------------------------------+------------------------+----------+-----------+ 
| Loss on disposal of property, plant and     |                    151 |       45 |     5,000 | 
| equipment                                   |                        |          |           | 
+---------------------------------------------+------------------------+----------+-----------+ 
| Loss on disposal of inventories             |                    890 |        - |         - | 
+---------------------------------------------+------------------------+----------+-----------+ 
| Share-based payments                        |                      - |    (814) |     (814) | 
+---------------------------------------------+------------------------+----------+-----------+ 
| Effect of foreign exchange rate changes     |                    498 |    (599) |   (1,693) | 
+---------------------------------------------+------------------------+----------+-----------+ 
| Operating cash flows before movements in    |                  1,985 | (18,306) |  (16,733) | 
| working capital                             |                        |          |           | 
+---------------------------------------------+------------------------+----------+-----------+ 
| Decrease / (increase) in inventories        |                  1,457 |      617 |   (2,065) | 
+---------------------------------------------+------------------------+----------+-----------+ 
| (Increase) /decrease in receivables         |                (1,400) |   10,406 |   (2,316) | 
+---------------------------------------------+------------------------+----------+-----------+ 
| (Decrease) / Increase in payables           |                (5,176) |    3,484 |     2,882 | 
+---------------------------------------------+------------------------+----------+-----------+ 
| Increase in restricted cash                 |                      - |        - |     (450) | 
+---------------------------------------------+------------------------+----------+-----------+ 
| Cash used in operations                     |                (3,134) |  (3,799) |  (18,682) | 
+---------------------------------------------+------------------------+----------+-----------+ 
| Income taxes paid                           |                   (40) |    (125) |     (270) | 
+---------------------------------------------+------------------------+----------+-----------+ 
| Net cash outflows from continuing           |                (3,174) |  (3,924) |  (18,952) | 
| operations                                  |                        |          |           | 
+---------------------------------------------+------------------------+----------+-----------+ 
|                                         |   |          |          |  |          |           | 
+-----------------------------------------+---+----------+----------+--+----------+-----------+ 
 
12.       Related party transactions 
No related party transactions have taken place in the six months ended 30 June 
2010 that have materially affected the financial position or the performance of 
the Group during the period. The Directors believe that all material related 
party transactions involving the former Chief Executive Officer, Chief Operating 
Officer and certain third parties against whom litigation is still in progress 
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 in 2009, have now been identified. 
 
13.       Post balance sheet events 
Commercial production from the well at Zagoryanska 3 commenced on 1 August 2010. 
The related assets which have been included in Exploration and Evaluation costs 
as at 30 June 2010 will be transferred to PP&E as from that date. 
 
14.       Commitments and contingencies 
There has not been any change to the commitments and contingencies reported on 
page 68 of the Annual Report. 
 
 
This information is provided by RNS 
            The company news service from the London Stock Exchange 
   END 
 
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