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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| G3 Exploration Limited | AQSE:G3E.GB | Aquis Stock Exchange | Ordinary Share | KYG409381053 |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 0.00 | - |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Dec 2019 to Dec 2024
TIDMG3E
RNS Number : 0875O
G3 Exploration Limited
30 September 2019
30 Sep 2019
G3 Exploration LTD.
("G3E", "G3 Exploration" or the "Company")
Interim Results for the Six Months Ended 30 June 2019
Financial and Operational highlights
2019H1 HIGHLIGHTS
-- Disposition plan concluded and being implemented on the Producing assets to focus on Exploration.
-- Progress Overall Development Plan work program for GDG-GCZ asset.
2019H1 RESULTS
Financial: Continued stable EBITDA generation from Producing Green Dragon Gas Assets
-- Reported revenue includes assets held for sale within Green Dragon Gas (GDG).
-- Revenue of US$11.0m (2018: US$13.7m).
-- EBITDA of GDG of US$7.2m (2018: US$8.7m) at a constant 65% margin.
-- Cash generated from group total operating activities during the period of US$0.5m (2018: cash used US$0.2m).
-- Net loss for the period of US$7.0m (2018: net loss of US$6.3m), primarily due to interest charges.
2019 OUTLOOK
Recapitalize balance sheet and drive development Program
G3 Exploration
-- Conclude evolution to exploration and development business.
-- GDG divesture and dividend in specie.
-- Repay two bond creditors from the GDG proceeds.
-- Progress ODP plan for GDG-GSS asset.
-- Deliver first gas in Guizhou Block (GGZ).
CHAIRMAN'S STATEMENT
While our challenges continue, I am pleased to report continued operational progress across our two producing commercial blocks in Shanxi as well as our six exploration blocks in Anhui, Guizhou, Jiangxi and Shanxi.
Our focus as a Group continues to be on resurrecting the balance sheet through the sale of the producing assets through a dividend in specie of our wholly owned subsidiary Green Dragon Gas ("GDG"). The trade sale processes led by Citibank and Credit Suisse during the period concluded with a viable alternative on selling one of the fields but with an unknown timing to close due to conditions beyond the potential buyers control.
GDG has engaged an experienced bank and advisors to conclude a Reserve Based Loan ("RBL") of up to $250m, which has become a viable option to it following the approval of the Overall Development Plan ("ODP"). The proceeds from the RBL are expected to be sufficient to pay the intergroup loan to G3E enabling the dividend in specie to be concluded. Once independent, GDG maintains its plan to proceed onto a public listing.
Upon receipt of loan repayment proceeds from GDG, the Company expects to have successfully restructured its balance sheet, should be debt free and can proceed onto its exploration focused business plan. G3 Exploration shall in turn use these receipts to settle its outstanding debt, including to its Nordic Bond holders and Convertible Bond holders.
G3E has invested approximately $270m in its exploration portfolio which has a 2P value of over $816m. We are eager to focus on this portfolio and systematically migrate this portfolio into commercial production and thereafter farm-outs or sales. Each of these transactions should provide the shareholders a dividend. Our current portfolio in China provides a solid five year backlog of projects. The most advanced of these, the Guizhou exploration block (GGZ), is expected to commence test gas sales before the end of this year.
GDG Jincheng, Shanxi based team has worked closely with CNPC-PetroChina on progressing the GCZ production block to further development. The block continued its commercial gas sales while the collaborative Joint Operating Team concluded its Overall Development Plan. The plan approved by the Chinese government, permits the drilling of 147 wells by yearend 2020, of which 32 wells have been completed. We are pleased to see 99 wells now selling gas with the most recent daily gas production of 5.88 MMCF or 2.15 BCFPY. The implementation of the ODP has successfully reversed the filed decline as anticipated.
The GSS block met its objective of increasing gas sales from the 588 gas sales wells. The CNOOC-CUBCM team increased with gas sales well from 354 to 482 of the total 1,128 wells drilled which resulted in an exit gas sales rate of 2.98 BCFPY. This was complemented by our own operated wells which maintained a 1.49 BCFPY exit gas sales rate. This provides for GSS attaining a gas sales rate of 4.47 BCFPY. Cumulative gas sales in the first half year is 1.72 BCF and we expect gas sales to continue increasing as the balance of the drilled wells are placed on line and from the resulting de-watering of the basin which will assist gas flow.
In addition to the GSS producing block, the CNOOC/CUCBM partnership spreads across five exploration blocks namely; GSN, GFC, GPX, GQY-A and GQY-B. Our exploration team has been in advanced discussions with our partner on the next two year exploration plan for each of the blocks. We expect the parties to conclude such plan and begin implementation before yearend.
On 25 September 2019, the Nordic Bond Trustee called a Bond Holders informational conference on 30 September 2019. The Bond Trustee intends to provide Bondholders with information on the current status of the Bond and to allow its recently appointed receivers to the Company's subsidiary Greka Gas China Ltd., to provide an update on the restructuring options currently being considered with the Company.
We look forward to a full repayment of all our bonds in the near future which has been an operational distraction for almost two years. Once completed, we can get back on track with our long-term objectives. Thereafter, I look forward to monetizing the value which we have developed over the past two decades in our producing assets, developing our exploration assets and committing to incremental geographies where our deep knowledge in CBM is of accretive value to our shareholders.
Randeep S. Grewal
Founder & Chairman
Condensed Consolidated Statement of Comprehensive Income
Six months ended 30 June 2019
Hot Features
Premium
Six months ended 30 Six months ended 30 Year ended
June 2019 June 2018 31 December 2018
Notes US$'000 US$'000 US$'000
Unaudited Unaudited Audited
Continuing operations
Revenue 3 - - -
Cost of sales 3 - - -
-------------------------- -------------------------- --------------------
Gross profit - - -
Other income 4 - 7 19
Selling and distribution - - -
costs
Administrative expenses 3 (1,106) (1,649) (2,446)
Profit from operations (1,106) (1,642) (2,427)
Finance income 4 11 1,618 1,189
Finance costs 13, 14 (10,063) (10,822) (19,759)
Profit (loss) before
income tax (11,158) (10,846) (20,997)
Income tax /credit - 24 48
-------------------------- -------------------------- --------------------
(Loss) for the period
from continuing
operations (11,158) (10,822) (20,949)
Discontinued operations
Gain/(loss) for the period
from discontinued
operations 5 4,152 4,484 10,248
Gain from Disposal - - 1,545
-------------------------- -------------------------- --------------------
Profit/(loss) for the
period attributable to
owners of the company (7,006) (6,338) (9,156)
Other comprehensive
expense, net of tax:
Items that may be
reclassified to profit or
loss:
Exchange gains arising on
translation of
discontinued foreign
operations
Loss for the year from
continuing operations
Items that will or may be
reclassified to profit or
loss: - - 67
-------------------------- -------------------------- --------------------
(7,006) (6,338) (9,089)
Exchange differences
arising on
translating foreign
operations (6,494) (13,795) (27,844)
-------------------------- -------------------------- --------------------
Total comprehensive
income/(expense)
for the period
attributable to owners of
the company (13,500) (20,133) (36,933)
========================== ========================== ====================
Basic and diluted
earnings/(loss) per share
from continuing operations
(US$) 6 (0.072) (0.069) (0.134)
Basic and diluted
earnings/(loss) per share
from discontinued
operations (US$) 6 0.027 0.029 0.076
-------------------------- -------------------------- --------------------
Basic and diluted
earnings/(loss) per share
(US$) 6 (0.045) (0.040) (0.058)
========================== ========================== ====================
Condensed Consolidated Statement of Financial Position
At 30 June 2019
As at As at
30 June 2019 31 December
2018
Notes US$'000 US$'000
Unaudited Audited
Assets
Non-current assets
Property, plant and equipment 8 23 23
Gas exploration and appraisal
assets 9 575,935 579,112
Deferred tax asset 17 347 348
---------------- ---------------
576,305 579,483
---------------- ---------------
Current assets
Trade and other receivables 10 10,094 10,387
Restricted cash - 1,000
Cash and cash equivalents 11 91 305
---------------- ---------------
10,185 11,692
Assets of disposal group
classified as held-for-sale 5 391,763 389,506
---------------- ---------------
401,948 401,198
Total assets 978,253 980,681
---------------- ---------------
As at As at
30 June 31 December
2019 2018
Notes US$'000 US$'000
Unaudited Audited
Liabilities
Current liabilities
Trade and other payables 12 7,984 7,783
Convertible notes 13 61,547 58,739
Bonds 14 117,155 110,083
Current tax liabilities - -
----------- ---------------
186,686 176,605
Liabilities of disposal group
classified
as held-for-sale 5 49,497 48,308
236,183 224,913
Non-current liabilities
Deferred tax liability 17 118,409 118,641
Share buyback option liability 13 2,314 2,280
120,723 120,921
----------- ---------------
Total liabilities 356,906 345,834
----------- ---------------
Total net assets 621,347 634,847
=========== ===============
Capital and reserves
Share capital 16 16 16
Share premium 16 808,981 808,981
Share redemption reserve 16 (8,255) (8,255)
Convertible note equity reserve 16 2,851 2,851
Foreign exchange reserve 16 4,043 10,537
Retained deficit 16 (186,289) (179,283)
----------- ---------------
Total equity attributable
to owners of the parent 621,347 634,847
=========== ===============
Total equity 621,347 634,847
=========== ===============
Condensed Consolidated Statement of Changes in Equity
Six months ended 30 June 2019
Share Convertible Share based Foreign Equity attributable
Share Share redemption note equity payment exchange Retained to owners
capital premium reserve reserve reserve reserve deficit of the parent
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
--------- --------- ------------ ------------- ------------------ -------------------- -------------------- ---------------------
At 1 January
2018 16 808,981 (8,255) 2,851 - 38,381 (170,194) 671,780
Loss for the
period - - - - - - (6,338) (6,338)
Exchange
differences
on
translating
foreign
operations - - - - - (13,795) - (13,795)
--------- --------- ------------ ------------- ------------------ -------------------- -------------------- ---------------------
Total
comprehensive
income for the
period - - - - - (13,795) (6,338) (20,133)
Transfer to - - - - - - - -
retained
deficit
At 30 June 2018 16 808,981 (8,255) 2,851 - 24,586 (176,532) 651,647
(unaudited)
--------- --------- ------------ ------------- ------------------ -------------------- -------------------- ---------------------
At 1 January
2019 16 808,981 (8,255) 2,851 - 10,537 (179,283) 634,847
Loss for the
period - - - - - - (7,006) (7,006)
Exchange
differences
on
translating
foreign
operations - - - - (6,494) (6,494)
Total
comprehensive
income for the
period - - - - - (6,494) (7,006) (13,500)
Transfer to - - - - - - - -
retained
deficit
At 30 June 2019 16 808,981 (8,255) 2,851 - 4,043 (186,289) 621,347
(unaudited)
========= ========= ============ ============= ================== ==================== ==================== =====================
Condensed Consolidated Statement of Cash Flows
Six months ended 30 June 2019
Six months Six months Year ended
ended 30 ended 30 31 December
June 2019 June 2018 2018
US$'000 US$'000 US$'000
Notes Unaudited Unaudited Audited
Cash flows used in continuing
operating activities
(Loss)/profit after tax 3 (11,158) (10,822) (20,949)
Adjustments for:
Depreciation - 11 10
Other income and finance
income 4 (11) (1,618) (1,189)
13,
Finance costs 14 10,063 10,822 19,759
Accelerated finance charge - - -
Taxation - (24) (48)
Cash used in from operating
activities before changes
in
working capital (1,106) (1,631) (2,417)
Movement in inventory - - -
Movement in trade and other
receivables (2,904) (197) (2,221)
Movement in trade and other
payables 201 (709) (2,412)
------------ ------------ -----------------------------
Net cash generated from
operations (3,809) (2,537) (7,050)
Income tax - - -
------------ ------------ -----------------------------
Net cash used in
continuing operating activities (3,809) (2,537) (7,050)
Net cash used in
discontinued operating
activities 5 4,268 2,307 10,426
------------ ------------ -----------------------------
Net cash used in
operating activities 459 (230) 3,376
------------ ------------ -----------------------------
Six months Six months Year ended
ended 30 ended 31 December
June 2019 30 June 2018 2018
US$'000 US$'000 US$'000
Notes Unaudited Unaudited Audited
Investing activities
Payments for purchase
of property,
Plant and equipment 8 - (273) -
Payments for exploration
activities (230) - (2,963)
Interest received - - -
Received refund of deposit 337 - -
Net cash used in continuing
investing activities 107 (273) (2,963)
Net cash used in discontinued
investing activities 5 (771) (1,503) (3,118)
------------ --------------- --------------
Net cash used in
investing activities (664) (1,776) (6,081)
------------ --------------- --------------
Financing activities
Interest paid - - -
Repayment received from
Investing in - 2,583
discontinued operations -
------------ --------------- --------------
Net cash used in continuing
financing activities - 2,583 -
------------ --------------- --------------
Net cash used in discontinued
financing activities 5 - (2,583) -
------------ --------------- --------------
Net cash used in
financing activities - - -
------------ --------------- --------------
Net decrease in cash
and cash equivalents (205) (2,006) (2,705)
Cash and cash equivalents
at beginning of period 305 3,175 3,175
------------ --------------- --------------
100 1,169 470
Effect of foreign exchange
rate changes 21 (33) 21
------------ --------------- --------------
Cash and cash equivalents
at the end of period 121 1,136 491
------------ --------------- --------------
Attributable to continuing
activities 11 91 1,087 305
------------ --------------- --------------
Attributable to discontinued
activities 5 30 49 186
============ =============== ==============
Notes to Condensed Interim Financial Statements
1 GENERAL INFORMATION
The condensed financial information for the six months ended 30 June 2019 and 30 June 2018 is unaudited and does not constitute a set of statutory financial statements. The consolidated unaudited interim financial information set out in this report represents the consolidated financial statements of G3E Ltd. and its subsidiary companies (together referred to as the 'Group'). The condensed consolidated financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2018, which have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS"). The comparative financial information for the full year ended 31 December 2018 presented here is not the Group's full annual accounts for that period but has been derived from the annual financial statements for that period. The auditors' report on those accounts was unqualified and includes reference to a matter to which the auditors drew attention by way of material uncertainty related to going concern paragraph on the Group's ability to continue as a going concern without qualifying their report. The condensed consolidated financial information has not been audited or reviewed by the Company's auditors.
2 ACCOUNTING POLICIES
All accounting policies adopted in the preparation of the condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual consolidated financial statements for the year ended 31 December 2018, except as described below.
None of the new standards or amendments to standards and interpretations applicable during the period has had a material impact on the financial position or performance of the Group. The Group has not early adopted any standard, interpretation or amendment that was issued but is not yet effective.
In preparing these condensed consolidated financial statements, the Group has adopted all the applicable extant accounting standards issued by the IASB and all the applicable extant interpretations issued by the IFRIC and adopted by the EU up to 30 June 2019.
The following accounting standards, amendments and interpretations, which had no significant impact on these condensed consolidated financial statements, became effective in the current reporting period as adopted by the EU through the European Financial Reporting Advisory Group ('EFRAG'):
Leases
On 1 January 2019, the Group adopted IFRS 16 'Leases' using the 'modified retrospective approach', which did not result in a classification or measurement adjustment to retained earnings on transition or a restatement of comparative information. The standard changes the identification of leases and how they will be recognised, measured and disclosed by lessees, requiring the recognition of a right-of-use asset and liability for the future lease payments on the balance sheet. The standard requires the right-of-use asset to be depreciated over the duration of the lease term and shown within operating profit in the income statement, with the interest cost associated with the financing of the asset included within interest expense. In applying the transition requirements and provisions of the new standard, the Group reviewed its lease contracts, which mainly relate to leased office buildings, and the right-of-use asset and related liability was found to be immaterial. The standard does not apply to leases to explore for or use natural resources, such as mining licences and rights.
The Group has elected not to recognise right-of-use assets and lease liabilities for leases which have low value, or short-term leases with a duration of 12 months or less. The payments associated with such leases are charged directly to the income statement on a straight-line basis over the lease term.
In assessing the application of IFRS 16, the Group considered the following practical expedients:
-- The previous determination of whether a contract is, or contains, a lease pursuant to IAS 17 'Leases' and IFRIC 4 'Determining whether an Arrangement contains a Lease' has been maintained for existing contracts;
-- Right-of-use assets or lease liabilities for leases where the lease term ends within 12 months of the date of initial application have not been recognised;
-- Initial direct costs from right-of-use assets have been excluded; and
-- Hindsight was used when assessing the lease term.
2.1 Basis of preparation and going concern
The Company has a convertible loan note liability of $61.5 million, which is due for repayment on 31 December 2020. On 14 November 2018 an extension to the one-time early redemption option was agreed with the note holder such that it is now exercisable at any time up to 20 November 2019, and would require early repayment of the whole amount due no earlier than 20 November 2019. The option to require early repayment is at the note holder's sole discretion, which has been exercised due to the Nordic Bondholder Trustee's recent action. Further details of the terms of the instrument are included in note 13.
The Company has a bond liability of $117.2 million, which was due for repayment in November 2017. The bond has not been repaid, and the due date has passed. The Bond Trustee representing a majority of the outstanding bond, are in ongoing discussions with the Company regarding amongst other things negotiating the repayment of the outstanding bond amount. As announced by the Company on 25 September 2019, the Bond Trustee has called a Bond Holders informational conference on 30 September 2019. The bond Trustee intends to provide Bondholders with information on the current status of the Bond and to allow its recently appointed receivers to the Company's subsidiary Greka Gas China Ltd., to provide an update on the restructuring options currently being considered with the Company. Further details of the terms of the instrument are included in note 14.
The Company also has other payables due to third parties of approximately $13.0 million (2018: $12.9 million), due immediately. The Company is managing these payables through continuing negotiation with suppliers.
The Company also has certain capital expenditure requirements in some of its exploration blocks during the exploration period. Further details are included in note 19.
In considering the appropriateness of the going concern basis, the Board gave consideration to the following:
On 29 March 2019, the Company has announced its intention to declare a dividend in-specie for its discontinued upstream operation, Green Dragon Gas (GDG). G3E shareholders on the register as of the effective date 29 March 2019 will receive a direct interest in GDG.
GDG has engaged an experienced bank and advisors to conclude a Reserve Based Loan ("RBL") of up to $250m, which has become a viable option to it following the approval of the Overall Development Plan ("ODP"). The proceeds from the RBL are expected to be sufficient to pay the intergroup loan to G3E enabling the dividend in specie to be concluded. Once independent, GDG maintains its plan to proceed onto a public listing.
Upon receipt of loan repayment proceeds from GDG, the Company expects to have successfully restructured its balance sheet, should be debt free and can proceed onto its exploration focused business plan. G3 Exploration shall in turn use these receipts to settle its outstanding debt, including to its Nordic Bond holders and Convertible Bond holders.
The Company notes that discussions continue with the Bondholders and Note Holder. The receivers appointed by the Nordic Bondholder Trustee will provide an update on the restructuring options currently being considered with the Company.
The Company expects to use the proceeds from the repayment of intergroup loan to G3E to repay all of the Company's debts. Based on the above, the Company expects to be able to meet its liabilities as they fall due for a period not less than one year.
However, as at the date of this report, there can be no certainty that the RBL of GDG will be successful, there can also be no certainty on the course of action to be taken by the Bondholders and Note Holder.
Notwithstanding the discussions regarding the GDG RBL, the Directors, in accordance with Financial Reporting Council guidance in this area, conclude that at this time there is material uncertainty that such finance can be procured and failure to do so might cast significant doubt upon the Group's ability to continue as a going concern and that the Group may therefore be unable to realise their assets and discharge their liabilities in the normal course of business. These Financial Statements do not include the adjustments that would result if the Group was unable to continue as a going concern.
3 REVENUE AND SEGMENTAL INFORMATION
The Group's reportable segments are as set out below. The operating results of each of these segments are regularly reviewed by the Group's chief operating decision-makers in order to make decisions about the allocation of resources and assess their performance.
During the period, the revenue of US$11.0 million (30 June 2018: US$13.7 million) was recognised by the upstream discontinued business. The average RMB/USD exchange rate for the period is 1.3% lower compared to the equivalent period in the prior year. The average RMB/USD exchange rate for the period ended 30 June 2019, and used for translating income statement RMB transactions for the purposes of this financial information was 6.7714 as compared to 6.8610 in the equivalent period of the prior year.
For the period ended 30 June 2019 (unaudited)
Upstream Upstream Downstream Corporate Sub-total Eliminations Consolidated
continuing discontinued discontinued
operations operations operation
(G3E) (GDG) (GGD) (G3E)
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Segment -
revenue:
Sales to
external
customers - 10,988 - - 10,988 (10,988) -
Inter-segment - - - - - - -
sales
- 10,988 - - 10,988 (10,988) -
============ ============== ============== =========== =========== ============== ==============
Depreciation - (3,048) - - (3,048) 3,048 -
Amortisation - - - - - - -
Impairment - - - - - - -
------------ -------------- -------------- ----------- ----------- -------------- --------------
Profit/(loss)
from
operation - 4,151 - (1,106) 3,045 (4,151) (1,106)
Finance income - 1 - 11 12 (1) 11
Finance cost - - - (10,063) (10,063) (10,063)
Income tax - - - - - -
Profit/(Loss)
for the
period - 4,152 - (11,158) (7,006) (4,152) (11,158)
============ ============== ============== =========== =========== ============== ==============
Assets 126,269 391,763 - 460,221 978,253 (391,763) 586,490
Liabilities 163,624 49,497 - 143,785 356,906 (49,497) 307,409
PPE additions - - - - - - -
Gas
exploration
additions 1,585 7,251 - - 8,836 (7,251) 1,585
============ ============== ============== =========== =========== ============== ==============
For the period ended 30 June 2018 (unaudited)
Upstream Upstream Downstream Corporate Sub-total Eliminations Consolidated
continuing discontinued discontinued
operations operations operation
(G3E) (GDG) (GGD) (G3E)
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Segment
revenue:
Sales to
external
customers - 13,727 1,525 - 15,252 (15,252) -
Inter-segment - - - - - - -
sales
- 13,727 1,525 - 15,252 (15,252) -
============ ============== ============== =========== =========== ============== ==============
Depreciation - (3,353) (158) (11) (3,522) 3,511 (11)
Amortisation - - - - - - -
Impairment - - - - - - -
------------ -------------- -------------- ----------- ----------- -------------- --------------
Profit/(loss)
from
operation - 5,327 (715) (1,642) 2,970 (4,612) (1,642)
Finance income - 1 - 1,618 1,619 (1) 1,618
Finance cost - - (129) (10,822) (10,951) 129 (10,822)
Income tax 24 - - - 24 - 24
Profit/(Loss)
for
the period 24 5,328 (844) (10,846) (6,338) (4,484) (10,822)
============ ============== ============== =========== =========== ============== ==============
Assets 121,360 369,416 2,613 503,494 996,883 (372,029) 624,854
Liabilities 135,360 47,391 2,613 159,872 345,236 (50,004) 295,232
PPE additions 273 156 - - 429 (156) 273
Gas
exploration
additions - 1,503 - - 1,503 (1,503) -
============ ============== ============== =========== =========== ============== ==============
For the year ended 31 December 2018 (audited)
Upstream Upstream Downstream Corporate Sub-total Eliminations Consolidated
continuing discontinued discontinued
operations operations operation
(G3E) (GDG) (GGD) (G3E)
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Segment
revenue:
Sales to
external
customers - 25,508 3,108 - 28,616 (28,616) -
Inter-segment - - - - - - -
sales
- 25,508 3,108 - 28,616 (28,616) -
============ ============== ============== =========== =========== ============== ==============
Depreciation - (6,513) (330) (10) (6,853) 6,843 (10)
Amortisation - - - - - - -
Impairment - - - - - - -
------------ -------------- -------------- ----------- ----------- -------------- --------------
Profit/(loss)
from
operation - 9,799 (1,178) (2,427) 6,194 (8,621) (2,427)
Finance income - - 1 1,189 1,190 (1) 1,189
Finance cost - 2 4 (19,759) (19,753) (6) (19,759)
Income tax 48 1,627 (7) - 1,668 (1,620) 48
Profit/(Loss)
for
the year 48 11,428 (1,180) (20,997) (10,701) (10,248) (20,949)
============ ============== ============== =========== =========== ============== ==============
Assets 109,985 389,506 - 481,190 980,681 (389,506) 591,175
Liabilities 118,846 48,308 - 178,680 345,834 (48,308) 297,526
PPE additions - - - - - - -
Gas
exploration
additions 1,650 10,525 - - 12,175 (10,525) 1,650
============ ============== ============== =========== =========== ============== ==============
4 OTHER INCOME AND FINANCE INCOME
Six months ended 30 Six months ended 30 Year ended
June 2019 June 2018 31 December 2018
US$'000 US$'000 US$'000
Unaudited Unaudited Audited
Revaluation of share buyback option - 1,618 1,189
Others 11 7 -
--------------------- --------------------- --------------------
11 1,625 1,189
===================== ===================== ====================
5 NON-CURRENT ASSETS HELD-FOR-SALE AND DISCONTINUED OPERATION
The assets and liabilities relating to the carve-out of the producing blocks (GSS & GCZ) of Greka Energy (International) B.V., a 100% wholly-owned subsidiary of the Company, have been presented as held for sale following the board decision to monetise GDG with a declaration of dividend in-specie. Management expects GSS & GCZ blocks to be sold within the next 12 months.
(a) Assets of disposal group classified as held-for-sale
Note As at As at As at
30 June 30 June 2019 30 June
2019 2019
Upstream Downstream Subtotal
group group
US$'000 US$'000 US$'000
Property, plant and equipment 8 134,298 - 134,298
Gas exploration and appraisal
assets 9 237,700 - 237,700
Deferred tax asset 17 5,739 - 5,739
Trade and other receivables 13,996 - 13,996
Cash and cash equivalents 30 - 30
================================ ====== ========== =============== ==========
391,763 - 391,763
Note As at As at As at
31 December 31 December 31 December
2018 2018 2018
Upstream Downstream Subtotal
group group
US$'000 US$'000 US$'000
Property, plant and equipment 8 132,947 - 132,947
Gas exploration and appraisal
assets 9 236,601 - 236,601
Deferred tax asset 17 5,742 - 5,742
Trade and other receivables 14,030 - 14,030
Cash and cash equivalents 186 - 186
================================ ====== ============== ============== ==============
389,506 - 389,506
(b) Liabilities of disposal group classified as held-for-sale
Note As at As at As at
30 June 2019 30 June 2019 30 June
2019
Upstream Downstream Subtotal
group group
US$'000 US$'000 US$'000
Trade and other payables 20,377 - 20,377
Deferred tax liabilities 17 29,120 - 29,120
Current tax liabilities - - -
=========================== ====== =============== =============== ==========
49,497 - 49,497
Note As at As at As at
31 December 31 December 31 December
2018 2018 2018
Upstream Downstream Subtotal
group group
US$'000 US$'000 US$'000
Trade and other payables 19,188 - 19,188
Deferred tax liabilities 17 29,120 - 29,120
Current tax liabilities - - -
=========================== ====== ============== ============== ==============
48,308 - 48,308
(c) Analysis of the results of discontinued operations is as follows:
As at As at As at
30 June 30 June 2019 30 June
2019 2019
Note Upstream Downstream Subtotal
group group
US$'000 US$'000 US$'000
Revenue: 3 10,988 - 10,988
---------- --------------- ----------
Profit/(loss) from operation 3 4,151 - 4,151
Finance income 3 1 - 1
Finance cost 3 - - -
Income tax 3 - - -
------------------------------- ------ ---------- --------------- ----------
Gain/(Loss)after tax of
discontinued operations
attributable to owners of
the company 4,152 - 4,152
=============================== ====== ========== =============== ==========
As at As at As at
30 June 30 June 2018 30 June
2018 2018
Note Upstream Downstream Subtotal
group group
US$'000 US$'000 US$'000
Revenue: 3 13,727 1,525 15,252
---------- --------------- ----------
Profit/(loss) from operation 3 5,327 (715) 4,612
Finance income 3 1 - 1
Finance cost 3 - (129) (129)
Income tax 3 - - -
------------------------------- ------ ---------- --------------- ----------
Gain/(Loss)after tax of
discontinued operations
attributable to owners of
the company 5,328 (844) 4,484
=============================== ====== ========== =============== ==========
(d) Cash flow from/(used in) discontinued operations:
As at As at As at
30 June 2019 30 June 30 June
2019 2019
US$'000 US$'000 US$'000
Upstream group Downstream Subtotal
group
Net cash used in operating
activities 4,268 - 4,268
Net cash generated from investing
activities (771) - (771)
Net cash generated from financing - -
activities
==================================== ================ ============ ==========
Net cash inflow/(outflow) 3,497 - 3,497
As at As at As at
30 June 2018 30 June 30 June 2018
2018
US$'000 US$'000 US$'000
Upstream group Downstream Subtotal
group
Net cash used in operating
activities 2,879 (572) 2,307
Net cash generated from investing
activities (1,503) - (1,503)
Net cash generated from financing
activities (2,583) - (2,583)
===================================== ================ ============ ===============
Net cash inflow/(outflow) (1,207) (572) (1,779)
6 EARNINGS AND (LOSS) PER SHARE
The calculation of basic and diluted profit/(loss) per share attributable to the owners of the Company is based on the following data:
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2019 2018 2018
US$'000 US$'000 US$'000
Unaudited Unaudited Audited
Loss for the period attributable
to the owners of the
Company used in basic and
diluted earnings/(loss) per
share from:
Continuing operations (11,158) (10,822) (20,949)
============= ============= ==============
Discontinued operations 4,152 4,484 11,793
============= ============= ==============
Continuing and discontinued
operations (7,006) (6,338) (9,089)
============= ============= ==============
Weighted average number of
ordinary shares
for the basic and diluted
loss/earnings per share 156,072,289 156,072,289 156,072,289
============= ============= ==============
Basic and diluted earnings/(loss) per share from
continuing operations (US$) (0.072) (0.069) (0.134)
Basic and diluted earnings/(loss) per share from
discontinued operations (US$) 0.027 0.029 0.076
Basic and diluted earnings/(loss) per share (US$) (0.045) (0.040) (0.058)
Profit/(loss) per share is based on the loss attributable to ordinary equity holders of the Company of divided by the weighted average of ordinary shares in issue during the corresponding period.
No separate calculation of diluted profit/(loss) per share has been presented as, at the date of this financial information, no options, warrants or other instruments that could have a dilutive effect on the share capital of the Company were outstanding.
7 DIVIDS
The directors do not recommend the payment of an interim dividend during the period ended 30 June 2019 and year ended 31 December 2018.
8 PROPERTY, PLANT AND EQUIPMENT
Building Fixtures,
and Construction fittings
Gas assets structures in progress Motor vehicles and equipment Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Cost
At 1 January
2018 - - - - 603 603
Additions - - - - - -
Disposals - - - - - -
Transferred to
disposal
group
classified as
held
for sale (note
5) - - - - - -
Exchange
differences - - - - (30) (30)
Balance as at
31
December 2018 - - - - 573 573
Additions
Exchange
differences - - - - - -
At 30 June
2019 - - - - 573 573
Depreciation
At 1 January
2018 - - - - 570 570
Provided for
the
year - - - - 10 10
Impairments - - - - - -
loss
Transferred to - - - - - -
disposal
group
classified as
held
for sale (note
5)
Exchange
differences - - - - (30) (30)
Balance as at
31
December 2018 - - - - 550 550
Provided for
the
period - - - - - -
Exchange
differences - - - - - -
At 30 June
2019 - - - - 550 550
=============== ================ ================= ================= ================ =========
Net book value
At 30 June
2019
(unaudited) - - - - 23 23
=============== ================ ================= ================= ================ =========
At 31
December
2018
(audited) - - - - 23 23
=============== ================ ================= ================= ================ =========
9 GAS EXPLORATION AND APPRAISAL ASSETS
Cost US$'000
-----------
At 1 January 2018 617,900
Additions 1,650
Capitalisation of internal
costs 2,446
Classified as held for sale -
(note 5)
Exchange differences (42,884)
-----------
At 31 December 2018 (audited) 579,112
Additions 1,585
Capitalisation of internal
costs 826
Exchange differences (5,588)
-----------
At 30 June 2019 (unaudited) 575,935
===========
10 TRADE AND OTHER RECEIVABLES
As at As at
30 June 31 December
2019 2018
US$'000 US$'000
Unaudited Audited
Trade receivables - -
Prepayments - -
Other receivables 2,865 3,163
Amount due from related parties 7,229 7,224
----------- --------------
10,094 10,387
=========== ==============
11 CASH AND CASH EQUIVALENTS
An analysis of the balances of cash and cash equivalents is as follows:
As at As at
30 June 31 December
2019 2018
US$'000 US$'000
Unaudited Audited
----------- --------------
Cash and bank balances 91 305
=========== ==============
12 TRADE AND OTHER PAYABLES
As at As at
30 June 31 December
2019 2018
US$'000 US$'000
Unaudited Audited
Trade payables 7,028 7,273
Amounts due to related parties 956 510
----------- --------------
7,984 7,783
=========== ==============
13 CONVERTIBLE NOTES
As at As at
30 June 31 December
2019 2018
US$'000 US$'000
Unaudited Audited
Brought forward from prior
year 58,739 53,132
Accrued interest 2,808 5,607
61,547 58,739
=========== ==============
As at 30 June 2019, the Company had one (31 December 2018: one) convertible note in issue repayable within 1 year.
Convertible note issued 2014
US$50 million 7% coupon convertible note due 2017
On 2 June 2014, the Company issued a three-year convertible note having a face value of US$50,000,000 with a maturity date of 1 June 2017. The note bears interest at 7% per annum, payable on a semi-annual basis. At the Maturity Date, the total sum of 100% of the outstanding principal amount of the convertible note and the accrued interest shall become payable, unless previously converted or redeemed.
The convertible note can be converted into Ordinary Shares of the Company at the note holder's option at any time prior to the Maturity Date at US$9.34 per share.
Convertible note amendment
US$50 million 10% coupon convertible note due 2020
In December 2016, the Company reached agreement with the note holder to extend the maturity of the US$50 million convertible note entered into in June 2014. Under the agreement, the note remains unsecured, has a revised coupon of 10% and a maturity date extended to 31 December 2020. The Company issued an option for the note holder to require (one-time) early repayment on the original maturity date, the option being exercisable at the discretion of the note holder by 28 April 2017. The conversion price of the note was amended to US$2.83 per share representing a 25% premium over the 13 December 2016 closing price.
During the year ended 31 December 2017, the company reached agreement with the note holder to extend the period during which the put option is exercisable to 20 November 2018. On 14 November 2018, the company reached another agreement with the note holder to extend the period during which the put option is exercisable to 20 November 2019.
At final maturity of the note, the note holder has the right to require the Company to purchase all of its shareholdings up to a maximum limit of 10,775,578 shares or 6.69% of the entire issued share capital of the Company at a price based on the 90 day VWAP calculated as of 31 December 2020 and to be settled prior to 30 April 2021. See the share buyback option liability below.
*Share buyback option liability
As at As at
30 June 31 December
2019 2018
US$'000 US$'000
Unaudited Audited
Brought forward from
prior year 2,280 3,469
Revaluation of share
buyback option 34 (1,189)
----------- --------------
2,314 2,280
=========== ==============
(a) Accounting for convertible notes
On initial recognition, the fair value of the liability component of the convertible loan note was determined using the prevailing market interest rate of similar debts without conversion option and early redemption options. For the note issued during 2014, the rate considered to be comparable was 10%. The loan note is subsequently carried at amortised cost.
The equity element arising from the conversion option of their convertible notes, being the residual value at initial recognition, is presented in the equity heading "convertible note equity reserve", as disclosed in note 16 to the financial statements.
On the amendment of the convertible note, the original financial liability was extinguished and the convertible reserve was transferred to retained earnings through reserves. The fair value of the liability component of the amended convertible loan was determined using the prevailing market interest rate of similar debts without conversion option and early redemption options. the rate considered to be comparable was 12%. The loan note is subsequently carried at amortised cost.
The equity element arising from the conversion option of the convertible notes, being the residual value at initial recognition, is presented in the equity heading "convertible note equity reserve", as disclosed in note 16 to the financial statements.
The terms of the convertible note include a clause whereby if another loan held by the Company becomes in default then the convertible note would also be in default. Subsequent to the balance sheet date, the Bond Trustee of the Company's public corporate bond (note 14) has called a Bond Holders informational conference on 30 September 2019. As a result, the convertible note is now due.
14 BONDS AND DERIVATIVE FINANCIAL INSTRUMENT
On 8 December 2014, G3 Exploration issued a public corporate bond (the "Bond") in the amount of US$88,000,000. The bond was issued at a discount of 2.5% and is senior secured three-year paper due on 20 November 2017. The Bond carries a 10% coupon payable semi-annually and also carries a redemption premium of 2% at maturity. In the event that any amount due under this Bond Agreement or any Finance Document is not made on the relevant due date, the unpaid amount shall bear a further penalty interest from the due date at an interest rate equivalent 5% per annum. The Bond is secured by a pledge over the shares of Greka Gas China, a wholly-owned subsidiary of G3 Exploration. The bond was initially recorded at fair value and is subsequently carried at amortised cost. Issue fees of US$1,893,000 were offset against the principal amount of the bond and will be amortised as part of the effective interest rate charge to the maturity date. The redemption premium is amortised as part of the effective interest rate charge to the maturity date. The following table summarises the movements in the bond:
As at As at
30 June 31 December
2019 2018
US$'000 US$'000
Unaudited Audited
Brought forward from prior
year 110,083 95,932
Accrued interest 7,072 14,151
Interest payment - -
----------- --------------
117,155 110,083
=========== ==============
The bond was disclosed as a current liability at the year end of 2018 as it was due on November 2017 and was therefore overdue.
As announced by the Company on 25 September 2019, the Bond Trustee has called a Bond Holders informational conference on 30 September 2019. The Bond Trustee intends to provide Bondholders with information on the current status of the Bond and to allow its recently appointed receivers to the Company's subsidiary Greka Gas China Ltd., to provide an update on the restructuring options currently being considered with the Company.
15 PROVISIONS
The cost recovery provision accounted for in upstream discontinued operations (note 5) also includes US$13,000,000 (2018: US$13,000,000) in respect of exploration costs incurred by CUCBM prior to the PSC period. The Group has an option to increase its participating interest in the GSS Block from its current 60% to 70% by investing two installments of US$6,500,000, one prior to 31 December 2017, and the second prior to 31 December 2018. The amount is unsecured and does not bear interest. Discounting is considered to be immaterial. See note 19 for more information.
16 SHARE CAPITAL AND RESERVES
Authorised Issued and fully paid
Number Number
of shares US$ of shares US$
At 1 January 2018, 31
December 2018 and 30 June
2019 ordinary shares of
US$0.0001 each 500,000,000 50,000 156,072,289 15,607
============= ======== =============== ========
Nature and purpose of reserves
(i) Share premium
The amount relates to subscription for or issue of shares in excess of nominal value. The application of the share premium account is governed by the Companies Law of the Cayman Islands.
(ii) Share redemption reserve
The amount represents the initial value of the liability in respect of the option the company has granted to buy back shares.
(iii) Convertible note equity reserve
The amount represents the value of the unexercised equity component of the convertible note issued by the Company recognised in accordance with the Group's accounting policy.
(iv) Share based payment reserve
The amount relates to the fair value of the share options that have been expensed through the income statement less amounts, if any, that have been transferred to the retained earnings/deficit upon exercise.
(v) Foreign exchange reserve
The amount represents gains/losses arising from the translation of the financial statements of foreign operation the functional currency of which is different from the presentation currency of the Group.
(vi) Retained deficit
The amount represents cumulative net gains and losses recognised in consolidated profit or loss less any amounts reflected directly in other reserves.
17 DEFERRED TAXATION
(a) Deferred tax assets
US$'000
---------
At 1 January 2018 317
Additions 48
Exchange differences (17)
Classified as held for sale (note 5) -
---------
At 31 December 2018 - audited 348
Movement in classified as held for sale
(note 5) -
Exchange differences (1)
---------
At 30 June 2019 (unaudited) 347
=========
(b) Deferred tax liabilities
US$'000
---------
At 1 January 2018 124,137
Reversal of temporary difference
Exchange differences (5,496)
Classified as held for sale (note 5) -
---------
At 31 December 2018 - audited 118,641
Movement in classified as held for sale
(note 5) -
Reversal of temporary difference -
Exchange differences (232)
---------
At 30 June 2019 (unaudited) 118,409
=========
As at As at
30 June 31 December
2019 2018
US$'000 US$'000
Unaudited Audited
Recognised deferred tax (liabilities)
and assets at PRC rate of 25%
Deferred tax assets and liabilities
are attributable to the following:
Fair value adjustments in exploration
and evaluation assets 118,409 118,641
=========== ==============
Tax losses - overseas 347 348
=========== ==============
Unrecognised deferred tax assets
Deferred tax assets have not
been recognised in respect of
the following:
Tax losses - overseas - -
=========== ==============
Potential unrecognised tax benefit - -
at PRC rate of 25%
=========== ==============
The deductible temporary timing differences do not expire under current tax legislation. PRC tax losses expire after five years. Deferred tax assets have not been recognised in respect of the full value of these items because at this point in the Groups development it is not virtually certain that future taxable profits will be available against which the Group companies can utilise the benefits of these tax losses in the near future. The Group has not offset deferred tax assets and liabilities across different jurisdictions.
18 SUBSIDIARIES
The principal subsidiaries of the Company, all of which have been included in these consolidated financial statements, are as follows:
As at 30 June As at 31 December
2019 2018
Percentage Percentage
of ownership of ownership
interest held interest held
Name Place of Principal activities Directly Indirectly Directly Indirectly
incorporation
Greka Gas China
Limited Cayman Islands Investment holding 100% - 100% -
Exploration,
Greka Energy development and
(International) Amsterdam, production of
B.V. Netherlands coal bed methane - 100% - 100%
GDGF Ltd. British Virgin Investment holding - 100% - -
Islands
Exploration,
development and
British Virgin production of
Greka GSN Ltd. Islands coal bed methane - 100% - 100%
Greka Integrated British Virgin
Products Ltd. Islands Investment holding - 100% - 100%
Exploration,
development and
British Virgin production of
Greka GFC Ltd. Islands coal bed methane - 100% - 100%
Exploration,
development and
British Virgin production of
Greka GQY Ltd. Islands coal bed methane - 100% - 100%
Greka Exploration
and Production
Ltd. Cayman Islands Investment holding - 100% - 100%
Exploration,
development and
British Virgin production of
Greka GPX Ltd. Islands coal bed methane - 100% - 100%
Exploration,
development and
Greka Guizhou British Virgin production of
E&P Ltd. Islands coal bed methane - 100% - 100%
19 JOINT ARRANGEMENTS
The Group currently operates under six (2018: six) production sharing contracts ("PSCs") for the exploration and development of CBM gas in the PRC.
Background
On 8 January 2003, the Group entered into four PSCs with CUCBM to explore, develop and produce coal bed methane in five blocks comprising Shizhuang South ("GSS"), Chengzhuang ("GCZ"), Shizhuang North ("GSN"), Qinyuan ("GQY") and Panxie East ("GPX"). GSS, GCZ, GSN and GQY are located in Shanxi Province with Panxie East located in Anhui Province.
In 2003, the Group also obtained the rights as foreign contractor related to the Fengcheng ("GFC") PSC. This PSC, dated 13 August 1999, was originally entered between Saba Petroleum Inc. as foreign contractor and CUCBM. Saba Petroleum Inc. was a related company of the Group by way of the common controlling shareholder, Mr. Randeep S. Grewal. The GFC block is located in Jiangxi Province.
Under the terms of these five PSCs the Group, as operator, agreed to provide funds and apply its technology and managerial experience and to cooperate with CUCBM to explore, develop and produce coal bed methane from the licence areas. CUCBM as a state-owned enterprise is eligible to apply for the exclusive rights for the exploitation of coal bed methane in the areas as defined in the contracts.
The PSCs provide that all costs incurred in the exploration stage shall be borne by the Group. The terms of the PSCs require the Group to cooperate with the state partner to submit the Overall Development Plan to the relevant authorities. Upon approval of the ODP by the Chinese authorities, the PSC operations are determined to have entered the development stage. However, as detailed in note 3 in circumstances when the approval of ODP is delayed other factors, including the substantive nature of operations and cash generation, may be considered to determine whether the development stage has been reached regardless of formal ODP approval.
Where it is determined that an asset is in the development stage based on facts and circumstances then the associated investment balance is reclassified from the exploration and appraisal category to the property, plant and equipment category of fixed assets. The responsibility for procuring approval of the ODP lies with the State partner. Once formally in the development stage the cost sharing mechanisms within the PSCs become effective and development and operating costs are borne by the partners in accordance with their respective equity interests in the relevant PSCs. Once production commences the cost recovery mechanism within the PSCs provides that the proceeds of production output (after deduction of value-added tax and any royalty payable to the Chinese tax authority) are allocated as follows:
-- firstly towards operating costs recovery in the proportion above mentioned (the "Sharing Proportion");
-- secondly to exploration cost recovery solely by the Group; and -- thirdly to development cost recovery (including deemed interest as appropriate).
Any unallocated revenue after cost recovery is allocated to the partners in accordance with their equity participation in the PSC after calculating a final royalty payable to the Chinese Authorities. The final royalty is based on a sliding scale from 0% to the maximum payable of 15% and calculated over total block production.
The five PSCs each have a term of 30 years, with a production period of not more than 20 consecutive years commencing on a date determined by the Joint Management Committee but aligned with the approval date of ODP. The JMC is established in accordance with the PSC between the Group and CUCBM to oversee the operations in the contracted area. Currently five of the six blocks covered by these five production sharing contracts are formally in the exploration stage based on the Chinese requirement for ODP approval before transition to development. In 2015, the assets associated with area 4 within the GSS block were reclassified as property, plant and equipment due to the substantive nature of the production operations and associated cash generation from this area.
PSCs held with PetroChina (CNPC)
Chengzhuang block ("GCZ")
In August 2014, the Group finalised and signed the Cooperation Agreement with PetroChina in respect of the GCZ block in accordance with a memorandum of understanding previously entered in December 2013. GZC lies within the GSS licence area and prior to the Cooperation agreement was governed by the GSS PSC. The Cooperation Agreement reaffirms the rights of the Group contained in the PSC over the GCZ block. The Cooperation agreement confirms the Group's 47% participating interest in the block and defines the term of the agreement as running from March 2010 to March 2033.
The Cooperation Agreement confirmed the Group's contribution to cumulative capital expenditure and its share of net revenue. The Cooperation Agreement also confirmed the Group's entitlement to its share of the downstream infrastructure assets in place, including the gas gathering station, together with the Group's funding obligation for those assets. The Group recorded US$10,900,000 within property, plant and equipment in respect of its 47% share in these assets in 2014 based on the final agreement of the costs associated with the downstream infrastructure. The Group also elected to settle its obligation for all historic amounts due to PetroChina through its share of future production.
In 2015 PetroChina achieved cost recovery in respect of its historic investment in the GCZ block. Following cost recovery by PetroChina the Group is receiving its proportion of revenue in cash each month. As a result, the billing arrangements for GCZ have moved to a full joint operations basis where the Group receives its share of revenue on the conclusion of each month and is separately cash-called for its share of opex and capex on a month-ahead basis. Cash calls are reconciled to actual expenditure quarterly.
On 7th of September 2018, NDRC has approved the ODP, consistent with its policy to accelerate CBM development in China, boost green energy supply, and improve coal mine safety production and to reduce CO2 emissions. This final NDRC approval facilitates the permits for the Company and its partner to further develop the acreage.
The following table summarises the Group's share of the capital expenditure and net revenues arising from the GCZ block for the current period and prior year.
30 June 31 December
2019 2018
US$'000 US$'000
Unaudited Audited
Capital expenditure 1,199 -
============ =============
Revenue and other income 4,123 10,566
Total operational costs and expenses (2,329) (4,958)
------------ -------------
Net Profit 1,794 5,608
============ =============
Amount due from/(to) PetroChina
Opening balance 4,150 3,935
Capital expenditure for GCZ block 1,199 -
Share of profit for GCZ block 1,173 7,341
Cash received (2,900) (7,126)
------------ -------------
Closing balance 3,622 4,150
============ =============
The balance due from PetroChina is included within trade and other receivables, is unsecured and interest free.
PetroChina is a subsidiary of state-owned China National Petroleum Corporation (CNPC), headquartered in Dongcheng District, Beijing.
PSCs held with CUCBM (CNOOC)
On 31 March 2014, and following the identification of unauthorised drilling activities across several of the Group's blocks by CUCBM, the Group entered a Framework Agreement CUCBM the purpose of which was to amend and clarify the rights of both the Group and CUCBM in relation to the PSCs jointly held between the parties. Under the terms of the Framework agreement, the Group's percentage share in the relevant blocks were updated and confirmed as follows:
PSC G3E share CUCBM share
Shizhuang South 60% 40% G3E share increasing to 70% on payment of US$13,000,000 to CUCBM
Shizhuang North 50% 50% Quinyuan Area A 10% 90% Quinyuan Area B 60% 40% Fengcheng 49%* 51% Panxie East 60%* 40% * Unchanged.
The Framework Agreement reaffirmed the status of the PSC's. Notwithstanding the terms of the PSC, CUCBM undertook significant unauthorised exploration work within the licence area incurring gross expenditure of US$611,300,000 related to the drilling of wells and the establishment of certain infrastructure across the PSC blocks.
In prior year a provision for a potential liability to CUCBM was recognised on the basis of there being a dispute over the historic wells drilled by CUCBM. The provision represented the best estimate of the Group's obligation to settle its share of the costs of the disputed wells.
Upon finalisation of the Supplemental Agreements in 2017, the original dispute that arose is now settled, and the outcome is that CUCBM will recover its historic costs through potential future production. As described in the accounting policies, the Group's oil and gas assets are accounted for as joint operations and the Group therefore accounts for its share of income and expenditure. As such, it is no longer appropriate for the Group to recognise CUCBM's historic costs. As the disputed wells are no longer subject to a settlement obligation, it is deemed appropriate to reduce the provision to $nil. The original recognition of the provision had no impact on the income statement and therefore the reversal of the provision also has no impact on the income statement, and is recognised as a reduction to the Group's exploration assets. The change in provision represents a change in accounting estimate as a result of the Supplemental Agreements executed in 2017.
$13 million has been reclassified to payables due to management's intention to exercise the option to obtain a higher share rate.
Shizhuang South PSC
During the year, CUCBM has invested an additional $6.9 million in the block.
Shizhuang North PSC
Under the terms of the Framework Agreement, the Group agreed to reduce its interest in the GSN Block by 10% in return for CUCBM providing the Group with a carried interest of US$100,000,000 related to exploration and development expenditure across the block. The terms are confirmed by the parties in the supplementary agreements signed in September 2017. No gain in respect of the committed future expenditure as compared to the 10% interest in the Group's existing assets has been recognised under the Group's accounting policy.
Fengcheng PSC
According to the Supplementary Agreement signed between the Group and CNOOC-CUCBM in September 2017, the Group had to undertake $8.9 million of capital expenditure by certain dates specified in the Supplementary Agreement.
Panxie PSC
According to the Supplementary Agreement signed between the Group and CNOOC-CUCBM in September 2017, the Group had to undertake $4.2 million of capital expenditure by certain dates specified in the Supplementary Agreement.
Qinyuan PSC
According to the Supplementary Agreement signed between the Group and CNOOC-CUCBM in September 2017, the Group had to undertake $11.7 million of capital expenditure by certain dates specified in the Supplementary Agreement.
In accordance with the terms of the Supplementary Agreements, if the Group does not complete the capital expenditure before the due dates then the Group may be required to do the following:
- Make certain payment to CNOOC-CUCBM for any unfulfilled balance of the capital expenditure and
- relinquish a proportion of the relevant Block to CNOOC-CUCBM.
The Group awaits CNOOC-CUCBM to conclude the assignments pursuant to the internal restructuring of the exploration Blocks into separate wholly owned entities. The planned exploration expenditures under the Fengcheng PSC, Panxie PSC, and Qinyuan PSC supplementary agreements with CNOOC-CUCBM have not been completed. Following the completion of such assignments, the separate entities of each PSC plan to commence and complete the planned exploration program and related capital expenditures.
Management is confident that CNOOC-CUCBM will conclude the assignments and extend the due dates to enable the Group to complete the capital expenditures. Therefore, Management expects that none of the Group's exploration Blocks will be relinquished and no material cash will be payable by the Group.
CUCBM is wholly-owned by China National Offshore Oil Corp and is headquartered in Dongcheng District, Beijing.
Baotian-Qingshan block ('GGZ')
In addition, Greka Guizhou E&P Ltd, a subsidiary of the Company, is party to a PSC with PetroChina to explore for and develop coal bed methane resources in Guizhou Province. The Group is entitled to earn a 60% interest in GGZ by funding up to US$8,000,000 in respect of an exploration pilot programme and has provided a performance bond against this commitment in the amount of US$ nil (31 December 2018: US$1,000,000). At 30 June 2019, the cumulative net investment made by the Group in GGZ was US$36,649,000 (31 December 2018: US$36,566,000), of which US$83,000 was invested in the six months ended 30 June 2019.
PetroChina is a subsidiary of state-owned China National Petroleum Corporation (CNPC), headquartered in Dongcheng District, Beijing.
20 RELATED PARTY TRANSACTIONS
Save as disclosed in notes 10, 12 and 18, there were no other related party transactions that are required to be disclosed. Transactions between the company and its subsidiary undertakings, which are related parties, have been eliminated on consolidation and are not disclosed in this note. The related party transactions of the Group during the period include the following:
As at 30 June 2019, the Group had the following balances due to/from its related parties under common control:
-- Net prepayment to the Greka Drilling Limited group of US$6,865,000 (2018: US$6,860,000).
-- Net payable to the Greka Engineering and Technology group of US$956,000 (2018: US$510,000).
-- Net receivable from Gremex Ltd. of $364,000 (2018: $364,000).
During the period, the Group has incurred drilling and related services costs of US$520,000 (2018: US$560,000) on services provided by wholly-owned subsidiaries of Greka Drilling Limited. The Group has also incurred infrastructure services costs of US$3,230,000 (2018: US$3,470,000) from wholly-owned subsidiaries of Greka Engineering and Technology Limited. During the period, the Group has sold gas of US$6,865,051 (2018: US$6,390,000) to a wholly-owned subsidiary of Greka Engineering and Technology Limited for Pipeline Gas.
The Group has entered a master service contract with Greka Drilling Ltd, a company under common management and control, regarding the provision of drilling services to the Group. There is no minimum expenditure committed in the contract within the next 12 months.
Subsidiary companies
Transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are described above.
Ultimate controlling party
-- The ultimate controlling party is Mr. Randeep S. Grewal. 21 OPERATING LEASE COMMITMENTS
At the reporting dates, the Group had commitments, as lessee, for future minimum lease payments under non-cancellable operating lease in respect of land and buildings which fall due as follows:
As at Year ended
30 June 2019 31 December
2018
USD'000 USD'000
Unaudited Audited
No Later than 1 year 283 324
Later than 1 year and
no later than 5 years 453 262
-------------------------- --------------- --------------
736 586
========================= =============== ==============
22 CAPITAL COMMITMENTS
As at Year ended
30 June 2019 31 December 2018
USD'000 USD'000
Unaudited Audited
Capital expenditure contracted but not provided for in respect of
-additions to exploration costs and appraisal assets 18,747 18,747
-acquisition of property, plant and equipment 24,427 25,626
43,174 44,373
The Group is required to undertake certain discretionary capital expenditures upon signing supplementary agreements with CUCBM on certain blocks, details of which are disclosed in note 19.
For disclosure of discretionary commitments under the CUCBM supplementary agreement, see note 19.
23 FINANCIAL INSTRUMENTS
Financial Assets As at Year ended
30 June 2019 31 December 2018
USD'000 USD'000
Unaudited Audited
Loans and receivable:
Trade and other receivables 10,094 10,387
Restricted Cash - 1,000
Cash and cash equivalents 91 305
Total financial assets 10,185 11,692
Financial Liabilities As at Year ended
30 June 2019 31 December 2018
USD'000 USD'000
Unaudited Audited
At amortised cost:
Trade and other payables 7,984 7,783
Convertible notes 61,547 58,739
Bonds 117,155 110,083
Share buyback option liabilities 2,314 2,280
Total financial liabilities 189,000 178,885
The carrying value of the financial asset and liabilities is approximately equal to their fair value at 30 June 2019 and 31 December 2018.
Interest rate risk
The Group's income and operating cash flows are substantially independent of changes in market interest rates. The Group's bond and convertible loan note bear fixed interest. The Group has not entered into any cash flow interest rate hedging contracts or any other derivative financial instruments for hedging purposes. However, the management closely monitors its exposure to future cash flow as a result of changes in market interest rates, and will consider hedging such changes should the need arise.
The interest rate profile of the Group's financial assets at each year end was as follows:
As at Year ended
30 June 2019 31 December 2018
USD'000 USD'000
Unaudited Audited
Cash and cash equivalents
USD Non-interest bearing 2 133
USD Floating rate 31 148
GBP Non-interest bearing 1 7
GBP Floating rate 3 3
CAD Floating rate 1 -
RMB Non-interest bearing 52 -
RMB Floating rate 6 186
HKD Non-interest bearing 24 13
HKD Floating rate 1 1
Other financial assets
USD Non-interest bearing 3,146 404
RMB Non-interest bearing 6,423 10,133
HKD Non-interest bearing 494 654
GBP Non-interest bearing 1 10
10,185 11,692
The weighted average interest rate earned during the year was 0.15% (2018: 0.20%) on floating rate US dollar cash balances, 0.03% (2018: 0.05%) on floating rate GBP balances and 0.45% (2018: 0.52%) on floating rate RMB balances. At the year end, the Group had cash on short-term deposit for periods of between over-night and one week.
The interest rate profile of the Group's financial liabilities at each year end was as follows:
As at Year ended
30 June 2019 31 December 2018
USD'000 USD'000
Unaudited Audited
Loans and borrowings, convertible notes and bonds financial liability
USD Fixed rate 178,702 168,822
Other financial liabilities
USD Non-interest bearing 3,745 1,063
RMB Non-interest bearing 6,494 7,960
GBP Non-interest bearing 49 974
HKD Non-interest bearing 10 23
EOR Non-interest bearing 2
NOK Non-interest bearing 40
10,298 10,062
The interest rates payable during the year was 10% (2018: 9%) on US dollars convertible notes and 12% (2018: 10%) on US dollars bonds. If all interest rates had been 50 basis points higher/lower, with all other variables held constant, post-tax profit would have been US$nil (2018: US$nil) higher/lower and there will be no impact on other components of equity.
Foreign currency risk
While the Group continually monitors its exposure to movements in currency rates, it does not utilise hedging instruments to protect against currency risks. The main currency exposure risk to the Group has been in relation to the trade payable and other payables denominated in RMB. The Directors consider the foreign currency exposure to be limited. Receivables are generated in RMB, operational cash balances are held in RMB, revenues and future revenues from certain subsidiary operations will be generated in RMB.
As at 30 June 2019 In NOK In CAD In USD In RMB In GBP IN HKD Total in
(Unaudited) USD
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Financial Assets
Trade and other
receivables - - 793 6,370 1,337 1,594 10,094
Restricted cash - - - - - - -
Cash and cash
equivalents - - - 53 13 25 91
- - 793 6,423 1,350 1,619 10,185
Financial
Liabilities
Financial Assets
Trade and other
payables - - 3,536 4,438 - 10 7,984
Convertible notes
and bonds - - 178,702 - - - 178,702
Derivative
financial
liabilities - - 2,314 - - - 2,314
- - 184,552 4,438 - 10 189,000
As at 31 December In NOK In CAD In USD In RMB In GBP IN HKD Total in USD
2018 (Audited)
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Financial Assets
Trade and other
receivables - - 3,527 6,860 - - 10,387
Restricted cash - - 1,000 - - - 1,000
Cash and cash
equivalents - - 261 17 - 27 305
- - 4,788 6,877 - 27 11,692
Financial Liabilities
Trade and other
payables 49 - 1,538 510 5,686 - 7,783
Convertible notes and
bonds - - 168,822 - - - 168,822
Derivative financial
liabilities - - 2,280 - - - 2,280
49 172,640 510 5,686 - 178,885
The above RMB cash, trade and other receivables, trade and other payables and other financial liabilities balances are denominated in a currency other than US dollars. A 3% decrease in the US dollar/RMB exchange rate would result in reported profits for the year ended 30 June 2019 being US$223,000 (31 December 2018: 265,000) higher or lower respectively.
Liquidity risk
The liquidity risk of each group entity is managed centrally by the group treasury function. The investment budgets and work plans are set by the operating teams in the PRC and agreed by the Board annually in advance, enabling the Group's cash requirements to be anticipated. Where facilities of group entities need to be increased, approval must be sought from the Board. Further disclosures on liquidity risk and going concern are included in note 2.
All surplus cash is held centrally to maximise the returns on deposits through economies of scale while required cash will be remitted to the PRC based on monthly cash-call basis.
The maturity profile of the Group's financial liabilities at the reporting dates based on contractual undiscounted payments are summarised below:
Six months Within one
Six months to one to five Over five Undiscounted Carrying
or less year years years payments Adjustments balance
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
At 30 June
2019
(unaudited)
Trade and
other
payables 7,984 - - - 7,984 7,984
Convertible
notes and
bonds 9,822 168,880 - - 178,702 178,702
Share
buyback
option
liabilities - - 4,400 - 4,400 (2,086) 2,314
17,806 168,880 4,400 - 191,086 (2,086) 189,000
Six months Six months Within one Over five Undiscounted Adjustments Carrying
or less to one to five years payments balance
year years
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
At 31
December
2018
(Audited)
Trade and
other
payables 7,783 - - - 7,783 - 7,783
Convertible
notes and
bonds - 188,580 - - 188,580 (19,758) 168,822
Share
buyback
option
liabilities - - 2,732 - 2,732 (452) 2,280
7,783 188,580 2,732 - 199,095 (20,210) 178,885
Notes:
(i) Undiscounted payments are drawn up based on the earliest date on which the Group can be required to pay. They include both principal and interest cash outflows.
(ii) In the period ended 30 June 2019 and 31 December 2018, the adjustment to the convertible notes and bonds represents the impact of the unamortised transaction costs and future interest.
(iii) Carrying balance represents the balance per consolidated statement of financial position at the end of each reporting period.
Credit risk
The Group's maximum exposure to credit risk by class of individual financial instrument is shown below:
30 June 2019 (Unaudited) 31 December 2018 (Audited)
Carrying Maximum Carrying Maximum
value value
value exposure value exposure
Current asset USD$'000 USD$'000 USD$'000 USD$'000
Trade and other receivables 10,094 10,094 10,387 10,387
Restricted cash - - 1,000 1,000
Cash and cash equivalents 91 91 305 305
10,185 10,185 11,692 11,692
None of trade and other receivables, including the amount due from related parties, had been impaired. Trade and other receivables are predominantly non-interest bearing. The Group does not hold any collateral as security and the Group does not hold any significant provision in the impairment account for trade and other receivables as they mainly relate to customers with no default history. The Group has current receivables of due from related parties of US$7,229,000 (2018: US$7,224,000), the recovery of which is dependent on the future profits of the related parties. The Group expects to fully recover its receivable based on the profit forecasts of the related parties.
Capital risk management
The Group's objectives when managing capital are to ensure the ability of the entities in the Group to continue as a going concern in order to provide returns for equity holders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain the capital structure, the Group considers the macro economic conditions, prevailing borrowing rates in the market and adequacy of cash flows generated from operations and may adjust the amount of dividends paid or payable to equity holders, raise funding through capital market, adjust the amount of other borrowings as necessary. No changes were made to the objectives or policies during the year/period.
The Group monitors capital on the basis of the debt-to-equity ratio. This ratio is calculated as net debts divided by equity attributable to the Company's equity holders. Net debt includes current and non-current liabilities less cash and cash equivalents, as shown in the consolidated statements of financial position. Equity includes equity attributable to equity holders of the Company. Debt-to-equity ratios at 30 June 2019 and 31 December 2018 are as follows:
Period ended Year ended 31 December 2018
30 June 2019
USD'000 USD'000
Unaudited Audited
Current liabilities 186,686 176,605
Non-current liabilities 120,723 120,921
Cash and cash equivalents (91) (305)
Net debt 307,318 297,221
Equity 621,347 634,847
Debt-to-equity ratio 0.49 0.47
Fair Value
The carrying amounts of significant financial assets and liabilities approximate their respective fair values as at 30 June 2019 and 31 December 2018.
The carrying values of cash and bank balances, trade and other receivables, and trade and other payables approximate their respective fair values because of their short maturities. The carrying amounts of other liabilities approximate their fair value as the effect of discounting is immaterial. The carrying amounts of loan and borrowings and convertible notes approximate their fair values because the effective interest rates of the debts are approximate to the prevailing market interest rates at the reporting dates for similar borrowings available to the Group.
24 EVENTS AFTER REPORTING DATE
As announced by the Company on 25 September 2019, the Bond Trustee (note 14) has called a Bond Holders informational conference on 30 September 2019. See note 14 for more information.
There is no other subsequent event after the balance sheet date which requires disclosure in the financial statements.
RESPONSIBILITY STATEMENT
We confirm that to the best of our knowledge:
(a) the Condensed Financial Statements have been prepared in accordance with IAS 34 Interim Financial Reporting, as adopted by the European Union, and give a true and fair view of the assets, liabilities, financial position and profit of the Group; and
(b) The Interim Management Report includes a fair review of the information required by FCA's Disclosure Guidance and Transparency Rules (DTR 4.2.7 R and 4.2.8 R).
On behalf of the Board
Randeep S. Grewal
Founder & Chairman
30 September 2019
DIRECTORS, COMPANY SECRETARY AND ADVISORS
DIRECTORS
Randeep S. Grewal
Executive Director, Chairman and CEO
Bryan Smart
Non-Executive Director
Wayne Roberts
Non-Executive Director
Zhao Li Guo
Non-Executive Director
Gong Da Bing
Non-Executive Director
LEGAL ADVISORS
As to Chinese Law
Guantao Law Firm
17/F, Tower 2,
YingtaiCenter, NO. 28,
Finance Street, Xicheng District,
Beijing 100140, P R China
As to Cayman Islands & BVI Law
OGIER
89 Nexus Way
Camana Bay
Grand Cayman, KY1-9009
Cayman Islands
As to English Law
Memery Crystal LLP
44 Southampton Buildings
London WC2A 1AP
REGISTERED OFFICE
PO Box 2681
Cricket Square
Hutchins Drive
Grand Cayman KY1 -1111
Cayman Islands
COMPANY SECRETARY
International Corporation Services Ltd.
AUDITORS
BDO LLP
55 Baker Street
London W1U 7EU
INVESTOR RELATIONS
VSA Capital Limited
New Liverpool House,
15-17 Eldon Street,
London EC2M 7LD
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
IR LIFLSAFIIVIA
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