TIDMCAD
CADOGAN PETROLEUM PLC
Half Yearly Report for the Six Months ended 30 June 2022
(Unaudited and unreviewed)
Highlights
Cadogan Petroleum plc ("Cadogan" or the "Company"), an independent, diversified
oil & gas company listed on the main market of the London Stock Exchange, is
pleased to announce its unaudited results for the six months ended 30 June
2022.
H1 2022 witnessed severe challenges due to the invasion of Ukraine by Russia on
24 February 2022. Cadogan stopped its production activities for 3 weeks, at the
beginning of March 2022, and was able to resume them after having secured the
safety of its employees, its assets, the transactions with its customers and
the deliveries.
H1 2022 has been another semester without LTI and TRI with strict execution of
the anti-covid measures implemented by the company since the beginning of the
pandemic.
In H1 2022, the average production was 336 bpd in (331 bpd in H1 2021), a 1.5%
increase versus H1 2021. This result was achieved notwithstanding the war in
the country and the shutdown of all Blazhiv wells for 3 weeks. The production
revenues increased by 40% versus the same period in 2021, due to a 38.5%
increase in the average realised oil price and a 1.5% increase of the
production volumes. Overall revenues increased by 2.6% versus the same period
in 2021 due to the absence of sales of gas for the first half 2022.
The Company continued defending its position for the Bitlyanska licence award
at the Court of Appeal. In August 2022, the Court of Appeal denied the
satisfaction of its claims. The Company considers that this decision is based
on incorrect application of law and has filed an appeal to the Supreme Court.
In the context of the prevailing situation in Ukraine, the services segment was
dedicated totally to supporting the Group's production activities. Starting
from 2022, production entities activities and service entity activities will be
presented solely as Exploration and Production segment result.
In August 2022, Cadogan was informed of the arbitral proceeding award which:
* rejected Proger's principal claim and declared that the Loan Agreement is
valid and effective;
* deemed to qualify the Call Option as a preliminary contract under
condition, but
* rejected Proger's claim ex art.2932 Italian Civil Code, stating that it is
impossible to give an award producing the same effects of a final contract
ex art.2932 Italian Civil Code,
* this because of the duties established by the rules of the London
Regulatory Authority and because of the need, possibly by both parties, to
comply with the due proceedings before the formalization of the entry of
Cadogan into the capital of Proger Ingegneria,
* subordinated the stipulation of the final contract to the precedent
completion of the proceeding and bureaucratic process as per the British
rules, stating that, otherwise,
* there is the obligation on Proger Ingegneria to return the payment
received under the Loan Agreement,
* compensated all the expenses of the proceeding.
The cash position at the period end was $14.5 million (30 June 2021: $14.7
million). This level of cash is sufficient to sustain on-going operations.
Overall, Cadogan continued operating in an extremely unstable environment
caused by the ongoing war in Ukraine, with the subsequent destruction of the
infrastructures and fatalities, the economic and financial turmoil in the local
and European economy and the volatility of currencies. The Company continued
improving performances of its oil production operations and controlling costs.
Key performance indicators
During H1 2022, the Group has monitored its performance in conducting its
business with reference to a number of key performance indicators ('KPIs'):
to increase oil production measured on the barrels of oil produced per day
('bpd');
to decrease administrative expenses;
to increase the Group's basic earnings per share;
to maintain no lost time incident; and
to grow and geographically diversify the portfolio.
The Group's performance during the first six months of 2022, measured against
these targets, is set out in the table below, together with the prior year
performance data. No changes have been made to the sources of data or
calculations used in the period/year. The positive trend in the HSE
performances continues with zero incidents.
Unit 30 June 30 June 31 December
2022 2021 2021
Average production (working Boepd 336 331 350
interest basis) (a)
Administrative expenses $million 1.6 1.7 3.7
Basic loss per share (b) Cent (0.5) (0.1) (2.1)
Lost time incident (c) Incidents - - -
Geographical diversification New assets - - -
a. Average production is calculated as the average daily production during the
period/year
b. Basic loss per ordinary share is calculated by dividing the net loss for
the year attributable to equity holders of the parent company by the
weighted average number of ordinary shares during the period
c. Lost time incidents relate to injuries where an employee/contractor is
injured and has time off work (IOGP classification)
Enquiries:
Cadogan Petroleum
Plc
Fady Khallouf Chief Executive fady.khallouf@cadoganpetroleum.com
Ben Harber Officer +44 (0) 207 264 4366
Company Secretary
Operations Review
Introduction
In addition to the constraints brought by the post-Covid-19 volatile reality,
H1 2022 witnessed the invasion of Ukraine by Russia on 24 February 2022. The
ongoing war has led to the current - occupation of nearly 20% of the Ukrainian
territory, the destruction of substantial parts of the urban and industrial
infrastructure of the Country.
This situation has affected Cadogan's activities in Ukraine and impacted
Blazhiv production, even though located at the west of Ukraine, with a shutdown
for 3 weeks in March 2022, and consequent changes of the Company's portfolio of
crude oil buyers.
The parliament and the government of Ukraine have introduced a martial law and
several legislative changes to face the new situation. In particular, royalties
for natural gas production were increased to 65% vs 29%/ 12% (differentiated
depending on the cost of gas).
As of February 24, 2022, all Cadogan employees in Ukraine have been transferred
to remote mode. To date, none of the workers have been injured. In this
context, the Group has continued to focus on safely and efficiently operating
the existing wells, on controlling its costs and on cash preservation while
continuing to look at opportunities to grow and diversify its portfolio.
In H1 2022, three employees of the Group have been mobilized to serve in the
armed forces of Ukraine.
Operations
E&P activity remained focused on maintaining and securing its activities for
the new term and safely and efficiently producing from the existing wells
within the Blazhiv oil field. During H1 2022, the average gross production
rated at 336 bpd, which is 1.5% higher than in H1 2021 (331 bpd),
notwithstanding the 3 weeks stoppage of all Blazhiv wells in March due to the
war events in the country. For the purpose of geological construction precision
of Blazhiv oil field and Monastyretska fold and also identification of new
perspective structures within the licence area boundary, in Q4 2021, Cadogan
launched analyses for data reprocessing and reinterpretation of old 2D seismic
data. In H1 2022 the Company received required data for field skeleton
structural and tectonic modeling.
Regarding the Bitlyanska 20-year exploration and development licence, Usenco
Nadra filed an appeal against the decision of the Kyiv Administrative Court. In
August 2022, the Court of Appeal rejected the Company's claim. Usenco Nadra
considers that this decision is based on incorrect application of law and will
file an appeal to the Supreme Court.
All activities were executed without LTI or TRI[1], with a total of 1,480,000
manhours since the last incident, which occurred to a sub-contractor, in
February 2016. CO2 emissions level in H1 2022 increased to 124,99 tons of CO2,e
/boe produced compared to 82.47 tons of CO2,e/boe for the same reporting period
of the last year driven by the increase of associated gas volume recovered
during oil production. Another factor impacted emissions level. During the last
hydrodynamic surveys of Blazhiv wells, there was detected an increase of
methane and CO2 levels in the gas composition within bottomhole sampling oil
analyses. The Company is considering the possibility to repeat survey and
sampling to reconcile the data, besides studying different technological
scenario for reducing emissions to the atmosphere.
In Italy, in February 2022, the Plan for the Sustainable Energy Transition of
Suitable Areas ("PITESAI") was approved by the Ministry for Environmental
Transition. It delivers a new framework for the possible resumption of
exploration and production activities on land and at sea. Exploenergy is
analysing the impact of this new regulation framework on its activities and
monitoring the possible future applications for the approval of new licences.
Trading
The Company had no operations for the first half of 2022.
Cadogan continues to monitor the gas markets in Europe and Ukraine.
Proger
In February 2021, Cadogan notified Proger Managers & Partners Srl ("PMP") that
according to the Loan Agreement, the Maturity Date occurred on 25 February
2021. As the Call Option was not exercised, the amount to be paid by PMP is EUR
16,430,992, being the reimbursement of the Loan in terms of principal and the
accumulated interest. PMP is in default since 25 February 2021. End of March
2021, PMP requested an arbitration to have the Loan Agreement recognised as an
equity investment contract, which is rejected by Cadogan as the terms of the
Agreement are clear and include the right to repayment at maturity if the Call
Option is not exercised. As at 30 June 2022, Proger Ingegneria holds 96.49 % of
Proger Spa after the exit of SIMEST and the purchase by Proger Ingegneria of
its stake in Proger Spa. In August 2022, Cadogan was informed of the award in
the arbitration proceeding which:
* rejected Proger's principal claim and declared that the Loan Agreement is
valid and effective,
* deemed to qualify the Call Option as a preliminary contract under
condition, but
* rejected Proger's claim ex art.2932 Italian Civil Code, stating that it is
impossible to give an award producing the same effects of a final contract
ex art.2932 Italian Civil Code,
* this because of the duties established by the rules of the London
Regulatory Authority and because of the need, possibly by both parties, to
comply with the due proceedings before the formalization of the entry of
Cadogan into the capital of Proger Ingegneria,
* subordinated the stipulation of the final contract to the precedent
completion of the proceeding and bureaucratic process as per the British
rules, stating that, otherwise,
* there is the obligation on Proger Ingegneria to return the payment
received under the Loan Agreement,
* compensated all the expenses of the proceeding.
Financial position
Cash at 30 June 2022 was $14.5 million ($14.7 million at 30 June 2021). The
Group continually monitors its exposure to currency risk. It maintains a
portfolio of cash mainly in US Dollars ("USD") and EURO held primarily in the
UK.
In H1 2022, the Group held working interests in a conventional gas-condensate
and an oil exploration and production licence in the West of Ukraine. These
assets are operated by the Group and are located in the prolific Carpathian
basin, close to the Ukrainian oil & gas distribution infrastructure.
The Group's primary focus during the period continued to be on cost
optimisation and enhancement of current production, through the existing well
stock and new drilling.
Summary of the Group's licences (as of 30 June 2022)
Working Licence Expiry Licence type
interest (%)
99.8 Blazhiv November 2039 Production
99.8 Bitlyanska(1) December 2019 Exploration and
Development
(1) The Bitlyanska licence expired on 23 December 2019 and its renewal is in
the process of litigation. Usenco filed a claim at the Court of Appeal. This
claim was rejected in August 2022.
Below we provide an update to the full Operations Review contained in 2021
Annual Report published on 28 April 2022.
Bitlyanska licence
Cadogan's application to obtain Biltyanska licence is a testimony of the
uncertainties that still impact the E&P industry in Ukraine due to legislative
uncertainties in the Country. Usenco Nadra filed to the State Geological
Service an application for a 20-year production licence 5 months ahead the
licence expiry date of 23 December 2019. The Company secured the approval of
the Environmental Impact Assessment study by the Ministry of Ecology, the
approval of the Reserves Report by the State Commission of Reserves and the
approval of the licence award by the Lviv Regional Council. Given the delay to
award the new licence beyond the regular timeline provided by legislation,
Cadogan filed two claims with the Kyiv Administrative Court to challenge the
non-granting of the 20-year production licence by the Licencing Authority. In
February 2022, the Company received information from public register that its
claims were rejected by the Court. Despite the restrictions imposed by the
martial law in Ukraine, Usenco Nadra submitted an appeal. In August 2022, the
claim was rejected by the Court of Appeal. The Company considers that this
decision is based on incorrect application of the law and will file an appeal
to the Supreme Court.
Blazhiv licence
Through the reporting period the Company has been working to safely and
efficiently producing from the existing wells located in the Blazhiv licence
area. At the end of the reporting period, the average gross production rated at
336 bpd vs 331 bpd in H1 2021, notwithstanding the 3 weeks of shutdown of all
wells in March 2022. Such result was achieved due to the adjustment and the
selection of optimum production regimes.
For the purpose of geological construction precision of Blazhiv oil field and
Monastyretska fold and also identification of new perspective structures within
the licence area boundary, Cadogan launched, in Q4 2021, analyses for data
reprocessing and reinterpretation of old 2D seismic data. The Company received
in H1 2022, the required data for field skeleton structural and tectonic
modeling.
The structural tectonic and petrophysical modeling of the area, hydrocarbons
reserves & resources reassessment as well as hydrodynamic model refining is
planned to be conducted afterwards.
Service Company
activities
In H1 2022, Astro Service LLC, focused its activities on serving intra-group
operational needs in wells' work-over/ re-entry operations, wells' survey as
well as field on-site activities. Starting from 2022, production and service
activities will be presented solely as Exploration and Production segment
result.
Financial Review
Overview
Income statement
In H1 2022, revenues increased to $4.6 million (H1 2021: $4.5 million) due to
raise in E&P segment. Revenues from production increased to $4.6 million (H1
2021: $2.8 million) due to the increase of the realised price by 38.5% and the
increase in the produced volumes of oil by 1.5%.
Trading business had no activities during the first half of 2022.
The cost of sales of the production segment consists of $1.9 million of
production royalties ($1.2 million), $0.7 million of operating costs ($0.4
million), $0.4 million of depreciation and depletion of producing wells ($0.4
million), and $0.15 million of direct staff costs for production ($0.1
million).
Half year gross profit from production activities increased to $1.5 million (30
June 2021: $0.6 million), driven by increase in production and higher oil
prices.
The Group recorded a $0.6 million interest on Proger Loan. Due to expected
delay and additional costs in the loan reimbursement, the Company recognized
additional provision of $600 thousand. Please refer to note 11 for details.
Other administrative expenses were kept under control at $1.6 million (30 June
2021: $1.7 million). They comprise other staff costs, professional fees and
expenses, Directors' remuneration and depreciation charges on non-producing
property.
Balance sheet
At 30 June 2022, the cash position of $14.5 million (30 June 2021: $14.7
million) decreased compared to the $15.0 million as at 31 December 2021, mainly
because of the depreciation of the EURO and the Hryvna against the US Dollar
during the first half of 2022.
Intangible Exploration and Evaluation ("E&E") assets have been impaired to $nil
in 2021 due to the legal dispute on the Bitlyanska licence award and the
uncertainty on the legal timeframe due to the ongoing war. The Property, Plant
and Equipment ("PP&E") balance of $8.6 million at 30 June 2022 (30 June 2021:
$10 million, 31 December 2021: $9.6 million) includes $8.4 million of
development and production assets on the Blazhyvska licence and other PP&E of
the Group.
Trade and other receivables of $0.4 million (30 June 2021: $0.9 million, 31
December 2021: $0.3 million) include recoverable VAT of $0.1 million (30 June
2021: $0.8 million, 31 December 2021: $0.1 million), $0.3 million of other
receivables and prepayments (30 June 2021: $0.1 million, 31 December 2021: $0.2
million).
The $1.3 million of trade and other payables as of 30 June 2022 (30 June 2021:
$1.3 million, 31 December 2021: $1.5 million) represent $0.9 million (30 June
2021: $0.9 million, 31 December 2021: $0.9 million) of other creditors and $0.4
million of accruals (30 June 2021: $0.4 million, 31 December 2021: $0.6
million).
Cash flow statement
The Consolidated Cash Flow Statement shows neutral cash-flow from operating
activities (30 June 2021: $1.5 million, 31 December 2021: $2.1 million).
Cashflow, before movements in working capital, shows an inflow of $0.3 thousand
(30 June 2021: outflow $44 thousand, 31 December 2021: outflow $0.4 million).
Group capital expenditure was $0.1 million on Property, Plant and Equipment
which related to the Blazhyvska licence.
Commitments
There has been no material change in the commitments and contingencies reported
as at 31 December 2021 (refer to page 110 of the Annual Report).
Treasury
The Group continually monitors its exposure to currency risk. It maintains a
portfolio of cash mainly in US dollars ("USD") and Euro held primarily in the
UK. Production revenues from the sale of hydrocarbons are received in the local
currency in Ukraine, however, the hydrocarbon prices are linked to the USD
denominated gas and oil prices.
Going concern
The Directors have a reasonable expectation that the Company and the Group have
adequate resources to continue in operational existence for the foreseeable
future. Accordingly, they continue to adopt the going concern basis in
preparing the Interim Financial Statements. For further details refer to the
detailed discussion of the assumptions outlined in note 2(a) to the Interim
Financial Statements.
Cautionary Statement
The business review and certain other sections of this Half Yearly Report
contain forward looking statements that have been made by the Directors in good
faith based on the information available to them up to the time of their
approval of this report. However, they should be treated with caution due to
inherent uncertainties, including both economic and business risk factors,
underlying any such forward-looking information and no statement should be
construed as a profit forecast.
Risks and uncertainties
There are several potential risks and uncertainties inherent in the oil and gas
sector which could have a material impact on the long-term performance of the
Group and which could cause the actual results to differ materially from
expected and historical results. The Company has taken reasonable steps to
mitigate these where possible. Full details are disclosed on pages 14 to 17 of
the 2021 Annual Financial Report. There have been no changes to the risk
profile during the first half of the year. The risks and uncertainties are
summarised below.
War risk
Operational risks
* Health, safety, and environment
* COVID-19
* Climate change
* Drilling and work-over operations
* Production and maintenance
Subsurface risks
Financial risks
* Changes in economic environment
* Counterparty
* Default on the Proger loan repayment
* Commodity price
Country risk
* Regulatory and licence issues
* Emerging market
Other risks
* Risk of losing key staff members
* Risk of entry into new countries
* Risk of delays in projects related to dialogue with local communities
Director's Responsibility Statement
We confirm that to the best of our knowledge:
(a) the Interim Financial Statements have been prepared in accordance
with the UK-adopted IAS 34 'Interim Financial Reporting';
(b) the interim management report includes a fair review of the
information required by DTR 4.2.7R (indication of important events during the
first six months and description of principal risks and uncertainties for the
remaining six months of the year);
(c) the interim management report includes a fair review of the
information required by DTR 4.2.8R (disclosure of related parties'
transactions and changes therein); and
(d) the condensed set of financial statements, which has been prepared
in accordance with the applicable set of accounting standards, gives a true and
fair view of the assets, liabilities, financial position and profit or loss of
the issuer, or the undertakings included in the consolidation as a whole as
required by DTR 4.2.4R.
This Half Yearly Report consisting of pages 1 to 23 has been approved by the
Board and signed on its behalf by:
Fady Khallouf
Chief Executive Officer
7 September 2022
Consolidated Income Statement
Six months ended 30 June 2022
Six months ended 30 June Year ended
31
December
2022 2021 2021
$'000 $'000 $'000
Notes (Unaudited) (Unaudited) (Audited)
CONTINUING OPERATIONS
Revenue 3 4,635 4,517 8,793
Cost of sales 3 (3,142) (3,222) (6,372)
Gross profit 1,493 1,295 2,421
Administrative expenses (1,587) (1,703) (3,712)
Reversal of impairment of other assets - - 20
Impairment of gas and oil assets - - (2,474)
Impairment of other assets - (2) (994)
Change in provision for loan provided (600) - -
Net foreign exchange (losses)/gains (1,633) (276) (1,591)
Other operating (losses)/income, net (26) (36) (18)
Operating (loss)/profit (2,353) (722) (6,348)
Finance income 4 607 592 1,250
(Loss)/profit before tax (1,746) (130) (5,098)
Tax (expense)/benefit - - -
(Loss)/profit for the period/year (1,746) (130) (5,098)
Attributable to:
Owners of the Company 5 (1,747) (134) (5,070)
Non-controlling interest 1 4 (28)
(1,746) (130) (5,098)
(Loss)/profit per Ordinary share Cents Cents Cents
Basic and diluted 5 (0.7) (0.1) (2.1)
Consolidated Statement of Comprehensive Income
Six months ended 30 June 2022
Six months ended 30 June Year ended
31
December
2022 2021 2021
$'000 $'000 $'000
(Unaudited) (Unaudited) (Audited)
(Loss)/profit for the period/year (1,746) (130) (5,098)
Other comprehensive (loss)/profit
Items that may be reclassified
subsequently to profit or loss
Unrealised currency translation (986) 111 466
differences
Other comprehensive (loss)/profit (986) 111 466
Total comprehensive profit/(loss) for the (2,732) (19) (4,632)
period/year
Attributable to:
Owners of the Company (2,733) (23) (4,604)
Non-controlling interest 1 4 (28)
(2,732) (19) (4,632)
Consolidated Statement of Financial Position
Six months ended 30 June 2022
Six months ended 30 June Year ended
31
December
2022 2021 2021
$'000 $'000 $'000
Notes (Unaudited) (Unaudited) (Audited)
ASSETS
Non-current assets
Intangible exploration and evaluation - 2,483 -
assets
Property, plant and equipment 6 8,616 10,000 9,598
Right-of-use assets 139 246 200
Deferred tax asset 409 432 431
9,164 13,161 10,229
Current assets
Inventories 7 165 1,182 177
Trade and other receivables 8 373 929 218
Loan provided 11 15,327 16,902 16,724
Cash 14,518 14,651 15,011
30,383 33,664 32,130
Total assets 39,547 46,825 42,359
LIABILITIES
Non-current liabilities
Long-term lease liability (59) (149) (104)
Provisions (380) (297) (300)
(439) (446) (404)
Current liabilities
Trade and other payables 9 (1,352) (1,316) (1,479)
Short-term lease liability (114) (76) (102)
(1,466) (1,392) (1,581)
Total liabilities (1,905) (1,838) (1,985)
Net assets 37,642 44,987 40,374
EQUITY
Share capital 12 13,832 13,832 13,832
Share premium 514 514 514
Retained earnings 184,146 190,829 185,893
Cumulative translation reserves (162,675) (162,044) (161,689)
Other reserves 1,589 1,589 1,589
Equity attributable to equity holders 37,406 44,720 40,139
of the parent
Non-controlling interest 236 267 235
Total equity 37,642 44,987 40,374
Consolidated Statement of Cash Flows
Six months ended 30 June 2022
Six months ended 30 June Year ended
31 December
2022 2021 2021
$'000 $'000 $'000
(Unaudited) (Unaudited) (Audited)
Operating loss (2,353) (722) (6,348)
Adjustments for:
Depreciation of property, plant and equipment 434 398 889
Change in provision for loan provided 600 - -
Impairment of inventories - 2 994
Impairment/(Reversal of impairment) of VAT - 2 -
recoverable
Impairment of oil and gas assets - - 2,474
Reversal of impairment - - (21)
Effect of foreign exchange rate changes 1,633 276 1,591
Operating cash flows before movements in working 314 (44) (421)
capital
Decrease/(Increase) in inventories (1) 1,022 1,049
Decrease /(Increase) in receivables (166) 716 1,526
(Decrease)/Increase in payables and provisions (176) (154) (28)
Cash from operations (29) 1,540 2,126
Interest received 28 22 68
Net cash inflow/(outflow) from operating (1) 1,562 2,194
activities
Investing activities
Purchases of property, plant and (75) (50) (150)
equipment
Purchases of intangible exploration and - - (9)
evaluation assets
Interest received - 8 8
Net cash used in investing activities (75) (42) (151)
Financing activities
Net cash from financing activities - - -
Net increase (decrease) in cash (76) 1,520 2,043
Effect of foreign exchange rate changes (417) (122) (285)
Cash at beginning of period/year 15,011 13,253 13,253
Cash at end of period/year 14,518 14,651 15,011
Consolidated Statement of Changes in Equity
Six months ended 30 June 2022
Share Share Retained Cumulative Other Equity Non-controlling Total
capital premium earnings translation reserves attributable interest
account reserves to owners of
the Company
$'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000
As at 1 January 13,832 514 190,963 (162,155) 1,589 44,743 263 45,006
2021
Net loss for the - - (134) - - (134) 4 (130)
period
Other - - - 111 - 111 - 111
comprehensive loss
Total - - (134) 111 - (23) 4 (19)
comprehensive
profit for the
year
As at 30 June 2021 13,832 514 190,829 (162,044) 1,589 44,720 267 44,987
Net profit for the - - (4,936) - - (4,936) (32) (4,968)
period
Other - - - 355 - 355 - 355
comprehensive
profit
Total - - (4,936) 355 - (4,581) (32) (4,613)
comprehensive
profit for the
year
As at 31 December 13,832 514 185,893 (161,689) 1,589 40,139 235 40,374
2021
Net loss for the - - (1,747) - - (1,747) 1 (1,746)
period
Other - - - (986) - (986) - (986)
comprehensive
profit
Total - - (1,747) (986) - (2,733) 1 (2,732)
comprehensive
profit for the
year
As at 30 June 2022 13,832 514 184,146 (162,675) 1,589 37,406 236 37,642
Notes to the Condensed Financial Statements
Six months ended 30 June 2022
1. General information
Cadogan Petroleum plc (the 'Company', together with its subsidiaries the
'Group'), is incorporated in England and Wales under the Companies Act. The
address of the registered office is 6th Floor, 60 Gracechurch Street, London
EC3V 0HR. The nature of the Group's operations and its principal activities are
set out in the Operations Review on pages 3 to 5 and the Financial Review on
pages 6 to 7.
This Half Yearly Report has not been audited or reviewed in accordance with the
Auditing Practices Board guidance on 'Review of Interim Financial
Information'.
A copy of this Half Yearly Report has been published and may be found on the
Company's website at www.cadoganpetroleum.com.
2. Basis of preparation
The annual financial statements of the Group are prepared in accordance with
international accounting standards in conformity with the requirements of the
Companies Act 2006 and in accordance with international financial reporting
standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union. On 31 December 2020, IFRS as adopted by the European Union at
that date was brought into UK law and became UK-adopted international
accounting standards, with future changes being subject to endorsement by the
UK Endorsement Board. The Group transitioned to UK-adopted international
accounting standards in its consolidated financial statements on 1 January
2021. There was no impact or changes in accounting policies from the
transition. These Condensed Financial Statements have been prepared in
accordance with the UK-adopted IAS 34 Interim Financial Reporting.
The same accounting policies and methods of computation are followed in the
condensed financial statements as were followed in the most recent annual
financial statements of the Group except as noted, which were included in the
Annual Report issued on 28 April 2022.
The Group has not early adopted any amendment, standard or interpretation that
has been issued but is not yet effective. It is expected that where applicable,
these standards and amendments will be adopted on each respective effective
date.
This consolidated interim financial information does not constitute accounts
within the meaning of section 434 and of the Companies Act 2006. Statutory
accounts for the year ended 31 December 2021 were approved by the Board of
Directors on 28 April 2022 and delivered to the Registrar of Companies. The
report of the auditors on those accounts was qualified as the auditors were
unable to obtain sufficient and appropriate evidence to conclude as to whether
the fair value of the Proger loan instrument of $16.7 million was materially
accurate.
(a) Going concern
The Directors have continued to use the going concern basis in preparing these
condensed financial statements. The Group's business activities, together with
the factors likely to affect future development, performance and position are
set out in the Operations Review. The financial position of the Group, its cash
flow and liquidity position are described in the Financial Review.
The Group's cash balance at 30 June 2022 was $14.5 million (31 December 2021:
$15 million).
The Directors have carried out a robust assessment of the principal risks
facing the Group.
The Group's forecasts and projections, taking into account reasonably possible
changes in trading activities, operational performance, flow rates for
commercial production and the price of hydrocarbons sold to Ukrainian
customers, show that there are reasonable expectations that the Group will be
able to operate on funds currently held and those generated internally, for the
foreseeable future.
Notwithstanding the Group's current financial performance and position, the
Board are cognisant of the actual impacts on the Group of COVID-19 and the war
situation in Ukraine. The Board has considered possible reverse stress case
scenarios for the impact on the Group's operations, financial position and
forecasts. Whilst the potential future impacts of Covid-19 and the invasion of
Ukraine by Russia are unknown, the Board has considered operational disruption
that may be caused by the factors such as a) restrictions applied by
governments, illness amongst our workforce and disruption to supply chain and
sales channels; b) market volatility in respect of commodity prices associated
with Covid-19 in addition to military and geopolitical factors.
In addition to sensitivities that reflect future expectations regarding
country, commodity price and currency risks that the Group may encounter
reverse stress tests have been run to reflect possible negative effects of
Covid-19 and war in Ukraine. The Group's forecasts demonstrate that owing to
its cash resources the Group is able to meet its operating cash flow
requirements and commitments whilst maintaining significant liquidity for a
period of at least the next 12 months allowing for sustained reductions in
commodity prices and extended and severe disruption to operations should such a
scenario occur.
After making enquiries and considering the uncertainties described above, the
Directors have a reasonable expectation that the Company and the Group have
adequate resources to continue in operational existence for the foreseeable
future and consider the going concern basis of accounting to be appropriate
and, thus, they continue to adopt the going concern basis of accounting in
preparing the annual financial statements.
(b) Foreign currencies
The individual financial statements of each Group company are presented in the
currency of the primary economic environment in which it operates (its
functional currency). The functional currency of the Company is US dollar. For
the purpose of the consolidated financial statements, the results and financial
position of each Group company are expressed in US dollars, which is the
presentation currency for the consolidated financial statements.
The relevant exchange rates used were as follows:
1 £ = xUS$ Six months ended 30 Year ended
June 31 Dec
2021
2022 2021
Closing rate 1.2160 1.3837 1.3514
Average rate 1.2877 1.3891 1.3761
1 US$ = xUAH Six months ended 30 Year ended
June 31 Dec
2021
2022 2021
Closing rate 29.87219 27.5214 27.5776
Average rate 29.45866 27.9902 27.5112
1 Euro = xUS$ Six months ended 30 Year ended
June
2022 2021 31 Dec 2021
Closing rate 1.0451 1.1879 1.1344
Average rate 1.0857 1.2088 1.1847
(c) Dividend
The Directors do not recommend the payment of a dividend for the period (30
June 2021: $nil; 31 December 2021: $nil).
(d) Critical accounting judgments and estimates
Impairment indicator assessment for E&E assets
Cadogan has fully complied with legislative requirements and submitted its
application for a 20-year exploration and production license 5 months before
its expiry on 23 December 2019. A decision on the award was expected to be
provided by State Geological Service of Ukraine before 19 January 2020, since
all other intermediary approvals had been secured in line with the applicable
legislation requirements. Given the delay to granting of the new license beyond
the regular timeline provided by legislation in the Ukraine, Cadogan has
launched a claim before the Administrative Court to challenge the non-granting
of the 20-year production license by the Licensing Authority.
In February 2022 the company received information from public register that its
claim was rejected by the Court. Despite the restrictions imposed by the
martial law in Ukraine, Usenco Nadra exercised its right for appeal.
The current geopolitical and military situation in Ukraine do not allow to make
any grounded expectation on the legal process time frame and the Court of
appeal decision. Considering this fact, Cadogan has fully impaired the
Bitlyanska license as of the end of 2021.
Impairment of PP&E
Management assesses the development and production assets for impairment
indicators and performs an impairment test if indicators of impairment are
identified. Management performed an impairment assessment using a value in use
discounted cash flow model which required estimates including forecast oil
prices, reserves and production, costs and discount rates.
Recoverability and measurement of VAT
Judgment is required in assessing the recoverability of VAT assets and the
extent to which historical impairment provisions remain appropriate,
particularly noting the recent recoveries against historically impaired VAT. In
forming this assessment, the Group consider the nature and age of the VAT, the
likelihood of eligible future supplies to VAT, the pattern of recoveries and
risks and uncertainties associated with the operating environment.
Loan provided
In February 2019, the Group advanced a Euro 13,385,000 loan to Proger Managers
& Partners Srl ("PMP"), a privately owned Italian company whose only interest
is a 72.92% participation in Proger Ingegneria Srl ("Proger Ingegneria"), a
privately owned company which held a 75.95% participating interest in Proger
Spa ("Proger") at 31 December 2020. The loan carries an entitlement to interest
at a rate of 5.5% per year, payable at maturity (which is 24 months after the
execution date (February 2019) and assuming that the call option described
below is not exercised). The principal of the loan is secured by a pledge over
PMP's current participating interest in Proger Ingegneria Srl, up to a maximum
guaranteed amount of Euro 13,385,000.
Through the Call Option Agreement, the Group was granted a call option to
acquire, at its sole discretion, 33% of participating interest in Proger
Ingegneria; the exercise of the option would have given Cadogan, through CPHBV,
an indirect 25% interest in Proger at 31 December 2020. The call option was
granted at no additional cost and could be exercised at any time between the
6th (sixth) and 24th (twenty-fourth) months following the execution date of the
loan agreement and subject to Cadogan shareholders having approved the exercise
of the call option as explained further below. Should CPHBV exercise the call
option, the price for the purchase of the 33% participating interest in Proger
Ingegneria shall be paid by setting off the corresponding amount due by PMP to
CPHBV, by way of reimbursement of the principal, pursuant to the Loan
Agreement. If the Call Option is exercised, then the obligation on PMP to pay
interest is extinguished.
Management considered the extent to which the Option and rights to
representation on the Board of Proger Ingegneria and Proger meant significant
influence existed. The requirement to obtain shareholders' approval for any
exercise of the option was considered to represent a substantive condition such
that the option was not 'currently exercisable' under IFRS at 31 December 2020.
In consequence, the potential voting rights associated with any subsequent
exercise of the Option were not considered to contribute to significant
influence over the investee.
In 2019 and 2020, under the Group's accounting policies, the instrument was
held at fair value through profit and loss and determination of fair value
required assessment of both key investee specific information regarding
financial performance and prospects and market information. The determination
of fair value was made at 31 December 2020 based on facts and circumstances at
that date, notwithstanding that the borrower failed to repay the loan at
maturity in 2021.
The Group's original investment decision involved assessment of Proger Spa
business plans and analysis with professional advisers including valuations
performed using the income method (discounted cash flows) and market approach
using both the precedent transactions and trading multiples methods.
Unfortunately, Proger refused to provide Cadogan information regarding its 2020
financial performance or updated forecasts to undertake a detailed fair value
assessment using the income method or market approach at 31 December 2020. As a
consequence, management assessed the fair value of the instrument based on the
terms of the agreement, including the pledge over shares, together with
financial information in respect of prior periods and determined that $16.8
million represented the best estimate of fair value, being equal to anticipated
receipts and timing thereof discounted at an estimated market rate of interest
of 7.8%. In forming its assessment at 31 December 2020, management
particularly considered the impact of any claim under the pledge and further
litigation options on the underlying investee business and shareholders and
resulting incentive that created for the borrower to ultimately meet the
contractual payment obligation. Management further considered information
relevant to Proger business and PMP's ability to pay, noting the absence of
2020 financial information. However, the absence of information regarding
Proger's 2020 financial performance and prospects represented a significant
limitation on the fair value exercise and, as a result, if received, the fair
value could be materially higher or lower than this value.
Since the Call Option was not exercised before the Maturity Date and the asset
is held within a business model whose objective is to hold assets in order to
collect contractual cash flows, the Loan provided was reclassified from
'Financial assets at fair value through profit and loss' to 'Financial assets
at amortized cost' at the value carried at the Company balance at the date of
the Call Option expiry (Note 11).
In August 2022, the Company was informed of the award of the arbitral
proceeding between Cadogan Petroleum Holdings BV and Proger Managers & Partners
srl. Based on this award, management assessed the recoverability of the
Investment in Cadogan Petroleum Holdings BV to still be appropriate as the loan
agreement was confirmed as valid and effective.
In forming its assessment at 30 June 2022, management considered the impact of
additional costs and delay in the reimbursement of the Proger Loan.
3. Segment information
Segment information is presented on the basis of management's perspective and
relates to the parts of the Group that are defined as operating segments.
Operating segments are identified on the basis of internal assessment provided
to the Group's chief operating decision maker ("CODM"). The Group has
identified its executive management team as its CODM and the internal
assessment used by the top management team to oversee operations and make
decisions on allocating resources serve as the basis of information presented.
Segment information is analysed on the basis of the type of activity, products
sold, or services provided. The majority of the Group's operations are located
within Ukraine. Segment information is analysed on the basis of the types of
goods supplied by the Group's operating divisions.
The Group's reportable segments under IFRS 8 are therefore as follows:
Exploration and Production
· E&P activities on the production licences for natural gas, oil and
condensate
Service
· Drilling services to exploration and production companies
· Construction services to exploration and production companies
Trading
· Import of natural gas from European countries
· Local purchase and sales of natural gas operations with physical delivery
of natural gas
The accounting policies of the reportable segments are the same as the Group's
accounting policies. Sales between segments are carried out at market prices.
The segment result represents profit under IFRS before unallocated corporate
expenses. Unallocated corporate expenses include management and Board
remuneration and expenses incurred in respect of the maintenance of Kiev office
premises. This is the measure reported to the CODM for the purposes of resource
allocation and assessment of segment performance.
The Group does not present information on segment assets and liabilities as the
CODM does not review such information for decision-making purposes.
As at 30 June 2022 and for the six months then ended the Group's segmental
information was as follows:
Exploration Trading Consolidated
and
Production
$'000 $'000 $'000
Sales of hydrocarbons 4,632 - 4,632
Other revenue 3 - 3
Total revenue 4,635 4,635
Other cost of sales (3,142) - (3,142)
Other administrative expenses (226) (28) (254)
Other operating costs (26) - (26)
Finance income/costs, net - 28 28
Segment results 1,241 - 1,241
Unallocated other administrative (1,333)
expenses
Net foreign exchange gains (1,633)
Other income/loss, net (21)
Loss before tax (1,746)
As at 30 June 2021 and for the six months then ended the Group's segmental
information was as follows:
Exploration Trading Consolidated
and Production
$'000 $'000 $'000
Sales of hydrocarbons 2,777 1,738 4,515
Other revenue 2- - 2
Total revenue 2,777 1,738 4,517
Other cost of sales (2,138) (1,084) (3,222)
Other administrative expenses (527) (25) (552)
Finance income/costs, net - 22 22
Segment results 114 651 765
Unallocated other administrative - - (1,151)
expenses
Impairment - - (2)
Net foreign exchange gains - - (276)
Other income/loss, net - - 534
Loss before tax - - (130)
4. Finance income/(costs), net
Six months ended 30 June Year ended
31 December
2022 2021 2021
$'000 $'000 $'000
Interest expense on lease (9) (14) (28)
Total interest expenses on financial (9) (14) (28)
liabilities
Investment revenue - 8 8
Interest income on cash deposit in Ukraine 28 22 68
Total interest income on financial assets 28 30 48
Interest on loan 614 587 1,225
Unwinding of discount on decommissioning (26) (11) (23)
provision
607 5 1,250
5. (Loss)/profit per ordinary share
(Loss)/profit per ordinary share is calculated by dividing the net (loss)/
profit for the period/year attributable to Ordinary equity holders of the
parent by the weighted average number of Ordinary shares outstanding during the
period/year. The calculation of the basic (loss)/profit per share is based on
the following data:
Six months ended Year ended
30 June 31 December
(Loss)/profit attributable to owners of the 2022 2021 2020
Company $'000 $'000 $'000
(Loss)/profit for the purposes of basic (loss)/ (1,747) (134) (5,070)
profit per share
being net (loss)/profit attributable to owners of
the Company
Number Number Number
Number of shares '000 '000 '000
Weighted average number of Ordinary shares for 244,128 240,628 244,128
the purposes of basic (loss)/profit per share
Cent Cent Cent
(Loss)/profit per Ordinary share
Basic (0.7) (0.1) (2.1)
6. Proved properties
As at 30 June 2022, the development and production assets balance which forms
part of PP&E has decreased in comparison to 31 December 2021 due to the Hryvnya
devaluation against the US Dollar by 8% at the end of the period.
7. Inventories
No substantial changes in inventories have occurred since the beginning of the
period.
The impairment provision as at 30 June 2022 of $1 million is held to reduce the
carrying value of the inventories to net realizable value. No additional
provision on inventories has been recognised for the first half 2022.
8. Trade and other receivables
Six months ended 30 Year ended
June 31 December
2022 2021 2021
$'000 $'000 $'000
VAT recoverable 135 755 64
Prepayments 66 92 -
Other receivables 172 82 154
373 929 218
VAT recoverable asset was realized through natural gas and crude oil sales
during the first half of 2021. The Directors consider that the carrying amount
of the other receivables approximates their fair value. Management expects to
realise VAT recoverable through the activities of the business segments.
9. Trade and other payables
The $1,3 million of trade and other payables as of 30 June 2022 (30 June 2021:
$1.3 million, 31 December 2021: $1.5 million) represent $0.9 million (30 June
2021: $0.9 million, 31 December 2021: $0.9 million) of other payables and $0.4
million of accruals (30 June 2021: $0.4 million, 31 December 2021: $0.6
million).
10. Commitments and contingencies
There have been no significant changes to the commitments and contingencies
reported on page 110 of the Annual Report.
11. Loan provided
In February 2019, Cadogan used part of its cash (Euro 13.385 million) to enter
into a 2-year Loan Agreement with Proger Managers & Partners, with an option to
convert it into a direct 33% equity interest in Proger Ingegneria, equivalent
to an indirect 25 % equity interest in Proger. According to IFRS, the
instrument has to be represented in our balance sheet at fair value.
In February 2021, Cadogan notified PMP that according to the Loan Agreement,
the Maturity Date occurred on 25 February 2021. As the Call Option was not
exercised, PMP must fulfil the payment of EUR 14,857,350, being the
reimbursement of the Loan in terms of principal and the accumulated interest.
PMP is in default since 25 February 2021. In case of default payment, the terms
of the agreement provide for the application of an increased interest rate on
the amount of the debt.
Since the Call Option was not exercised before the Maturity Date and the asset
is held within a business model whose objective is to hold assets in order to
collect contractual cash flows, the Loan provided was reclassified from
'Financial assets at fair value through profit and loss' to 'Financial assets
at amortized cost'.
Financial assets at Financial assets at
fair value through amortised cost
profit and loss
$'000 $'000
As at 1 January 2021
16,812 -
Transfer from FVPL -
(16,812)
Transfer to loan provided - 16,812
Interest - 587
Exchange differences -
(497)
As at 30 June 2021 - 16,902
Interest - 638
Exchange differences - (816)
As at 1 January 2022 - 16,724
Interest - 614
Change in provision (600)
Exchange differences -
(1,411)
As at 30 June 2022 - 15,327
To represent the option at fair value, the Group has applied a level 3
valuation under IFRS as inputs to the valuation have included assessment of the
cash repayments anticipated under the loan terms at maturity, delayed by the
arbitration process requested by PMP (the Borrower), historical financial
information for the periods prior to 2020 and assessment of the security
provided by the pledge over shares together with the impact of the Covid-19 on
the activity of Proger. As a result, $ 16.8 million was determined as the best
estimate of fair value as at 31 December 2020, being equal to anticipated
receipts and timing thereof discounted at an estimated market rate of interest
of 7.8%.
Proger Managers & Partners srl has failed to reimburse the Loan with the
accumulated interests in full at the Maturity Date,25 February 2021. In case of
non-reimbursement, the Loan carries an entitlement to an interest at a rate of
7.5% per year to be accrued on principle amount and accumulated interests at
the Maturity Date until the total amount is paid. Starting from March 2021,
Cadogan treats the Loan provided to PMP at historical cost, plus accrued
interests and less provision. The recoverability of the Loan has been assessed
in April 2022 for the purpose of Cadogan Annual Report 2021, and in August 2022
for the purpose of the Cadogan Half-year Report 2022. In August 2022, the
Company was informed of the award of the arbitral proceeding which:
- rejected Proger's principal claim and declared that the Loan Agreement
is valid and effective,
- deemed to qualify the Call Option as a preliminary contract under
condition, but
- rejected Proger's claim ex art.2932 Italian Civil Code, stating that
it is impossible to give an award producing the same effects of a final
contract ex art.2932 Italian Civil Code,
- this because of the duties established by the rules of the London
Regulatory Authority and because of the need, possibly by both parties, to
comply with the due proceedings before the formalization of the entry of
Cadogan into the capital of Proger Ingegneria,
- subordinated the stipulation of the final contract to the precedent
completion of the proceeding and bureaucratic process as per the British rules,
stating that, otherwise,
- there is the obligation on Proger Ingegneria to return the payment
received under the Loan Agreement,
- compensated all the expenses of the proceeding.
Based on this award, management assessed the recoverability of the Investment
in Cadogan Petroleum Holdings BV to still be appropriate as the loan agreement
was confirmed as valid and effective.
Due to expected additional costs and delay in the loan reimbursement, the
Company recognized additional provision of $600 thousand.
12. Share capital
Authorized and issued equity share capital
30/06/2022 31/12/2021
Number $'000 Number $'000
Authorized 1,000,000 57,713 1,000,000 57,713
Ordinary shares of £0.03 each
Issued 244,128 13,832 244,128 13,832
Ordinary shares of £0.03 each
Authorized but unissued share capital of £30 million has been translated into
US dollars at the historic exchange rate of the issued share capital. The
Company has one class of Ordinary shares, which carry no right to fixed income.
Issued equity share capital
Ordinary shares
of £0.03
At 31 December 2019 235,729,322
Issued during year 8,399,165
At 31 December 2020 244,128,487
Issued during year -
At 31 December 2021 244,128,487
Issued during first-half year -
At 30 June 2022 244,128,487
On 26 May 2020 the Company issued 8,399,165 ordinary shares of £0.03 each in
the capital of the Company for cash on the basis of £0.03 per share:
- 2,270,549 ordinary shares were issued to the previous CEO, Mr Guido
Michelotti and satisfied in full using the entire amount of the 2018 and 2019
bonuses due (but which had not yet been paid), totalling ?75,900,
- 628,616 ordinary shares were issued to Mr Andriy Bilyy (General Director of
Cadogan Ukraine) and satisfied in full using the entire amount of the 2019
bonus due (but which had not yet been paid), totalling $23,040,
- 5,500,000 ordinary shares were issued to the CEO, Mr Fady Khallouf and
satisfied in full using the entire amount of the welcome bonus due.
13. Events subsequent to the reporting date
In August 2022, the claim of Usenco Nadra for the Bitlyanska licence award was
rejected by the Court of Appeal. The Company considers that this decision is
based on incorrect application of the law, and will file an appeal to the
Supreme Court.
In August 2022, Cadogan was informed of the award of the arbitral proceeding
between Cadogan Petroleum Holdings BV and Proger Managers & Partners srl,
which:
- rejected Proger's principal claim and declared that the Loan Agreement
is valid and effective;
- deemed to qualify the Call Option as a preliminary contract under
condition, but
- rejected Proger's claim ex art.2932 Italian Civil Code, stating that it
is impossible to give an award producing the same effects of a final contract
ex art.2932 Italian Civil Code,
- this because of the duties established by the rules of the London
Regulatory Authority and because of the need, possibly by both parties, to
comply with the due proceedings before the formalization of the entry of
Cadogan into the capital of Proger Ingegneria,
- subordinated the stipulation of the final contract to the precedent
completion of the proceeding and bureaucratic process as per the British rules,
stating that, otherwise,
- there is the obligation on Proger Ingegneria to return the payment
received under the Loan Agreement,
- compensated all the expenses of the proceeding.
[1] Lost Time Incident, Total Recordable Incident
END
(END) Dow Jones Newswires
September 08, 2022 02:00 ET (06:00 GMT)
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