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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Cadogan Energy Solutions Plc | LSE:CAD | London | Ordinary Share | GB00B12WC938 | ORD 3P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 2.25 | 2.00 | 2.50 | 2.25 | 2.25 | 2.25 | 2,000 | 08:00:29 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Drilling Oil And Gas Wells | 8.47M | -1.56M | -0.0064 | -3.52 | 5.49M |
Hot Features
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TIDMCAD
CADOGAN PETROLEUM PLC
ANNUAL FINANCIAL REPORT
2016
OVERVIEW
Summary of 2016
Key highlights of 2016:
* LTI&TRI1: 1&1 (2015: 0&0)
* Greenhouse gases emissions2: 27.44 of CO2e/boe produced (2015: 30.47 CO2e/
boe)
* Production: 42,495 boe (2015: 39,680 boe)
* Realised price at year end: 46.5 $/boe (2015: 35.7$/boe)
* Gross revenues3: $19.7 million (2015: $75.4 million)
* Gross profit: $1.1 million (2015: $5.9 million)
* Loss for the year4: $5.9 million (2015: $23.3 million)
* Net cash5 at year end: $39.7 million (2015: $36.5 million)
1LTI: Lost Time Incidents; TRI: Total Recordable Incidents
2 E&P operations emissions. For total greenhouse gases emissions please see
page 26
3 Gross revenues of $19.7 million (2015: $75.4 million) included $15.6 million
(2015: $73.3 million) from trading of natural gas, $1.6 million (2015: $1.8
million) from exploration and production and $2.5 million (2015: $0.4 million)
from services
4 In 2016 the Company decided to replace the British pound with the US dollar
as functional currency. Had the functional currency been changed from 1 January
2015, the loss for 2015 would have been $25.7 million
5 Net cash includes cash and cash equivalents less short term borrowings
Group Overview
The Group has continued to maintain exploration and production assets in
Ukraine, to conduct trading operations, which include the importing of gas from
Slovakia and Poland and local purchasing and sales with physical delivery of
natural gas, and to operate a service business which includes work-over, civil
works services and other services provided to Exploration and Production ("E&
P") companies.
Our business model
We aim to increase value through:
* Sourcing additional E&P assets to diversify Cadogan's portfolio both
geographically and operationally; we will pursue exploration and/or near
term development assets with significant upside as well as producing assets
to cover G&A and provide free cash flow for exploration activities
* Pursuing farm-outs to contain investments in Ukrainian licences
* Maintaining sufficient capital base, complementing E&P cash flow with
revenues from gas trading and oil services businesses
The Group has continued to actively pursue its strategy of portfolio re-loading
and geographical diversification and at the beginning of 2017 has implemented
the first step of this strategy, the acquisition of a 90% participating
interest in Exploenergy s.r.l., an Italian company.
Both gas trading and service business started as an opportunistic use of
available resources, such as cash for trading and equipment and competences for
the service business, and continued to contribute to the Group's goal of being
cash neutral, while actively searching for value accretive opportunities in the
E&P domain.
Ukraine
West Ukraine
The Group continued to produce oil from the Monastyretska licence, located in
the Carpathian fold belt (Skuba unit), and successfully re-entered two old,
suspended wells rented from Ukrnafta under a profit sharing agreement. Both
wells are currently producing under natural flow and are being monitored before
proceeding with the installation of sucker road pumps, which will increase
their rates of production.
The Group also continued to produce gas from Debeslavetske and Cheremkhivske
gas fields and has maintained both the Bitlyanska licence and its 15% interest
in Westgasinvest LLC ("WGI"), which holds the Reklynetska, Zhuzhelianska,
Cheremkhivsko-Strupkivska, Debeslavetska Production, Baulinska, Filimonivska,
Kurinna, Sandugeyivska and Yakovlivska licences for unconventional activities.
Eni is the operator of these shale gas licences and Cadogan is carried through
exploration.
East Ukraine
Cadogan has filed applications to convert Zagoryanska and Pirkivska licences
from exploration into production licences, while Pokrovska licence has been
relinquished at the end of its last exploration period. Both applications have
been negatively impacted by a dispute between central and local authorities on
the distribution of royalties on gas, which has brought the award process in
the regional Council to a complete halt.
Gas trading operations continued, with sales in Ukraine of both imported and
locally produced gas. Volumes, and revenues, though have substantially
decreased over the previous two years as more competitors entered the market.
Finally, the Group continued providing services through its wholly-owned
subsidiary Astroservice LLC. Services provided were primarily related to well
abandonment and site restoration and the turnover substantially increased over
the previous year as some of the activities which had been put on hold by the
clients were awarded.
Italy
In January 2017, Cadogan, through its fully owned Dutch subsidiary, finalised
the purchase of 90% of the Exploenergy s.r.l. ("Exploenergy"), an Italian
company which has filed applications for two exploration licences (Reno Centese
and Corzano) located in the Po Valley region, in close proximity to fields
discovered by the former operator; two leads have been identified in these
licences with combined, unrisked prospective resources estimated to be in
excess of 60 bcf of gas. Both applications are in an advanced stage of their
approval process.
Strategic Report
The Strategic Report has been prepared in accordance with Section 414A of the
Companies Act 2006 (the "Act") and presented hereunder. Its purpose is to
inform stakeholders and help them assess how the Directors have performed their
legal duty under Section 172 of the Act to promote the success of the Company.
Principal activity and status of the Company
The Company is registered as a public limited company (registration number
05718406) in England and Wales. Its principal activity is oil and gas
exploration, development and production; the company also conducts gas trading
and provides services to other operators.
The Company's shares have a standard listing on the Official List of the UK
Listing Authority and are traded on the main market of the London Stock
Exchange.
Key performance indicators
The Group monitors its performance through four key performance indicators
("KPIs"):
* to increase oil, gas and condensate production measured on number of
barrels of oil equivalent produced per day ("boepd");
* to decrease administrative expenses;
* to increase the Group's basic earnings per share; and
* to maintain no lost time incidents.
The Group's performance in 2016 against these KPI's is set out in the table
below, together with the prior year performance data.
Unit 2016 2015
Average production (working interest basis) (1) boepd 116 109
Overhead (G&A) $ million 5.1 6.1
Basic loss per share (2) cents (2.6) (10.1)
Lost time incidents (3) incidents 1 0
(1) Average production is calculated as the average daily production
during the year
(2) Basic loss per Ordinary share is calculated by dividing the net loss
for the year attributable to equity holders of the parent company by the
weighted average number of Ordinary shares during the year
(3) Lost time incidents relates to the number of injuries where an
employee/contractor is injured and has time off work (IOGP classification)
Chairman's Statement
2016 has witnessed a slow, but continuous progress towards the integration of
Ukraine within Europe, its market and its regulations, notwithstanding the
still open confrontation with Russia and an unresolved economic crisis. In
this context, the reforms to improve and revitalise the country's energy sector
were still timid and a real, strong commitment for their take-off was not
evident. Besides there have been setbacks, some of them particularly damaging
for Cadogan, which has remained subject to a punitive tax regime on its gas
production and has not yet been awarded the conversion of its eastern licences
from exploration to production.
The country's cooperation with the leading financial institutions improved
during the year and this, combined with political reassurances on economic
measures to stabilise the country, led to the international credit lines being
extended. Some of this credit was used to replace Russian imported gas with gas
purchased in Europe and imported into Ukraine via the reverse flow, which had
been pioneered by Cadogan.
In this challenging context, Cadogan has continued its transformational journey
towards becoming a much leaner and efficient operator of marginal fields,
resilient to persistent low prices, while preserving its cash. G&A have been
further reduced while production has increased over the previous year and is
expected to increase further this year through the addition of a couple of old
suspended wells which will be re-entered and worked-over (thus minimising the
deployment of capital).
Though Cadogan is rooted in Ukraine, the Board and the Management remain
strongly committed to introduce an element of geographic diversification in the
Group's portfolio in order to manage the exposure to a country which still has
an above the average level of risk. A healthy pipeline of potential
opportunities has been maintained through the year and I am pleased to say that
2016 witnessed the very first step of this diversification process taking place
(though the acquisition was finalised in the early days of 2017).
The acquisition of Exploenergy s.r.l. ("Exploenergy") is clearly not enough and
management will continue to actively pursue other opportunities in the E&P
domain, leveraging on the demonstrated skills and competences of the company
and its staff, on a strong balance sheet and on the experience and network of
contacts of the Directors. We are all committed to support Cadogan in pursuing
its diversification objectives in every way we can.
Finally 2016 was the last year of Cadogan being audited by Deloitte. Based on
existing regulations, a tender had to be launched to appoint the new auditor:
BDO won the tender and they will be proposed as the auditor at the next AGM.
While I welcome BDO, I wish to express my own and the entire Board's gratitude
to Deloitte for the services rendered to Cadogan: their watchful eye and rigour
have helped me and the other Directors to discharge our duties by giving the
confidence that the company was properly managed.
Zev Furst
Non-Executive Chairman
27 April 2017
Chief Executive's Review
2016 has been an important year for Cadogan, which has succeeded in keeping its
E&P operations at break-even 2, notwithstanding the headwind of oil and gas
prices, which have only slightly recovered in the second part of the year, and
of a punitive taxation on its gas production.
2016 has also been the year that has seen the efforts to geographically
diversify the portfolio coming to fruition with the first acquisition outside
Ukraine being finalised in the early days of the new year; this is a small, yet
important step which has marked the beginning of a new business phase for
Cadogan.
While 2016 has witnessed some signs of recovery for the oil & gas industry, it
has been another difficult year for Ukraine, which has remained embroiled in
its confrontation with Russia and has not come out of its economic crisis. The
country has tried to slowly progress towards modernisation of its oil & gas
legislative framework, but the few steps ahead have been offset by some major
steps back, in particular a dispute between regional Councils and central
government, which has brought the award of licences to a nearly complete halt.
Cadogan's application to convert Zagoryanska and Pirkovska exploration licences
into production licences have been amongst the casualties of this protracted
institutional standstill. Besides, Cadogan has remained subject to a punitive
tax regime, with royalties on gas set at 70%, a measure designed to "punish"
oligarchs and which has seen Cadogan as a sort of collateral damage. All
attempts to find a solution have failed, partly because of the limits of the
current legislation and partly because of the opposition of the other foreign
investor in WGI 3, the entity, which formally owns Debeslavetska and
Cheremkhivska licences.
2016 also witnessed a major change in the Ukrainian gas market. Direct imports
from Russia came to a halt and the demand was covered by production and imports
from Europe, which peaked at 11 billion mcm. The market became more competitive
and having paved the way to European import by pioneering the reverse flow did
not give Cadogan any competitive advantage. In this challenging context
Cadogan has protected its margin by pursuing opportunistic deals, rather than
volume.
In short, these were the highlights of 2016:
* A 7% increase in production, from 39,680 boe in 2015 to 42,495 boe this
year
* A 15 % reduction of overhead (G&A), from $6.1 million in 2015 to $5.1
million this year
* A good year for the services business whose net result of $0.6 million
(2015: $0.1 million) partially offset the reduction in the trading result
* A difficult year for trading whose result was a loss of $2.2 million
compared to a positive result of $2.8 million last year, driven primarily
by lower volumes
* The beginning of the geographic diversification process with the
acquisition of an E&P company in Italy
* A balance sheet, which has remained very robust with a 9% increase of net
cash from $36.5 million in 2015 to $39.7 million this year.
Core operations
Cadogan has continued to safely and efficiently produce from its fields in the
west of the country. Production has increased over the value of the previous
year and operating expenses have been further reduced through a combination of
process and organisational streamlining. The agreement to rent two old
suspended wells from Ukrnafta under a profit sharing scheme has created the
premises for a significant increase of Monastyretska's oil production rate1
which will materialise in 2017 once the wells are re-entered and worked-over.
The re-entry of existing wells is part of Cadogan's strategy to sustain
production and promote reserves and resources to P1 (proved) category with a
minimum deployment of capital, given the still relatively high risk profile of
Ukraine.
Regrettably one LTI (Lost Time Incident) occurred to a contractor acting
against instructions, has diminished the value of these operational
achievements.
The conversion of exploration and production licences has witnessed other
setbacks. Notwithstanding the repeated filings, the approvals have not been
granted because of a disagreement between the local Council and the central
authorities on the distribution of royalties for gas. Management is reviewing
all available options to move forward.
The anticipated increase in competition, due to a surge in the imported volumes
from Europe, which brought key players into Ukraine, has significantly eroded
the opportunities for an independent trader, such as Cadogan. The impact of
this challenging context has been compounded by the resignation of certain
Cadogan's traders. After an initial attempt to protect the market share,
Cadogan has switched to pursuing opportunistic deals with good margins.
Non E&P operation
Revenue, and most importantly net profits, have remained subdued compared to
the past two years and are unlikely to go back to where they were in the early
days notwithstanding efforts to remain competitive because of structural
changes in the market which has become more mature and dominated by large
traders.
Services conversely have delivered excellent results driven by the execution of
the work, which had been contracted in 2015 and which execution had been
deferred on clients' request. These positive results have partially compensated
for the lower than expected contribution from trading. Efforts to expand the
clients' portfolio have continued and other contracts have been won through
tenders.
Outlook
Through the year Cadogan has continued its transformational journey towards
becoming a leaner and more efficient operator of marginal fields. G&A have been
further reduced and E&P operations have achieved break-even notwithstanding a
combination of negative factors. This drive towards efficiency has made Cadogan
more resilient to a context that will be unlikely see the oil price go back to
hundred dollars per barrel for a number of years.
Having secured its foundations and with a robust balance sheet, management will
focus on value delivery, acting on four levers:
* Re-load the licence portfolio while pursuing geographic diversification in
order to mitigate the exposure to a country, which maintains a relatively
high risk profile
* Closely monitor the performance of Monastyretska licence with a view of
preparing a staged development programme based on a short-term production
acceleration via work-overs of existing wells and a medium-term programme
of infill drilling to be executed upon securing the extension of the
licence, once it expires in 2019
* Safeguard the value of the Bitlyanska, Debeslavetska and Cheremkhivska
licences
* Continue with gas trading and services to supplement the E&P revenues and
remain cash neutral, while searching for assets with a high value upside.
Guido Michelotti
Chief Executive Officer
27 April 2017
1 At the time this report was issued both wells had been successfully
re-entered and were producing an aggregate amount of 30 barrels oil per day
2 On cash basis, net of $0.1 million of depreciation
3 WGI, WestGasInvest LLC, which is owned by eni (50.01%), Nadra (34,99%) and
Cadogan (15%) is the licence holder
Operations review
Overview
At 31 December 2016 the Group held working interests in four conventional gas,
condensate and oil exploration and production licences in the west of Ukraine.
All these assets are operated by the Group and are located in either the
Carpathian basin in close proximity to the Ukrainian gas distribution
infrastructures.
Summary of the Group's licences (as at 31 December 2016)
Working Licence Expiry Licence type(1)
interest (%)
99.8 Bitlyanska December 2019 E&D
99.2 Debeslavetska(2) November 2026 Production
54.2 Cheremkhivska(2) May 2018 Production
99.2 Monastyretska November 2019 E&D
(1) E&D = Exploration and Development
(2) In addition, the Group has 99.2% and 54.2% of economic benefit in
conventional activities in Debeslavetska and Cheremkhivska licences
respectively through Joint Activity Agreements ("JAA").
Debeslavetska Exploration, Sloboda and Pokrovska licences have reached the end
of the last extension of their exploration periods and have been relinquished,
while Zagoryanska and Pirkovska licences are in the process of being converted
from Exploration to Production licence.
In addition to the above licences, the Group has a 15% carried interest in
Westgasinvest LLC ("WGI"), which holds the Reklynetska (expired in March 2017),
Zhuzhelianska (expired in March 2017), Cheremkhivsko-Strupkivska, Debeslavetska
Production, Baulinska, Filimonivska, Kurinna, Sandugeyivska and Yakovlivska
licences for unconventional activities.
East Ukraine
Applications for Zagoryanska and Pirkovska 20-year production licences have
been repeatedly resubmitted for approval. Although the Group has fulfilled its
legal obligations and requirements and filed the applications before their
expiration date, delays have occurred due to legislative changes introduced
into the award process and to an ongoing dispute between central and local
authorities. This conflict revolves around distribution of revenues from
subsoil use tax (royalties) and has brought to a complete halt the award
process.
Conversely, the Group has decided to relinquish Pokrovska licence after its
last extension expired in August 2016 as the lack of commercial discoveries did
not justify its conversion into a production licence.
West Ukraine
The Bitlyanska licence covers an area of 390 square kilometres. Bitlyanska,
Borynya and Vovchenska are three hydrocarbon discoveries in this licence area.
The Borynya field holds 3P reserves, contingent recoverable resources and
prospective resources. Bitlyanska and Vovchenska fields hold contingent
recoverable resources.
Borynya 3 well, has been kept on hold, monitored and routinely bled-off for an
eventual re-entry and stimulation.
The Monastyrestska licence continued to regularly produce oil at a rate of 46
boepd (2015: 48 boepd) through one well. Two more producing wells were added in
December and they were being re-entered at the end of the reporting period 1;
the wells have been rented from Ukrnafta under a profit sharing agreement.
Debeslavetska and Cheremkhivska continued producing with a stable gas
production rate of 70 boepd (2015: 76 boepd).
The Slobodo-Rungurska and Debeslavetska exploration licences were both
relinquished at the expiry of their last extension period, in April 2016 and
September 2016, respectively.
Gas trading
The Group continued to import gas from Europe via Slovakian and Polish borders
and to sell it in Ukraine along with some locally purchased quantities. Volumes
were lower than in previous years as some of the largest clients migrated to
other suppliers which had entered the market and a new portfolio of smaller
buyers had to be built; margins were also lower owing to increased competition
and storage requirements set by the regulator 2.
Margins generated by trading were offset by Cadogan's administrative expenses,
that are no longer commensurate to the current level of trading activity.
Management has taken a decisive action by (i) tightening the terms and
conditions of gas sales (no transfer of title without payment); and (ii)
proposing to the Board a streamlining of the Executive management, which was
approved and will be implemented in 2017.
Service
The Group continued providing services through its wholly-owned subsidiary
Astroservice LLC. Services provided were primarily related to well abandonment
and site restoration and the turnover substantially increased over the previous
year as some of the activities which had been put on hold by the clients were
awarded.
1 Both re-entries were successful and the wells were producing some 30 barrels
oil per day prior to the installation of sucker rod pumps
2 Storage requirements have been set at 50% of the volume sold to final
consumers starting 1 January 2016. In November 2016 the requirement has been
decreased to 10%. Starting from January 2017 the requirements have been
cancelled.
Financial Review
Overview
In 2016 the Group continued with its efforts to approach cash neutrality
through a number of cost reduction initiatives, while supplementing E&P
revenues with service activities and gas trading.
The functional currency of the UK subsidiaries of the Group has been changed
from GBP to USD starting 1 January 2016 (Note 3(d)).
The Group has acquired the remaining ownership of 30% of Pokrovskoe Petroleum
B.V. and 60% of Zagoryanskoe Petroleum B.V. from eni for an immaterial
consideration, which resulted in a profit on acquisition of $0.1 million in
2016. As part of the assets, the Group acquired $5.9 million of VAT credit and
$103 million of unused tax losses of both companies, for which the impairment
has been recognised in prior years (Note 17).
Net cash, which included cash and cash equivalents mostly denominated in USD
net of short-term borrowings denominated in UAH, increased to $39.7 million at
31 December 2016 compared to $36.5 million at 31 December 2015.
Income statement
Revenue has decreased from $75.4 million in 2015 to $19.7 million in 2016 due
to loss of customers and increased competition in gas trading operations, which
represent $15.6 million (2015: $73.3 million) of total revenues;
notwithstanding a higher production volume, revenues from production have
slightly declined to $1.6 million (2015: $1.8 million) owing to lower realised
price.
Revenue from the service business, which includes drilling and civil works
services, increased to $2.5 million (2015: $0.4 million), as some of the work
awarded, but suspended by the clients in 2015, was executed this year. Cost of
sales represents $15.5 million (2015: $67.4 million) of purchases of gas for
the trading operating segment, $3.1 million (2015: $2.2 million) of production
royalties and taxes, depreciation and depletion of producing wells and direct
staff costs for exploration and development and the service segment. Gross
profit has decreased to $1.1 million (2015: $5.9 million).
Administrative expenses of $5.6 million (2015: $6.1 million) comprise,
professional fees, brokerage fees, depreciation charges on non-producing
property, plant and equipment, staff costs and Directors' remuneration.
Share of loss in joint ventures of $0.2 million (2015: $12.8 million losses)
comprise of: i) $2.3 million revenues received by one of the Group subsidiaries
for decommissioning services provided to the joint ventures (Note 17); ii) $1.7
million of operating loss and iii) $0.8 million loss recognised as impairment
of Westgasinvest LLC.
Finance costs of $1.1 million (2015: $2.6 million) represent interest expense
to BNPP on credit line used for trading net of the interest income on cash
deposit used for trading.
As a result, loss before tax was $5.8 million (2015: $22.2 million 2).
2 Loss before tax would have been $25.7 million had the group started using
last year the USD as functional currency
Balance sheet
The cash position of $43.3 million at 31 December 2016, including restricted
cash of $10.9 million used as a pledge for the credit line, has decreased from
$49.4 million at 31 December 2015.
Intangible Exploration and Evaluation ("E&E") assets of $2.4 million (2015:
$2.7 million) represent the carrying value of the Bitlyanska licence. The PP&E
balance was $1.3 million at 31 December 2016 (2015: $1.7 million). Investments
in joint ventures of $2.3 million (2015: $2.2 million) mainly represent the
carrying value of the Group's investments in Westgasinvest LLC, for which
impairment of $0.8 million have been recognised (note 17).
Trade and other receivables of $4.1 million (2015: $14.4 million) include $2.2
million (2015: $8.5 million) trading receivables, $0.8 million prepayments for
natural gas (2015: $3.2 million), $0.8 million VAT recoverable (2015: nil)
which is expected to be recovered through trading and services activities.
The $3.6 million outstanding short-term borrowings as of 31 December 2016
(2015: $12.9 million) represents a credit line to purchase natural gas, drawn
in UAH at Ukrainian bank, which is a 100% subsidiary of a UK bank. The credit
line is secured by $10 million of cash balance placed at the UK bank; this has
been decreased to $5 million in March 2017 owing to lower volumes traded and
lower gas prices. Borrowings are taken in UAH in order to preserve the USD
amount of own cash and mitigate a risk related to currency fluctuations in
Ukraine. A short-term credit line provides an easy access to quick financings
to support the Group's trading operations.
The $1.6 million of trade and other payables as of 31 December 2016 (2015: $3.7
million) represent $0.9 million (2015: $0.2 million) of accrued expenses, $0.5
million (2015: $1.7 million) of other creditors and $0.3 million (2015: $0.9
million) of VAT payable for supplies of natural gas.
Provisions include $0.7 million of long-term provision for decommissioning
costs (2015: $0.7 million of long-term provision) and $1.3 million (2015: $1.5
million) provision for corporate tax for the dispute on the treatment of
taxable income and expenses.
Net cash, which included cash and cash equivalents mostly denominated in USD
net of short-term borrowings denominated in UAH, increased to $39.7 million at
31 December 2016 compared to $36.5 million at 31 December 2015. Net cash mostly
improved of improved collection of receivables, decrease of inventories in
stock and improvement of working capital cycle.
Cash flow statement
The Consolidated Cash Flow Statement on page 60 shows operating cash outflow
before movements in working capital of $4.4 million (2015: $1.1 million). In
2016 the Group contributed $2.3 million (2015: $0.7 million) into joint
ventures to repay its current liabilities. Management maintained its focus on
optimising the working capital and this focus, combined with a reduction of the
mandatory gas storage requirements, substantially improved the cash inflows
from operating activities from $1.2 million in 2015 to $2.5 million in 2016.
In 2016 the Group financed its trading operations with short-term borrowings
(Note 22) with proceeds of $1.9 million and repayments of $10.2 million (2015:
proceeds of $13.2 million and repayments of $12.2 million).
Related party transactions
Related party transactions are set out in note 28 to the Consolidated Financial
Statements.
Treasury
The Group continually monitors its exposure to currency risk. It maintains a
portfolio of cash and cash equivalent balances mainly in US dollars ("USD")
held primarily in the UK. Production revenues from the sale of hydrocarbons are
received in the local currency in Ukraine; however the hydrocarbon prices are
linked to the USD denominated gas and oil prices. To date, funds from such
revenues have been used in Ukraine in operations rather than being remitted to
the UK.
Risks and uncertainties
There are a number of potential risks and uncertainties that could have a
material impact on the Group's long-term performance and could cause the
results to differ materially from expected and historical results. Executive
management review the potential risks and then classify them as having a high
impact, above $5 million, medium impact, above $1 million but below $5 million,
and low impact, below $1 million. They also assess the likelihood of these
risks occurring. Risk mitigation factors are reviewed and documented based on
the level and likelihood of occurrence. The Audit Committee reviews the risk
register and monitors the implementation of improved risk mitigation procedures
via Executive management, who are carrying out a robust assessment of the
principal risks facing the Group, including those potentially threatening its
business model, future performance, solvency and liquidity.
The Group has analysed the following categories as key risks:
Risk Mitigation
Operational risks
Health, Safety and Environment ("HSE")
The oil and gas industry by its nature The Group maintains a HSE management
conducts activities, which can cause system in place and demands that
health, safety and environmental management, staff and contractors adhere
incidents. Serious incidents can have to it. The system ensures that the Group
not only a financial impact but can meets Ukraine legislative standards in
also damage the Group's reputation and full and achieves international standards
the opportunity to undertake further to the maximum extent possible.
projects.
Drilling and Work-Over operations
The technical difficulty of drilling The incorporation of detailed sub-surface
or re-entering wells in the Group's analysis into a robustly engineered well
locations and equipment limitations design and work programme, with
can result in the unsuccessful appropriate procurement procedures and
completion of the well. competent on site management, aims to
minimise risk.
Production and maintenance
There is a risk that production or All plants are operated and maintained at
transportation facilities can fail due standards above the Ukraine minimum legal
to non-adequate maintenance, control requirements. Operative staff are
or poor performance of the Group's experienced and receive supplemental
suppliers. training to ensure that facilities are
properly operated and maintained. When not
in use the facilities are properly kept
under conservation and routinely
monitored.
Service providers are rigorously reviewed
at the tender stage and are monitored
during the contract period.
Sub-surface risks
The success of the business relies on All externally provided and historic data
accurate and detailed analysis of the is rigorously examined and discarded when
sub-surface. This can be impacted by appropriate. New data acquisition is
poor quality data, either historic or considered and appropriate programmes
recently gathered, and limited implemented, but historic data can be
coverage. Certain information provided reviewed and reprocessed to improve the
by external sources may not be overall knowledge base. Agreements with
accurate. qualified local and international G&G
contractors have been entered into to
supplement and broaden the pool of
expertise available to the Company.
Data can be misinterpreted leading to All analytical outcomes are challenged
the construction of inaccurate models internally and peer reviewed. Analysis is
and subsequent plans. performed using modern geological
software.
Area available for drilling operations If not covered by 3D seismic or fitting
is limited by logistics, over 2D seismic lines, the eventual well's
infrastructures and moratorium. This dislocation will not be accepted.
increases the risk for setting optimum
well coordinates.
The Group may not be successful in The Group performs a review of its oil and
achieving commercial production from gas assets for impairment on an annual
an asset and consequently the carrying basis, and considers whether to commission
values of the Group's oil and gas a review from a third or a Competent
assets may not be recovered through Person's Report ("CPR") from an
future revenues, because of reservoir independent qualified contractor depending
performances below the expectations. on the circumstances.
Financial risks
The Group is at risk from changes in Revenues in Ukraine are received in UAH
the economic environment both in and expenditure is made in UAH, however
Ukraine and globally, which can cause the prices for hydrocarbons are implicitly
foreign exchange movements, changes in linked to USD prices.
the rate of inflation and interest
rates and lead to credit risk in The Group continues to hold most of its
relation to the Group's key cash reserves in the UK mostly in USD.
counterparties. Cash reserves are placed with leading
financial institutions, which are approved
by the Audit Committee. The Group is
predominantly a USD denominated business.
Foreign exchange risk is considered a
normal and acceptable business exposure
and the Group does not hedge against this
risk for its E&P operations.
For trading operations, the Group matches
the revenues and the source of financing.
Refer to note 26 to the Consolidated
Financial Statements for detail on
financial risks.
The Group is at risk that the We monitor the credit quality of our
counterparty will default on its counterparties and seek to reduce the risk
contractual obligations resulting in a of customer non-performance by limiting
financial loss to the Group. the title transfer to product until the
payment is received, prepaying only to
known credible suppliers.
The Group is at risk that fluctuations The Group mostly enters into back-to-back
in gas prices will have a negative transactions where the price is known at
result for the trading operations the time of committing to purchase and
resulting in a financial loss to the sell the product. Sometimes the Group
Group. takes exposure to open inventory positions
when justified by the market conditions in
Ukraine.
Country risks
Legislative changes may bring Accurate monitoring and dialogue with
unexpected risk and be time consuming competent authorities are kept in place to
for securing the licences obligations. minimise the risk.
Ukraine is an emerging market and as The Group minimises this risk by
such the Group is exposed to greater maintaining the funds in international
regulatory, economic and political banks outside Ukraine and by continuously
risks, more than other jurisdictions. maintaining a working dialogue with the
Emerging economies are generally regulatory authorities.
subject to a volatile political
environment which could adversely
impact Cadogan's ability to operate in
the market.
Others risks
The Group's success depends upon The Group periodically reviews the
skilled management as well as compensation and contract terms of its
technical and administrative staff. staff.
The loss of service of critical
members from the Group's team could
have an adverse effect on the
business.
The Group is at risk of The Group applies a set of very rigorous
underestimating the risk and and strict screening criteria in order to
complexity associated with the entry evaluate potential investment
into new countries. opportunities. It also seek for opinion of
independent and qualified experts when
deemed necessary. Besides the level of
required rate of return is adjusted to the
perceived level of risk.
Statement of Reserves and Resources
In December 2015, the Group commissioned a third party for the Reserves and
Resources Evaluation of the Group's oil and gas assets in Ukraine. The
evaluation was assigned to a qualified Ukrainian G&G consulting contractor,
which delivered its final report in March 2016. The evaluation was conducted in
accordance with SPE Petroleum Resources Management System ('PRMS'). The summary
of the Reserves and Resources as per the report is presented below.
Summary of Reserves1
at 31 December 2016
Mmboe
Proved, Probable and Possible Reserves at 1 8.71
January 2016
Production (0.04)
Revisions (0.8)
Proved, Probable and Possible Reserves at 31 7.87
December 2016
1 The study has been conducted by third-party Brend Vik and since then Cadogan
has entered into a Technical Service Agreement with Brend Vik.
Reserves are assigned to the Bitlyanska, Monastyretska and Debeslavetska
fields.
In addition to the tabled reserves Cadogan has 15.40 million boe of contingent
resources associated with Bitlyanska and Monastyretska licences. Reserves for
Zagoryanska and Pirkovska licences have been downgraded to resources given the
uncertainty on the time to complete the award process.
Corporate Responsibility
The Board recognises the requirement under Section 414C of the Companies Act
2006 (the "Act") to detail information about employees, human rights and
community issues, including information about any policies it has in relation
to these matters and the effectiveness of these policies.
The Group considers the sustainability of its business as a key and competitive
element of its strategy. Meeting the expectations of our stakeholders is the
way in which we secure our licence to operate and to be recognised in the
values we declare is the best added value we can bring in order to profitably
prolong our business. The Board recognises that the protection of the health
and safety of its employees and communities as well as of the environment which
it impacts is not just an obligation, but it is part of the personal ethics and
beliefs of management and staff; these are the key drivers for the sustainable
development of the Company's activity. Our Code of Ethics and the adoption of
internationally recognised best practices and standards are our, and our
employees', references for conducting our operations.
Our activities are carried out in accordance with a policy manual, endorsed by
the Board, which has been disseminated to all staff. The manual includes
policies on business conduct and ethics, anti-bribery, the acceptance of gifts
and hospitality and whistleblowing.
The Chief Operating Officer is the Chairman of the HSE Committee and is
supported in his role by Cadogan Ukraine's HSE Manager. Her role is to ensure
that the Group has developed suitable procedures, and that operational
management have incorporated them into daily operations and that she has the
necessary level of autonomy and authority to discharge her duties effectively
and efficiently.
The Board believes that health and safety procedures and training across the
Group should be to the standard expected in any company operating in the oil
and gas sector. Accordingly, it has set up a Committee to review and agree
health and safety initiatives and report back on progress. Management is
regularly reporting to the Board on health, safety and environment and key
safety and environmental issues, which are discussed by the Executive
Management. The Health, Safety and Environment Committee Report is on page 37
to 38.
Health, safety and environment
The Group has developed an integrated Health, Safety and Environmental ("HSE")
management system. The system aims, by a continuous improvement programme, to
ensure that a safety and environmental protection culture is embedded in the
organisation and continuously improved. The HSE management system ensures that
both Ukrainian and international standards are met, with the Ukrainian HSE
legislation requirements taken as an absolute minimum although the
international requirements are in the main met or exceeded. All the Group's
local operating companies in east and west Ukraine have all the necessary
documentation and systems in place to ensure compliance with Ukrainian
legislation and Company's standards.
A proactive approach to the prevention of incidents has been in place
throughout 2016, which relies on a reliable near-miss reporting. Staff training
on HSE matters is recognised as the key factor to generate continuous
improvement. In-house training is provided to help staff meet international
standards and follow best practice. At present, special attention is being
given to training on risk assessments, emergency response, incident prevention,
reporting and investigation, as well as emergency drills regularly run on
operations' sites and offices, to ensure that international best practices and
standards are maintained to comply with or exceed those required by Ukrainian
legislation.
The Board monitors lost time incidents as a key performance indicator of the
business, to reasonably verify that the procedures in place are robust. The
Board has benchmarked safety performance against the HSE performance index
measured and published annually by the International Association of Oil & Gas
Producers. In 2016, the Group recorded close to 315,000 man-hours worked. In
February, there was one incident after over 2.2 million man-hours and 4.5
years, unfortunately caused by a contractor acting in violation of the
company's procedures and daily inductions.
During 2016 the Group continued to monitor the activity's performances in terms
of greenhouse gas emissions as well as to collect statistical data related to
consumption of electricity and industrial water and fuel consumption by cars,
plants and other work sites.
Employees
Wellness and professional development is part of the Company's sustainable
development policy and wherever possible local staff are recruited; the Group
operations in Ukraine are now managed by an entirely local staff. Procedures
are in place to ensure that all recruitments are undertaken on a transparent
and fair basis with no discrimination against applicants. Each operating
company has its own Human Resources staff to ensure that the Group's employment
policies are properly implemented and followed. As required by Ukrainian
legislation, Collective Agreements are in place with the Group's Ukrainian
subsidiary companies, which provide an agreed level of staff benefits and other
safeguards for employees. The Group's Human Resources policy covers key areas
such as equal opportunities, wages, overtime and non-discrimination. All staff
are aware of the Group's grievance procedures.
The uncertainty on the timing of the award of Zagoryanska and Pirkovska
licences and the need to reduce costs to remain profitable in the West,
notwithstanding a punitive tax regime, forced the Group to reduce the level of
staffing; the concerned personnel were duly informed and all the necessary
procedures were taken. Local qualified contractors are considered to supplement
the required expertise when and to the extent it is necessary.
Sufficient level of health insurance is provided by the Group to employees to
ensure they have access to good medical facilities. Each employee's training
needs are assessed on an individual basis to ensure that their skills are
adequate to support the Group's operations, and to help them to develop.
Gender diversity
The Board of Directors of the Company comprised seven male Directors throughout
the year to 31 December 2016. The appointment of any new Director is made on
the basis of merit. See pages 20 to 21 for more information on the composition
of the Board.
As at 31 December 2016, the Company comprised a total of 69 persons, as
follows:
Male Female
Non-executive directors 4 -
Executive directors 3 -
Management, other than Executive directors 7 3
Other employees 31 21
Total 45 24
Human rights
Cadogan's commitment to the fundamental principles of human rights is embedded
in our HSE polices and throughout our business processes. We promote the core
principles of human rights pronounced in the UN Universal Declaration of Human
Rights. Our support for these principles is embedded throughout our Code of
Conduct, our employment practices and our relationships with suppliers and
partners wherever we do business.
Community
The Group's activities are carried out in rural areas of Ukraine and the Board
is aware of its responsibilities to the local communities in which the Group
operates and from which some of the employees are recruited. At current
operational sites, management works with the local councils to ensure that the
impact of operations is as low as practicable by putting in place measures to
mitigate their effect. Projects undertaken include improvement of the road
infrastructure in the area, which provides easier access to the operational
sites while at the same time minimising inconvenience for the local population
and allowing improved road communications in the local communities, especially
during winter season or harsh meteorological conditions. Specific community
activities are undertaken for the direct benefit of local communities. All
activities are followed and supervised by managers who are given specific
responsibility for such tasks.
The Group's local companies see themselves as part of the community and are
involved not only with financial assistance, but also with practical help and
support. The recruitment of local staff generates additional income for areas
that otherwise are predominantly dependent on the agricultural sector.
Approval
The Strategic Report was approved by the Board of Directors on 27 April 2017
and signed on its behalf by:
Ben Harber
Company Secretary
27 April 2017
Board of Directors
Zev Furst, 69, American
Non-executive Chairman
Appointed to the Board on 2 August 2011, Mr Furst is a leading global business
and communications strategist who has advised political leaders, foreign
principals and corporate executives of Fortune 100 companies. He is the
Chairman and CEO of First International Resources, an international corporate
and political consulting firm he founded in 1992. Mr Furst specialises in
providing strategic counsel on crisis management, market entry, corporate
positioning and personal reputational issues. In recent years, he has also
advised and consulted with candidates running for national office in Israel,
Japan, Mexico and Ukraine.
In 1986, Mr Furst was a founding partner of Meridian Resources and Development
Ltd, an international commodities trading company specialising in chemicals and
petroleum products.
Mr Furst currently serves as Chairman of the International Board of the Peres
Center for Peace and is a member of the Advisory Board of the Kennan Institute
in Washington, DC. He has written and lectured extensively on international
affairs, business and political strategy and the role of media in politics and
diplomacy.
Mr Furst is Chairman of the Company's Nomination Committee and a member of the
Remuneration Committee.
Guido Michelotti, 62, Swiss
Chief Executive Officer
Mr Michelotti was appointed to the Board of Directors as Chief Executive
Officer on 25 June 2015. An Oil & Gas executive with over 30 years of
international experience across the entire E&P cycle, he spent more than 10
years in senior executive roles with eni, leading E&P companies as well as
managing major capital projects. Prior to joining Cadogan he was CEO of a
Luxembourg based Private Equity fund investing in E&P.
Mr Michelotti is a Senior Advisor to the Energy Practice of the Boston
Consulting Group, a member of the Society of Petroleum Engineers (SPE) and a
former member of SPE's Industry Advisory Council.
Bertrand des Pallieres, 50, French
Chief Trading Officer
Mr des Pallieres was appointed as Chief Executive Officer on 1 August 2011,
having joined the Board as a non-executive Director on 26 August 2010. Mr des
Pallieres is also the CEO of SPQR Capital Holdings SA, a major shareholder of
the Company. On 22 June 2015, Mr des Pallieres resigned as CEO and was
appointed as Chief Trading Officer.
Previously he was the Global Head of Principal Finance and member of the Global
Market Leadership Group of Deutsche Bank from 2005 to 2007. From 1992 to 2005
he held various positions at JPMorgan including Global Head of Structured
Credit, European Head of Derivatives Structuring and Marketing, and Co-Head of
sales for Europe, Middle East and Africa. He is an executive director of
Versatile Systems Inc. listed on the Toronto and London Stock Exchanges and a
non-executive director of Equus Total return, Inc., listed on the NYSE.
Mr des Pallieres is a member of the Nomination Committee.
Adelmo Schenato, 65, Italian
Chief Operating Officer 1
Mr Schenato was appointed to the Board as Chief Operating Officer on 25 January
2012. He joined the Company after a 35 year career at eni, the Italian
integrated energy business, where he served in senior global and regional
positions. His global roles at eni included Well Operations Research and
Development and Technical Management, and Vice President HSE & Sustainability.
His regional roles include General Manager of Tunisia, Gabon and Angola as well
as CEO of eni's Italian gas storage company.
Mr Schenato is the Chairman of the Health, Safety and Environment Committee.
In January 2017, Mr Schenato stepped down as Chief Operating Officer to take up
the role of Chairman and CEO of Exploenergy, the Italian company recently
bought by Cadogan.
1 In the first quarter 2017 Mr Schenato stepped down from his COO role and
became a non-Executive Director of Cadogan Petroleum plc
Gilbert Lehmann, 71, French
Senior Independent non-executive Director
Mr Lehmann was appointed to the Board on 18 November 2011. He is currently
acting as an adviser to the Executive Board of Areva, the French nuclear energy
business, having previously been its Deputy Chief Executive Officer responsible
for finance. He is also a former Chief Financial Officer and deputy CEO of
Framatone, the predecessor to Areva, and was CFO of Sogee, part of the
Rothschild Group. Mr Lehmann is also Deputy Chairman and Chairman of the Audit
Committee of Eramet, the French minerals and alloy business. He is Deputy
Chairman and Audit Committee Chairman of Assystem SA, the French engineering
and innovation consultancy. He was Chairman of ST Microelectronics NV, one of
the world's largest semiconductor companies, from 2007 to 2009, and stepped
down as Vice Chairman in 2011.
Mr Lehmann is currently Chairman of the Company's Audit Committee and a member
of the Remuneration and Nomination Committees.
Michel Meeùs, 64, Belgian
Non-executive Director
Mr Meeùs was appointed as a Non-executive Director on 23 June 2014. Mr. Meeùs
is currently acting as Chairman of the Board of Directors of Theolia, an
independent international developer and operator of wind energy projects, of
which he is a major shareholder. Since 2007, he has been a director within the
Alcogroup SA Company (which gathers the ethanol production units of the
homonymous group), as well as within some of its subsidiaries. Before joining
Alcogroup, Mr Meeùs carried out a career in the financial sector, at Chase
Manhattan Bank in Brussels and London, then at Security Pacific Bank in London,
then finally at Electra Kingsway Private Equity in London.
Enrico Testa, 65, Italian
Independent non-executive Director
Appointed to the Board on 1 October 2011, Mr Testa has a long and varied
background in the energy market. He was Chairman of the Board of ACEA (the Rome
electricity and water utility company) from 1996 to 2002. He was Chairman of
the Board of Enel S.p.A, the major Italian electricity supplier, during its
privatisation. From 2005 to 2009 he was Chairman of Roma Metropolitane, the
Rome council-owned company constructing new underground lines. He was also
Chairman of the Organising Committee for the 20th World Energy Congress held in
Rome in November 2007, Senior Partner at the Franco Bernabè Group which owns
several investments in the IT sector from 2002 to 2005 he was member of the
Advisory Board of Carlyle Europe and has been Chairman of the Italian Nuclear
Forum since 2010. In addition, between 2004 and August 2012 Mr Testa was
Managing Director of Rothschild S.p.A.
He is currently Chairman of the AIM listed telecommunications company Telit
Communications Plc, Vice Chairman of Intecs S.p.A and Chairman of E.VA -
Energie Valsabbia S.p.A. - a company developing hydropower and solar generating
plants.
Mr Testa is Chairman of the Company's Remuneration Committee and a member of
the Audit and Nomination Committees.
Report of the Directors
Directors
The Directors in office during the year and at the date of this report are as
shown below:
Non-executive Directors Executive Directors
Zev Furst (Chairman) Guido Michelotti
Gilbert Lehmann Bertrand des Pallieres
Michel Meeùs Adelmo Schenato
Enrico Testa
In the first quarter of 2017 Mr Schenato stepped down as Chief Operating
Officer of the Company but remains as a non-executive director of Cadogan
Petroleum plc and as a technical adviser to the Chief
Executive.
Directors' re-election
The Board has decided previously that all Directors must be subject to annual
election by shareholders, in accordance with the best practice guidance for
FTSE 350 companies contained in the UK Corporate Governance Code that was
issued in April 2016 by the Financial Reporting Council (the 'Code'). As such,
all of the Directors will be seeking re-election at the Annual General Meeting
to be held on 22 June 2017.
The biographies of the Directors in office at the date of this report are shown
on pages 20 and 21.
Appointment and replacement of Directors
The Board may appoint any individual willing to act as a Director either to
fill a vacancy or act as an additional Director. The appointee may hold office
only until the next annual general meeting of the Company whereupon his or her
election will be proposed to the shareholders.
The Company's Articles of Association prescribe that there shall be no fewer
than three Directors and no more than fifteen.
Directors' interests in shares
The beneficial interests of the Directors in office as at 31 December 2016 and
their connected persons in the Ordinary shares of the Company at 31 December
2016 are set out below.
Director Number of
Shares
Z Furst -
G Michelotti -
B des Pallieres 200,000
G Lehmann -
M Meeùs 26,000,000
A Schenato -
E Testa -
Directors' indemnities and insurance
The Company continues to maintain Directors' and Officers' Liability Insurance.
The Company's Articles of Association provide, subject to the provisions of the
Companies Act 2006, an indemnity for Directors in respect of any liability
incurred in connection with their duties, powers or office. Save for such
indemnity provisions, there are no qualifying third party indemnity provisions.
Powers of Directors
The Directors are responsible for the management of the business and may
exercise all powers of the Company (including powers to issue or buy back the
Company's shares), subject to UK legislation, any directions given by special
resolution and the Articles of Association. The authorities to issue and buy
back shares, granted at the 2016 Annual General Meeting, remains unused.
Dividends
The Directors do not recommend payment of a dividend for the year to 31
December 2016 (2015: nil).
Principal activity and status
The Company is registered as a public limited company (registration number
05718406) in England and Wales. Its principal activity is oil and gas
exploration, development and production.
Structure of share capital
The authorised share capital of the Company is currently GBP30,000,000 divided
into 1,000,000,000 Ordinary shares of 3 pence each. The number of shares in
issue as at 31 December 2016 was 231,091,734 Ordinary shares of 3 pence each
with a nominal value of GBP6,932,752. The Companies (Acquisition of Own Shares)
(Treasury Shares) Regulations 2003 allow companies to hold shares in treasury
rather than cancel them. Following the consolidation of the issued capital of
the Company on 10 June 2008, there were 66 residual Ordinary shares, which were
transferred to treasury. No dividends may be paid on shares whilst held in
treasury and no voting rights attach to shares held in treasury. Total voting
rights amount to 231,091,668.
Rights and obligations of Ordinary shares
On a show of hands at a general meeting every holder of Ordinary shares present
in person or by proxy and entitled to vote shall have one vote and, on a poll,
every member present in person or by proxy, shall have one vote for every
Ordinary share held. In accordance with the provisions of the Company's
Articles of Association, holders of Ordinary shares are entitled to a dividend
where declared and paid out of profits available for such purposes. On a return
of capital on a winding up, holders of Ordinary shares are entitled to
participate in such a return.
Exercise of rights of shares in employee share schemes
None of the share awards under the Company's incentive arrangements are held in
trust on behalf of the beneficiaries.
Agreements between shareholders
The Board is unaware of any agreements between shareholders, which may restrict
the transfer of securities or voting rights.
Restrictions on voting deadlines
The notice of any general meeting of the Company shall specify the deadline for
exercising voting rights and appointing a proxy or proxies to vote at a general
meeting. It is the Company's policy at present to take all resolutions at a
general meeting on a poll and the results of the poll are published on the
Company's website after the meeting.
Substantial shareholdings
As at 31 December 2016 and 27 April 2017, the Company had been notified of the
following interests in voting rights attached to the Company's shares:
31 December 27 April 2017
2016
Major shareholder Number of % of total Number of % of
shares held voting shares total
rights held voting
rights
SPQR Capital Holdings SA 67,298,498 29.12 67,298,498 29.12
Mr Pierre Salik 40,550,000 17.55 40,550,000 17.55
Mr Michel Meeùs 26,000,000 11.25 26,000,000 11.25
CA Indosuez (Switzerland) SA 18,683,000 8.08 18,683,000 8.08
Kellet Overseas Inc. 14,002,696 6.06 14,002,696 6.06
Cynderella Trust 7,657,886 3.31 7,657,886 3.31
Amendment of the Company's Articles of Association
The Company's Articles of Association may only be amended by a special
resolution of shareholders.
Disclosure of information to auditor
As required by section 418 of the Companies Act 2006, each of the Directors as
at 27 April 2017 confirms that:
(a) so far as the Director is aware, there is no relevant audit information of
which the Company's auditor is unaware; and
(b) the Director has taken all the steps that he ought to have taken as a
Director in order to make himself aware of any relevant audit information and
to establish that the Company's auditor is aware of that information.
This confirmation is given and should be interpreted in accordance with section
418 of the Companies Act 2006.
Going concern
After making enquiries, the Directors have a reasonable expectation that the
Company and the Group have adequate resources to continue in operational
existence for the foreseeable future. Accordingly, they continue to adopt the
going concern basis in preparing the Consolidated and Company Financial
Statements. For further detail refer to the detailed discussion of the
assumptions outlined in note 3(b) to the Consolidated Financial Statements.
Reporting year
The reporting year coincides with the Company's fiscal year, which is 1 January
2016 to 31 December 2016.
Change of control - significant agreements
The Company has no significant agreements containing provisions, which allow a
counterparty to alter and amend the terms of the agreement following a change
of control of the Company.
Should a change in control occur then certain Executive directors are entitled
to a payment of salary and benefits for a period of six months.
Global greenhouse gas emissions
This section contains information on greenhouse gas ("GHG") emissions required
by the Companies Act 2006 (Strategic Report and Directors' Report) Regulations
2013 (the "Regulations").
Methodology
The principal methodology used to calculate the emissions is drawn from the
'Environmental Reporting Guidelines: including mandatory greenhouse gas
emissions reporting guidance (June 2013)', issued by the Department for
Environment, Food and Rural Affairs ("DEFRA"). Additionally, 'Petroleum
Industry Guidelines for Reporting Greenhouse Gas Emissions (2nd edition, May
2011)' were used to cover issues specific for the petroleum industry. DEFRA GHG
conversion factors for company reporting were utilised to calculate the CO2
equivalent of emissions from various sources.
The Company has reported on all of the emission sources required under the
Regulations.
The Company does not have responsibility for any emission sources that are not
included in its consolidated statement.
Consolidation approach and organisation boundary
An operational control approach was used to define the Company's organisational
boundary and responsibility for GHG emissions. All material emission sources
within this boundary have been reported upon, in line with the requirements of
the Regulations.
Scope of reported emissions
Emissions data from the sources within Scope 1 and Scope 2 of the Company's
operational boundaries is detailed below. This includes direct emissions from
assets that fall within the Company's organisational boundaries (Scope 1
emissions), as well as indirect emissions from energy consumption, such as
purchased electricity and heating (Scope 2 emissions).
Scope of emissions increased comparatively to 2015 results due to 10 wells plug
and abandonment carried-out by Cadogan Group service subsidiary Astro-Service
LLC (results incorporated). The 2016 results of the E&P activity (which is
directly related to production) improved compared to the previous year.
Intensity ratio
In order to express the GHG emissions in relation to a quantifiable factor
associated with the Company's activities, wellhead production of crude oil,
condensates and natural gas has been chosen as the normalisation factor for
calculating the intensity ratio. This will allow comparison of the Company's
performance over time, as well as with other companies in the Company's peer
group.
The intensity ratio for E&P operations (same reporting perimeter) decreased
from 30.47 CO2e/boe in 2015 to 27.44 CO2e/boe in 2016.
Total greenhouse gas emissions data for the year from 1 January 2016 to 31
December 2016
Greenhouse gas emissions E&P Service Total
source
2016 2015 2016 2015 2016 2015
Scope 1
Direct emissions, including 514 554 444 23 958 577
combustion of fuel and
operation of facilities
(tonnes of CO2 equivalent)
Scope 2
Indirect emissions from 754 741 - - 754 741
energy consumption, such as
electricity and heating
purchased for own use
(tonnes of CO2 equivalent)
Total (Scope 1 & 2) 1,268 1,295 444 23 1,712 1,318
Normalisation factor
Barrels of oil equivalent 46,191 42,493 - - 46,191 42,493
Intensity ratio
Emissions reported above 27.44 30.47 n/a n/a n/a n/a
normalised to tonnes of CO2e
per total wellhead
production of crude oil,
condensates and natural gas,
in thousands of Barrel of
Oil Equivalent
2017 Annual General Meeting
The 2017 Annual General Meeting ("AGM") of the Company will be an opportunity
to communicate with shareholders and the Board welcomes their participation.
Board members constantly strive to keep in touch with shareholder opinion and
to discuss strategy and governance issues with them through direct contacts.
The Board looks forward to welcoming shareholders to the AGM and shareholder
information will be enclosed as usual with the AGM notice to facilitate voting
and feedback in the usual way.
The AGM notice will be issued to shareholders well in advance of the meeting
with notes to provide an explanation of all resolutions to be put to the AGM.
Board and committee members will be available for shareholders participation at
the AGM. All relevant shareholder information including the annual report for
2016 and any other announcements will be published on our website -
www.cadoganpetroleum.com
This Report of Directors comprising pages 22 to 27 has been approved by the
Board and signed on its behalf by:
Ben Harber
Company Secretary
27 April 2017
Viability Statement
In accordance with provision C2.2 of the 2016 revision of the UK Corporate
Governance Code, the Board has assessed the prospect of the Group over a longer
period than the twelve months required by the 'Going Concern' provision.
Look-out period
The Board selected a three-year period as appropriate for the assessment for
the reason that the Group's strategy is aligned with a three-year view and that
the current volatility in commodity markets makes confidence in a longer
assessment of prospects highly challenging.
Assessment
The Board has conducted a stress test in one combined scenario as well as
assessment of the principal risks facing the Group (as set out on pages 13 to
15), including those that would threaten its business model, future
performance, solvency or liquidity. The factors considered include:
* consideration of potential impact of political situation and renewal of the
licences that will expire during following three years
* foreign exchange movements to which the Group is exposed as a result of its
operations in Ukraine
* downturn in the price and demand of hydrocarbon products most impacting
Group's operations
* consideration of exploration investments in Italy, if the licences been
awarded and the execution permits been granted
Key assumptions
The key assumptions underpinning the Board's assessment include oil and gas
prices, trading volumes, foreign exchange rates, the ability to repay borrowing
facilities as they fall due and the expectations for capital expenditures.
Expectations
Based on the results of the related analysis and taking account of the Group's
current position, particularly its cash availability, and the principal risks,
and the effect of the licences that expired during the year the Board has a
reasonable expectation that the Group will be able to continue its operation
and meet its liabilities as they fall due over the three-year period of the
assessment.
Corporate Governance Statement
The Board of the Company is committed to the highest standards of corporate
governance and bases its actions on the principles set out in the UK Corporate
Governance Code issued by the Financial Reporting Council ('FRC') in April 2016
(the 'Code'). The Code can be found on the FRC's website at www.frc.org.uk
This statement describes how the Group applies the principles of the Code. On
20 December 2011 the Company's listing category on the London Stock Exchange
was transferred from 'Premium Listing' to 'Standard Listing'. Although
companies with a standard listing are subject to less stringent corporate
governance requirements, the Board has decided that the Group will continue to
govern itself in accordance with the principles of the Code and explain why it
has chosen not to comply with any of the provisions of the Code.
During the year under review, the Group has complied with the Code's provisions
with the following exceptions:
* Code provision A.4.2 - During the year, the Chairman did not hold meetings
with the non-executive Directors without the executives present
* Code provision E.1.1 - The Senior Independent Director has not attended
meetings with major shareholders
The reasons for these two areas of non-compliance are as follows:
* Although the Chairman did not hold formal meetings with the non-executive
Directors during the year, regular discussions took place by telephone and
email
* The Senior Independent Director, Mr Lehmann, did not attend meetings with
major shareholders as this responsibility was undertaken by the Chairman
and the Executive Directors. Mr Lehmann is available to shareholders who
have concerns that they feel would be inappropriate to raise via the
Chairman or Executive Directors
In addition to the two areas of non-compliance described above, Bertrand des
Pallieres served as a non-executive director on the board of Equus Total Return
Inc. during the year ended 31 December 2016 and the Directors' Remuneration
Report does not include a statement as to whether or not Bertrand des Pallieres
retained his earnings in connection with these appointments and, if so, what
the remuneration in respect of each appointment was, as required under Code
provision D.1.2. These appointments have not been considered relevant to the
Company since Mr des Pallieres held these positions prior to his appointment as
an Executive Director of the Company and his responsibilities have not
prevented Mr des Pallieres from fulfilling his duties as the Company's Chief
Trading Officer during the year ended 31 December 2016.
Board
The Board provides leadership and oversight. The Board comprises a
non-executive Chairman, Chief Executive Officer, Chief Trading Officer, Chief
Operating Officer[7], two independent non-executive Directors and a
non-executive Director who is not deemed independent. The membership of the
Board and biographical details for each of the Directors are incorporated into
this report by reference and appear on page 20 and 21.
As at the date of this report, the Chairman had no significant commitments that
might affect his ability to allocate sufficient time to the Company to
discharge his responsibilities effectively.
Under the Company's Articles of Association, all Directors must seek
re-election by members at least once every three years. However, the Board has
agreed that all Directors will be subject to annual election by shareholders,
as recommended by the Code in respect of FTSE 350 companies. Accordingly, all
members of the Board will be standing for re-election at the 2017 Annual
General Meeting due to be held on 22 June 2017.
The Board has a formal schedule of matters specifically reserved for it to
decide, including approval of acquisitions and disposals, major capital
projects, financial results, Board appointments, dividend recommendations,
material contracts and Group strategy.
The Chairman, in conjunction with the Company Secretary, plans the programme
for the Board during the year. The agenda for Board and Committee meetings is
considered by the relevant Chairman and issued with supporting papers during
the week preceding the meeting. For each Board meeting, the Directors receive a
Board pack including management accounts, briefing papers on commercial and
operational matters and major capital projects including acquisitions. The
Board also receives briefings from key management on specific issues. Six Board
meetings took place during 2016.The attendance of those Directors in place at
the year end at Board and Committee meetings during the year was as follows:
Board Audit Nomination Remuneration
Committee Committee Committee
No. Held 6 3 1 2
No. Attended:
Z Furst 6 N/A 1 2
G Michelotti 6 N/A N/A N/A
B des Pallieres 4 N/A 1 N/A
G Lehmann 6 3 1 2
M Meeùs 5 N/A N/A N/A
A Schenato 6 N/A N/A N/A
E Testa 5 3 1 2
A procedure exists for the Directors, in the furtherance of their duties, to
take independent professional advice if necessary, under the guidance of the
Company Secretary and at the Company's expense. All Directors have access to
the advice and services of the Company Secretary, who is responsible to the
Chairman for ensuring that Board procedures are complied with and that
applicable rules and regulations are followed.
Board independence
The roles and responsibilities of the Chairman and Chief Executive Officer are
separate. A formal division of each individual's responsibilities has been
agreed and documented by the Board. Mr Lehmann is the Senior Independent
Director.
The non-executive Directors bring an independent view to the Board's
discussions and the development of its strategy. Their range of experience
ensures that management's performance in achieving the business goals is
challenged appropriately. Two non-executive Directors, Lehmann and Testa are
considered by the Board in accordance with the Code, to be independent. Michel
Meeùs, who is a significant shareholder, is not considered to be independent 1.
The letters of appointment for the non-executive Directors are available for
review at the Registered Office and prior to the Annual General Meeting.
1 In the first quarter January 2017 Mr Schenato stepped down from his COO role
and became a non-Executive Director of Cadogan Petroleum plc
Responsibilities and membership of Board Committees
The Board has agreed written terms of reference for the Nomination Committee,
Remuneration Committee and Audit Committee. The terms of reference for all
three Board Committees are published on the Company's website,
www.cadoganpetroleum.com, and are also available from the Company Secretary at
the Registered Office. A review of the terms of reference, membership and
activities of all Board Committees is provided on pages 33 to 41.
Board performance evaluation and effectiveness
Principle B.6 of the Code recommends that boards undertake a formal and
rigorous annual evaluation of its own performance and that of its committees
and individual Directors. The Board is mindful that it needs to continually
monitor and identify ways in which it might improve its performance and
recognises that board evaluation is a useful tool for enhancing a board's
effectiveness. For the year ended 31 December 2016, the Board opted to
undertake self-evaluation by way of a questionnaire designed specifically to
assess the strengths of the Board and identify any areas for development.
The process was led by Mr Furst as Chairman and the evaluation of the
Chairman's performance was led by Mr Lehmann as the Senior Independent
Director. The Board discussed the evaluation questionnaire findings, which were
also used by the Nomination Committee in its annual assessment of the Board's
composition. There were no material areas of improvement identified for action
at the time of conducting the evaluation.
The Directors are committed to ensuring that the Board continues to represent a
broad balance of skills, experience, independence and knowledge and that there
is sufficient diversity within the composition of the Board. All appointments
are made on merit against objective criteria - which include gender and
diversity generally - in the context of the requirements of the business and
the overall balance of skills and backgrounds that the Board needs to maintain
in order to remain effective.
The Chairman is responsible for the induction of new Directors and ongoing
development of all Directors. The induction process typically includes an
induction pack, operational site visits, meetings with key individuals and the
Company's advisers, and briefings on key business, legal and regulatory issues
facing the Company.
Whilst no formal structured continuing professional development programme has
been established every effort is made to ensure that the Directors are fully
briefed before Board meetings on the Company's business. In addition, the
Non-executive Directors receive updates from time to time on specific topics
affecting the Company from the Executive Directors, and all Directors receive
updates on recent developments in corporate governance and compliance from the
Company Secretary. Each of the Directors independently ensures that they update
their skills and knowledge sufficiently to enable them to fulfil their duties
effectively.
Internal control
The Directors are responsible for the Group's system of internal control and
for maintaining and reviewing its effectiveness. The Board has delegated
responsibility for the monitoring and review of the Group's internal controls
to the Audit Committee. The Group's systems and controls are designed to
safeguard the Group's assets and to ensure the reliability of information used
both within the business and for publication.
Systems are designed to manage, rather than eliminate, the risk of failure to
achieve business objectives and can provide only reasonable, and not absolute,
assurance against material misstatement or loss.
The key features of the Group's internal control and risk management systems
that ensure the accuracy and reliability of financial reporting include clearly
defined lines of accountability and delegation of authority, policies and
procedures that cover financial planning and reporting, preparing consolidated
financial statements, capital expenditure, project governance and information
security.
The key features of the internal control systems, which operated during 2016
and up to the date of signing the Financial Statements are documented in the
Group's Corporate Governance Policy Manual and Finance Manual. These manuals
and policies have been circulated and adopted throughout the Group, except the
joint venture Westgasinvest LLC ("WGI"), where eni's policies are adopted.
Day-to-day responsibility for the management and operations of the business has
been delegated to the Chief Executive Officer and senior management. Certain
specific administrative functions are controlled centrally. Taxation and
treasury functions report to the Group Director of Finance who reports directly
to the Chief Executive Officer. Trading business is managed by the Chief
Trading Officer, who reports directly to Chief Executive Officer. The legal
function for Ukraine's related assets and activities is managed by the General
Counsel, who reports to the General Director of Cadogan Ukraine. The Health,
Safety and Environment functions report to the Chief Operating Officer. An
overview of the Group's treasury policy is set out on page 12. The Group does
not have an internal audit function. Due to the small scale of the Group's
operations at present, the Board does not feel that it is appropriate or
economically viable to have this function in place. The Audit Committee will
continue to consider the position annually.
The Board has reviewed the process, which has been in place from the start of
the year to the date of approval of this report and which is in accordance with
the Code. During the course of its review of the risk management and internal
control systems, the Board has not identified nor been advised of any failings
or weaknesses which it has deemed to be significant. Therefore a confirmation
in respect of necessary actions has not been considered appropriate.
Relations with shareholders
The Chairman and Executive Directors of the Company have a regular dialogue
with analysts and substantial shareholders. The outcome of these discussions is
reported to the Board and discussed in detail. Mr Lehmann, as the Senior
Independent Director, is available to shareholders who have questions that they
feel would be inappropriate to raise via the Chairman or Executive Directors.
The Annual General Meeting is used as an opportunity to communicate with all
shareholders. In addition, financial results are posted on the Company's
website, www.cadoganpetroleum.com, as soon as they are announced. The Notice of
the Annual General Meeting is contained also on the Company's website,
www.cadoganpetroleum.com. It is intended that the Chairmen of the Nomination,
Audit and Remuneration Committees will be present at the Annual General
Meeting. The results of all resolutions will be published on the Company's
website, www.cadoganpetroleum.com.
Board Committee Reports
Audit Committee Report
The Audit Committee is appointed by the Board, on the recommendation of the
Nomination Committee, from the non-executive Directors of the Group. The Audit
Committee's terms of reference include all matters indicated by the Code. They
are reviewed annually by the Audit Committee and any changes are then referred
to the Board for approval. The terms of reference of the Committee are
published on the Company's website, www.cadoganpetroleum.com, and are also
available from the Company Secretary at the Registered Office. Two members
constitute a quorum.
Responsibilities
* To monitor the integrity of the annual and interim financial statements,
the accompanying reports to shareholders, and announcements regarding the
Group's results
* To review and monitor the effectiveness and integrity of the Group's
financial reporting and internal financial controls
* To review the effectiveness of the process for identifying, assessing and
reporting all significant business risks and the management of those risks
by the Group
* To oversee the Group's relations with the external auditor and to make
recommendations to the Board, for approval by shareholders, on the
appointment and removal of the external auditor
* To consider whether an internal audit function is appropriate to enable the
Audit Committee to meet its objectives
* To review the Group's arrangements by which staff of the Group may, in
confidence, raise concerns about possible improprieties in matters of
financial reporting or other matters
Assessment of the effectiveness of the external auditor
The Committee has assessed the effectiveness of the external audit process.
They did this by:
* Reviewing the 2016 external audit plan;
* Discussing the results of the audit including the auditor's views on
material accounting issues and key judgements and estimates, and their
audit report;
* Considering the robustness of the audit process;
* Reviewing the quality of the service and people provided to undertake the
audit; and
* Considering their independence and objectivity.
Governance
Mr Testa and Mr Lehmann, who are both independent non-executive Directors under
provision B.1.1 of the Code, are the members of the Audit Committee. The Audit
Committee is chaired by Mr Lehmann who has recent and relevant financial
experience as a former finance director of major European companies as well as
holding several non-executive roles in major international entities.
At the invitation of the Audit Committee, the Group Director of Finance and
external auditor regularly attend meetings. The Company Secretary attends all
meetings of the Audit Committee.
The Audit Committee also meets the external auditor without management being
present.
Activities of the Audit Committee
During the year, the Audit Committee discharged its responsibilities as
follows:
Financial statements
The Audit Committee examined the Group's consolidated and Company's financial
statements and, prior to recommending them to the Board, considered the
appropriateness of the accounting policies adopted and reviewed critical
judgements, estimates and underlying assumptions and whether the financial
statements are fair, balanced and understandable.
Significant issues relating to the 2016 financial statements
For the year ended 31 December 2016 the Audit Committee identified the
significant issues that should be considered in relation to the financial
statements, being areas which may be subject to heightened risk of material
misstatement.
Reserves
Oil and gas reserves, as discussed in the Statement of Reserves and Resources,
are based on the Independent Reserves and Resources Evaluation performed by
Brend Vik concluded in March 2016.
However, reserves estimates are inherently uncertain, especially under present
market volatility or in the early stages of a field's life, and are routinely
revised over the producing lives of oil and gas fields as new information
becomes available and as economic conditions evolve. The Audit Committee
acknowledges that such revisions may impact the Group's future financial
position and results, in particular, in relation to impairment testing of oil
and gas property, plant and equipment.
Recoverability of investments in joint ventures
Recoverability of the Group's investments in joint ventures is based on
assessment of exploration and evaluation assets impairment, which constitute
most of the investments in joint ventures cost. As of 31 December
2016 impairment assessment of the joint ventures' exploration and evaluation
assets was based on the value in use of the assets held by joint venture
company.
Impairment of E&E
The Audit Committee considered the Group's intangible exploration and
evaluation assets individually for any indicators of impairment, including
those indicators set out in IFRS 6 Exploration for and Evaluation of Mineral
Resources. The Audit Committee has discussed the Group's exploration and
evaluation assets with both management and the auditors and concurs with the
treatment adopted.
Following discussions with management and the auditor, including discussing the
range of sensitivities, the Committee is satisfied with results of the
assessment of the recoverable amount of development and production assets. The
recoverability assessment involves the use of significant judgement both in the
review of impairment indicators and, in any subsequent impairment test, the
consideration of estimates, which are dependent on assumptions about the
future.
Recoverability of receivables
In accordance with IAS 39 the Group makes an assessment at the end of each
reporting period, as to whether there is an objective evidence that a financial
asset or group of financial assets (including trade receivables) needs to be
impaired.
Going concern
After making enquiries and considering the uncertainties described above, the
Committee has a reasonable expectation that the Company and the Group have
adequate resources to continue in operational existence for the foreseeable
future and consider the going concern basis of accounting to be appropriate.
For further detail refer to the detailed discussion of the assumptions outlined
in note 3(b) to the Consolidated Financial Statements. The Committee also
review the Group's viability statement presented on page 28.
Political and economic situation in Ukraine
The political situation in Ukraine has made it necessary for management to
assess the extent of its impact on the Group's operations and assets.
The Committee reviewed reports from management, which considered whether
adjustments are required to the carrying values of assets and the
appropriateness of the going concern assumption. As a result management have
concluded that, other than the impacts derived from the Subsoil use tax and the
uncertainties on the timing of the approval process, there were no significant
adverse consequences in relation to the Group's operations, cash flows and
assets that impact the 2016 financial statements.
In discussion with management, the Committee acknowledged the inherent
difficulty in making any assessment as to the eventual outcome of the present
political situation and, as a consequence, the difficulty of making a reliable
judgement as to the future impact, if any, on the Group's business. The
Committee concurs with conclusions reached by management summarised in Note 4
and in Note 29 to the financial statements.
Internal controls and risk management
The Audit Committee reviews and monitors financial and control issues
throughout the Group including the Group's key risks and the approach for
dealing with them. Further information on the risks and uncertainties facing
the Group are detailed on pages 13 to 15 and in Note 26 to the financial
statements.
External auditor
The Audit Committee is responsible for recommending to the Board, for approval
by the shareholders, the appointment of the external auditor.
The Audit Committee considers the scope and materiality for the audit work,
approves the audit fee, and reviews the results of the external auditor's work.
Following the conclusion of each year's audit, it considers the effectiveness
of the external auditor during the process. An assessment of the effectiveness
of the audit process was made, giving consideration to reports from the auditor
on its internal quality procedures. The Committee reviewed and approved the
terms and scope of the audit engagement, the audit plan and the results of the
audit with the external auditor, including the scope of services associated
with audit-related regulatory reporting services. Additionally, auditor
independence and objectivity were assessed, giving consideration to the
auditor's confirmation that its independence is not impaired, the overall
extent of non-audit services provided by the external auditor and the past
service of the auditor.
There is an agreed policy on the engagement of the external auditor for
non-audit services to ensure that its independence and objectivity are
safeguarded. Work closely related to the audit, such as financial reporting
matters, can be awarded to the external auditor by the executive Directors
provided the work does not exceed GBP50,000 in fees per item. Work exceeding GBP
50,000 requires approval by the Audit Committee. All other non-audit work
either requires Audit Committee approval or forms part of a list of prohibited
services, where it is felt the external auditor's independence or objectivity
may be compromised.
A breakdown of the non-audit fees is disclosed in Note 9 to the Consolidated
Financial Statements. The Company's external auditor, Deloitte LLP, has
provided non-audit services (excluding audit related services), which amounted
to $55,000 (2015: $125,000). The Audit Committee has reviewed the level of
these services in the course of the year and is confident that the objectivity
and independence of the auditor are not impaired by the reason of such
non-audit work.
We have also taken account of the latest recommendations of the Code in
relation to the regular tendering of the external audit appointment, and as
required conducted a tender for the audit for the year end at 31 December 2017.
Group external audit tender for the audit of 2017 Annual Report
Since IPO, Deloitte have been the Group's auditor for ten years and in
accordance with the Code, the Group held in 2016 a tender for the audit of the
2017 Annual Report.
Process and selection criteria
The tender process and selection criteria adopted by the committee, in relation
to the external ?audit services, closely followed those detailed in the audit
tender notes of best practice set out?by the FRC (focusing on quality and
clarity of approach, understanding of the business and risks, appropriate
geographic breadth, appropriate team structure and experience, cultural fit and
approach to independence and conflict issues). The audit committee was provided
with an assessment of the external audit service providers and eight firms were
invited to tender for the external audit.
Process summary October 2016 - April 2017
The Group issued the Request for Proposal (RFP) to the audit firms invited to
tender. An introduction and information sharing meetings were held between the
audit firms and the Group in November and December 2016.
RFP vendors submitted their final written tenders by the end of December 2016,
which were analysed by the Group in January and February 2016. After extensive
consideration and based on the proven track record of audit quality, the audit
committee concluded to recommend to the board that BDO be appointed as the
Group's external auditors from 2017 onwards, subject to shareholder approval at
the AGM in June 2017.
Internal audit
The Audit Committee considers annually the need for an internal audit function
and believes that, due to the size of the Group and its current stage of
development, an internal audit function will be of little benefit to the Group.
The Group's whistleblowing policy encourages employees to report suspected
wrongdoing and sets out the procedures employees must follow when raising
concerns. The policy, which was implemented during 2008, was refreshed in 2013
and recirculated to staff as part of a manual that includes the Group's
policies on anti-bribery, the acceptance of gifts and hospitality, and business
conduct and ethics.
Overview
As a result of its work during the year, the Audit Committee has concluded that
it has acted in accordance with its terms of reference and has ensured the
independence and objectivity of the external auditor. A formal review of the
Audit Committee's performance was undertaken after the year end and concluded
that the Committee is effective in its scrutiny of the accounts and financial
reporting process, its oversight of risk management systems and its monitoring
of internal control testing.
The Chairman of the Audit Committee will be available at the Annual General
Meeting to answer any questions about the work of the Audit Committee.
Gilbert Lehmann
Chairman of the Audit Committee
27 April 2017
Health, Safety and Environment Committee Report
The Health, Safety and Environment Committee (the "HSE Committee") is appointed
by the Board, on the recommendation of the Nomination Committee. The HSE
Committee's terms of reference are reviewed annually by the HSE Committee and
any changes are then referred to the Board for approval. The terms of reference
of the Committee are published on the Company's website,
www.cadoganpetroleum.com, and are also available from the Company Secretary at
the Registered Office. Two members constitute a quorum, one of whom must be a
Director.
Responsibilities
* To develop a framework of the policies and guidelines for the management of
health, safety and environment issues within the Group.
* Evaluate the effectiveness of the Group's policies and systems for
identifying and managing health, safety and environmental risks within the
Group's operation.
* Assess the policies and systems within the Group for ensuring compliance
with health, safety and environmental regulatory requirements.
* Assess the performance of the Group with regard to the impact of health,
safety, environmental and community relations decisions and actions upon
employees, communities and other third parties and also assess the impact
of such decisions and actions on the reputation of the Group and make
recommendations to the Board on areas for improvement.
* On behalf of the Board, receive reports from management concerning any
fatalities and serious accidents within the Group and actions taken by
management as a result of such fatalities or serious accidents.
* Evaluate and oversee, on behalf of the Board, the quality and integrity of
any reporting to external stakeholders concerning health, safety,
environmental and community relations issues.
* Where it deems it appropriate to do so, appoint an independent auditor to
review performance in regard to health, safety, environmental and community
relations matters and review any strategies and action plans developed by
management in response to issues raised and, where appropriate, make
recommendations to the Board concerning the same.
Governance
The HSE Committee was in place throughout 2016. Members of the HSE Committee
were Mr Adelmo Schenato (Chief Operating Officer and HSE Committee Chairman),
Ms Snizhana Buryak (HSE Manager), Mr Andriy Bilyi (Cadogan Ukraine General
Director). The CEO and the Company Secretary attend meetings of the HSE
Committee. The HSE Committee meets monthly to monitor continuously progress by
management.
Activities of the Health, Safety and Environment Committee
During the year, the HSE Committee discharged its responsibilities as follows:
* The existing HSE policies and procedures, as well as the development of new
ones, was regularly discussed at the Committee meetings in relation to the
current activities.
* Compliance with HSE regulatory requirements was ensured through discussion
of the results of inspections, both internal ones and those carried out by
the Authorities.
* HSE performances, key indicators and statistics were a standing item in the
agenda of every meeting, allowing the HSE Committee to assess the Company's
performance by analysing any lost-time incidents (of which there were none
during 2013, 2014 and 2015), near misses, HSE training and other
indicators.
* Interaction with contractors, Authorities, local communities and other
stakeholders was discussed among other HSE activities.
* Updating of the legal requirements in the working sites, especially related
to the production plants and rig sites.
Overview
As a result of its work during the year, the HSE Committee has concluded that
it has acted in accordance with its terms of reference.
Adelmo Schenato
HSE Committee Chairman 1
27 April 2017
1 In the first quarter 2017 Mr Schenato stepped down from his COO role and
became a non-Executive Director
Nomination Committee Report
The Nomination Committee is appointed by the Board predominantly from the
non-executive Directors of the Group. The Nomination Committee's terms of
reference include all matters indicated by the Code. They are reviewed annually
by the Nomination Committee and any changes are then referred to the Board for
approval. The terms of reference of the Nomination Committee are published on
the Company's website, www.cadoganpetroleum.com, and are also available from
the Company Secretary at the Registered Office. Two members constitute a
quorum.
Responsibilities
To regularly review the structure, size and composition (including the skills,
knowledge and experience) required of the Board compared to its current
position and make recommendations to the Board with regard to any changes.
Be responsible for identifying and nominating for the approval of the Board
candidates to fill Board vacancies as and when they arise.
Before appointment is made by the Board, evaluate the balance of skills,
knowledge, experience and diversity on the Board and, in the light of this
evaluation, prepare a description of the role and capabilities required for a
particular appointment.
In identifying suitable candidates, the Nomination Committee shall use open
advertising or the services of external advisers to facilitate the search and
consider candidates from a wide range of backgrounds on merit, taking care that
appointees have enough time available to devote to the position.
The Nomination Committee shall also make recommendations to the Board
concerning:
Formulating plans for succession for both executive and non-executive Directors
and in particular for the key roles of Chairman and Chief Executive Officer.
Membership of the Audit and Remuneration Committees, in consultation with the
Chairmen of those committees.
The reappointment of any non-executive Director at the conclusion of their
specified term of office, having given due regard to their performance and
ability to continue to contribute to the Board in the light of the knowledge,
skills and experience required.
The re-election by shareholders of any Director having due regard to their
performance and ability to continue to contribute to the Board in the light of
the knowledge, skills and experience required.
Any matters relating to the continuation in office of any Director at any time
including the suspension or termination of service of an executive Director as
an employee of the Company subject to the provisions of the law and their
service contract.
Governance
Mr Zev Furst (Board and Nomination Committee Chairman), Mr Bertrand des
Pallieres (Chief Trading Officer), and Messrs Gilbert Lehmann and Enrico Testa
(independent non-executive Directors) are the members of the Nomination
Committee. The Company Secretary attends all meetings of the Nomination
Committee.
Activities of the Nomination Committee
The Nomination Committee carried out a review of the size, structure and
composition of the Board in the light of the current business environment and
the Company's anticipated future activities and approved a recommendation of
the CEO to reduce the number of Executive Directors from three to one,
effective as early as possible in 2017. The Board also mandated the CEO to
implement the necessary adjustments to the organisation and roles of the
management team.
Pending the implementation of this recommendation, the Nomination Committee
recommends the re-election of each of the Directors at the AGM, with Mr Adelmo
Schenato as a Non-Executive Director.
Overview
As a result of its work during the year, the Nomination Committee has concluded
that it has acted in accordance with its terms of reference. The Chairman of
the Nomination Committee will be available at the Annual General Meeting to
answer any questions about the work of the Nomination Committee.
Zev Furst
Nomination Committee Chairman
27 April 2017
Remuneration Committee
Statement from the Chairman
I am pleased to present the Annual Report on Remuneration for the year ended 31
December 2016.
During 2016 there were no changes made to the Remuneration Policy approved by
the shareholders at the Annual General Meeting held on 25 June 2015, nor to the
composition of directors' remuneration, and there was no increase to executive
and non-executive directors' salary and fees in base currency; notwithstanding
the devaluation of the British pound against most currencies, all directors
agreed to maintain their base compensation "as is" and to review it the
following year.
In 2016 the Committee enrolled the CEO in a performance-related, bonus scheme
built around a scorecard with a set of challenging KPI's aligned with the
company strategy, preserving cash and operating safely and efficiently while
actively pursuing opportunities to re-load and geographically diversify the
portfolio. Based on the results achieved, the Committee has determined to award
him a bonus of EUR200,000, which the CEO undertook to use in its entirety to
subscribe for newly issued ordinary shares in the Company at the prevailing
market value of such shares on the date that bonus is to be paid. Further, the
CEO agreed to fund the income tax due on his bonus from his own resources (so
that there is no immediate need to sell some of the subscribed shares).
The Company's aim is to develop a, long-term and balanced Remuneration Policy
aligned to strategy and performance and linked to shareholder value. The
Committee which I chair, with the support of the Executive management and of
qualified advisors, if and to the extent which is required, will work in the
second part of this year to produce a new policy which meets our aim and which
will be presented to 2018 AGM for approval.
At this year AGM we will present the 2016 Remuneration Approval to our
shareholders for approval.
Enrico Testa
Chairman of the Remuneration Committee
27 April 2017
ANNUAL REPORT ON REMUNERATION 2016
Remuneration Committee Report
The Remuneration Committee is committed to principles of accountability and
transparency to ensure that remuneration arrangements demonstrate a clear link
between reward and performance. In its work, the Remuneration Committee
considers fully the principles and provisions of the Code. In designing
performance-related remuneration schemes for executive Directors, the
Remuneration Committee has considered and applied Schedule A of the Code.
Governance
The Remuneration Committee is appointed by the Board from the non-executive
Directors of the Company. The Remuneration Committee's terms of reference
include all matters indicated by the Code. They are reviewed annually by the
Remuneration Committee and any changes are then referred to the Board for
approval. The terms of reference of the Remuneration Committee are published on
the Company's website, www.cadoganpetroleum.com, and are also available from
the Company Secretary at the Registered Office.
The Remuneration Committee consists of Mr Enrico Testa, Mr Zev Furst and Mr
Gilbert Lehmann. At the discretion of the Remuneration Committee, the Chief
Executive Officer is invited to attend meetings when appropriate, but is not
present when his own remuneration is being discussed. None of the directors are
involved in deciding their own remuneration. The Company Secretary attends the
meetings of the Remuneration Committee.
Responsibilities
In summary, the Remuneration Committee's responsibilities, as set out in its
terms of reference, are as follows:
* To determine and agree with the Board the policy for the remuneration of
the executive Directors, the Company Secretary and other members of
executive management as appropriate.
* To consider the design, award levels, performance measures and targets for
any annual or long-term incentives and approve any payments made and awards
vesting under such schemes.
* Within the terms of the agreed remuneration policy, to determine the total
individual remuneration package of each executive Director and other senior
executives including bonuses, incentive payments and share options or other
share awards.
+ To ensure that contractual terms on termination, and any payments made,
are fair to the individual and the Company, that failure is not
rewarded and that the duty to mitigate loss is fully recognised.
Overview
As a result of its work during the year, the Remuneration Committee has
concluded that it has acted in accordance with its terms of reference. The
chairman of the Remuneration Committee will be available at the Annual General
Meeting to answer any questions about the work of the Committee. The Chairman
and Executive Directors of the Company have a regular dialogue with analysts
and substantial shareholders, which includes the subject of Directors'
Remuneration. The outcome of these discussions are reported to the Board and
discussed in detail both there and during meetings of the Remuneration
Committee. Mr Lehmann, as the Senior Independent Director, is available to
shareholders who have concerns that they feel would be inappropriate to raise
via the Chairman or Executive Directors.
The Remuneration Committee unanimously recommends that shareholders vote to
approve the Annual Report on Remuneration at the 2017 Annual General Meeting.
Remuneration consultants
The Remuneration Committee did not take any advice from external remuneration
consultants.
Single total figure of remuneration for executive and non-executive directors
(audited)
Salary and fees Taxable Annual bonus Long-term Total
benefit1 incentives
$ $ $ $ $
Executive
Directors
2016 2015 2016 2015 2016 2015 2016 2015 2016 2015
(restated) (restated)
G 487,080 242,9022 15,353 15,987 210,504 243,1323 - - 712,937 502,021
Michelotti
B des 300,152 357,231 2,000 - - - - - 302,152 357,231
Pallieres
A Schenato 277,545 282,014 - - - - - - 277,545 282,014
Non-executive Directors
2016 2015 2016 2015 2016 2015 2016 2015 2016 2015
Z Furst 115,235 129,957 - - - - - - 115,235 129,957
G Lehmann 61,007 68,801 - - - - - - 61,007 68,801
E Testa 47,450 53,512 - - - - - - 47,450 53,512
M Meeùs 47,450 53,512 - - - - - - 47,450 53,512
1 Taxable benefits include life and medical insurance provided to the
executive. There are no contributions to pension schemes.
2 The number represents salary for six months of Mr Michelotti, as he has been
appointed as a Chief Executive Officer in June 2015.
3 For details please see page 44.Notes to the table
In 2016, there was no increase in executive and non-executive directors' salary
in base currency. The difference in salary and fees for the directors (other
than Mr Guido Michelotti) represents the change in the exchange rate between
the base currency and USD as a reporting currency. The figures for Mr Guido
Michelotti for 2015 show Mr Michelotti's remuneration for the period after his
appointment on July 1, 2015 through to the end of December 2015 (six months in
total).
Mr Guido Michelotti
Mr Guido Michelotti was Chief Executive Officer through 2016. Mr Michelotti's
salary is EUR440,000 ($487,080) per annum.
The Remuneration Committee has determined that it would be appropriate to award
Mr Guido Michelotti a bonus of EUR200,000 ($210,504), comprising a performance
related element of EUR181,720 and a discretionary element of EUR18,280 for
financial year 2016. In assessing the performance related element, the
Committee determined that the Company was within the parameters of production
targets and had exceeded by a considerable margin net cash targets, while
missing the LTI free operations target (1 LTI of a contractor) and the profit
target, this latter because of lower than expected results from gas trading.
The Committee also noted that the geographic diversification achievements were
on the lower end of the expected outcome. Under the performance scorecard
considered by the Remuneration Committee, the production target and net cash
target represent respectively 20% and 30% of the weightings of the bonus (for
target level performance)
with safety, profit and geographic diversification targets representing
respectively 10%, 20% and 20%. With additional points allocated for exceeding
by a considerable margin net cash targets, the Remuneration Committee
determined that some 59% of the performance related element of the bonus should
become payable (see following table).
KPI Weighting Target1 Achievement % of KPI
% related bonus
achieved2
Average production, 20 Approved Target 20
boepd budget achieved
(stretch
target +20%)
Net profit/(loss), 20 Approved Target not met 0
$ million budget
(stretch
target +20%)
Change in free 30 Approved Stretch target 39
cash, $ million budget achieved
(stretch
target +20%)
HSE, number of LTI 10 Target: zero Target not met 0
Geographic 20 Minimum 1 Target not met 03
diversification, Maximum 2
number of new
countries
100 59
1 The company does not disclose its budget
2 Scores for achieving respectively target and stretch target are set at 100
and 130
3 Low materiality of Exploenergy's acquisition, formally finalized in the
first days of the new year
Maximum annual cash bonus: 105% base salary
Maximum KPI element: 70%?
Maximum discretionary component: 35%
2015 Bonus. At the time Mr Guido Michelotti was offered the position of CEO,
the Board decided, and Mr Guido Michelotti accepted, to replace an
upfront, sign-on payment (art 4.1 of the Remuneration Policy) with a bonus
linked to a single KPI, which was the delivery of a strategy, and containing a
discretionary element. The Remuneration Committee determined that the KPI was
achieved and considered that a bonus of EUR231,000, including the full
discretionary element of EUR77,000, should become payable. Mr Michelotti
suggested to the Remuneration Committee that a cash neutral alternative for the
company should be found. An alternative was found in the form of bonus payment
in cash against a commitment to use the money to subscribe for newly issued
ordinary shares at the prevailing market value (the same solution implemented
in 2016, as described below) and the Remuneration Committee approved it in June
2016, past the publication of 2015 Annual and Remuneration Reports (April
2016).
The 2015 and 2016 bonuses have not yet been paid and new shares were not issued
at the date of this report. The CEO has undertaken to use the entire amount of
his 2015 and 2016 bonuses to subscribe for newly issued ordinary shares in the
Company at the prevailing market value of such shares on the date that bonuses
are to be paid. Further, Mr Guido Michelotti has agreed to fund the income tax
due on his bonuses from his own resources (so that there is no immediate need
to sell some of the shares that Mr Guido Michelotti subscribes for). The
agreement by Mr Guido Michelotti to use the entire amount of his bonuses to
subscribe for shares and to use his own resources to pay any income tax due, so
that there will be no cash outflow arising from the award of the bonuses,
except social security contributions. While the approved Remuneration Policy
sets the maximum Annual Bonus at 200% of the base salary, Mr. Michelotti has
agreed in his employment agreement to a ceiling to the annual bonus equal to
105% of the base salary and this ceiling will be reflected in his 2017
scorecard.
There are no conditions on Mr Guido Michelotti's holding of shares, save that,
in respect of his bonuses, Mr Guido Michelotti accepted, that the Committee has
the discretion to reduce the bonus before payment or require him to pay back
shares or a cash amount in the event of financial misstatement of the Company
or fraud or other material misconduct on his part. The amount that may be
clawed back from Mr Guido Michelotti on any such event is limited to the value
of an equivalent number of shares that Mr Guido Michelotti subscribed for using
the proceeds of his bonuses, taking the value of the shares at the time of the
clawback, less any income tax that Mr Guido Michelotti paid on his bonuses.
Mr Bertrand des Pallieres
Mr Bertrand des Pallieres was Chief Trading Officer throughout 2016. Mr des
Pallieres' salary is GBP221,400 ($300,152) per annum, comprising GBP194,400
($263,548) per annum under a consultancy agreement (the terms of which are
reviewed by the Remuneration Committee annually) and GBP27,000 ($36,604) per
annum under a services agreement.
Mr des Pallieres also serves as a non-executive director of two other
companies. The board is of the opinion that his involvement with these
companies does not affect the time or commitment, which he gives to the
Company.
Adelmo Schenato
Adelmo Schenato was Chief Operating Officer of the Company throughout 2016. Mr
Schenato's basic salary is $277,545 comprising EUR225,000 ($249,075) per annum
under a consultancy agreement and GBP21,000 ($28,470) under a services agreement.
The Chairman and Non-Executive Directors
In May 2011 the Board agreed that the Chairman's fee be set at GBP85,000
($115,235) and that the fee for acting as an independent non-executive Director
be set at GBP35,000 ($47,450) with an additional GBP10,000 ($13,557) for acting as
Chairman of the Audit Committee. There has been no increase in non-executive
Directors' fees since that time.
Benefits
Benefits may be provided to the executive directors, in the form of private
medical insurance and life assurance.
Scheme interests awarded during the financial year (audited)
There were no scheme interests awarded during the year.
Payments to past directors (audited)
In 2016 there were no payments to past directors.
Payments for loss of office (audited)
No payments were made to directors for loss of office in 2016.
Directors' interests in shares (audited)
The beneficial interests of the Directors in office as at 31 December 2016 and
their connected persons in the Ordinary shares of the Company at 31 December
2016 are set out below.
Shares as at 31 December 2016 2015
Z Furst - -
G Michelotti - -
B des Pallieres 200,000 200,000
G Lehmann - -
M Meeùs 26,000,000 26,000,000
A Schenato - -
E Testa - -
There were no changes in the Directors shareholding as at 31 December 2016
compared to 27 April 2017.
The Company does not currently operate formal shareholding guidelines.
The Company's performance
The graph below highlights the Company's total shareholder return ("TSR")
performance for the last eight years compared to the FTSE All Share Oil & Gas
Producers index. This index has been selected on the basis that it represents a
sector specific group, which is an appropriate group for the Company to compare
itself against. TSR is the return from a share or index based on share price
movements and notional reinvestment of declared dividends.
Historic Remuneration of Chief Executive
Salary Taxable Annual Long-term Pension Loss of Total
benefits bonus incentives office
$ $ $ $ $ $ $
2009 422,533 - 284,552 - - - 707,085
2010 547,067 - - - - - 547,067
2011 669,185 - - - - - 669,185
2012 511,459 - - - 31,966 126,808 670,233
2013 384,941 - - - - - 384,941
2014 405,433 20,734 - - - - 426,167
20152 432,409 1 15,987 243,1323 - - - 691,528
2016 487,080 15,353 210,5044 - - - 712,9371
1 2015 CEO's salary is the sum of Mr. des Pallieres' salary for the period
January to June and of Mr. Michelotti's salary for the period July to December
2 Restated
3 Bonus awarded to CEO for 2015. Details explained on page 44
4 The CEO has undertaken to use the entire amount of the bonus to buy at market
price newly issued company shares
In 2016 the annual bonus awarded to the CEO was 22% (2015: 50%) of the maximum
bonus as per the approved Remuneration Policy.
Percentage change in the remuneration of the Chief Executive
The following table shows the percentage change in the remuneration of the
Chief Executive in 2016 and 2015 compared to that of all employees within the
Group.
2016 2015 Average
(restated) Change
$'000 $'000 %
Base salary CEO 487 432 13%
All employees 2,618 3,121 (3%)
Taxable benefits CEO 15 16 (6%)
All employees 35 43 (6%)
Annual Bonus CEO 211 243 (13%)
All employees 211 264 (7%)
Total CEO 713 691 3%
All employees 2,864 3,428 (3%)
The base salary of CEO has been paid in cash. Mr Guido Michelotti has
undertaken to use the entire amount of his 2015 and 2016 bonuses (which have
not yet been paid) to subscribe for newly issued ordinary shares in the Company
at the prevailing market value of such shares on the date that bonuses are to
be paid. Further, Mr Guido Michelotti has agreed to fund the income tax due on
his bonuses from his own resources (so that there is no immediate need to sell
some of the shares that Mr Guido Michelotti subscribes for) so that there will
be no cash outflow for the Company arising from the award of the bonuses,
except social security contributions.
In 2016 none of the directors participated in long-term incentives.
In 2016 there was no increase in executive and non-executive directors' salary
in base currency. The difference in pay represents the change in exchange rate
between the base currency and USD as a reporting currency.
The $0.5 million decrease in employee remuneration is the combination of a
reduction in the head count from 80 to 69 ($0.3 million decrease) and of the
devaluation of the UAH ($0.2 million decrease).
Relative importance of spend on pay
The table below compares shareholder distributions (i.e. dividends and share
buybacks) and total employee pay expenditure of the Group for the financial
years ended 31 December 2015 and 31 December 2016.
2016 2015 Year-on-year
$'000 $'000 change, %
All-employee remuneration 2,864 3,428 (16%)
Distributions to shareholders - - N/A
Shareholder voting at the Annual General Meeting
The Directors' Remuneration Policy was approved by shareholders at the Annual
General Meeting held on 25 June 2015. The Remuneration Policy can be found on
the Group's website. The votes cast by proxy were as follows:
Directors' Remuneration Number of votes % of votes cast
Policy
For 58,983,662 99.91
Against 56,000 0.09
Total votes cast 59,039,662 100.00
Number of votes withheld 0
The Directors' Remuneration Report for the year ended 31 December 2015 was
approved by shareholders at the Annual General Meeting held on 22 June 2016.
The votes cast by proxy were as follows:
Director's Remuneration Number of votes % of votes cast
Report
For 58,301,210 99.66
Against 200,203 0.34
Total votes cast 58,501,413 100.00
Number of votes withheld 0
The Directors Remuneration Policy was approved at the 2015 AGM and did not
change since then. It can be found on the Group's website.
Implementation of Remuneration Policy in 2017
The Remuneration Committee proposes to continue to implement the Remuneration
Policy approved by the shareholders at the 2015 AGM. The Remuneration Committee
is not intending to make any material changes to the way that the remuneration
policy is implemented in 2017 and envisages that the structure of the
remuneration of directors will remain the same as in 2016.
As was the case in 2016, the performance related elements of Mr Guido
Michelotti will be built around a scorecard with a set of KPI's aligned with
the Group strategy, preserving cash and operating safely and efficiently while
actively pursuing opportunities to re-load and geographically diversify the
portfolio, with similar to 2016 weightings (as described above on page 43 to 44
in the notes to the single figure table). While Cadogan's approved Remuneration
Policy sets the maximum Annual Bonus at 200% of the base salary, Mr. Michelotti
has agreed in his employment agreement to a ceiling to the annual bonus equal
to 105% of the base salary and this ceiling will also be reflected in his 2017
scorecard.
Approval
The Directors' Remuneration Report was approved by the Board on 27 April 2017
and signed on its behalf by:
Zev Furst
Chairman
27 April 2017
Statement of Directors' Responsibilities in respect of the Annual Report and
the Financial Statements
The Directors are responsible for preparing the Annual Report and the financial
statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. The Directors are required by law to prepare the Group
financial statements in accordance with International Financial Reporting
Standards ("IFRSs") as adopted by the European Union and Article 4 of the
International Accounting Standards ("IAS") regulation and have also elected to
prepare the Parent Company financial statements under IFRSs as adopted by the
European Union. Under Company law, the Directors must not approve the Financial
Statements unless they are satisfied that they give a true and fair view of the
state of affairs of the Company and Group and of the profit or loss for that
period. In preparing the Company and Group's financial statements, IAS
Regulation requires that Directors:
* properly select and apply accounting policies;
* present information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable information;
* provide additional disclosures when compliance with the specific
requirements in IFRSs are insufficient to enable users to understand the
impact of particular transactions, other events and conditions on the
Company's and Group's financial position and financial performance; and
* make an assessment of the Company's and Group's ability to continue as a
going concern.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company and Group's transactions and
disclose with reasonable accuracy at any time the financial position of the
Company and Group and enable them to ensure that the financial statements
comply with the Companies Act 2006. They are also responsible for safeguarding
the assets of the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for
preparing a Strategic Report, Directors' Report, Annual Report on Remuneration,
Directors' Remuneration Policy and Corporate Governance Statement that comply
with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website,
www.cadoganpetroleum.com. Legislation in the United Kingdom governing the
preparation and dissemination of the financial statements may differ from
legislation in other jurisdictions.
Responsibility Statement of the Directors in respect of the Annual Report
We confirm to the best of our knowledge:
(1) the financial statements, prepared in accordance with International
Financial Reporting Standards as adopted by the European Union, give a true and
fair view of the assets, liabilities, financial position and profit or loss of
the Company and the undertakings included in the consolidation as a whole; and
(2) the Strategic Report, includes a fair review of the development and
performance of the business and the position of the Company and the
undertakings included in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that they face; and
(3) the annual report and the financial statements, taken as a whole, are fair,
balanced and understandable and provides the information necessary for the
shareholders to assess the Group's position, performance, business model and
strategy.
On behalf of the Board
Zev Furst
Chairman
27 April 2017
INDEPENT AUDITOR'S REPORT TO THE MEMBERS OF CADOGAN PLC
Opinion on financial statements of Cadogan Petroleum plc
In our opinion:
* the financial statements give a true and fair view of the state of the
group's and of the parent company's affairs as at 31 December 2016 and of
the group's loss for the year then ended;
* the group financial statements have been properly prepared in accordance
with International Financial Reporting Standards (IFRSs) as adopted by the
European Union;
* the parent company financial statements have been properly prepared in
accordance with IFRSs as adopted by the European Union and as applied in
accordance with the provisions of the Companies Act 2006; and
* the financial statements have been prepared in accordance with the
requirements of the Companies Act 2006 and, as regards the group financial
statements, Article 4 of the IAS Regulation.
The financial statements that we have audited comprise:
* the group Income Statement;
* the group Statement of Comprehensive Income;
* the group and parent company Balance Sheets;
* the group and parent company Cash Flow Statements;
* the group and parent company Statements of Changes in Equity; and the
related notes 1 to 40.
The financial reporting framework that has been applied in their preparation is
applicable law and IFRSs as adopted by the European Union, and as regards the
parent company financial statements, as applied in accordance with the
provisions of the Companies Act 2006
Summary of our audit approach
Key risks The key risks that we identified in the current year were:
Recoverability of intangible assets and investments in joint
ventures
Recoverability of trade receivables
Within this report, any new risks are identified with and any
risks which are the same as the prior year identified with .
Materiality The materiality that we used in the current year was $977,000
(2015: $2,020,000), which was determined on the basis of 2% of
the expected consolidated shareholders' equity as at 31
December 2016.
An overview of the We have included in the Group audit scope the full audit of all
scope of our audit significant entities in Ukraine and in the UK. These businesses
account for over 90% (2015: over 90%) of the Group's net
assets, revenue and loss before tax. The Group audit team was
led by the Deloitte UK Senior Statutory Auditor and managers
and included junior audit members and senior tax specialists
from Deloitte Ukraine as all assets are located there and
appropriate knowledge of local legislation and tax regulations
is required.
Significant changes During our audit of 2016 financial statements we have
in our approach identified a new risk being recoverability of receivables.
Going concern and the directors' assessment of the principal risks that would
threaten the solvency or liquidity of the group
As required by the Listing Rules we have reviewed We confirm that we have
the directors' statement regarding the nothing material to add or
appropriateness of the going concern basis of draw attention to in respect
accounting contained within Note 3 to the financial of these matters.
statements and the directors' statement on the
longer-term viability of the group contained on page We agreed with the directors'
28. adoption of the going concern
basis of accounting and we did
We are required to state whether we have anything not identify any such material
material to add or draw attention to in relation to: uncertainties. However,
because not all future events
or conditions can be
predicted, this statement is
not a guarantee as to the
group's ability to continue as
a going concern.
Independence
We are required to comply with the Financial We confirm that we are
Reporting Council's Ethical Standards for independent of the group and
Auditors and confirm that we are independent we have fulfilled our other
of the group and we have fulfilled our other ethical responsibilities in
ethical responsibilities in accordance with accordance with those
those standards. standards. We also confirm we
have not provided any of the
prohibited non-audit services
referred to in those
standards.
Our assessment of risks of material misstatement
The assessed risks of material misstatement described below are those that
had the greatest effect on our audit strategy, the allocation of resources
in the audit and directing the efforts of the engagement team.
Recoverability of intangible assets and investments in joint ventures
Risk The carrying value of the Group's intangible assets and
description investments in joint ventures amounted to $4.7 million at 31
December 2016.
Assessment of the carrying value of these assets requires
significant judgement, including the Group's intention and
ability to proceed with a future work programme for a
prospect or licence, the likelihood of licence renewal or
extension, and the expected or actual success of drilling and
geological analysis. Recoverability of non-current assets is
dependent on macro-economic assumptions and estimates about
future oil and gas prices, inflation, discount and exchange
rates as well as forecast assumptions related to future
production levels, reserves and operating costs. The outcome
of impairment assessments could vary significantly were
different assumptions applied.
The continued instability of the political and economic
situation in Ukraine and devaluation of the currency to which
the Group is significantly exposed and the Group's reduction
in production and exploration activities are factors which
heighten the risk of impairment associated with the Group's
non-current assets.
Impairment of intangible exploration and evaluation assets
and investments in joint ventures amounting to $1.6 million
and $0.8 million, respectively, was recognised in the year
ended 31 December 2016.
Refer to the significant issues considered by the Audit
Committee and discussed on page 33-36, Group's policies and
key estimates and assumptions within note 1 and additional
notes 16, 17 and 19.
How the scope We evaluated management's assessment of indicators of
of our audit impairment and recoverability assessment for the Group's
responded to non-current assets, including potential difficulties with the
the risk upcoming extension of licences.
We analysed the reasonableness of the estimates such as oil
and gas resources and future production levels, future oil
and gas prices and future costs and performed benchmarking of
inflation and discount rates to estimates used by peer
companies and Deloitte developed discount rates. We also
considered actual facts and circumstances of the operating
environment of the Group.
Our work included discussion of the latest status and future
appraisal plans on each licence with operational staff and
Group management. We gathered evidence such as budgets, field
development plans, contracts for future drilling and
geological and geophysical activities to verify that
management's intention to continue exploration efforts is
supported by funding commitments.
We have also obtained and reviewed documentary evidence, such
as budgets, field working programmes, contracts for future
geological and geophysical activities, and licence documents.
We evaluated management's assessment of whether there were
any indicators of impairment for the Group's interests in
joint ventures under IAS 36, taking into consideration the
impairment indicators outlined in IFRS 6 for the purpose of
impairment assessment of exploration and evaluation assets
within the joint ventures. We held discussions on the latest
status and future appraisal plans on each licence with
operational staff and Group management and compared these
plans with approved budgets and considered the Group's future
funding responsibilities.
We undertook a detailed analysis and challenge of the
significant judgements and estimates used in management's
impairment tests of exploration and evaluation assets held by
the joint ventures of the Group. Our analysis included
comparison of gas price assumptions to publicly available
forecasts, benchmarking the discount rate applied by
management to a Deloitte developed discount rate, and the
comparison of future cost estimates against actual historic
cost levels and budgets.
Key We are satisfied that the level of impairment recorded and
observations the judgements applied by management are appropriate.
We concluded that the assumptions applied in the impairment
calculations were appropriate, and no additional impairments
were identified from the work performed above.
Recoverability of trade receivables
Risk The group had trade receivables of $2.2m at 31 December 2016.
description In January 2016 the Group restructured receivables with
certain counterparties within this balances and temporarily
ceased trading with them due to uncertainty of
recoverability. As the recognition of recoverable amounts
requires judgement the risk around receivable balance
recoverability was identified. Refer to the significant
issues considered by the Audit Committee and discussed on
page 33-36, Group's policies and key estimates and
assumptions within note 1 and additional notes 16, 17 and 19.
How the scope We reviewed the terms of restructuring arrangements made with
of our audit certain counterparties and verified the post year-end bank
responded to statements to confirm if the balances had subsequently been
the risk paid.
In addition, we have evaluated the reasonableness of the
methods and assumptions used by management to estimate the
allowances for doubtful accounts.
We requested a confirmation from counterparties for the
outstanding balances with Cadogan Petroleum plc as of 31
December 2016 to perform an independent reconciliation and
completeness
Key We found that management had initially recognised accrued
observations interest of $0.8m on a debt which did not meet the
recognition criteria of IAS 18. This was subsequently
corrected by management. The results of our testing were
satisfactory and we concur that the receivable balance is
appropriate.
Although separate impairment assessments have been undertaken and audited,
we have aggregated our explanation of risks and the scope for the
recoverability of intangible exploration and evaluation (E&E) assets and
recoverability of investments in joint ventures.
We have not included the political risk in our report this year as it has
not been an area which has had a major impact on our audit strategy.
However, we are reporting on the receivables recoverability which was one
of the main areas of focus of our audit this year.
These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.
Our application of materiality
We define materiality as the magnitude of misstatement in the financial
statements that makes it probable that the economic decisions of a
reasonably knowledgeable person would be changed or influenced. We use
materiality both in planning the scope of our audit work and in evaluating
the results of our work.
Based on our professional judgement, we determined materiality for the
financial statements as a whole as follows:
Materiality $977,000 (2015: $2,020,000)
Basis for
determining When determining materiality, among other factors we
materiality considered the Group's pre-tax loss in the current
period as well as in recent periods; the occurrence of
any non-recurring or fluctuating gains and losses (such
as exploration and evaluation assets impairments) and
the level of consolidated shareholders' equity.
Materiality was determined to be $977,000, which was 2%
of expected consolidated shareholders' equity (2015:
$2,020,000 which was 3.7% of consolidated shareholders'
equity). We have decreased percentage used in 2016
taking into considering our knowledge of the business
and anticipated impairment.
Rationale for the Consistent with the prior year, we used consolidated
benchmark applied shareholders' equity to determine materiality as the
entity has a history of operating losses.
We agreed with the Audit Committee that we would report to the Committee
all audit differences in excess of $19,500 (2015: $40,000), as well as
differences below that threshold that, in our view, warranted reporting on
qualitative grounds. We also report to the Audit Committee on disclosure
matters that we identified when assessing the overall presentation of the
financial statements.
Opinion on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
In the light of the knowledge and understanding of the company and its
environment obtained in the course of the audit, we have not identified any
material misstatements in the Strategic Report and the Directors' Report.
Matters on which we are required to report by exception
Adequacy of explanations received and
accounting records
Under the Companies Act 2006 we are required to We have nothing to report in
report to you if, in our opinion: respect of these matters.
Directors' remuneration
Under the Companies Act 2006 we are also We have nothing to report
required to report if in our opinion certain arising from these matters.
disclosures of directors' remuneration have not
been made or the part of the Directors'
Remuneration Report to be audited is not in
agreement with the accounting records and
returns.
Corporate Governance Statement
Under the Listing Rules we are also required to We have nothing to report
review part of the Corporate Governance arising from our review.
Statement relating to the company's compliance
with certain provisions of the UK Corporate
Governance Code.
Our duty to read other information in the
Annual Report We confirm that we have not
Under International Standards on Auditing (UK identified any such
and Ireland), we are required to report to you inconsistencies or
if, in our opinion, information in the annual misleading statements.
report is:
In particular, we are required to consider
whether we have identified any inconsistencies
between our knowledge acquired during the audit
and the directors' statement that they consider
the annual report is fair, balanced and
understandable and whether the annual report
appropriately discloses those matters that we
communicated to the audit committee which we
consider should have been disclosed.
Respective responsibilities of directors and auditor
As explained more fully in the Directors' Responsibilities Statement, the
directors are responsible for the preparation of the financial statements
and for being satisfied that they give a true and fair view. Our
responsibility is to audit and express an opinion on the financial
statements in accordance with applicable law and International Standards on
Auditing (UK and Ireland). We also comply with International Standard on
Quality Control 1 (UK and Ireland). Our audit methodology and tools aim to
ensure that our quality control procedures are effective, understood and
applied. Our quality controls and systems include our dedicated
professional standards review team and independent partner reviews.
This report is made solely to the company's members, as a body, in
accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit
work has been undertaken so that we might state to the company's members
those matters we are required to state to them in an auditor's report and
for no other purpose. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the company and the
company's members as a body, for our audit work, for this report, or for
the opinions we have formed.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in
the financial statements sufficient to give reasonable assurance that the
financial statements are free from material misstatement, whether caused by
fraud or error. This includes an assessment of: whether the accounting
policies are appropriate to the group's and the parent company's
circumstances and have been consistently applied and adequately disclosed;
the reasonableness of significant accounting estimates made by the
directors; and the overall presentation of the financial statements. In
addition, we read all the financial and non-financial information in the
annual report to identify material inconsistencies with the audited
financial statements and to identify any information that is apparently
materially incorrect based on, or materially inconsistent with, the
knowledge acquired by us in the course of performing the audit. If we
become aware of any apparent material misstatements or inconsistencies we
consider the implications for our report.
Timothy Biggs FCA (Senior statutory auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
London, United Kingdom
27 April 2017
FINANCIAL STATEMENTS OF CADOGAN PETROLEUM PLC
Consolidated Income Statement
For the year ended 31 December 2016
Notes
2016 2015
$'000 $'000
CONTINUING OPERATIONS
Revenue 6 19,692 75,440
Cost of sales (18,623) (69,562)
Gross profit 1,069 5,878
Administrative expenses 7 (5,603) (6,115)
Impairment of oil and gas assets 14,15 (90) (10,480)
(Impairment)/reversal of impairment of other assets 8 (82) 1,300
Share of losses in joint ventures 17 (143) (12,844)
Net foreign exchange gains 38 2,494
Other operating (loss)/income, net (9) 31
Operating loss (4,820) (19,736)
Gain on acquisition 17 99 -
Finance costs, net 11 (1,087) (2,507)
Loss before tax (5,808) (22,243)
Tax charge 12 (110) (1,040)
Loss for the year (5,918) (23,283)
Attributable to:
Owners of the Company (5,912) (23,261)
Non-controlling interest (6) (22)
(5,918) (23,283)
Loss per Ordinary share cents cents
Basic 13 (2.6) (10.1)
2016 2015
$'000 $'000
Loss for the year (5,918) (23,283)
Other comprehensive loss
Items that may be reclassified subsequently to profit or
loss:
Unrealised currency translation differences (987) (11,521)
Other comprehensive loss (987) (11,521)
Total comprehensive loss for the year (6,905) (34,804)
Attributable to:
Owners of the Company (6,899) (34,782)
Non-controlling interest (6) (22)
(6,905) (34,804)
Consolidated Balance Sheet
As at 31 December 2016
Notes
2016 2015
$'000 $'000
ASSETS
Non-current assets
Intangible exploration and evaluation 14 2,354 2,700
assets
Property, plant and equipment 15 1,312 1,661
Investments in joint ventures 17 2,323 2,181
5,989 6,542
Current assets
Inventories 18 1,879 3,503
Trade and other receivables 19 4,146 14,411
Cash and cash equivalents 20 43,300 49,407
49,325 67,321
Total assets 55,314 73,863
LIABILITIES
Non-current liabilities
Deferred tax liabilities 21 - -
Provisions 24 (670) (726)
(670) (726)
Current liabilities
Short-term borrowings 22 (3,574) (12,903)
Trade and other payables 23 (1,640) (3,682)
Provisions 24 (1,306) (1,523)
(6,520) (18,108)
Total liabilities (7,190) (18,834)
NET ASSETS 48,124 55,029
EQUITY
Share capital 25 13,337 13,337
Retained earnings 194,427 200,339
Cumulative translation reserves (161,499) (160,512)
Other reserves 1,589 1,589
Equity attributable to owners of the 47,854 54,753
Company
Non-controlling interest 270 276
TOTAL EQUITY 48,124 55,029
The consolidated financial statements of Cadogan Petroleum plc, registered in
England and Wales no. 05718406, were approved by the Board of Directors and
authorised for issue on 27 April 2017. They were signed on its behalf by:
Guido Michelotti
Chief Executive Officer
27 April 2017
The notes on pages 62 to 93 form an integral part of these financial
statements.
Consolidated Cash Flow Statement
For the year ended 31 December 2016
2016 2015
$'000 $'000
Operating loss (4,820) (19,736)
Adjustments for:
Depreciation of property, plant and equipment 138 434
Impairment of oil and gas assets 90 10,480
Share of losses in joint ventures 143 12,844
Impairment of receivables 59 -
Impairment of inventories (note 8) 92 90
Reversal of impairment of VAT recoverable (note 8) (69) (1,390)
Loss on disposal of property, plant and equipment 13 24
Effect of foreign exchange rate changes (38) (3,827)
Operating cash flows before movements in working (4,391) (1,081)
capital
Decrease in inventories 1,047 1,258
Decrease in receivables 9,321 4,871
Decrease in payables and provisions (2,014) (1,429)
Cash from operations 3,963 3,619
Interest paid (1,591) (2,379)
Interest on receivables received 230 -
Income taxes paid (8) -
Net cash inflow from operating activities 2,594 1,240
Investing activities
Investments in joint ventures (2,337) (700)
Purchases of property, plant and equipment (119) (261)
Purchases of intangible exploration and evaluation (39) (281)
assets
Proceeds from sale of property, plant and 29 5
equipment
Net cash inflow from acquisition of subsidiaries 2,041 -
Interest received 156 118
Net cash used in investing activities (269) (1,119)
Financing activities
Proceeds from short-term borrowings 1,908 13,187
Repayments of short-term borrowings (10,232) (12,225)
Net cash used in financing activities (8,324) 962
Net (decrease)/increase in cash and cash (5,999) 1,083
equivalents
Effect of foreign exchange rate changes (108) (603)
Cash and cash equivalents at beginning of year 49,407 48,927
Cash and cash equivalents at end of year 43,300 49,407
Consolidated Statement of Changes in Equity
For the year ended 31 December 2016
Share Cumulative Non-controlling Total
capital Retained translation interest $'000
$'000 earnings reserves $'000
$'000 $'000
Reorgani-sation Equity
$'000 attributable
to owners of
the Company
As at 1 January 2015 13,337 223,600 (148,991) 1,589 89,535 298 89,833
Net loss for the year - (23,261) - - (23,261) (22) (23,283)
Other comprehensive - - (11,521) - (11,521) - (11,521)
loss
Total comprehensive - (23,261) (11,521) (34,782) (22) (34,804)
loss for the year -
As at 1 January 2016 13,337 200,339 (160,512) 1,589 54,753 276 55,029
Net loss for the year - (5,912) - - (5,912) (6) (5,918)
Other comprehensive - - (987) - (987) (987)
loss
Total comprehensive - (5,912) (987) (6) (6,905)
loss for the year - (6,899)
As at 31 December 2016 13,337 194,427 (161,499) 1,589 47,854 270 48,124
Notes to the Consolidated Financial Statements
For the year ended 31 December 2016
1. General information
Cadogan Petroleum plc (the "Company", together with its subsidiaries the
"Group"), is registered in England and Wales under the Companies Act 2006. The
address of the registered office is 6th Floor, 60 Gracechurch Street, London
EC3V 0HR. The nature of the Group's operations and its principal activities are
set out in the Operations Review on pages 9 to 10 and the Financial Review on
pages 11 to 12.
2. Adoption of new and revised Standards
The accounting policies applied are consistent with those adopted and disclosed
in the Group financial statements for the year ended 31 December 2015, except
for changes arising from the adoption of the following new accounting
pronouncements which became effective in the current reporting period:
* Amendments to IFRS 11 Accounting for Acquisitions of Interest in Joint
Operations. The amendments to IFRS 11 provide guidance on how to account
for the acquisition of an interest in a joint operation in which the
activities constitute a business as defined in IFRS 3 Business
* Combination and state that the relevant principles on accounting for
business combinations in IFRS 3 and other standards should be applied. The
same requirements should be applied to the formation of a joint operation
if and only if an existing business is contributed to the joint operation
by one of the parties that participate in the joint venture. A joint
operator is also required to disclose the relevant information required by
IFRS 3 and other standards for business combinations. Entities should apply
the amendments prospectively to acquisitions of interest in joint
operations occurring from the beginning of annual periods beginning on or
after 1 January 2016
* The Group has determined that amendments to IFRS 11 do not impact its
consolidated financial statements as it does not have any arrangements
considered joint operations
* Amendments to IAS 1 Presentation of Financial Statements: Disclosure.
Initiative provides guidance on the use of judgement in presenting
financial statement information, including: the application of materiality;
order of notes; use of subtotals; accounting policy referencing and
disaggregation of financial and non-financial information. Amendments are
effective for annual periods beginning on or after 1 January 2016
The Group has determined that amendments to IAS 1 do not impact its
consolidated financial statements.
New IFRS accounting standards, amendments and interpretations not yet adopted
The following new IFRS accounting standards in issue but not yet effective
could have a significant impact on the Group:
IFRS 15 Revenue from Contracts with Customers
IFRS 15 will replace IAS 18 Revenue and IAS 11 Construction Contracts and
establishes a unified framework for determining the timing, measurement and
recognition of revenue. The principle of the new standard is to recognise
revenue as performance obligations are met rather than based on the transfer of
risks and rewards.
The effective date of the standard has been deferred to 1 January 2018 to allow
companies more time to deal with transitional issues of application.
The Group is currently reviewing the potential impact of adopting IFRS 15 with
the primary focus being understanding those sales contracts where the timing
and amount of revenue recognised could differ under IFRS 15, which may occur
for example if contracts with customers incorporate performance obligations not
currently recognised separately, or where such contracts incorporate variable
consideration.
As the Group's revenue is predominantly derived from arrangements in which the
transfer of risks and rewards coincides with the fulfilment of performance
obligations, the timing and amount of revenue recognised is unlikely to be
materially affected for the majority of sales.
IFRS 15 also includes disclosure requirements including qualitative and
quantitative information about contracts with customers to help users of the
financial statements understand the nature, amount, timing and uncertainty of
revenue.
In addition to the potential accounting implications outlined above, the
implementation of IFRS 15 is expected to impact the Group's systems, processes
and controls. The Group will start developing a transition plan to identify and
implement the required changes during 2017.
IFRS 9 Financial Instruments
IFRS 9 will replace IAS 39 Financial Instruments: Recognition and Measurement
and addresses the following three key areas:
* Classification and measurement establishes a single, principles-based
approach for the classification of financial assets, which is driven by
cash flow characteristics and the business model in which an asset is held.
This is expected to have a number of presentational impacts on the Group
financial statements including changes in the presentation of gains and
losses on financial assets and liabilities carried at fair value on the
balance sheet
* Impairment introduces a new 'expected credit loss' impairment model,
requiring expected credit losses to be recognised from when financial
instruments are first recognised. The transition to this model is expected
to result in changes in the systems and computational methods used by the
Group to assess receivables and similar assets for impairment. However,
given the profile of the Group's counterparty exposures, this is not
expected to have a material impact on the amounts recorded in the financial
statements
* Hedge Accounting aligns the accounting treatment with risk management
practices of an entity, including making a broader range of exposures
eligible for hedge accounting and introducing a more principles-based
approach to assessing hedge effectiveness. The adoption of IFRS 9 will not
require changes to existing hedging arrangements but may provide scope to
apply hedge accounting to a broader range of transactions in the future
IFRS 9 is effective for annual reporting periods beginning on or after 1
January 2018.
The Group's implementation activities to date have principally focused on
gaining a high level understanding of the likely effects of IFRS 9 given the
nature of financial instruments held by the Group. A more detailed impact
analysis and transition activities will be undertaken during 2017.
IFRS 16 Leases
IFRS 16 replaces the following standards and interpretations: IAS 17 Leases and
IFRIC 4 Determining whether an Arrangement contains a Lease. The new standard
provides a single lessee accounting model for the recognition, measurement,
presentation and disclosure of leases. IFRS 16 applies to all leases including
subleases and requires lessees to recognise assets and liabilities for all
leases, unless the lease term is 12 months or less, or the underlying asset has
a low value. Lessors continue to classify leases as operating or finance.
IFRS 16 was issued in January 2016 and applies to annual reporting periods
beginning on or after 1 January 2019. The Group will evaluate the potential
impact of IFRS 16 on the financial statements and performance measures. This
will include an assessment of whether any arrangements the Group enters into
will be considered a lease under IFRS 16.
Amendments to IFRS 10 Consolidated Financial Statements and IAS 28 Joint
Ventures
Sale or Contribution of Assets between an Investor and its Associate or Joint
Venture remove an inconsistency between the two standards on the accounting
treatment for gains and losses arising on the sale or contribution of assets by
an investor to its associate or joint venture. Following the amendment, such
gains and losses may only be recognised to the extent of the unrelated
investor's interest, except where the transaction involves assets that
constitute a business. The Group does not expect it to have a material impact
on its consolidated financial statements.
Amendments to IFRS 2 Share-based payment
Classification and Measurement of Share-Based Payment transactions. On 20 June
2016, the International Accounting Standards Board (IASB) published final
amendments to IFRS 2 that clarify the classification and measurement of
share-based payment transactions. IASB has now added guidance on accounting for
cash-settled share-based payment transactions that include a performance
condition, classification of share-based payment transactions with net
settlement features and accounting for modifications of share-based payment
transactions from cash-settled to equity-settled. Amendments are effective for
annual periods beginning on or after 1 January 2018.
The Group does not expect it to have a material impact on its consolidated
financial statements.
3. Significant accounting policies
(a) Basis of accounting
The financial statements have been 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"), and therefore the Group financial statements comply with Article 4 of
the EU IAS Regulation.
The financial statements have been prepared on the historical cost convention
basis, except for financial assets and liabilities, which have been measured at
fair values and using accounting policies consistent with IFRS.
The principal accounting policies adopted are set out below:
(b) Going concern
The Group's business activities, together with the factors likely to affect
future development, performance and position are set out in the Strategic
Report on pages 4 to 19. The financial position of the Group, its cash flow and
liquidity position are described in the Financial Review on pages 11 to 12.
The Group's cash balance at 31 December 2016 was $43.3 million (2015: $49.4
million). It includes restricted cash of $10.9 million (2015: $20 million)
(Note 20). The Directors believe that the funds available at the date of the
issue of these financial statements are sufficient for the Group to manage its
business risks and planned investments successfully.
The directors' confirmation that they have carried out a robust assessment of
the principal risks facing the Group, including those that could potentially
threaten its business model, future performance, solvency or liquidity is on
page 13.
The Group's forecasts and projections, taking into account reasonably possible
changes in trading activities, 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.
The Group continues to pursue its farm-out campaign, which, if successful, will
enable it to farm-out a portion of its interests in its oil and gas licences to
spread the risks associated with further exploration and development.
After making enquiries and considering the uncertainties described above, the
Directors have a reasonable expectation that the Company and the Group have
adequate resources to continue in operational existence for the foreseeable
future and consider the going concern basis of accounting to be appropriate
and, thus, they continue to adopt the going concern basis of accounting in
preparing the annual financial statements. In making its statement the
Directors have considered the recent political and economic situation in
Ukraine, as described further in the note 4 (d).
(c) Basis of consolidation
The consolidated financial statements incorporate the financial statements of
the Company and entities controlled by the Company (its subsidiaries) made up
to 31 December each year. IFRS 10 defines control to be investor control over
an investee when it is exposed, or has rights, to variable returns from its
involvement with the investee and has the ability to control those returns
through its power over the investee.
The results of subsidiaries acquired or disposed of during the year are
included in the consolidated income statement from the effective date of
acquisition or up to the effective date of disposal, as appropriate. Where
necessary, adjustments are made to the financial statements of subsidiaries to
bring accounting policies used into line with those used by the Group. All
intra-group transactions, balances, income and expenses are eliminated on
consolidation.
Non-controlling interests in subsidiaries are identified separately from the
Group's equity therein. Those interests of non-controlling shareholders that
are present ownership interests entitling their holders to a proportionate
share of net assets upon liquidation may be initially measured at fair value or
at the non-controlling interests' proportionate share of the fair value of the
acquiree's identifiable net assets. The choice of measurement is made on an
acquisition-by-acquisition basis. Other non-controlling interests are initially
measured at fair value.
Subsequent to acquisition, the carrying amount of non-controlling interests is
the amount of those interests at initial recognition plus the non-controlling
interests' share of subsequent changes in equity. Total comprehensive income is
attributed to non-controlling interests even if this results in the
non-controlling interests having a deficit balance.
Changes in the Group's interests in subsidiaries that do not result in a loss
of control are accounted for as equity transactions. The carrying amount of the
Group's interests and the non-controlling interests are adjusted to reflect the
changes in their relative interests in the subsidiaries. Any difference between
the amount by which the non-controlling interests are adjusted and the fair
value of the consideration paid or received is recognised directly in equity
and attributed to the owners of the Company.
(d) Change in accounting policy
The functional currency of the Company and of another UK holding company,
Cadogan Petroleum Holdings Limited, which is the currency of the primary
economic environment in which the entities operates, has been changed from
sterling to US dollars with effect from 1 January 2016. This has been done due
to the fact that the UK is no longer considered to be a primary economic
environment for the Group and its UK holding companies.
The change of the functional currency has been accounted for prospectively from
the date of the change. Assets and liabilities were translated using the
exchange rate at the date of the change. The difference between the historical
carrying values of non-monetary assets and liabilities and the new translated
values were recorded to the cumulative translation reserve.
(e) Business combinations
The acquisition of subsidiaries is accounted for using the acquisition method.
The cost of the acquisition is measured at the aggregate of the fair values, at
the date of exchange, of assets given, liabilities incurred or assumed, and
equity instruments issued in exchange for control of the acquiree.
Acquisition-related costs are recognised in profit or loss as incurred. The
acquiree's identifiable assets, liabilities and contingent liabilities that
meet the conditions for recognition under IFRS 3 Business Combinations are
recognised at their fair value at the acquisition date, except for non-current
assets (or disposal groups) that are classified as held for resale in
accordance with IFRS 5 Non-Current Assets held for sale and Discontinued
Operations. These are recognised and measured at fair value less costs to sell.
(f) Investments in joint ventures
A joint venture is a joint arrangement whereby the parties that have joint
control of the arrangement have rights to the net assets of the arrangement. A
joint venture firm recognises its interest in a joint venture as an investment
and shall account for that investment using the equity method in accordance
with IAS 28 Investments in Associates and Joint Ventures.
Under the equity method, the investment is carried on the balance sheet at cost
plus changes in the Group's share of net assets of the entity, less
distributions received and less any impairment in value of the investment. The
Group Consolidated Income Statement reflects the Group's share of the results
after tax of the equity-accounted entity, adjusted to account for depreciation,
amortisation and any impairment of the equity accounted entity's assets. The
Group Statement of Comprehensive Income includes the Group's share of the
equity-accounted entity's other comprehensive income.
Financial statements of equity-accounted entities are prepared for the same
reporting year as the Group. The Group assesses investments in equity-accounted
entities for impairment whenever events or changes in circumstances indicate
that the carrying value may not be recoverable. If any such indication of
impairment exists, the carrying amount of the investment is compared with its
recoverable amount, being the higher of its fair value less costs of disposal
and value in use. If the carrying amount exceeds the recoverable amount, the
investment is written down to its recoverable amount.
The Group ceases to use the equity method of accounting from the date on which
it no longer has joint control over the joint venture or significant influence
over the associate, or when the interest becomes classified as an asset held
for sale.
(f) Revenue recognition
Revenue is measured at the fair value of the consideration received or
receivable and represents amounts receivable for hydrocarbon products and
services provided in the normal course of business, net of discounts, value
added tax ('VAT') and other sales-related taxes. Sales of hydrocarbons are
recognised when the title has passed. Revenue from services is recognised in
the accounting period in which services are rendered. The main types of
services provided by the Group are drilling and civil works services.
Interest income is accrued on a time basis, by reference to the principal
outstanding and at the effective interest rate applicable, which is the rate
that exactly discounts estimated future cash receipts through the expected life
of the financial asset to that asset's net carrying amount on initial
recognition.
To the extent that revenue arises from test production during an evaluation
programme, an amount is charged from evaluation costs to cost of sales, so as
to reflect a zero net margin.
(g) Foreign currencies
The vast majority of the Group's earnings and costs are linked to US dollars or
US dollar linked currencies. The investing activity of the Company is being
conducted in US dollars and the majority of the Group's funds are currently
denominated in US dollars. The Group primary operating environment is outside
UK and UK subsidiaries remain registered in UK only due to listing.
In preparing the financial statements of the individual companies, transactions
in currencies other than the functional currency of each Group company
('foreign currencies') are recorded in the functional currency at the rates of
exchange prevailing on the dates of the transactions. At each balance sheet
date, monetary assets and liabilities that are denominated in foreign
currencies are retranslated into the functional currency at the rates
prevailing on the balance sheet date. Non-monetary assets and liabilities
carried at fair value that are denominated in foreign currencies are translated
at the rates prevailing at the date when the fair value was determined.
Non-monetary items that are measured in terms of historical cost in a foreign
currency are not retranslated. Foreign exchange differences on cash and cash
equivalents are recognised in operating profit or loss in the period in which
they arise.
Exchange differences are recognised in the profit or loss in the period in
which they arise except for exchange differences on monetary items receivable
from or payable to a foreign operation for which settlement is neither planned
nor likely to occur. This forms part of the net investment in a foreign
operation, which is recognised in the foreign currency translation reserve and
in profit or loss on disposal of the net investment.
For the purpose of presenting consolidated financial statements, the results
and financial position of each entity of the Group, where the functional
currency is not the US dollar, are translated into US dollars as follows:
i. assets and liabilities of the Group's foreign operations are translated at
the closing rate on the balance sheet date;
ii. income and expenses are translated at the average exchange rates for the
period, where it approximates to actual rates. In other cases, if exchange
rates fluctuate significantly during that period, the exchange rates at the
date of the transactions are used; and
iii. all resulting exchange differences arising, if any, are recognised in
other comprehensive income and accumulated equity (attributed to
non-controlling interests as appropriate), transferred to the Group's
translation reserve. Such translation differences are recognised as income
or as expenses in the period in which the operation is disposed of.
Goodwill and fair value adjustments arising on the acquisition of a foreign
entity are treated as assets and liabilities of the foreign entity and
translated at the closing rate.
The relevant exchange rates used were as follows:
Year ended 31 December 2016 Year ended 31 December 2015
GBP/USD USD/UAH GBP/USD USD/UAH
Closing rate 1.2346 27.4770 1.4805 24.2731
Average rate 1.3557 25.8169 1.5289 22.0584
(h) Taxation
The tax expense represents the sum of the tax currently payable and deferred
tax.
The tax currently payable is based on taxable profit for the year. Taxable
profit differs from net profit as reported in the consolidated income statement
because it excludes items of income or expense that are taxable or deductible
in other years and it further excludes items that are never taxable or
deductible. The Group's liability for current tax is calculated using tax rates
that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable
profit. This is accounted for using the balance sheet liability method.
Deferred tax liabilities are generally recognised for all taxable temporary
differences and deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which deductible
temporary differences can be utilised. Such assets and liabilities are not
recognised if the temporary difference arises from the initial recognition of
goodwill or from the initial recognition (other than in a business combination)
of other assets and liabilities in a transaction that affects neither the
taxable profit nor the accounting profit. Deferred tax liabilities are
recognised for taxable temporary differences arising on investments in
subsidiaries and associates, and interests in joint ventures, except where the
Group is able to control the reversal of the temporary difference and it is
probable that the temporary difference will not reverse in the foreseeable
future.
The carrying amount of deferred tax assets is reviewed at each balance sheet
date and reduced to the extent that it is no longer probable that sufficient
taxable profits will be available to allow all or part of the asset to be
recovered. Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset is realised.
Deferred tax is charged or credited in the income statement, except when it
relates to items charged or credited in other comprehensive income, in which
case the deferred tax is also dealt with in other comprehensive income.
Deferred tax assets and liabilities are offset when there is a legally
enforceable right to set off current tax assets against current tax liabilities
and when they relate to income taxes levied by the same taxation authority and
the Group intends to settle its current tax assets and liabilities on a net
basis.
In case of the uncertainty of the tax treatment, the Group assess, whether it
is probable or not, that the tax treatment will be accepted, and to determine
the value, the Group use the most likely amount or the expected value in
determining taxable profit (tax loss), tax bases, unused tax losses, unused tax
credits and tax rates.
(i) Other property, plant and equipment
Property, plant and equipment ('PP&E') are carried at cost less accumulated
depreciation and any recognised impairment loss. Depreciation and amortisation
is charged so as to write-off the cost or valuation of assets, other than land,
over their estimated useful lives, using the straight-line method, on the
following bases:
Other PP&E 10% to 30%
The gain or loss arising on the disposal or retirement of an asset is
determined as the difference between the sales proceeds and the carrying amount
of the asset and is recognised in income.
(j) Impairment of development and production assets and other property,
plant and equipment
At each balance sheet date, the Group reviews the carrying amounts of its PP&E
to determine whether there is any indication that those assets have suffered an
impairment loss. If any such indication exists, the recoverable amount of the
asset is estimated in order to determine the extent of the impairment loss (if
any). Where the asset does not generate cash flows that are independent from
other assets, the Group estimates the recoverable amount of the cash-generating
unit to which the asset belongs. The recoverable amount is the higher of fair
value less costs to sell and value in use. In assessing value in use, the
estimated future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset for which the estimates of
future cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to
be less than its carrying amount, the carrying amount of the asset
(cash-generating unit) is reduced to its recoverable amount. An impairment loss
is recognised as an expense immediately.
Where an impairment loss subsequently reverses, the carrying amount of the
asset (cash-generating unit) is increased to the revised estimate of its
recoverable amount, but so that the increased carrying amount does not exceed
the carrying amount that would have been determined had no impairment loss been
recognised for the asset (cash-generating unit) in prior years. A reversal of
an impairment loss is recognised as income immediately.
(k) Intangible exploration and evaluation assets
The Group applies the modified full cost method of accounting for intangible
exploration and evaluation ('E&E') expenditure, which complies with requirement
set out in IFRS 6 Exploration for and Evaluation of Mineral Resources. Under
the modified full cost method of accounting, expenditure made on exploring for
and evaluating oil and gas properties is accumulated and initially capitalised
as an intangible asset, by reference to appropriate cost centres being the
appropriate oil or gas property. E&E assets are then assessed for impairment on
a geographical cost pool basis, which are assessed at the level of individual
licences.
E&E assets comprise costs of (i) E&E activities which are in progress at the
balance sheet date, but where the existence of commercial reserves has yet to
be determined (ii) E&E expenditure which, whilst 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 incurred.
Exploration and Evaluation costs
E&E expenditure is initially capitalised as an E&E asset. Payments to acquire
the legal right to explore, costs of technical services and studies, seismic
acquisition, exploratory drilling and testing are also capitalised as
intangible E&E assets.
Tangible assets used in E&E activities (such as the Group's vehicles, drilling
rigs, seismic equipment and other property, plant and equipment) are normally
classified as PP&E. However, to the extent that such assets are consumed in
developing an intangible E&E asset, the amount reflecting that consumption is
recorded as part of the cost of the intangible asset. Such intangible costs
include directly attributable overheads, including the depreciation of PP&E
items utilised in E&E activities, together with the cost of other materials
consumed during the exploration and evaluation phases.
E&E assets are not amortised prior to the conclusion of appraisal activities.
Treatment of E&E assets at conclusion of appraisal activities
Intangible E&E assets related to each exploration property 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 individual assets basis as set out below and any
impairment loss is recognised in the income statement. Upon approval of a
development programme, the carrying value, after any impairment loss, of the
relevant E&E assets is reclassified to the development and production assets
within PP&E.
Intangible E&E assets that relate to E&E activities that are determined not to
have resulted in the discovery of commercial reserves remain capitalised as
intangible E&E assets at cost less accumulated amortisation, subject to meeting
a pool-wide impairment test in accordance with the accounting policy for
impairment of E&E assets set out below.
Impairment of E&E assets
E&E assets are assessed for impairment when facts and circumstances suggest
that the carrying amount may exceed its recoverable amount. Such indicators
include, but are not limited to, those situations outlined in paragraph 20 of
IFRS 6 Exploration for and Evaluation of Mineral Resources and include the
point at which a determination is made as to whether or not commercial reserves
exist.
Where there are indications of impairment, the E&E assets concerned are tested
for impairment. Where the E&E assets concerned fall within the scope of an
established full cost pool, which are not larger than an operating segment,
they are tested for impairment together with all development and production
assets associated with that cost pool, as a single cash generating unit.
The aggregate carrying value of the relevant assets is compared against the
expected recoverable amount of the pool, generally by reference to the present
value of the future net cash flows expected to be derived from production of
commercial reserves from that pool. Where the assets fall into an area that
does not have an established pool or if there are no producing assets to cover
the unsuccessful exploration and evaluation costs, those assets would fail the
impairment test and be written off to the income statement in full.
Impairment losses are recognised in the income statement as additional
depreciation and amortisation and are separately disclosed.
Reclassification from development and production assets back to exploration and
evaluation
Where development efforts are unsuccessful in the target geological formation
of the licence area but the Company see a potential for oil and gas discoveries
in other geological formations of the same licence area, reclassification of
recoverable amount of assets from development and production assets back to
exploration and evaluation is appropriate following the impairment assessment.
(l) Development and production assets
Development and production assets are accumulated on a field-by-field basis and
represent the cost of developing the commercial Reserves discovered and
bringing them into production, together with E&E expenditures incurred in
finding commercial Reserves transferred from intangible E&E assets.
The cost of development and production assets comprises the cost of
acquisitions and purchases of such assets, directly attributable overheads,
finance costs capitalised, and the cost of recognising provisions for future
restoration and decommissioning.
Depreciation of producing assets
Depreciation is calculated on the net book values of producing assets on a
field-by-field basis using the unit of production method. The unit of
production method refers to the ratio of production in the reporting year as a
proportion of the Proved and Probable Reserves of the relevant field, taking
into account future development expenditures necessary to bring those Reserves
into production.
Producing assets are generally grouped with other assets that are dedicated to
serving the same Reserves for depreciation purposes, but are depreciated
separately from producing assets that serve other Reserves.
(m) Inventories
Oil and gas stock and spare parts are stated at the lower of cost and net
realisable value. Costs comprise direct materials and, where applicable, direct
labour costs and those overheads that have been incurred in bringing the
inventories to their present location and condition. Cost is allocated using
the weighted average method. Net realisable value represents the estimated
selling price less all estimated costs of completion and costs to be incurred
in marketing, selling and distribution.
(n) Financial instruments
Recognition of financial assets and financial liabilities
Financial assets and financial liabilities are recognised on the Group's
balance sheet when the Group becomes a party to the contractual provisions of
the instrument.
Derecognition of financial assets and financial liabilities
The Group derecognises a financial asset only when the contractual rights to
cash flows from the asset expire; or it transfers the financial asset and
substantially all the risks and rewards of ownership of the asset to another
entity. If the Group neither transfers nor retains substantially all the risks
and rewards of ownership and continues to control the transferred asset, the
Group recognises its retained interest in the asset and an associated liability
for the amount it may have to pay. If the Group retains substantially all the
risks and rewards of ownership of a transferred financial asset, the Group
continues to recognise the financial asset and also recognises a collateralised
borrowing for the proceeds received.
The Group derecognises financial liabilities when the Group's obligations are
discharged, cancelled or expired.
Financial assets
The Group classifies its financial assets in the following categories: loans
and receivables; available-for-sale financial assets; held to maturity
investments; and financial assets at fair value through profit or loss
("FVTPL"). The classification depends on the purpose for which the financial
assets were acquired. Management determines the classification of its
financial assets at initial recognition and re-evaluates this
designation at every reporting date.
Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. They are
included in current assets, except for those with maturities greater than
twelve months after the balance sheet date which will then be classified as
non-current assets. Loans and receivables are classified as "other receivables"
and "cash and cash equivalents" in the balance sheet.
Trade and other receivables
Trade and other receivables are measured at initial recognition at fair value,
and are subsequently measured at amortised cost using the effective interest
rate method.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, on-demand deposits, and other
short-term highly liquid investments that are readily convertible to a known
amount of cash with three months or less remaining to maturity and are subject
to an insignificant risk of changes in value.
Restricted cash balances represent components of cash and cash equivalents that
are not available for use by the Group.
Impairment of financial assets
Financial assets, other than those at FVTPL, are assessed for indicators of
impairment at each balance sheet date. Appropriate allowances for estimated
irrecoverable amounts are recognised in profit or loss when there is objective
evidence that the asset is impaired. The allowance recognised is measured as
the difference between the asset's carrying amount of the financial asset and
the present value of estimated future cash flows discounted at the effective
interest rate computed at initial recognition.
Evidence of impairment could include:
* significant financial difficulty of the issuer or counterparty;
* default or delinquency in interest or principal payments; or
* it becoming probable that the borrower will enter bankruptcy or financial
re-organisation.
For certain categories of financial assets, such as trade receivables, assets
that are assessed not to be impaired individually are, in addition, assessed
for impairment on a collective basis.
The carrying amount of the financial assets is reduced by the impairment loss
directly for all financial assets with the exception of trade receivables,
where the carrying amount is reduced through the use of an allowance account.
Subsequent recoveries of amounts previously written off are credited against
the allowance account. Changes in the carrying amount of the allowance account
are recognised in profit or loss.
If, in a subsequent period, the amount of the impairment loss decreases and the
decrease can be related objectively to an event occurring after the impairment
was recognised, the previously recognised impairment loss is reversed through
profit or loss to the extent that the carrying amount of the investment at the
date the impairment is reversed does not exceed what the amortised cost would
have been had the impairment not been recognised.
Financial liabilities
Financial liabilities are classi?ed as either ?nancial liabilities 'at FVTPL'
or 'other ?nancial liabilities'
Trade payables and short-term borrowings
Trade payables and short-term borrowings are initially measured at fair value,
and are subsequently measured at amortised cost, using the effective interest
rate method.
(o) Provisions
Provisions are recognised when the Group has a present obligation (legal or
constructive) as a result of a past event, it is probable that the Group will
be required to settle that obligation and a reliable estimate can be made of
the amount of the obligation. The amount recognised as a provision is the best
estimate of the consideration required to settle the present obligation at the
balance sheet date, taking into account the risks and uncertainties surrounding
the obligation. When a provision is measured using the cash flows estimated to
settle the present obligation, its carrying amount is the present value of
those cash flows.
(p) Decommissioning
A provision for decommissioning is recognised in full when the related
facilities are installed. The decommissioning provision is calculated as the
net present value of the Group's share of the expenditure expected to be
incurred at the end of the producing life of each field in the removal and
decommissioning of the production, storage and transportation facilities
currently in place. The cost of recognising the decommissioning provision is
included as part of the cost of the relevant asset and is thus charged to the
income statement on a unit of production basis in accordance with the Group's
policy for depletion and depreciation of tangible non-current assets. Period
charges for changes in the net present value of the decommissioning provision
arising from discounting are included within finance costs.
4. Critical accounting judgements and key sources of estimation
uncertainty
In the application of the Group's accounting policies, which are described in
note 3, the Directors are required to make judgements, estimates and
assumptions about the carrying amounts of the assets and liabilities that are
not readily apparent from other sources. The estimates and associated
assumptions are based on historical experience and other factors that are
considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period or in the period
of the revision and future periods if the revision affects both the current and
future periods.
The following are the critical judgements and estimates that the Directors have
made in the process of applying the Group's accounting policies and that have
the most significant effect on the amounts recognised in the financial
statements:
Critical judgements
(a) Acquisition of remaining interest in joint ventures
Note 17 describes the Group's acquisition of eni Ukraine's 30% and 60% of the
issued share capital of Pokrovskaya Petroleum B.V. ("Pok") and Zagoryanskaya
Petroleum B.V. ("Zag"), respectively. The Group accounted for this transaction
as an asset acquisition rather than acquisition of the business as operations
of Pok and Zag do not meet definition of a business under IFRS 3.
(b) Investment in LLC Westgasinvest
Note 17 describes that LLC Westgasinvest is a joint venture of the Group
although the Group only owns a 15% in LLC Westgasinvest. The Group has joint
control over LLC Westgasinvest by virtue of its contractual right to be a party
to an arrangement where decisions about the relevant activities are made by the
unanimous consent of the parties that control the arrangement collectively.
Estimations of uncertainty
(c) Impairment of E&E assets
The outcome of ongoing exploration, and therefore the recoverability of the
carrying value of intangible exploration and evaluation assets, is inherently
uncertain. Management makes the judgments necessary to implement the Group's
policy with respect to exploration and evaluation assets and considers these
assets for impairment at least annually with reference to indicators in IFRS 6
(Note 14).
(d) Impairment of investments in joint ventures
The Group's investments in joint ventures are accounted for using the equity
method. The carrying value of the Group's investments is reviewed at each
balance sheet date. As a result impairment has been recognised in the financial
statements of the joint venture and the Group's share was included in the
consolidated financial statements as share of losses in joint ventures. Further
details are provided in Note 17.
5. Segment information
Segment information is presented on the basis of management's perspective and
relates to the parts of the Group that are defined as operating segments.
Operating segments are identified on the basis of internal reports provided to
the Group's chief operating decision maker ("CODM"). The Group has identified
its top management team as its CODM and the internal reports used by the top
management team to oversee operations and make decisions on allocating
resources serve as the basis of information presented. These internal reports
are prepared on the same basis as these consolidated financial statements.
Segment information is analysed on the basis of the type of activity, products
sold or services provided. The majority of the Group's operations are located
within Ukraine. Segment information is analysed on the basis of the types of
goods supplied by the Group's operating divisions. The Group's reportable
segments under IFRS 8 are therefore as follows:
Exploration and Production
* E&P activities on the production licences for natural gas, oil and
condensate
Service
* Drilling services to exploration and production companies
* Civil works services to exploration and production companies
Trading
* Import of natural gas from European countries
* Local purchase and sales of natural gas operations with physical delivery
of natural gas
The accounting policies of the reportable segments are the same as the Group's
accounting policies described in Note 3. Sales between segments are carried out
at market prices. The segment result represents operating profit under IFRS
before unallocated corporate expenses. Unallocated corporate expenses include
management remuneration, representative expenses and expenses incurred in
respect of the maintenance of office premises. This is the measure reported to
the CODM for the purposes of resource allocation and assessment of segment
performance. The Group does not present information on segment assets and
liabilities as the CODM does not review such information for decision-making
purposes.
As of 31 December 2016 and for the year then ended the Group's segmental
information was as follows:
Exploration Service Trading Consolidated
and
Production
$'000 $'000 $'000 $'000
Sales of hydrocarbons 598 - 16,598 17,196
Other revenue - 2,496(1) - 2,496
Sales between segments 981 (981) -
Total revenue 1,579 2,496 15,617 19,692
Cost of sales (1,182) (1,893) (15,548) (18,623)
Administrative expenses (408) - (886) (1,294)
Finance cost, net (Note 11) - - (1,153) (1,153)
(2)
Segment results (11) 603 (1,970) (1,378)
Unallocated administrative (4,309)
expenses
Other losses, net (25)
Impairment of oil and gas (90)
assets(3)
Gain on acquisition of assets 99
Share of loss in joint (143)
ventures(4)
Net foreign exchange gains 38
Loss before tax (5,808)
(1) Services provided were primarily related to well abandonment and site
restoration and the turn-over substantially increased over the previous year as
some of the activities which had been put on hold by the clients were awarded.
(2) Finance cost includes $1.4 million of interest on short-term borrowings,
$0.2 million of interest income on receivables and $31 thousand of interest on
cash deposits used for trading.
(3) Impairment loss recognised in 2016 of $90 thousand related to exploration
and production segment.
(4) Share of losses in the joint ventures includes $1.7 million of operating
losses, $0.8 million of additional impairment of Westgasinvest LLC and $2.3
million of income received by one of the Group subsidiaries for decommissioning
services provided to the joint ventures (Note 17).
As of 31 December 2015 and for the year then ended the Group's segmental
information was as follows:
Exploration Service Trading Consolidated
and
Production
$'000 $'000 $'000 $'000
Sales of hydrocarbons 521 - 74,565 75,086
Other revenue - 354 - 354
Sales between segments 1,314 - (1,314) -
Total revenue 1,835 354 73,251 75,440
Cost of sales (1,932) (250) (67,380) (69,562)
Administrative expenses (548) - (641) (1,189)
Finance cost (Note 11) - - (2,411) (2,411)
Segment results (645) 104 2,819 2,278
Unallocated administrative (4,926)
expenses
Other income, net 1,235
Impairment(1) (10,480)
Share of losses in joint (12,844)
ventures
Net foreign exchange gains 2,494
Loss before tax (22,243)
(1) Impairment loss recognised in 2014 of $5.1 million related to exploration
and production segment.
6. Revenue
2016 2015
$'000 $'000
Sale of hydrocarbons 17,196 75,086
Other revenues 2,496 354
19,692 75,440
Information about major customers
Included in revenues for the year ended 31 December 2016 are revenues of $6.3
million (2015: $35.7 million), which arose from sales to the Group's two
largest customers.
7. Administrative expenses
2016 2015
$'000 $'000
Staff costs (Note 10) 3,082 3,121
Professional fees 1,555 1,354
Business trip 316 591
Office rent 138 212
Insurance 122 228
Other 390 609
5,603 6,115
Professional fees of 2016 includes $0.5 million (2015: nil) of brokerage fees
for services rendered in past years.
8. Impairment of other assets
2016 2015
$'000 $'000
Inventories (92) (90)
Receivables (59) -
VAT recoverable 69 1,390
(Impairment)/Reversal of impairment of other assets, (82) 1,300
net
The carrying value of inventory as at 31 December 2016 and 2015 has been
impaired to reduce it to net realisable value (see note 18). During 2016, the
Group gross sales of inventory to third parties comprised $52 thousand (2015:
$0.1 million).
9. Auditor's remuneration
The analysis of auditor's remuneration is as follows:
2016 2015
$'000 $'000
Audit fees
Fees payable to the Company's auditor and their associates for 146 180
the audit of the Company's annual accounts
Fees payable to the Company's auditor and their associates for
other services to the Group:
* The audit of the Company's subsidiaries 43 35
Total audit fees 189 215
Non-audit fees
* Audit-related assurance services 19 66
* Taxation compliance services 36 59
Non-audit fees 55 125
10. Staff costs
The average monthly number of employees (including Executive Directors) was:
2016 2015
Number Number
Executive Directors 3 3
Other employees 66 77
69 80
Total number of employees at 31 December 69 80
$'000 $'000
Their aggregate remuneration comprised:
Wages and salaries 2,443 2,895
Annual bonus 475 -
Social security costs 164 226
3,082 3,121
Within wages and salaries $1.1 million (2015: $0.9 million) relates to amounts
accrued and paid to executive Directors for services rendered.
Included within wages and salaries is nil (2015: $0.1 million) capitalised to
intangible E&E assets and $nil (2015: $0.1) capitalised to development and
production assets.
11. Finance costs, net
2016 2015
$'000 $'000
Interest expense on short-term borrowings (1,414) (2,411)
Interest expense on tax provision (note 24) (33) (201)
Total interest expense on financial liabilities (1,447) (2,612)
Interest income on receivables 230 -
Interest income on cash deposits in Ukraine 31 -
Investment revenue 125 118
Total interest income on financial assets 386 118
Unwinding of discount on decommissioning provision (note 24) (26) (13)
(1,087) (2,507)
12. Tax
2016 2015
$'000 $'000
Current tax 110 11
Adjustment in relation to the current tax of prior years - 1,317
Deferred tax benefit - (288)
110 1,040
The Group's operations are conducted primarily outside the UK, namely in
Ukraine. The most appropriate tax rate for the Group is therefore considered to
be 18% (2015: 18%), the rate of profit tax in Ukraine, which is the primary
source of revenue for the Group. Taxation for other jurisdictions is calculated
at the rates prevailing in the respective jurisdictions.
The taxation charge for the year can be reconciled to the loss per the income
statement as follows:
2016 2016 2015 2015
$'000 % $'000 %
Loss before tax (5,808) 100 (22,243) 100.0
Tax credit at Ukraine corporation tax rate of (1,045) 18 (4,004) 18.0
18% (2015: 18%)
Permanent differences 1,060 (18.2) 1,511 (6.8)
Unrecognised tax losses generated/(utilised) in 378 (6.5) (107) 0.5
the year
Tax credit related to the Joint venture losses 26 (0.4) 2,312 (10.4)
Effect of different tax rates (309) 5.3 11 (0.1)
110 (1.8) (277) 1.3
Adjustments recognised in the current year in - - 1,317 -
relation
to the current tax of prior years
Income tax expense recognised in profit or loss 110 - 1,040 -
Permanent differences mostly represent differences on profit/(loss) items,
including provisions, accruals, impairments, related to taxation in Ukraine,
where it is probable that such differences will not reverse in the foreseeable
future.
13. Loss per Ordinary share
Basic loss per Ordinary share is calculated by dividing the net loss for the
year attributable to owners of the Company by the weighted average number of
Ordinary shares outstanding during the year. The calculation of the basic loss
per share is based on the following data:
Loss attributable to owners of the Company 2016 2015
$'000 $'000
Loss for the purposes of basic loss per share being net loss (5,912) (23,261)
attributable to owners of the Company
2016 2015
Number Number
Number of shares '000 '000
Weighted average number of Ordinary shares for the purposes of 231,092 231,092
basic loss per share
2016 2015
Cent cent
Loss per Ordinary share
Basic (2.6) (10.1)
The Group has no potentially dilutive instruments in issue. Therefore no
diluted loss per share is presented above.
14. Intangible exploration and evaluation assets
$'000
Cost
At 1 January 2015 37,181
Additions 281
Change in estimate of decommissioning assets (note 183
24)
Disposals (2)
Exchange differences (12,310)
At 1 January 2016 25,333
Additions 39
Disposals (27)
Exchange differences (2,997)
At 31 December 2016 22,348
Impairment
At 1 January 2015 18,892
Impairment charge 10,105
Exchange differences (6,364)
At 1 January 2016 22,633
Exchange differences (2,639)
At 31 December 2016 19,994
Carrying amount
At 31 December 2016 2,354
At 31 December 2015 2,700
The carrying amount of E&E assets as at 31 December 2016 of $2.4 million (2015:
$2.7 million) relates to Bitlyanska licence. Management has considered facts
and circumstances that could suggest that the carrying amount of the Bitlyanska
licence can exceed its recoverable amount at 31 December 2016. As of 31
December 2016 management of the Group carried out the assessment of the
Bitlyanska licences value in use and recognised no impairment as recoverable
amount was higher than the book value of the assets. Key assumptions used in
the impairment assessment were as follows:
* Future gas price was assumed to be flat $210, real per m3; and
* The pre-tax discount rate used was 24%, real.
15. Property, plant and equipment
Cost Development Total
and $'000
production Other
assets $'000
$'000
At 1 January 2015 8,778 5,190 13,968
Additions 172 89 261
Change in estimate of decommissioning 79 - 79
assets (note 24)
Disposals (1) (43) (44)
Exchange differences (2,934) (2,063) (4,997)
At 1 January 2016 6,094 3,173 9,267
Additions 90 29 119
Disposals - (29) (29)
Exchange differences (711) (370) (1,081)
At 31 December 2016 5,473 2,803 8,276
Accumulated depreciation and impairment
At 1 January 2015 8,436 1,686 10,122
Impairment 375 - 375
Charge for the year 82 352 434
Disposals (1) (16) (17)
Exchange differences (2,798) (510) (3,308)
At 1 January 2016 6,094 1,512 7,606
Impairment 90 - 90
Charge for the year - 138 138
Disposals - (14) (14)
Exchange differences (711) (145) (856)
At 31 December 2016 5,473 1,491 6,964
Carrying amount
At 31 December 2016 - 1,312 1,312
At 31 December 2015 - 1,661 1,661
Other property, plant and equipment include fixtures and fittings for the
development and production activities.
16. Subsidiaries
The Company had investments in the following subsidiary undertakings as at 31
December 2016:
Name Country of Proportion Activity Registered office
incorporation of voting
and operation interest %
Directly held
Cadogan Petroleum UK 100 Holding 6th Floor 60 Gracechurch
Holdings Ltd company Street, London, United
Kingdom, EC3V 0HR
Ramet Holdings Ltd Cyprus 100 Holding 48 Inomenon Ethnon, Guricon
company House, Floor 2 & 3, 6042,
Larnaca, Cyprus
Indirectly held
Rentoul Ltd Isle of Man 100 Holding Commerce House, 1 Bowring
company Road, Ramsey, Isle of Man IM8
2LQ
Cadogan Petroleum Netherlands 100 Holding Hoogoorddreef 15, 1101 BA
Holdings BV company Amsterdam
Cadogan Bitlyanske BV Netherlands 100 Holding Hoogoorddreef 15, 1101 BA
company Amsterdam
Cadogan Delta BV Netherlands 100 Holding Hoogoorddreef 15, 1101 BA
company Amsterdam
Cadogan Astro Energy BV Netherlands 100 Holding Hoogoorddreef 15, 1101 BA
company Amsterdam
Cadogan Pirkovskoe BV Netherlands 100 Holding Hoogoorddreef 15, 1101 BA
company Amsterdam
Cadogan Zagoryanske Netherlands 100 Holding Hoogoorddreef 15, 1101 BA
Production BV company Amsterdam
Zagoryanska Petroleum Netherlands 100 Holding Hoogoorddreef 15, 1101 BA
BV company Amsterdam
Pokrovskoe Petroleum BV Netherlands 100 Holding Hoogoorddreef 15, 1101 BA
company Amsterdam
Cadogan Black Sea Netherlands 100 Dormant Hoogoorddreef 15, 1101 BA
Holdings B.V. Amsterdam
Cadogan Ukraine Cyprus 100 Holding 48 Inomenon Ethnon, Guricon
Holdings Limited company House, Floor 2 & 3, 6042,
Larnaca, Cyprus
Momentum Enterprise Cyprus 100 Holding 48 Inomenon Ethnon, Guricon
(Europe) Ltd company House, Floor 2 & 3, 6042,
Larnaca, Cyprus
Radley Investments Ltd UK 100 Dormant Lynton House 7-12 Tavistock
Square London WC1H 9LT
Cadogan Petroleum Switzerland 100 Dormant Via Clemente Maraini 39, 6900
Trading SAGL Lugano, Switzerland
Global Commodities NC France 80 Dormant 23 RUE BALZAC 75008 PARIS
SAS
LLC AstroInvest-Ukraine Ukraine 100 Exploration 5a, Pogrebnyak Street, ap. 2,
Zinkiv, Poltava region,
Ukraine, 38100
LLC Zagvydobuvannya Ukraine 100 Exploration 3, Myru str., Poltava,
Ukraine, 36022
LLC Astro Gas Ukraine 100 Exploration 5a, Pogrebnyak Street, ap. 2,
Zinkiv, Poltava region,
Ukraine, 38100
LLC Astroinvest-Energy Ukraine 100 Exploration 5a, Pogrebnyak Street, ap. 2,
Zinkiv, Poltava region,
Ukraine, 38100
LLC Industrial Company Ukraine 100 Exploration 3, Myru str., Poltava,
Gazvydobuvannya Ukraine, 36022
DP USENCO Ukraine Ukraine 100 Exploration 8, Mitskevycha sq., Lviv,
Ukraine, 79000
LLC USENCO Nadra Ukraine 95 Exploration 9a, Karpenka-Karoho str.,
Sambir, Lviv region, Ukraine
JV Delta Ukraine 100 Exploration 3 Petro Kozlaniuk str,
Kolomyia,
Name Country of Proportion Activity Registered office
incorporation of voting
and operation interest %
LLC WestGasInvest Ukraine 15 Exploration 14, Uhorska str., Lviv,
79034, Ukraine
LLC Astro-Service Ukraine 100 Service 3 Petro Kozlaniuk str,
Company Kolomyia,
OJSC Ukraine 79.9 Construction Ivan Franko str, Hvizdets,
AgroNaftoGasTechService services Kolomyia district,
Ivano-Frankivsk Region,
Ukraine
LLC Cadogan Ukraine Ukraine 100 Corporate 48/50A Zhylyanska Street, BC
services "Prime", 8th fl. 01033 Kyiv,
Ukraine
During the year ended 31 December 2016, the Group structure continued to be
rationalised both so as to reduce the number of legal entities and also to
replace the structure of multiple jurisdictions with one based on a series of
sub-holding companies incorporated in the Netherlands for each licence area.
Till the date of this report the Group put into liquidation three companies:
Cadogan Black Sea Holdings B.V., Radley Investments Ltd, Cadogan Petroleum
Trading SAGL. This process will continue in 2017 with the likely liquidation
and/or sale of the following companies: Rentoul Ltd, Global Commodities NC SAS
and Cadogan Momentum Holdings Inc.
17. Joint ventures
As at the end of the 2016 reporting periods the details of the Group's joint
venture is as follows:
Company name Licences held Country of Ownership Activity
incorporation share %
and operation
LLC Westgasinvest Reklynetska, Ukraine 15 Exploration
Zhuzhelianska,
Cheremkhivsko-Strupkivska,
Baulinska, Filimonivska,
Kurinna, Sandugeyivska,
Yakovlivska and
Debeslavetska Production
licence
On 21 December 2016 the Group acquired 30% of the issued share capital of
Pokrovskaya Petroleum B.V. ("Pok") and 60% of the issued share capital of
Zagoryanskaya Petroleum B.V. ("Zag") for an immaterial consideration, resulting
in Pokrovskaya Petroleum B.V. and Zagoryanskaya Petroleum B.V. becoming
wholly-owned companies. As a result of the transaction, the Group acquired $2.0
million of cash and also $5.9 million of VAT credit and $103 million of unused
tax losses of both companies, for which the impairment has been recognised in
prior years. The Group consolidated entities and recognised a gain in the
amount of $99 thousand.
In 2016 till the date of acquisition Zag had $1.2 million of profit and Pok
incurred $2.0 million of losses mainly related to the impairment of E&E assets
due to licence expiration in August 2016.
As at 31 December 2016 Westgasinvest LLC is accounted for using the equity
method in these consolidated financial statements. According to the
shareholders' agreements, which regulate the activities of the jointly
controlled entities, all key decisions require unanimous approval from the
shareholders, therefore these entities are jointly controlled.
Summarised financial information in respect of each of the Group's material
joint ventures is set out below. The summarised financial information below
represents amounts shown in the joint venture's financial statements prepared
in accordance with IFRSs.
LLC Westgasinvest
2016 2015
$'000 $'000
Non-current assets 1,460 83
Current assets 60 562
Non-current liabilities - -
Current liabilities (391) (313)
Revenue - -
Loss for the period (3,150) (1,854)
Other comprehensive income (1,686) (322)
Total comprehensive loss (4,836) (2,176)
Net assets of the joint venture 1,129 332
The carrying amounts of the Group's interest in joint venture recognized in the
financial statements of the Group using the equity method are set out in the
tables below:
LLC
Westgasinvest
$'000
(Deficit)/ net assets recognised as at 1 January 2015 4,211
Loss for the year (330)
(Deficit)/ net assets recognised as at 1 January 2016 3,881
Profit/(Loss) for the year (1,558)
Carrying amount of Group's interest as at 31 December 2016 2,323
Share of losses in joint venture of $0.1 million comprised of $0.5 million
profit on Zag, $1.4 million of losses on Pok, $1.5 million of loss on WGI,
which included $0.8 million loss recognized as impairment of Westgasinvest LLC
and of $2.3 million profit received by the Group for decommissioning services
provided to the joint ventures.
18. Inventories
2016 2015
$'000 $'000
Natural gas 987 2,525
Other inventories 1,076 1,186
Impairment provision for obsolete inventory (184) (208)
Carrying amount 1,879 3,503
The impairment provision as at 31 December 2016 and 2015 is made so as to
reduce the carrying value of the obsolete inventories to net realisable value.
During 2016 an impairment charge of $0.2 million (2015: $0.1 million) has been
recognised in respect of other inventories. As at 31 December 2016 and 2015 the
Group had no inventories carried at fair value less costs of disposal. Cost of
inventories sold during the year was $29 thousand (2015: $22 thousand).
19. Trade and other receivables
2016 2015
$'000 $'000
Trading receivables 2,163 8,514
VAT recoverable 829 -
Trading prepayments 777 3,206
Receivable from joint venture 58 1,824
Prepayments 1 64
Other receivables 318 803
4,146 14,411
Trading prepayments represent actual payments made by the Group to suppliers
for the January 2017 gas supply.
Trading receivables represent current receivables from customers and are to be
repaid within four months after the year end. The Group considers that the
carrying amount of receivables approximates their fair value.
VAT recoverable is presented net of the cumulative provision of $7.3 million
(2015: $1.1 million) against Ukrainian VAT receivable has been recognised as at
31 December 2016. VAT recoverable relates to the gas trading operations and
expected to be recovered through the gas sales.
20. Cash and cash equivalents
Cash and cash equivalents as at 31 December 2016 of $43.3 million (2015: $49.4
million) comprise cash held by the Group. The Directors consider that the
carrying amount of these assets approximates to their fair value.
As of 31 December 2016 total amount of restricted cash is $10.9 million (2015:
$20 million). Part of the cash and cash equivalents in amount of $10 million
related to security of borrowings and held at UK bank is considered to be
restricted cash balance (note 22), this has been decreased to $5 million in
March 2017. Also as at 31 December 2016 cash and cash equivalents of $0.9
million were held in the Ukrainian subsidiary of the European bank as a
financial covered guarantee in favor of PJSC Ukrtransgas to fulfill the
requirement of the Ukrainian legislation on gas trading.
21. Deferred tax
The following are the major deferred tax liabilities and assets recognised by
the Group and movements thereon during the current and prior reporting period:
Temporary
differences
$'000
Liability as at 1 January 2015 288
Deferred tax benefit (287)
Exchange differences (1)
Liability as at 1 January 2016 -
Deferred tax benefit -
Exchange differences -
Liability as at 31 December 2016 -
At 31 December 2016, the Group had the following unused tax losses available
for offset against future taxable profits:
2016 2015
$'000 $'000
UK 10,652 9,054
Ukraine 180,475 78,859
191,127 87,913
Deferred tax assets have not been recognised in respect of these tax losses
owing to the uncertainty that profits will be available in future periods
against which they can be utilised.
The Group's unused tax losses of $10.7 million (2015: $9.1 million) relating to
losses incurred in the UK are available to shelter future non-trading profits
arising within the Company. These losses are not subject to a time restriction
on expiry.
Unused tax losses incurred by Ukraine subsidiaries amount to $180.5 million
(2015: $78.9 million). The increase is primarily related to acquisition of LLC
Astroinvest-Energy and LLC Industrial company Gazvydo-buvannya on 21 December
2016. Under general provisions, these losses may be carried forward
indefinitely to be offset against any type of taxable income arising from the
same company of origination. Tax losses may not be surrendered from one Ukraine
subsidiary to another. However, in the past, Ukrainian legislation has been
imposed which restricted the carry forward of tax losses. During 2011 a new tax
legislation in Ukraine was implemented which resulted in the restriction to
recognition of accumulated losses at 1 April 2011. Starting at 1 January 2012
only 25% of accumulated losses as at this date are allowed to be utilised each
year for the period from 2012 till 2015 in the calculation of taxable income of
the company. Tax losses accumulated after 1 January 2012 have no restrictions.
22. Short-term borrowings
In October 2014 the Group started to use short-term borrowings as a financing
facility for its trading activities. Borrowings are represented by credit line
drawn in short-term tranches in UAH at Ukrainian bank, 100% subsidiary of UK
bank. The credit line is secured by $10 million of cash balance placed at the
European bank in the UK, which was decreased to $5 million in March 2017.
Outstanding amount as at 31 December 2016 was $3.6 million (2015: $12.9
million) with effective interest rate 15%p.a. (2015: 20%p.a.). Interest is paid
monthly and as at 31 December 2016 accrued interest amounted to $0.04 million
(2015: $0.2 million).
23. Trade and other payables
2016 2015
$'000 $'000
Accruals 850 635
VAT payable 335 899
Trading payables 176 907
Other taxes and social security 115 66
Corporate tax payable 113 11
Trade creditors 40 921
Payables to joint ventures - 96
Other payables 11 147
1,640 3,682
Trade creditors and accruals principally comprise amounts outstanding for
ongoing costs. The average credit period taken for trade purchases is 33 days
(2015: 24 days). The Group has financial risk management policies to ensure
that all payables are paid within the credit timeframe.
The Directors consider that the carrying amount of trade and other payables
approximates to their fair value. No interest is generally charged on
outstanding balances.
24. Provisions
The provisions at 31 December 2016 comprise of $2.0 million of probable tax
obligation and decommissioning provision.
As at 31 December 2016 the Group recognised short-term provision in respect of
possible corporate tax obligation in respect of dispute on classification
taxable income and expenses. The Group appealed to the Tribunal, however given
the uncertainty around the final position the provision of $1.3 million (GBP1.1
million) and up to $33 thousand (GBP26 thousand) of interest for 2016 was
recognised as at 31 December 2016.
Decommissioning
$'000
At 1 January 2015 702
Change in estimate (note 14 and 15) 262
Unwinding of discount on decommissioning 13
provision (note 11)
Exchange differences (245)
At 1 January 2016 732
Unwinding of discount on decommissioning 26
provision (note 11)
Exchange differences (80)
At 31 December 2016 678
At 1 January 2015 702
Non-current 726
Current 6
At 1 January 2016 732
Non-current 670
Current 8
At 31 December 2016 678
In accordance with the Group's environmental policy and applicable legal
requirements, the Group intends to restore the sites it is working on after
completing exploration or development activities.
A short-term provision of $8 thousand (2015: $6 thousand) has been made for
decommissioning costs, which are expected to be incurred within the next year
as a result of the demobilisation of drilling equipment and respective site
restoration.
The long-term provision recognised in respect of decommissioning reflects
management's estimate of the net present value of the Group's share of the
expenditure expected to be incurred in this respect. This amount has been
recognised as a provision at its net present value, using a discount rate that
reflects the market assessment of time value of money at that date, and the
unwinding of the discount on the provision has been charged to the income
statement. These expenditures are expected to be incurred at the end of the
producing life of each field in the removal and decommissioning of the
facilities currently in place (currently estimated to be between 1 and 17
years).
25. Share capital
Authorised and issued equity share capital
2016 2015
Number Number
$'000 $'000 $'000 $'000
Authorised 1,000,000 57,713 1,000,000 57,713
Ordinary shares of GBP0.03 each
Issued 231,092 13,337 231,092 13,337
Ordinary shares of GBP0.03 each
Authorised but unissued share capital of GBP30 million has been translated into
US dollars at the historic exchange rate of the issued share capital. The
Company has one class of Ordinary shares, which carry no right to fixed income.
Issued equity share capital
Ordinary shares
of GBP0.03
At 31 December 2015 and 2016 231,091,734
26.Financial instruments
Capital risk management
The Group manages its capital to ensure that entities in the Group will be able
to continue as a going concern, while maximising the return to shareholders.
The capital resources of the Group consists of cash and cash equivalents
arising from equity attributable to owners of the Company, comprising issued
capital, reserves and retained earnings as disclosed in the Consolidated
Statement of Changes in Equity.
Externally imposed capital requirement
The Group is not subject to externally imposed capital requirements.
Categories of financial instruments
2016 2015
$'000 $'000
Financial assets - loans and receivables (includes cash and cash
equivalents)
Cash and cash equivalents 43,300 49,407
Trading receivable 2,163 8,514
Other receivables 318 801
Receivable from joint venture 58 1,824
45,839 60,546
Financial liabilities - measured at amortised cost
Short-term borrowings 3,574 12,903
Accruals 850 635
Trading payables 176 907
Trade creditors 40 921
Other payables 10 141
Payables to joint ventures - 96
4,650 15,603
Financial risk management objectives
Management co-ordinates access to domestic and international financial markets
and monitors and manages the financial risks relating to the operations of the
Group in Ukraine through internal risks reports, which analyse exposures by
degree and magnitude of risks. These risks include commodity price risks,
foreign currency risk, credit risk, liquidity risk and cash flow interest rate
risk. The Group does not enter into or trade financial instruments, including
derivative financial instruments, for speculative purposes.
The Audit Committee of the Board reviews and monitors risks faced by the Group
through meetings held throughout the year.
Interest rate risk
Interest rate risk arises from the possibility that changes in interest rates
will affect the value of the financial instruments. The Group is not exposed to
interest rate risk because entities of the Group borrow funds at fixed interest
rates.
Commodity price risk
The commodity price risk related to Ukrainian gas and condensate prices and, to
a lesser extent, prices for crude oil are the Group's most significant market
risk exposures. World prices for gas and crude oil are characterised by
significant fluctuations that are determined by the global balance of supply
and demand and worldwide political developments, including actions taken by the
Organisation of Petroleum Exporting Countries.
These fluctuations may have a significant effect on the Group's revenues and
operating profits going forward. In 2016 the price for Ukrainian gas was mainly
based on the current price of the European gas imports. Management continues to
expect that the Group's principal market for gas will be the Ukrainian domestic
market.
The Group does not hedge market risk resulting from fluctuations in gas,
condensate and oil prices, and holds no financial instruments, which are
sensitive to commodity price risk.
Foreign exchange risk and foreign currency risk management
The Group undertakes certain transactions denominated in foreign currencies.
Hence, exposures to exchange rate fluctuations arise. The Group to date has
elected not to hedge its exposure to the risk of changes in foreign currency
exchange rates.
The carrying amounts of the Group's foreign currency denominated monetary
assets and monetary liabilities at the reporting date are as follows:
Liabilities Assets
2016 2015 2016 2015
$'000 $'000 $'000 $'000
Monetary balance denominated in USD where nil 157 nil 48,860
functional currency is GBP
Foreign currency sensitivity analysis
The Group is exposed primarily to movements in currencies against the US dollar
as this is the presentation currency of the Group. In order to fund
operations, US dollar funds are converted to UAH just before being contributed
to the Ukrainian subsidiaries. Sensitivity analyses have been performed to
indicate how the profit or loss would have been affected by changes in the
exchange rate between the GBP and US dollar. The analysis is based on a
weakening of the US dollar by 10 per cent against GBP, a functional currency in
the entities of the Group which have significant monetary assets and
liabilities at the end of each respective period. A movement of 10 per cent
reflects a reasonably possible sensitivity when compared to historical
movements over a three to five year timeframe. The sensitivity analysis
includes only outstanding foreign currency denominated monetary items and
adjusts their translation at the period end for a 10 per cent change in foreign
currency rates.
A number below indicates a decrease in profit where US dollar strengthens 10
per cent against the other currencies. For a 10 per cent weakening of the US
dollar against the other currencies, there would be an equal and opposite
impact on the profit or loss, and the balances would be negative.
The Group is not exposed to significant foreign currency risk in other
currencies.
The following table details the Group's sensitivity to a 10 per cent decrease
in the US dollar against the GBP.
2016 2015
$'000 $'000
Income statement n/a (4,572)
Inflation risk management
Inflation in Ukraine and in the international market for oil and gas may affect
the Group's cost for equipment and supplies. The Directors will proceed with
the Group's practices of keeping deposits in US dollar accounts until funds are
needed and selling its production in the spot market to enable the Group to
manage the risk of inflation.
Credit risk management
Credit risk refers to the risk that counterparty will default on its
contractual obligations resulting in financial loss to the Group. The Group's
credit management process includes the assessment, monitoring and reporting of
counterparty exposure on a regular basis. Credit risk with respect to
receivables and advances is mitigated by active and continuous monitoring the
credit quality of its counterparties through internal reviews and assessment.
Trading receivables as at 31 December 2016 have been paid within four months
after year end.
The Group makes allowances for impairment of receivables where there is an
identified event which, based on previous experience, is evidence of a
reduction in the recoverability of cash flows.
The credit risk on liquid funds (cash) is considered to be limited because the
counterparties are financial institutions with high and good credit ratings,
assigned by international credit-rating agencies in the UK and Ukraine
respectively.
The carrying amount of financial assets recorded in the financial statements
represents the Group's maximum exposure to credit risk.
Liquidity risk management
Ultimate responsibility for liquidity risk management rests with the Board of
Directors, which has built an appropriate liquidity risk management framework
for the management of the Group's short-, medium- and long-term funding and
liquidity management requirements. The Group manages liquidity risk by
maintaining adequate cash reserves and by continuously monitoring forecast and
actual cash flows.
The following tables sets out details of the expected contractual maturity of
financial liabilities.
3 months More than
Within to 1 1 year Total
3 months year
$'000 $'000 $'000 $'000
At 31 December 2016
Short-term borrowings 3,574 - - 3,574
Trade and other payables 1,640 - - 1,640
At 31 December 2015
Short-term borrowings 12,903 - - 12,903
Trade and other payables 3,019 657 - 3,676
27. Commitments and contingencies
The Group has working interests in four licences to conduct its exploration and
development activities in Ukraine. Each licence is held with the obligation to
fulfil a minimum set of exploration activities within its term and is
summarised on an annual basis, including the agreed minimum amount forecasted
expenditure to fulfil those obligations. The activities and proposed
expenditure levels are agreed with the government licencing authority.
The required future financing of exploration and development work on fields
under the licence obligations are as follows:
2016 2015
$'000 $'000
Within one year 79 234
Between two and five years 1,635 1,135
1,714 1,369
The Group has revised its minimum working programmes and resubmitted the
required documentation to the government authorities; updated commitments have
slightly increased for all licences from $1.4 million to $1.7 million.
Tax contingent liabilities
The Group assesses its liabilities and contingencies for all tax years open for
audit by UK and Ukraine tax authorities based upon the latest information
available. For those matters where it is probable that an adjustment will be
made, the Group records its best estimate of these tax liabilities, including
related interest charges. Inherent uncertainties exist in estimates of tax
contingencies due to complexities of interpretation and changes in tax laws.
Whilst the Group believes it has adequately provided for the outcome of these
matters, certain periods are under audit by the UK and Ukraine tax authorities,
and therefore future results may include favourable or unfavourable adjustments
to these estimated tax liabilities in the period the assessments are made, or
resolved. The final outcome of tax examinations may result in a materially
different outcome than assumed in the tax liabilities.
28. Related party transactions
All transactions between the Company and its subsidiaries, which are related
parties, have been eliminated on consolidation and are not disclosed in this
note. The application of IFRS 11 has resulted in the existing joint ventures
LLC Astroinvest-Energy, LLC Gazvydobuvannya and LLC Westgasinvest being
accounted for under the equity method and disclosed as related parties. LLC
Astroinvest-Energy and LLC Gazvydobuvannya continued to be related parties
until the acquisition on 21 December 2016 of 100% of these companies by the
Group.
During the period, Group companies entered into the following transactions with
joint ventures who are considered as related parties of the Group:
2016 2015
$'000 $'000
Revenues from services provided and sales of 2,496 508
goods
Purchases of goods - 9
Amounts owed by related parties 58 1,824
Amounts owed to related parties - 96
Directors' remuneration
The remuneration of the Directors, who are the key management personnel of the
Group, is set out below in aggregate for each of the categories specified in
IAS 24 Related Party Disclosures. Further information about the remuneration of
individual Directors is provided in the audited part of the Annual Report on
Remuneration 2016 on pages 42 and 48.
Purchase of Amounts owing
services
2016 2015 2016 2015
$'000 $'000 $'000 $'000
Directors' remuneration 1,807 1,282 479 169
The total remuneration of the highest paid Director was $1.0 million in the
year (2015: $0.4 million).
The amounts outstanding are unsecured and will be settled in cash. No
guarantees have been given or received and no provisions have been made for
doubtful debts in respect of the amounts owed by related parties.
29. Events after the balance sheet date
On 31 January 2017 the Group completed 90% acquisition of Exploenergy s.r.l.,
Italian oil and gas company, that filed application for two licences in the
prolific area of Po Valley (North of Italy). The sellers will be carried for
their 10% until first gas in each licence and will receive a deferred cash
consideration of EUR50,000 for each licence payable upon award of the licence.
Political and economic situation in Ukraine
We are monitoring the current political situation in Ukraine carefully and
there have been no disruptions to the Company's operations in either of our
operating locations.
We have reassessed the key judgements and critical accounting estimates as at
the date of this report and, based on the current status of operations, no
adjustments have been made.
Company Balance Sheet
As at 31 December 2016
Notes 2016 2015
$'000 $'000
ASSETS
Non-current assets
Investments 30 - -
Receivables from subsidiaries 33 39,277 26,905
39,277 26,905
Current assets
Trade and other receivables 33 17 778
Cash and cash equivalents 33 28,380 44,882
28,397 45,660
Total assets 67,674 72,565
LIABILITIES
Current liabilities
Trade and other payables 34 (934) (380)
(934) (380)
Total liabilities (934) (380)
Net assets 66,740 72,185
EQUITY
Share capital 35 13,337 13,337
Retained earnings1 162,122 167,567
Cumulative translation reserves 36 (108,719) (108,719)
Total equity 66,740 72,185
The financial statements of Cadogan Petroleum plc, registered in England and
Wales no. 05718406, were approved by the Board of Directors and authorised for
issue on 27 April 2017.
They were signed on its behalf by:
Guido Michelotti
Chief Executive Officer
27 April 2017
The notes on pages 97 to 100 form part of these financial statements.
1 Included into retained earnings, loss for the financial year ended 31
December 2016 was $5.4 million (2015: $45.3 million).
Company Cash Flow Statement
For the year ended 31 December 2016
Note 2016 2015
$'000 $'000
Net cash inflow from operating activities 37 (764) 3,655
Investing activities
Interest received 131 79
Loans to subsidiary companies (15,790) (3,633)
Net cash used in investing activities (15,659) (3,554)
Net (decrease)/increase in cash and cash (16,423) 101
equivalents
Effect of foreign exchange rate changes (79) (1,853)
Cash and cash equivalents at beginning of year 44,882 46,634
Cash and cash equivalents at end of year 28,380 44,882
Company Statement of Changes in Equity
For the year ended 31 December 2016
Share Cumulative
capital Retained translation
$'000 earnings reserves Total
$'000 $'000 $'000
As at 1 January 2015 13,337 212,902 (102,892) 123,347
Net income for the year - (45,335) - (45,335)
Other comprehensive loss - - (5,827) (5,827)
Total comprehensive loss for the - (45,335) (5,827) (51,162)
year
As at 1 January 2016 13,337 167,567 (108,719) 72,185
Net loss for the year - (5,445) - (5,445)
Total comprehensive loss for the - (5,445) - (5,445)
year
As at 31 December 2016 13,337 162,122 (108,719) 66,740
Notes to the Company Financial Statements
For the year ended 31 December 2016
30. Significant accounting policies
The separate financial statements of the Company are presented as required by
the Companies Act 2006 (the "Act"). As permitted by the Act, the separate
financial statements have been prepared in accordance with International
Financial Reporting Standards.
The financial statements have been prepared on the historical cost basis. The
principal accounting policies adopted are the same as those set out in note 3
to the Consolidated Financial Statements except as noted below.
As permitted by section 408 of the Act, the Company has elected not to present
its profit and loss account for the year. Cadogan Petroleum plc reports a loss
for the financial year ended 31 December 2016 of $5.4 million (2015: $45.3
million) of which $3.4 million relates to the impairment of receivables from
subsidiaries.
Investments
Investments in subsidiaries are stated at cost less, where appropriate,
provisions for impairment.
Critical accounting judgements and key sources of estimation uncertainty
The Company's financial statements, and in particular its investments in and
receivables from subsidiaries, are affected by certain of the critical
accounting judgements and key sources of estimation uncertainty described in
note 4 to the Consolidated Financial Statements.
31. Auditor's remuneration
The auditor's remuneration for audit and other services is disclosed in note 9
to the Consolidated Financial Statements.
32. Investments
The Company's subsidiaries are disclosed in note 16 to the Consolidated
Financial Statements. The investments in subsidiaries are all stated at cost
less any provision for impairment.
33. Financial assets
The Company's principal financial assets are bank balances and cash and cash
equivalents, prepayments and receivables from related parties none of which are
past due. The Directors consider that the carrying amount of receivables from
related parties approximates to their fair value.
Receivables from subsidiaries
At the balance sheet date gross amounts receivable from the fellow Group
companies were $332.3 million (2015: $316.7 million). The Group recognised
impairment of $3.4 million in relation to receivables from subsidiaries in 2016
(2015: $46.5 million). The accumulated provision on receivable as at 31
December 2016 was $293.1 million (2015: $289.8 million). The carrying value of
the receivables from the fellow Group companies as at 31 December 2016 was
$39.2 million (2015: $26.9 million). There are no past due receivables.
Trade and other receivables
2016 2015
$'000 $'000
Prepayments - 752
Other receivables 17 26
17 778
Cash and cash equivalents
Cash and cash equivalents comprise cash held by the Company and short-term bank
deposits with an original maturity of three months or less. The carrying value
of these assets approximates to their fair value.
As of 31 December 2016 cash and cash equivalents in the amount of $10 million,
related to security of the loan provided to the Ukrainian subsidiary and held
at UK bank, was restricted (note 22).
34. Financial liabilities
Trade and other payables
2016 2015
$'000 $'000
Accruals 554 143
Trade creditors 29 237
Other creditors and payables 351 -
934 380
Trade payables principally comprise amounts outstanding for trade purchases and
ongoing costs. The average credit period taken for trade purchases is 48 days
(2015: 126 days).
The Directors consider that the carrying amount of trade and other payables
approximates to their fair value. No interest is charged on balances
outstanding.
35. Share capital
The Company's share capital is disclosed in note 25 to the Consolidated
Financial Statements.
36. Cumulative translation reserve
The directors decided to change the functional currency of the Company from
sterling to US dollars with effect from 1 January 2016.
The effect of a change in functional currency is accounted for prospectively.
In other words, the Company translates all items into the US dollar using the
exchange rate at the date of the change. The resulting translated amounts for
non-monetary items are treated as their historical cost. Exchange differences
arising from the translation of an operation previously recognised in other
comprehensive income in accordance with paragraphs 32 and 39(c) IAS 21 "Foreign
Currency" are not reclassified from equity to profit or loss until the disposal
of the operation.
37. Notes to the cash flow statement
2016 2015
$'000 $'000
Loss for the year (5,445) (45,335)
Adjustments for:
Interest received (131) (79)
Effect of foreign exchange rate changes 120 -
Impairment of receivables from subsidiaries 3,415 46,504
Operating cash flows before movements in working capital (2,041) 1,090
Decrease in receivables 715 2,555
Increase in payables 562 10
Cash (used in)/from operations (764) 3,655
Income taxes paid - -
Net cash (outflow)/inflow from continuing operations (764) 3,655
38. Financial instruments
The Company manages its capital to ensure that it is able to continue as a
going concern while maximising the return to shareholders. Refer to note 26 for
the Group's overall strategy and financial risk management objectives.
The capital resources of the Group consist of cash and cash equivalents arising
from equity, comprising issued capital, reserves and retained earnings.
Categories of financial instruments
2016 2015
$'000 $'000
Financial assets - loans and receivables (includes cash and
cash equivalents)
Cash and cash equivalents 28,380 44,882
Amounts due from subsidiaries 39,277 26,905
67,657 71,787
Financial liabilities - measured at amortised cost
Trade creditors (29) (237)
(380) (237)
Interest rate risk
All financial liabilities held by the Company are non-interest bearing. As the
Company has no committed borrowings, the Company is not exposed to any
significant risks associated with fluctuations in interest rates.
Credit risk
Credit risk refers to the risk that counterparty will default on its
contractual obligations resulting in financial loss to the Company. For cash
and cash equivalents, the Company only transacts with entities that are rated
equivalent to investment grade and above. Other financial assets consist of
amounts receivable from related parties.
The Company's credit risk on liquid funds is limited because the counterparties
are banks with high credit ratings assigned by international credit-rating
agencies.
The carrying amount of financial assets recorded in the Company financial
statements, which is net of any impairment losses, represents the Company's
maximum exposure to credit risk.
Liquidity risk management
Ultimate responsibility for liquidity risk management rests with the Board of
Directors, which has built an appropriate liquidity risk management framework
for the management of the Company's short, medium and long-term funding and
liquidity management requirements. The Company maintains adequate reserves, by
continuously monitoring forecast and actual cash flows.
The Company's financial liabilities are not significant and therefore no
maturity analysis has been presented.
Foreign exchange risk and foreign currency risk management
The Company undertakes certain transactions denominated in foreign currencies.
Hence, exposures to exchange rate fluctuations arise. The Company holds a
large portion of its foreign currency denominated monetary assets and monetary
liabilities in US dollars. More information on the foreign exchange risk and
foreign currency risk management is disclosed in note 26 to the Consolidated
Financial Statements.
39. Related parties
Amounts due from subsidiaries
The Company has entered into a number of unsecured related party transactions
with its subsidiary undertakings. The most significant transactions carried out
between the Company and its subsidiary undertakings are mainly for short and
long-term financing. Amounts owed from these entities are detailed below:
2016 2015
$'000 $'000
Cadogan Petroleum Holdings Limited 39,277 26,905
39,277 26,905
Refer to note 33 for details on the Company's receivables due from
subsidiaries.
The remuneration of the Directors, who are the key management personnel of the
Group, is set out below in aggregate for each of the categories specified in
IAS 24 Related Party Disclosures. In 2016 there were no other employees in the
Company. Further information about the remuneration of individual Directors is
provided in the audited part of the Annual Report on Remuneration 2016 on pages
42 to 48.
Remuneration Amounts owing
2016 2015 2016 2015
$'000 $'000 $'000 $'000
Directors' remuneration 1,071 603 454 28
The total remuneration of the highest paid Director was $1.0 million in the
year (2015: $0.4 million), which includes bonus for 2015 of $0.2 million (2015:
$nil) that was approved in June 2016 (page 43).
40. Events after the balance sheet date
Events after the balance sheet date are disclosed in note 29 to the
Consolidated Financial Statements.
Glossary
IPO Initial public offering
IFRSs International Financial Reporting
Standards
JAA Joint activity agreement
UAH Ukrainian hryvnia
GBP Great Britain pounds
$ United States dollars
bbl Barrel
boe Barrel of oil equivalent
mmboe Million barrels of oil equivalent
mboe Thousand barrels of oil equivalent
mboepd Thousand barrels of oil equivalent per day
boepd Barrels of oil equivalent per day
bcf Billion cubic feet
mmcm Million cubic metres
mcm Thousand cubic metres
Reserves Those quantities of petroleum anticipated to
be commercially recoverable by application of development projects to known
accumulations from a given date forward under defined conditions. Reserves
include proved, probable and possible reserve categories.
Proved Reserves Those additional Reserves which analysis of geoscience
and engineering data can be estimated with reasonable certainty to be
commercially recoverable, from a given date forward, from reservoirs and under
defined economic conditions, operating methods and government regulations.
Probable Reserves Those additional Reserves which analysis of geoscience
and engineering data indicate are less likely to be recovered than proved
Resources but more certain to be recovered than possible Reserves.
Possible Reserves Those additional Reserves which analysis of geoscience
and engineering data indicate are less likely to be recoverable than probable
Reserves.
Contingent Resources Those quantities of petroleum estimated, as of a given
date, to be potentially recoverable from known accumulations by application of
development projects, but which are not currently considered to be commercially
recoverable due to one or more contingencies.
Prospective Resources Those quantities of petroleum which are estimated as of
a given date to be potentially recoverable from undiscovered accumulations.
P1 Proved Reserves
P2 Probable Reserves
P3 Possible Reserves
1P Proved Reserves
2P Proved plus probable Reserves
3P Proved plus probable plus possible
Reserves
Carboniferous A geological period 295 million to 354 million
years before present
Devonian A geological period between 417 million and
354 million years before present
Visean Geological period within the early to
middle Carboniferous
Spud To commence drilling, once the cement
cellar and conductor pipe at the well-head have been constructed
TD Target depth
Workover The process of performing major maintenance or
remedial treatment of an existing oil or gas well
LWD Logging while drilling
Contingent resources Contingent resources are those quantities of petroleum
estimated, as of a given date,
to be potentially recoverable from known accumulations, but the applied project
(s)
are not yet considered mature enough for commercial development due to one or
more contingencies.
Prospective resources Prospective resources are estimated volumes associated
with undiscovered
accumulations. These represent quantities of petroleum which are estimated, as
of a
given date, to be potentially recoverable from oil and gas deposits identified
on the
basis of indirect evidence but which have not yet been drilled.
E&E Exploration and Evaluation
E&P Exploration and Production
LTI Lost time incidents
Krosno zone Techtonical element of Ukrainian part of the
Carpathian mountains
Krosno 1 Prospective horizon in the Krosno zone
Shareholder Information
Enquiries relating to the following administrative matters should be addressed
to the Company's registrars: Capita Asset Services, The Registry, 34 Beckenham
Road, Beckenham, Kent BR3 4TU.
Telephone number:
UK: 0871 664 0300 (calls cost 10p per minute plus network extras).
International: +44 (0) 371 664 0300
Lines are open 9am - 5.30pm, Monday - Friday, excluding public holidays.
* Loss of share certificates.
* Notification of change of address.
* Transfers of shares to another person.
* Amalgamation of accounts: if you receive more than one copy of the Annual
Financial Report, you may wish to amalgamate your accounts on the share
register.
You can access your shareholding details and a range of other services at the
Capita website www.capitashareportal.com.
Information concerning the day-to-day movement of the share price of the
Company can be found on the Group's website www.cadoganpetroleum.com or that of
the London Stock exchange www.prices.londonstockexchange.com.
Unsolicited mail
As the Company's share register is, by law, open to public inspection,
shareholders may receive unsolicited mail from organisations that use it as a
mailing list. To reduce the amount of unsolicited mail you receive, contact:
The Mailing Preference Service, FREEPOST 22, London W1E 7EZ. Telephone: 0845
703 4599. Website: www.mpsonline.org.uk.
Financial calendar 2017/2018
Annual General Meeting 22 June 2017
Half Yearly results announced August 2017
Annual results announced April 2018
Investor relations
Enquiries to: info@cadoganpetroleum.com
Registered office
Shakespeare Martineau LLP,
6th Floor, 60 Gracechurch Street, London EC3V 0HR
Registered in England and Wales no. 05718406
Ukraine
48/50A Zhylyanska Street
Business center «Prime», 8th floor
01033 Kyiv
Ukraine
Email: info@cadoganpetroleum.com
Tel: +38 044 594 58 70
Fax: +38 044 594 58 71
www.cadoganpetroleum.com
END
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