TIDMPTR
RNS Number : 9648C
Petroneft Resources PLC
21 June 2019
21 June 2019
PetroNeft Resources plc
("PetroNeft" or the "Group" or the "Company")
2018 Final Results
PetroNeft (AIM: PTR) owner and operator of Licences 61 and 67,
Tomsk Oblast, Russian Federation, is pleased to report its final
results for the year ended 31 December 2018.
Highlights
-- C-4 well at Cheremshanskoye produced about 450 bopd on test
-- Gross production at Licence 61 in 2018 was 713,603 barrels of oil or an average of 1,955 bopd
o While this represents a reduction in production it is ahead of
expectations due to continued good performance of horizontal wells
at South Arbuzovskoye
-- 64.2 mmbbls total proved and probable (2P) reserves net to PetroNeft
For further information, contact:
+971 55 191
David Sturt, CEO, PetroNeft Resources plc 9808
John Frain/Brian Garrahy, Davy (NOMAD and Joint +353 1 679
Broker) 6363
Henry Fitzgerald-O'Connor, Canaccord Genuity Limited +44 207 523
(Joint Broker) 8000
+353 1 498
Joe Heron / Douglas Keatinge, Murray Consultants 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
statements
Chairman's Statement
2018 was a year of significant change for our Company which saw
the retirement of our Chief Executive Officer Dennis Francis in
November 2018.
Dennis was a founder of PetroNeft in 2004 and oversaw its growth
from a private company to a public company listed on the London AIM
and Dublin ESM stock exchanges. In that time period the Company
evolved from an explorer to an established production company
employing over 170 people in the Tomsk Region of Russia. In 2016
Mr. Francis received a Certificate of honour from the Subsurface
Management Department for the Tomsk Region (TomskNedra) for
significant contributions to the development of mineral resources
in the Tomsk Region.
In early 2019 the Company announced the appointment of David
Sturt as the new Chief Executive Officer. David had been a
Non-Executive Director of the Company since 2016 and brings over 35
years of international experience in the upstream oil and gas
industry gained working on projects in Europe, CIS, Africa, South
America and SE Asia.
In the period between Dennis' retirement and David commencing as
CEO, Karl Johnson, our Vice President of Operations assumed the
role of Interim CEO.
I would like to thank Dennis for his many years of dedicated
service to PetroNeft and to thank Karl for his work as Interim CEO.
I would also like to sincerely welcome David to his new
position.
I would also like to thank Paul Dowling for his long service
with the Company, first as CFO and Director and then as CFO on a
consultancy basis following his departure from the Board in 2016.
At the end of 2018, Paul elected to end his full-time consultancy
contract, but continues to provide his services on a part-time
basis to assist the Company in certain matters.
Operations
The existing production wells at Licence 61 generally performed
well during 2018, with a slower than expected natural decline. No
new wells were drilled on Licence 61 in 2018.
At Licence 67 we drilled the C-4 appraisal well in conjunction
with our Joint Venture partner, Arawak Energy. Oil was tested
across two zones in the Upper Jurassic horizon and we achieved
combined open hole test rates of 399 bfpd. We also encountered oil
pay in the Lower Jurassic horizon, however, the reservoir was of
lower quality. A subsequent cased hole test achieved a rate of 450
bopd. We are pleased with the result of the C-4 well, which enabled
us to receive State Reserves committee (GKZ) approval for C1 + C2
reserves of 2.5 Mtons for the Cheremshanskoye Oil Field, equivalent
to 2P reserves of approximately 19.26 mmbbls and we believe that
potential exists for significant upward revision to these figures
in the future.
2019 outlook
The geo-political and investment climate for Russia, as with
other emerging markets, remains challenging. This has resulted in a
significant difference between the market capitalization of the
company and the long-term value of its assets and reserves. We are
committed to narrowing that gap and are actively examining all
available options to do so.
The Company, in conjunction with its 50/50 Joint Venture
partners, Oil India and Arawak Energy has engaged financial
advisers to evaluate the possible sale of Licence 61 and/or Licence
67. While there is no certainty that any transaction will be
completed, we have seen an encouraging level of interest from a
range of well-financed industry players. We continue to evaluate
the exploration, appraisal and development potential for both
licence areas to ensure that, if we receive bids for either licence
area which appropriately value the asset, we will be able to make
an informed decision on whether or not to sell.
Reserves
The table below contains the details of the oil reserves of the
Company and highlights the large potential of the Sibkrayevskoye
oil field and the potential upside that could be achieved from
prospects such as Emtorskaya, which lies north of Lineynoye.
Ryder Scott Estimated Reserves in Oil Fields (net to PetroNeft)
Oil Field Name Proved Proved Proved,
& Probable Probable
& Possible
---------- -------------- -------------
Licence 61 1P mmbo 2P mmbo 3P mmbo
Lineynoye 6.6 12.5 15.6
Tungolskoye 0.3 2.8 3.6
Kondrashevskoye 0.7 1.3 1.6
Arbuzovskoye 1.2 3.8 5.0
Sibkrayevskoye 5.8 29.4 29.4
North Varyakhskoye 0.2 0.4 0.5
---------- -------------- -------------
14.8 50.2 55.7
Licence 67
Ledovoye 1.5 14.0 17.4
Total net to PetroNeft 16.3 64.2 73.1
========== ============== =============
-- Licence 61 as at 31 December 2018 (Ryder Scott report as at 1
January 2016, adjusted for 2016, 2017 and 2018 production).
-- Reserves reflect just PetroNeft's 50% share of reserves for each licence.
-- All oil in discovered fields is in the Upper Jurassic section.
-- Reserves were determined in accordance with the Society of
Petroleum Engineers ("SPE") Petroleum Resources Management System
("PRMS") rules.
Review of PetroNeft loss for the year
The loss after taxation for the year was US$7,561,762 (2017:
US$3,239,041). The loss included the share of joint venture's net
loss in WorldAce Investments of US$6,339,613 (2017: US$4,285,833)
which rose mainly due to the write-off of wells at Tungolskoye and
the share of joint venture's net loss in Russian BD Holdings B.V.
of US$508,757 (2017: US$381,654).
2018 2017
US$'000 US$'000
Continuing operations
Revenue 1,767 1,713
Cost of sales (1,560) (1,550)
========
Gross profit 207 163
Administrative expenses (1,390) (1,403)
Exchange (loss)/gain on intra-Group loans (123) 52
Operating loss (1,306) (1,188)
Share of joint venture's net loss - WorldAce
Investments Limited (6,340) (4,286)
Share of joint venture's net loss - Russian
BD Holdings B.V. (508) (382)
Finance revenue 966 3,511
Finance costs (117) -
Loss for the year for continuing operations
before taxation (7,305) (2,345)
Income tax expense (257) (894)
Loss for the year (7,562) (3,239)
======== ========
Revenue
Revenue in 2018 and 2017 includes income as operator of both
licences and the revenue of PetroNeft's wholly owned subsidiary,
Granite Construction, in respect of construction services provided
in relation to both joint ventures.
Income of PetroNeft Group as Operator of Licence 61 and Licence
67
PetroNeft performs the role of operator for both the licence 61
and 67 joint ventures. This means that PetroNeft employees and
management are responsible for the day to day running of both
Licences. Major strategic and financial decisions relating to the
Licences require unanimous approval by both shareholders in the
respective joint venture agreements.
As operator, PetroNeft is entitled to charge certain
administrative, management and technical costs to the joint
ventures. The costs associated with this revenue are included in
cost of sales.
In 2018 PetroNeft Group charged a total of US$0.85 million
(2017: US$0.85 million) to the joint ventures in respect of
management services. PetroNeft also owns a small construction
company, Granite Construction, which carries out ad hoc
construction projects such as well pads and on-site accommodation
on both Licences as well as maintaining the winter road network
each year. In 2018 Granite Construction charged the WorldAce Group
US$0.92 million (2017: US$0.86 million) in respect of these
services.
Administrative expenditure was in line with last year. In 2017
the Company implemented a cost cutting program across the Group and
the Directors and management agreed to reduce and defer significant
portions of their remuneration; as at 31 December 2018 a total of
US$934,041 (2017: US$824,080) had been deferred by the Directors
and senior management - see Note 14 for details.
Finance Revenue
Most of the finance revenue relates to interest receivable on
loans to joint ventures. During 2018 PetroNeft recognised interest
income of US$3,686,372 (2017: US$3,238,839) on its loans to
WorldAce Group and US$387,687 (2017: US$270,773) on its loans to
Russian BD Holdings B.V. As a result of early adoption of
amendments to IAS 28 in respect of Long-term Interest in Associates
and Joint Ventures the Group recognised a loss allowance of
US$3,109,501 given the uncertainties relating to WorldAce The
allowance was set against Finance Revenue.
Finance Costs
Finance costs relate to interest payable on loan from Petrogrand
AB. The Company agreed a secured loan facility of up to US$2m with
Petrogrand AB in January 2018. This loan facility was fully drawn
down in 2018. For more details see Note 14.
Key Financial Metrics - WorldAce Group
Because of the equity method of consolidation that applies to
PetroNeft's interest in WorldAce, it is difficult to extract
meaningful metrics from the PetroNeft consolidated income
statement. Therefore, the metrics below are an extraction from the
audited financial statements of the WorldAce Group and give an
indication as to the performance of Licence 61:
WorldAce Group WorldAce Group
2018 2017
US$'000 US$'000
Continuing operations
Revenue 31,370 27,637
Cost of sales (27,773) (25,273)
===============
Gross profit 3,597 2,364
Administrative expenses (3,122) (3,093)
Operating profit/(loss) 475 (729)
Write-off of oil and gas properties (4,096) -
Write-off of exploration and evaluation
assets (5) (26)
Finance revenue 129 66
Finance costs (9,183) (7,883)
Loss for the year for continuing operations
before taxation (12,680) (8,572)
Income tax - -
===============
Loss for the year (12,680) (8,572)
=============== ===============
PetroNeft's 50% share (6,340) (4,286)
=============== ---------------
Net Loss - WorldAce Group
PetroNeft's share of the net loss of WorldAce Group for the full
year increased to US$6.3 million from US$4.3 million in 2017. The
increase in the loss for the year before taxation can be attributed
to the write-off of the cost of some non-performing wells. Of the
US$9.0 million in interest payable by WorldAce, US$3.7 million is
payable to PetroNeft.
Revenue, Cost of Sales and Gross Margin - WorldAce Group
Gross Revenue from oil sales was US$31.4 million for the year
(2017: US$27.6 million). Cost of sales includes depreciation of
US$2.3 million (2017: US$2.6 million), which was lower mainly due
to lower production. The gross margin improved during the year due
to improved oil prices. Operating costs per barrel (cost of sales
excluding depreciation and Mineral Extraction Tax) were higher at
US$10.68 (2017: US$10.36 per barrel) due to lower production. We
would expect the gross margin to improve in future periods as our
facilities and field operations are fully staffed and can handle
additional production from the Sibkrayevskoye oil field once it
comes online. We produced 713,603 barrels of oil (2017: 816,476
barrels) in the year and sold 706,395 barrels of oil (2017: 822,388
barrels) achieving an average oil price of US$44 per barrel (2017:
US$35 per barrel). All oil was sold on the domestic market in
Russia.
Finance Costs - WorldAce Group
Gross Finance costs of US$9.2 million (2017: US$7.9 million)
mainly relates to interest on loans from PetroNeft and Oil
India.
Current and Future Funding of PetroNeft Group
In previous Annual Reports we outlined that PetroNeft expected
to start receiving interest due on its shareholder loans to
WorldAce in 2017 once the development of the Sibkrayeskoye oil
field in Licence 61 was up and running. The S-374 appraisal well
drilled in 2016 at the Sibkrayevskoye oil field, to assess the true
extent of the field 10km to the south of existing wells, did not
encounter commercial hydrocarbons. The result of this well has led
to the postponement of the commencement of the development of the
Sibkrayevskoye oil field. As a consequence of this, the date by
which PetroNeft expects to start receiving interest due on its
shareholder loans to WorldAce has been delayed until 2020 at the
earliest.
The success of the S-375 well in 2017 has led to a period of
extended testing at Sibkrayevskoye and we are currently refining
and re-evaluating the development program. However, significant
funding is required to develop the Sibkrayevskoye oil field.
While there were consolidated net current liabilities at the
year-end of US$2.8m (2017: US$1.1m), the Company has implemented a
cost cutting program across the Group and the Directors and
management have agreed to reduce and defer significant portions of
their remuneration. Note 14 outlines the amounts owed to the Board
and management in this regard.
In January 2018 the Company agreed a secured loan facility for
up to US$2 million with Swedish company Petrogrand AB
("Petrogrand"). The loan was due to mature on 31 December 2018,
however, in March 2019 the Company agreed an increase in the
facility by US$500,000 to US$2.5 million and a revised maturity
date of 15 December 2019 (which may be extended by mutual consent
of the parties). The revised terms include the potential
entitlement to bonus payments of US$2.5 million per Licence if
either or both Licence 61 or Licence 67 are sold before 31 December
2020. Discussions on a further supplementary financing for ongoing
general corporate purposes are well advanced and the Company
expects to update shareholders in the near future.
As previously announced the Company has engaged a financial
advisor with the aim to test the market for both of its licences.
This process is ongoing and the level of interest and the calibre
of companies in the process to date is encouraging. Over the past
twelve months the asset acquisition market in Russia has seen
increased activity, especially for the larger domestic companies.
This gives management reason for optimism about a positive outcome.
It is expected that both loan facilities would be repaid from the
proceeds of sale of one of the Licences.
The ability to re-finance the Petrogrand loan represents a
material uncertainty that may cast significant doubt upon the
Group's and the Company's ability to continue as a going concern as
described in Note 2 to the Preliminary Financial Statements.
Summary
2018 saw the drilling of a successful well at the
Cheremshanskoye oil field in Licence 67 which has led to additional
reserves being approved in Russia. The retirement of Dennis Francis
was also a major event in 2018, however I am confident that David
Sturt, thanks to his knowledge and experience, will focus on
creating shareholder value whether through exploration, appraisal,
development or sale of assets.
Our industry is continuing to experience unstable times but we
have valuable future development targets at West Lineynoye,
Cheremshanskoye and Sibkrayevskoye that can be profitable at a wide
range of oil prices.
Annual Report and AGM
The annual report will be mailed to shareholders and published
on the Company's website (www.petroneft.com) on 28 June 2019. The
AGM will be held in Dublin on 20 September 2019.
Finally, I know that I speak for all the Directors, management
and staff of the Group in giving sincere thanks to our
shareholders, both old and new, for your continued support
throughout the past year.
David Golder
Non-Executive Chairman
Consolidated Income Statement
For the year ended 31 December 2018
2018 2017
Note US$ US$
Continuing operations
Revenue 1,767,074 1,712,574
Cost of sales (1,559,982) (1,550,119)
============
Gross profit 207,092 162,455
Administrative expenses (1,389,582) (1,402,867)
Exchange (loss)/gain on intra-Group loans (123,235) 52,093
Operating loss (1,305,725) (1,188,319)
Share of joint venture's net loss - WorldAce
Investments Limited (6,339,613) (4,285,833)
Share of joint venture's net loss - Russian
BD Holdings B.V. (508,757) (381,654)
Finance revenue 966,039 3,510,435
Finance costs (116,825) -
Loss for the year for continuing operations
before taxation (7,304,881) (2,345,371)
Income tax expense (256,881) (893,670)
Loss for the year attributable to equity
holders of the Parent (7,561,762) (3,239,041)
============ ============
Loss per share attributable to ordinary
equity holders of the Parent
Basic and diluted - US dollar cent 4 (1.07) (0.46)
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2018
2018 2017
US$ US$
Loss for the year attributable to
equity holders of the Parent (7,561,762) (3,239,041)
Other comprehensive income to be reclassified
to profit or loss in subsequent years:
Currency translation adjustments -
subsidiaries 102,440 (37,190)
Share of joint ventures' other comprehensive
income - foreign exchange translation
differences (8,456,256) 2,551,042
Total comprehensive loss for the year
attributable to equity holders of
the Parent (15,915,578) (725,189)
============= ============
Consolidated Balance Sheet
As at 31 December 2018
2018 2017
Note US$ US$
Assets
Non-current Assets
Property, plant and equipment 5 38,296 88,202
Equity-accounted investment in joint ventures
- WorldAce Investments Limited 6 - -
Equity-accounted investment in joint ventures
- Russian BD Holdings B.V. 7 - -
Financial assets at amortised cost 8 35,525,743 49,439,502
35,564,039 49,527,704
=============
Current Assets
Inventories 9 6,547 21,908
Trade and other receivables 10 249,280 587,601
Cash and cash equivalents 11 801,938 9,389
1,057,765 618,898
=============
Total Assets 36,621,804 50,146,602
============= =============
Equity and Liabilities
Capital and Reserves
Called up share capital 12 9,429,182 9,429,182
Share premium account 140,912,898 140,912,898
Share-based payments reserve 6,796,540 6,796,540
Retained loss (91,003,253) (83,441,491)
Currency translation reserve (36,958,374) (28,604,558)
Other reserves 336,000 336,000
Equity attributable to equity holders of
the Parent 29,512,993 45,428,571
============= -------------
Non-current Liabilities
Deferred tax liability 3,219,203 3,001,617
3,219,203 3,001,617
=============
Current Liabilities
Interest-bearing loans and borrowings 2,116,825 -
Trade and other payables 13 1,772,783 1,716,414
3,889,608 1,716,414
=============
Total Liabilities 7,108,811 4,718,031
Total Equity and Liabilities 36,621,804 50,146,602
============= =============
Consolidated Statement of Changes in Equity
For the year ended 31 December 2018
Share-based
Called Share payment Currency
up share premium and other translation Retained
capital account reserves reserve loss Total
US$ US$ US$ US$ US$ US$
At 1 January 2017 9,429,182 140,912,898 7,132,540 (31,118,410) (80,202,450) 46,153,760
---------- ------------ ------------ ------------- ------------- -------------
Loss for the year - - - - (3,239,041) (3,239,041)
Currency translation
adjustments -
subsidiaries - - - (37,190) - (37,190)
Share of joint
ventures' other
comprehensive
income - foreign
exchange translation
differences - - - 2,551,042 - 2,551,042
---------- ------------ ------------ ------------- ------------- -------------
Total comprehensive
loss for the year - - - 2,513,852 (3,239,041) (725,189)
At 31 December 2017 9,429,182 140,912,898 7,132,540 (28,604,558) (83,441,491) 45,428,571
========== ============ ============ ============= ============= =============
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
loss 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
========== ============ ============ ============= ============= =============
Consolidated Cash Flow Statement
For the year ended 31 December 2018
2018 2017
US$ US$
Operating activities
Loss before taxation (7,304,881) (2,345,371)
Adjustment to reconcile loss
before tax to net cash flows
Non-cash
Depreciation 38,936 62,748
Share of loss in joint ventures 6,848,370 4,667,487
Finance revenue (966,039) (3,510,435)
Finance costs 116,825 -
Working capital adjustments
Decrease in trade and other
receivables 276,593 294,434
Decrease in inventories 12,960 7,066
Increase in trade and other
payables 192,955 555,937
Income tax paid (30,034) (9,783)
Net cash flows used in operating
activities (814,315) (277,917)
------------
Investing activities
Loan facilities advanced to joint
venture undertakings (392,000) (40,000)
Interest received 1,481 823
Net cash used in investing activities (390,519) (39,177)
============ ------------
Financing activities
Proceeds from loan facilities 2,000,000 -
Net cash received from financing
activities 2,000,000 -
============ ------------
Net increase/(decrease) in cash and
cash equivalents 795,166 (317,094)
Translation adjustment (2,617) 6,865
Cash and cash equivalents at the
beginning of the year 9,389 319,618
Cash and cash equivalents at
the end of the year 11 801,938 9,389
============ ============
Notes to the Preliminary Financial Statements
For the year ended 31 December 2018
1. Basis of Accounting and Presentation of Financial Information
While the financial information included in this announcement
has been prepared in accordance with the Group's accounting
policies under International Financial Reporting Standards ("IFRS")
as adopted by the European Union, this announcement does not itself
contain sufficient information to comply with IFRS. The Company is
distributing the full financial statements that comply with IFRS on
28 June 2019.
The financial information set out above does not constitute the
Company's statutory accounts for the years ended 31 December 2018
or 2017 but is derived from those accounts. Statutory accounts for
2017 have been delivered to the Registrar of Companies and those
for 2018 will be delivered following the Company's annual general
meeting. The auditors havemade reports under Section 391 of the
Irish Companies Act, 2014 in respect of 2017. Their report was
unmodified but did draw attention to the material uncertainty
relating to going concern. The 2018 audited financial statements
will be distributed to shareholders on 28 June 2019.
Adoption of IFRS and International Financial Reporting
Interpretations Committee (IFRIC) interpretations
A number of amendments to IFRS (principally the introduction of
IFRS 9 "Financial instruments" and IFRS 15 "Revenue from Contracts
with Customers") became effective for, and have been applied in
preparing, these Financial Statements. The introduction of these
amendments on 1 January 2018 did not result in material changes to
the results or financial position of the Group. An early adoption
of amendments to IAS 28 in respect of Long-term Interest in
Associates and Joint Ventures the Group resulted to recognised a
loss allowance of US$3,109,501 given the uncertainties relating to
WorldAce. Full details of the approach taken to the introduction of
the new standards and the impact of adoption will be provided in
the full financial statements that comply with IFRS which will be
distributed to shareholders on 28 June 2019.
2. Going Concern
As described in the Chairman's Statement on page 6 PetroNeft
agreed an extension of the loan facility and an increase by
US$500,000 up to US$2.5 million with Swedish company Petrogrand AB
(in March 2019). The loan matures on 15 December 2019 and is
secured by way of a floating charge on the assets of PetroNeft. The
original loan facility was used for general corporate purposes and
to finance the drilling programme in 2018. The increase is being
used for general corporate purposes. This loan facility has
provided time and space for a more long-term financing solution to
be put in place. Discussions on a further supplementary financing
for ongoing general corporate purposes are well advanced and the
Company expects to update shareholders in the near future.
The Group has analysed its cash flow requirements through to 30
June 2020 in detail. The cash flows are highly dependent on the
successful re-financing of the Petrogrand loan and on future
production rates and oil prices achieved in its joint-venture
undertaking, WorldAce Investments Limited. Should the Petrogrand
loan not be re-financed the Group will need additional funding in
order to continue as a going concern.
The Group has put in place cost saving measures and the Board
and management have agreed to reduce and defer significant portions
of their remuneration. Note 14 outlines the amounts owed to the
Board and management in this regard.
In 2018 the Company, in conjunction with its joint venture
partners engaged financial advisers to evaluate the disposal of
Licence 61 and/or Licence 67. While there remains significant
uncertainty that any transaction will be completed, the Company has
seen interest from a range of well-financed industry players. The
result of the C-4 well which was drilled during 2018 has generated
additional interest. The Company has signed non-disclosure
agreements and opened data rooms in relation to the potential sale
or farmout of both Licence 61 and 67. As there are delaying
factors, including regulatory requirements, around transferring
licences and in a share for share type transaction, the timeframe
to close such a successful transaction could be at least six months
following binding agreement between the parties. The Board is
confident that one of these options will bring a solution.
2. Going Concern (continued)
The above circumstances represent material uncertainties 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 uncertainties 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 the annual report and
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. 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.
4. Loss per Ordinary Share
Basic loss per Ordinary Share amounts are calculated by dividing
net loss for the year attributable to ordinary equity holders of
the Parent by the weighted average number of Ordinary Shares
outstanding during the year. Basic and diluted earnings per
Ordinary Share are the same as the potential Ordinary Shares are
anti-dilutive.
2018 2017
Numerator US$ US$
Loss attributable to equity shareholders
of the Parent for basic and diluted loss (7,561,762) (3,239,041)
(7,561,762) (3,239,041)
======================== ============
Denominator
Weighted average number of Ordinary Shares
for basic and diluted earnings per Ordinary
Share 707,245,906 707,245,906
Diluted weighted average number of shares 707,245,906 707,245,906
======================== ============
Loss per share:
Basic and diluted - US dollar cent (1.07) (0.46)
The Company has instruments in issue that could potentially
dilute basic earnings per Ordinary Share in the future, but are not
included in the calculation for the reasons outlined below:
-- Employee Share Options - These potential Ordinary Shares are
anti-dilutive for the years ended 31 December 2018 and 2017.
5. Property, Plant and Equipment
Plant and
Group machinery
US$
Cost
At 1 January 2017 945,868
Translation adjustment 47,060
-----------
At 1 January 2018 992,928
Disposals (324)
Translation adjustment (152,799)
At 31 December 2018 839,805
Depreciation
At 1 January 2017 802,402
Charge for the year 62,748
Translation adjustment 39,576
===========
At 1 January 2018 904,726
Charge for the year 38,936
Disposals (324)
Translation adjustment (141,829)
At 31 December 2018 801,509
Carrying amount
At 31 December 2018 38,296
===========
At 31 December 2017 88,202
===========
6. Equity-accounted Investment in Joint Venture - WorldAce Investments Limited
PetroNeft Resources plc has a 50% interest in WorldAce
Investments Limited, a joint venture 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 2017 -
Elimination of unrealised profit on intra-Group
transactions (27,336)
Share of net loss of joint venture for the year (4,285,833)
Translation adjustment 2,356,702
Credited against loans receivable from WorldAce
Investments Limited (Note 8) 1,956,467
============
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 (Note 8) 14,101,580
At 31 December 2018 -
============
The balance sheet position of WorldAce Investments Limited shows
net liabilities of US$57,974,076 (2017: US$29,773,264) following a
loss in the year of US$12,679,226 (2017: US$8,571,665) together
with a negative currency translation adjustment of US$15,521,586
(2017: positive US$4,713,403). PetroNeft's 50% share is included
above and results in a negative carrying value of US$24,304,633
(2017: US$10,203,053). 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$24,304,633 (2017:
US$10,203,053) is deducted from other assets associated with the
joint venture on the Balance Sheet which are the loans receivable
from WorldAce Investments (see Note 8).
6. Equity-accounted Investment in Joint Venture - WorldAce Investments Limited (continued)
Additional financial information in respect of PetroNeft's 50%
interest in the equity-accounted joint venture entity is disclosed
below:
50% Share of WorldAce Group
------------------------------
2018 2017
US$ US$
Continuing operations
Revenue 15,684,984 13,818,415
Cost of sales (13,886,409) (12,636,469)
============== --------------
Gross profit 1,798,575 1,181,946
Administrative expenses (1,560,913) (1,546,643)
============== --------------
Operating profit/(loss) 237,662 (364,697)
Write-off of oil and gas properties (2,048,038) -
Write-off of exploration and evaluation
assets (2,346) (13,051)
Finance revenue 64,712 33,176
Finance costs (4,591,603) (3,941,261)
============== --------------
Loss for the year for continuing
operations before taxation (6,339,613) (4,285,833)
Income tax expense - -
==============
Loss for the year (6,339,613) (4,285,833)
============== ==============
Loss for the year (6,339,613) (4,285,833)
Other comprehensive income to be
reclassified to profit or loss in
subsequent years:
Currency translation adjustments (7,760,793) 2,356,702
==============
Total comprehensive loss for the
year (14,100,406) (1,929,131)
============== ==============
Finance costs mainly relate to interest on shareholder loans
from Oil India International B.V. and PetroNeft. The details of
gross interest accrued on loans to PetroNeft are disclosed in Note
14 Related party disclosures.
The currency translation adjustment results from the movement of
the Russian Rouble during the year. 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 depreciated
against the US Dollar during the year from RUB57.86:US$1 at 31
December 2017 to RUB69.47:US$1 at 31 December 2018.
6. Equity-accounted Investment in Joint Venture - WorldAce Investments Limited (continued)
50% Share of WorldAce
Group
----------------------------
2018 2017
US$ US$
Non-current Assets
Oil and gas properties 29,786,687 39,312,150
Property, plant and equipment 128,111 184,027
Exploration and evaluation assets 7,804,586 9,321,748
Assets under construction 562,307 824,992
38,281,691 49,642,917
============= -------------
Current Assets
Inventories 848,776 605,240
Trade and other receivables 380,156 282,925
Cash and cash equivalents 225,846 68,613
1,454,778 956,778
============= -------------
Total Assets 39,736,469 50,599,695
============= =============
Non-current Liabilities
Provisions (573,540) (658,513)
Interest-bearing loans and borrowings (65,682,097) (61,435,277)
(66,255,637) (62,093,790)
============= -------------
Current Liabilities
Interest-bearing loans and borrowings (974,793) (715,405)
Trade and other payables (1,493,077) (2,677,132)
(2,467,870) (3,392,537)
============= -------------
Total Liabilities (68,723,507) (65,486,327)
============= =============
Net Liabilities (28,987,038) (14,886,632)
============= =============
Interest-bearing loans and borrowings are shareholder loans from
Oil India International B.V. and PetroNeft. The details of loans
due to PetroNeft are disclosed in Note 14 Related party
disclosures.
Capital commitments
2018 2017
US$ US$
Details of capital commitments at the balance sheet date are as follows:
Contracted for but not provided in the financial
statements 60,710 466,114
======== ---------
6. Equity-accounted Investment in Joint Venture - WorldAce
Investments Limited (continued)
Future minimum rentals payable under non-cancellable operating
leases at the balance sheet date are as follows:
2018 2017
US$ US$
Within one year 76,971 65,570
After one year but not more than
five years 333,355 244,391
More than five years 513,455 421,508
923,781 731,469
========== ==========
The above capital commitments in the joint venture are incurred
jointly with Oil India International B.V. The Group has a 50% share
of these commitments.
7. 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 joint venture 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 in Russia.
Share of
net assets
US$
At 1 January 2017 -
Share of net loss of joint venture for the year (381,654)
Translation adjustment 194,339
Credited against loans receivable from Russian
BD Holdings BV (Note 8) 187,315
============
At 1 January 2018 -
Elimination of unrealised profit on intra-Group
transactions (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 (Note 8) 1,216,337
At 31 December 2018 -
============
The balance sheet position of Russian BD Holdings B.V. shows net
liabilities of US$3,848,446 (2017: US$1,440,006) following a loss
in the year of US$1,017,514 (2017: US$763,308) together with a
negative currency translation of US$1,390,926 (2017: positive
US$388,678). PetroNeft's 50% share is included above and results in
a negative carrying value of US$1,936,340 (2017: US$720,003).
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$1,936,340 (2017: US$720,003) is deducted
from other assets associated with the joint venture on the Balance
Sheet which are the loans receivable from Russian BD Holdings B.V.
(Note 8).
7. Equity-accounted Investment in Joint Venture - Russian BD Holdings B.V. (continued)
Additional financial information in respect of PetroNeft's 50%
interest in the equity-accounted joint venture entity is disclosed
below:
50% Share of Russian
BD Holdings B.V. Group
--------------------------
2018 2017
US$ US$
Revenue - -
Cost of sales - -
Gross profit - -
Administrative expenses (104,256) (94,626)
Operating loss (104,256) (94,626)
Finance revenue 520 259
Finance costs (405,021) (287,287)
Loss for the year for continuing
operations before taxation (508,757) (381,654)
Taxation - -
Loss for the year (508,757) (381,654)
============== ==========
Loss for the year (508,757) (381,654)
Other comprehensive income to be
reclassified to profit or loss in
subsequent years:
Currency translation adjustments (695,463) 194,339
Total comprehensive loss for the
year (1,204,220) (187,315)
============== ==========
Finance costs comprise of interest on shareholder loans from
Belgrave Naftogas B.V. and PetroNeft. The details of gross interest
accrued on loans to PetroNeft are disclosed in Note 14 Related
party disclosures.
50% Share of Russian
BD Holdings B.V. Group
--------------------------
2018 2017
US$ US$
Non-current assets 4,993,522 4,370,482
Current assets 238,093 12,048
Total assets 5,231,615 4,382,530
============ ------------
Non-current liabilities (6,393,622) (4,981,608)
Current liabilities (762,216) (120,925)
Total liabilities (7,155,838) (5,102,533)
============ ------------
Net Liabilities (1,924,223) (720,003)
============ ============
7. Equity-accounted Investment in Joint Venture - Russian BD Holdings B.V. (continued)
Future minimum rentals payable under non-cancellable operating
leases at the balance sheet date are as follows:
2018 2017
US$ US$
Within one year 3,939 2,194
After one year but not more than five
years 18,840 8,775
More than five years 52,006 26,416
74,785 37,385
======== ========
Capital commitments
2018 2017
US$ US$
Details of capital commitments at the balance sheet date are
as follows:
Contracted for but not provided in the
financial statements 78,406 -
8. Financial assets at amortised cost
2018 2017
US$ US$
Loans to WorldAce Investments Limited
(Note 14) 59,161,041 55,474,668
Less: accumulated share of WorldAce
Investments Limited losses (Note
6) (24,304,633) (10,203,053)
Loss allowance (3,109,501) -
31,746,907 45,271,615
============= -------------
Loans to Russian BD Holdings B.V.
(Note 14) 5,715,176 4,887,890
Less: accumulated share of Russian
BD Holdings B.V. losses (Note 7) (1,936,340) (720,003)
3,778,836 4,167,887
============= -------------
35,525,743 49,439,502
============= =============
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
31 December 2018 the loan was fully drawn down. The realisation of
financial assets of $31.7m in respect of WorldAce is dependent on
the continued successful development of economic reserves which is
subject to a number of uncertainties including the ability to raise
finance, future rates of oil production and future international
oil prices to continue to successfully generate revenue from the
assets or the monetisation of the asset through a sale or
farmout.
8. Financial assets at amortised cost (continued)
The loan from the Company to Russian BD Holdings B.V. is
repayable on demand. Interest currently accrues on the loan at USD
LIBOR plus 5.0% per annum. The group drilled the Cheremshanskoye
No. 4 well in 2018. The board believe that the successful well has
great potential as it tested oil at 450 bopd and has demonstrated
the potential of Licence 67.
The realisation of financial assets of US$3.8m in respect of
Russian BD Holdings B.V. is ultimately dependent on the successful
development of reserves as outlined above in relation to
Cheremshanskoye, which is subject to a number of uncertainties
including the ability to finance the well development and bringing
the assets to economic maturity and profitability or the
monetisation of the asset through a sale or farmout.
9. Inventories
2018 2017
US$ US$
Materials 6,547 21,908
6,547 21,908
================================ ===========================
10. Trade and other receivables
2018 2017
US$ US$
Receivable from joint ventures (Note
14) 170,627 503,527
Prepayments 17,883 61,359
Advances to contractors 758 1,676
Other receivables 60,012 21,039
249,280 587,601
============================= ==========================
Other receivables are non-interest-bearing and are normally
settled on 60-day terms. Amounts owed by subsidiary undertakings
are interest-bearing. Interest is charged at 10%.
11. Cash and Cash Equivalents
Group 2018 2017
US$ US$
Cash at bank 801,938 9,389
801,938 9,389
============================= ======
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.
12. Share capital 2018 2017
EUR EUR
Authorised
1,000,000,000 (2017: 1,000,000,000) Ordinary
Shares of EUR0.01 each 10,000,000 10,000,000
=======================
10,000,000 10,000,000
======================= ========================
Allotted, called up Called up
and fully Number of Ordinary share capital
paid equity Shares US$
At 1 January 2017 707,245,906 9,429,182
=================================== --------------------------
At 1 January 2018 707,245,906 9,429,182
At 31 December 2018 707,245,906 9,429,182
=================================== ==========================
Trade and other
13. payables
2018 2017
US$ US$
Trade payables 428,734 570,476
Trade payables to joint
ventures (Note
14) 104,115 212,442
Corporation tax 55,016 54,898
Other taxes and social
insurance costs 42,918 83,305
Accruals and other
payables 1,142,000 795,293
1,772,783 1,716,414
================================= ===============================
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.
14. Related party disclosures
Transactions with joint ventures
PetroNeft Resources plc had the following transactions with its
joint ventures during the years ended 31 December 2018 and
2017:
Russian BD WorldAce
Holdings BV Investments
Group Group Limited Group
US$ US$
Receivable by PetroNeft Group
at 1 January 2017 4,080,882 44,444,591
Advanced during the year 360,251 -
Transactions during the year 142,086 1,798,417
Interest accrued in the year 270,773 3,238,839
Payments for services made during
the year (480,723) (2,019,374)
Share of joint venture's translation
adjustment (187,315) (1,956,467)
Translation adjustment 32,962 5,665
------------- ---------------
At 1 January 2018 4,218,916 45,511,671
Advanced during the year 439,600 -
Transactions during the year 315,053 1,551,260
Interest accrued in the year 387,686 3,686,373
Payments for services made during
the year (309,505) (1,758,280)
Share of joint venture's translation
adjustment (1,216,337) (14,101,580)
Translation adjustment (16,419) (6,682)
At 31 December 2018 3,818,994 34,882,762
============= ===============
Balance at 31 December 2017 comprised
of:
Loans receivable (Note 8) 4,167,887 45,271,615
Trade and other receivables 51,029 452,498
Trade Payables - (212,442)
4,218,916 45,511,671
============= ===============
Balance at 31 December 2018 comprised
of:
Loans receivable (Note 8) 3,778,836 34,856,408
Trade and other receivables 40,158 130,469
Trade and other payables - (104,115)
3,818,994 34,882,762
============= ===============
14. Related party disclosures (continued)
Remuneration of key management
Key management comprise the Directors, the Vice Presidents of
Business Development and Operations of the Company and the
consulting fees paid to HGR Consulting Limited for the services of
the CFO. Their remuneration and fees during the year were as
follows:
Remuneration of key management 2018 2017
US$ US$
Compensation of key management 1,064,724 1,103,224
Contributions to defined contribution
pension plan 48,947 52,693
Consulting fees (HGR Consulting
- see below) 324,115 304,556
1,437,786 1,460,473
========== ==========
The following amounts, which are included in the above, were
owed to key management and former CEO Dennis Francis at 31 December
2018 and 2017:
Remuneration, fees and expenses
due to Directors who were in office
during the year 607,468 424,564
Remuneration due to other key
management 133,354 122,946
Consulting fees (HGR Consulting
- see below) 193,219 276,570
========
934,041 824,080
======== ========
Details of transactions between the Group and other related
parties are disclosed below.
Transactions with HGR Consulting Limited
Paul Dowling, Secretary and Chief Financial Officer of PetroNeft
(until 31 January 2019), provided his services through HGR
Consulting Limited ("HGR") from May 2016. Services provided by HGR
during 2018 amounted to US$324,115 (2017: US$304,556). An amount of
US$193,219 was owed to HGR at 31 December 2018 (2017:
US$276,570).
Transactions with Petrogrand AB
Petrogrand AB is a related party by virtue of Maxim Korobov, a
director of PetroNeft, being a significant shareholder of
Petrogrand AB. In 2018 the Company agreed a loan facility for up to
US$2m with Petrogrand AB. The loan facility is secured by way of a
floating charge on the assets of the Company, carries an interest
of US$ Libor plus 9% and has the original maturity date of 31
December 2018. This loan facility was fully drawn down in 2018. In
March 2019, the parties have agreed an increase in the facility by
US$500,000 and a revised maturity date of 15 December 2019. Further
detail is contained in Note 15. The following are the details of
this transaction in 2018:
Petrogrand AB
2018
US$
Loan facility maximum amount 2,000,000
Loan drawdowns during the year 2,000,000
Interest accrued but not yet paid 116,825
Amount due to Petrogrand AB at 31 December 2,116,825
===============================
In 2018 Granite Construction LLC (100% subsidiary of PetroNeft)
purchased tubing from Petrogrand Exploration and Production (100%
subsidiary of Petrogrand AB) for US$97,458. The amount due was
fully paid in 2018.
15. Important Events after the Balance Sheet Date
In January 2018 PetroNeft agreed a loan facility for up to US$2
million with Swedish company Petrogrand AB ("Petrogrand") secured
on the assets of PetroNeft. The loan facility was fully drawn down
in 2018 and was used to finance the drilling of the successful C-4
well and for general corporate purposes. In March 2019 the parties
have agreed an increase in the facility by US$500,000 to US$2.5
million and a revised maturity date of 15 December 2019 (which may
be extended by mutual consent of the parties). The revised terms
include the potential entitlement to bonus payments of US$2.5
million per Licence if either or both Licence 61 or Licence 67 are
sold before 31 December 2020.
16. Board approval
This announcement was approved by the Board of Directors of
PetroNeft Resources plc on 20 June 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
FR FMMBTMBITTAL
(END) Dow Jones Newswires
June 21, 2019 02:00 ET (06:00 GMT)
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