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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| G3 Exploration Limited | LSE:G3E | London | Ordinary Share | KYG409381053 | ORD USD0.0001 (DI) |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 28.10 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMG3E
RNS Number : 0963B
G3 Exploration Limited
18 September 2018
18 September 2018
G3 Exploration LTD.
("G3E", "G3 Exploration" or the "Company")
Interim Results for the Six Months Ended 30 June 2018
Financial and Operational Highlights
G3 Exploration
-- Guizhou Block exploration programme was successfully accomplished, next phase being discussed with PetroChina.
-- Jiangxi, Anhui, Shanxi exploration blocks' development potential re-assessed with non-prospective acreage identified.
-- Composition of board of directors enhanced with the addition of Bryan Smart and Zhao LiGuo.
Green Dragon Gas (Held for sale disposal group)
-- Revenue of US$13.7 million (H1 2017 - US$11.2 million). -- Gross revenue of US$8.7/mcf (H1 2017 - US$7.2/mcf).
-- Of the 200 G3E operated wells, 130 wells are online with 105 connected to sales infrastructure.
-- EBITDA of US$8.7 million (H1 2017 - US$6.0 million). -- Substantial infrastructure progress with 1,063 wells of 1,453 connected to pipelines.
2018 OUTLOOK
Recapitalise balance sheet. Increase production cash flow. Drive development programme.
Divest main producing assets (blocks GSS and GCZ) into a new Hong Kong listed company.
G3 Exploration
-- Expect to repay two bond creditors from debt and equity issuance in Green Dragon Gas. -- Conclude evolution to exploration and development business. -- Finalise dividend in specie for producing assets. -- First gas in Guizhou Block. -- Expand into additional geography.
Green Dragon Gas (Held for sale disposal group)
-- Infrastructure focus to monetise invested capital.
-- Work alongside Chinese partner CNOOC on GSS block for the connection of all existing 1,139 drilled wells to the sales infrastructure.
-- Increase gas sales volumes on GSS block from GDG existing producing wells through better compression management infrastructure.
-- Launch GSS LiFaBriC drilling programme to further increase sales volumes. -- Commence GCZ ODP to drill 147 wells through yearend 2019.
CHAIRMAN'S STATEMENT
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.
Most notably is the progress being made in the GSS block since the conclusion of the Supplementary Agreements with CNOOC which were accepted with determined cost recovery amounts by the Joint Management Committee at March end. Since the signing of the agreements, the parties are working closely together into rapidly advancing the producing wells and are focused on monetising the gas sales within the GSS commercial producing block. This focus has seen gas sales increase 63% at CNOOC operated wells from January to the end of August. Of the total 1,139 existing drilled wells by CNOOC, 889 or 78% have been connected to the newly built pipeline infrastructure while 330 of the wells are already contributing to the gas sales, in addition to the 105 operated by us. We expect the connected wells to be a foundation of increasing gas sales for many years to come as wells successfully dewater the coal seam and convert to gas production. At our flagship GSS block, of the total 1,453 drilled wells, we now have 1,063 or 73% connected to a pipeline network spanning 586.8 km across the 388sqkm gas block with three operational gas gathering compressor stations.
Our producing GCZ block with CNPC continued its commercial gas sales while the collaborative Joint Operating Team concluded its Overall Development Plan. The plan previously approved by CNPC received the NDRC Energy department approval in August and is expected to have final NDRC approval this month. This ODP commits the drilling of 147 wells by yearend 2019, with drilling anticipated to start in the fourth quarter. The expected gas production following this ODP execution forecasts production in GCZ to be 6 BCFPY which will counter the current decline curve as no wells have been drilled on the block since 2010.
In addition to our CNOOC and CNPC partnership on the two producing blocks, we continue to progress our PetroChina partnership in the Guizhou (GGZ) exploration block. The team is focused on concluding the production and completion plan on the twelve successful wells drilled by 2017 yearend. We expect to commence test gas sales this year so as to progress the asset into development next year.
Our exploration teams re-evaluated all the acreage within the six exploration blocks. This targeted task specifically delineated the prospective development acreage and identified non-prospective acreage within the vast exploration area. The technical teams are progressing discussions on their conclusions with our partners CNOOC and PetroChina. We expect to collaboratively establish the exploration plans over the six vast blocks during the fourth quarter and launch the programmes in 2019.
Concurrent to the operational progress, the management team has stayed focused on the balance sheet re-vitalisation. A structured process is underway, led by an energy specialist investment bank to conclude up to $200m financing over Green Dragon Gas assets. We expect to conclude such financing so as to progress the dividend in specie of Green Dragon Gas shares to our shareholders and conclude a full deleveraging of G3 Exploration. We look forward to a full repayment of all our bonds timely.
I look forward to monetising the value in our producing assets, developing our exploration assets and committing to incremental geographies where our deep knowledge in CBM is of accretive value to our shareholders.
Randeep S. Grewal
Founder & Chairman
About G3E
G3E is a leading independent gas producer with operations in China and is listed on the main market of the London Stock Exchange (LSE: G3E). The Company has 559Bcf of 2P reserves and 2,386Bcf of 3P reserves across eight production blocks covering over 7,566km(2) of license area in the Shanxi, Jiangxi, Anhui and Guizhou provinces. It holds six Production Sharing Agreements with strong, highly capitalised Chinese partners including CNOOC, CNPC and PetroChina, and has infrastructure in place to support multiple routes to monetise gas production.
The Company is committed to an exploration and appraisal focused business plan in coal bed methane development across three geographies concurrently. It has a well-established track record and demonstrated perseverance in going the distance to monetise shareholder value through the below key basic principles:
-- Focus on core intellectual aptitude in developing coal bed methane -- Develop assets in an environmentally and socially prudent manner -- Protect accreted shareholder value
Condensed Consolidated Statement of Comprehensive Income
Six months ended 30 June 2018
Hot Features
Premium
Six months ended 30 June Six months ended 30 June Year ended
2018 2017 Restated* 31 December 2017
Notes US$'000 US$'000 US$'000
Unaudited Unaudited Audited
Continuing operations
Revenue 3 - - -
Cost of sales 3 - - -
---------------------------- --------------------------- --------------------
Gross profit - - -
Other income 4 7 - 13
Selling and distribution - - -
costs
Administrative expenses 3 (1,649) (1,660) (4,144)
Profit from operations (1,642) (1,660) (4,131)
Finance income 4 1,618 4,822 4,457
Finance costs 13,14 (10,822) (7,435) (17,426)
Profit (loss) before
income tax (10,846) (4,273) (17,100)
Income tax /credit 24 22 46
---------------------------- --------------------------- --------------------
(Loss) for the period
from continuing
operations (10,822) (4,251) (17,054)
Discontinued operations
Gain/(loss) for the period
from discontinued
operations 5 4,484 4,652 (7,522)
---------------------------- --------------------------- --------------------
Profit/(loss) for the
period attributable to
owners of the company (6,338) 401 (24,576)
Other comprehensive
expense, net of tax:
Items that may be
reclassified to profit or
loss:
Exchange differences
arising on
translating foreign
operations (13,795) 14,543 57,328
---------------------------- --------------------------- --------------------
Total comprehensive
income/(expense)
for the period
attributable to owners of
the company (20,133) 14,944 32,752
============================ =========================== ====================
Basic and diluted
earnings/(loss) per share
from continuing
operations (US$) 6 (0.069) (0.027) (0.109)
Basic and diluted
earnings/(loss) per share
from discontinued
operations (US$) 6 0.029 0.030 (0.048)
---------------------------- --------------------------- --------------------
Basic and diluted
earnings/(loss) per share
(US$) 6 (0.040) 0.003 (0.157)
============================ =========================== ====================
* Certain amounts shown here do not correspond to the 2017 financial statements and reflect adjustments made in respect to assets held for sale, refer to note 5.
Condensed Consolidated Statement of Financial Position
At 30 June 2018
As at As at
30 June 2018 31 December
2017
Notes US$'000 US$'000
Unaudited Audited
Assets
Non-current assets
Property, plant and equipment 8 273 33
Gas exploration and appraisal
assets 9 613,793 617,900
Long term prepaid expenses - 299
Deferred tax asset 17 337 317
---------------- ---------------
614,403 618,549
---------------- ---------------
Current assets
Trade and other receivables 10 8,364 8,167
Restricted cash 1,000 1,000
Cash and cash equivalents 11 1,087 1,347
---------------- ---------------
10,451 10,514
Assets of disposal group
classified as held-for-sale 5 372,029 380,133
---------------- ---------------
382,480 390,647
Total assets 996,883 1,009,196
---------------- ---------------
As at As at
30 June 31 December
2018 2017
Notes US$'000 US$'000
Unaudited Audited
Liabilities
Current liabilities
Trade and other payables 12 9,498 10,198
Convertible notes 13 55,905 53,132
Bonds 14 103,981 95,932
Current tax liabilities - -
----------- ---------------
169,384 159,262
Liabilities of disposal group
classified
as held-for-sale 5 50,004 50,548
219,388 209,810
Non-current liabilities
Deferred tax liability 17 123,997 124,137
Share buyback option liability 13 1,851 3,469
----------- ---------------
125,848 127,606
----------- ---------------
Total liabilities 345,236 337,416
----------- ---------------
Total net assets 651,647 671,780
=========== ===============
Capital and reserves
Share capital 16 16 16
Share premium 808,981 808,981
Share redemption reserve (8,255) (8,255)
Convertible note equity reserve 2,851 2,851
Share-based payment reserve - -
Foreign exchange reserve 24,586 38,381
Retained deficit (176,532) (170,194)
----------- ---------------
Total equity attributable
to owners of the parent 651,647 671,780
=========== ===============
Total equity 651,647 671,780
=========== ===============
Condensed Consolidated Statement of Changes in Equity
Six months ended 30 June 2018
Equity
Share Share attributable
buyback Convertible based Foreign to owners
Share Share option note equity payment exchange Retained of the
capital premium reserve reserve reserve reserve deficit parent
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
--------- --------- --------- ------------- --------- ------------ ----------- --------------
At 1 January
2017 16 808,981 (8,255) 2,851 - (18,947) (145,618) 639,028
Profit for the
period - - - - - - 401 401
Exchange
differences
on
translating
foreign
operations - - - - - 14,543 - 14,543
--------- --------- --------- ------------- --------- ------------ ----------- --------------
Total
comprehensive
expense for the
period - - - - - 14,543 401 14,944
Transfer to - - - - - - - -
retained
deficit
At 30 June 2017 16 808,981 (8,255) 2,851 - (4,404) (145,217) 653,972
(unaudited)
--------- --------- --------- ------------- --------- ------------ ----------- --------------
At 1 January
2018 16 808,981 (8,255) 2,851 - 38,381 (170,194) 671,780
Loss for the
period - - - - - - (6,338) (6,338)
Exchange
differences
on
translating
foreign
operations - - - - - (13,795) - (13,795)
Total
comprehensive
income for the (13,795) (6,338) (20,133)
period - - - - - - - -
Transfer to - - - - - - - -
retained
deficit
At 30 June 2018 16 808,981 (8,255) 2,851 - 24,586 (176,532) 651,647
(unaudited)
========= ========= ========= ============= ========= ============ =========== ==============
Condensed Consolidated Statement of Cash Flows
Six months ended 30 June 2018
Six months Six months Year ended
ended 30 ended 30 31 December
June 2018 June 2017 2017
US$'000 US$'000 US$'000
Notes Unaudited Unaudited Audited
Cash flows used in continuing
operating activities
(Loss)/profit after tax 3 (10,822) 1,822 (17,054)
Adjustments for:
Depreciation 11 2,160 22
Other income and finance
income 4 (1,618) (4,999) (4,475)
Finance costs 13,14 10,822 7,435 17,426
Accelerated finance charge - - -
Taxation (24) (245) (46)
Cash used in from operating
activities before changes
in
working capital (1,631) 6,173 (4,153)
Movement in inventory - - -
Movement in trade and other
receivables (197) (3,679) 4,690
Movement in trade and other
payables (709) 2,568 5,258
------------ ------------ --------------
Net cash generated from
operations (2,537) 5,062 5,795
Income tax - - -
------------ ------------ --------------
Net cash used in
continuing operating activities (2,537) 5,062 5,795
Net cash used in
discontinued operating
activities 5 2,307 (1,870) 11,731
------------ ------------ --------------
Net cash used in
operating activities (230) 3,192 17,526
------------ ------------ --------------
Six months Six months Year ended
ended 30 ended 31 December
June 2018 30 June 2017 2017
US$'000 US$'000 US$'000
Notes Unaudited Unaudited Audited
Investing activities
Payments for purchase
of property,
Plant and equipment 8 (273) (29) -
Payments for exploration
activities - (6,565) (6,259)
Interest received - 2 4
Refund of deposit received
from PetroChina 500 1,000
------------ --------------- --------------
Net cash used in continuing
investing activities (273) (6,092) (5,255)
Net cash used in discontinued
investing activities 5 (1,503) (77) (12,192)
------------ --------------- --------------
Net cash used in
investing activities (1,776) (6,169) (17,447)
------------ --------------- --------------
Financing activities
Interest paid - (4,400) (4,400)
------------ --------------- --------------
Repayment received from
Investing in Discontinued 2,583 - -
Operations
------------ --------------- --------------
Net cash used in continuing
financing activities 2,583 (4,400) (4,400)
Net cash used in discontinued
financing activities 5 (2,583) - -
------------ --------------- --------------
Net cash used in
financing activities - (4,400) (4,400)
------------ --------------- --------------
Net decrease in cash
and cash equivalents (2,006) (7,377) (4,321)
Cash and cash equivalents
at beginning of period 3,175 7,324 7,324
------------ --------------- --------------
1,169 (53) 3,003
Effect of foreign exchange
rate changes (33) 826 172
------------ --------------- --------------
Cash and cash equivalents
at the end of period 1,136 773 3,175
------------ --------------- --------------
Attributable to continuing
activities 11 1,087 72 1,347
------------ --------------- --------------
Attributable to discontinued
activities 5 49 701 1,828
============ =============== ==============
Notes to Condensed Interim Financial Statements
1 GENERAL INFORMATION
The condensed financial information for the six months ended 30 June 2018 and 30 June 2017 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 2017, 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 2017 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.
2 ACCOUNTING POLICIES
IFRS 9 'Financial Instruments'
IFRS 9 (2014) - as issued in July 2014 reflects the final version of the IASB's work on the replacement of IAS 39 and will be effective for annual periods beginning on or after 1 January 2018. Early application is permitted but the Group has not early adopted IFRS 9. IFRS 9, Financial Instruments, covers mainly: i) the classification and measurement of financial assets and financial liabilities, ii) the new impairment model for the recognition of expected credit losses, and iii) the new hedge accounting model.
The Group adopted IFRS 9 in the financial reporting period commencing 1 January 2018. IFRS 9 determines the measurement and presentation of financial instruments depending on their contractual cash flows and business model under which they are held. The impairment requirements are based on an expected credit loss ("ECL") model that replaces the IAS 39 incurred loss model. The Group made an assessment of all the account receivables specifically relating to credit risk and expected credit losses; the Group has not found significant impact on adoption of IFRS 9's impairment requirements.
For financial liabilities, the existing classification and measurement requirements of IAS 39 are largely retained by IFRS 9. The accounting treatment of the group's current financial liabilities (notes 13, 14) is based on IAS 39.
Therefore, the Group does not have a significant impact on adoption of IFRS 9's financial assets and liabilities.
IFRS 15 'Revenue from Contracts with Customers'
IFRS 15, Revenue from Contracts with Customers, outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. IFRS 15 Revenue from Contracts with Customers replaces IAS 11 Construction Contracts, IAS 18 Revenue and related interpretations and will be effective for annual periods beginning on or after 1 January 2018. It applies to all entities that enter into contracts to provide goods or services to their customers, unless the contracts are in the scope of other IFRS, such as IAS 17 Leases. The standard also provides a model for the measurement and recognition of gains and losses on the sale of certain non-financial assets, such as property or equipment. Extensive disclosures will be required, including disaggregation of total revenue; information about performance obligations; changes in contract asset; and liability account balances between periods and key judgments and estimates.
The Group has applied this new standard for the contracts that are currently booked. The transfer of control natural gas sold by the group usually coincides with title passing to the customer and the customer taking physical possession. The group principally satisfies its performance obligations at a point in time of gas delivered to customer. Although, according written clauses in selling contracts, the group will give discount if there was a quality issue; however, the situation is uncommon. The Group does not meet a significant impact on adoption of IFRS 15 during the first half of 2018.
IFRS 16 'Leases'
IFRS 16 is effective for the 31 December 2019 financial year-end. IFRS 16 'Leases' provides a new model for lessee accounting in which all leases, other than short-term leases and leases of low-value items, will be accounted for by the recognition under a single on-balance sheet model of a right-to-use asset and a lease liability, similar to finance leases under IAS 17. The subsequent amortization of the right-to-use asset and the interest expense related to the lease liability will be recognized separately in profit or loss over the lease term. Lessor accounting is substantially unchanged from today's accounting under IAS 17. A lessee can choose to apply the standard using either a full retrospective or a modified retrospective transition approach. The standard's transition provisions permit certain reliefs. Early application is permitted, but not before an entity applies IFRS 15.
The group will continue to assess all lease agreements. The group expects that IFRS 16 will have a non-material effect on the group's financial statements after its adoption, as the total amount of lease agreement is insignificant.
Basis of preparation and going concern
These financial statements have been prepared on a going concern basis.
Included in current liabilities as at the 30 June 2018 are two specific instruments;
The Company has a $50.0 million convertible loan note which is due for repayment on 31 December 2020. On the 23 October 2017 an extension to the one-time early redemption option was agreed with the note holder such that is now exercisable at any time up to 20 November 2018, and would require early repayment of the whole amount due no earlier than 20 November 2018. The option to require early repayment is at the note holder's sole discretion. Further details of the terms of the instrument are included in note 13.
The Company has an $88.0 million bond which was due for repayment in November 2017. The bond has not been repaid, the due date has passed. On 22 December 2017 the Bond Trustee reported that it was instructed by one or more bondholders representing a majority of the outstanding bond that they were in discussions with the Company regarding amongst other things an amendment to the bond agreement to extend the maturity date. Furthermore, the Bond Trustee was instructed by those majority bondholders not to take any action to recover amounts due and, until further notice, and as long as no conflicting instruction is received, they will not declare the bond to be in default or demand immediate payment. 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 $16.4 million, due immediately. The Company is managing these payables through continuing negotiation with suppliers.
In considering the appropriateness of the going concern basis, the Board gave consideration to the following:
The Company is currently in negotiation with a bank in order to re-finance the $88.0 million bond, the $50.0 million convertible loan note and settle all other liabilities and fund commitments. The Company has received a draft term sheet and the Company expects that a bank will complete its appropriate due diligence process and confirm debt financing in due course.
The Company plans to divest its main producing assets (blocks GSS and GCZ) into a new Hong Kong listed company, Green Dragon Gas (GDG), and at the same time raise sufficient cash from new equity to repay all of the Company's existing debt. The remaining development and exploration blocks are planned to stay in G3E, which in turn will remain listed in London. The Hong Kong listing and concurrent equity raise is subject to approval from the Hong Kong Stock Exchange (HKEX) and confirmation of investment from potential new shareholders, however the Board is confident this will be completed.
The Company's major shareholder and CEO, Randeep S. Grewal, has confirmed that he will provide sufficient financial support in respect to other current payables of $16.4 million, prior to the expected fundraising through debt or the IPO, if required.
The Directors have informed the Bondholder Trustee of the Company's intention to raise financing through the issue of debt or equity from the Hong Kong listing and to use the new financing to repay the $88.0 million bond. The Company notes that discussions continue and a major bondholder has also signed a non-binding draft agreement to defer the due date to November 2018. To date the Company is not aware of any immediate intention of the Bond Trustee to take action to recover amounts due. On the basis of the above, the Company does not expect the bondholders to put the bond into default before additional funding is received. However, the bondholders have given no written assertions that they will not put the bond into default.
The Company is confident that the $50.0 million note holder will continue to support the Company as it acts to refinance the bond, such that the note holder will not be motivated to act on their early redemption option available until 20 November 2018. However, the note holder has not given any written assertions that they will not exercise their early redemption option.
The Company expects to use the proceeds from the Hong Kong listing and the new debt finance 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 were no binding debt re-financing agreements in place, the HKEX have not yet approved the Hong Kong Listing and investors have not committed to provide equity financing. Therefore there can be no certainty that re-financing will be successful. There can also be no certainty that the $50.0 million note holder will continue to support the Company and not exercise their right to early redemption, or that no default notice will be issued in respect of the $88.0 million bond.
Notwithstanding the confidence that the Board has, 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$13.7 million (30 June 2017: US$11.2 million) was recognised by the upstream discontinued business. The average RMB/USD exchange rate for the period is 5% higher compared to the equivalent period in the prior year. The average RMB/USD exchange rate for the period ended 30 June 2018, and used for translating income statement RMB transactions for the purposes of this financial information was 6.8610 as compared to 6.5557 in the equivalent period of the prior year.
For the period ended 30 June 2018 (unaudited)
Upstream Upstream Downstream Corporate Sub-total Eliminations Consolidated
continuing discontinued discontinued
operations operations operation
(G3E)US$'000 (GDG)US$'000 (GGD)US$'000 (G3E)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 period ended 30 June 2017 (unaudited)
Upstream Upstream Downstream Corporate Sub-total Eliminations Consolidated
continuing discontinued discontinued
operations operations operation
(G3E)US$'000 (GDG)US$'000 (GGD)US$'000 (G3E)US$'000 US$'000 US$'000 US$'000
Segment
revenue:
Sales to
external
customers - 11,200 1,753 - 12,953 (12,953) -
Inter-segment
sales - 6,694 364 - 7,058 (7,058) -
- 17,894 2,117 - 20,011 (20,011) -
Depreciation - (1,620) (278) (22) (1,920) 1,898 (22)
Amortisation - - (356) - (356) 356 -
Impairment - - - - - - -
Profit/(loss)
from
operation - 4,525 (186) (1,660) 2,679 (4,339) (1,660)
Finance income - 2 233 4,822 5,057 (235) 4,822
Finance cost - - - (7,435) (7,435) - (7,435)
Income tax 22 - 78 - 100 (78) 22
Profit/(Loss)
for the
period 22 4,527 125 (4,273) 401 (4,652) (4,251)
============== ============== ============== ============== =========== ============== ==============
Assets 121,350 351,078 44,744 858,418 1,375,590 (386,346) 989,244
Liabilities 125,949 24,440 71,078 500,151 721,618 (378,909) 342,709
PPE additions 29 80 - - 109 (80) 29
Gas
exploration
additions 722 8,223 - - 8,945 (8,223) 722
For the year ended 31 December 2017 (audited)
Upstream Upstream Downstream Corporate Sub-total Eliminations Consolidated
continuing discontinued discontinued
operations operations operation
(G3E)US$'000 (GDG)US$'000 (GGD)US$'000 (G3E)US$'000 US$'000 US$'000 US$'000
Segment
revenue:
Sales to
external
customers - 14,618 11,039 - 25,657 (25,657) -
Inter-segment
sales - 12,500 646 - 13,146 (13,146) -
- 27,118 11,685 - 38,803 (38,803) -
============== ============== ============== ============== =========== ============== ==============
Depreciation - (7,623) (1,524) (22) (9,169) 9,147 (22)
Amortisation - - 1,066 - 1,066 (1,066) -
Impairment - - (13,095) - (13,095) 13,095 -
Profit/(loss)
from
operation - 7,577 (18,195) (4,131) (14,749) 10,618 (4,131)
Finance income 12 1 2 4,445 4,460 (3) 4,457
Finance cost - - 580 (17,426) (16,846) (580) (17,426)
Income tax 46 2,347 166 - 2,559 (2,513) 46
Profit/(Loss)
for the year 58 9,925 (17,447) (17,112) (24,576) 7,522 (17,054)
============== ============== ============== ============== =========== ============== ==============
Assets 127,550 377,513 2,619 501,513 1,009,195 (380,133) 629,062
Liabilities 132,296 47,928 2,619 154,570 337,413 (50,548) 286,865
PPE additions - - 162 3 165 (161) 4
Gas
exploration
additions 9,261 3,970 - - 13,231 (3,970) 9,261
============== ============== ============== ============== =========== ============== ==============
4 OTHER INCOME AND FINANCE INCOME
Six months ended 30 Six months ended 30 Year ended
June 2018 June 2017 31 December 2017
US$'000 US$'000 US$'000
Unaudited Unaudited Audited
Revaluation of share buyback option 1,618 4,817 4,455
Others 7 7 2
--------------------- --------------------- --------------------
1,625 4,822 4,457
===================== ===================== ====================
5 NON-CURRENT ASSETS HELD-FOR-SALE AND DISCONTINUED OPERATION
The assets and liabilities relating to the carve-out of the producing blocks (GSS & GCZ) of Greka Energy (International) B.V., a 100% wholly-owned subsidiary of the Company, have been presented as held for sale following the board decision to launch GSS & GCZ blocks IPO listing in the Hong Kong Stock Exchange. Management expects GSS & GCZ blocks to be sold within the next 12 months.
The assets and liabilities relating to Greka Gas Distribution Ltd, a 100% wholly-owned subsidiary of the Company, have been presented as held for sale following the announcement made to sell Greka Gas Distribution Ltd in the PRC. Management expects Greka Gas Distribution Ltd to be sold within the next 6 months.
(a) Assets of disposal group classified as held-for-sale
Note As at As at As at
30 June 2018 30 June 2018 30 June
2018
Upstream Downstream Subtotal
group group
US$'000 US$'000 US$'000
Property, plant and equipment 8 140,365 - 140,365
Gas exploration and appraisal
assets 9 216,284 - 216,284
Long term prepaid expenses - 579 579
Deferred tax asset 17 4,244 - 4,244
Trade and other receivables 8,511 1,997 10,508
Cash and cash equivalents 12 37 49
================================ ====== =============== =============== ==========
369,416 2,613 372,029
Note As at As at As at
31 December 31 December 31 December
2017 2017 2017
Upstream group Downstream Subtotal
group
US$'000 US$'000 US$'000
Property, plant and equipment 8 141,445 - 141,445
Gas exploration and appraisal
assets 9 223,713 - 223,713
Long term prepaid expenses - 579 579
Deferred tax asset 17 4,268 - 4,268
Trade and other receivables 7,478 822 8,300
Cash and cash equivalents 609 1,219 1,828
================================ ====== ================ ============== ==============
377,513 2,620 380,133
(b) Liabilities of disposal group classified as held-for-sale
Note As at As at As at
30 June 2018 30 June 2018 30 June 2018
Upstream Downstream Subtotal
group group
US$'000 US$'000 US$'000
Trade and other payables (18,533) (3,248) (21,781)
Deferred tax liabilities 17 (28,945) (145) (29,090)
Current tax liabilities 2 865 867
=========================== ====== =============== =============== ===============
(47,476) (2,528) (50,004)
Note As at As at As at
31 December 31 December 31 December
2017 2017 2017
Upstream Downstream Subtotal
group group
US$'000 US$'000 US$'000
Trade and other payables (19,061) (3,340) (22,401)
Deferred tax liabilities 17 (28,806) (145) (28,951)
Current tax liabilities (61) 865 804
=========================== ====== ============== ============== ==============
(47,928) (2,620) (50,548)
(c) Analysis of the results of discontinued operations is as follows:
As at As at As at
30 June 30 June 30 June
2018 2018 2018
Note Upstream Downstream Subtotal
group group
US$'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
=============================== ====== ========== ============ ==========
As at As at As at
30 June 30 June 2017 30 June
2017 2017
Note Upstream Downstream Subtotal
group group
US$'000 US$'000 US$'000
Revenue: 3 11,200 1,797 12,997
---------- --------------- ----------
Profit/(loss) from operation 3 4,525 (186) 4,339
Finance income 3 2 233 235
Finance cost 3 - - -
Income tax 3 - 78 78
------------------------------- ------ ---------- --------------- ----------
Gain/(Loss )after tax of
discontinued operations
attributable to owners of
the company 4,527 125 4,652
=============================== ====== ========== =============== ==========
(d) Cash flow from (used in) discontinued operations:
As at As at As at
30 June 2018 30 June 2018 30 June 2018
US$'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)
As at As at As at
30 June 2017 30 June 2017 30 June 2017
US$'000 US$'000 US$'000
Upstream group Downstream Subtotal
group
Net cash used in operating
activities 970 5,158 6,128
Net cash generated from
investing activities (7,700) (77) (7,777)
Net cash generated from
financing activities - - -
============================= ================ =============== ===============
Net cash inflow/(outflow) (6,730) 5,081 (1,649)
6 EARNINGS AND (LOSS) PER SHARE
The calculation of basic and diluted profit/(loss) per share attributable to the owners of the Company is based on the following data:
Six months Six months
ended ended Year ended
30 June 30 June 31 December
2018 2017 2017
US$'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 (10,822) (4,251) (17,054)
============= ============= ==============
Discontinued operations 4,484 4,652 (7,522)
============= ============= ==============
Continuing and discontinued
operations (6,338) 401 (24,576)
============= ============= ==============
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$) (0.069) (0.027) (0.109)
Basic and diluted earnings/(loss) per share from discontinued operations (US$) 0.029 0.030 (0.048)
Basic and diluted earnings/(loss) per share (US$) (0.040) 0.003 (0.157)
Profit/(loss) per share is based on the loss attributable to ordinary equity holders of the Company of divided by the weighted average of ordinary shares in issue during the corresponding period.
No separate calculation of diluted profit/(loss) per share has been presented as, at the date of this financial information, no options, warrants or other instruments that could have a dilutive effect on the share capital of the Company were outstanding.
7 DIVIDS
The Directors do not recommend the payment of an interim dividend during the period ended 30 June 2018 and year ended 31 December 2017.
8 PROPERTY, PLANT AND EQUIPMENT
Building Fixtures,
and Construction Motor fittings
Gas assets structures in progress vehicles and equipment Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Cost
At 1 January
2017 285,869 1,220 1,493 3,802 4,751 297,135
Additions - 15 51 43 56 165
Share of CUCBM
additions 7,726 - - - - 7,726
Change in
estimate
of CUCBM
provision (145,945) - - - - (145,945)
Disposals - - - - - -
Transferred to
disposal
group
classified
as held for
sale
(note 5) (170,045) (1,295) (1,636) (4,024) (4,412) (181,412)
Exchange
differences 22,395 60 92 179 208 22,934
Balance as at
31
December 2017 - - - - 603 603
Additions - - - - 305 305
Exchange
differences - - - - (3) (3)
At 30 June 2018 - - - - 905 905
Depreciation
At 1 January
2017 19,771 579 - 2,128 2,074 24,552
Provided for
the
year 7,623 101 - 1,163 282 9,169
Impairments
loss - 580 1,636 603 2,536 5,355
Transferred to
disposal
group
classified
as held for
sale
(note 5) (28,600) (1,295) (1,636) (4,024) (4,412) (39,967)
Exchange
differences 1,206 35 - 130 90 1,461
Balance as at
31
December 2017 - - - - 570 570
Provided for
the
period - - - - 63 63
Exchange
differences - - - - (1) (1)
At 30 June 2018 - - - - 632 632
============== ================ ================ ================ ================ ===========
Net book value
At 30 June 2018 - - - - 273 273
============== ================ ================ ================ ================ ===========
At 31
December 2017 - - - - 33 33
============== ================ ================ ================ ================ ===========
9 GAS EXPLORATION AND APPRAISAL ASSETS
Cost US$'000
-------------
At 1 January 2017 1,034,117
Additions 13,231
Capitalisation of internal
costs 3,461
Share of gas exploration and
appraisal assets from CUCBM 13,886
Reversal of Share of gas exploration
and appraisal assets from CUCBM (288,872)
Classified as held for sale(note
5) (223,713)
Exchange differences 65,790
-------------
At 31 December 2017 (audited) 617,900
Capitalisation of internal
costs 1,601
Exchange differences (5,708)
-------------
At 30 June 2018 (unaudited) 613,793
=============
10 TRADE AND OTHER RECEIVABLES
As at As at
30 June 31 December
2018 2017
US$'000 US$'000
Unaudited Audited
Trade receivables - -
Prepayments - 72
Other receivables 2,869 1,928
Amount due from related parties 5,495 6,167
----------- --------------
8,364 8,167
=========== ==============
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
2018 2017
US$'000 US$'000
Unaudited Audited
------------------------------------ ------------ --------------
Cash and bank balances 1,087 1,347
===================================== ============ ==============
Significant non-cash transactions US$'000 US$'000
are as follows: Unaudited Audited
Investing activities - -
------------------------------------ ------------ --------------
- Change in estimate relating
to CUCBM provision - (410,313)
===================================== ============ ==============
Current loans and borrowing
USD'000
At 1 January 2018 149,064
Cash flows -
Accrued interest 10,822
---------------------- ---------
At 30 June 2018 159,886
---------------------- ---------
At 1 January 2017 136,142
Cash flows (4,400)
Accrued interest 17,322
---------------------- ---------
At 31 December 2018 149,064
---------------------- ---------
12 TRADE AND OTHER PAYABLES
As at As at
30 June 31 December
2018 2017
US$'000 US$'000
Unaudited Audited
Trade payables 7,659 6,712
Amounts due to related parties 1,839 3,486
----------- --------------
9,498 10,198
=========== ==============
13 CONVERTIBLE NOTES
As at As at
30 June 31 December
2018 2017
US$'000 US$'000
Unaudited Audited
Brought forward from prior
year 53,132 47,347
Accrued interest 2,773 5,785
55,905 53,132
=========== ==============
As at 30 June 2018, the Company had one (31 December 2017: 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$2.83 per share representing a 25% premium over the 13 December 2016 closing price.
During the year ended 31 December 2017, the company reached agreement with the note holder to extend the period during which the put option is exercisable to 20 November 2018.
At final maturity of the note, the note holder has the right to require the Company to purchase all of its share holdings up to a maximum limit of 10,775,578 shares or 6.69% of the entire issued share capital of the Company at a price based on the 90 day VWAP calculated as of 31 December 2020 and to be settled prior to 30 April 2021. See the share buyback option liability below.
*Share buyback option liability
As at As at
30 June 31 December
2018 2017
US$'000 US$'000
Unaudited Audited
Brought forward from
prior year 3,469 7,924
Revaluation of share
buyback option (1,618) (4,455)
----------- --------------
1,851 3,469
=========== ==============
(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 24 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 24 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. At the balance sheet date, no other loans were in default but there was a breach of covenants on the Company's public corporate bond
14 BONDS AND DERIVATIVE FINANCIAL INSTRUMENT
On 8 December 2014, G3E 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. The Bond is secured by a pledge over the shares of Greka Gas China, a wholly-owned subsidiary of G3E. The bond was initially recorded at fair value and is subsequently carried at amortised cost. Issue fees of US$1,893,000 were offset against the principal amount of the bond and will be amortised as part of the effective interest rate charge to the maturity date. The redemption premium is amortised as part of the effective interest rate charge to the maturity date. The following table summarises the movements in the bond:
As at As at
30 June 31 December
2018 2017
US$'000 US$'000
Unaudited Audited
Brought forward from prior
year 95,932 88,795
Accrued interest 8,049 11,537
Interest payment - (4,400)
----------- --------------
103,981 95,932
=========== ==============
As disclosed in the Company's 2017 annual report, due to the non-inclusion of CUCBM's revenue and related costs, the Company's 2017 financial statements failed to meet two of the bonds' financial covenants. The bonds are disclosed as a current liability at the period end of 2017 and 2018 as they are due on November 2017 and are therefore overdue.
15 PROVISIONS
The cost recovery provision accounted for in upstream discontinued operations (Note 5) also includes US$13,000,000 (2016: 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 2017, 31
December 2017 and 30 June
2018 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 2017 2,079
Additions 2,347
Exchange differences 159
Classified as held for sale(note 5) (4,268)
---------
At 31 December 2017 - audited 317
Movement in classified as held for sale(note
5) 24
Exchange differences (4)
---------
At 30 June 2018 (unaudited) 337
=========
(b) Deferred tax liabilities
US$'000
----------
At 1 January 2017 144,831
Reversal of temporary difference (177)
Exchange differences 8,434
Classified as held for sale(note 5) (28,951)
At 31 December 2017 - audited 124,137
----------
Movement in classified as held for sale(note
5) (139)
Reversal of temporary difference -
Exchange differences (1)
----------
At 30 June 2018 (unaudited) 123,997
==========
As at As at
30 June 31 December
2018 2017
US$'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 (123,997) (124,137)
============= ==============
Tax losses - overseas 337 317
============= ==============
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 As at 31
June 2018Percentage December
of ownershipinterest 2017
held Percentage
of ownershipinterest
held
Name Place of Principal Directly Indirectly Directly Indirectly
incorporation activities
Greka Gas Investment
China Limited Cayman Islands holding 100% - 100% -
Exploration,
development
Greka and production
Energy(International). Amsterdam,Nethe of coal bed
B.V. rlands methane - 100% - 100%
GDGF Ltd British Virgin Investment - 100% - -
Islands holding
Exploration,
development
and production
Greka GSN British Virgin of coal bed
Ltd Islands methane - 100% - 100%
Greka Integrated British Virgin Investment
Products Ltd Islands holding - 100% - 100%
Exploration,
development
and production
Greka GFC British Virgin of coal bed
Ltd Islands methane - 100% - 100%
Greka Gas
Distribution British Virgin Investment
Ltd Islands holding - 100% - 100%
Exploration,
development
and production
Greka GQY British Virgin of coal bed
Ltd Islands methane - 100% - 100%
Greka Exploration
and Production Investment
Ltd Cayman Islands holding - 100% - 100%
Exploration,
development
and production
Greka GPX British Virgin of coal bed
Ltd Islands methane - 100% - 100%
Zhengzhou Supply and
Greka Gas distribution
Co.,Ltd. The PRC of natural gas - 100% - 100%
PingDingShan Supply and
Greka Gas distribution
Co.,Ltd The PRC of natural gas - 100% - 100%
Gongyi Greka
Transportation Investment
Co.,Ltd The PRC holding - 100% - 100%
Exploration,
development
and production
Greka Guizhou British Virgin of coal bed
E&P Ltd Islands methane - 100% - 100%
Supply and
Yanjin Changda distribution
Gas Station The PRC of natural gas - 100% - 100%
19 JOINT ARRANGEMENTS
The Group currently operates under six (2017: 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 PanxieEast 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 license 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 2in 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; 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 all 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. GCZlies 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$10,900,000 within property, plant and equipment in respect of its 47% share in these assets in 2014 based on the final agreement of the costs associated with the downstream infrastructure. The Group also elected to settle its obligation for all historic amounts due to PetroChina through its share of future production.
In 2015 PetroChina achieved cost recovery in respect of its historic investment in the GCZ block. Following cost recovery by PetroChina the Group is receiving its proportion of revenue in cash each month. As a result, the billing arrangements for GCZ have moved to a full joint operations basis where the Group receives its share of revenue on the conclusion of each month and is separately cash-called for its share of opex and capex on a month-ahead basis. Cash calls are reconciled to actual expenditure quarterly.
The following table summarises the Group's share of the capital expenditure and net revenues arising from the GCZ block for the current period and prior year.
30 June 31 December
2018 2017
US$'000 US$'000
Unaudited Audited
Capital expenditure - -
============ =============
Revenue and other income 6,142 10,692
Total operational costs and expenses (2,109) (6,776)
------------ -------------
Net Profit 4,033 3,916
============ =============
Amount due from/(to) PetroChina
Opening balance 3,935 1,487
Capital expenditure for GCZ block - -
Share of profit for GCZ block 2,010 3,917
Cash received (5,300) (1,469)
------------ -------------
Closing balance 645 3,935
============ =============
The balance due from PetroChina is included within trade and other receivables, is unsecured and interest free.
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 has a 60% participating interest in GGZ and has provided a performance bond against its pilot exploration programme commitment in the amount of US$1,000,000 (31 December 2017: US$1,000,000). At 30 June 2018, the cumulative net investment made by the Group in GGZ was US$36,566,000 (31 December 2017: US$35,960,000), of which US$606,000 was invested in the six months ended 30 June 2018.
PetroChina is a subsidiary of state-owned China National Petroleum Corporation (CNPC), headquartered in Dongcheng District, Beijing.
PSCs held with CUCBM (CNOOC)
Framework Agreement with CUCBM
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 G3E share increasing to 70% on payment
South 60% 40% of US$13,000,000 to CUCBM
Shizhuang
North 50% 50%
Quinyan Area
A 10% 90%
Quinyan Area
B 60% 40%
Fengcheng 49%* 51%
Panxie East 60%* 40%
--------------- ----------- -------- ----------------------------------------
* unchanged
The Framework Agreement reaffirmed the status of the PSC's. Under the PSCs, the exploration costs were due to be incurred by the Group, with the Group carrying the exploration risk and the associated costs being recovered from future production. Notwithstanding the terms of the PSC, CUCBM undertook significant unauthorised exploration work within the license 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 the 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 $nil. The original recognition of the provision had no impact on the income statement and therefore the reversal of the provision also has no impact on the income statement, and is recognised as a reduction to the Group's exploration assets. The change in provision represents a change in accounting estimate as a result of the Supplemental Agreements executed in 2017.
The following table summarises the cost recovery provision which also represents the Group's cumulative share of capital expenditure:
As at As at
30 June 31 December
2018 2017
US$'000 US$'000
Unaudited audited
Opening balance - 401,702
Capital additions in the period - 21,612
Reclassified to payable - (13,000)*
FX (gain)/loss - 24,503
Change in estimate of CUCBM provision - (434,817)
------------- --------------
Closing provision for amounts due to CUCBM - -
============= ==============
* $13 million has been reclassified to payables due to management's intention to exercise the option to obtain a higher share rate.
The cumulative expenditure by CUCBM across the PSCs, which the Group is reimbursing through future production, bears interest at 9%. No discounting of the provision applies given the interest bearing nature.
Under the original Shizhuang South PSC and as reaffirmed by the Framework Agreement US$13,000,000 included within provisions (2017: US$13,000,000) represent amounts payable to CUCBM in respect of exploration costs incurred by CUCBM on GSS prior to the original PSC between the parties. 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 balance is unsecured, and interest-free. Discounting is considered immaterial. The obligation is classified as a provision given the option to increase its participating interest in the GSS Block is at the Company.
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 Group has incurred US$7,700,000 on the block which is currently held as exploration asset. 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 in September 2017, the exploration period is from 15 April 2014 to 14 April 2019. The group is required to undertake $8.9 million discretionary capital expenditure prior to the expiry of the exploration period.
Panxie PSC
According to the Supplementary Agreement signed in September 2017, the exploration period is from 15 April 2014 to 14 April 2019. The group is required to undertake $4.2 million discretionary capital expenditure prior to the expiry of the exploration period.
Qinyuan PSC
According to the Supplementary Agreement signed in September 2017, the exploration period is from 15 April 2014 to 14 April 2019. The group is required to undertake $27 million discretionary capital expenditure prior to the expiry of the exploration period.
According to the supplementary agreement, the Group will pay CUCBM for any unfulfilled balance of the minimum commitment converted into cash, together with relinquishment of certain percentage of the block. Based on the Group's assessments, it is confident that future minimum commitments will be fulfilled accordingly.
CUCBM is majority 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$1,000,000 (31 December 2017: US$1,000,000). At 30 June 2018, the cumulative net investment made by the Group in GGZ was US$36,566,000 (31 December 2017: US$35,960,000), of which US$606,000 was invested in the six months ended 30 June2018.
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, 11, 13 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
-- Amounts due from related parties of US$5,495,000 (31 December 2017: US$6,167,000) and amounts due to related parties of US$1,839,000 (31 December 2017: US$3,486,000) are companies that are subsidiaries of Greka Drilling Ltd., Greka Engineering & Technology Ltd., and Greka CBM Comprehensive Utilization Co., Ltd (Party B) which are companies under common control. The Group has contracts with both companies regarding drilling services and gas processing respectively. All amounts due from related parties are unsecured, interest free and repayable on demand.
-- Amounts due from CNPC of US$645,000 (31 December 2017: Amounts due from CNPC of US$3,935,000), which is a party to the production sharing contracts on the activities of exploration, development and production of coal bed methane, in respect of exploration costs incurred. The balance is unsecured and interest-free.
-- Amounts due to CUCBM under the Framework Agreement. These are detailed in note 19.
-- Drilling costs of US$560,000 (31 December 2017: US$6,890,000) on services provided by wholly-owned subsidiaries of Greka Drilling Limited.
-- Incurred infrastructure services costs of US$3,470,000 (31 December 2017: US$6,250,600) from wholly-owned subsidiaries of Greka Engineering and Technology Limited.
-- Sold gas of US$1,007,000 (31 December 2017: US$1,454,000) to a wholly-owned subsidiary of Greka Engineering and Technology Limited for power generation.
-- Sold gas of US$5,383,000 (31 December 2017: US$nil) to a wholly-owned subsidiary of Greka Engineering and Technology Limited for gas supply.
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 2018 31 December
2017
2018 2017
USD'000 USD'000
Unaudited Audited
No Later than 1 year 1,543 1,944
Later than 1 year and
no later than 5 years 864 1,071
-------------------------- --------------- --------------
2,407 3,015
========================= =============== ==============
22 CAPITAL COMMITMENTS
As at Year ended
30 June 2018 31 December 2017
2018 2017
USD'000 USD'000
Unaudited Audited
Capital expenditure contracted but not provided for in respect of
-additions to exploration costs and appraisal assets 7,011 7,017
-acquisition of property , plant and equipment - -
-------------------------------------------------------------------- --------------- -------------------
7,011 7,017
==================================================================== =============== ===================
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 2018 31 December 2017
2018 2017
USD'000 USD'000
Unaudited Audited
Loans and receivable:
Trade and other receivables 8,364 8,167
Restricted Cash 1,000 1,000
Cash and cash equivalents 1,087 1,347
Total financial assets 10,451 10,514
Financial Liabilities As at Year ended
30 June 2018 31 December 2017
2018 2017
USD'000 USD'000
Unaudited Audited
At amortised cost:
Trade and other payables 9,498 10,198
Convertible notes 55,905 53,132
Bonds 103,981 95,932
Share buyback option liabilities 1,851 3,469
Total financial liabilities 171,235 162,731
The carrying value of the financial asset and liabilities is approximately equal to their fair value at 30 June 2018 and 31 December 2017.
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 2018 31 December 2017
2018 2017
USD'000 USD'000
Unaudited Audited
Cash and cash equivalents
USD Non-interest bearing 2 2
USD Floating rate 1,001 1,056
GBP Non-interest bearing 1 1
GBP Floating rate 3 3
CAD Floating rate 1 1
RMB Non-interest bearing 52 135
RMB Floating rate 2 1,731
HKD Non-interest bearing 24 245
HKD Floating rate 1 1
Other financial assets
USD Non-interest bearing 3,267 2,396
RMB Non-interest bearing 5,603 14,579
HKD Non-interest bearing 494 489
10,451 20,639
The weighted average interest rate earned during the year was 0.15% (2017: 0.20%) on floating rate US dollar cash balances, 0.03% (2017: 0.05%) on floating rate GBP balances and 0.45% (2017: 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 2018 31 December 2017
2018 2017
USD'000 USD'000
Unaudited Audited
Loans and borrowings, convertible notes and bonds financial liability
USD Fixed rate 159,886 149,064
Other financial liabilities
USD Non-interest bearing 5,387 5,085
RMB Non-interest bearing 5,903 30,776
GBP Non-interest bearing 49 49
HKD Non-interest bearing 10 154
11,349 36,064
The interest rates payable during the year was 10% (2017: 10%) on US dollars convertible notes and 12% (2017: 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$nil (2017: US$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 2018 (Unaudited) In NOK In CAD In USD In RMB In GBP IN HKD Total in
USD
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Financial Assets
Trade and other receivables - - 2,267 5,603 - 494 8,364
Restricted cash - - 1,000 - - - 1,000
Cash and cash equivalents - - 1,004 53 5 25 1,087
- - 4,271 5,656 5 519 10,451
Financial Liabilities
Financial Assets
Trade and other payables 49 - 3,536 5,903 - 10 9,498
Convertible notes and bonds - - 159,886 - - - 159,886
Derivative financial liabilities - - 1,851 - - - 1,851
49 - 165,273 5,903 - 10 171,235
As at 31 December 2017 (Audited) In NOK In CAD In USD In RMB In GBP IN HKD Total in USD
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Financial Assets
Trade and other receivables - - 1,396 6,281 - 489 8,167
Restricted cash - - 1,000 - - - 1,000
Cash and cash equivalents - - 1,059 39 4 246 1,347
- - 3,455 6,320 4 735 10,514
Financial Liabilities
Trade and other payables 49 - 1,616 8,373 - 154 10,192
Convertible notes and bonds - - 149,064 - - - 149,064
Derivative financial liabilities - - 3,469 - - - 3,469
49 154,149 8,373 - 154 162,725
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 2018 being US$265,000 (31 December 2017: 537,000) higher or lower respectively.
Liquidity risk
The liquidity risk of each group entity is managed centrally by the group treasury function. The investment budgets and work plans are set by the operating teams in the PRC and agreed by the Board annually in advance, enabling the Group's cash requirements to be anticipated. Where facilities of group entities need to be increased, approval must be sought from the Board. Further disclosures on liquidity risk and going concern are included in note 2.
All surplus cash is held centrally to maximise the returns on deposits through economies of scale while required cash will be remitted to the PRC based on monthly cash-call basis.
The maturity profile of the Group's financial liabilities at the reporting dates based on contractual undiscounted payments are summarised below:
Six months Six months Within one Over five Undiscounted Adjustments Carrying
or less to one to five years payments balance
year years
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
At 30 June
2018
(unaudited)
Trade and
other
payables 9,499 - - - 9,499 9,499
Convertible
notes and
bonds 9,822 150,064 - - 159,886 159,886
Share
buyback
option
liabilities - - 4,400 - 4,400 (2,549) 1,851
19,321 150,064 4,400 - 173,785 (2,549) 171,236
Six Six Within Over Undiscounted Adjustments Carrying
months months one to five payments balance
or less to one five years
year years
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
At 31
December
2017
(Audited)
Trade and
other
payables 10,198 - - - 10,198 - 10,198
Convertible
notes and
bonds 6,900 156,844 - - 164,744 (14,680) 150,064
Share
buyback
option
liabilities - - 4,400 - 4,400 (971) 3,469
17,098 156,844 4,400 - 179,382 (15,651) 163,731
Notes:
(i) Undiscounted payments are drawn up based on the earliest date on which the Group can be required to pay. They include both principal and interest cash outflows.
(ii) In the period ended 30 June 2018 and 31 December 2017, the adjustment to the convertible notes and bonds represents the impact of the unamortised transaction costs and future interest.
(iii) Carrying balance represents the balance per consolidated statement of financial position at the end of each reporting period.
Credit risk
The Group's maximum exposure to credit risk by class of individual financial instrument is shown below:
30 June 2018 (Unaudited) 31 Dec 2017 (Audited)
Carrying Maximum Carrying Maximum
value value
value exposure value exposure
Current asset USD$'000 USD$'000 USD$'000 USD$'000
Trade and other receivables 8,364 8,364 8,167 8,167
Restricted cash 1,000 1,000 1,000 1,000
Cash and cash equivalents 1,087 1,087 1,347 1,347
10,451 10,451 10,514 10,514
In relation to its cash and cash equivalents, the Group has to manage its currency exposures and the credit risk associated with the credit quality of the financial institutions in which the Group maintains its cash resources. As at 31 December 2017, the Group holds approximately 91% (2017: 19%) of its cash in US dollars and 1% (2017: 6%) in British Pound with Baa2 (2017: Baa2) or higher (Moody's) rated institutions. The Group continues to monitor its treasury management to ensure an appropriate balance of the safety of funds and maximisation of yield.
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 a related party of US$5,495,000 (2017: US$6,166,000), the recovery of which is dependent on the future profits of the related party. The Group expects to fully recover its receivable based on the profit forecasts of the related party.
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 2018 and 31 December 2017are as follows:
Period ended Year ended 31
30 June 2018 December 2017
USD'000 USD'000
Unaudited Audited
Current liabilities 169,384 159,262
Non-current liabilities 125,848 127,606
Cash and cash equivalents (1,087) (1,347)
Net debt 294,145 285,521
Equity 651,647 671,780
Debt-to-equity
ratio 0.45 0.43
Fair Value
The carrying amounts of significant financial assets and liabilities approximate their respective fair values as at 30 June 2018 and 31 December 2017.
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
There is no 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
17 September 2018
INDEPENT REVIEW REPORT TO G3 EXPLORATION LIMITED
Introduction
We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2018 which comprises the condensed consolidated statement of comprehensive income, condensed consolidated statement of financial position, condensed consolidated statement of changes in equity, the condensed consolidated statement of cash-flows and the related notes.
We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.
Directors' responsibilities
The half-yearly financial report is the responsibility of and has been approved by the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.
As disclosed in note 2, the annual financial statements of the group are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.
Our report has been prepared in accordance with the terms of our engagement to assist the Company in meeting its responsibilities in respect of half-yearly financial reporting in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority and for no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity", issued by the Financial Reporting Council for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2018 is not prepared, in all material respects, in accordance with International Accounting Standard 34, as adopted by the European Union, and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.
Material uncertainty related to going concern
We draw attention to note 2 to the financial statements, which indicates that the group's debt and liabilities may be due immediately and therefore require refinancing, which is yet to be agreed. As stated in note 2.1, these events or conditions, along with other matters as set out in note 2, indicate that a material uncertainty exists that may cast significant doubt on the group's ability to continue as a going concern. Our opinion is not modified in respect of this matter.
BDO LLP
Chartered Accountants United Kingdom
17 September 2018
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
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
Conyers Dill & Pearman
29th Floor
One Exchange Square
8 Connaught Place
Central Hong Kong
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
FTI Consulting
200 Aldersgate
Aldersgate Street
London EC1A 4HD
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 ZMGMLNRVGRZG
(END) Dow Jones Newswires
September 18, 2018 03:32 ET (07:32 GMT)
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