Share Name Share Symbol Market Type Share ISIN Share Description
Petroneft Resources Plc LSE:PTR London Ordinary Share IE00B0Q82B24 ORD EUR0.01
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  -0.025 -2.56% 0.95 0.90 1.00 0.975 0.95 0.975 486,618 13:14:53
Industry Sector Turnover (m) Profit (m) EPS - Basic PE Ratio Market Cap (m)
Oil & Gas Producers 1.4 -5.7 -0.8 - 7

Petroneft Resources PLC Interim Results

30/09/2019 7:02am

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Petroneft Resources PLC

30 September 2019

PetroNeft Resources plc

September 29, 2019

PetroNeft Resources plc ("PetroNeft" or the "Company")

2019 Interim Results

PetroNeft (AIM: PTR) an oil & gas exploration and production company operating in the Tomsk Oblast, Russian Federation, and 50% owner and operator of Licences 61 and 67 is pleased to report its results for the 6 months ended 30 June 2019.

Highlights

   --      Gross production from Licence 61 in H1 2019 was 1,755bopd (877.5bopd net to Petroneft) 

-- Achieved approval from GKZ (Russian State Reserves Board) for 19.26mmbbls of C1 + C2 reserves as a result of the drilling of the C-4 well on the Cheremshanskoye field in 2018. This is a key milestone as it enables the company to start looking at development options for the field.

-- Upgraded the technical/operational function of the company bringing in people from the region who have experience with other operators successfully developing similar assets.

-- Rigorous data collection across our producing assets; this has involved re-interpreting all seismic data, collecting pressure and injectivity measurements at key wells. The company is using this improved understanding to plan a production optimisation program to start this coming winter.

-- Successfully re-negotiated the terms of the Petrogrand loan extending the repayment term by almost a year and increasing the facility to $2.5M.

-- Succeeded in strengthening the company's balance sheet by placing $1.3M in a convertible loan with a combination of new and existing investors.

-- Focus on cost optimisation; we have closed the Houston office, downsized the Dublin office, sold off peripheral assets and reduced staff numbers in the Tomsk office.

   --      Appointment of David Sturt as the new CEO from 24(th) March. 

David Golder, Chairman of PetroNeft Resources plc, commented:

"The first half of 2019 has been a busy time. The company has continued with the process started in 2018 to test the market whilst at the same time working on a twin track strategy to see how we may improve production and reserves at low cost to increase shareholder value. These approaches are mutually supportive as improvement in production and or reserves, is likely to increase attractiveness and interest in our assets in any sale process.

The appointment of David Sturt has brought a new rigour and energy to the process of reviewing and challenging all elements of our strategies, successfully raised capital to stabilise the financial outlook of the business and set cost effective and value-orientated plans in place for each of our key assets for next winter and beyond. The CEO statement is included in the 2019 First Half and provides in-depth overview of his initiatives and their early results.

Whilst the company faces many challenges, we are working on building a strong platform for growth in value to shareholders.

For further information, contact:

 
 David Sturt, CEO, PetroNeft Resources plc                  +971 55 1919 808 
 John Frain/Brian Garrahy, Davy (NOMAD and Joint Broker)     +353 1 679 6363 
                                                           ----------------- 
 Joe Heron / Douglas Keatinge, Murray Consultants            +353 1 498 0300 
                                                           ----------------- 
 

The information contained in this announcement has been reviewed and verified by Mr. David Sturt, Chief Executive Officer and Executive Director of PetroNeft, for the purposes of the Guidance Note for Mining and Oil & Gas Companies issued by the London Stock Exchange in June 2009. Mr. Sturt holds a B.Sc. Degree in Earth Sciences from Kingston University and an MSc. in Exploration Geophysics from The University of Leeds. He is a member of the Petroleum Exploration Society Great Britain and has over 35 years' experience in oil and gas exploration and development.

Forward Looking Statements

This report contains forward-looking statements. These statements relate to the Group's future prospects, developments and business strategies. Forward-looking statements are identified by their use of terms and phrases such as 'believe', 'could', 'envisage', 'potential', 'estimate', 'expect', 'may', 'will' or the negative of those, variations or comparable expressions, including references to assumptions.

The forward-looking statements in this report are based on current expectations and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by those statements. These forward-looking statements speak only as at the date of these financial statement

Glossary

 
 bopd      Barrels of oil per day 
 mmbbls    Million barrels 
          ------------------------------------------- 
 C1 + C2   Russian State Reserves C1 + C2, equivalent 
            to 2P (Proven and Probable) 
          ------------------------------------------- 
 

Chairman's Statement

Dear Shareholder,

I am pleased to report on the activities of the Group for the six months to 30(th) June 2019 and at the same time provide an update on our plans for the future. The first six months of the year have been a busy time for the company with the following achievements:

-- Achieved approval from GKZ (Russian State Reserves Board) for 19.26Mbbls of C1 + C2 reserves as a result of the drilling of the C-4 well on the Cheremshanskoye field in 2018. This is a key milestone as it enables the company to start looking at development options for the field.

-- Upgraded the technical/operational function of the company bringing in people from the region who have experience with other operators successfully developing similar assets.

-- Rigorous data collection across our producing assets; this has involved re-interpreting all seismic data, collecting pressure and injectivity measurements at key wells. The company is using this improved understanding to plan a production optimisation program to start this coming winter.

-- Successfully re-negotiated the terms of the Petrogrand loan extending the repayment term by almost a year and increasing the facility to $2.5M.

-- Succeeded in strengthening the company's balance sheet by placing $1.3M in a convertible loan with a combination of new and existing investors.

-- Focus on cost optimisation; we have closed the Houston office, downsized the Dublin office, sold off peripheral assets and reduced staff numbers in the Tomsk office.

   --      Appointment of David Sturt as the new CEO from 24(th) March. 

Achieving value for Shareholders

The Company in conjunction with its 50/50 joint venture partners (Oil India on Licence 61 and Arawak Energy on Licence 67), engaged a financial advisor in 2018 with the aim being to test the market for the possible disposal of either or both of our assets. Whilst we remain encouraged by the interest we are seeing, however we recognize that the process is taking time.

As this process has continued, we have been working on a twin track strategy to see how we may improve both production and reserves at low cost to increase shareholder value. These approaches are mutually supportive as improvement in production and or reserves, is likely to increase attractiveness and interest in our assets in any sale process.

Throughout this process the company has and will continue to keep a tight control on costs to ensure that we are using our limited resources in the optimum way.

As part of our cost cutting measures we have also had to take the difficult decision of ending our relationship with our joint broker Canaccord Genuity Limited. We have worked together for many years and they have always provided a valuable service, particularly within the London market, however in the short term we have to deploy our capital into operations.

Finance

As detailed in the 2018 Annual Report the Company's finances continue to require close attention. The US$2m Petrogrand loan agreed in January 2018 matured on 31 December 2018. The company was able to agree an extension to 15(th) December 2019 and simultaneously negotiate an increase in the facility to $2.5m. This loan was fully drawn at 30(th) June.

In addition to the Petrogrand facility, the company successfully placed a $1.3M convertible loan facility with a small group of existing and new investors. The terms of the facility are an interest rate of 8% above LIBOR with repayment due by 31(st) December 2020. Up to 65% of the loan amount can be converted into shares in the company at an equivalent price of US$0.01547 (1.547 cents). The borrower can elect to convert at any time up to 31(st) December 2020 or on the sale of one or both licences.

Outlook

Since his appointment in March, David Sturt has brought a new rigour and energy to the process of reviewing and challenging all elements of our strategies, successfully raised capital to stabilise the financial outlook of the business and set cost effective and value-orientated plans in place for each of our key assets for next winter and beyond. The CEO statement which follows will provide in-depth overview of his initiatives and their early results.

Whilst the company faces many challenges, we are working on building a strong platform for growth in value to shareholders.

David Golder

Non-Executive Chairman

Chief Executive Officers Report

To support our twin track strategy, we have conducted a thorough technical/operational review of our assets with the aim of identifying potential areas for further development, we are pleased to provide the following update:

-- Production from licence 61 is currently averaging 1,550 bopd and is relatively stable taking into account natural decline combined with an ongoing data collection program required for licence compliance and to improve our understanding of the fields.

-- Extensive review of our producing fields has highlighted the opportunity to optimize water injection and potentially reduce produced water from key wells. This review has so far included seismic re-interpretation, measuring water injectivity on our water injection wells, carrying out tracer surveys, and down hole pressure readings. Based on the results of this work, a well intervention program is being developed.

-- Potential development opportunities have been identified at the Lineynoye field through a horizontal development drilling program targeting the western part of the field where production since 2012 has remained stable.

-- Opportunity to optimize development drilling on the Sibkrayevskoye field by firstly utilizing 3D seismic to target future locations for horizontal wells.

-- De risk the highly attractive Emtorskaya prospect (Ryder Scott estimate 75 mmbls 2P reserves) through combination of well re-entry and 3D seismic programs.

-- Activity on licence 67 has been quiet since the successful drilling of the C-4 well in 2018. We are now looking at ways to initiate production on this licence through a well reentry program on both the Cheremshanskoye and Ledovoye fields.

-- Reducing costs across the company is of major importance. In the field we continue to look for ways to further optimize costs and are currently working on projects such as construction of a mini refinery to significantly reduce the need to purchase fuel for power generation.

Production and Sales for the period

Gross production at Licence 61 in the six months to 30 June 2019 averaged 1,755 bopd, which represents a smaller than anticipated production decline from the same period in 2018 (2,135 bopd). We sold 315,358 (gross) barrels of oil in the six months to 30 June 2019 (H1 2018: 382,656 bbls) and achieved an average Russian Domestic oil price of $42.50 (H1 2018: $44.39). This softer oil price and reduced production led to reduced operating cash flows for the Licence 61 joint venture.

 
 Licence 61 Gross 
  Production               H1-2019   Q2-2019   Q1-2019   H1-2018   FY-2018 
 Total gross production    317,620   147,186   170,434   386,482   713,603 
                          --------  --------  --------  --------  -------- 
 Gross bopd                  1,755     1,617     1,894     2,135     1,955 
                          --------  --------  --------  --------  -------- 
 PetroNeft 50% share 
  bopd                         877       809       947     1,068       978 
                          --------  --------  --------  --------  -------- 
 

Review of PetroNeft loss for the period

The loss for the period was US$2.0m (H1 2018: US$1.2m). The loss includes PetroNeft's share of the losses on the joint ventures relating to Licences 61 and 67 of US$2.9m and US$0.35m respectively (H1 2018: US$1.9m and US$0.2m). The loss relating to the Licence 61 joint venture is discussed in more detail below. Finance revenue of US$2.2m (H1 2018: US$2.0m) relates primarily to interest receivable on loans to the joint ventures.

 
  PetroNeft Key Financial Metrics                  Unaudited              Audited 
                                         ============================  ------------- 
                                                             6 months     Year ended 
                                          6 months ended     ended 30    31 December 
                                            30 June 2019    June 2018           2018 
                                                     US$          US$            US$ 
 Continuing operations 
 Revenue                                             831        1,093          1,767 
 Cost of sales                                     (383)        (881)        (1,560) 
                                         ===============  =========== 
 Gross profit                                        448          212            207 
 Administrative expenses                           (775)        (612)        (1,390) 
 Exchange gain on intra-Group 
  loans                                               55         (57)          (123) 
 Operating loss                                    (272)        (457)        (1,306) 
 Share of joint venture's net 
  loss - WorldAce Investments Limited            (2,873)      (1,920)        (6,340) 
 Share of joint venture's net 
  loss - Russian BD Holdings B.V.                  (349)        (231)          (509) 
 Finance revenue                                   2,164        1,973            967 
 Finance costs                                     (139)         (48)          (117) 
 Loss for the period for continuing 
  operations before taxation                     (1,469)        (683)        (7,305) 
 Income tax expense                                (536)        (510)          (257) 
 Loss for the period                             (2,005)      (1,193)        (7,562) 
                                         ===============  ===========  ============= 
 

Licence 61 joint venture - WorldAce Group

The metrics below are an extraction from the financial statements of the WorldAce Group which demonstrate the performance of Licence 61:

 
                                                          Unaudited                 Audited 
                                               ==============================   -------------- 
                                                 WorldAce Group       WorldAce      WorldAce Group 
                                                                         Group 
                                                                      6 months          Year ended 
                                                 6 months ended       ended 30         31 December 
                                                   30 June 2019      June 2018                2018 
                                                        US$'000        US$'000             US$'000 
 Continuing operations 
 Revenue                                                 13,478         17,090              31,370 
 Cost of sales                                         (13,393)       (15,078)            (27,773) 
                                                ===============   ============ 
 Gross profit                                                85          2,012               3,597 
 Administrative expenses                                (1,042)        (1,432)             (3,122) 
 Operating loss                                           (957)            580                 475 
 Loss on disposal of oil and gas 
  properties                                                  -              -             (4,096) 
 Write-off of exploration and evaluation 
  assets                                                      -              -                 (5) 
 Finance revenue                                             32             48                 129 
 Finance costs                                          (4,821)        (4,467)             (9,183) 
                                                ===============   ============ 
 Loss for the period for continuing 
  operations before taxation                            (5,746)        (3,839)            (12,680) 
 Income tax                                                   -              -                   - 
                                                ===============   ============ 
 Loss for the period for continuing 
  operations before taxation                            (5,746)        (3,839)            (12,680) 
                                                ===============   ============   ----------------- 
 PetroNeft's 50% share                                  (2,873)        (1,920)             (6,340) 
                                                ===============   ============   ----------------- 
 
 
 
 WorldAce Group Analysis                  Unaudited            Audited 
                                  ========================  ------------- 
                                     6 months     6 months     Year ended 
                                     ended 30     ended 30    31 December 
                                    June 2019    June 2018           2018 
                                      US$'000      US$'000        US$'000 
 Revenue 
 Oil sales                             13,402       16,987         31,182 
 Other sales                               76          103            188 
 Total revenue                         13,478       17,090         31,370 
                                  ===========  ===========  ------------- 
 PetroNeft's 50% share                  6,739        8,545         15,685 
                                  ===========  ===========  ------------- 
 
 Cost of Sales 
 Mineral Extraction Tax                 8,247        9,491         17,775 
 Pipeline tariff                        1,353        1,602          3,020 
 Staff costs                            1,020        1,014          1,805 
 Depreciation and amortisation            805        1,451          2,457 
 Other cost of sales                    1,968        1,520          2,716 
 Total cost of sales                   13,393       15,078         27,773 
                                  ===========  ===========  ------------- 
 PetroNeft's 50% share                  6,697        7,539         13,887 
                                  ===========  ===========  ------------- 
 

The detailed Income Statement and Balance Sheet of WorldAce Investments Limited is disclosed at note 10 to these condensed financial statements. Lower production and oil prices in H1 2019 have weakened the margin in 2019 as compared to the same period last year. This led to an operating loss in the L-61 joint venture of US$957k compared to an operating profit in the same period last year of US$580k.

David Sturt

Chief Executive Officer

Interim Condensed Consolidated Income Statement

For the 6 months ended 30 June 2019

 
                                                       Unaudited             Audited 
                                              ==========================  ------------- 
                                                  6 months      6 months     Year ended 
                                                  ended 30      ended 30    31 December 
                                                 June 2019     June 2018           2018 
  Continuing operations                 Note           US$           US$            US$ 
 Revenue                                 5         830,613     1,092,673      1,767,074 
 Cost of sales                                   (383,296)     (880,771)      1,559,982 
                                              ============  ============  ------------- 
 Gross profit                                      447,317       211,902        207,092 
 Administrative expenses                         (775,302)     (612,369)      1,389,582 
 Exchange gain/(loss) on intra-Group 
  loans                                             54,542      (56,726)        123,235 
                                                                          ------------- 
 Operating loss                                  (273,443)     (457,193)    (1,305,725) 
 Share of joint venture's net 
  loss - WorldAce Investments 
  Limited                                10    (2,873,286)   (1,919,878)    (6,339,613) 
 Share of joint venture's net 
  loss - Russian BD Holdings 
  B.V.                                   11      (349,384)     (230,178)      (508,757) 
 Finance revenue                         6       2,164,301     1,972,866        966,039 
 Finance costs                           7       (138,560)      (48,256)      (116,825) 
                                                                          ------------- 
 Loss for the period for continuing 
  operations before taxation                   (1,470,372)     (682,639)    (7,304,881) 
 
 Income tax expense                              (536,461)     (510,381)      (256,881) 
                                              ============  ============  ------------- 
 Loss for the period attributable 
  to equity holders of the Parent              (2,006,833)   (1,193,020)    (7,561,762) 
                                              ============  ============  ============= 
 
 Loss per share attributable 
  to ordinary equity holders 
  of the Parent 
 Basic and diluted - US dollar 
  cent                                              (0.28)        (0.17)         (1.07) 
 
 Interim Condensed Consolidated Statement of Comprehensive 
  Income 
 For the 6 months ended 30 June 2019 
                                                       Unaudited             Audited 
                                              ==========================  ------------- 
                                                  6 months      6 months     Year ended 
                                                  ended 30      ended 30    31 December 
                                                 June 2019     June 2018           2018 
                                                       US$           US$            US$ 
 Loss for the period attributable 
  to equity holders of the Parent              (2,006,833)   (1,193,020)    (7,561,762) 
 Other comprehensive income 
  to be reclassified to profit 
  or loss in subsequent periods: 
 Currency translation adjustments 
  - subsidiaries                                  (63,916)        46,256        102,440 
 Share of joint ventures' other 
  comprehensive income - foreign 
  exchange translation differences               4,226,227   (4,030,342)    (8,456,256) 
 Total comprehensive loss for 
  the period attributable to 
  equity holders of the Parent                   2,155,478   (5,177,106)   (15,915,578) 
                                              ============  ============  ============= 
 

Interim Condensed Consolidated Balance Sheet

As at 30 June 2019

 
                                                     Unaudited       Audited 
                                                   =============  ------------- 
                                                         30 June    31 December 
                                                            2019           2018 
                                             Note            US$            US$ 
 Assets 
 Non-current Assets 
 Property, plant and equipment                9           31,242         38,296 
 Equity-accounted investment in joint 
  ventures - WorldAce Investments Limited     10               -              - 
 Equity-accounted investment in joint 
  ventures - Russian BD Holdings B.V.         11               -              - 
 Financial assets - loans and receivables     12      39,170,077     35,525,743 
                                                      39,201,319     35,564,039 
                                                   ============= 
 Current Assets 
 Inventories                                  13          12,924          6,547 
 Trade and other receivables                  14         721,352        249,280 
 Cash and cash equivalents                    15         194,501        801,938 
                                                         928,777      1,057,765 
                                                   ============= 
 Total Assets                                         40,130,096     36,621,804 
                                                   =============  ============= 
 
 Equity and Liabilities 
 Capital and Reserves 
 Called up share capital                      16       9,585,965      9,429,182 
 Share premium account                               141,006,709    140,912,898 
 Share-based payments reserve                          6,796,540      6,796,540 
 Retained loss                                      (93,010,086)   (91,003,253) 
 Currency translation reserve                       (32,796,063)   (36,958,374) 
 Other reserves                                          336,000        336,000 
 Equity attributable to equity holders of 
  the Parent                                          31,919,065     29,512,993 
                                                   =============  ------------- 
 
 Non-current Liabilities 
 Deferred tax liability                                3,769,707      3,219,203 
                                                       3,769,707      3,219,203 
                                                   ============= 
 Current Liabilities 
 Interest-bearing loans and borrowings        17       2,755,384      2,116,825 
 Trade and other payables                     18       1,685,940      1,772,783 
                                                       4,441,324      3,889,608 
                                                   ============= 
 Total Liabilities                                     8,211,031      7,108,811 
 Total Equity and Liabilities                         40,130,096     36,621,804 
                                                   =============  ============= 
 
 

Interim Condensed Consolidated Statement of Changes in Equity

For the 6 months ended 30 June 2019

 
                                               Share-based 
                        Called         Share       payment           Currency 
                      up share       premium     and other        translation 
                       capital       account      reserves            reserve   Retained loss          Total 
                           US$           US$           US$                US$             US$            US$ 
 
 At 1 January 2018   9,429,182   140,912,898     7,132,540       (28,604,558)    (83,441,491)     45,428,571 
                    ----------  ------------  ------------  -----------------  --------------  ------------- 
 Loss for the year           -             -             -                  -     (7,561,762)    (7,561,762) 
 Currency 
  translation 
  adjustments 
  - subsidiaries             -             -             -            102,440               -        102,440 
 Share of joint 
  ventures' other 
  comprehensive 
  income - foreign 
  exchange 
  translation 
  differences                -             -             -        (8,456,256)               -    (8,456,256) 
                    ----------  ------------  ------------  -----------------  --------------  ------------- 
 Total 
  comprehensive 
  profit for 
  the year                   -             -             -        (8,353,816)     (7,561,762)   (15,915,578) 
 At 31 December 
  2018               9,429,182   140,912,898     7,132,540       (36,958,374)    (91,003,253)     29,512,993 
                    ==========  ============  ============  =================  ==============  ============= 
 
 At 1 January 2019   9,429,182   140,912,898     7,132,540       (36,958,374)    (91,003,253)     29,512,993 
                    ==========  ============  ============  =================  ==============  ============= 
 Loss for the 
  period                     -             -             -                  -     (2,006,833)    (2,006,833) 
 Currency 
  translation 
  adjustments 
  - subsidiaries             -             -             -           (63,916)               -       (63,916) 
 Share of joint 
  ventures' other 
  comprehensive 
  income - foreign 
  exchange 
  translation 
  differences                -             -             -          4,226,227               -      4,226,227 
                    ==========  ============  ============  =================  ==============  ============= 
 Total 
  comprehensive 
  loss for the 
  period                     -             -             -          4,153,370     (2,006,833)      2,154,478 
                    ==========  ============  ============  =================  ==============  ============= 
 New share capital 
  subscribed           156,783        93,811                                                         250,594 
 At 30 June 2019     9,585,965   141,006,709     7,132,540       (32,796,063)    (93,010,086)     31,919,065 
                    ==========  ============  ============  =================  ==============  ============= 
 

Interim Condensed Consolidated Cash Flow Statement

For the 6 months ended 30 June 2019

 
                                                        Unaudited             Audited 
                                               ==========================  ------------- 
                                                   6 months      6 months     Year ended 
                                                   ended 30      ended 30    31 December 
                                                  June 2019     June 2018           2017 
                                                        US$           US$            US$ 
 Operating activities 
 Loss before taxation                           (1,470,372)     (682,639)    (7,304,881) 
 Adjustment to reconcile loss 
  before tax to net cash flows 
 Non-cash 
   Depreciation                                      11,858        25,745         38,936 
   Share of loss in joint ventures                3,222,670     2,150,056      6,848,370 
 Finance revenue                           6    (2,164,301)   (1,972,866)      (966,039) 
 Finance costs                             7        138,560        48,256        116,825 
 Working capital adjustments 
 (Increase)/decrease in trade and 
  other receivables                               (195,657)       103,454        276,593 
 (Increase)/decrease in inventories                 (6,376)      (78,204)         12,960 
 Increase/(decrease) in trade and 
  other payables                                    132,755     (140,482)        192,955 
 Income tax paid                                   (13,847)      (29,953)       (30,034) 
  Net cash flows used in operating 
   activities                                     (344,710)     (576,633)      (814,315) 
                                                             ------------  ------------- 
 Investing activities 
 Purchase of property, plant and equipment                - 
 Loan facilities advanced to joint venture 
  undertakings                                    (765,000)     (392,000)      (392,000) 
 Interest received                                    2,022           685          1,481 
  Net cash (used in)/received 
   from investing activities                      (762,978)     (391,315)      (390,519) 
                                               ============  ------------  ------------- 
  Financing activities 
  Proceeds from loan facilities                     500,000     1,000,000      2,000,000 
  Net cash received from financing 
   activities                                       500,000     1,000,000      2,000,000 
                                               ============  ------------  ------------- 
  Net increase/(decrease) in 
   cash and cash equivalents                      (607,688)        32,052        795,166 
  Translation adjustment                                251       (1,063)        (2,617) 
  Cash and cash equivalents 
   at the beginning of the period                   801,938         9,389          9,389 
  Cash and cash equivalents 
   at the end of the period                15       194,501        40,378        801,938 
                                               ============  ============  ============= 
 

Notes to the Interim Condensed Consolidated Financial Statements

For the 6 months ended 30 June 2019

   1.         Corporate Information 

The interim condensed consolidated financial statements of the Group for the six months ended 30 June 2019 were authorised for issue in accordance with a resolution of the Directors on 27 September 2019.

PetroNeft Resources plc ('PetroNeft, 'the Company', or together with its subsidiaries and joint ventures, 'the Group') is a public limited company incorporated in the Republic of Ireland with a company registration number 408101. The Company is listed on the Alternative Investment Market ('AIM') of the London Stock Exchange and the Enterprise Securities Market ('ESM') of the Irish Stock Exchange. The address of the registered office and the business address in Ireland is 20 Holles Street, Dublin 2. The Company is domiciled in the Republic of Ireland.

The principal activities of the Group are oil and gas exploration, development and production.

   2.         Going Concern 

As described in the 2018 Annual Report PetroNeft agreed a US$2 million loan facility with Swedish Company Petrogrand AB. The loan was initially repayable on 31 December 2018. The Company successfully managed to negotiate an extension to the loan term to 15(th) December 2019 and at the same time the facility was increased to $2.5M. This money has been used to finance ongoing operations including the drilling of the C4 well. The successful C-4 well has broadened the options available to the Company in this regard.

The Group has analysed its cash flow requirements through to 31 December 2019 in detail. The cash flow includes estimates for a number of key variables including, the timing of cash flows of expenditure and management of working capital, including significant deferral and reduction in remuneration of Directors and key management which has been in place since October 2017. The Directors believe that the Group's cash flow forecasts represent the best estimate of the actual cash flows over the forecast period at the date of approval of the financial statements. The cash flow is stress tested to assess the adverse effect arising from reasonable changes in circumstance. The cash flow projections for the period to 31 December 2019 indicate that, provided the Petrogrand loan is re-financed or extended before the maturity date and the deferral and reduction of remuneration of Directors and key management continues the Company will have sufficient cash resources to meet its obligations as they fall due.

The Company's obligation to amend, extend or otherwise re-finance the Petrogrand loan prior to the maturity date on 15(th) December 2019 represents a material uncertainty that may cast significant doubt upon the Group and the Company's ability to continue as a going concern. Nevertheless, after making enquiries, and considering the uncertainty described above, the Directors are confident that the Group and the Company will have adequate resources to continue in operational existence for the foreseeable future. For these reasons, they continue to adopt the going concern basis in preparing these accounts.

Accordingly, these financial statements do not include any adjustments to the carrying amount or classification of assets and liabilities that would result if the Group or Company was unable to continue as a going concern.

    3.        Accounting Policies 
   3.1       Basis of Preparation 

The interim condensed consolidated financial statements for the six months ended 30 June 2019 have been prepared in accordance with IAS 34 Interim Financial Reporting.

The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group's annual financial statements as at 31 December 2018 which are available on the Group's website - www.petroneft.com.

The interim condensed consolidated financial statements are presented in US dollars ("US$").

   3.2       Significant Accounting Policies 

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2018.

   4.         Segment information 

At present the Group has one reportable operating segment, which is oil exploration and production through its joint venture undertakings. As a result, there are no further disclosures required in respect of the Group's reporting segment.

The risk and returns of the Group's operations are primarily determined by the nature of the activities that the Group engages in, rather than the geographical location of these operations. This is reflected by the Group's organisational structure and the Group's internal financial reporting systems.

Management monitors and evaluates the operating results for the purpose of making decisions consistently with how it determines operating profit or loss in the consolidated financial statements.

Geographical segments

Although the joint venture undertakings WorldAce Investments Limited and Russian BD Holdings B.V. are domiciled in Cyprus and the Netherlands, the underlying businesses and assets are in Russia. Substantially all of the Group's sales and capital expenditures are in Russia.

 
 5.    Revenue                                    Unaudited                                      Audited 
                        ============================================================  ----------------------------- 
                                                                            6 months                     Year ended 
                                         6 months ended                     ended 30                    31 December 
                                           30 June 2019                    June 2018                           2018 
                                                    US$                          US$                            US$ 
       Revenue 
  Management 
   Services                                     316,001                      431,619                        846,860 
  Construction 
   Services                                     514,612                      661,054                        920,214 
                                                830,613                    1,092,673                      1,767,074 
                        ===============================  ===========================  ============================= 
 
 
 6.    Finance revenue                           Unaudited              Audited 
                                       ============================  ------------- 
                                                           6 months     Year ended 
                                        6 months ended     ended 30    31 December 
                                          30 June 2019    June 2018           2018 
                                                   US$          US$            US$ 
 
  Bank interest receivable                       2,022          685          1,481 
  Interest receivable 
   on loans to Joint Ventures                2,162,279    1,972,181        964,558 
                                             2,164,301    1,972,866        966,039 
                                       ===============  ===========  ============= 
 
 
 7.    Finance costs                   Unaudited              Audited 
                             ============================  ------------- 
                                                 6 months     Year ended 
                              6 months ended     ended 30    31 December 
                                30 June 2019    June 2018           2018 
                                         US$          US$            US$ 
 
  Interest on loans                  138,560       48,256        116,825 
                                     138,560       48,256        116,825 
                             ===============  ===========  ============= 
 
 
 8.    Income tax 
                                                     Unaudited                Audited 
                                         ================================  ------------- 
                                                                              Year ended 
                                          6 months ended   6 months ended    31 December 
                                            30 June 2019     30 June 2018           2018 
                                                     US$              US$            US$ 
       Current income tax 
  Current income tax 
   charge                                       (14,043)           15,425         12,523 
  Total current income 
   tax                                          (14,043)           15,425         12,523 
                                                          ---------------  ------------- 
 
       Deferred tax 
  Relating to origination 
   and reversal of temporary 
   differences                                   550,504          494,956        244,358 
  Total deferred tax                             550,504          494,956        244,358 
                                         ===============  ---------------  ------------- 
  Income tax expense 
   reported in the Consolidated 
   Income Statement                              536,461          510,381        256,881 
                                         ===============  ===============  ============= 
 
 
 
 9.    Property, Plant and Equipment 
                                            Plant and 
                                            machinery 
                                                  US$ 
       Cost 
  At 1 January 2018                           992,928 
  Disposals                                     (324) 
  Translation adjustment                    (152,799) 
                                           ========== 
  At 1 January 2019                           839,805 
       Additions                                    - 
  Translation adjustment                       77,951 
  At 30 June 2019                             917,756 
 
       Depreciation 
  At 1 January 2018                           904,726 
  Charge for the year                          38,936 
  Disposals                                     (324) 
  Translation adjustment                    (141,829) 
                                           ---------- 
  At 1 January 2019                           801,509 
  Charge for the year                          11,858 
  Translation adjustment                       73,147 
  At 30 June 2019                             886,514 
 
       Net book values 
  At 30 June 2019                              31,242 
                                           ========== 
  At 31 December 2018                          38,296 
                                           ========== 
 
 
   10.        Equity-accounted Investment in Joint Venture - WorldAce Investments Limited 

PetroNeft Resources plc has a 50% interest in WorldAce Investments Limited, a jointly controlled entity which holds 100% of LLC Stimul-T, an entity involved in oil and gas exploration and the registered holder of Licence 61. The interest in this joint venture is accounted for using the equity accounting method. WorldAce Investments Limited is incorporated in Cyprus and carries out its activities, through LLC Stimul-T, in Russia.

 
                                                          Share of 
                                                        net assets 
                                                               US$ 
 
  At 1 January 2018                                              - 
  Elimination of unrealised profit on intra-Group 
   transactions                                            (1,174) 
  Share of net loss of joint venture for 
   the year                                            (6,339,613) 
  Translation adjustment                               (7,760,793) 
  Credited against loans receivable from 
   WorldAce Investments Limited                         14,101,580 
                                                      ============ 
  At 1 January 2019                                              - 
  Share of net loss of joint venture for 
   the period                                          (2,873,286) 
  Translation adjustment                                 3,805,212 
  Debited against loans receivable from 
   WorldAce Investments Limited                          (931,926) 
  At 30 June 2019                                                - 
                                                      ============ 
 
   10.        Equity-accounted Investment in Joint Venture - WorldAce Investments Limited (continued) 

The balance sheet position of WorldAce Investments Limited shows net liabilities of US$56,110,244 following a loss in the period of US$5,746,601 together with a positive currency translation adjustment of US$7,610,436. PetroNeft's 50% share is included above and results in a negative carrying value of US$23,372,709. Therefore, the share of net assets is reduced to Nil and, in accordance with IAS 28 Investments in Associates and Joint Ventures, the amount of US$23,372,709 is deducted from other assets associated with the joint venture on the Balance Sheet which are the loans receivable from WorldAce Investments (see Note 12).

Additional financial information in respect of PetroNeft's 50% interest in the equity-accounted joint venture entity is disclosed below:

 
                                           50% Share of WorldAce Group 
                                             Unaudited                Audited 
                                 ================================  ------------- 
                                                                      Year ended 
                                  6 months ended   6 months ended    31 December 
                                    30 June 2019     30 June 2018           2018 
                                             US$              US$            US$ 
 
  Continuing operations 
  Revenue                              6,738,835        8,545,032     15,684,984 
  Cost of sales                      (6,696,307)      (7,539,017)   (13,886,409) 
                                 ===============  ===============  ============= 
  Gross profit                            42,528        1,006,015      1,798,575 
  Administrative expenses              (520,925)        (716,069)    (1,560,913) 
                                 ===============  ===============  ------------- 
  Operating loss                       (478,397)          289,946        237,662 
  Loss on disposal of 
   oil and gas properties                      -                -    (2,048,038) 
  Write-off of exploration 
   and evaluation assets                       -                -        (2,346) 
  Finance revenue                         15,807           23,921         64,712 
  Finance costs                      (2,410,709)      (2,233,745)    (4,591,603) 
                                 ===============  ===============  ============= 
  Loss for the period 
   for continuing operations 
   before taxation                   (2,873,299)      (1,919,878)    (6,339,613) 
  Income tax expense                           -                -              - 
                                 ===============  ===============  ============= 
  Loss for the period                (2,873,299)      (1,919,878)    (6,339,613) 
                                 ===============  ===============  ============= 
 
  Loss for the period                (2,873,299)      (1,919,878)    (6,339,613) 
  Other comprehensive 
   income to be reclassified 
   to profit or loss 
   in subsequent periods: 
  Currency translation 
   adjustments                         3,805,218      (3,706,547)    (7,760,793) 
                                 ===============  ===============  ============= 
  Total comprehensive 
   loss for the period                   931,919      (5,626,425)   (14,100,406) 
                                 ===============  ===============  ============= 
 
 

Finance costs mainly relate to interest on shareholder loans from Oil India International B.V. and PetroNeft.

The currency translation adjustment results from the revaluation of the Russian Rouble during the period. All Russian Rouble carrying values in Stimul-T, the 100% subsidiary of WorldAce are converted to US Dollars at each period end. The resulting gain or loss is recognised through other comprehensive income and transferred to the currency translation reserve. The Russian Rouble strengthened against the US Dollar during the period from RUB69.5:US$1 at 31 December 2018 to RUB63.1:US$1 at 30 June 2019.

   10.        Equity-accounted Investment in Joint Venture - WorldAce Investments Limited (continued) 
 
                                              50% Share of WorldAce Group 
                                               Unaudited        Audited 
                                            ==============  -------------- 
                                                               31 December 
                                              30 June 2019            2018 
                                                       US$             US$ 
  Non-current Assets 
  Oil and gas properties                        32,447,658      29,786,687 
  Property, plant and equipment                    108,879         128,111 
  Exploration and evaluation assets              8,605,042       7,804,586 
  Assets under construction                        627,739         562,307 
                                                41,789,318      38,281,691 
                                            ==============  -------------- 
 
  Current Assets 
  Inventories                                    1,505,594         848,776 
  Trade and other receivables                      511,791         380,156 
  Cash and cash equivalents                         26,329         225,846 
                                                 2,043,714       1,454,778 
                                            ==============  -------------- 
 
  Total Assets                                  43,833,032      39,736,469 
                                            ==============  ============== 
 
 
  Non-current Liabilities 
  Provisions                                     (681,592)       (573,540) 
  Interest-bearing loans and borrowings       (67,978,353)    (65,682,097) 
                                              (68,659,945)    (66,255,637) 
                                            ==============  -------------- 
  Current Liabilities 
  Interest-bearing loans and borrowings        (1,041,048)       (974,793) 
  Trade and other payables                     (2,187,161)     (1,493,077) 
                                               (3,228,209)     (2,467,870) 
                                            ==============  -------------- 
  Total Liabilities                           (71,888,154)    (68,723,507) 
                                            ==============  ============== 
 
  Net Liabilities                             (28,055,122)    (28,987,038) 
                                            ==============  ============== 
 
 

Interest-bearing loans and borrowings are shareholder loans from Oil India International B.V. and PetroNeft.

   11.       Equity-accounted Investment in Joint Venture - Russian BD Holdings B.V. 

PetroNeft Resources plc has a 50% interest in Russian BD Holdings B.V., a jointly controlled entity which holds 100% of LLC Lineynoye, an entity involved in oil and gas exploration and the registered holder of Licence 67. The interest in this joint venture is accounted for using the equity accounting method. Russian BD Holdings B.V. is incorporated in the Netherlands and carries out its activities, through LLC Lineynoye, in Russia.

 
                                                 Share of 
                                               net assets 
                                                      US$ 
 
  At 1 January 2018                                     - 
                                                 (12,117) 
  Share of net loss of joint venture for 
   the year                                     (508,757) 
  Translation adjustment                        (695,463) 
  Credited against loans receivable from 
   Russian BD Holdings BV                       1,216,337 
                                             ============ 
  At 1 January 2019                                     - 
  Share of net loss of joint venture for 
   the period                                   (349,384) 
  Translation adjustment                          421,015 
  Debited against loans receivable from 
   Russian BD Holdings BV                        (71,631) 
  At 30 June 2019                                       - 
                                             ============ 
 

The balance sheet position of Russian BD Holdings B.V. shows net liabilities of US$3,711,198 following a loss in the period of US$697,960 together with a positive currency translation adjustment of US$842,030. PetroNeft's 50% share is included above and results in a negative carrying value of US$1,864,711. Therefore, the share of net assets is reduced to Nil and, in accordance with IAS 28 Investments in Associates and Joint Ventures, the amount of US$1,864,711 is deducted from other assets associated with the joint venture on the Balance Sheet which are the loans receivable from Russian BD Holdings B.V. (Note 12).

   11.       Equity-accounted Investment in Joint Venture - Russian BD Holdings B.V. (continued) 

Additional financial information in respect of PetroNeft's 50% interest in the equity-accounted joint venture entity is disclosed below:

 
                                             50% Share of Russian BD Holdings B.V. 
                                                    Unaudited                Audited 
                                        ================================  ------------- 
                                                                             Year ended 
                                         6 months ended   6 months ended    31 December 
                                           30 June 2019     30 June 2018           2018 
                                                    US$              US$            US$ 
 Revenue                                              -                -              - 
 Cost of sales                                        -                -              - 
 Gross profit                                         -                -              - 
 Administrative expenses                      (101,462)         (42,993)      (104,256) 
 Operating loss                               (101,462)         (42,993)      (104,256) 
 Finance revenue                                    290              360            520 
 Finance costs                                (248,010)        (187,545)      (405,021) 
 Loss for the period for continuing 
  operations before taxation                  (349,182)        (230,178)      (508,757) 
 
 Taxation                                           203                -              - 
 
 Loss for the period                          (348,979)        (230,178)      (508,757) 
                                        ===============  ===============  ============= 
 
 Loss for the period                          (348,979)        (230,178)      (508,757) 
 Other comprehensive income 
  to be reclassified to profit 
  or loss in subsequent periods: 
 Currency translation adjustments               421,015          109,246      (695,463) 
 Total comprehensive loss 
  for the period                                 72,036        (120,932)    (1,204,220) 
                                        ===============  ===============  ============= 
 

Finance costs comprise of interest on shareholder loans from Belgrave Naftogas B.V. and PetroNeft.

 
                                Unaudited       Audited 
                              =============  ------------ 
                                              31 December 
                               30 June 2019          2018 
                                        US$           US$ 
  Non-current assets              5,506,962     4,993,522 
  Current assets                     65,450       238,093 
  Total assets                    5,572,412     5,231,615 
                              =============  ------------ 
 
  Non-current liabilities       (6,885,117)   (6,393,622) 
  Current liabilities             (542,894)     (762,216) 
  Total liabilities             (7,428,011)   (7,155,838) 
                              =============  ------------ 
 
  Net Liabilities               (1,855,599)   (1,924,223) 
                              =============  ============ 
 
 
        Financial assets - loans 
 12.     and receivables 
                                                  Unaudited       Audited 
                                                =============  ------------- 
                                                                 31 December 
                                                 30 June 2019           2018 
                                                          US$            US$ 
 
  Loans to WorldAce Investments 
   Limited                                         61,101,145     59,161,041 
  Loss allowance                                  (3,109,501)    (3,109,501) 
  Less: share of WorldAce Investments 
   Limited loss (Note 10)                        (23,372,709)   (24,304,633) 
                                                   34,618,935     31,746,907 
                                                =============  ------------- 
  Loans to Russian BD Holdings 
   B.V.                                             6,418,862      5,715,176 
  Less: share of Russian BD Holdings 
   B.V. loss (Note 11)                            (1,864,711)    (1,936,340) 
                                                    4,554,151      3,778,836 
                                                =============  ------------- 
                                                   39,173,086     35,525,743 
                                                =============  ============= 
 

The Company has granted a loan facility to its joint venture undertaking WorldAce Investments Limited of up to US$45 million. This loan facility is US$ denominated and unsecured. Interest currently accrues on the loan at USD LIBOR plus 6.0% but the Company has agreed not to seek payment of interest until 2020 at the earliest. The loan is set to mature on 31 December 2025. As at 30 June 2019 the loan was fully drawn down. The loan from the Company to Russian BD Holdings is repayable on demand. Interest currently accrues on the loan at LIBOR plus 5.0% per annum.

 
 13.     Inventories                                              Unaudited                            Audited 
                                                     ===================================   ------------------------------- 
                                                                                                               31 December 
                                                                            30 June 2019                              2018 
                                                                                     US$                               US$ 
         Materials                                                                12,924                             6,547 
                                                                                  12,924                             6,547 
                                                     ===================================   =============================== 
 
 14.    Trade and other receivables                                Unaudited                           Audited 
                                                      ==================================   ------------------------------- 
                                                                                 30 June                       31 December 
                                                                                    2019                              2018 
                                                                                     US$                               US$ 
  Other receivables                                                               26,697                            60,012 
  Receivable from jointly controlled 
   entity                                                                        632,509                           170,627 
  Advances to contractors                                                          2,215                               758 
  Prepayments                                                                     59,931                            17,883 
                                                                                 721,352                           249,280 
                                                      ==================================   =============================== 
 
 
 

Other receivables are non-interest-bearing and are normally settled on 60-day terms.

 
 15.    Cash and Cash Equivalents 
                                                 Unaudited                       Audited 
                                      ===============================  --------------------------- 
                                                                                       31 December 
                                                         30 June 2019                         2018 
                                                                  US$                          US$ 
  Cash at bank and in hand                                    194,501                      801,938 
                                                              194,501                      801,938 
                                      ===============================  =========================== 
 
 

Bank deposits earn interest at floating rates based on daily deposit rates. Short-term deposits are made for varying periods of between one day and one month depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates.

 
 16.    Share Capital - Group and Company 
 
                                                                    Called up 
        Allotted, called up and           Number of Ordinary    share capital 
         fully paid equity                            Shares              US$ 
  At 1 January 2018                              707,245,906        9,429,182 
  At 1 January 2019                              707,245,906        9,429,182 
  New share capital subscribed                    13,884,594          156,783 
  At 30 June 2019                                721,130,500        9,585,965 
                                         ===================  =============== 
 

In April 2019 the Company issued 13,884,594 Ordinary Shares in settlement of liabilities to David Sturt and Dennis Francis. Details were provided to shareholders in a regulatory news announcement on 16 April 2019.

 
 17.    Loans and Borrowings 
                                                                Unaudited     Audited 
                                                               ==========  ------------ 
        Group and Company             Effective   Contractual 
                                       interest      maturity     30 June   31 December 
                                           rate          date        2019          2018 
                                              %                       US$           US$ 
        Interest-bearing 
        Current liabilities 
  Petrogrand AB                          11.56%     15-Dec-19   2,755,384     2,116,825 
                                                               ==========  ------------ 
  Total current liabilities                                     2,755,384     2,116,825 
                                                               ========== 
  Total loans and borrowings                                    2,755,384     2,116,825 
                                                               ==========  ============ 
 
  Contractual undiscounted 
   liability                                                    2,755,384     2,116,825 
 
 
      Changes in financial liabilities arising 
       from financing activities: 
                                                        Unaudited                          Audited 
                                    =================================================   ------------- 
                                                                             6 months      Year ended 
                                                     6 months ended          ended 30     31 December 
                                                       30 June 2018         June 2018            2018 
                                                                US$               US$             US$ 
      At 1 January                                        2,116,825                 -               - 
  Cash flows - loan drawdowns                               500,000         1,000,000       2,000,000 
  Interest accrued but not 
   yet paid                                                 138,559            48,256         116,825 
  At period end                                           2,755,384         1,048,256       2,116,825 
                                    ===============================       ===========   ============= 
 
 

Petrogrand AB is a related party of the Company because Pavel Tetyakov, VP of Business Development of PetroNeft, is CEO of Petrogrand AB, Swedish company. In addition, Maxim Korobov, a significant shareholder and Non-Executive Director of Petroneft is also a major shareholder of Petrogrand AB.

 
 18.    Trade and other payables 
                                                       Unaudited                        Audited 
                                           ================================  ----------------------------- 
                                                                                               31 December 
                                                               30 June 2019                           2018 
                                                                        US$                            US$ 
  Trade payables                                                    403,887                        428,734 
  Trade payables to jointly 
   controlled entity                                                143,404                        104,115 
  Corporation tax                                                    55,212                         55,016 
  Other taxes and social welfare 
   costs                                                             48,663                         42,918 
  Accruals and other payables                                     1,034,774                      1,142,000 
                                                                  1,685,940                      1,772,783 
                                           ================================  ============================= 
 
 

The Directors consider that the carrying amount of trade and other payables approximates their fair value.

Trade and other payables are non-interest-bearing and are normally settled on 60-day terms.

Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs.

   19.       Important Events after the Balance Sheet Date 

There were no important events since the balance sheet date.

   20.       Board approval 

This announcement was approved by the Board of Directors of PetroNeft Resources plc on 27 September 2019.

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

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