TIDMCAD
CADOGAN ENERGY SOLUTIONS PLC
Half Yearly Report for the Six Months ended 30 June 2023
(Unaudited and unreviewed)
Highlights
Cadogan Energy Solutions plc ("Cadogan" or the "Company"), an independent oil &
gas company, listed on the main market of the London Stock Exchange, aiming to
be a diversified energy company, is pleased to announce its unaudited results
for the six months ended 30 June 2023.
· H1 2023 was another semester with severe challenges caused by the invasion
of Ukraine by Russia since 24 February 2022. Cadogan could not avoid the
temporary shutdowns of its production during this period due to the severe
constraints arisen in the Country.
· H1 2023 has been another semester without LTI and TRI. All employees and
assets have been secured.
· In H1 2023, the average production was 298 bpd in (336 bpd in H1 2022), a
11% decrease versus H1 2022.
· Cadogan has signed with PJSC Ukrnafta the extension of the wells Blazhiv-3
and Blazhiv-Monastyrets-3 lease contracts for a 5-year period (previous
contracts were for a 3-year period) ahead the expiry period which allowed to
avoid production stoppage and secure cash flows.
· Cadogan completed the acquisition of the 5% of the share interest in Usenco
Nadra LLC that was not yet owned by the Company and holds now 100% of Usenco
Nadra LLC.
· In H1 2023, the services segment was dedicated totally to supporting the
production activities in Ukraine. Production entities activities together with
services entity activities are presented as Exploration and Production segment
results.
· The production revenues decreased by 48% versus the same period in 2022,
mainly due to a 36% decrease in the average realized oil price and a 11%
decrease of the production volumes.
· 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.
Proger refused to apply the requirements of the award and thus, Proger must
reimburse the amount covered by the Loan Agreement plus interest accrued in the
meantime.
· The cash position at the period end was $14.2 million (30 June 2022: $14.5
million). This level of cash is sufficient to sustain on-going operations.
Overall, Cadogan continued operating in an environment with tremendous
challenges caused by the ongoing war in Ukraine. The Company is currently
developing new initiatives to continue to improve its performance.
Key performance indicators
During H1 2023, the Group has monitored its performance in conducting its
business with reference to a number of key performance indicators (`KPIs'):
· to increase oil production measured on the barrels of oil produced per day
(`bpd');
· to decrease administrative expenses;
· to increase the Group's basic earnings per share;
· to maintain no lost time incident;
· to grow and geographically diversify the portfolio; and
· to secure its staff and operations.
The Group's performance during the first six months of 2023, measured against
these targets, is set out in the table below, together with the prior year
performance data. No changes have been made to the sources of data or
calculations used in the period/year. The positive trend in the HSE performances
continues with zero incidents.
+-----------------------+----------+------------+------------+----------------+
| |Unit |30 June 2023|30 June 2022|31 December 2022|
+-----------------------+----------+------------+------------+----------------+
| | | | | |
+-----------------------+----------+------------+------------+----------------+
|Average production |Boepd |298 |336 |323 |
|(working interest | | | | |
|basis) (a) | | | | |
+-----------------------+----------+------------+------------+----------------+
|Administrative expenses|$million |1.6 |1.6 |3.4 |
+-----------------------+----------+------------+------------+----------------+
|Basic loss per share |Cent |(0.1) |(0.7) |(0.6) |
|(b) | | | | |
+-----------------------+----------+------------+------------+----------------+
|Lost time incident (c) |Incidents |- |- |- |
+-----------------------+----------+------------+------------+----------------+
|Geographical |New assets|- |- |- |
|diversification | | | | |
+-----------------------+----------+------------+------------+----------------+
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 incident relate to injuries where an employee/contractor is
injured and has time off work (IOGP classification)
Enquiries:
+----------------------------+-----------------------+-------------------------+
|Cadogan Energy Solutions Plc| |
+----------------------------+-----------------------+-------------------------+
|Fady Khallouf |Chief Executive Officer|f.khallouf@cadogan-es.com|
+----------------------------+-----------------------+-------------------------+
|Ben Harber |Company Secretary |+44 (0) 207 264 4366 |
+----------------------------+-----------------------+-------------------------+
Introduction
Operations Review
First semester 2023 was another dramatic period for Ukraine. Urban and
industrial infrastructure were destroyed, in particular, oil refineries as well
as energy infrastructure have been severely damaged.
This situation has affected Cadogan's activities in Ukraine and impacted the
Blazhiv wells production with temporary shutdowns, and consequent changes of
crude oil buyers portfolio due to the volatility in their ability to refine
available volumes.
All legislative measures related to martial law introduced after the beginning
of the war in 2022 remain in force. However, the government pursued the efforts
for the modernization of its oil and gas regulatory framework, in particular by
enforcing law #4187 which deregulates the subsoil sector, introduces a free
market of licenses and simplifies access to the land.
In H1 2023, Cadogan employees in Ukraine continued operating in the combined
(remote/ office) work mode. To date, all our employees are safe. 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.
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 2023, the average gross production rated at 298
bpd, which is 11% lower than in H1 2022 (336 bpd). There have been several
production stoppages of the wells during the winter period due to lower volumes
of crude oil purchases by oil refineries.
Cadogan has signed with PJSC Ukrnafta the extension of Blazhiv-3 and Blazhiv
-Monastyrets-3 wells lease contracts for a 5-year period. This was possible
thanks to the solid professional cooperation between the parties during the past
term and the mutual proactive and constructive approach.
All activities were executed without LTI or TRI[1], with a total of 1,650,000
manhours since the last incident, which occurred to a sub-contractor in February
2016. CO2 emissions level in H1 2023 remained at nearly the same level with
125,08 tons of CO2,e/boe produced compared to 124,99 tons of CO2,e/boe for the
same reporting period of the last year. The Company is actively working on a
different technological scenario that will allow to substantially reduce
emissions to the atmosphere.
In Italy, Exploenergy was notified that its projects (Reno Centese and Corsano)
were located in compatible areas identified by the PITESAI, the Plan for the
Sustainable Energy Transition of Suitable Areas. This plan delivers a new
framework for the possible resumption of exploration and production activities
on land and at sea. Exploenergy is currently in the qualification process as gas
operator.
Trading
The Company had no operations for the first half of 2023.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, PMP must fulfill the payment of 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.
Proger refused to apply the requirements of the award and thus, Proger must
reimburse the amount covered by the Loan Agreement plus interest accrued in the
meantime. Cadogan is taking the necessary legal actions to recover these
amounts.
Financial position
Cash at 30 June 2023 was $14.2 million ($14.5 million at 30 June 2022). 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.
The Directors believe that the capital available at the date of this report is
sufficient for the Group to continue its operations for the foreseeable future.
In H1 2023, the Group held working interests in an oil production licence in the
West of Ukraine. It is operated by the Group and is 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 2023)
Working Licence Expiry Licence type
interest (%)
100 Blazhiv November 2039 Production
Below we provide an update to the full Operations Review contained in 2022
Annual Report published on 28 April 2023.
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
298 bpd vs 336 bpd in H1 2022. There have been several production stoppages of
the wells during the winter period due to the reduction of crude oil consumption
by oil refineries caused by Russian air strikes or by power outage due to
similar strikes on electricity infrastructure.
Cadogan has signed the extension of Blazhiv-3 and Blazhiv-Monastyrets-3 wells
lease contracts for a 5-year period with PJSC Ukrnafta ahead the expiry period
which allowed to avoid production shutdown. This was possible thanks to the
solid professional cooperation between the parties during the past term and the
proactive and constructive approach of both.
Service Company activities
In H1 2023, 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. Production and service activities will be
presented solely as Exploration and Production segment result.
Financial Review
Overview
Income statement
In H1 2023, revenues decreased to $2.4 million (H1 2022: $4.6 million) due to
the decrease of the realised price by 36% and the decrease in the produced
volumes of oil by 12%.
Trading business had no activities during the first half of 2023.
The cost of sales of the production segment consists of $1 million of production
royalties ($1.9 million), $0.7 million of operating costs ($0.7 million), $0.3
million of depreciation and depletion of producing wells ($0.4 million), and
$0.07 million of direct staff costs for production ($0.15 million).
Half year gross profit from production activities decreased to $0.32 million (30
June 2022: increased to $1.5 million), driven by decrease in production and
lower oil prices.
The Group recorded a $0.7 million interest on Proger Loan. Due to expected delay
in the loan reimbursement, the Company recognized additional provision of $350
thousand. Please refer to note 11 for details.
Other administrative expenses were kept under control at $1.6 million (30 June
2022: $1.6 million). They comprise other staff costs, professional fees and
expenses, Directors' remuneration and depreciation charges on non-producing
property.
Balance sheet
At 30 June 2023, the cash position of $14.2 million (30 June 2022: $14.5
million) increased compared to the $13.9 million as at 31 December 2022.
The Property, Plant and Equipment ("PP&E") balance of $6.4 million at 30 June
2023 (30 June 2022: $8.6 million, 31 December 2022: $6.6 million) includes the
development and production assets on the Blazhyvska licence and other PP&E of
the Group.
Trade and other receivables of $0.2 million (30 June 2022: $0.4 million, 31
December 2022: $0.3 million) includes recoverable VAT of $0.1 million (30 June
2022: $0.1 million, 31 December 2022: $0.07 million), $0.1 million of other
receivables and prepayments (30 June 2022: $0.3 million, 31 December 2022: $0.2
million).
The $1.9 million of trade and other payables as of 30 June 2023 (30 June 2022:
$1.3 million, 31 December 2022: $1.4 million) represent $1.5 million (30 June
2022: $0.9 million, 31 December 2022: $0.8 million) of other creditors and $0.4
million of accruals (30 June 2022: $0.4 million, 31 December 2022: $0.6
million).
Cash flow statement
The Consolidated Cash Flow Statement shows positive cash-flow from operating
activities of $0.1 thousand (30 June 2022: neutral, 31 December 2022: negative
$0.9 thousand). Cashflow, before movements in working capital, shows an outflow
of $0.9 thousand (30 June 2022: inflow $0.3 thousand, 31 December 2022: inflow
$0.2 million).
Group capital expenditure was $0.1 million: investment into subsidiaries
(purchase of the non-controlled stake in Usenco-Nadra) and investment in
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 2022 (refer to page 80 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. The martial law in Ukraine forbids the transfer
of cash outside of Ukraine.
The cash held in the Country must be held in the local currency (Hryvnia).
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
presentation of the assumptions outlined in note 2(a) of 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.
Risk and Uncertainties
There are a number of 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 10 to 13 of
the 2022 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 21 has been approved by the
Board and signed on its behalf by:
Fady Khallouf
Chief Executive Officer
8 September 2023
Consolidated Income Statement
Six months ended 30 June 2023
Six months ended 30 June Year ended
31 December
2023 2022 2022
$'000 $'000 $'000
Notes (Unaudited) (Unaudited) (Audited)
CONTINUING
OPERATIONS
Revenue 3 2,414 4,635 8.472
Cost of sales 3 (2,099) (3,142) (5.553)
Gross profit 315 1,493 2.919
Administrative (1,550) (1,587) (3.441)
expenses
Reversal of - - 20
impairment of other
assets
Impairment of gas (70) - (269)
and oil assets
Change in provision - (600) -
for loan provided
Impairment of other - - (27)
assets
Net foreign 290 (1,633) (1.131)
exchange
gains/(losses)
Other operating 63 (26) (3)
income/(losses),net
Operating (952) (2,353) (1.932)
(loss)/profit
Finance income 4 779 607 372
(Loss)/profit (173) (1,746) (1.560)
before tax
Tax - - -
(expense)/benefit
(Loss)/profit for (173) (1,746) (1.560)
the period/year
Attributable to:
Owners of the 5 172 (1,747) (1.562)
Company
Non-controlling (1) 1 (2)
interest
(173) (1,746) (1.560)
(Loss)/profit per Cents Cents Cents
Ordinary share
Basic and diluted 5 (0.1) (0.7) (0.6)
Consolidated Statement of Comprehensive Income
Six months ended 30 June 2023
Six months ended 30 June Year ended
31 December
2023 2022 2022
$'000 $'000 $'000
(Unaudited) (Unaudited) (Audited)
(Loss)/profit for the (173) (1,746) (1,560)
period/year
Other comprehensive
profit/(loss)
Items that may be reclassified
subsequently to profit or loss
Unrealised currency 41 (986) (3,287)
translation differences
Other comprehensive 41 (986) (3,287)
profit/(loss)
Total comprehensive (132) (2,732) (4,847)
(loss)/profit for the
period/year
Attributable to:
Owners of the Company (131) (2,733) (4,849)
Non-controlling interest (1) 1 (2)
(132) (2,732) (4,847)
Consolidated Statement of Financial Position
Six months ended 30June 2023
Six months Year
ended 30 ended
June
31
December
2023 2022 2022
$'000 $'000 $'000
Notes (Unaudited) (Unaudited) (Audited)
ASSETS
Non-current
assets
Intangible - - -
exploration
and
evaluation
assets
Property, 6 6,407 8,616 6,633
plant and
equipment
Right-of-use 61 139 108
assets
Deferred tax 318 409 319
asset
6,786 9,164 7,060
Current
assets
Inventories 7 141 165 295
Trade and 8 233 373 318
other
receivables
Loan 11 16,441 15,327 15,825
provided
Cash and 14,195 14,518 13,934
cash
equivalents
31,010 30,383 30,372
Total assets 37,796 39,547 37,432
LIABILITIES
Non-current
liabilities
Long-term - (59) (28)
lease
liability
Provisions (286) (380) (261)
(286) (439) (289)
Current
liabilities
Trade and 9 (1,938) (1,352) (1,401)
other
payables
Short-term (65) (114) (79)
lease
liability
Current (135) (136)
provisions
(2,138) (1,466) (1,616)
Total (2,424) (1,905) (1,905)
liabilities
Net assets 35,372 37,642 35,527
EQUITY
Share 12 13,832 13,832 13,832
capital
Share 514 514 514
premium
Retained 184,372 184,146 184,331
earnings
Cumulative (164,935) (162,675) (164,976)
translation
reserves
Other 1,589 1,589 1,589
reserves
Equity 35,372 37,406 35,290
attributable
to equity
holders of
the parent
Non - 236 237
-controlling
interest
Total equity 35,372 37,642 35,527
Consolidated Statement of Cash Flows
Six months ended 30 June 2023
Six months Year
ended 30 ended
June
31
December
2023 2022 2022
$'000 $'000 $'000
(Unaudited) (Unaudited) (Audited)
Operating (952) (2,353) (1,932)
loss
Adjustments
for:
Depreciation 286 434 764
of property,
plant and
equipment
Impairment - - (20)
of
inventories
Change in - 600 -
provision
for loan
provided
Impairment/(R - - 11
eversal of
impairment)
of VAT
recoverable
Impairment 70 - 269
of oil and
gas assets
Impairment - - 16
of
receivables
Effect of (290) 1,633 1,131
foreign
exchange
rate changes
Operating (886) 314 239
cash flows
before
movements in
working
capital
Decrease/(Inc 153 (1) (155)
rease) in
inventories
Decrease 145 (166) (946)
/(Increase)
in
receivables
Increase/(Dec 496 (176) (197)
rease) in
payables and
provisions
Cash from (92) (29) (1,059)
operations
Interest 199 28 185
received
Net cash 107 (1) (874)
inflow/(outfl
ow) from
operating
activities
Investing
activities
Purchases of (33) (75) (93)
property,
plant and
equipment
Purchase of (24) - -
shares in
subsidiaries
from
minority
shareholders
Interest 176 - 97
received
Net cash 119 (75) 4
used in
investing
activities
Financing
activities
Net cash - - -
from
financing
activities
Net increase 226 (76) (870)
(decrease)
in cash and
cash
equivalents
Effect of 35 (417) (207)
foreign
exchange
rate changes
Cash and 13,934 15,011 15,011
cash
equivalents
at beginning
of
period/year
Cash and 14,195 14,518 13,934
cash
equivalents
at end of
period/year
Consolidated Statement of Changes in Equity
Six months ended 30 June 2023
Share Share Retained Cumulative Other Equity
Non Total
capital premium earnings translation reserves attributable
-controlling
account reserves to
owners of
the Company
interest
$'000 $'000 $'000 $'000 $'000 $'000
$'000 $'000
As at 1 13,832 514 185,893 (161,689) 1,589 40,139
235 40,374
January 2022
Net loss for - - (1,747) - - (1,747)
1 (1,746)
the
period
Other - - - (986) - (986)
- (986)
comprehensive
loss
Total - - (1,747) (986) - (2,733)
1 (2,732)
comprehensive
loss for the
year
As at 30 June 13,832 514 184,146 (162,675) 1,589 37,406
236 37,642
2022
Net profit - - 185 - - 185
1 186
for the
period
Other - - - (2,301) - (2,301)
- (2,301)
comprehensive
loss
Total - - 185 (2,301) - (2,116)
1 (2,115)
comprehensive
loss for the
year
As at 31 13,832 514 184,331 (164,976) 1,589 35,290
237 35,527
December
2022
Net loss for - - (172) - - (172)
(1) (173)
the
period
Other - - - 41 - 41
- 41
comprehensive
profit
Total - - (172) 41 - (131)
(1) (132)
comprehensive
loss for the
year
Acquisition 213 213
(236) (23)
of non
-controlling
interests
As at 30 June 13,832 514 184,372 (164,935) 1,589 35,372
- 35,372
2023
Notes to the Condensed Financial Statements
Six months ended 30 June 2023
1. General information
Cadogan Energy Solutions 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 7 to 8 and the Financial Review on
pages 8 to 9.
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 https://www.cadoganenergysolutions.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 27 April 2023.
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 2022 were approved by the Board of
Directors on 27 April 2023 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 of $15.8 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 2023 was $14.2 million (31 December 2022:
$13.9 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 of 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 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 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 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 June Year ended
31 Dec 2022
2023 2022
Closing rate 1.2663 1.2160 1.0817
Average rate 1.2336 1.2877 1.2372
1 US$ = xUAH Six months ended 30 June Year ended
31 Dec 2022
2023 2022
Closing rate 37.2401 29.87219 37.0663
Average rate 37.1364 29.45866 32.45697
1 Euro = xUS$ Six months ended 30 June Year ended
2023 2022 31 Dec 2022
Closing rate 1.0886 1.0451 1.0709
Average rate 1.0809 1.0857 1.0539
(c) Dividend
The Directors do not recommend the payment of a dividend for the period (30 June
2023: $nil; 31 December 2022: $nil).
(d) Critical accounting judgments and estimates
Impairment indicator assessment for E&E assets
Where there are indications of impairment, the E&E assets concerned are tested
for impairment. Where the E&E assets concerned fall within the scope of an
established full cost pool, which are not larger than an operating segment, they
are tested for impairment together with all development and production assets
associated with that cost pool, as a single cash generating unit.
The aggregate carrying value of the relevant assets is compared against the
expected recoverable amount of the pool, generally by reference to the present
value of the future net cash flows expected to be derived from production of
commercial reserves from that pool. Where the assets fall into an area that does
not have an established pool or if there are no producing assets to cover the
unsuccessful exploration and evaluation costs, those assets would fail the
impairment test and be written off to the income statement in full.
Impairment losses are recognized in the income statement and are separately
disclosed.
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).
End of March 2021, PMP requested an arbitration to have the Loan Agreement
recognised as an equity investment contract.
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.
Proger refused to apply the requirements of the award and thus, Proger must
reimburse the amount covered by the Loan Agreement plus interest accrued in the
meantime. Cadogan is taking the necessary legal actions to recover these
amounts.
In forming its assessment at 30 June 2023, management considered the arbitration
award and the impact of an additional 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 2023 and for the six months then ended the Group's segmental
information was as follows:
Exploration and Production Trading Consolidated
$'000 $'000 $'000
Sales of 2,410 - 2,410
hydrocarbons
Other revenue 4 - 4
Sales between - - -
segments
Total revenue 2,414 - 2,414
Other cost of sales (2,097) (2) (2,099)
Other administrative (204) (22) (226)
expenses
Impairment of oil & (70) (70)
gas
Other operating 63 - 63
costs
Finance 199 199
income/costs, net
Segment results 305 (24) 281
Unallocated other (1,324)
administrative
expenses
Other finance 580
income, net
Net foreign exchange 290
gains
Loss before tax (173)
As at 30 June 2022 and for the six months then ended the Group's segmental
information was as follows:
Exploration and Production Trading Consolidated
$'000 $'000 $'000
Sales of 4,632 - 4,632
hydrocarbons
Other revenue 3 - 3
Total revenue 4,635 4,635
Other cost of sales (3,142) - (3,142)
Other administrative (226) (28) (254)
expenses
Other operating (26) - (26)
costs
Finance - 28 28
income/costs, net
Segment results 1,241 - 1,241
Unallocated other (1,333)
administrative
expenses
Net foreign exchange (1,633)
gains
Other income/loss, (21)
net
Loss before tax (1,746)
4. Finance income/(costs), net
Six months ended 30 June Year ended
31 December
2023 2022 2022
$'000 $'000 $'000
Interest expense on lease (5) (9) (18)
Total interest expenses (5) (9) (18)
on financial liabilities
Interest income on cash 375 28 282
deposit
Change in provision - - 93
Total interest income on 375 28 375
financial assets
Interest on loan 354 614 38
Unwinding of discount on 55 (26) (23)
decommissioning provision
779 607 372
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 30 June Year ended
31 December
(Loss)/profit attributable to owners of 2023 2022 2022
the Company
$'000 $'000 $'000
(Loss)/profit for the purposes of basic (172) (1,746) (1,562)
(loss)/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 244,128 244,128 244,128
shares for the purposes of basic
(loss)/profit per share
Cent Cent Cent
(Loss)/profit per Ordinary share
Basic (0.1) (0.7) (0.6)
6. Proved properties
As of 31 June 2023, the development and production assets balance which forms
part of PP&E has decreased in comparison to 31 December 2022 by 3%, mainly due
to depletion charge for the period.
7. Inventories
As of 30 June 2023 inventories decreased of $154 thousand (30 June 2023: $141
thousand, 31 December 2022: $295 thousand) mainly due to volume of crude oil at
the end of the month..
The impairment provision as at 30 June 2023 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 2023.
8. Trade and other receivables
Six months ended 30 June Year ended
31 December
2023 2022 2022
$'000 $'000 $'000
VAT recoverable 112 135 77
Prepayments 62 66 60
Other receivables 59 172 181
233 373 318
VAT recoverable asset was realized through natural gas and crude oil sales
during the first half of 2023. 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 $1.9 million of trade and other payables as at 30 June 2023 (30 June 2022:
$1.3 million, 31 December 2022: $1.4 million) represent $1.5 million (30 June
2022: $0.9 million, 31 December 2022: $0.8 million) of other creditors and $0.4
million of accruals (30 June 2022: $0.4 million, 31 December 2022: $0.6
million).
10. Commitments and contingencies
There have been no significant changes to the commitments and contingencies
reported on page 80 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 amortised cost
$'000
As at 1 January 2022 16,724
Interest 614
Change in provision (600)
Exchange differences (1,411)
As at 30 June 2022 15,327
Interest 724
Change in provision (700)
Exchange differences 474
As at 1 January 2023 15,825
Interest 704
Change in provision (350)
Exchange differences 262
As at 30 June 2023 16,441
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.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.
Proger refused to apply the requirements of the award and thus, Proger must
reimburse the amount covered by the Loan Agreement plus interest accrued in the
meantime. Cadogan is taking the necessary legal actions to recover these
amounts.
The recoverability of the Loan had been assessed in April 2023 for the purpose
of Cadogan Annual Report 2022.
Due to expected delay in the loan reimbursement, the Company recognized
additional provision of $350 thousand.
12. Share capital
Authorized and issued equity share capital
30/06/2023 31/12/2022
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 2020 244,128,487
Issued during year -
At 31 December 2021 244,128,487
Issued during year -
At 31 December 2022 244,128,487
Issued during first-half year -
At 30 June 2023 244,128,487
13. Events subsequent to the reporting date
In July, a trading activity was conducted by the Ukrainian subsidiary
(Astroinvest-Energy LLC).
In August 2023, the Group has started the process of reorganisation of
subsidiaries in Ukraine.
Furthermore, the Group is studying a gas-to-power solution for the optimization
of the use of the produced gas in its oil production operations.
[1] Lost Time Incident, Total Recordable Incident
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