leadf
logo-loader
RNS
viewCadogan Petroleum PLC

Cadogan Petroleum Plc - Half-year Report

CADOGAN PETROLEUM PLC

Half Yearly Report for the Six Months ended30 June 2020

(Unaudited and unreviewed)

Highlights

(“Cadogan” or the “Company”), an independent, diversified oil & gas company listed on the main market of the , is pleased to announce its unaudited results for the six months ended .Cadogan Petroleum plcLondon Stock Exchange30 June 2020

Overall, the first half of 2020 was impacted by the global impact of covid-19 pandemic,  extreme price volatility in oil market, a severe drop down of gas prices, and the shut-down for 5,5 months of the production of Blazhiv-3 and Blazhiv-Monastyrets-3 wells. This affected Cadogan’s strategy in 2020 and constrained the Group to review and partly postpone its investment strategy (incl. new drilling). Looking ahead, the Company is confident that strong management and competent staff will ensure a positive outcome for the company in such uncertain and challenging environment.

Key performance indicators

During H1 2020, The Group has monitored its performance in conducting its business with reference to a number of  key performance indicators (‘KPIs’):

The Group’s performance during the first six months of 2020, 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. 

An update of the KPI’s table will be proposed to the Board in order to better reflect the current status of the Company and its medium-term objectives. The new KPI’s will become effective from 2021 if approved by the Board.

Enquiries:

Summary

Introduction

The world economic crisis which resulted from the pandemic of corona virus and the oil & gas market turbulence has severely affected and Cadogan’s activities. The first half of the year witnessed a substantial drop of the Brent oil price, from more than 65  $/bbl in to 20 $/bbl in April and slight recovery to 35 $/bbl in .UkraineJanuary 2020June 2020

The first semester of 2020 has been another challenging time for .  After last year’s presidential and parliament elections, the new empowered officials have not yet been successful in resolving the military confrontation with at the East of as well as  in improving the economic situation in the Country. The of Ministers headed by the Prime Minister Olkesiy Goncharuk has been replaced, in , after 6 months of work, by  the one of Denys Shmygal.UkraineRussiaUkraineCabinetMarch 2020

The continued efforts of to attract new investments in its oil and gas sector, with the modernization of oil and gas regulatory framework, have been countered by the shut down period and the economic turmoil of this market. An amendment to the license award procedure was introduced and took effect on . The new regulatory framework introduced changes in the necessary criteria for the awarding of licenses out of the auction procedure without taking into account the prior licenses’ applications already engaged before that date. This created retroactiveness effects of the new law and led to automatic rejections in the award process on this basis. As for several other companies, this has also affected the Biltyanska 20-year operation license application engaged by Cadogan in 2019.Ukraine25 February 2020

In this challenging context the Group has continued to focus on safely and efficiently operating the existing wells, on controlling its costs in order to preserve cash while continuing to look at opportunities to grow and diversify its portfolio.

Operations

E&P activity remained focused on maintaining and securing its licenses for the new term and safely and efficiently producing from the existing wells within the Blazhiv oil field.  During H1 2020,the average gross production rated at 230 bpd, which is 23% lower than in H1 2019 (297 boepd). The production decrease in the reported period was caused by the shut-down of the Blazhiv-3 and Blazhiv-Monasterets-3 wells due to the expiry of the lease agreements with Ukrnafta and the necessary needed time for their renewal. Production in these wells has been resumed on . In order to mitigate oil price volatility and in preparation of the future strategy for the increase of the production, the Company installed on the Blazhiv field additional 350 m3 oil storage tanks .June 19th

Regarding the Bitlyanska 20-year exploration and development license, given the delay to award the license by the State Geological Service (SGS) beyond the regular timeline provided by legislation and the further rejection of the application on the basis of the new regulatory framework that took effect on , Cadogan launched a claim before the Administrative Court to challenge the non-granting of the license by the Licensing Authority.25 February 2020

All activities were executed without LTI or TRI[1], with a total of nearly 1,200,000 manhours since the last incident, which occurred to a sub-contractor, in . Emission to the atmosphere were reduced to 62.37 tons of Co2,e/boe produced, compared to 89.4 tons of Co2,e/boe of the same reporting period of  last year.February 2016

In , given the on-going moratorium for the approval of new licenses, activity was focused on maintaining liaisons with the local authorities and fulfilling the mandatory license requirements.Italy

Trading

The signing of an agreement on gas transportation between and , an abnormally warm winter in and , and the economic impact of the pandemic Covid 19 ended in a further extraordinary decrease of the gas prices.RussiaUkraineEuropeAsia

Cadogan continues to monitor the gas markets in and , in particular  the unbundling of gas transmission system operator, with the final stage of the process of separating the gas transmission system of from Naftogaz. The unsold gas during last year was kept in storage with the expectation of higher prices during the following heating season.EuropeUkraineUkraine

Proger

During the first half of 2020, Cadogan has been monitoring the protection of its interests in Proger through the Loan Agreement and the Option to convert it, subject to Cadogan’s shareholders approval,  into a 33% direct equity position in Proger Ingegneria. This led at the end of in the effective nomination of a new representative of the Group as Board Director of Proger Ingegneria and Proger, and the effective nomination of another Group’s representative as member of the of Proger Ingegneria. Prior to this date, the Company has had no representation on the since the resignation of Guido Michelloti as a Director of the Company in and had been unable to effectively exercise its right to Board representation under the loan agreement. Cadogan has recently received legal and financial information communicated by Proger and related to Proger’s activities for 2019 which the Company is presently analyzing. However, the Company is still to receive information regarding H1 2020 trading and critical information regarding forecasts and the new business plan of Proger for the next years.July 2020November 2019Board of Statutory AuditorsBoard of Proger Ingegneria and Proger

[1] Lost Time Incident, Total Recordable Incident

Financial position

Cash at was (). 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 .30 June 2020$11.6 million$13.7 millionUK

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.

Outlook                                             

Cadogan remains with a solid balance sheet with no debts and a good cash position, with the resources and competences necessary to continue its activities and pursue its development. 

In , gas trading, which had become unprofitable, cannot be a major activity for Cadogan. The company is focusing on its oil operations and a more value accretive and comprehensive diversification of its activities. Ukraine

Additionally, while our assets are robust and cash generative, the situation regarding Covid-19 and its potential impact on the global economy and our operations remains uncertain and is rapidly changing. We continue to monitor the impact of these developments on our industry, our operations and - most importantly - our staff and contractors.

The Company will continue to actively pursue opportunities outside of , to leverage its competence and low-cost structure in order to create long term value for its shareholders. In parallel, the Company  will work with Proger to develop all necessary actions to ensure the proper fulfilment of the counterparts’ obligations under this agreement. Ukraine

Operations Review

In H1 2020, the Group held working interests in two (2019: two) conventional gas-condensate and oil exploration and production licences in the West of . These assets are operated by the Group and are located in the prolific Carpathian basin, close to the Ukrainian oil & gas distribution infrastructure.Ukraine

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.

(1) The Bitlyanska license expired on and its renewal was not  granted within the due legal period. The Company is involved in ongoing court proceeding to defend its rights and challenge the Licensing Authority actions after the rejection by the State Geological Service of its Bitlyanska 20-year production license application and its Pirkivska exploration and development license application.23 December 2019

Below we provide an update to the full Operations Review contained in 2019 Annual Report published on .4 May 2020

Bitlyanska license

Cadogan has filed to the State Geological Service an application for a 20-year production license 5 months ahead the license expiry date of the 23 and secured all intermediary approvals including Environmental Impact Assessment study by the , the approval of the Reserves Report by the and the approval of the license award by the . Due to the delay to award the new license beyond the regular timeline provided by legislation to the State Geological Service and further rejection of the application on the basis of the new regulatory requirements that were enforced six months after the fully compliance of Cadogan’s application which was submitted according to the previous law, Cadogan launched a claim before the Kiev Administrative Court to challenge the non-granting of the license by the Licensing Authority.rdDecember 2019Ministry of EcologyState Commission of ReservesLviv Regional Council

All operational activities as well as area farm-out have been put on-hold waiting for the license award.

Blazhiv licence

Through the reporting period the Company has been working to safely and efficiently producing from the existing wells located in the Blazhiv license area. At the end of the reporting period, the average gross production rated at 230 bpd vs 297 bpd in H1 2019. The production decrease was caused by the shut-down of the Blazhiv-3 and Blazhiv-Monastyrets-3 wells, due to the expiry of the lease agreements with Ukrnafta. These agreements have been extended on for a new 3-year term with minor adjustments.June 19th

The Company has performed successful work-over on the Blazhiv-10 well with the replacement of the sucker rod pump. Currently, all the four wells are producing with an average rate over 390 bpd as of .30 June  2020

The company has also commissioned additional crude oil storage facilities on the Blazhiv field by increasing the cumulative volume up to 800m3. This should allow to manage favorably short term oil price volatility.

activities                                                                                  Service Company

In H1 2020, Cadogan’s 100% owned subsidiary, , focused its activities on  serving intra-group operational needs in wells’ work-over/ re-entry operations as well as field on-site activities.Astro Service LLC

Financial Review

Overview

Income statement

In H1 2020, revenues decreased to (: ), due to the absence  of gas trading sales (: ) and the reduced production . Revenues from production decreased to (: ) due to a lower realized price (decrease of 33%) and a decrease in the production volumes by 23%. This latter is mainly due to the delay in obtaining the renewal of the lease agreements for Blazhiv 3 and Blazhiv-Monastyrets 3.$1.2 million$3.3 million$0.9 million$1.2 million$2.3 million30 June 201930 June 201930 June 2019

Due to the covid 19 shut-down, the services business concentrated its activities on intra-group services, in particular, for the Blazhivska license.

The cost of sales of the production segment consists of of production royalties (),  $0.2 million of operating costs (), of depreciation and depletion of producing wells (), and of direct staff costs for production ().$0.5 million$1.1 million$0.2 million$0.3 million$0.3 million$0.1 million$0.1 million

Half year gross profit from production activities decreased marginally to (: ), driven by decrease in production and lower oil prices.$0.2 million$0.5 million30 June 2019

Provision against gas inventory of (: ) represents the impairment loss on the value of its natural gas in storage due to revaluation to market price at the end of the reporting period.$0.6 million$0.7 million30 June 2019

Impairment of other assets of (: reversal of impairment ) represents movement in provision for recoverable VAT.$0.1 million$0.3 million30 June 2019

The Group recorded a increase in the fair value of the Proger Loan, which is held at fair value through profit and loss under IFRS. Refer to note 11 for details.$0.4 million

Other administrative expenses were kept under control at (: ). They comprise other staff costs, professional fees, Directors’ remuneration and depreciation charges on non-producing property, plant and equipment.$1.5 million$2.0 million30 June 2019

Balance sheet

At , the cash position of (: ) decreased compared with the at , because of  negative cash flows generated from operating activities.30 June 202030 June 201931 December 2019$11.6 million$13.7 million$12.8 million

Intangible Exploration and Evaluation (“E&E”) assets of (: , : ) represent the carrying value of the Group’s investment in E&E assets as at . The Property, Plant and Equipment (“PP&E”) balance of at (: , : ) includes of development and production assets on the Blazhyvska licence and other PP&E of the Group.$2.6 million$2.5 million$2.97 million$10.7 million$11.4 million$12.3 million$10.3 million30 June 201931 December 201930 June 202030 June 202030 June 201931 December 2019

Trade and other receivables of (: , : ) include recoverable VAT of [2] (: , : ), of other receivables and prepayments (: , : ).$2.3 million$3.0 million$2.6 million$2 million$2.1 million$2.4 million$0.3 million$0.8 million$0.2 million30 June 201931 December 201930 June 201931 December 201930 June 201931 December 2019

The of trade and other payables as of (: , : ) represent (: , : ) of other creditors and of accruals (: , : ).$0.9 million$2.4 million$1.3 million$0.2 million$1.7 million$0.7 million$0.7 million$0.7 million$0.6 million30 June 202030 June 201931 December 201930 June 201931 December 201930 June 201931 December 2019

Cash flow statement

The Consolidated Cash Flow Statement shows negative cash-flow from operating activities of (: inflow , : outflow ). Cashflow, before movements in working capital, was an outflow of (: outflow , : outflow ).$1.2 million$1.2 million$4.2 million$0.9 million$1.3 million$4.5 million30 June 201931 December 201930 June 201931 December 2019

Group capital expenditure was on Property, Plant and Equipment which related to the Blazhyvska license.$0.1 million

Commitments

There has been no material change in the commitments and contingencies reported as at (refer to page 78 of the Annual Report).31 December 2019

Treasury

The Group monitors continuously its exposure to currency risk. It maintains a portfolio of cash , mainly in both US dollars (‘USD’) and EURO held primarily in the , and holds these in call deposits. Production revenues from the sale of hydrocarbons are received in the local currency in (‘UAH’) and to date funds from such revenues have been held in for further use in operations. When funds are needed for operations, they are transferred to the Company’s subsidiaries in USD, and then converted to UAH.UKUkraineUkraine

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.

[2] Most of the recoverable VAT is VAT paid on drilling services which will be off-set by VAT due on crude sales in future periods under local legislation

Risks 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 11 to 13 of the 2019 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.

Operational risks

Subsurface risks

Financial risks

Country risk

Other risks

Director’s Responsibility Statement

We confirm that to the best of our knowledge:

(a)         the Interim Financial Statements have been prepared in accordance with 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 24 has been approved by the Board and signed on its behalf by:

Chief Executive OfficerFady Khallouf

09 September 2020

CADOGAN PETROLEUM PLC

Consolidated Income Statement Six months ended
30 June 2020

*Provision against unsold inventory in H1 2019 was previously classified as an impairment of other assets below gross profit. The provision movement of has been reclassified above gross profit to reflect its nature and provide comparability with the presentation at H1 2020 and FY 2019.$650,000

**The net fair value gains on convertible loan for H1 2019 and FY 2019 was previously classified as part of operating profit/(loss) and have been reclassified as a non-operating item in these results for consistency with the H1 2020 presentation.  Classification as non-operating is considered applicable as the Company anticipates, at present, repayment of the loan at maturity and the instrument is not considered a core operating activity of the Group.

CADOGAN PETROLEUM PLC

Consolidated Statement of Comprehensive Income Six months ended
30 June 2020

CADOGAN PETROLEUM PLC

Consolidated Statement of Financial Position Six months ended
30 June 2020

CADOGAN PETROLEUM PLC

Consolidated Statement of Cash Flows Six months ended
30 June 2020

CADOGAN PETROLEUM PLC

Consolidated Statement of Changes in Equity Six months ended
30 June 2020

CADOGAN PETROLEUM PLC

Notes to the Condensed Financial Statements Six months ended
30 June 2020

1.       General information

(the ‘Company’, together with its subsidiaries the ‘Group’), is incorporated in and under the Companies Act. The address of the registered office is 6th Floor, , 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.Cadogan Petroleum plcEnglandWales60 Gracechurch StreetLondon

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 Financial Reporting Standards (‘IFRS’) as issued by the (‘IASB’) and as adopted by the (‘EU’).  These Condensed Financial Statements have been prepared in accordance with IAS 34 , as issued by the IASB.International Accounting Standards BoardEuropean UnionInterim 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 .1 May 2020

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.

The Group has adopted the standards, amendments and interpretations effective for annual periods beginning on or after . The adoption of these standards and amendments did not have a material effect on the financial statements of the Group, including a specific assessment of the impact of IFRS 16 ‘Leases’.1 January 2020

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 were approved by the Board of Directors on 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 was materially accurate.31 December 20191 May 2020$15.7 million

(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 was (: ).30 June 202031 December 2019$11.6 million$12.8 million

The Group’s forecasts and projections, taking into account reasonably possible changes in operational performance, 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.

The Group’s farm-out strategy on Bitlyanska license is on-hold waiting for the outcome of the claim introduced against the Licensing Authority for non granting the 20-year production license.

Having considered the Company’s financial position and its principal risks and uncertainties, including the assessment of potential risks associated with Covid-19 including a) restrictions applied by governments, illness amongst our workforce and disruption to supply chain and sales channels; and b) market volatility in respect of commodity prices associated with Covid-19 in addition to geopolitical factors, the Directors have a reasonable expectation that the Group have adequate resources to continue in operational existence for the foreseeable future.

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 financial statements. In making its statement the Directors have considered the recent political and economic uncertainty in .Ukraine

(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:

(c)      Dividend

The Directors do not recommend the payment of a dividend for the period (: $nil; : $nil).30 June 201931 December 2019

(d) Critical accounting judgments and estimates

Impairment indicator assessment for E&E assets

The outcome of ongoing exploration, and therefore the recoverability of the carrying value of intangible exploration and evaluation assets, is inherently uncertain. Management assesses its E&E assets, and perform an impairment test if indicators of impairment are identified .  In assessing potential indicators of impairment,  management considered factors such as the remaining term of the license, plans for renewal of the license, conversion to a production license, reports on reserves, the net present value of economic models, the results of drilling and exploration in the year and the future plans including farm out proposals. In respect of the renewal and conversion of the license which remains outstanding and overdue management considered the status of license commitments, the status of submissions necessary for the renewal, trends in the relevant region of the with respect to license application approval together with legal advice in respect of the standing of the license in the event of delays by the authorities.Ukraine

Impairment of PP&E

Management assess its 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 classified at fair value through profit and loss

In , the Group advanced a 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 has a 75.95% participating interest in (“Proger”). 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 () 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, up to a maximum guaranteed amount of .February 2019February 2019Euro 13,385,000Euro 13,385,000Proger Spa

As part of the instrument, the Group was granted a call option to acquire, at its sole discretion, a direct 33% equity interest in Proger Ingegneria; the exercise of the option would give Cadogan, through CPHBV, an equivalent indirect 25 interest in Proger. The call option was granted at no additional cost and can 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.  The Board note that the Group has no current equity interest and the option is not considered to be currently exercisable at given the substantive requirement for shareholder approval. 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.30 June 2020

Under the Group’s accounting policies the instrument is held at fair value through profit and loss and determination of fair value requires assessment of both key investee specific information regarding financial performance and prospects and market information.

The Group’s original investment decision involved assessment of Proger’s business plan 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.

Whilst Proger has provided Cadogan information regarding its 2019 financial performance, no information in respect of 2020 or updated forecasts have been provided which are considered necessary to undertake a detailed fair value assessment using the income method or market approach at . 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 represented the best estimate of fair value, being equal to anticipated receipts discounted at a market rate of interest of 5.5%. However, the absence of information regarding Proger’s 2020 financial performance and prospects represents a significant limitation on the fair value exercise and, as a result, once received, the fair value could be materially higher or lower than this value. (Note 11).30 June 2020$16.1 million

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 . Segment information is analyzed on the basis of the types of goods supplied by the Group’s operating divisions.Ukraine

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 office premises. This is the measure reported to the CODM for the purposes of resource allocation and assessment of segment performance.Kiev

The Group does not present information on segment assets and liabilities as the CODM does not review such information for decision-making purposes.

As of and for the six months then ended the Group’s segmental information was as follows:30 June 2020

As of and for the six months then ended the Group’s segmental information was as follows:30 June 2019

(1)     In first half 2019 and in the first half 2020 the Service business was focused on internal projects, in particular, providing services to Blazhyvska licence.

4. Finance income/(costs), net

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:

6.    Proved properties

As of the development and production assets balance which forms part of PP&E has increased in comparison to due to the installation of additional 350m3 oil storage tanks at Blazhiv field and decreased due to the exchange rate between UAH and US Dollar, depreciation and depreciation charges for the reporting period.30 June 202031 December 2019

7.    Inventories

The Group had volumes of natural gas stored at which were not sold during the six months ended . The Group plan to realise it in the second half of the year, as this represents the start of the heating season which typically sees higher prices. No other substantial changes in inventories balances occured.31 December 201930 June 2020

The impairment provision as at is made so as to reduce the carrying value of the inventories to net realizable value.30 June 2020

8.    Trade and other receivables

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 of trade and other payables as of (: , : ) represent (: , : ) of payables and of accruals (: , : ).$0.9 million$2.4 million$1.3 million$0.2 million$1.7 million$0.7 million$0.7 million$0.7 million$0.6 million30 June 202030 June 201931 December 201930 June 201931 December 201930 June 201931 December 2019

10.  Commitments and contingencies

There have been no significant changes to the commitments and contingencies reported on page 78 of the Annual Report.

11.  Loan classified at fair value through profit and loss

In , Cadogan used part of its cash () to enter into a 2-year loan agreement with , 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 option has to be represented in our balance sheet at fair value.February 2019Euro 13.385 millionProger Managers & Partners

The Group’s original investment decision involved assessment of business plan 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.Proger Spa

Financial assets at fair value through profit and loss

Refer to note 2 for details of the terms of the Proger loan recorded as a financial asset at fair value through profit and loss.  The instrument is recorded at management’s best estimate of fair value as set out in note 2 although management have not been able to undertake a valuation exercise under the income method or market based method which would incorporate relevant recent financial information on the investee or its prospects.

* Exchange differences are calculaded based on USD/EURO currency exchange rates on the date of transaction which is and end of the period .26 February 201930 June 2019

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, historical financial information for the periods prior to H1 2020 and assessment of the security provided by the pledge over shares.

The Group is still lacking sufficient and reliable information in respect of Proger’s H1 2020 financial performance, forecasts and business plan, post covid-19, taking into account all the effects of the important changes that have occurred in its markets and its customers’ decisions regarding future investments. If the Group had been provided with information to complete a valuation under the income method or market method the key assumptions would have included: a) In terms of the income method: forecast revenues, EBITDA and unlevered free cash flows of the investee including assessment of performance against its original business plan at the time the loan was advanced, revisions to the business plan, growth rates and terminal values, determination of an appropriate discount rate, adjustments to the enterprise value for debt and working capital adjustments; b) In terms of the market method: first semester 2020 EBITDA and information to assess the quality of such earnings, enterprise value multiples based on a basket of comparable transactions and companies, adjustments to the enterprise value for debt and working capital adjustments and other risk adjustment factors.

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 represented the best estimate of fair value, being equal to anticipated receipts discounted at a market rate of interest of 5.5%.$16.1 million

The Group considers that the carrying amount of financial instruments approximates their fair value.

12.        Share capital

Authorized and issued equity share capital

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

On 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:26 May 2020

-  2,270,549 ordinary shares were issued to the previous CEO, Mr , to be satisfied in full using the entire amount of the 2018 and 2019 bonuses due (but which had not yet been paid), totalling €75,900,Guido Michelotti

-  628,616 ordinary shares were issued to Mr (General Director of Cadogan Ukraine), to be satisfied in full using the entire amount of the 2019 bonus due (but which had not yet been paid), totalling ,Andriy Bilyy$23,040

-  5,500,000 ordinary shares were issued to the CEO, Mr , to be satisfied in full using the entire amount of the welcome bonus due.Fady Khallouf

--  H1 2020 has been another semester without LTI and TRI with no cases of
        covid-19 infection among our employees
    --  Average production was 230bpd in H1 2020 (297 boepd in H1 2019), a 23%
        decrease versus H1 2019. This was mainly due to the shut-down during
        this period of the Blazhiv-3 and Blazhiv-Monastyrets-3 wells for 5,5
        months.
    --  License authority of  (State Geological Service) rejected in  the Biltyanska 20-year exploration and production license
        application notwithstanding full compliance and timely submission. The
        Company introduced a claim before the Kiev District Administrative Court
        to challenge the decision of non granting the license.
    --  In  from January to , hydrocarbon prices decreased
        significantly compared to the same period in 2019, the price of natural
        gas decreased by more than 45% and more than 30% for oil and gas
        condensate.
    --  Cadogan decided not to sell its stored gas acquired during 2019 waiting
        for appropriate market prices.
    --  The services business continued to support the Group’activities, thus
        retaining funds within the Group.
    --  Production revenues decreased by 46 % versus the same period in 2019,
        due to a 33% reduction in the average realized oil price and a 23%
        decrease of the production volumes. Overall revenues were down by 62%
        versus the same period in 2019 due to the absence of sales of gas . Cost
        saving initiatives have been taken to mitigate the negative effects.
    --  As a result of the above initiatives, cash position at the period end
        was  (: ). This level of cash is
        sufficient to sustain on-going operations.UkraineUkraineMay
        2020July 202030 June 2019$11.6 million$13.7 million
--  to increase oil, gas and condensate production measured on the barrels
        of oil equivalent produced per day (‘boepd’);
    --  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.
Unit    30 June 2020 30 June 2019 31 December 2019

Average production         Boepd        230          297            288
(working interest basis)
(a)

Administrative expenses   $million      1.5          2.0            5.7

Basic (loss)/profit per              1.1           (0.9)
share (b)

Lost time incidents (c)  Incidents       0            0              0

Geographical             New assets      -            -             1(d)
diversificationCent       (0.6)
a. Average production is calculated as the average daily production during the
     period/year
  b. Basic (loss)/profit per ordinary share is calculated by dividing the net
     (loss)/profit 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)
  d. Loan agreement with  with its option to
     convert. The loan was signed inProger Management & PartnersFebruary 2019
Fady Khallouf         Chief Executive Officer [email protected]
Ben Harber            Company Secretary       
                                              +44 (0) 207 264 4366Cadogan Petroleum Plcpetroleum.com
Summary of the Group’s licences (as of )

  Working       Licence       Expiry            Licence type
interest (%)

    99.8        Blazhiv    November 2039         Production

    99.2     Bitlyanska(1) December 2019 Exploration and Development30 June 2020
--  Health, safety, and environment
    --  COVID-19
    --  Climate change
    --  Drilling and work-over operations
    --  Production and maintenance
--  Changes in economic environment
    --  Counterparty
    --  Commodity price
--  Regulatory and licence issues
    --  Emerging market
--  Risk of losing key staff members
    --  Risk of entry into new countries
    --  Risk of delays in projects related to local communities dialogue
Six months ended 30  Year ended
                                                                June 31 December

                                                    2020        2019        2019
                                                   $’000       $’000       $’000

                                       Notes (Unaudited) (Unaudited)   (Audited)

CONTINUING OPERATIONS

Revenue                                    3       1,266       3,319       5,876

Cost of sales                              3     (1,090)     (2,866)     (4,872)

Provision against unsold gas inventory             (614)      (650)*     (1,946)

Gross profit                                       (438)       (197)       (942)

Administrative expenses                          (1,495)     (2,051)     (5,652)

Reversal of impairment of other assets                 4         330         345

Impairment of other assets                         (125)           -       (162)

Net foreign exchange gains/(losses)                  129        (16)       (385)

Other operating (losses)/income,net                  (4)          41       3,972

Operating (loss)/profit                          (1,929)     (1,893)     (2,824)

Net fair value gain on convertible        11         409       4,421         697
loan**

Finance income                             4          45         124          25

(Loss)/profit before tax                         (1,475)       2,652     (2,102)

Tax (expense)/benefit                                  -        (97)           -

(Loss)/profit for the period/year                (1,475)       2,555     (2,102)

Attributable to:

Owners of the Company                      5     (1,470)       2,550     (2,103)

Non-controlling interest                             (5)           5           1

                                                 (1,475)       2,556     (2,102)

(Loss)/profit per Ordinary share                   Cents       cents       cents

Basic and diluted                          5       (0.6)         1.1       (0.9)
Six months ended 30  Year ended
                                                                June 31 December

                                                    2020        2019        2019
                                                   $’000       $’000       $’000

                                             (Unaudited) (Unaudited)   (Audited)

(Loss)/profit for the period/year                (1,475)       2,555     (2,102)

Other comprehensive (loss)/profit

Items that may be reclassified subsequently
to profit or loss

Unrealised currency translation differences      (2,466)       1,367       3,541

Other comprehensive (loss)/profit                (2,466)       1,367       3,541

Total comprehensive profit/(loss) for the        (3,941)       3,922       1,439
period/year

Attributable to:

Owners of the Company                            (3,936)       3,917       1,438

Non-controlling interest                             (5)           5           1

                                                 (3,941)       3,922       1,439
Six months ended 30    Year ended
                                                     June           31 December

                                                   2020        2019        2019
                                                  $’000       $’000       $’000

                                      Notes (Unaudited) (Unaudited)   (Audited)

ASSETS

Non-current assets

Intangible exploration and evaluation             2,642       2,514       2,971
assets

Property, plant and equipment           6        10,715      11,442      12,338

Loan classified at fair value through  11             -      20,030      15,707
profit and loss

Deferred tax asset                                  501         405         501

                                                 13,858      34,391      31,517

Current assets

Inventories                             7         3,079       3,322       4,453

Trade and other receivables             8         2,273       2,950       2,639

Loan classified at fair value through  11        16,145           -           -
profit and loss

Cash and cash equivalents                        11,601      13,724      12,834

                                                 33,098      19,996      19,926

Total assets                                     46,956      54,387      51,443

LIABILITIES

Non-current liabilities

Provisions                                        (256)        (41)       (289)

                                                  (256)        (41)       (289)

Current liabilities

Trade and other payables                9         (938)     (2,388)     (1,266)

                                                  (938)     (2,388)     (1,266)

Total liabilities                               (1,194)     (2,429)     (1,555)

Net assets                                       45,762      51,958      49,888

EQUITY

Share capital                          12        13,832      13,525      13,525

Share premium                                       329         329         329

Retained earnings                               190,489     196,612     191,959

Cumulative translation reserves               (160,741)   (160,449)   (158,275)

Other reserves                                    1,589       1,668       2,081

Equity attributable to equity holders            45,498      51,685      49,619
of the parent

Non-controlling interest                            264         273         269

Total equity                                     45,762      51,958      49,888
Six months ended 30 June  Year ended
                                                                    31 December

                                                  2020         2019        2019
                                                 $’000        $’000       $’000

                                           (Unaudited)  (Unaudited)   (Audited)

Operating loss                                 (1,929)      (1,893)     (2,824)

Adjustments for:

Depreciation of property, plant and                369          355         653
equipment

Reversal of impairment of inventories              614          650       1,946

Impairment of other assets                         125            -         162

Reversal of impairment of other assets               -        (287)       (345)

Interest received                                    -            -       (431)

Gain on disposal of property, plant and              -            -     (4,000)
equipment

Effect of foreign exchange rate changes          (129)         (88)         385

Operating cash flows before movements in         (955)      (1,263)     (4,454)
working capital

Decrease/(Increase) in inventories                 279          597       (971)

(Increase)/Decrease in receivables                (74)          717         664

Increase/(Decrease) in payables and              (514)        1,081          78
provisions

Cash from operations                           (1,264)        1,132     (4,683)

Interest received                                    9           44         480

Net cash inflow/(outflow) from operating       (1,255)        1,176     (4,203)
activities

Investing activities

Proceeds from disposal of subsidiaries               -        -           4,000

Purchases of property, plant and equipment       (132)  (7,021)         (6,952)

Purchases of intangible exploration and            (5)     (11)           (241)
evaluation assets

Loan provided                                        - (15,609)        (15,246)

Proceeds from sale of property, plant and            4        -             345
equipment

Interest received                                   36       81             140

Net cash used in investing activities             (97) (22,560)        (17,954)

Financing activities

Net cash from financing activities                   -        -               -

Net increase (decrease) in cash and cash       (1,352) (21,384)        (22,157)
equivalents

Effect of foreign exchange rate changes            119     (28)           (145)

Cash and cash equivalents at beginning of       12,834   35,136          35,136
period/year

Cash and cash equivalents at end of             11,601   13,724          12,834
period/year
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        13,525     329  194,062   (161,816)    1,668       47,768             268  48,036
January 2019


Net profit          -       -    2,550           -        -        2,550               5   2,555
for the
period


Other               -       -        -       1,367        -        1,367               -   1,367
comprehensive
profit


Total               -       -    2,550       1,367        -        3,917               5   3,922
comprehensive
profit for
the year


As at 30 June  13,525     329  196,612   (160,741)    1,668       45,498             264  51,958
2019


Net profit          -       -  (4,653)           -        -      (4,653)             (4) (4,657)
for the
period


Other               -       -        -       2,174        -        2,174               -   2,174
comprehensive
profit


Total               -       -  (4,653)       2,174        -      (2,479)             (4) (2,483)
comprehensive
profit for
the year


Shares based        -       -        -           -      413          413               -     413
award


As at 31       13,525     329  191,959   (158,275)    2,081       49,619             269  49,888
December 2019


Net loss for        -       -  (1,470)           -        -      (1,470)             (5) (1,475)
the period


Other               -       -        -     (2,466)        -      (2,466)               - (2,466)
comprehensive
profit


Total               -       -  (1,470)     (2,466)        -      (3,936)             (5) (3,941)
comprehensive
profit for
the year


Issue of          307                                 (492)        (185)                   (185)
ordinary
shares


As at 30 June  13,832     329  190,489   (160,741)    1,589       45,498             264  45,762
2020
1 £ = xUS$     Six months
              ended     2019  Year ended
                             

Closing rate  1.2322  1.2719      1.3263

Average rate  1.2613  1.2943      1.2773

 = xUAH   Six months
              ended     2019  Year ended
                             

Closing rate 26.7105 26.4487     23.7100

Average rate 26.0227 27.0363     25.900330 June

                202031 Dec 201930 June

                202031 Dec 20191 US$
Exploration and Services Trading Consolidated
                               Production

                                    $’000    $’000   $’000        $’000

Sales of hydrocarbons               1,263        -       -        1,263

Other revenue                           -        3       -            3

Total revenue                       1,263        3       -        1,266

Other cost of sales               (1,087)      (3)       -      (1,090)

Other administrative                (281)     (20)    (27)        (328)
expenses

Impairment                              -        -   (614)        (614)

Finance income/costs, net               -        -       9            9

Segment results                     (105)     (20)   (634)        (757)

Unallocated other                       -        -       -      (1,167)
administrative expenses

Net fair value gain on                  -        -       -          409
convertible loan

Net foreign exchange                    -        -       -          129
gains

Other income/loss, net                  -        -       -         (89)

Loss before tax                         -        -       -      (1,475)
Exploration and Services(1) Trading Consolidated
                               Production

                                    $’000       $’000   $’000        $’000

Sales of hydrocarbons               2,349           -     916        3,265

Other revenue                           -          54       -           54

Total revenue                       2,349          54     916        3,319

Other cost of sales               (1,842)        (48)   (976)      (2,866)

Other administrative                (234)        (34)    (62)        (330)
expenses

Finance income/costs, net               -           -      27           27

Segment results                       273        (28)    (95)          150

Unallocated other                       -           -       -      (1,721)
administrative expenses

Net fair value gain on                  -           -       -        4,421
convertible loan

Net foreign exchange                    -           -       -         (16)
gains

Other income, net                       -           -       -        (182)

Profit before tax                       -           -       -        2,652
Six months  Year ended
                                                      ended 30 31 December
                                                          June

                                                    2020  2019        2019

                                                   $’000 $’000       $’000

Interest expense on short-term borrowings              -   (9)           -

Total interest expenses on financial liabilities       -   (9)           -

Interest income on receivables,net                     -    27          36

Investment revenue                                    36    62         104

Interest income on cash deposit in Ukraine             9    44          49

Total interest income on financial assets             45   133         189

Unwinding of discount on decommissioning provision     -     -       (164)

                                                      45   124          25
Six months  Year ended
                                                      ended 30 June 31 December

(Loss)/profit attributable to owners of the Company    2020    2019        2019
                                                      $’000   $’000       $’000

(Loss)/profit for the purposes of basic             (1,475)   2,550     (2,103)
(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 shares for the  244,128 235,729     235,729
purposes of basic (loss)/profit per share

                                                       Cent    Cent        Cent

(Loss)/profit per Ordinary share

Basic                                                 (0.6)     1.1       (0.9)
Six months  Year ended
                        ended 30 31 December
                            June

                      2020 2019        2019
                     $’000 $’000       $’000

VAT recoverable      2,067 2,115       2,402

Prepayments            114   285           -

Trading prepayments      -    31           -

Trade receivables       14   404           -

Other receivables       78   115         237

                     2,273 2,950       2,639
$’000

As at          -

Loan provided           15,246

Movement in FVPL         4,421

Exchange differences *     364

As at       20,030

Movement in FVPL       (3,724)

Exchange differences     (599)

As at     15,707

Movement in FVPL           409

Exchange differences        29

As at       16,1451 January 201930 June 20191 January 202030 June 2020
30/06/2020       31/12/2019

                                 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   235,729 13,525
Ordinary shares of £0.03 each
Ordinary shares
                                       of £0.03

At                  235,729,322

Issued during year                            -

At                  235,729,322

Issued during year                            -

At                  235,729,322

Issued during first-half year         8,399,165

At                      244,128,48731 December 201731 December 201831 December 201930 June 2020

Quick facts: Cadogan Petroleum PLC

Price: -

Market: LSE
Market Cap: -
Follow

Create your account: sign up and get ahead on news and events

NO INVESTMENT ADVICE

The Company is a publisher. You understand and agree that no content published on the Site constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is...

FOR OUR FULL DISCLAIMER CLICK HERE

79 min read