TIDMCAD
Cadogan Petroleum plc
Annual Results for year ended 31 December 2021
The Board of Cadogan Petroleum plc, ("Cadogan" or "the Company"), is pleased to
announce the Company's annual results for the year ended 31 December 2021.
Key Financial Highlights of 2021:
* Loss for the year: $5.1 million (2020: loss of $1.0 million)
* Average realized price: $55.7 /boe (2020: $32.9/boe)
* Gross revenues[1]: $8.8 million (2020: $5.1 million)
* G&A[2]: $3.7 million (2020: $3.8 million)
* Loss per share: 2.1 cents (2020: loss of 0.4 cents)
* Cash at year end: $15.0 million (2020: $13.3 million)
Key Operational Highlights of 2021:
* Production: 127,662 bbl (2020: 106,398 boe), a 20% increase year-on-year
* Gas trading profit of $0.6 million (2020: profit of $0.6 million)
* Services business loss of $0.06 million (2020: loss of $0.05 million), net
of services provided to the group[3]
* No LTI/TRI[4]
* ISO 14001 and ISO 45001 certifications revalidated for a new 3-year term
Group overview
In 2021, the Group continued to maintain exploration and production assets, to
conduct gas trading operations and to operate an oil services business in
Ukraine. Cadogan's assets are concentrated in the West of the country. Gas
trading includes the import of gas from Slovakia, Hungary and Poland and local
purchase and sales with physical delivery of natural gas. The oil services
business focuses on workover operations, civil works services and other
services to satisfy Cadogan intra-group operational needs.
Our business model
We aim to increase value through:
* Maintaining a robust balance sheet, monetising the remaining value of our
Ukrainian assets and supplementing E&P cash flow with revenues from gas
trading and oil services
* Pursuing farm-out to progress investments in Ukrainian licenses
* Diversify Cadogan's portfolio, both geographically and operationally
Ukraine
West Ukraine
The Group continued to produce oil from its production Blazhiv license located
in the West of Ukraine. Production in 2021 continued to grow. The average net
production in 2021 was 350 bbl, a 20% increase over the production of the
previous year and was the highest in the company's history. This production
result was achieved thanks to the full operation of the 4 wells, the
optimization of the operational regimes of these wells and the successful
stimulation of Blazhiv-10 well.
In March 2020 and August 2020 Usenco Nadra filed the claims with the Kyiv
Administrative Court to acknowledge inaction of the State Service of Geology
(SGS) as unlawful, particularly their refusal to issue the Bitlyanska 20-year
exploration and development license and requested the Court to carry out
commercial activities at the area effective from December 2019. This decision
was taken by the subsoil controlling authority notwithstanding that Cadogan had
fulfilled all license obligations, obtained all regulatory approvals and timely
submitted the application on 19 August 2019 well ahead the license expiry date
of 23 December 2019 and the new regulatory framework. During 2021 the claims
have not been considered by the Court due to delays caused by the Covid-19
pandemic. In February 2022, the company received the information from a public
register that its claim was rejected by the Court. Usenco Nadra did not receive
any formal court notification of such decision. Despite the restrictions
imposed by the martial law in Ukraine, Usenco Nadra exercised its right for
appeal against this decision and submitted an appeal.
East Ukraine
The Pirkovska exploration license expired in October 2015. Astrogaz filed in
due time an application for a new exploration and production license, but the
Licensing Authority returned it 6 times for different reasons. Despite the
efforts of the Company and its reply in due time to each of the comments, the
license was not awarded, and the 3-year period for conversion expired in
October 2018. In 2019, Astrogaz filed a claim at the Administrative Court for
the non-granting of the license by the Licensing Authority. The Court of First
Instance, in its decision of October 2020, partly satisfied the claim and
confirmed inaction of the Licensing Authority and obliged it to review the
application. Astrogaz filed a claim before the Court of Appeal proposing the
license award approval. In February 2021, the Court of Appeal rejected Astrogaz
claim. In December 2021, the Supreme Court, similar to the Appeal Court,
rejected the claim of Astrogaz. This decision will not have any financial
impact as Pirkovska license had been totally impaired before.
In 2020, LLC AstroInvest-Energy, a fully owned subsidiary of Cadogan,
introduced a claim against the State fiscal authority regarding additional tax
assessment and related penalties. The Company won in the Court of First
Instance and in the Court of Appeal. The State fiscal authority filed an appeal
with the Supreme Court. The hearing and the decision were expected during 2022.
Subsidiary businesses
Cadogan has sold the remaining 7.54 million m3 of gas during the first semester
2021.
Astroservice LLC, the oil services subsidiary, continued to support Blazhiv
license wells' operations.
Italy
The Group owns a 90% interest in Exploenergy s.r.l., an Italian company, which
has filed applications for two exploration licenses (Reno Centese and Corzano),
located in the Po Valley region (Northern Italy). The leads identified on these
licenses have combined unrisked prospective resources estimated to be in excess
of 60 bcf of gas.
In February 2019, the Italian Parliament approved a moratorium of 18 months in
the award of new licenses and a 25-fold increase of license fees. Exploenergy
has subsequently reduced its activity to the minimum required to fulfil its
statutory obligations. It has also identified areas which can be voluntarily
released in order to mitigate the impact of higher fees, when licenses are
awarded, with a minimum impact on their exploration potential.
In 2020, the moratorium was extended. In February 2022, the Plan for the
Sustainable Energy Transition of Suitable Areas ("PiTESAI") was approved by the
Ministry for Environmental Transition. It delivers a new framework for the
possible resumption of exploration and production activities on land and at
sea. Exploenergy is analysing the impact of this new regulation framework on
its activities. No exploration and evaluation assets are held on the Group
balance sheet in respect of the licences.
In February 2019, the Group entered in a 2-year loan agreement with Proger
Management & Partners Srl ("PMP") with an option to convert it into a 33%
equity interest in Proger Ingegneria Srl which in turn held at 31 December 2020
a 75.95% equity interest in Proger Spa. Proger is an Italian engineering
company providing services in Italy and in different international areas.
Cadogan did not exercise the Call Option. 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 fulfill 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. 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.
The arbitration process is going on. The investigation phase is closed. The
decision of the College of Arbitrators is expected in July 2022.
Strategic Report
The Strategic Report has been prepared in accordance with Section 414A of the
Companies Act 2006 (the "Act") and presented hereunder. Its purpose is to
inform stakeholders and help them assess how the Directors have performed their
legal duty under Section 172 of the Act to promote the success of the Company.
Section 172 Statement
The Company's section 172 statement is presented on page 35 and 36 and forms
part of this strategic report.
Principal activity and status of the Company
The Company is registered as a public limited company (registration number
05718406) in England and Wales. Its principal activity is oil and gas
exploration, development and production; the Company also conducts gas trading
and provides services.
The Company's shares have a standard listing on the Official List of the UK
Listing Authority and are traded on the Main Market of the London Stock
Exchange.
Key performance indicators
The Group monitors its performance through five key performance indicators
("KPIs"):
* to increase oil, gas and condensate production measured on the number of
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 incidents; and
* to grow geographically and operationally diversify the portfolio.
The Group's performance in 2021 against these KPI's is set out in the table
below, together with the prior year performance data.
Unit 2021 2020 2021 vs
2020
Average production (working boepd 350 291 20%
interest basis) 1
Overhead (G&A) $ million 3.7 3.8 (3%)
Basic loss per share 2 cents (2.1) (0.4) 425%
Lost time incidents 3 incidents - - -
Geographic diversification new assets - -
-
1. Average production is calculated as the average daily production during the
year
2. 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 year
3. Lost time incidents relate to the number of injuries where an employee/
contractor is injured and has time off work (IOGP classification)
Chairman's Statement
Our Group is involved in Ukraine since 2007 and is considered as a real foreign
investor in this country. The invasion of Ukraine by the Russian army has left
us deeply saddened. This war, as any war, has brought huge suffering and
destruction. All the Board stand in solidarity with the Ukrainian population.
The safety of our people is our highest priority. The Group is taking all
possible actions to preserve the safety of its employees and meet their needs.
2021 remained another challenging year above any expectation. The pandemic
Covid-19, that has been affecting all, and was followed by economic and social
instability worldwide and in Ukraine in particular. The measures that were
quickly implemented have allowed to protect our staff and keep the Group's
activities on-going. The effectiveness of these measures and the dedication of
everyone have been essential to achieve this result. Moreover, the Group is
proud to report zero fatalities, disabilities, or medical complications among
its staff since the beginning of the pandemic.
In 2021, Cadogan continued to be committed to the territory and the communities
where we operate and fully financed social programs commitment for 2021 as
agreed before with the Lviv Regional Administration and the local communities.
In a highly challenging context, Cadogan has delivered on its strategy of a
sustainable platform for growth. During 2021, the oil and gas markets
volatility had favorable impact on oil prices. The quick response of the Group
and the measures that were put in place have allowed the Group to mitigate the
operational and the economic challenges. The negative impacts were contained,
and improvements were brought to our activities despite the year loss.
With the ongoing war in the Country, we are expecting more uncertain times.
Despite all these challenges, the Group was able to improve its fundamentals
and operate at high industry standards. This was possible thanks to the
commitment of all with a competent and strong management. The Board remain
focused on maximizing value from our assets and build a future for getting a
profitable company with sustainable growth. Our objective remains the future
diversification of our geographical presence and of our activities in sectors
providing lower impacts on environment.
Michel Meeùs
Non-Independent Non-Executive Chairman
28 April 2022
Chief Executive's Review
In 2021, the business worldwide and in Ukraine has managed to operate in the
new Covid-19 volatile reality. However, the turbulence which resulted from the
pandemic of corona virus has continued to affect Ukraine and Cadogan's
activities. At the same time, during 2021 we witnessed recovery of the Brent
oil price exceeding $75 per bbl in December.
With the Covid-19 pandemic, it has been another challenging time for Ukraine as
with other countries. The government has been repeatedly tightening restriction
measures to get the virus spread under control and to mitigate Covid pandemic
distribution in the country as well as to launch a vaccination plan for the
population. Despite these measures, the level of fatalities caused by the virus
was one of the highest in Europe.
To keep its personnel safe, the Company continued to implement strict sanitary
and hygienic procedures and personal protection, constant medical supervision
during the work shift, regular sanitation of cars, offices and facilities. We
are proud to report zero fatalities among the staff.
While 2021 witnessed signs of recovery for the oil & gas industry, it has been
another difficult year for Ukraine. The government of Ukraine continued making
some progress towards the modernisation of its oil & gas legislative framework
as well as in its anti-corruption measures. However, this has not yet been
sufficient to create a favourable environment for the significant investments
needed to increase the Country's domestic production especially in the time of
instability all over the world. At the same time high oil and gas prices have
allowed to smoothen the trend of Ukraine's production decline, mainly due to
private operators' operational activity growth.
In 2021, Ukraine pursued efforts to attract new investments, including in its
oil and gas sector, by promoting incentives such as "investment nanny's", new
areas under e-auctions and award of Production Share Agreement (PSA). However,
the already existing risks of military escalation with Russian Federation and
the invasion threats have been a real stopping factor for foreign investments
in the oil and gas industry of Ukraine. In this uncertain context, Cadogan
remained one of the few truly foreign investors operating in Ukraine's E&P
sector.
Against this challenging background, Cadogan's operational activities performed
as following:
* a 20% increase in production, from 106,398 bbl in 2020 to 127,662 bbl in
2021. This allowed the Group to record in 2021 its highest net production
rate of 350 bbl per day, a 3 % decrease of overhead (G&A), from $3.8
million in 2020 to $3.7 million in 2021;
* a challenging year for trading which generated a positive result;
* a robust balance sheet, with $15 million of net cash, kept mostly in the UK
banks;
* another year without LTIs'
Core operations
Cadogan has continued to safely produce from its Blazhiv field in the West of
Ukraine. Oil production has increased by 20% over the previous year. The
uninterrupted production of four wells during 2021, and the optimization of the
mechanical production regimes with the stimulation of Blazh-10 well, have
allowed to achieve such positive results.
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 25
February 2020, Cadogan filed two claims with the Administrative Court to
acknowledge inaction of SGS as unlawful and to grant the right to carry out
commercial activities on the Bitlyanska field. In February 2022 the Company
received information from a public register that the claim was rejected by the
Court. Usenco Nadra has not yet been formally notified by the Administrative
Court of this decision. Despite the restrictions imposed by the martial law in
Ukraine, Usenco Nadra exercised its right for appeal against this decision.
In the Pirkovska license notwithstanding, the Court of First Instance hearing
results and partial satisfaction of LLC Astrogaz claim, the Supreme Court,
similar to the Appeal Court, rejected the claim of Astrogaz in December 2021.
This decision will not have a financial impact as Pirkovska license had been
totally impaired before.
Operational excellence of the Group has been confirmed again by zero LTI or
TRI, with a total over 1,400,000 manhours since the last incident, and the
renewal of ISO 14001 & 45001 certifications for a new 3-year term.
The activity in Italy has been limited to routine housekeeping.
Non E&P operations
Cadogan sold 7,56 million m3 of gas stored. The Company continues to monitor
the gas markets in Europe and Ukraine, but in light of the extreme volatilities
the Company follows its prudent and low risk trading strategy.
The oil services activities were used primarily to serve the Group's wells'
operations.
Proger
In February 2019, Cadogan used part of its cash (euros 13.385 million) to enter
into a 2-year Loan Agreement with Proger Managers & Partners, together with a
Call Option Agreement to convert it, subject to shareholders' approval into a
33 % equity interest in Proger Ingegneria which in turn held, as at 31 December
2021, a 96.48% equity interest in Proger.
As at 25 February 2021, being the Maturity Date, the Call Option was not
exercised and accordingly to its previous notification Cadogan demanded
repayment of the Loan together with the accumulated interest which in total
amounted Euro 14,857,350. After five business days, PMP was in default and
asked for an additional term that ended on 19 March 2021. The terms of the Loan
Agreement provide for an additional default interest of 2%. At this time, the
Group reclassified the loan instrument from fair value through profit and loss
to a loan at amortised cost. End of March 2021, PMP contested the default
situation and the obligation to reimburse and asked for an Arbitration,
according to the said Loan Agreement, to get the Loan Agreement recognized as
an equity investment contract. Cadogan consider PMP's arguments as groundless
and consider that they are intended to delay PMP reimbursement obligations. The
Arbitration process is ongoing. The investigation phase is closed. The decision
of the College of Arbitrators is expected in July 2022.
Outlook
After several months of military confrontation, Russia invaded Ukraine on 24
February 2022. The safety of our employees is our highest priority. We are in
daily close contact with them and doing all we can to ensure their safety and
their essential needs.
The war is increasingly affecting the economy of Europe and exacerbating
ongoing economic challenges, including issues such as rising inflation and
supply-chain disruption. The degree to which the Group will be affected by them
largely depends on the nature and duration of uncertain and unpredictable
events, such as further military action and reactions to ongoing developments
by global financial markets. At the beginning of March 2022, the Company
stopped its production operations for 3 weeks and was able to resume them after
having secured its employees safety, the transactions with its customers and
deliveries. Starting the end of March 2022 and till the date of the report the
Group is operating in due course, production operates with a full capacity,
product shipments are not interrupted.
Despite all the difficulties and uncertain times, the Group has managed to
successfully preserve its human, operational and financial assets. Thanks to
its flexibility, the Group has been able to manage the fluctuations in
commodity prices and is prepared to manage such ongoing situation. However, the
delays, due to the pandemic Covid-19 and the arbitration process with PMP for
the recoverability of the loan provided in 2019, have led to postpone the
original plans for the business development and the diversification of our
activities. The Group maintains its objectives to invest in new activities with
a lower impact on environment, to continue to monitor and contain the
environmental impact of its existing oil and gas activities, and to diversify
geographically its presence. In the current circumstances of the war in
Ukraine, its unpredictable duration and the related uncertainties impacting the
general economy, our Group will continue to maintain a prudent business
development approach taking into account our available resources and the
economic momentum of the targeted business areas.
Fady Khallouf
Chief Executive Officer
28 April 2022
Operations Review
Overview
At 31 December 2021, in the west of Ukraine, the Group held working interests
in one conventional gas, condensate and oil exploration and production license
and was expecting the Court decision for the award of the new license for
another one. These assets are operated by the Group and are located in the
Carpathian basin in close proximity to the Ukrainian gas distribution
infrastructures.
Summary of the Group's licenses (as at 31 December 2021)
Working License Expiry License type(1)
interest (%)
99.8 Blazhiv November 2039 Production
99.8 Bitlyanska(2) December 2019 E&D
(1) E&D = Exploration and Development
(2) The Bitlyanska license expired on 23 December 2019 and its renewal is in
the process of litigation. Usenco filed a claim at the Court of Appeal.
East Ukraine
The Pirkivska production license expired in 2015. Astrogaz applied for a new
license. After several years and the end of the 3-year period allowed for
conversion of the previous license, the Company initiated court proceedings to
defend its rights and to challenge the Licensing Authority's actions. As the
result, the Court of First Instance has partly satisfied the claim and
confirmed inaction of the Licensing Authority and obliged it to review the
application. Astrogaz introduced a claim with the Court of Appeal proposing
license award approval. In its decision of February 2021, the Court of Appeal
rejected the Astrogaz claim. In March 2021, the Company filed an appeal with
the Supreme Court. The Supreme Court rejected the claim of Astrogaz in December
2021.
West Ukraine
E&P activity remained focused on maintaining and securing its licenses for the
new term and safely and efficiently producing from the existing wells as well
as implementing non-invasive production enhancement scenarios within the
Blazhiv oil field.
The Bitlyanska license covers an area of 390 square kilometers. Bitlyanska,
Borynya and Vovchenska are three hydrocarbon discoveries in this license area.
The Borynya and Bitlya fields hold 3P reserves, contingent recoverable
resources and prospective resources. Vovchenska field holds contingent
recoverable resources.
Borynya 3 and Vovche-2 wells are suspended and routinely monitored. All
activities in the area are temporarily on hold until the license award is
granted. However, the State Geological Service failed to meet the timeline for
responding to the application provided for under legislation and, subsequently
rejected the application.
The Group filed to the State Geological Service an application for a 20-year
production license 5 months ahead the license expiry date of 23 December 2019.
The Group secured approval of the Environmental Impact Assessment study by the
Ministry of Ecology, the approval of the Reserves Report by the State
Commission of Reserves and the approval of the license award by the Lviv
Regional Council. Given the delay to award the new license beyond the regular
timeline provided by legislation, Cadogan filed two claims with the
Administrative Court to challenge the non-granting of the 20-year production
license by the Licensing Authority. During 2021 the claims have not been
considered by the Court due to delays caused by the Covid-19 pandemic. In
February 2022 the company received information from public register that its
claim was rejected by the Court of first instance. Usenco Nadra has not yet
been notified. Despite the restrictions imposed by the martial law in Ukraine,
Usenco Nadra exercised its right for appeal.
During 2021, the average gross oil production rated at 350bpd, which is 20%
higher than in 2020 (291bpd). Such result was achieved thanks to an
uninterrupted production of the four Blazhiv wells supported by optimization of
their operational regimes.
In 2021 the Company conducted and completed full hydrodynamic surveys of
Blazhiv-1, Blazh-3, Blazhiv-Monastyrets-3 and Blazhiv-10 wells.
For the purpose of geological construction precision of Blazhiv oil field and
Monastyretska fold and also identification of new perspective structures within
the license area boundary, Cadogan has launched analyses for data reprocessing
and reinterpretation of old 2D seismic data. Upon works completion, it is
expected to receive required data for field skeleton structural and tectonic
modeling. The structural tectonic and petrophysical modeling of the area,
hydrocarbons reserves & resources reassessment as well as the hydrodynamic
model refining is planned to be conducted after the completion of the seismic
reprocessing/ reinterpretation.
Gas trading
Cadogan thoroughly monitored EU and Ukraine gas markets evolution to define
best momentum for trading in the challenging environment of 2021. In 2021, the
Company sold 7.56 million m3 at favorable conditions. The Company has no gas in
storage at the year ended 31 December 2021. In light of these extreme
volatilities, the Company, following its prudent and low risk trading strategy,
decided to monitor the appropriate time for resuming trading activity.
Service
The Group continued to provide services through its wholly owned subsidiary
Astroservice LLC. The provided services were primarily focused on serving
intra-group operational needs in wells' re-entry/ repairs and stimulation
operations, well surveys and field on-site activities.
Other events
After an inspection conducted by Ukraine's tax authorities in September 2019,
Astroinvest Energy LLC was notified of a tax claim related to the historic
costs for the liquidation of wells on the Zagoryanska license. The tax
authorities notified Astroinvest Energy LLC that they consider recoverable VAT
totalling $3.6 million, that has subsequently been used to offset output VAT,
to be non-deductible. They additionally consider that the subsidiary's tax
losses carry forward of $15.3 million should be reduced (note 21). Astroinvest
Energy LLC has launched a claim against the tax authority's decision based on
the current tax legislation and related court decisions. The Company has won
litigation in the Court of First Instance and in the Court of Appeal. The
Court's decision has come into legal force. The tax authorities filed an appeal
with the Supreme Court, the decision of which is expected during 2022.
In October 2021 Cadogan has reached an agreement with Actio Law Firm
(registered in Ukraine) for the sale of Ramet Holdings Limited, a wholly owned
Cypriot subsidiary. This transaction has allowed to minimize related
administrative costs and to optimize corporate structure.
Financial Review
Overview
In 2021, the Group increased its production by 20%, and the average realized
oil price increased by 69%. As a result, E&E revenue increased significantly
compared to the previous year. The Group's operating divisions delivered a
profit of $1.8 million (2020: profit of $0.5 million) (note 5) before the
impairment of oil and gas assets which is recognized due to the longer dispute
process on Bitlyanska license award.
The E&P business positively contributed to the financial results of the Group,
due to the increase in oil prices and the increase of production volume. The
average realized oil price increased by 69% from $32.9 to $55.7 per barrel. The
services business focused on providing workover services to the subsidiaries of
the Group. The trading business realized all stored gas in the first half and
made a positive contribution to the Group's performance.
Cash position increased to $15.0 million as at 31 December 2021 compared to
$13.3 million as at 31 December 2020. This was mostly due to the sales of 7.56
mcm of natural gas which were held in inventory at the beginning of the year
and the positive result of the E&P segment of business.
Income statement
Revenues from production increased from $3.5 million in 2020 to $7.0 million in
2021, reflecting a combination of an increase of the production volume from
106,398 boe in 2020 to 127,662 boe in 2021 supported by an increase in average
realized prices by 69 %. E&P costs of sales increased from $3.0 million in 2020
to $5.3 million in 2021. These include production royalties and taxes, fees
paid for the rented wells, depreciations, depletion of producing wells, direct
staff costs and other costs for exploration and development. Overall, in 2021,
E&P made a positive contribution of $1.8 million (2020: $0.4 million) to gross
profit.
The oil services business in 2021 remained focused on internal activities
providing its services, including drilling and workover, to the Group's
subsidiaries.
The gas trading business revenues slightly increased from $1.6 million in 2020
to $1.8 million in 2021, cost of sales decreased, from $1.4 million in 2020 to
$1.1 million in 2021, resulting in an overall gross margin of $0.7 million
(2020: $0.2 million).
Administrative expenses ("G&A") remained contained with a slight decrease in
2021, note 7.
Impairment of oil and gas assets totalled $2.5 million representing the
recognition of impairment of the Bitlyanska license. Impairment of other assets
includes impairment of other inventories of $1.0 million (2020:nil).
The Group recognized interest on the Proger loan of $1.2 million. Refer to note
26 for details.
Net finance income of $25 thousand (2020: $40 thousand) reflects interest
income on cash deposits used for trading of $68 thousand (2020: $25 thousand);
ii) investment revenue of $8 thousand (2020: $37 thousand); less iii) Unwinding
of discount on decommissioning provision of $23 thousand (2020: $22 thousand);
iv) $28 thousand of finance expenses recognized on lease (2020: nil).
Balance sheet
Intangible Exploration and Evaluation ("E&E") assets have been impaired to $nil
(2020: $2.4 million) due to the legal dispute on the Bitlyanska license award
and the uncertainty on the legal timeframe due to the ongoing war. The Property
Plant & Equipment (PP&E) balance was $9.6 million at 31 December 2021 (2020:
$9.9 million). It primarily represents the carrying value of the assets
invested and engaged in Blazhiv license. The E&E and PP&E are held by Ukrainian
subsidiaries with functional currency Ukrainian Hryvna. Ukrainian Hryvna
improved its value as at 31 December 2021 compared to 31 December 2020
generating a movement in the E&E and PP&E value presented in the US Dollar.
Trade and other receivables of $0.3 million (2019: $1.6 million) include $0.1
million of recoverable VAT (2020: $1.5 million), which is expected to be
recovered through production activities, and $0.2 million (2020: $0.1 million)
of other receivables.
Inventories reduced from $2.2 million to $0.2 million principally due to the
sale of gas volumes held in storage at 31 December 2020 and additional
provision recognized on other inventories.
The Proger loan was held at amortised cost at $16.7 million (2020: $16.8
million). The loan has been reclassified as current based on the maturity in
2021 and anticipated receipt. Refer to the Chief Executives Report for further
details together with note 4(d) and 26.
The $1.5 million of trade and other payables as of 31 December 2021 (2020: $1.4
million) consist of $0.6 million (2020: $0.5 million) of accrued expenses and
$0.9 million (2019: $0.9 million) of other creditors.
Provisions include $0.3 million (2020: $0.2 million) of long-term provision for
decommissioning costs which represents the present value of costs that are
expected to be incurred in 2039 for producing assets, when the licenses will
expire.
Net cash increased to $15.0 million at 31 December 2021 compared to $13.3
million at 31 December 2020. This was mostly due to the sale of 7.6 mcm of
natural gas which has been at stock at the beginning of the year and supported
by production result for the year 2021.
Cash flow statement
The Consolidated Cash Flow Statement on page 81 shows operating cash outflow
before movements in working capital of $0.4 million (2020: outflow of $2.5
million), which represents mostly cash used by the E&P and Trading business
segment net of corporate expenses.
Positive operating cash flow from movements in working capital is represented
mostly by movements in inventory and VAT recoverable positions due to the sales
of natural gas and oil during 2021.
Cash outflow from investing activities represents investments in Blazhiv field
during the year 2021.
Related party transactions
Related party transactions are set out in note 28 to the Consolidated Financial
Statements.
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.
Risks and uncertainties
There are several potential risks and uncertainties that could have a material
impact on the Group's long-term performance and could cause the results to
differ materially from expected and historical results. Executive management
review the potential risks and then classify them as having a high impact,
above $5 million, medium impact, above $1 million but below $5 million, and low
impact, below $1 million. They also assess the likelihood of these risks
occurring. Risk mitigation factors are reviewed and documented based on the
level and likelihood of occurrence. The Audit Committee reviews the risk
register and monitors the implementation of risk mitigation procedures via
Executive management, who are carrying out a robust assessment of the principal
risks facing the Group, including those potentially threatening its business
model, future performance, solvency and liquidity.
The Group has analysed the following categories as key risks:
Risk Mitigation
War risks
Since Spring 2021, Russia has Anticipating the beginning of the war, the
gradually increased the Group put in place, since the beginning of
concentration of military equipment, February 2022, emergency procedures
weapons and troops near the communicated to all employees on the
Ukrainian borders. On 24 February different sites in Ukraine with an Emergency
2022, the Russian troops attacked Committee communicating every day. Safety
Ukraine and invaded its territory. measures have been dispatched with a remote
Severe fights have been engaged in working organization. Specific measures have
Kyiv, and several other main cities been put in place for the operations on
like Kharkiv, Mariupol, Kherson, site. In case of need, specific measures
Chernihiv, . were put in place to suspend the operations
Missile attacks and bombing are used of the Blazhiv field wells, with technical
by the Russian troops to destroy measures for decommissioning and temporary
infrastructures and facilities even conservation of the wells. The transmission
in the western cities, like Lviv. and internet connection systems have been
Cyber-attacks have increased. Given secured with a satellite connection. IT
the unpredictability of the issue of security has been reinforced. Since February
this war, a full-scale invasion of 2022, the salaries are paid in anticipation
Ukraine or a much longer duration of to mitigate the risk of a shutdown of the
this war could have material impacts banking system. The Group is monitoring the
on the Group's operations and on its situation daily and taking appropriate
human, industrial and financial action to ensure the safety and the
resources. essential needs of its employees.
Operational risks
Health, Safety and Environment
("HSE")
The oil and gas industry by its The Group maintains a HSE management system
nature conducts activities, which in place and demands that management, staff
can cause health, safety and and contractors adhere to it. The system
environmental incidents. Serious ensures that the Group meets Ukrainian
incidents can have not only a legislative standards and for the CO2
financial impact but can also damage emissions the British standards and achieves
the Group's reputation and the international standards to the maximum
opportunity to undertake further extent possible.
projects. Management systems and processes have been
certified as ISO 14001 and ISO 45001
compliant.
Covid-19
The Group's operations are in To manage and where possible mitigate the
Ukraine with a Parent Company risk of personnel infection with the virus
located in the United Kingdom. These for our employees, special measures have
locations are suffering from been applied. These include administrative
increasing levels of Covid-19 personnel remote working, strict sanitary
infection and in due course there and hygienic procedures and personal
may be increasing disruption. This protection, rotation of field personnel by
may include potential impacts company cars, constant medical supervision
through illness amongst our during the work shift, regular sanitation of
workforce, supply chain and sales cars, offices and facilities. The covid-19
channel disruption and the wider treatment package has been included into the
impact of economic disruption on staff medical insurance coverage. We
commodity prices. The national and continue to monitor the situation closely
local governments in each of our and will respond accordingly as the position
operating locations are recommending develops. To prevent the spread of covid-19,
or implementing increasingly severe the Group continued to strictly maintain
restrictions in order to manage the administrative and healthcare measures, to
situation. provide safe working conditions for its
employees as well as ensuring reasonable
vaccination level.
Climate change
After the Paris Agreement (COP 21) A moratorium on domestic production is
the international community is deemed highly unlikely in Ukraine given the
committed to reduce greenhouse gas country's need for affordable energy. Such
emissions to slow down the climate risks exist in Italy, but the Group's
change and contain its effects. exposure there is limited.
Countries may impose moratorium on E Management strives to reduce emissions in
&P activities or enact tight limits everything the Group does and has started
to emissions level, which may implementing alternatives to offset and/or
curtail production. Shareholders may mitigate emissions. In 2021, the Group will
also request that the Company adopt review its administrative and operational
stringent targets in terms of process to identify the areas of further
emissions reduction. improvement in the limitation of its
environmental impact. For the future,
Cadogan is going to diversify its activities
by investing in new activities with a lower
impact on environment.
Drilling and Work-Over operations
The technical difficulty of drilling The incorporation of detailed sub-surface
or re-entering wells in the Group's analysis into a robustly engineered well
locations and equipment limitations design and work programme, with appropriate
can result in the unsuccessful procurement procedures and competent on-site
completion of the well. management, aims to minimise risk. Only
certified personnel are hired to operate on
the rig floor. Contractor's access to the
operational sites is allowed only after
control of staff qualification and check-up
of appropriate technical condition of the
equipment and machinery
Production and maintenance
There is a risk that production or All plants are operated and maintained at
transportation facilities could fail standards above the Ukrainian minimum legal
due to non-adequate maintenance, requirements. Operative staff are
control or poor performance of the experienced and receive supplemental
Group's suppliers. training to ensure that facilities are
properly operated and maintained. When not
in use the facilities are properly kept
under conservation and routinely monitored.
Service providers are rigorously reviewed at
the tender stage and are monitored during
the contract period.
Sub-surface risks
The success of the business relies All externally provided and historic data is
on accurate and detailed analysis of rigorously examined and discarded when
the sub-surface. This can be appropriate. New data acquisition is
impacted by poor quality data, considered, and appropriate programmes
either historic or recently implemented, but historic data can be
gathered, and limited coverage. reviewed and reprocessed to improve the
Certain information provided by overall knowledge base. Agreements with
external sources may not be qualified local and international
accurate. contractors have been entered into to
supplement and broaden the pool of expertise
available to the Company.
Data can be misinterpreted leading All analytical outcomes are challenged
to the construction of inaccurate internally and peer reviewed. Analysis is
models and subsequent plans. performed using modern geological software.
The area available for drilling Bottom hole locations are always checked for
operations is limited due to their operational feasibility, well
logistics, infrastructures and trajectory, rig type, and verified on
moratorium. This increases the risk updated sub-surface models. They are
for setting optimum well rejected if deemed to be too risky.
coordinates.
The Group may not be successful in The Group performs, on an annual basis, a
proving commercial production from review of its oil and gas assets, impairs if
its Bitlyanska licence and necessary, and considers whether to
consequently the carrying values of commission a review from a third party or a
the Group's oil and gas assets may Competent Person's Report ("CPR") from an
have to be impaired. independent qualified contractor depending
on the circumstances.
Financial risks
The Group is at risk from changes in Revenues in Ukraine are received in UAH and
the economic environment both in expenditure is made in UAH, however the
Ukraine and globally, which can prices for hydrocarbons are implicitly
cause foreign exchange movements, linked to USD prices.
changes in the rate of inflation and
interest rates and lead to credit The Group continues to hold most of its cash
risk in relation to the Group's key reserves in the UK mostly in USD and Euro.
counterparties. Cash reserves are placed with leading
financial institutions, which are approved
by the Audit Committee. Foreign exchange
risk is considered a normal and acceptable
business exposure and the Group does not
hedge against this risk for its E&P
In February 2019, Cadogan entered operations.
into a 2-year Loan Agreement (Euros
13.385 million) with Proger For trading operations, the Group matches
Management & Partners with a Call the revenues and the source of financing.
Option to convert it into a 33 %
equity interest in Proger Ingegneria
which represented a key transaction The terms of the agreement are clear and
and element of the Group balance include the right to repayment at maturity
sheet. At 25 February 2021, being if the Call Option is not exercised. As
the Maturity Date, Cadogan did not security for the reimbursement of the loan,
exercise its Call Option and PMP Cadogan benefits from a pledge over the
must reimburse EUR 14,857,350. End shares held by Proger Managers & Partners in
of March 2021, PMP did not reimburse Proger Ingegneria. In addition to that,
and asked for an arbitration to get Cadogan is engaging all the necessary
the Loan Agreement recognized as an actions in the Arbitration process and more
equity investment contract. generally the adequate legal actions to
protect the interests of the Company and all
of its stakeholders. The investigation is
closed. The decision of the College of
Arbitrators is expected in July 2022.
Refer to note 26 to the Consolidated
Financial Statements for detail on financial
risks.
The Group is at risk that Procedures are in place to scrutinize new
counterparties will default on their counterparties via a Know Your Customer
contractual obligations resulting in ("KYC") process, which covers their
a financial loss to the Group. solvency. In addition, when trading gas, the
Group seeks to reduce the risk of customer
non-performance by limiting the title
transfer to product until the payment is
received, prepaying only to known credible
suppliers.
The Group is at risk that The Group mostly enters back-to-back
fluctuations in gas prices will have transactions where the price is known at the
a negative result for the trading time of committing to purchase and sell the
operations resulting in a financial product. Sometimes the Group takes exposure
loss to the Group. to open inventory positions when justified
by the market conditions in Ukraine, which
is supported by analysis of the specific
transactions, market trends and models of
the gas prices and foreign exchange rate
trends.
Country risks
Legislative changes may bring Compliance procedures, monitoring and
unexpected risk and create delays in appropriate dialogue with the relevant
securing licenses or ultimately authorities are maintained to minimize the
prevent licenses and license risk. In all cases, deployment of capital in
renewals /conversions from being Ukraine is limited and investments are kept
secured. at the level required to fulfil license
obligations.
Other risks
The Group's success depends upon The Group periodically reviews the
skilled management as well as compensation and contract terms of its staff
technical and administrative staff. in order to remain a competitive employer in
The loss of service of critical the markets where it operates.
members from the Group's team could
have an adverse effect on the
business.
The Group is at risk of The Group applies rigorous screening
underestimating the risk and criteria in order to evaluate potential
complexity associated with the entry investment opportunities. It also seeks
into new countries. input from independent and qualified experts
when deemed necessary. Additionally, the
required rate of return is adjusted to the
perceived level of risk.
Local communities and stakeholders The Group maintains a transparent and open
may cause delays to the project dialogue with authorities and stakeholders
execution and postpone activities. (i) to identify their needs and propose
solutions which address them as well as (ii)
to illustrate the activities which it
intends to conduct and the measures to
mitigate their impact. Local needs and
protection of the environment are always
taken into consideration when designing
mitigation measures, which may go beyond the
legislative minimum requirement.
The Group devotes the highest level of
attention and engage qualified consultants
to prepare the Environmental Impact
Assessment studies and to attend public
hearings, both introduced in Ukraine in the
course of 2019.
Statement of Reserves and Resources
In 2021, the company conducted routine rig-less production support activities
at the Blazhiv-1, Blazhiv-3 and Blazhiv-Monastyrets-3 and Blazhiv-10 wells to
maintain sustainable production using sucker rod pumping systems.
Summary of Reserves1
at 31 December 2021
Mmboe
Proved, Probable and Possible Reserves at 1 January 2021 7.38
Production 0.12
Bitlyanska Licence2 3.20
Proved, Probable and Possible Reserves at 31 December 4.06
2021
1 The study was conducted in 2016 by Brend Vik.
2 The Bitlyanska license expired on 23 December 2019 and its renewal is in the
process of litigation.
In addition to the tabled reserves, Cadogan has 0.6 million boe of contingent
resources associated with the Blazhiv licence.
Corporate Responsibility
Under Section 414C of the Companies Act 2006 (the "Act"), the Board is required
to disclose information about environmental matters, employees, human rights
and community issues, including information about any policies it has in
relation to these matters and the effectiveness of these policies.
Being sustainable in our activities means conducting our business with respect
for the environment and for the communities hosting us, with the aim of
increasing the benefit and value to our stakeholders. We recognize that this is
a key element to be competitive and to maintain our license to operate.
The Board recognizes that the protection of the health and safety of its
employees, the communities and the environment in which it operates is not just
an obligation but is part of the personal ethics and beliefs of management and
staff. These are the key drivers for a sustainable development of the Company's
activity. Cadogan Petroleum, its management and employees are committed to
continuously improve Health, Safety and Environment (HSE) performance; follow
our Code of Ethics and apply, in conducting our operations, internationally
recognized best practices and standards.
Our activities are carried out in accordance with a policy manual, endorsed by
the Board, which has been disseminated to all staff. The manual includes a
Working with Integrity policy and policies on business conduct and ethics,
anti-bribery, the acceptance of gifts and hospitality and whistleblowing. Such
policies are subject to regular review.
In August 2018, Cadogan Ukraine LLC obtained ISO 14001 and ISO 45001
certifications for the following scope: "Supervision, coordination, management
support, control in the field of oil and gas on-shore exploration and
production." This provides formal recognition of the process embedded in the
Company and demonstrates the commitment and efforts delivered by our employees
and management. It is considered a baseline to continue with the efforts to
improve the way we conduct the business.
The Board believes that health and safety procedures and training across the
Group should be in line with best practice in the oil and gas sector.
Accordingly, it has set up a committee to review and agree on the health and
safety initiatives for the Company and to report back to the Board on the
progress of these initiatives. Management regularly reports to the Board on HSE
and key safety and environmental issues, which are discussed at the Executive
Management level. The report of the Health, Safety and Environment Committee
can be found on page 40 to 41.
The General Director of Cadogan Ukraine is the acting Chairman of the HSE
Committee and is supported in his role by Cadogan Ukraine's HSE Manager. In
accordance with the ISO 14001 and ISO 45001, his role is to ensure that the
Group continuously develops suitable procedures, that operational management
and their teams incorporate them into daily operations and that the HSE
management has the necessary level of autonomy and authority to discharge their
duties effectively and efficiently.
Health, safety and environment
2021 was still challenging with COVID-19 pandemic. Cadogan applied special
measures to mitigate the risk of personnel infection with the virus. All
personnel have been instructed on the situation, remote access to the working
environment has been settled for all office personnel to restrict contacts to
minimum, field personnel are provided with transfer to the oil field, all
personnel are provided with respirators and antiseptics, temperature control is
performed before the start of each working day for all personnel who does not
work remotely. Besides, the Company is putting maximum efforts to ensure
reasonable vaccination level of the staff
The HSE management monitors health status of the personnel daily. Up to now, 15
employees of the company have been infected by Covid-19 during 2021. All of
them have fully recovered.
The Group has implemented an integrated HSE management system in accordance
with the ISO requirements. The system aims to ensure that a safe and
environmentally friendly/protection culture is embedded in the organization
with a focus on the local community involvement. The HSE management system
ensures that both Ukrainian and international standards are met, with the
Ukrainian HSE legislation requirements taken as an absolute minimum. All the
Group's local operating companies actively participate in the process. ISO
14001 and ISO 45001 certification were re-validated by the respective authority
in July 2020.
A proactive approach based on a detailed induction process and near miss
reporting has been in place throughout 2021 to prevent incidents. Staff
training on HSE matters and discussions on near miss reporting are recognized
as the key factors to continuously improve. In-house training is provided to
help staff meet international standards and follow best practice. The process
enacted by the certification, enhances attention to training on risk
assessments, emergency response, incident prevention, reporting and
investigation, as well as emergency drills regularly run-on operations' sites
and offices. This process is essential to ensure that international best
practices and standards are maintained to comply with, or exceed, those
required by Ukrainian legislation, and to promote continuous improvement.
The Board monitors the main Key Performance Indicators (lost time incidents,
mileage driven, training received, CO2 emissions) as business parameters. The
Board has benchmarked safety performance against the HSE performance index
measured and published annually by the International Association of Oil and Gas
Producers. In 2021, the Group recorded over 155,000 man-hours worked with no
incidents and over 1,400,000 hours have been worked since the last injury in
February 2016.
During 2021 the Group continued to monitor its greenhouse gas emissions and
collect statistical data relating to the consumption of electricity, industrial
water and fuel consumption by cars, plants and other work sites, recording a
continuous improvement in the efficient use of resources.
Employees
Wellness and professional development are part of the Company's sustainable
development policy and wherever possible, local staff are recruited. The
Group's activity in Ukraine is entirely managed by local staff. Qualified local
contractors are engaged to supplement the required expertise when and to the
extent it is necessary.
Procedures are in place to ensure that recruitment is undertaken on an open,
transparent and fair basis with no discrimination against applicants. Each
operating company has its own Human Resources function to ensure that the
Group's employment policies are properly implemented and followed. The Group's
Human Resources policy covers key areas such as equal opportunities, wages,
overtime and non-discrimination. As required by Ukrainian legislation,
Collective Agreements are in place with the Group's Ukrainian subsidiary
companies, which outline agreed level of staff benefits and other safeguards
for employees.
All staff are aware of the Group's grievance procedures. All employees have
access to health insurance provided by the Group to ensure that all employees
have access to adequate medical facilities.
Each employee's training needs are assessed on an individual basis to ensure
that their skills are adequate to support the Group's operations, and to help
them to develop.
Diversity
The Board recognizes the benefits and importance of diversity (gender, ethnic,
age, sex, disability, educational and professional backgrounds, etc.) and
strives to apply diversity values across the business. We endeavour to employ
a skilled workforce that reflects the demographic of the jurisdictions in which
we operate. The board will review the existing policies and intends to develop
a diversity policy.
Gender diversity
The Board of Directors of the Company comprised of five Directors as of 31
December 2021. The appointment of any new Director is made based on merit. See
pages 23 and 24 for more information on the composition of the Board.
As at 31 December 2021, the Company comprised a total of 78 persons, as
follows:
Male Female
Non-executive directors 3 1
Executive directors 1 -
Management, other than Executive directors 7 2
Other employees 44 20
Total 55 23
Human rights
Cadogan's commitment to the fundamental principles of human rights is embedded
in our HSE policies and throughout our business processes. We promote the core
principles of human rights pronounced in the UN Universal Declaration of Human
Rights and our support for these principles is embedded throughout our Code of
Conduct, our employment practices and our relationships with suppliers and
partners wherever we do business.
Community
The Group's activities are carried out in rural areas of Ukraine and the Board
is aware of its responsibilities to the local communities in which it operates
and from which some of the employees are recruited. In our operational sites,
management work with the local councils to ensure that the impact of operations
is as low as practicable by putting in place measures to mitigate their effect.
Projects undertaken include improvement of the road infrastructure in the area,
which provides easier access to the operational sites while at the same time
minimizing inconvenience for the local population and allowing improved road
communications in the local communities, especially during winter season or
harsh weather conditions. Specific community activities are undertaken for the
direct benefit of local communities. All activities are followed and supervised
by managers who are given specific responsibility for such tasks.
The Group's companies in the Ukraine see themselves as part of the community
and are involved and offer practical help and support. All these activities are
run in accordance with our "Working with Integrity" policy and procedures. The
recruitment of local staff generates additional income for areas that otherwise
are predominantly dependent on the agricultural sector.
The enactment in 2018 of new legislation which introduces Environmental Impact
Assessment studies and public hearings as part of the license's award/renewal
processes was anticipated effectively by the Group. The Group is complying with
these requirements, building on the recognized competence of its people and
advisors as well as on the good communication and relations established with
local communities.
Cadogan is committed to the territory and the communities where it operates and
has fully financed social programs commitment for 2021 as per signed Memorandum
between the Company, Lviv Regional Administration and local communities in 2019
In 2020, the Group's operating locations were suffering from levels of COVID-19
infection and normal working patterns have been disrupted. The national and
local governments in all regions are recommending and implementing restrictions
to manage the situation. The Group is following all the recommendations and
provides comprehensive measures inside the Group to restrict COVID-19 infection
and spread.
As part of its commitment to the local communities in which it operates, the
Group provided sanitary material to local medical institution to sustain the
efforts to contain the Covid-19 pandemic on the territory.
Approval
The Strategic Report was approved by the Board of Directors on 28 April 2022
and signed by order of the Board by:
Ben Harber
Company Secretary
28 April 2022
Board of Directors
Current directors
Michel Meeùs, 69, Belgian
Non-Independent non-executive Chairman
Mr Meeùs was appointed as a Non-executive Director on 23 June 2014. Mr. Meeùs
was former Chairman of the Board of Directors of Theolia, an independent
international developer and operator of wind energy projects. Since 2007, he
has been a director within the Alcogroup SA Company (which gathers the ethanol
production units of the Group), as well as within some of its subsidiaries.
Before joining Alcogroup, Mr Meeùs carved out a career in the financial sector,
at Chase Manhattan Bank in Brussels and London, then at Security Pacific Bank
in London, then finally at Electra Kingsway Private Equity in London.
Mr Meeus is currently Chairman of the Remuneration and Nomination Committees.
Fady Khallouf, 61, French
Chief Executive Officer
Fady Khallouf was appointed as Director and CEO on 15 November 2019. He has a
35-year experience in the energy, the environment, the engineering and the
infrastructure sectors. He has previously held the position of CEO and CFO of
FUTUREN (Renewable Energy, listed on Euronext Paris) where he achieved the
restructuring and the turnaround of the group. Prior to that, he was the CEO of
Tecnimont group (Petrochemicals and Oil & Gas), the Vice-President Strategy and
Development of EDISON group (Electricity and Gas, E&P), the Head of M&A of EDF
group (Energy). Fady Khallouf had beforehand held various management positions
at ENGIE (Energy), Suez (Environmental Services), and DUMEZ (Construction and
Infrastructures).
Lilia Jolibois, 57, American
Independent non-Executive Director
Lilia Jolibois was appointed as Director on 15 November 2019. She is currently
a member of three Boards: Cadogan Petroleum Plc, INSEAD Foundation, and CARA
(UK and Wales). She is also a Venture and CEO Advisor at Loyal Venture Capital,
a global VC fund. Her career spans Merrill Lynch Investment Banking, Sara Lee,
and Lafarge in the USA and Europe. At Lafarge Group, Ms. Jolibois served in
numerous positions in finance, strategy, business development, CEO and Chair of
the Board for Lafarge Cement and Gypsum in Ukraine, and SVP and Chief
Marketing-Sales-Supply Chain Officer for Lafarge Aggregates, Asphalt & Paving.
Lilia is currently Chairman of the Company's Audit Committee and a member of
the Remuneration and Nomination Committees.
Jacques Mahaux, 70, Belgian
Non-Executive Director
Jacques Mahaux was appointed as Director on 15 November 2019. He is currently
the partner and manager of EKHMA sarl and its permanent representative in the
Boards of Directors of OREA CAPITAL SA and AUREUS ARS ET SCIENTIA asbl. He has
held various executive and directorship positions in Group Crédit Agricole in
Luxembourg, CA Indosuez, Indosuez Bank and various Luxembourg and Swiss Holding
companies active in industrial sectors. Previously he acted as an Attorney at
Law at the Brussels Bar. He is a former Supervisory Board member and President
of the Audit Committee of ETAM SCA.
Mr Mahaux is currently a member of the Audit, Remuneration and Nomination
Committees.
Gilbert Lehmann, 76, French
Senior Independent Non-Executive Director
Mr Lehmann was appointed to the Board on 18 November 2011. He was an adviser to
the Executive Board of Areva, the French nuclear energy business, having
previously been its Deputy Chief Executive Officer responsible for finance. He
is also a former Chief Financial Officer and deputy CEO of Framatone, the
predecessor to Areva, and was CFO of Sogee, part of the Rothschild Group. Mr
Lehmann was also Deputy Chairman and Chairman of the Audit Committee of Eramet,
the French minerals and alloy business. He is Deputy Chairman and Audit
Committee Chairman of Assystem SA, the French engineering and innovation
consultancy. He was Chairman of ST Microelectronics NV, one of the world's
largest semiconductor companies, from 2007 to 2009, and stepped down as Vice
Chairman in 2011.
Mr Lehmann is currently a member of the Remuneration and Nomination Committees.
Report of the Directors
Directors
The Directors in office during the year and to the date of this report are as
shown below:
Non-Executive Directors Executive Director
Michel Meeùs (Chairman) Fady Khallouf
Gilbert Lehmann
Lilia Jolibois
Jacques Mahaux
Directors' re-election
The Board has decided previously that all Directors are subject to annual
election by shareholders, in accordance with industry best practice and as
such, all Directors will be seeking re-election at the Annual General Meeting
to be held on 24 June 2022.
The biographies of the Directors in office at the date of this report are shown
on pages 23 and 24.
Appointment and replacement of Directors
The Company's Articles of Association allow the Board to appoint any individual
willing to act as a Director either to fill a vacancy or act as an additional
Director. The appointee may hold office only until the next annual general
meeting of the Company whereupon his or her election will be proposed to the
shareholders.
The Company's Articles of Association prescribe that there shall be no fewer
than three Directors and no more than fifteen.
Directors' interests in shares
The beneficial interests of the Directors in office at 31 December 2021 and
their connected persons in the Ordinary shares of the Company at 31 December
2021 are set out below.
Director Number of
Shares
Michel Meeùs 26,000,000
Fady Khallouf 10,425,455
Gilbert Lehmann -
Lilia Jolibois -
Jacques Mahaux -
Conflicts of Interest
The Company has procedures in place for managing conflicts of interest. Should
a director become aware that they, or any of their connected parties, have an
interest in an existing or proposed transaction with the Company, its
subsidiaries or any matters to be discussed at meetings, they are required to
formally notify the Board in writing or at the next Board meeting. In
accordance with the Companies Act 2006 and the Company's Articles of
Association, the Board may authorize any potential or actual conflict of
interest that may otherwise involve any of the directors breaching his or her
duty to avoid conflicts of interest. All potential and actual conflicts
approved by the Board are recorded in register of conflicts, which is reviewed
by the Board at each Board meeting.
Directors' indemnities and insurance
The Company's Articles of Association provide that, subject to the provisions
of the Companies Act 2006, all Directors of the Company are indemnified by the
Company in respect of any liability incurred in connection with their duties,
powers or office. Save for such indemnity provisions, there are no qualifying
third-party indemnity provisions. In addition, the Company continues to
maintain Directors' and Officers' Liability Insurance for all Directors who
served during the year.
Powers of Directors
The Directors are responsible for the management of the business and may
exercise all powers of the Company subject to UK legislation and the Company's
Articles of Association, which includes powers to issue or buy back the
Company's shares given by special resolution. The authorities to issue and buy
back shares, granted at the 2021 Annual General Meeting, remains unused.
Dividends
The Directors do not recommend payment of a dividend for the year ended 31
December 2021 (2020: nil).
Principal activity and status
The Company is registered as a public limited company (registration number
05718406) in England and Wales. The principal activity and business of the
Company is oil and gas exploration, development and production.
Subsequent events
In February 2022, Usenco Nadra received information from a public register that
its claim was rejected by the Court of first instance. Despite the restrictions
imposed by the martial law in Ukraine, Usenco Nadra exercised its right for
appeal. As a result and given the present uncertainty on the process and
decision timing due to the ongoing war, the Group recognized impairment on the
full balance sheet value of E&E assets in an amount of $2.5 million.
After several months of military confrontation, Russia invaded Ukraine on 24
February 2022. The war is increasingly affecting the economy of Europe and
exacerbating ongoing economic challenges, including issues such as rising
inflation and supply-chain disruption. The degree to which the Group will be
affected by them largely depends on the nature and duration of uncertain and
unpredictable events, such as further military action and reactions to ongoing
developments by global financial markets. At the beginning of March 2022, the
Company stopped its production operations for 3 weeks and was able to resume
them after having secured its employees safety, the transactions with its
customers and deliveries. Starting the end of March 2022 and till the date of
the report the Group is operating in due course, production operates with a
full capacity, product shipments are not interrupted.
Structure of share capital
The authorized share capital of the Company is currently £30,000,000 divided
into 1,000,000,000 Ordinary shares of 3 pence each. The number of shares in
issue as at 31 December 2021 was 244,128,487 Ordinary shares (each with one
vote) with a nominal value of £7,323,854.61. The total number of voting rights
in the Company is 244,128,421. The Companies (Acquisition of Own Shares)
(Treasury Shares) Regulations 2003 allow companies to hold shares in treasury
rather than cancel them. Following the consolidation of the issued capital of
the Company on 10 June 2008, there were 66 residual Ordinary shares, which were
transferred to treasury. No dividends may be paid on shares whilst held in
treasury and no voting rights attached to shares held in treasury.
Rights and obligations of Ordinary shares
In accordance with applicable laws and the Company's Articles of Association,
holders of Ordinary shares are entitled to:
* receive shareholder documentation including the notice of any general
meeting;
* attend, speak and exercise voting rights at general meetings, either in
person or by proxy; and
* a dividend where declared and paid out of profits available for such
purposes. On a return of capital on a winding up, holders of Ordinary
shares are entitled to participate in such a return.
Exercise of rights of shares in employee share schemes
None of the share awards under the Company's incentive arrangements are held in
trust on behalf of the beneficiaries.
Agreements between shareholders
The Board is unaware of any agreements between shareholders, which may restrict
the transfer of securities or voting rights.
Restrictions on voting deadlines
The notice of any general meeting of the Company shall specify the deadline for
exercising voting rights and appointing a proxy or proxies to vote at a general
meeting. To accurately reflect the views of shareholders, where applicable it
is the Company's policy at present to take all resolutions at any general
meeting on a poll. Following the meeting, the results of the poll are released
to the market via a regulatory news service and published on the Company's
website.
Substantial shareholdings
As at 31 December 2021 and 21 April 2022, being the last practicable date, the
Company had been notified of the following interests in voting rights attached
to the Company's shares:
31 December 2021 21 April 2022
Major shareholder Number of % of total Number of % of
shares held voting shares total
rights held voting
rights
SPQR Capital Holdings SA 67,298,498 27.57 67,298,498 27.57
Mr Michel Meeùs 26,000,000 10.65 26,000,000 10.65
Ms Veronique Salik 17,959,000 7.36 17,959,000 7.36
Devola SA 17,409,000 7.13 17,409,000 7.13
Kellet Overseas Inc. 14,002,696 5.74 14,002,696 5.74
Mr Fady Khallouf 10,425,455 4.27 10,425,455 4.27
CA Indosuez Wealth Management 9,789,305 4.13 9,789,305 4.13
Mr Pierre Salik 7,950,000 3.26 7,950,000 3.26
Cynderella International SA 7,657,886 3.14 7,657,886 3.14
Amendment of the Company's Articles of Association
The Company's Articles of Association may only be amended by way of a special
resolution of shareholders.
Disclosure of information to auditor
As required by section 418 of the Companies Act 2006, each of the Directors as
at 28 April 2022 confirms that:
(a) so far as the Director is aware, there is no relevant audit information of
which the Company's auditor is unaware; and
(b) the Director has taken all the steps that he ought to have taken as a
Director in order to make himself aware of any relevant audit information and
to establish that the Company's auditor is aware of that information.
Going concern
The Group's business activities, together with the factors likely to affect its
future development, performance and position, are set out on pages 14 to 17.
Having considered the Company's financial position and its principal risks and
uncertainties, including uncertainties regarding the war in Ukraine and 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
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 Consolidated and Company Financial
Statements.
Reporting year
The reporting year coincides with the Company's fiscal year, which is 1 January
2021 to 31 December 2021.
Financial risk management objectives and policies
The Company's financial risk management objectives and policies including its
policy for managing its exposure of the Company to price risk, credit risk,
liquidity risk and cash flow risk.
Management co-ordinates access to domestic and international financial markets
and monitors and manages the financial risks relating to the operations of the
Group in Ukraine through internal risks reports, which analyse exposures by
degree and magnitude of risks. These risks include commodity price risks,
foreign currency risk, credit risk, liquidity risk and cash flow interest rate
risk. The Group does not enter into or trade financial instruments, including
derivative financial instruments, for speculative purposes.
Outlook
Future developments in the business of the Company are presented on page 9.
Change of control - significant agreements
The Company has no significant agreements containing provisions, which allow a
counterparty to alter and amend the terms of the agreement following a change
of control of the Company.
Should a change in control occur then certain Executive directors are entitled
to a payment of salary and benefits for a period of six months.
Streamlined energy and carbon reporting
This section contains information on greenhouse gas ("GHG") emissions required
by the Companies Act 2006 (Strategic Report and Directors' Report).
Methodology
The principal methodology used to calculate the emissions is drawn from the
'Environmental Reporting Guidelines: including mandatory greenhouse gas
emissions reporting guidance (June 2013)', issued by the Department for
Environment, Food and Rural Affairs ("DEFRA") and DEFRA GHG conversion factors
for company reporting were utilised to calculate the CO2 equivalent of
emissions from various sources (2018 update). Also, the used methodology was
also updated based on methods proposed by DNV GL and in of GHG emissions
Inventory referring to the following guidelines and international standards.
The Company has reported on all the emission sources required under the
Regulations.
The Company does not have responsibility for any emission sources that are not
included in its consolidated statement.
Consolidation approach and organisation boundary
An operational control approach was used to define the Company's organisational
boundary and responsibility for GHG emissions. All material emission sources
within this boundary have been reported upon, in line with the requirements of
the Regulations.
Scope of reported emissions
Emissions data from the sources within Scope 1 and Scope 2 of the Company's
operational boundaries is detailed below. This includes direct emissions from
assets that fall within the Company's organisational boundaries (Scope 1
emissions), as well as indirect emissions from energy consumption, such as
purchased electricity and heating (Scope 2 emissions).
Scope 1 emissions in 2021 increased compared to the previous year (13,063 tons
in 2021 vs 7,720 tons in 2020). This was caused by the increase of production
in 2021 and increase of the gas factor in the produced oil.
Conversely, Scope 2 emissions decreased in 2021 (137 tons in 2021 vs 143 tons
in 2020), as a result of the processes started in 2016 to improve the
efficiency of the structure, logistic and facilities. Total emissions in 2021
were 13,200 tons versus the 7,863 tons of 2020.
Intensity ratio
In order to express the GHG emissions in relation to a quantifiable factor
associated with the Company's activities, wellhead production of crude oil and
natural gas has been chosen as the normalisation factor for calculating the
intensity ratio. This will allow comparison of the Company's performance over
time, as well as with other companies in the Company's peer group.
The intensity ratio for E&P operations (same reporting perimeter) increased to
103,4 tons CO2e/Kboe in 2021 vs 73,9 tons CO2e/Kboe in 2020.
Total greenhouse gas emissions data for the year from 1 January to 31 December
Greenhouse gas emissions source E&P
2021 2020
Scope 1
Direct emissions, including combustion of fuel and 13,063 7,720
operation of facilities
(tonnes of CO2 equivalent)
Scope 2
Indirect emissions from energy consumption, such as 137 143
electricity and heating purchased for own use (tonnes of
CO2 equivalent)
Total (Scope 1 & 2) 13,200 7,863
Normalisation factor
Barrels of oil equivalent, net 127,662 106,398
Intensity ratio
Emissions reported above normalised to tonnes of CO2e per 103,4 73,9
total wellhead production of crude oil, condensates and
natural gas, in thousands of Barrels of Oil Equivalent, net
Energy consumption
The Company started in 2020 to monitor energy consumption in KwH.
2021 2020 % change
KwH KwH 2021 - 2020
Ukraine 572,890 547,545 4,6%
Energy consumption in the UK is immaterial.
2022 Annual General Meeting
The 2022 Annual General Meeting ("AGM") of the Company provides an opportunity
to communicate with shareholders and the Board welcomes their participation.
Board members constantly strive to engage with shareholders on strategy,
governance and a number of other issues.
The Board looks forward to welcoming shareholders to the AGM. The AGM notice
will be issued to shareholders well in advance of the meeting with notes to
provide an explanation of all resolutions to be put to the AGM. In addition,
shareholder information will be enclosed as usual with the AGM notice to
facilitate voting and feedback in the usual way.
The Chairman of the Board and the members of its committees will be available
to answer shareholder questions at the AGM. All relevant shareholder
information including the annual report for 2021 and any other announcements
will be published on our website - www.cadoganpetroleum.com.
This Report of Directors comprising pages 25 to 30 has been approved by the
Board and signed by the order of the Board by:
Ben Harber
Company Secretary
28 April 2022
Corporate Governance Statement
This Corporate Governance Statement forms part of the Directors' Report
As a Company listed on the standard segment of the London Stock Exchange it is
not required to apply a specific corporate governance code and, given its size,
has elected not to do so. However, the Board of the Company is committed to the
highest standards of corporate governance and believe that the 2018 UK
Corporate Governance Code ("the Code") issued by the Financial Reporting
Council ("FRC") and believes that the Code provides a suitable benchmark for
the Company's corporate governance framework. This Statement outlines how
Cadogan Petroleum plc ("Cadogan" or the "Company") has applied the relevant
principles of the Code and complied with its provisions.
This Statement outlines how Cadogan Petroleum plc ("Cadogan" or the "Company")
has applied the relevant principles of the Code and complied with its
provisions.
During the year under review, the Company complied with all the provisions of
the Code, other than the exceptions noted below or elsewhere in this statement:
* Provision 5 (Workforce Engagement): Given the size of the business, the
Board does not consider it appropriate to adopt the suggested methods
outlined within the UK Corporate Governance Code 2018 to engage with its
employees given the size of the Company. Employee engagement continues to
be undertaken by senior management and any issues are escalated to the
Board through the Chief Executive Officer. The Board believes that the
arrangements in place are effective but will continue to keep this under
review.
* Provision 9 (regarding the independence criteria of the Chair on
appointment): Under the 2018 Corporate Governance Code, the Company's
Chair, Mr Michel Meeùs, is not considered to be independent given the size
of his shareholding in the Company. Despite this, the Board considers Mr
Meeùs to be independent in character, mindset and judgement.
* Provision 21 (Board Evaluation): Given the size of the Board it was felt
that a board evaluation would not provide added value however the Board
will continue to assess this provision periodically.
* Provision 24 (Audit Committee Composition): Given the size of the Board,
the Audit Committee does not totally consist of independent non-executive
directors. Ms Lilia Jolibois, Independent non-executive director, chairs
the Audit Committee whilst Mr Jacques Mahaux, non-executive director, is a
member of the Audit Committee.
* Provision 32 (Remuneration Committee Composition): Given the size of the
Board, the Audit Committee does not totally consist of independent
non-executive directors. The Remuneration Committee consists of Mr Michel
Meeùs, Ms. Lilia Jolibois, Mr Jacques Mahaux and Mr Gilbert Lehmann.
Board Leadership and Company Purpose
The Board provides leadership and oversight, and its role is to ensure the
long-term success of the Company by implementing the Company's strategy and
business plan, overseeing its affairs, and providing constructive challenge to
management as they do this. In addition to this, the Board oversees financial
matters, governance, internal controls and risk management. The purpose of the
Board is to:
* monitor Group activities to see that sustainable value is being created;
* evaluate business strategies and monitor their implementation;
* monitor and review the performance of management;
* provide accountability to shareholders through appropriate reporting and
regulatory compliance;
* understand and ensure the management of operational business and financial
risks to which the Group is exposed; and
* ensure that the financial controls and systems of risk management are
robust and defensible
The Board comprises a Non-Independent non-executive Chairman, Chief Executive
Officer, two Independent Non-Executive Directors and a non-executive Director.
The Board has appointed Mr Lehmann as the Senior Independent Director.
The biographical details for each of the Directors and their membership of
Committees are incorporated into this report by reference and appear on pages
23 to 24.
The formal schedule of matters reserved for the Board's decision is available
on the Company's website.
The Board recognises the importance of building strong relationships with
stakeholders and understanding their views in order to help the Company deliver
its strategy and promote the development of the business over the long-term.
The Board is committed to having effective engagement with its stakeholders.
Our section 172 statement can be found on pages 35 to 36 which summarises the
Board's engagement with the Company's main stakeholders and some examples of
how their views have been taken into account in the Board's decision-making.
The Company seeks to ensure that it always acts lawfully, ethically and with
integrity. The Company has in place the following policies which the Board
reviews periodically:
* Code of Business Conduct and Ethics
* Anti-Bribery Policy
* Share Dealing Code
* Disclosure Policy
* Health, Safety and Environmental policies.
The Company has procedures in place for managing conflicts of interest. Should
a director become aware that they, or any of their connected parties, have an
interest in an existing or proposed transaction with the Company, its
subsidiaries or any matters to be discussed at meetings, they are required to
formally notify the Board in writing or at the next Board meeting. In
accordance with the Companies Act 2006 and the Company's Articles of
Association, the Board may authorize any potential or actual conflict of
interest that may otherwise involve any of the directors breaching his or her
duty to avoid conflicts of interest. All potential and actual conflicts
approved by the Board are recorded in register of conflicts, which is reviewed
by the Board at each Board meeting.
Directors' declarations of interests is a regular Board agenda item. A register
of directors' interests (including any actual or potential conflicts of
interest) is maintained and reviewed regularly to ensure all details are kept
up to date. Authorisation is sought prior to a director taking on a new
appointment or if any new conflicts or potential conflicts arise. New Directors
are required to declare any conflicts, or potential conflicts, of interest to
the Board at the first Board meeting after his or her appointment. The Board
believes that the procedures established to deal with conflicts of interest are
operating effectively.
Division of Responsibilities
The Directors possess a wide range of skills, knowledge and experience relevant
to the strategy of the Company, including financial, legal, governance,
regulatory and industry experience as well as the ability to provide
constructive challenge to the views and actions of executive management in
meeting agreed strategic goals and objectives.
The roles and responsibilities of the Chairman and Chief Executive Officer are
separate with a clear and formal division of each individual's
responsibilities, which has been agreed and documented by the Board.
The Non-Executive Directors bring an independent view to the Board's
discussions and the development of its strategy. Their range of experience
ensures that management's performance in achieving the business goals are
challenged appropriately. Two Non-Executive Directors, Ms Lilia Jolibois, and
Mr Gilbert Lehmann are considered by the Board to be independent. Mr Gilbert
Lehmann, Senior Independent non-executive Director, has served on the Board for
longer than 9 years since his appointment, the board is of the view that he
retains his independent judgement and continues to make a valuable contribution
to the board.
Mr Michel Meeùs, who is a significant shareholder and Mr Jacques Mahaux are not
considered independent as defined within the UK Corporate Governance Code 2018,
however the Board believes they are independent in character and judgement and
free from relationships or circumstances that could affect their judgement.
The Board has access to the advice of the company secretary.
Composition, Succession and Evaluation
The Company has established a nomination committee which leads the process for
Board appointments by identifying and nominating candidates for the approval of
the Board to fill Board vacancies and making recommendations to the Board on
Board's composition and balance. The Company's Nomination Committee Report can
be found on pages 42 to 43.
Under the Company's Articles of Association, all Directors must seek
re-election by members at least once every three years. However, the Board has
agreed that all Directors will be subject to annual election by shareholders in
line with Corporate Governance best practice. Accordingly, all members of the
Board will be standing for re-election at the 2022 Annual General Meeting due
to be held on 24 June 2022.
All Directors continue to be effective and have sufficient time available to
perform their duties. The letters of appointment for the Non-Executive
Directors are available for review at the Registered Office and prior to the
Annual General Meeting. Each of the Non-Executive Directors independently
ensures that they update their skills and knowledge sufficiently to enable them
to fulfil their duties appropriately.
The Chairman, in conjunction with the Company Secretary, plans the programme
for the Board during the year. While no formal structured continuing
professional development program has been established for the non-executive
Directors, every effort is made to ensure that they are fully briefed before
Board meetings on the Company's business. The agenda for Board and Committee
meetings are considered by the relevant Chairman and issued with supporting
papers during the week preceding the meeting. For each Board meeting, the
Directors receive a Board pack including management accounts, briefing papers
on commercial and operational matters and major capital projects including
acquisitions. The Board also receives briefings from key management on specific
issues.
Audit, Risk and Internal Control
The Board has delegated certain responsibilities to its committees including
its audit committee. The Company's Audit Committee Report can be found on pages
37 to 39.
The role of the Audit Committee is to monitor the integrity of the Company's
financial reporting, to review the Company's internal control and risk
management systems and to oversee the relationship with the Group's external
auditors. The Audit Committee focuses particularly on compliance with legal
requirements, accounting standards and the rules of the Financial Services
Authority. The Audit Committee will meet at least three times a year with
further meetings that are determined by the committee. Any member of the
committee or the external auditors may request any additional meetings they
consider necessary.
The Directors are responsible for the Group's system of internal control and
for maintaining and reviewing its effectiveness. The Group's systems and
controls are designed to safeguard the Group's assets and to ensure the
reliability of information used both within the business and for publication.
The Board has delegated responsibility for the monitoring and review of the
Group's internal controls to the Audit Committee.
Systems are designed to manage, rather than eliminate the risk of failure to
achieve business objectives and can provide only reasonable, and not absolute
assurance against material misstatement or loss.
The key features of the Group's internal control and risk management systems
that ensure the accuracy and reliability of financial reporting include clearly
defined lines of accountability and delegation of authority, policies and
procedures that cover financial planning and reporting, preparing consolidated
financial statements, capital expenditure, project governance and information
security.
The key features of the internal control systems, which operated during 2021
and up to the date of signing the Financial Statements are documented in the
Group's Corporate Governance Policy Manual and Finance Manual. These manuals
and policies have been circulated and adopted throughout the Group throughout
the period.
Day-to-day responsibility for the management and operations of the business has
been delegated to the Chief Executive Officer and senior management. Certain
specific administrative functions are controlled centrally. Taxation and
treasury functions report to the Group Director of Finance who reports directly
to the Chief Executive Officer.
The legal function for Ukraine's related assets and activities is managed by
the General Counsel, who reports to the General Director of Cadogan Ukraine.
The Health, Safety and Environment functions report to the Chairman of the HSE
Committee, the HSE Committee Report can be found on pages 40 to 41. The Group
does not have an internal audit function. Due to the small scale of the Group's
operations at present, the Board does not feel that it is appropriate or
economically viable to have an internal audit function in place, however this
will be kept under review by the Audit Committee on an annual basis.
The Board has reviewed internal controls and risk management processes, in
place from the start of the year to the date of approval of this report. During
the course of its review the Board did not identify nor were advised of any
failings or weaknesses which it has deemed to be significant.
A summary of the principal risks facing the Company and the mitigating actions
in place are contained on pages 14 to 17 of the annual report.
The Company's going concern is contained on page 28 of the annual report.
Further information on the work undertaken by the Committee during the year can
be found on pages 36 to 37 of the annual report.
Remuneration
The Board has established a Remuneration Committee and the Company's
Remuneration Committee Report can be found on pages 45 to 66 of the annual
report.
The role of the Remuneration Committee is to determine and agree with the Board
the broad policy for the remuneration of executives and Senior Managers as
designated, as well as for setting the specific remuneration packages,
including pension rights and any compensation payments of all executive
Directors and the Chairman. The Company's remuneration policies and practices
are designed to support its long-term strategy and promote the long-term
sustainable success of the Company.
Attendance at Meetings
Six Board meetings took place during 2021. The attendance of those Directors in
place at the year end at Board and Committee meetings during the year was as
follows:
Board Audit Nomination Remuneration
Committee Committee Committee
No. Held 6 3 1 2
No. Attended:
M Meeùs 6 n/a 1 2
F Khallouf 6 n/a n/a n/a
L Jolibois 6 3 1 2
G Lehmann 6 n/a 1 2
J Mahaux 6 3 1 2
Responsibilities and membership of Board Committees
The Board has agreed written terms of reference for the Nomination Committee,
Remuneration Committee, Audit Committee and HSE committee. The terms of
reference for the Board Committees are published on the Company's website,
www.cadoganpetroleum.com, and are also available from the Company Secretary at
the Registered Office. A review of the Committees including their membership
and activities of all Board Committees is provided on pages 37 to 44.
Relations with shareholders
The Chairman and Executive Directors of the Company have a regular dialogue
with analysts and substantial shareholders. The outcome of these discussions is
reported to the Board at quarterly meetings and discussed in detail. Mr
Lehmann, as the Senior Independent Director, is available to meet with
shareholders who have questions that they feel would be inappropriate to raise
via the Chairman or Executive Directors.
The Annual General Meeting is used as an opportunity to communicate with all
shareholders. In addition, financial results are posted on the Company's
website, www.cadoganpetroleum.com, as soon as they are announced. The Notice of
the Annual General Meeting is also contained on the Company's website,
www.cadoganpetroleum.com. It is intended that the Chairmen of the Nomination,
Audit and Remuneration Committees will be present at the Annual General
Meeting. The results of all resolutions will be published on the Company's
website, www.cadoganpetroleum.com.
Directors' section 172 statement
The disclosure describes how the Directors have regard to the matters set out
in section 172(1)(a) to (f) and forms the Directors' statement required under
section 414CZA of The Companies Act 2006. This new reporting requirement is
made in accordance with the new corporate governance requirements identified in
The Companies (Miscellaneous Reporting) Regulations 2018.
The matters set out in section 172(1) (a) to (f) are that a Director must act
in the way they consider, in good faith, would be most likely to promote the
success of the Company for the benefit of its members as a whole, and in doing
so have regard (amongst other matters) to:
(a) the likely consequences of any decision in the long term;
(b) the interests of the Company's employees;
(c) the need to foster the Company's business relationships with suppliers,
customers and others;
(d) the impact of the Company's operations on the community and the
environment;
(e) the desirability of the Company maintaining a reputation for high standards
of business conduct; and
(f) the need to act fairly between members of the Company.
Being sustainable in our activities means conducting our business with respect
for the environment and for the communities hosting us, with the aim of
increasing the benefit and value to our stakeholders. We recognize that this is
a key element to be competitive and to maintain our licence to operate.
Further details of how the Directors have regard to the issues, factors and
stakeholders considered relevant in complying with S 172 (1) (a)-(f), the
methods used to engage with stakeholders and the effect on the Group's decision
making can be found throughout the annual report and in particular pages 34
(which outlines how the Company engages with its stakeholders), pages 19 to 22
(which contains Cadogan's corporate responsibility statement) pages 28 to 29
(which contains the Company's report on greenhouse gas emissions) and page 34
(which outlines the ways in which the Company engages with its shareholders).
In particular, during 2021 the Directors reviewed the impact of Covid-19
pandemic on the processes of the Company and specifically its employees and the
communities in which it operates. Specific decisions and measures have been
taken to ensure the health and security and to provide assistance where needed
(pages 19 to 20).
Also, as a consequence of the continuous Covid-19 and the volatility of the oil
and gas prices, and their potential impact on the operational activities and
financial situation of the Group, the Directors carefully analysed the going
concern and any consequence on the future activities (pages 14 to 17).
The Group has implemented an integrated HSE management system aiming to ensure
a safe and environmentally friendly culture in the organization (pages 19 to
20). However, regarding the environmental sustainability of the Group's
activities, the Directors are fully aware of the need to direct future
development in new activities with a lower impact on environment (CEO outlook
page 9, 28).
When assessing the Proger instrument (Loan and Call Option), the Directors
carefully considered the issues and decisions with their impact on the Group
and all of its stakeholders (pages 8, 9,14-17).
The Board has a formal schedule of matters specifically reserved for its
decision, including approval of acquisitions and disposals, major capital
projects, financial results, Board appointments, dividend recommendations,
material contracts and Group strategy. For each Board meeting, the Directors
receive a Board pack including management accounts, briefing papers on
commercial and operational matters and major capital projects including
acquisitions. The Board also receives briefings from key management on specific
issues.
In particular, as a consequence of the increasing military confrontation
between Ukraine and Russia which ended with the invasion of Ukraine by Russia
in February 2022, the Board discussed the current situation prevailing in
Ukraine and its consequences on the security of the employees, the organization
of the operations in Ukraine and the potential impacts on its human, financial
and operational assets. The Group has been able to implement immediately
emergency procedures with safety and protection measures communicated to all
employees and put in place for every location. Specific measures have been put
in place for the operations on site to ensure the human, the industrial and the
environmental safety. The Group is monitoring the situation daily and taking
appropriate action to ensure the safety and essential needs of its employees.
Board Committee Reports
Audit Committee Report
The Audit Committee is appointed by the Board, on the recommendation of the
Nomination Committee, from the Non-Executive Directors of the Group. The Audit
Committee's terms of reference are reviewed annually by the Audit Committee and
any changes are then referred to the Board for approval. The terms of reference
of the Committee are published on the Company's website,
www.cadoganpetroleum.com, and are also available from the Company Secretary at
the Registered Office. Two members constitute a quorum.
Responsibilities
* To monitor the integrity of the annual and interim financial statements,
the accompanying reports to shareholders, and announcements regarding the
Group's results;
* To review and monitor the effectiveness and integrity of the Group's
financial reporting and internal financial controls;
* To review the effectiveness of the process for identifying, assessing and
reporting all significant business risks and the management of those risks
by the Group;
* To oversee the Group's relations with the external auditor and to make
recommendations to the Board, for approval by shareholders, on the
appointment and removal of the external auditor;
* To consider whether an internal audit function is appropriate to enable the
Audit Committee to meet its objectives; and
* To review the Group's arrangements by which staff of the Group may, in
confidence, raise concerns about possible improprieties in matters of
financial reporting or other matters.
Governance
Ms Jolibois and Mr Mahaux are both members of the Audit Committee. The Audit
Committee is chaired by Ms Jolibois who had relevant financial experience
within a major European company as well as holding several non-executive roles
in major international entities.
At the invitation of the Audit Committee, the Group Director of Finance and
external auditor regularly attend meetings. The Company Secretary attends all
meetings of the Audit Committee.
The Audit Committee also meets the external auditor without management being
present.
Activities of the Audit Committee
During the year, the Audit Committee discharged its responsibilities as
follows:
Assessment of the effectiveness of the external auditor
The Committee has assessed the effectiveness of the external audit process.
They did this by:
* Reviewing the 2021 external audit plan;
* Discussing the results of the audit including the auditor's views on
material accounting issues and key judgements and estimates, and their
audit report;
* Considering the robustness of the audit process;
* Reviewing the quality of the service and people provided to undertake the
audit; and
* Considering their independence and objectivity.
Financial statements
The Audit Committee examined the Group's consolidated and Company's financial
statements and, prior to recommending them to the Board, considered:
* the appropriateness of the accounting policies adopted;
* reviewed critical judgements, estimates and underlying assumptions; and
* assessed whether the financial statements are fair, balanced and
understandable.
Going concern
Notwithstanding the Group's current financial performance and position, the
Board are cognisant of the actual impacts on the Group of COVID-19 and
specifically the war situation in Ukraine. The Board has considered possible
reverse stress case scenarios for the impact on the Group's operations,
financial position and forecasts. Whilst the potential future impacts of
Covid-19 and the invasion of Ukraine by Russia are unknown, the Board has
considered operational disruption that may be caused by the factors such as a)
restrictions applied by governments, illness amongst our workforce and
disruption to supply chain and sales channels; b) market volatility in respect
of commodity prices associated with Covid-19 in addition to military and
geopolitical factors.
In addition to sensitivities that reflect future expectations regarding
country, commodity price and currency risks that the Group may encounter
reverse stress tests have been run to reflect possible negative effects of
Covid-19 and war in Ukraine. The Group's forecasts demonstrate that owing to
its cash resources the Group is able to meet its operating cash flow
requirements and commitments whilst maintaining significant liquidity for a
period of at least the next 12 months allowing for sustained reductions in
commodity prices and extended and severe disruption to operations should such a
scenario occur.
After making enquiries and considering the uncertainties described above, the
Committee has a reasonable expectation that the Company and the Group has
adequate resources to continue in operational existence for the foreseeable
future and consider the going concern basis of accounting to be appropriate.
Internal controls and risk management
The Audit Committee reviews and monitors financial and control issues
throughout the Group including the Group's key risks and the approach for
dealing with them. Further information on the risks and uncertainties facing
the Group are detailed on pages 14 to 17.
External auditor
The Audit Committee is responsible for recommending to the Board, for approval
by the shareholders, the appointment of the external auditor.
The Audit Committee considers the scope and materiality for the audit work,
approves the audit fee, and reviews the results of the external auditor's work.
Following the conclusion of each year's audit, it considers the effectiveness
of the external auditor during the process. An assessment of the effectiveness
of the audit process was made, considering reports from the auditor on its
internal quality procedures. The Committee reviewed and approved the terms and
scope of the audit engagement, the audit plan and the results of the audit with
the external auditor, including the scope of services associated with
audit-related regulatory reporting services. Additionally, auditor independence
and objectivity were assessed, considering the auditor's confirmation that its
independence is not impaired, the overall extent of non-audit services provided
by the external auditor and the past service of the auditor. A breakdown of the
non-audit fees is disclosed in note 10 to the Consolidated Financial
Statements. The Audit Committee has reviewed the nature, level and timing of
these services in the course of the year and is confident that the objectivity
and independence of the auditor are not impaired by the reason of such
non-audit work.
Internal audit
The Audit Committee considers annually the need for an internal audit function
and believes that, due to the size of the Group and its current stage of
development, an internal audit function will be of little benefit to the Group.
Whistleblowing
The Group's whistleblowing policy encourages employees to report suspected
wrongdoing and sets out the procedures employees must follow when raising
concerns. The policy, which was implemented during 2008 is reviewed
periodically. The Group's policies on anti-bribery, the acceptance of gifts
and hospitality, and business conduct and ethics are circulated to staff as
part of a combined manual on induction with changes regularly communicated.
Overview
As a result of its work during the year, the Audit Committee has concluded that
it has acted in accordance with its terms of reference and has ensured the
independence and objectivity of the external auditor.
The Chairman of the Audit Committee will be available at the Annual General
Meeting to answer any questions about the work of the Audit Committee.
Lilia Jolibois
Chairman of the Audit Committee
28 April 2022
Health, Safety and Environment Committee Report
The Health, Safety and Environment Committee (the "HSE Committee") is appointed
by the Board, on the recommendation of the Nomination Committee. The HSE
Committee's terms of reference are reviewed annually by the Committee and any
changes are then referred to the Board for approval. The terms of reference of
the Committee are published on the Company's website, www.cadoganpetroleum.com,
and are also available from the Company Secretary at the Registered Office. Two
members constitute a quorum, one of whom must be a Director.
Governance
The Committee is chaired by Mr Andrey Bilyi (Cadogan Ukraine General Director)
as acting Head of the HSE Committee and its other member is Ms Snizhana Buryak
(HSE Manager). The CEO attends meetings of the HSE Committee as necessary.
During 2021, the HSE Committee held four meetings to monitor the HSE risks and
activities across the business, following which actions were identified for the
continuous improvement of the various processes and the mitigation of risk.
Responsibilities
* To regularly maintain and implement the continuous improvement of the HSE
Management System with the aim of improving the Company's performances;
* To manage and mitigate the risks of personnel infection with covid-19
virus. Work-out respective administrative and healthcare measures to
provide safe working conditions for the employees. Prevent the spread of
covid-19 as well as ensuring staff reasonable vaccination level.
* Assessments of the risks to employees, contractors, customers, partners,
and any other people who could be affected by the Company's activities with
the aim of reducing the global risk of the Company and increasing its level
of acceptability;
* Evaluate the effectiveness of the Group's policies and systems for
identifying and managing health, safety and environmental risks within the
Group's operation;
* Assess the policies and systems within the Group for ensuring compliance
with health, safety and environmental regulatory requirements;
* Assess the performance of the Group with regard to the impact of health,
safety, environmental and community relations decisions and actions upon
employees, communities and other third parties and also assess the impact
of such decisions and actions on the reputation of the Group and make
recommendations to the Board on areas for improvement;
* On behalf of the Board, receive reports from management concerning any
fatalities and serious accidents within the Group and actions taken by
management as a result of such fatalities or serious accidents;
* Evaluate and oversee, on behalf of the Board, the quality and integrity of
any reporting to external stakeholders concerning health, safety,
environmental and community relations issues; and
* Where it deems it appropriate to do so, appoint an independent auditor to
review performance with regard to health, safety, environmental and
community relations matters and review any strategies and action plans
developed by management in response to issues raised and, where
appropriate, make recommendations to the Board concerning the same.
Activities of the Health, Safety and Environment Committee
The HSE Committee in discharging its duties reviewed and considered the
following:
* Company activities execution and control over contractors services
execution in line with company policies and HSE procedures
* Monthly statistics and reports on the activity were regularly distributed
to the CEO, Management and to the members of the committee;
* Ensured that the implementation of new legislation and requirements were
punctually followed-up and promptly updated;
* Compliance with HSE regulatory requirements was ensured through discussion
of the results of inspections, both internal inspections and those carried
out by the Authorities. The results of the inspections and drills were
analysed and commented to assess the need for corrective actions and/or
training initiatives;
* A standing item was included on the agenda at every meeting to monitor
monthly HSE performance, key indicators and statistics allowing the HSE
Committee to assess the Company's performance by analysing any lost-time
incidents, near misses, HSE training and other indicators;
* Interaction with contractors, Authorities, local communities and other
stakeholders were discussed among other HSE activities;
* Compliance to ISO 14001 and ISO 45001 has been proved by the authorized
third party auditor. Also the Company had its entire data calculation
process as well as emissions measurement system re-validated by a different
independent third party.
* Ensuring all the Observation and Actions requested by the Certification
Body have been implemented
Overview
The Company's HSE Management System and the Guidelines and Procedures have been
updated to fit with the ISO requirements and are adequate for the proper
execution of the Company's operations.
As a result of its work during the year, the HSE Committee has concluded that
it has acted in accordance with its terms of reference.
Nomination Committee Report
The Board delegates some of its duties to the Nomination Committee and appoints
the members of the Nomination Committee which are non-executive Directors of
the Group. The membership of the Committee is reviewed annually and any changes
to its composition are referred to the Board for approval. The terms of
reference of the Nomination Committee are published on the Company's website,
www.cadoganpetroleum.com, and are available from the Company Secretary at the
Registered Office. Two members constitute a quorum.
Governance
Mr. Michel Meeùs (Remuneration and Nomination Committee Chairman), Ms. Lilia
Jolibois, Mr. Jacques Mahaux and Mr. Gilbert Lehmann (Non-Executive Directors)
are the members of the Nomination Committee. The Company Secretary attends all
meetings of the Nomination Committee.
Responsibilities
* To regularly review the structure, size and composition (including the
skills, knowledge and experience) required of the Board compared to its
current position and make recommendations to the Board with regard to any
changes;
* Be responsible for identifying and nominating candidates to fill Board
vacancies as and when they arise, for the Board's approval;
* Before appointments are made by the Board, evaluate the balance of skills,
knowledge, experience and diversity (gender, ethnic, age, sex, disability,
educational and professional backgrounds, etc.) on the Board and, in the
light of this evaluation, prepare a description of the role and
capabilities required for a particular appointment; and
* In identifying suitable candidates, the Nomination Committee shall use open
advertising or the services of external advisers to facilitate the search
and consider candidates from a wide range of backgrounds on merit, ensuring
that appointees have enough time available to devote to the position.
The Nomination Committee shall also make recommendations to the Board
concerning:
* Formulating plans for succession for both executive and non-executive
Directors and in particular for the key roles of Chairman and Chief
Executive Officer;
* Membership of the Audit and Remuneration Committees, in consultation with
the Chairmen of those committees;
* The reappointment of any non-executive Director at the conclusion of their
specified term of office, having given due regard to their performance and
ability to continue to contribute to the Board in the light of the
knowledge, skills and experience required; and
* The re-election by shareholders of any Director having due regard to their
performance and ability to continue to contribute to the Board in the light
of the knowledge, skills and experience required.
Any matters relating to the continuation in office of any Director at any time
including the suspension or termination of service of an executive Director as
an employee of the Company subject to the provisions of the law and their
service contract.
Activities of the Nomination Committee
During the financial year under review, the Committee reviewed and considered
the following:
* The size, structure and composition of the Board in the light of the
current business environment, the Company's anticipated future activities
and particularly the independence of the Non-Executive Directors;
* Its internal governance documents and the Policy;
The Committee recommends the re-election of the five incumbent Directors at the
AGM.
Overview
As a result of its work during the year, the Committee has concluded that it
has acted in accordance with its terms of reference. The Chairman of the
Nomination Committee will be available at the Annual General Meeting to answer
any questions about the work of the Committee.
Michel Meeùs
Nomination Committee Chairman
28 April 2022
Remuneration Committee
Statement from the Chairman
I am pleased to present the Annual Report on Remuneration for the year ended 31
December 2021.
Cadogan's Remuneration Policy was approved as proposed by the shareholders at
the Annual General Meeting of June 25, 2021 and is attached at the end of the
Annual Report on Remuneration. The Remuneration Committee is not proposing to
make any changes to the existing Policy however in line with industry best
practice and the three-year Policy cycle the Company will be seeking
shareholder approval at this year's AGM.
The key elements of the Remuneration Policy are:
* A better long-term alignment of the executives' remuneration with the
interests of the shareholders;
* A material reduction in the maximum remuneration level for the Executive
Directors, both in terms of annual bonus and of long-term incentive
(performance share plan);
* The payment of at least 50% of the Annual Bonus in shares with the
remaining 50% to be paid in cash or shares at the discretion of the
Remuneration Committee. Shares will be priced for this award based on their
market value at closing on the Business Day prior to the Subscription Date;
* The introduction of claw-back and malus provisions on both bonuses and
share awards; and
* The expectation that the Executive Directors build a substantial
shareholding position in the company through their mandate.
Michel Meeùs
Chairman of the Remuneration Committee
28 April 2022
ANNUAL REPORT ON REMUNERATION
Remuneration Committee Report
The Remuneration Committee is committed to principles of accountability and
transparency to ensure that remuneration arrangements demonstrate a clear link
between reward and performance.
Governance
The Remuneration Committee is appointed by the Board from the non-executive
Directors of the Company. The Remuneration Committee's terms of reference are
reviewed annually by the Remuneration Committee and any changes are then
referred to the Board for approval. The terms of reference of the Remuneration
Committee are published on the Company's website, www.cadoganpetroleum.com, and
are also available from the Company Secretary at the Registered Office.
The Remuneration Committee consists of Mr. Michel Meeùs, Ms. Lilia Jolibois,
Mr. Jacques Mahaux and Mr. Gilbert Lehmann. At the discretion of the
Remuneration Committee, the Chief Executive Officer is invited to attend
meetings when appropriate but is not present when his own remuneration is being
discussed. None of the directors are involved in deciding their own
remuneration. The Company Secretary attends the meetings of the Remuneration
Committee.
Responsibilities
In summary, the Remuneration Committee's responsibilities, as set out in its
terms of reference, are as follows:
* To determine and agree with the Board the policy for the remuneration of
the executive Directors, the Company Secretary and other members of
executive management as appropriate;
* To consider the design, award levels, performance measures and targets for
any annual or long-term incentives and approve any payments made and awards
vesting under such schemes;
* Within the terms of the agreed remuneration policy, to determine the total
individual remuneration package of each executive Director and other senior
executives including bonuses, incentive payments and share options or other
share awards; and
* To ensure that contractual terms on termination, and any payments made, are
fair to the individual and the Company, that failure is not rewarded and
that the duty to mitigate loss is fully recognised.
Overview
The Chairman and Executive Directors of the Company have a regular dialogue
with analysts and substantial shareholders, which includes the subject of
Directors' Remuneration. The outcome of these discussions is reported to the
Board and discussed in detail both there and during meetings of the
Remuneration Committee.
As a result of its work during the year, the Remuneration Committee has
concluded that it has acted in accordance with its terms of reference. The
chairman of the Remuneration Committee will be available at the Annual General
Meeting to answer any questions about the work of the Committee.
Remuneration consultants
The Remuneration Committee did not take any advice from external remuneration
consultants, with the exception of the review undertaken of the Remuneration
Report.
Single total figure of remuneration for executive and non-executive directors
(audited)
Salary and fees Taxable benefit Contributions Annual bonus Total
[5] to pension
schemes
$ $ $ $ $
Executive Director
2021 2020 2021 2020 2021 2020 2021 2020 2021 2020
F Khallouf 519,926 517,389 30,173 59,294 78,619 58,300 - - 628,717 634,983
[6]
Non-executive Directors
M Meeùs 89,000 89,000 - - - - - - 89,000 89,000
L Jolibois 48,000 48,000 - - - - - - 48,000 48,000
J Mahaux 43,000 43,000 - - - - - - 43,000 43,000
G Lehmann 38,000 38,000 - - - - - - 38,000 38,000
Total Fixed Remuneration Total Variable
Remuneration
$ $
2021 2020 2021 2020
Executive Director 628,717 634,983 - -
Non-executive 218,000 218,000 - -
Directors
Notes to the table
Mr Fady Khallouf
Mr Khallouf was appointed as Chief Executive Officer on 15 November 2019. Mr
Khallouf's salary is ?440,000 per annum. As part of Mr Khallouf's employment
agreement, a welcome bonus equivalent in value to 5,500,000 ordinary shares
(using the market value of the shares on the business day prior to the date of
issue) is payable to Mr Khallouf and a holding period of two years is
applicable to the shares acquired. Pursuant to the terms of the bonus, the
amount must be subscribed for ordinary shares in the Company at such time as
the executive agrees. The welcome bonus was provided to Mr Khallouf in May
2020.
KPIs
In 2020 the CEO was subject to a performance-related, bonus scheme built around
a scorecard with a set of challenging KPI's aligned with the company strategy.
The Remuneration Committee, after consultation with the CEO, have decided to
postpone any variable performance related bonus for year ended 2020 given the
impact of Covid-19 and volatility in oil and gas prices.
Benefits
Benefits may be provided to the executive directors, in the form of private
medical insurance and life assurance.
The Chairman and Non-Executive Directors
As mentioned above, fees for non-Executive Directors were reduced by 20 percent
on 15th January 2020 with effect from 15th November 2019. The fees are as
follows: the Chairman's fee at $89,000 and the fee for acting as a
non-executive Director at $38,000 with an additional $10,000 for acting as
Chairman of the Audit Committee and an additional $5,000 for a committee
membership.
Scheme interests awarded during the financial year (audited)
There were no scheme interests awarded during the year.
Payments to past directors (audited)
In 2021 there were no payments to past directors.
Payments for loss of office (audited)
No notice period was either worked or paid.
Directors' interests in shares (audited)
The beneficial interests of the Directors in office as at 31 December 2021 and
their connected persons in the Ordinary shares of the Company at 31 December
2021 are set out below.
Shares as at 31 December 2021 2020
Michel Meeùs 26,000,000 26,000,000
Fady Khallouf 10,425,455 8,337,031
Gilbert Lehmann - -
Lilia Jolibois - -
Jacques Mahaux - -
There were changes in the Directors shareholding at 31 December 2021 compared
to 31 December 2020 (Fady Khallouf).
The Company does not currently operate formal shareholding guidelines. Whilst
there is no specified level, the Company expects that under the new
Remuneration Policy, the Executive Director will continue to build up a
significant shareholding position in the Company during his mandate.
The Company's performance
The graph below highlights the Company's total shareholder return ("TSR")
performance for the last twelve years compared to the FTSE All Share Oil & Gas
Producers index. This index has been selected on the basis that it represents a
sector specific group, which is an appropriate group for the Company to compare
itself against, and has been retained ever since, primarily for continuity
purposes TSR is the return from a share or index based on share price movements
and notional reinvestment of declared dividends.
Historic Remuneration of Chief Executive
Salary Taxable Annual Long-term Pension Loss of Total
benefits bonus incentives office
$ $ $ $ $ $ $
2009 422,533 - 284,552 - - - 707,085
2010 547,067 - - - - - 547,067
2011 669,185 - - - - - 669,185
2012 511,459 - - - 31,966 126,808 670,233
2013 384,941 - - - - - 384,941
2014 405,433 20,734 - - - - 426,167
2015 432,409[7] 15,987 243,132 - - - 691,528
2016 487,080 15,353 210,504 - - - 712,937
[8]
2017 497,288 27,273 126,992 - - - 651,553
2018 521,664 39,838 201,872 - - - 763,374
2019 492,581 45,453 495,109 - - - 1,033,143
[9]
2020 517,389 59,294 - - 58,300 - 634,983
2021 519,926 30,173 - - 78,619 - 628,717
Under the Company's Remuneration Policy, the Remuneration Committee has the
authority to review and award an annual performance bonus to executive
directors.
In 2021, the Remuneration Committee, after consultation with the CEO, have
decided to postpone any variable performance related bonus for year ended 2021
given the impact of Covid-19 and volatility in oil and gas prices.
In 2022, given the current situation in Ukraine and any potential future
difficulties for the Company, Mr Fady Khallouf has requested that any annual
performance related bonus to be considered and paid by the Remuneration
Committee in respect of the financial year ended 31st December 2021 be waived.
The annual bonus received by the CEO as a percentage of the maximum opportunity
is presented in the following table.
Year CEO CEO single figure Annual bonus pay-out
of total against maximum
remuneration $ opportunity %
2021 Mr. Khallouf 628,717 -
2020 Mr. Khallouf 634,983 -
2019 Mr. Khallouf 444,465 -
[10]
Mr. Michelotti 588,678 10
2018 Mr. Michelotti 763,374 32
2017 Mr. Michelotti 651,553 12
2016 Mr. Michelotti 712,937 22[11]
2015 Mr. Michelotti 502,021 273, [12]
Mr. des 189,507 -
Pallieres
2014 Mr. des 426,167 -
Pallieres
2013 Mr. des 384,941 -
Pallieres
2012 Mr. des 389,935 -
Pallieres
Mr. Barron 280,298[13] -
2011 Mr. des 273,201 -
Pallieres[14]
Mr. Barron 395,984 -
2010 Mr. Barron 547,067 -
2009 Mr. Barron[15] 707,085 67
Percentage change in the remuneration of the Chief Executive
The following table shows the percentage change in the remuneration of the
Chief Executive in 2021 and 2020 compared to that of all employees within the
Group.
2021 2020
Average
$'000 $'000 change, %
Base salary CEO 520 517 0.6%
All employees[i] 1,978 1,906 4%
Taxable benefits CEO 108 118[ii] -8%
All employees 126 139 -9%
Annual Bonus CEO - - -
All employees - 131 -100%
Total CEO 628 635 -1%
All employees 2,104 2,176 -3%
[i] All employees mean all employees of the Group, including CEO and other
Directors (note 11, page 98).
[ii] Includes taxable benefits for 2019.
In 2021 none of the directors participated in long-term incentives.
In 2021 there was no increase in executive and non-executive directors' salary
in base currency. The difference in pay represents the change in exchange rate
between the base currency and USD as a reporting currency.
Percentage change in Non-Executive director remuneration
Michel Meeùs All employees
2021 2020 % change % change
$'000 $'000 2021 - 2021 - 2020
2020
Base salary/fees 89,000 89,000 - 4%
Taxable benefits - - - -9%
(including pensions)
Annual bonus - - - -100%
Total 89,000 89,000 - -3%
Lilia Jolibois All employees
2021 2020 % change % change
$'000 $'000 2021 - 2021 - 2020
2020
Base salary/fees 48,000 48,000 - 4%
Taxable benefits - - - -9%
(including pensions)
Annual bonus - - - -100%
Total 48,000 48,000 - -3%
Jacques Mahaux All employees
2021 2020 % change % change
$'000 $'000 2021 - 2021 - 2020
2020
Base salary/fees 43,000 43,000 - 4%
Taxable benefits - - - -9%
(including pensions)
Annual bonus - - - -100%
Total 43,000 43,000 - -3%
Gilbert Lehmann All employees
2021 2020 % change % change
$'000 $'000 2021 - 2021 - 2020
2020
Base salary/fees 38,000 38,000 - 4%
Taxable benefits - - - -9%
(including pensions)
Annual bonus - - - -100%
Total 38,000 38,000 - -3%
Relative importance of spend on pay
The table below compares shareholder distributions (i.e. dividends and share
buybacks) and total employee pay expenditure of the Group for the financial
years ended 31 December 2020 and 31 December 2021.
2021 2020 Year-on-year
$'000 $'000 change, %
All-employee remuneration 2,104 2, 176 -3%
Distributions to shareholders - - -
Shareholder voting at the Annual General Meeting
The Directors' Remuneration Policy was approved by shareholders at the Annual
General Meeting held on 25 June 2021 and remains unchanged. The Remuneration
Policy can be found on the Group's website and at pages 53 to 66 of this Annual
Report on Remuneration. The votes cast by proxy were as follows:
Directors' Remuneration Number of votes % of votes cast
Policy
For 100,135,172 82.19
Against 21,693,116 17.81
Total votes cast 121,828,288 100.00
Number of votes withheld 0
The Directors' Annual Report on Remuneration is approved by shareholders at
each Annual General Meeting. A summary of the votes cast by proxy in 2019 and
2020 were as follows:
2021 2020
Director's Annual Number of votes % of votes Number of votes % of votes
Report on Remuneration cast cast
For 100,135,172 82.19 92,185,286 99.78
Against 21,693,116 17.81 202,370 0.22
Total votes cast 121,828,288 92,387,656 100.00
Number of votes 0 80,071
withheld
Implementation of Remuneration Policy in 2021
The performance related elements of remuneration remain unchanged and will be
built around a scorecard with a set of KPI's aligned with the Group strategy.
The Remuneration Policy can be found on the Group's website and at pages 53 to
66 of this Annual Report on Remuneration.
Approval
The Directors' Annual Report on Remuneration was approved by the Board on 28
April 2022 and signed on its behalf by:
Michel Meeùs
Chairman
28 April 2022
Directors' Remuneration Policy
* Introduction
This Directors' Remuneration Policy (the "Policy") contains the information
required to be set out as the directors' remuneration policy for the purposes
of The Large and Medium-sized Companies and Groups (Accounts and Reports)
(Amendment) Regulations 2013.
The Policy was approved by shareholders at the 2021 AGM of the Company. The
Remuneration Committee is not proposing to make any changes to the existing
Policy however in line with industry best practice and the three-year Policy
cycle the Company will be seeking shareholder approval at this year's AGM. The
effective date of this Policy is the date on which the Policy is approved by
shareholders.
The Policy applies in respect of all executive officers appointed to the Board
of Directors ("executive directors") and non-executive directors. Other senior
executives may be subject to the Policy, including in relation to annual bonus
and shares incentive arrangements in particular if and to the extent that the
Remuneration Committee determines it is appropriate.
The Remuneration Committee will keep the Policy under review to ensure that it
continues to promote the long-term success of the Company by giving the Company
its best opportunity of delivering on the business strategy. It is the
Remuneration Committee's intention that the Policy be put to shareholders for
approval every three years unless there is a need for the Policy to be approved
at an earlier date.
The Company aims to provide sufficient flexibility in the Policy for
unanticipated changes in compensation practices and business conditions to
ensure the Remuneration Committee has appropriate discretion to retain its top
executives who perform. The Remuneration Committee reserves the right to
approve any payments that may be outside the terms of this Policy, where the
terms of that payment were agreed before the Policy came into effect, or before
the individual became a director of the Company.
Maximum caps are provided to comply with the required legislation and should
not be taken to indicate an intent to make payments at that level. The maximum
caps are valid at the time that the relevant employment agreement or
appointment letter is entered into and the caps may be adjusted to take into
account fluctuations in exchange rates.
* Remuneration policy table: executive directors
Component Purpose and link Maximum opportunity Operation and performance
to strategy measures
Salary and To provide fixed The maximum annual Salary is paid on a monthly
Fees remuneration at base combined basis.
an appropriate salary and fees for The Remuneration Committee takes
level, to attract executive directors into account a number of factors
and retain is ?440,000[18]. when setting salaries including:
directors as part The Remuneration . scope and difficulty of the
of the overall Committee will role;
compensation consider the . skills and experience of the
package. factors set out individual;
under the . salary levels for similar
"Operation" column roles within the international
when determining industry; and
the appropriate . pay and conditions elsewhere
level of base in the Group.Salaries are
salary within the reviewed on an annual basis, but
formal Policy are not necessarily increased at
maximum. each review.
No performance measures.
Annual Bonus To incentivise The maximum award The payment of any bonus is at
and reward the is 125% of combined the discretion of the Board with
achievement of base salary and reference to the performance
individual and fees. year.
business . The Remuneration Committee
objectives which sets, in advance, a scorecard
are key to the with a set of Key Performance
delivery of the Indicators ("KPIs") aligned with
Company's the Company's strategy. The
business measures and the relative
strategy. weightings are substantiated by
the Remuneration Committee and
aim to be stretching and to
support the Company's business
strategy. Measures are related
to Company financial
performance, operational
performance and the Company's
health and safety record. In
general relative weightings of
each KPI are expected not to
exceed 50% and not to be less
than 10%.
. The Remuneration Committee
retains the flexibility to
determine and, if it considers
appropriate, change the KPIs and
weightings of the KPIs based on
the outcome of its annual
review. The Remuneration
Committee may also adjust KPIs
during the year to take account
of material events, such as
(without limitation) material
corporate events, changes in
responsibilities of an
individual and/ or currency
exchange rates. Any such changes
will be within the overall
target and maximum payouts
approved in the policy.
. The KPI targets and specific
weightings in the scorecard are
defined annually early in the
year, once the budget has been
approved. A summary of the KPI
targets, weightings for the KPIs
and how far the KPIs are met
will be included retrospectively
each year in the Implementation
Report for the year.
. All bonuses that may become
payable are subject to malus and
clawback provisions in the event
of material financial
misstatement of the Company or
fraud or material misconduct on
the part of the executive, as
explained further below.
. 50% of the bonuses that may
become payable must be applied
to subscribe for or acquire
shares in the Company (after the
deduction of any income tax and/
or employee social security
contributions payable). The
Company is proposing to adopt
and operate a Deferred Bonus
Plan as a framework plan for the
delivery of shares to
executives, which may be
satisfied by the issue of new
shares or transfer of existing
or treasury shares.
. The Remuneration Committee
will determine whether the
remainder of the bonus shall be
paid in cash or must be applied
to subscribe for or acquire
shares (after the deduction of
any income tax and/ or employee
social security contributions
payable). In making its
determination as to how the
remainder of the bonus shall be
paid, the Remuneration Committee
may take into account:
profitability of the Company;
the executive's shareholding as
measured against any Company
shareholding guidelines;
potential liabilities of the
recipients to income tax and
social security contributions,
among other things. Additional
shares representing the value of
dividends payable on the
deferred shares may be paid.
. The Remuneration Committee
may impose holding periods of up
to three years on any of the
shares delivered pursuant to the
annual bonus plan.
. There are no prescribed
minimum levels of performance in
the annual bonus structure and
so it is possible that no bonus
award would be made.
Share To incentivise, Awards can be made The Company has adopted and
Incentive retain and reward under the PSP with operates the 2018 Performance
Arrangements eligible a value of up to a Share Plan ("PSP") to replace
employees and maximum of 200% of the 2008 Performance Share Plan.
align their base salary and The PSP offers the opportunity
interests with fees or 300% in to earn shares in the Company
those of the exceptional subject to the achievement of
shareholders of circumstances. stretching but realistic
the Company. performance conditions.
Performance conditions will be a
main feature of the PSP.
The PSP will be administered by
the Remuneration Committee.
. Awards can be made under the
PSP at the direction of the
Remuneration Committee within
the policy maximum in the form
of contingent share awards.
. PSP awards will have a
minimum vesting period of 3
years and, for directors, the
PSP awards have a further
holding period of 2 years
following the end of the vesting
period (subject to any number of
shares that may need to be sold
to meet any income tax and
employee social security
contributions due on vesting).
. The Remuneration Committee
will develop clear KPIs that aim
to align directors with Company
strategy over time periods in
excess of one financial year.
Any performance measures and
targets used for share incentive
awards during 2019 will be
relevant and stretching in line
with the overall strategy of the
Company.
. The Remuneration Committee
may adjust or change the PSP
measures, targets and weightings
for new awards under the PSP to
ensure continued alignment with
Company strategy.
. PSP awards are subject to
malus and clawback in the event
of material financial
misstatement of the Company or
fraud or material misconduct on
the part of the executive.
. Upon vesting of an award,
the award holder must pay the
nominal value in respect of each
share that vests.
. PSP Awards will normally
lapse where the award holder
ceases employment with the
Company before vesting. PSP
Awards will not lapse and will
vest immediately if the award
holder is considered to be a
Good Leaver (leaves due to death
or disability) subject to the
Remuneration Committee being
satisfied that performance
conditions have been satisfied
or are likely to be satisfied as
at the end of the relevant
performance period. In other
circumstances, the Remuneration
Committee may determine that
awards will not lapse and will
continue to vest at their normal
vesting date, subject to
pro-ration to reflect the period
of service during the
performance period and
performance conditions. The
Remuneration Committee has
residuary discretions to
disapply pro ration and bring
forward the date of vesting.
. In the event of a change of
control of the Company, if the
acquiring company agrees, awards
will be exchanged for equivalent
awards over shares in the
acquiring company and continue
to vest according to the
original vesting schedule. If
the acquiring company does not
agree to exchange the awards,
the awards will vest at the
Committee's absolute discretion.
Awards that vest will be subject
to time pro-ration and
performance conditions.
. Benefits under the PSP will
not be pensionable.
. The PSP Plan Limits are set
out at Note 2.4 below.
Pension To provide a Any pension No performance measures.
retirement benefits will be
benefit that will set at an
foster loyalty appropriate level
and retain in line with market
experienced practice, and in no
executive event will the
directors. contributions paid
by the Company
exceed 15% of
combined base
salary and fees.
Benefits To provide a Any benefits will . The executive directors are
market be set at an entitled to private medical
competitive level appropriate level insurance and life assurance
of benefits to in line with market cover (of four times the
executive practice, and in no combined salary and fee) and
directors. event will the directors' and officers'
value of the liability insurance.
benefits exceed 15% . The Remuneration Committee
of combined base may decide to provide other
salary and fees. benefits commensurate with the
market. Such benefits may
include (for instance) company
car or allowance, physical
examinations and medical
support, professional advice,
assistance with filling out tax
returns and occasional minor
benefits. A tax equalisation
payment may be paid to an
executive director if any part
of the remuneration of the
executive director becomes
subject to double taxation. Tax
gross ups may be paid, where
appropriate. The Company does
not, at present, provide other
taxable benefits to the
executive directors.
. Executive directors are
reimbursed for reasonable
business expenses incurred in
the course of carrying out their
duties.
. No performance measures.
Notes to the executive directors' remuneration policy table
The Remuneration Committee's philosophy is that remuneration arrangements
should be appropriately positioned to support the Group's business strategy
over the longer term and the creation of value for shareholders. In this
context the following key principles are considered to be important:
* remuneration arrangements should align executive and employee interests
with those of shareholders;
* remuneration arrangements should help retain key executives and employees;
and
* remuneration arrangements should incentivise executives to achieve short,
medium and long-term business targets which represent value creation for
shareholders. Targets should relate to the Group's performance in terms of
overall revenue and profit and the executive's own performance. Exceptional
rewards should only be delivered if there are exceptional returns.
The Remuneration Committee reserves the right to make any remuneration payments
(including satisfying awards of variable remuneration) and payments for loss of
office notwithstanding that they are not in line with the Policy set out above,
where the terms of that payment were agreed before the Policy came into effect,
or before the individual became a director of the Company (provided the payment
was not in consideration for the individual becoming a director).
* Performance measures and targets
(a) Annual Bonus
The performance measures for executive directors comprise of financial measures
and business goals linked to the Company's strategy, which could include
financial and non-financial measures. The business goals are tailored to
reflect each executive director's role and responsibilities during the year.
The performance measures are chosen to enable the Remuneration Committee to
review the Company's and the individual's performance against the Company's
business strategy and appropriately incentivise and reward the executive
directors.
Annual bonus targets are set by the Remuneration Committee each year. They are
stretching but realistic targets which reflect the most important areas of
strategic focus for the Company. The factors taken into consideration when
setting targets include the Company's Key Performance Indicators (which are
determined annually by the Remuneration Committee), and the extent to which
they are under the control or influence of the executive whose remuneration is
being determined.
Performance is measured over the financial year against the measures and
targets set according to the scorecard. The Remuneration Committee retains the
right to exercise its judgement to adjust the bonus outcome for an individual
to ensure the outcome reflects any other aspects of the Company's performance
that become relevant during the financial year.
The Remuneration Committee used Company operational and financial performances
and safety as performance measures for the 2020 scorecard. For years following
2020, the structure of the annual bonus scorecard is reviewed by the
Remuneration Committee.
2021 Annual bonus scorecard measures for executive directors
40% weighting 50% weighting
Operational performance, such as Company financial performance, including cash
production, sales, geographical targets and profit targets.
diversification, and starting new
projects.
10% weighting
Indicators of health and safety
to promote the effective risk
management of the Company.
(b) Share Plans
The Remuneration Committee will make the vesting of a Plan award conditional
upon the satisfaction of stretching but realistic performance conditions. These
conditions are meant to achieve a long-term alignment of the executives'
remuneration with the interest of the shareholders.
EBITDA growth, increase of P1 reserves (in millions boe), and changes to the
free cash-flow are the key KPIs to be used by the Remuneration Committee and
will be measured over time periods of three financial years. The performance
measures are chosen to align the performance of participants with the
attainment of financial performance targets over the vesting period of the
award. The targets are set by the Remuneration Committee by reference to the
Company's strategy and business plan and the results achieved at the time of
the vest are determined by the Remuneration Committee.
Under the PSP plan rules, the Board may vary a performance target where it
considers that any performance target to which an award is subject is no longer
a true or fair measure of the participant's performance, provided that the
Board must act fairly and reasonably and that the new performance target is
materially no more difficult and no less difficult to satisfy than the original
performance target.
* Malus and clawback (applicable to bonuses and share awards)
The Remuneration Committee has the discretion to reduce the bonus before
payment or require the executive director to pay back shares or a cash amount
in the event of material financial misstatement of the Company or fraud or
material misconduct on the part of the executive. The amount that may be clawed
back on any such event is limited to the value of the bonus, taking into
account the cash paid and the shares delivered to the executive, taking the
value of the shares at the time of the clawback, less any income tax or
employee social security contributions paid on the bonuses.
* Share ownership guidelines for executives
The Remuneration Committee is planning to implement share ownership guidelines
for executive directors to further align the interests of the executive
directors with those of shareholders. The share ownership guidelines will
include an expectation that executive directors build up their shareholding to
200% of base salary over a period of five years from the later of: the date of
adoption of this policy and the date of appointment. Once the shareholding
guideline is reached, executive directors would be expected to maintain it. The
intention would be for the shareholding guideline to be reached through the
retention of vested shares from share plans (e.g. the deferred share element of
the annual bonus and shares vested under the PSP). As such, the Remuneration
Committee's discretion may be used to increase the proportion of an annual
bonus to be delivered in shares to assist the executive director in meeting
this guideline. The deferred share mechanism in the annual bonus and the design
of the PSP will assist executive directors in reaching the guidelines.
Executive directors will not be expected to top up their shareholding with
personal acquisitions of Company shares outside the usual share plans described
in the Policy. The Remuneration Committee will monitor the executive directors'
shareholdings and may adjust the guideline in special individual and Company
circumstances, for example in the case of a share price fall.
* PSP Plan Limits
The PSP may operate over new issue shares, treasury shares or shares purchased
in the market. In any ten-calendar year period, the Company may not issue (or
grant rights to issue) more than:
(a) 10% of the issued ordinary share capital of the Company under the
Plan and any other employee share plan adopted by the Company; and
(b) 5% of the issued ordinary share capital of the Company under the
Plan and any other executive share plan adopted by the Company.
Treasury shares will count as new issue shares for the purposes of these limits
unless institutional investors decide that they need not count. These limits do
not include rights to shares which have been renounced, released, lapsed or
otherwise become incapable of vesting, awards that the Remuneration Committee
determines after grant to be satisfied by the transfer of existing shares and
shares allocated to satisfy bonuses (including pursuant to the Deferred Bonus
Plan).
* Remuneration throughout the Group
Differences in the Company's pay policy for executive directors from that
applying to employees within the Group generally reflect the appropriate market
rate for the individual executive roles.
* Remuneration policy table: non-executive directors
Component Purpose and link Maximum opportunity Operation and performance
to strategy measures
Fees To provide an . The maximum annual Non-executive directors receive a
appropriate fees paid to non-executive standard annual fee, which is
reward to directors is £50,000 for a paid on a quarterly basis in
attract and non-executive director role, arrears.
retain and £100,000 for the role of Additional fees may also be paid
high-calibre Chairman. An additional £ to recognise the additional work
individuals with 10,000 will be paid to the performed by members of any
the relevant individual acting as committees set up by the Board,
skills, Chairman of the Audit and for the role of chair of a
knowledge and Committee. committee.
experience to Fees are reviewed on an annual
progress the basis, but are not necessarily
Company increased at each review. Fees
strategy. are set at a rate that takes into
account:
. market practice for
comparative roles;
. the financial results of
the Company;
. the time commitment and
duties involved; and
. the requirement to attract
and retain the quality of
individuals required by the
Company.
The remuneration of the
non-executive directors is a
matter for the Board to consider
and decide upon.
There are no performance measures
related to non-executive
directors' fees.
Notes to the Policy Table
The payment policy for non-executive directors is to pay a rate which will
secure persons of a suitable calibre. The remuneration of the non-executive
directors is determined by the Board. External benchmarking data and specialist
advisers are used when setting fees, which will be reviewed at appropriate
intervals. The maximum caps are valid at the time that the relevant appointment
letter is entered into and the caps may be adjusted to take into account
fluctuations in exchange rates.
Expenses reasonably and wholly incurred in the performance of the role of
non-executive director of the Company may be reimbursed or paid for directly by
the Company, as appropriate, and may include any tax due on the expense.
The non-executive directors' fees are non-pensionable. The non-executive
directors have not to date been eligible to participate in any incentive plans
(such as bonuses or share plans); however, the Board considers that it may be
appropriate in the future to enable such participation, subject to suitably
stretching performance thresholds.
Non-executive directors may receive professional advice in respect of their
duties with the Company which will be paid for by the Company. They will be
covered by the Company's insurance policy for directors.
* Recruitment
The Company's policy on the recruitment of directors is to pay a fair
remuneration package for the role being undertaken and the experience of the
individual being recruited. The Remuneration Committee will consider all
relevant factors, which include the abilities of the individual, their existing
remuneration package, market practice, and the existing arrangements for the
Company's current directors.
The Remuneration Committee will determine that any arrangements offered are in
the best interests of the Company and shareholders and will endeavour to pay no
more than is necessary.
The Remuneration Committee intends that the components of remuneration set out
in the policy tables, and the approach to the components as set out in the
policy tables, will be equally applicable to new recruits, i.e. salary, annual
bonus, share plan awards, pension and benefits for executive directors, and
fees for non-executive directors. However, the Company acknowledges that
additional flexibility may be required to ensure the Company is in the best
position to recruit the best candidate for any vacant roles and, as such, a
buy-out arrangement may be required.
* Flexibility
The salary and compensation package designed for a new recruit may be higher or
lower than that applying for existing directors. The Remuneration Committee may
decide to appoint a new executive director to the Board at a lower than typical
salary, such that larger and more frequent salary increases may then be awarded
over a period of time to reflect the individual's growth in experience within
the role.
Remuneration will normally not exceed those set out in the policy table above.
However, to ensure that the Company can sufficiently compete with its
competitors, the Remuneration Committee considers it important that the
recruitment policy has sufficient flexibility in order to attract and
appropriately remunerate the high-performing individuals that the Company
requires to achieve its strategy. As such, the Remuneration Committee reserves
discretion to provide a buy-out arrangement and benefits (such as a sign-on
bonus and additional share awards) in addition to those set out in the policy
table (or mentioned in this section) where the Remuneration Committee considers
it reasonable and necessary to do so in order to secure an external appointment
(see below for more detail in relation to buy-out arrangements).
* Buy-out arrangements
The Remuneration Committee retains the discretion to enter into buy-out
arrangements to compensate new hires for incentive awards forfeited in joining
the Company. The Remuneration Committee will use its discretion in awarding and
setting any such compensation, which will be decided on a case-by-case basis
and likely on an estimated like-for-like basis. In deciding the appropriate
type and quantum of compensation to replace existing awards, the Remuneration
Committee will take into account all relevant factors, including the type of
award being forfeited, the likelihood of any performance measures attached to
the forfeited award being met, and the proportion of the vesting period
remaining. The Remuneration Committee will appropriately discount the
compensation payable to take account of any uncertainties over the likely
vesting of the forfeited award to ensure that the Company does not, in the view
of the Remuneration Committee, pay in excess of what is reasonable or
necessary.
Compensation for awards forfeited may take the form of a bonus payment or a
share award. For the avoidance of doubt, the maximum amounts of compensation
contained in the policy table will not apply to such buy-out arrangements. The
Company has not placed a maximum value on the compensation that can be paid
under this section, as it does not believe it would be in shareholders'
interests to set any expectations for prospective candidates regarding such
awards.
* Payments for loss of office
Any compensation payable in the event that the employment of an executive
director is terminated will be determined in accordance the terms of the
employment contract between the Company and the executive, as well as the
relevant rules of any share plan and this Policy, and in accordance with the
prevailing best practice.
The Remuneration Committee will consider a variety of factors when considering
leaving arrangements for an executive director and exercising any discretions
it has in this regard, including (but not limited to) individual and business
performance during office, the reason for leaving, and any other relevant
circumstances (for example, ill health).
In addition to any payment that the Remuneration Committee may decide to make,
the Remuneration Committee reserves discretion as it considers appropriate to:
(a) pay an annual bonus for the year of departure;
(b) continue providing any benefits for a period of time; and
(c) provide outplacement services.
Non-executive directors are subject to one month notice periods prior to
termination of service and are not entitled to any compensation on termination
save for accrued fees as at the date of termination and reimbursement of any
expenses properly incurred prior to that date.
* Share plan awards
The treatment of any share award on termination will be governed by the PSP
rules.
Under the PSP, outstanding share awards held by an individual who ceases to be
a director or employee of the Company will lapse, unless the cessation is due
to death, illness, injury or disability, redundancy, retirement, the Company
ceasing to be a member of the Group or the transfer of an undertaking or part
of an undertaking to a person who is not a member of the Group, or the Board
exercises its discretion otherwise.
Under the PSP, the Board has discretion to decide the period of time for which
the award will continue, and whether any unvested award shall be treated as
vesting on the date of cessation of employment or in accordance with the
original vesting schedule, in both cases have regard to the extent to which the
performance targets have been satisfied prior to the date of cessation.
For executive directors, the vesting period will be set by the Remuneration
Committee with a minimum three-year period. The Remuneration Committee will
(unless the vesting period is set as a period equal to or longer than five
years) impose a holding period on shares (or awards) so that the executive is
not able to sell the shares that the executive director acquires through the
PSP until the fifth anniversary of the date of the award. The holding period
will not apply to the number of shares equivalent in value to the amount
required by the Company or the executive director to fund any income tax and
employee social security contributions due on the vesting of the awards or
otherwise in connection with the awards.
* Executive director employment agreements
This section contains the key employment terms and conditions of the executive
directors that could impact on their remuneration or loss of office payments.
The Company's policy on employment agreements is that executive directors'
agreements should be terminable by either the Company or the director on not
more than six months' notice. The employment agreements contain provision for
early termination, among other things, in the event of a breach by the
executive but make no provision for any termination benefits except in the
event of a change of control of the Company, where the executive becomes
entitled to a lump sum equal to 24 months' base salary plus benefits plus (if
any), bonus received on termination by the Company. The employment agreements
contain restrictive covenants for a period of 12 months following termination
of the agreement. Details of employment agreements in place as at the date of
this report are set out below:
Director Current agreement start Notice period
date
F Khallouf 15 November 2019 Six months
Directors' employment agreements are available for inspection at the Company's
registered office in London.
* Non-executive directors' letters of appointment
This section contains the key terms of the appointments of non-executive
directors that could impact on their remuneration.
Typically, the non-executive directors are appointed by letter of appointment
for an initial term of three years which may be extended. All non-executive
directors are subject to annual re-election by the Company's shareholders and
their appointments may be terminated earlier with one month's prior written
notice (or with immediate effect, in the case of specific serious circumstances
such as fraud or dishonesty). On termination of appointment, non-executive
directors are usually only entitled to accrued fees as at the date of
termination together with reimbursement of any expenses properly incurred prior
to that date and the company has no obligation to pay further compensation when
the appointment terminates. Non-executive directors' letters of appointment are
available for inspection at the Company's registered office in London and at
Zhylyanska street 48/50, 01033 Kyiv, Ukraine.
Non-executive Director Current agreement start Term
date
Michel Meeùs 25 June 2021 Two years
Lilia Jolibois 15 November 2019 Three years
Jacques Mahaux 15 November 2019 Three years
Gilbert Lehmann 25 June 2021 Two years
* Illustration of the Remuneration Policy
The bar charts below show the levels of remuneration that the CEO could earn
over the coming year under the Policy.
CEO: minimum and maximum remuneration
The bar chart shows future possible maximum remuneration.
Pension entitlements were provided in 2020.
* Consideration of shareholder views
The Chairman and executive directors of the Company have a regular dialogue
with analysts and substantial shareholders, which includes the subject of
directors' remuneration. The outcome of these discussions is reported to the
Board and discussed in detail both there and during meetings of the
Remuneration Committee.
The Remuneration Committee will take into account the results of the
shareholder vote on remuneration matters when making future remuneration
decisions. The Remuneration Committee remains mindful of shareholder views when
evaluating and setting ongoing remuneration strategy.
* Consideration of employment conditions within the Group
When determining remuneration levels for its executive directors, the Board
considers the pay and employment conditions of employees across the Group. The
Remuneration Committee will be mindful of average salary increases awarded
across the Group when reviewing the remuneration packages of the executive
directors.
* Minor changes
The Remuneration Committee may make, without the need for shareholder approval,
minor amendments to the Policy for regulatory, exchange control, tax or
administrative purposes or to take account of changes in legislation.
Statement of Directors' Responsibilities
Statement of Directors' Responsibilities in respect of the Annual Report and
the Financial Statements
The Directors are responsible for preparing the Annual Report and the financial
statements in accordance with applicable law and regulations. Company law
requires the Directors to prepare financial statements for each financial year.
The Directors are required by law to prepare the Group financial statements in
accordance with UK-adopted international accounting standards and in conformity
with the requirements of the Companies Act 2006 and Article 4 of the
International Accounting Standards ("IAS") regulation and have also elected to
prepare the Parent Company financial statements under UK-adopted international
accounting standards in conformity with the requirements of the Companies Act
2006 and as applied in accordance with the provisions of the Companies Act
2006. Under Company law, the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair view of the
state of affairs of the Company and Group and of the profit or loss for that
period. In preparing the Company and Group's financial statements, IAS
Regulation requires that Directors:
* properly select and apply accounting policies;
* make judgements and accounting estimates that are reasonable and prudent;
* present information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable information;
* state whether they have been prepared in accordance with UK-adopted
international accounting standards in conformity with the requirements of
the Companies Act 2006, subject to any material departures disclosed and
explained in the financial statements;
* provide additional disclosures when compliance with the specific
requirements in UK-adopted international accounting standards are
insufficient to enable users to understand the impact of particular
transactions, other events and conditions on the Company's and Group's
financial position and financial performance; and
* make an assessment of the Company's and Group's ability to continue as a
going concern, prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company and Group will
continue in business.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company and Group's transactions and
disclose with reasonable accuracy at any time the financial position of the
Company and Group and enable them to ensure that the financial statements
comply with the Companies Act 2006 They are also responsible for safeguarding
the assets of the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities. Under applicable
law and regulations, the Directors are also responsible for preparing a
Strategic Report, Directors' Report, Annual Report on Remuneration, Directors'
Remuneration Policy and Corporate Governance Statement that comply with that
law and those regulations. The Directors are responsible for the maintenance
and integrity of the corporate and financial information and statements
included on the Company's website, www.cadoganpetroleum.com. Legislation in the
United Kingdom governing the preparation and dissemination of the financial
statements may differ from legislation in other jurisdictions. The directors'
responsibility also extends to the ongoing integrity of the financial
statements contained therein.
Responsibility Statement of the Directors in respect of the Annual Report
We confirm to the best of our knowledge:
(1) the financial statements, prepared in accordance with UK-adopted
international accounting standards in conformity with the requirements of the
Companies Act 2006, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company and the undertakings
included in the consolidation as a whole; and
(2) the Annual Report, includes a fair review of the development and
performance of the business and the position of the Company and the
undertakings included in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that they face; and
(3) the annual report and the financial statements, taken as a whole, are fair,
balanced and understandable, and provide the information necessary for the
shareholders to assess the Group's position, performance, business model and
strategy.
On behalf of the Board
Michel Meeùs
Chairman
28 April 2022
Independent auditor's report to the members of Cadogan Petroleum plc
Report on the audit of the consolidated financial statements
Qualified Opinion
We have audited the financial statements of Cadogan Petroleum Plc (the 'Parent
Company') and its subsidiaries (the 'Group') for the year ended 31 December
2021 which comprise the consolidated income statement, the consolidated
statement of comprehensive income, the consolidated balance sheet, the
consolidated cash flow statement, the consolidated statement of changes in
equity, the company balance sheet, the company cash flow statement, the company
statement of changes in equity and notes to the financial statements, including
a summary of significant accounting policies. The financial reporting framework
that has been applied in their preparation is applicable law and UK adopted
international accounting standards.
In our opinion, except for the possible effects of the matter described in the
Basis for qualified opinion paragraph below:
* the financial statements give a true and fair view of the assets,
liabilities and financial position of the Group's and of the Parent Company
as at 31 December 2021 and of the Group's financial performance and cash
flow for the year then ended;
* the Group and Parent Company financial statements have been properly
prepared in accordance with UK-adopted international accounting standards
and Companies Act 2006; and
* the Group financial statements have been prepared in accordance with,
Article 4 of the IAS Regulation.
Basis for Qualified Opinion
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
S.P.A ("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.
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 Cadogan Petroleum Holdings BV, 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.
The call option was not exercised within the timeframe (February 2021) and then
in accordance with the loan agreement the principal amount and any accrued
interest became repayable in full. At this time the Group reclassified the
asset from fair value through profit and loss to amortised cost.
In March 2021, PMP requested arbitration to have the loan agreement recognized
as an equity investment contract. The arbitration process is ongoing however
the investigation process is closed. The decision of the College of Arbitrators
is expected in July 2022.
We considered the recoverability of the loan to be a key audit matter, and in
respect of this matter we:
* made inquiries of management and the Audit Committee regarding the
structure of the transaction and reviewed the accounting entries;
* reviewed the original loan documents including call option agreement;
* we met with management to obtain an understanding of their assessment as to
why they believe no impairment is required against the carrying value of
the loan;
* discussed with management their understanding of the current arbitrations
proceedings and any information that they could relay to us from the
confidential hearings;
* had minimal contact with the Cadogan legal advisors due to the deemed
confidential nature of the Arbitration process;
* assessed the ability of the counterparty to repay the amounts due, based on
available information, including the potential assessment of the value of
the shares pledged as security;
* reviewed the disclosures in relation to financial instruments including the
accounting policy, critical judgments and estimates and financial
instrument disclosures.
As noted above, given the ongoing arbitration process, we have not been able to
obtain sufficient, appropriate audit evidence regarding the loan, and
accordingly are not able to conclude whether the carrying value is materially
accurate. In 2020, the predecessor auditor, was not able to obtain sufficient,
appropriate audit evidence to conclude whether the fair value of the loan note
instrument was materially accurate and as such we do not know what impact this
has on the current year results. As a result, the audit opinion for the year
ended 31 December 2020 was also qualified in respect of this limitation on the
scope of the audit.
We conducted our audit in accordance with International Standards on Auditing
(UK) ('ISAs (UK)') and applicable law. Our responsibilities under those
standards are further described in the 'Responsibilities of the auditor for the
audit of the financial statements' section of our report. We are independent of
the [group and] company in accordance with the ethical requirements that are
relevant to our audit of the financial statements in the United Kingdom,
including the FRC's Ethical Standard and the ethical pronouncements established
by Chartered Accountants Ireland, applied as determined to be appropriate in
the circumstances for the entity. We have fulfilled our other ethical
responsibilities in accordance with these requirements. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a
basis for our qualified opinion.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the Directors' use
of the going concern basis of accounting in the preparation of the financial
statements is appropriate. Our evaluation of the Directors' assessment of the
Group and the Parent Company's ability to continue to adopt the going concern
basis of accounting included:
* Reviewing management's assessment of the impact of the ongoing War in
Ukraine and its potential impact on production assets, revenue generation,
availability of people and resources and various scenario planning in
respect of same;
* Reviewing management's cash flow forecasts for the period to April 2023 and
evaluating the level of headroom available and the assumptions including,
potential geopolitical impacts, oil production, oil prices, operating
expenditure and capital expenditure. In doing so we compared production
forecasts to historical trends and considered the oil price assumptions
against consensus market prices and historical discount levels between
Brent oil prices and the local market. We compared forecast costs with
historical expenditure.
* Reviewing licences for commitments to check these have been reflected in
the cash flow forecasts.
* Reviewing the disclosures in the financial statements in respect of going
concern against the requirements of the standards.
Based on the work we have performed, we have not identified any material
uncertainties relating to events or conditions that, individually or
collectively, may cast significant doubt on the Group's and Parent Company's
ability to continue as a going concern for a period of at least twelve months
from when the financial statements are authorised for issue. Our
responsibilities and the responsibilities of the Directors with respect to
going concern are described in the relevant sections of this report.
Emphasis of Matter
We draw attention to the Report of the Directors and Note 29 to the financial
statements which describes the ongoing War in Ukraine. The outcome, length,
scale and extent of the War is unknown and as such its impact on the group
cannot be predicted at the time of issuing the audit opinion.. The Group
continue to monitor any impact and have included various scenario planning in
relation to the War in its cash flow projections. In view of the significance
of this matter, we consider that it should be drawn to your attention. The
ultimate outcome of this matter cannot presently be determined and the
financial statements do not include any potential adjustment(s) that may be
required arising out of alternative outcomes. Our opinion is not modified in
respect of this matter.
Other matter
The financial statements of the Group and Parent Company for the year ended
December 31, 2020, were audited by BDO LLP who expressed a qualified opinion on
those statements on May 5, 2021. The qualification related to the group
advanced loan through a subsidiary which was recorded at fair value through
profit loss and the predecessor auditor could not obtain sufficient,
appropriate audit evidence to conclude on the fair value of the loan note
instrument.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were
of most significance in our audit of the financial statements of the current
period and include the most significant assessed risks of material misstatement
(whether or not due to fraud) that we identified, including those which had the
greatest effect on: the overall audit strategy, the allocation of resources in
the audit, and directing the efforts of the engagement team. These matters were
addressed in the context of our audit of the financial statements as a whole,
and in forming our opinion thereon, and we do not provide a separate opinion on
these matters.
In addition to the matter described in the "Basis for qualified opinion"
section, which discusses the valuation of the loan, we have determined the
matters described below to be the key audit matters to be communicated in our
report:
* Valuation of oil and gas exploration and production assets
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its
environment, including the Group's system of internal control, and assessing
the risks of material misstatement in the financial statements. We also
addressed the risk of management override of internal controls, including
assessing whether there was evidence of bias by the Directors that may have
represented a risk of material misstatement.
Whilst Cadogan Petroleum Plc is a company listed on the Standard Segment of the
London Stock Exchange, the Group's operations principally comprise an
exploration & development of oil and gas assets located in Ukraine, together
with gas trading and oil services activities. We assessed there to be four
significant components within the Ukrainian sub-group, comprising components
holding exploration & development assets and gas trading activities which were
subject to a full scope audit. Together with the Parent Company, Cadogan
Petroleum Holdings Ltd, Cadogan Petroleum Holdings B.V. and the Group
consolidation, which was also subject to a full scope audit, these represent
the significant components of the Group. The audits of each of the Ukrainian
components were principally performed in the Ukraine by a Grant Thornton member
firm under the supervision and direction of the Group audit team. The audits of
the parent company, Cadogan Petroleum Holdings Ltd, Cadogan Petroleum Holdings
B.V. and the Group consolidation were performed in Ireland by the Group audit
team. The remaining components of the Group were considered non-significant and
these components were principally subject to analytical review procedures by
the Group audit team or Grant Thornton member firm in Ukraine.
Our involvement with component auditors
For the work performed by component auditors, we determined the level of
involvement needed in order to be able to conclude whether sufficient
appropriate audit evidence has been obtained as a basis for our opinion on the
Group financial statements as a whole. Our involvement with component auditors
included the following:
* Detailed Group reporting instructions were sent to the component auditor,
which included the significant areas to be covered by the audit (including
areas that were considered to be key audit matters as detailed below), and
set out the information required to be reported to the Group audit team.
* As a result of travel restrictions resulting from the Covid-19 pandemic or
the ongoing War, the Group audit partner and senior members of the Group
audit team were unable to visit the Ukraine to meet with component
management and the component auditors during the audit. Accordingly, we
performed a remote review of the component audit files in the Ukraine using
appropriate technologies, held regular calls and videoconferences with the
component audit team and component management during the audit.
* The Group audit team was actively involved in the direction of the audits
performed by the component auditors for Group reporting purposes, along
with the consideration of findings and determination of conclusions drawn.
We performed our own additional procedures in respect of the significant
risk areas that represented Key Audit Matters in addition to the procedures
performed by the component auditor.
Our application of materiality
We apply the concept of materiality both in planning and performing our audit,
and in evaluating the effect of misstatements. We consider materiality to be
the magnitude by which misstatements, including omissions, could influence the
economic decisions of reasonable users that are taken on the basis of the
financial statements.
Overall Group 2021 2020
Materiality
$700,000 $700,000
Basis for 1.5% of total assets
determining
materiality
Rational for We determined that an asset based measure is appropriate as the
the benchmark Group holds significant cash and loan balances and its principal
applied activity is the exploration & development of oil and gas assets,
such that the asset base is considered to be a key financial
metric for users of the financial statements.
We allocated group materiality to significant components dependent
on the size and our assessment of the risk of material
misstatement of that component.
Performance $420,000 $460,000
materiality
Basis for 60% of materiality having considered our review of the predecessor
determining auditor's assessment of the risk of misstatements, business risks
performance and fraud risks associated with the entity and its control
materiality environment, our expectations about misstatements and our
understanding of the business and processes at the Group and
Company. This is to reduce to an appropriately low level the
probability that the aggregate of uncorrected and undetected
misstatements in the financial statements exceeds materiality for
the financial statements as a whole.
In order to reduce to an appropriately low level the probability that any
misstatements exceed materiality, we use a lower materiality level, performance
materiality, to determine the extent of testing needed. Importantly,
misstatements below these levels will not necessarily be evaluated as
immaterial as we also take account of the nature of identified misstatements,
and the particular circumstances of their occurrence, when evaluating their
effect on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the
financial statements as a whole and performance materiality as follows:
The reporting threshold is set as the amount below which identified
misstatements are considered as being clearly trivial. We agreed with the Board
and the Audit Committee that we would report to them misstatements identified
during our audit of amounts greater than 5% of materiality as well as
misstatements below that amount that, in our view, warranted reporting for
qualitative reasons.
Key audit matters identified
The risks of material misstatement that had the greatest effect on our audit,
including the allocation of our resources and effort, are set out below as
significant matters together with an explanation of how we tailored our audit
to address these specific areas in order to provide an opinion on the financial
statements as a whole. This is not a complete list of all risks identified by
our audit.
Key audit matter How the scope of our audit addressed the key
audit matter
Valuation of oil and gas We evaluated management's impairment indicator
exploration and production review paper, together with the underlying
assets discounted cash flow forecasts which formed part
of their impairment review.
At 31 December 2021 the Group
held exploration and evaluation We critically challenged the key judgments and
assets of $nil and $9.6m of assumptions made by management, including
development and production forecast oil prices, production levels and
assets as detailed in note 4 costs.
(a), 4(b),15 and 16.
We critically evaluated management's assumptions
Management is required to in calculating the discount rates and performed
assess these assets for sensitivity analysis on the discount rate to
indicators of impairment at identify the impact of reasonable fluctuations.
each reporting date and perform
an impairment test when We performed sensitivity analysis on the
indicators of impairment are impairment models to establish the impact of
identified. reasonably possible changes in key variables
such as pricing, production and the discount
Management has performed an rates. We met with operational management to
impairment review which evaluate the basis for forecast decreases in
included assessment of the production associated with well stimulation
Bitlyanska and Blazhivska activities, considered the historical impact of
licences' recoverable value. such activities and evaluated the extent to
which appropriate costs were included in the
The impairment reviews require forecasts.
judgment and estimate in
determining whether indicators We reviewed budgets, forecasts and strategic
of impairment exist and, in plans to consider the extent to which
respect of the discounted cash management's judgment regarding future planned
flow models significant exploration activity and the impact of the
estimates in selecting inputs. ongoing War in Ukraine is supported.
In addition, the Bitlyanska We reviewed the licence agreements and confirmed
licence following its expiry in that the Group holds a valid licence for
December 2019 and delays in the Blazhivska which was renewed / converted to a
licence being awarded and the production licence in December 2019 and is valid
subsequent rejection of the until 2039. We gained an understanding of the
application in 2021 licence conditions and remaining term.
Management's conclusion that
full impairment is applicable In respect of the Bitlyanska licence, we
on the Bitlyanska licence. considered the appropriateness of management's
judgment that the Bitlyanska licence would have
As a result of these factors not been extended or converted to production
this represented a key focus licences following its expiry in December 2019,
area for our audit and a key particularly noting the delays and the
audit matter. subsequent rejection of the application in 2020
and informal receipt of information in 2022 that
the application to renew the licence has been
rejected. Despite the recent ruling the Group
will continue to pursue the licence.
Key observations:
We consider the judgements made by management in
respect of the valuation of the exploration and
production assets at Bitlyanska and Blazhivska
to be reasonable. The disclosures in the notes,
including the critical judgments regarding
renewal of the Bitlyanska licence are in line
with accounting standards.
Other information
Other information comprises information included in the annual report, other
than the financial statements and our auditor's report therein. Our opinion on
the financial statements does not cover the other information and, except to
the extent otherwise explicitly stated in our report, we do not express any
form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is
to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our
knowledge obtained in the audit, or otherwise appears to be materially
misstated. If we identify such material inconsistencies in the financial
statements, we are required to determine whether there is a material
misstatement in the financial statements or a material misstatement of the
other information. If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we are required to
report that fact.
Except for the possible effect of the matter described in the basis for the
qualified opinion section we have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion, based on the work undertaken in the course of the audit:
* Except for the possible effect of the matter described in the basis for
qualified opinion section of our report, in our opinion, based on the work
undertaken in the course of the audit the information given in the
Strategic Report and the Directors' Report for the financial year for which
the financial statements are prepared is consistent with the financial
statements; and
* the Strategic Report and the Directors' Report have been prepared in
accordance with applicable legal requirements.
Except for any amendments that we may have considered necessary had we been
able to obtain sufficient appropriate audit evidence in relation to the fair
value of the loan receivable as described in the basis for qualified opinion
section of our report, in the light of the knowledge and understanding of the
Group and Parent Company and its environment obtained in the course of the
audit, we have not identified material misstatements in the strategic report or
the Directors' report.
Matters on which we are required to report by exception
Arising solely from the limitation on our work relating to the loan receivable
described above, we have not obtained all the information and explanations that
we considered necessary for the purpose of our audit. We have nothing to report
in respect of the following matters where the Companies Act 2006 requires us to
report to you if, in our opinion:
* adequate accounting records have not been kept by the Parent Company, or
returns adequate for our audit have not been received from branches not
visited by us; or
* the Parent Company financial statements and the part of the Directors'
remuneration report to be audit are not in agreement with the accounting
records and returns; or
* certain disclosures of directors' remuneration specified by law are not
made;
Responsibilities of Directors and those charged with governance for the
financial statements
As explained more fully in the Directors' responsibilities statement,
management is responsible for the preparation of the financial statements which
give a true and fair view in accordance UK adopted international accounting
standards, and for such internal control as directors determine necessary to
enable the preparation of financial statements are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for
assessing the group and company's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the going
concern basis of accounting unless management either intends to liquidate the
group and company or to cease operations, or has no realistic alternative but
to do so.
Those charged with governance are responsible for overseeing the group and
company's financial reporting process.
Responsibilities of the auditor for the audit of the financial statements
The objectives of an auditor are to obtain reasonable assurance about whether
the financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor's report that includes
their opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with ISAs (UK) will always
detect a material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial statements.
A further description of an auditor's responsibilities for the audit of the
financial statements is located on the Financial Reporting Council's website
at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our
auditor's report.
Explanation as to what extent the audit was considered capable of detecting
irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and
regulations. We design procedures in line with our responsibilities, outlined
above, to detect material misstatements in respect of irregularities, including
fraud. Owing to the inherent limitations of an audit, there is an unavoidable
risk that material misstatement in the financial statements may not be
detected, even though the audit is properly planned and performed in accordance
with the ISAs (UK). The extent to which our procedures are capable of detecting
irregularities, including fraud is detailed below.
In response to these principal risks, our audit procedures included but were
not limited to:
* enquiries of management board, risk and compliance and legal functions and
audit committee on the policies and procedures in place regarding
compliance with laws and regulations, including consideration of known or
suspected instances of non-compliance and whether they have knowledge of
any actual, suspected or alleged fraud;
* inspection of the group's regulatory and legal correspondence and review of
minutes of board, director's and audit committee meetings during the year
to corroborate inquiries made;
* gaining an understanding of the internal controls established to mitigate
risk related to fraud;
* discussion amongst the engagement team in relation to the identified laws
and regulations and regarding the risk of fraud, and remaining alert to any
indications of non-compliance or opportunities for fraudulent manipulation
of financial statements throughout the audit;
* identifying and testing journal entries to address the risk of
inappropriate journals and management override of controls;
* designing audit procedures to incorporate unpredictability around the
nature, timing or extent of our testing;
* assessing the susceptibility of the Group's financial statements to
material misstatement, including how fraud might occur;
* testing the appropriateness of journal entries made through the year by
applying specific criteria to detect possible irregularities and fraud;
* obtaining an understanding of management's procedures to evaluate the
validity of supplier arrangements and identify and assess any unusual
items;
* Performing a review of supplier contract arrangements across the Group,
making inquiries regarding the nature and purpose of the arrangement and
reviewing contracts for certain supplier arrangements;
* Performing a detailed review of the Group's year-end adjusting entries and
investigating any that appear unusual as to nature or amount and agreeing
to supporting documentation;
* challenging assumptions and judgements made by management in their
significant accounting estimates, including impairment assessment of assets
; and
* review of the financial statement disclosures to underlying supporting
documentation and inquiries of management.
* We requested information from component auditors on instances of
non-compliance with laws or regulations that could give rise to a material
misstatement of the group financial statements.
* Directing the auditors of the significant components to ensure an
assessment is performed on the extent of the components compliance with the
relevant local and regulatory framework. Reviewing this work and holding
meetings with relevant internal management and external third parties to
form our own opinion on the extent of Group wide compliance.
* ensuring the engagement team collectively had the appropriate competence
and capabilities to identify or recognise non-compliance with the laws and
regulation and they were appropriately briefed on where the risk areas are;
Our audit procedures were designed to respond to risks of material misstatement
in the financial statements, recognising that the risk of not detecting a
material misstatement due to fraud is higher than the risk of not detecting one
resulting from error, as fraud may involve deliberate concealment by, for
example, forgery, misrepresentations or through collusion. There are inherent
limitations in the audit procedures performed and the further removed
noncompliance with laws and regulations is from the events and transactions
reflected in the financial statements, the less likely we are to become aware
of it.
The purpose of our audit work and to whom we owe our responsibilities
This report is made solely to the company's members, as a body, in accordance
with chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been
undertaken so that we might state to the company's members those matters we are
required to state to them in an auditor's report and for no other purpose. To
the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the company and the company's members as a body, for our
audit work, for this report, or for the opinions we have formed.
Report on other legal and regulatory requirements
Following the recommendation of the audit committee, we were appointed by the
Board of Directors on 7 December 2021 to audit the financial statements for the
year ended 31 December 2021 and subsequent financial periods. This is the first
year we have been engaged to audit the financial statements of the company. The
period of total uninterrupted engagement including renders reappointments of
the firm is 1 year.
We have not provided non-audit services prohibited by the FRC's Ethical
Standard and have remained independent of the entity in conducting the audit.
The audit opinion is consistent with the additional report to the audit
committee.
Cathal Kelly
(Senior Statutory Auditor)
For and on behalf of
Grant Thornton
Chartered Accountants & Statutory Auditors
12-18 City Quay
Dublin 2,
Ireland
28 April 2022
Consolidated Income Statement Notes 2021 2020
for the year ended 31 December 2021 $'000 $'000
CONTINUING OPERATIONS
Revenues 6 8,793 5,105
Cost of sales (6,372) (4,500)
Gross profit/(loss) 2,421 605
Administrative expenses 7 (3,712) (3,771)
Impairment of gas and oil assets 15 (2,474) -
Impairment of other assets 8 (994) (53)
Reversal of impairment of other assets 8 20 644
Fair value (loss) on loan and call option 26 - (334)
Other operating (loss), net 9 (18) (71)
Net foreign exchange (losses)/gain (1,591) 1,938
Operating loss (6,348) (1,042)
Finance income, net 12 1,250 40
Loss before tax (5,098) (1,002)
Taxation 13 - -
Loss for the year (5,098) (1,002)
Attributable to:
Owners of the Company (5,070) (996)
Non-controlling interest (28) (6)
(5,098) (1,002)
Loss per Ordinary share Cents Cents
Basic and diluted 14 (2.1) (0.4)
Consolidated Statement of Comprehensive
Income
For the year ended 31 December 2021
2021 2020
$'000 $'000
Loss for the year (5,098) (1,002)
Other comprehensive profit
Items that may be reclassified subsequently to profit or
loss:
Unrealised currency translation 466 (3,880)
differences
Other comprehensive (loss)/profit 466 (3,880)
Total comprehensive (loss)/profit for the (4,632) (4,882)
year
Attributable to:
Owners of the Company (4,604) (4,876)
Non-controlling interest (28) (6)
(4,632) (4,882)
Consolidated Balance Sheet
As at 31 December 2021
Notes
2021 2020
$'000 $'000
ASSETS
Non-current assets
Intangible exploration and evaluation 15 - 2,381
assets
Property, plant and equipment 16 9,598 9,963
Right-of-use assets 22 200 292
Deferred tax asset 21 431 419
10,229 13,055
Current assets
Inventories 18 177 2,156
Trade and other receivables 19 218 1,632
Loan receivable at amortised cost 26 16,724 -
Loan instrument classified at fair value 26 - 16,812
through profit and loss
Cash 20 15,011 13,253
32,130 33,853
Total assets 42,359 46,908
LIABILITIES
Non-current liabilities
Long-term lease liability 22 (104) (195)
Provisions 24 (300) (223)
(404) (418)
Current liabilities
Trade and other payables 23 (1,479) (1,387)
Short-term lease liability 22 (102) (97)
(1,581) (1,484)
Total liabilities (1,985) (1,902)
NET ASSETS 40,374 45,006
EQUITY
Share capital 25 13,832 13,832
Share premium 514 514
Retained earnings 185,893 190,963
Cumulative translation reserves (161,689) (162,155)
Other reserves 1,589 1,589
Equity attributable to owners of the 40,139 44,743
Company
Non-controlling interest 235 263
TOTAL EQUITY 40,374 45,006
The consolidated financial statements of Cadogan Petroleum plc, registered in
England and Wales no. 05718406, were approved by the Board of Directors and
authorised for issue on 28 April 2022. They were signed on its behalf by:
Fady Khallouf
Chief Executive Officer
28 April 2022
The notes on pages 83 to 111 form an integral part of these financial
statements.
Consolidated Cash Flow Statement
For the year ended 31 December 2021
Note 2021 2020
$'000 $'000
Operating profit / (loss) (6,348) (1,042)
Adjustments for:
Depreciation of property, plant and equipment 16 889 734
Movement in fair value of loan and call option 26 - 334
Impairment of inventories 8 994 50
Impairment of receivables 8 - 3
Impairment of oil and gas assets 15 2,474 -
Reversal of impairment 8 (21) (644)
Effect of foreign exchange rate changes 1,591 (1,938)
Operating cash flows before movements in working capital (421) (2,503)
Decrease in inventories 1,049 1,624
Decrease in receivables 1,526 930
(Increase)/decrease in payables (28) 34
Cash generated by operations 2,126 85
Interest received 68 25
Net cash inflow/(outflow) from operating activities 2,194 110
Investing activities
Purchases of property, plant and equipment (150) (279)
Purchases of intangible exploration and evaluation (9) (32)
assets
Interest received 8 38
Net cash used in investing activities (151) (273)
Net decrease in cash 2,043 (163)
Effect of foreign exchange rate changes (285) 582
Cash at beginning of year 13,253 12,834
Cash at end of year 15,011 13,253
Consolidated Statement of Changes in Equity
For the year ended 31 December 2021
Share Cumulative Non-controlling Total
capital Retained translation interest $'000
$'000 earnings reserves $'000
$'000 $'000
Share Other Equity
premium reserves attributable
account $'000 to owners of
$'000 the Company
As at 1 January 20 13,525 329 191,959 (158,275) 2,081 49,619 269 49,888
20
Net loss for the - - (996) - - (996) (6) (1,002)
year
Other comprehensive - - - (3,880) - (3,880) - (3,880)
loss
Total comprehensive - - (996) (3,880) - (4,876) (6) (4,882)
loss for the year
Issue of ordinary 307 185 - - (492) - - -
shares for director
bonus share awards
As at 1 January 202 13,832 514 190,963 (162,155) 1,589 44,743 263 45,006
1
Net loss for the - - (5,070) - - (5070) (28) (5,098)
year
Other comprehensive - - - 466 - 466 - 466
loss
Total comprehensive - - (5,070) 466 - (4,604) (28) (4,632)
loss for the year
As at 31 December 13,832 514 185,893 (161,689) 1,589 40,139 235 40,374
2021
Notes to the Consolidated Financial Statements for the year ended 31 December
2021
1. General information
Cadogan Petroleum plc (the "Company", together with its subsidiaries the
"Group"), is registered in England and Wales under the Companies Act 2006. The
address of the registered office is 6th Floor, 60 Gracechurch Street, London
EC3V 0HR.
The Group principal activity is oil and gas exploration, development and
production; the Company also conducts gas trading and provides services.
The Company's shares have a standard listing on the Official List of the UK
Listing Authority and are traded on the Main Market of the London Stock
Exchange.
2. Adoption of new and revised Standards
New IFRS accounting standards, amendments and interpretations effective from 1
January 2021
The disclosed policies have been applied consistently by the Group for both the
current and previous financial year with the exception of the new standards
adopted.
The IFRS financial information has been drawn up on the basis of accounting
policies consistent with those applied in the financial statements for the year
to 31 December 2020, except for the following:
(a) Interest Rate Benchmark Reform - Amendments to IFRS 7, IFRS 9, IAS 39,
IFRS 4 and IFRS 16;
(b) COVID-19-related Rent Concessions beyond 30 June 2021 - Amendments to
IFRS 16.
The application of the above standards has had no impact on the disclosures or
the amounts recognised in the Group's consolidated financial statements.
New IFRS accounting standards, amendments and interpretations not yet effective
Below is a list of new and revised IFRSs that are not yet mandatorily effective
(but allow early application) for the year ending 31 December 2021 and have not
been early adopted by the Group. These standards are not expected to have a
material impact on the Group in the future reporting periods and on foreseeable
future transactions.
IFRS accounting standards Effective
periods
beginning on or
after
Property, Plant and Equipment: Proceeds before intended use - 01 January 2022
Amendments to IAS 16
Reference to the Conceptual Framework - Amendments to IFRS 3 01 January 2022
Onerous Contracts - Cost of Fulfilling a Contract Amendments to IAS 01 January 2022
37
Annual Improvements to IFRS Standards 2018-2020 01 January 2022
Classification of Liabilities as Current or Non-current - 01 January 2023
Amendments to IAS 1
IFRS 17, 'Insurance contracts' 01 January 2023
Sale or Contribution of Assets between an Investor and its has yet to be
Associate or Joint Venture - Amendments to IFRS 10 and IAS 28 set by the Board
Disclosure of Accounting Policies - Amendments to IAS 1 and IFRS 01 January 2023
Practice Statement 2
Definition of Accounting Estimates - Amendments to IAS 8 01 January 2023
Deferred Tax related to Assets and Liabilities arising from a 01 January 2023
Single Transaction - Amendments to IAS 12
3. Significant accounting policies
(a) Basis of accounting
The Group's financial statements have been prepared and approved by the
directors in accordance with UK-adopted international accounting standards
(collectively "IFRS") applied in accordance with the provisions of the
Companies Act 2006.
The financial statements have been prepared on the historical cost convention
basis.
The principal accounting policies adopted are set out below:
(b) Going concern
The Group's cash balance at 31 December 2021 was $15.0 million (2020: $13.3
million). The Directors believe that the funds available at the date of the
issue of these financial statements are sufficient for the Group to manage its
business risks and planned investments successfully.
The Directors' have carried out a robust assessment of the principal risks
facing the Group.
The Group's forecasts and projections, taking into account reasonably possible
changes in trading activities, operational performance, flow rates for
commercial production and the price of hydrocarbons sold to Ukrainian
customers, show that there are reasonable expectations that the Group will be
able to operate on funds currently held and those generated internally, for the
foreseeable future.
Notwithstanding the Group's current financial performance and position, the
Board are cognisant of the actual impacts on the Group of COVID-19 and the war
situation in Ukraine. The Board has considered possible reverse stress case
scenarios for the impact on the Group's operations, financial position and
forecasts. Whilst the potential future impacts of Covid-19 and the invasion of
Ukraine by Russia are unknown, the Board has considered operational disruption
that may be caused by the factors such as a) restrictions applied by
governments, illness amongst our workforce and disruption to supply chain and
sales channels; b) market volatility in respect of commodity prices associated
with Covid-19 in addition to military and geopolitical factors.
In addition to sensitivities that reflect future expectations regarding
country, commodity price and currency risks that the Group may encounter
reverse stress tests have been run to reflect possible negative effects of
Covid-19 and war in Ukraine. The Group's forecasts demonstrate that owing to
its cash resources the Group is able to meet its operating cash flow
requirements and commitments whilst maintaining significant liquidity for a
period of at least the next 12 months allowing for sustained reductions in
commodity prices and extended and severe disruption to operations should such a
scenario occur.
After making enquiries and considering the uncertainties described above, the
Directors have a reasonable expectation that the Company and the Group have
adequate resources to continue in operational existence for the foreseeable
future and consider the going concern basis of accounting to be appropriate
and, thus, they continue to adopt the going concern basis of accounting in
preparing the annual financial statements.
(c) Basis of consolidation
The consolidated financial statements incorporate the financial statements of
the Company and entities controlled by the Company (its subsidiaries) made up
to 31 December each year. IFRS 10 defines control to be investor control over
an investee when it is exposed, or has rights, to variable returns from its
involvement with the investee and has the ability to control those returns
through its power over the investee. The results of subsidiaries disposed of
during the year are included in the consolidated income statement from the
effective date of acquisition or up to the effective date of disposal, as
appropriate. Where necessary, adjustments are made to the financial statements
of subsidiaries to bring accounting policies used into line with those used by
the Group. All intra-group transactions, balances, income and expenses are
eliminated on consolidation.
3. Significant accounting policies (continued)
(c) Basis of consolidation (continued)
Non-controlling interests in subsidiaries are identified separately from the
Group's equity therein. Those interests of non-controlling shareholders that
are present ownership interests entitling their holders to a proportionate
share of net assets upon liquidation may be initially measured at fair value or
at the non-controlling interests' proportionate share of the fair value of the
acquiree's identifiable net assets. The choice of measurement is made on an
acquisition-by-acquisition basis. Other non-controlling interests are initially
measured at fair value.
Subsequent to acquisition, the carrying amount of non-controlling interests is
the amount of those interests at initial recognition plus the non-controlling
interests' share of subsequent changes in equity. Total comprehensive income is
attributed to non-controlling interests even if this results in the
non-controlling interests having a deficit balance.
Changes in the Group's interests in subsidiaries that do not result in a loss
of control are accounted for as equity transactions. The carrying amount of the
Group's interests and the non-controlling interests are adjusted to reflect the
changes in their relative interests in the subsidiaries. Any difference between
the amount by which the non-controlling interests are adjusted and the fair
value of the consideration paid or received is recognised directly in equity
and attributed to the owners of the Company.
(d) Revenue recognition
Revenue from contracts with customers is recognized when or as the Group
satisfies a performance obligation by transferring a promised good or service
to a customer. A good or service is transferred when the customer obtains
control of that good or service. Revenue is measured based on measurement
principles of IFRS 15 and represents amounts receivable for hydrocarbon
products and services provided in the normal course of business, net of value
added tax ('VAT') and other sales-related taxes, excluding royalties on
production. Royalties on production are recorded within cost of sales.
E&P and Trading business segments
The transfer of control of hydrocarbons usually coincides with title passing to
the customer and the customer taking physical possession as the product passes
a physical point such as a designated point in the pipeline for the sale of gas
or loading point in the case of oil. The Group principally satisfies its
performance obligations at a point in time.
To the extent that revenue arises from test production during an evaluation
programme, an amount is credited to evaluation costs and charged to cost of
sales, to reflect a zero-net margin.
Services business segment
Revenue from services is recognized in the accounting period in which services
are rendered. The main types
of services provided by the Group are drilling and civil works services.
Revenue is recorded as the service is provided over time such as through day
rates for supply of drill rigs, civil works and manpower.
Interest income is accrued on a time basis, by reference to the principal
outstanding and at the effective interest rate applicable, which is the rate
that exactly discounts estimated future cash receipts through the expected life
of the financial asset to that asset's net carrying amount on initial
recognition.
3. Significant accounting policies (continued)
(e) Foreign currencies
The functional currency of the Group's Ukrainian operations is Ukrainian
Hryvnia. The functional currency of the Group's UK subsidiaries and the parent
company is US Dollar.
In preparing the financial statements of the individual companies, transactions
in currencies other than the functional currency of each Group company
('foreign currencies') are recorded in the functional currency at the rates of
exchange prevailing on the dates of the transactions. At each balance sheet
date, monetary assets and liabilities that are denominated in foreign
currencies are retranslated into the functional currency at the rates
prevailing on the balance sheet date. Non-monetary assets and liabilities
carried at fair value that are denominated in foreign currencies are translated
at the rates prevailing at the date when the fair value was determined.
Non-monetary items that are measured in terms of historical cost in a foreign
currency are not retranslated. Foreign exchange differences on cash are
recognized in operating profit or loss in the period in which they arise.
Exchange differences are recognized in the profit or loss in the period in
which they arise except for exchange differences on monetary items receivable
from or payable to a foreign operation for which settlement is neither planned
nor likely to occur. This forms part of the net investment in a foreign
operation, which is recognized in the foreign currency translation reserve and
in profit or loss on disposal of the net investment.
For the purpose of presenting consolidated financial statements, the results
and financial position of each entity of the Group, where the functional
currency is not the US dollar, are translated into US dollars as follows:
i. assets and liabilities of the Group's foreign operations are
translated at the closing rate on the balance sheet date;
ii. income and expenses are translated at the average exchange rates
for the period, where it approximates to actual rates. In other cases, if
exchange rates fluctuate significantly during that period, the exchange rates
at the date of the transactions are used; and
iii. all resulting exchange differences arising, if any, are
recognized in other comprehensive income and accumulated equity (attributed to
non-controlling interests as appropriate), transferred to the Group's
translation reserve. Such translation differences are recognized as income or
as expenses in the period in which the operation is disposed of.
The relevant exchange rates used were as follows:
Year ended 31 December 2021 Year ended 31 December 2020
GBP/USD EURO/USD USD/UAH GBP/USD EURO/USD USD/UAH
Closing rate 1.3514 1.1344 27.5776 1.3678 1.2217 28.3700
Average rate 1.3761 1.1847 27.5112 1.2843 1.1420 27.0034
3. Significant accounting policies (continued)
(g) Taxation
The tax expense represents the sum of the tax currently payable and deferred
tax.
The tax currently payable is based on taxable profit for the year. Taxable
profit differs from net profit as reported in the consolidated income statement
because it excludes items of income or expense that are taxable or deductible
in other years and it further excludes items that are never taxable or
deductible. The Group's liability for current tax is calculated using tax rates
that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences
between the carrying amounts of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable
profit. This is accounted for using the balance sheet liability method.
Deferred tax liabilities are generally recognized for all taxable temporary
differences and deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which deductible
temporary differences can be utilised. Such assets and liabilities are not
recognized if the temporary difference arises from the initial recognition of
goodwill or from the initial recognition (other than in a business combination)
of other assets and liabilities in a transaction that affects neither the
taxable profit nor the accounting profit. Deferred tax liabilities are
recognized for taxable temporary differences arising on investments in
subsidiaries and associates, and interests in joint ventures, except where the
Group is able to control the reversal of the temporary difference and it is
probable that the temporary difference will not reverse in the foreseeable
future.
The carrying amount of deferred tax assets is reviewed at each balance sheet
date and reduced to the extent that it is no longer probable that sufficient
taxable profits will be available to allow all or part of the asset to be
recovered. Deferred tax is calculated at the tax rates that are expected to
apply in the period when the liability is settled or the asset is realized.
Deferred tax is charged or credited in the income statement, except when it
relates to items charged or credited in other comprehensive income, in which
case the deferred tax is also dealt with in other comprehensive income.
Deferred tax assets and liabilities are offset when there is a legally
enforceable right to set off current tax assets against current tax liabilities
and when they relate to income taxes levied by the same taxation authority and
the Group intends to settle its current tax assets and liabilities on a net
basis.
In case of the uncertainty of the tax treatment, the Group assess, whether it
is probable or not, that the tax treatment will be accepted, and to determine
the value, the Group use the most likely amount or the expected value in
determining taxable profit (tax loss), tax bases, unused tax losses, unused tax
credits and tax rates.
(h) Other property, plant and equipment
Property, plant and equipment ('PP&E') are carried at cost less accumulated
depreciation and any recognized impairment loss. Depreciation and amortization
is charged so as to write-off the cost or valuation of assets, other than land,
over their estimated useful lives, using the straight-line method, on the
following bases:
Other PP&E 10% to 30%
The gain or loss arising on the disposal or retirement of an asset is
determined as the difference between the sales proceeds and the carrying amount
of the asset and is recognized in income.
(i) Intangible exploration and evaluation assets
The Group applies the modified full cost method of accounting for intangible
exploration and evaluation ('E&E') expenditure, which complies with
requirements set out in IFRS 6 Exploration for and Evaluation of Mineral
Resources. Under the modified full cost method of accounting, expenditure made
on exploring for and evaluating oil and gas properties is accumulated and
initially capitalized as an intangible asset, by reference to
3. Significant accounting policies (continued)
(i) Intangible exploration and evaluation assets (continued)
appropriate cost centres being the appropriate oil or gas property. E&E assets
are then assessed for impairment on a geographical cost pool basis, which are
assessed at the level of individual licences.
E&E assets comprise costs of (i) E&E activities which are in progress at the
balance sheet date, but where the existence of commercial reserves has yet to
be determined (ii) E&E expenditure which, whilst representing part of the E&E
activities associated with adding to the commercial reserves of an established
cost pool, did not result in the discovery of commercial reserves.
Costs incurred prior to having obtained the legal rights to explore an area are
expensed directly to the income statement as incurred.
Exploration and Evaluation costs
E&E expenditure is initially capitalized as an E&E asset. Payments to acquire
the legal right to explore, costs of technical services and studies, seismic
acquisition, exploratory drilling and testing are also capitalized as
intangible E&E assets.
Tangible assets used in E&E activities (such as the Group's vehicles, drilling
rigs, seismic equipment and other property, plant and equipment) are normally
classified as PP&E. However, to the extent that such assets are consumed in
developing an intangible E&E asset, the amount reflecting that consumption is
recorded as part of the cost of the intangible asset. Such intangible costs
include directly attributable overheads, including the depreciation of PP&E
items utilised in E&E activities, together with the cost of other materials
consumed during the exploration and evaluation phases.
E&E assets are not amortized prior to the conclusion of appraisal activities.
Treatment of E&E assets at conclusion of appraisal activities
Intangible E&E assets related to each exploration property are carried forward,
until the existence (or otherwise) of commercial reserves has been determined.
If commercial reserves have been discovered, the related E&E assets are
assessed for impairment on individual assets basis as set out below and any
impairment loss is recognized in the income statement. Upon approval of a
development programme, the carrying value, after any impairment loss, of the
relevant E&E assets is reclassified to the development and production assets
within PP&E.
Intangible E&E assets which relate to E&E activities that are determined not to
have resulted in the discovery of commercial reserves remain capitalized as
intangible E&E assets at cost less accumulated amortization, subject to meeting
a pool-wide impairment test in accordance with the accounting policy for
impairment of E&E assets set out below.
Impairment of E&E assets
E&E assets are assessed for impairment when facts and circumstances suggest
that the carrying amount may exceed its recoverable amount. Such indicators
include, but are not limited to those situations outlined in paragraph 20 of
IFRS 6 Exploration for and Evaluation of Mineral Resources such as, a) license
expiry during year or in the near future and will not likely to be renewed; b)
expenditure on E&E activity neither budgeted nor planned; c) commercial
quantities of mineral resources have been discovered; and d) sufficient data
exist to indicate that carrying amount of E&E asset is unlikely to be recovered
in full from successful development or sale.
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.
(j) Development and production assets
Development and production assets are accumulated on a field-by-field basis and
represent the cost of developing the commercial Reserves discovered and
bringing them into production, together with E&E expenditures incurred in
finding commercial Reserves transferred from intangible E&E assets.
The cost of development and production assets comprises the cost of
acquisitions and purchases of such assets, directly attributable overheads,
finance costs capitalized, and the cost of recognizing provisions for future
restoration and decommissioning.
Depreciation of producing assets
Depreciation is calculated on the net book values of producing assets on a
field-by-field basis using the unit of production method. The unit of
production method refers to the ratio of production in the reporting year as a
proportion of the Proved and Probable Reserves of the relevant field based on
assessments of internal geologists utilising the most recent Competent Person
Report and subsequent drilling and exploration, taking into account future
development expenditures necessary to bring those Reserves into production.
Producing assets are generally grouped with other assets that are dedicated to
serving the same Reserves for depreciation purposes, but are depreciated
separately from producing assets that serve other Reserves.
(k) Impairment of development and production assets and other property, plant
and equipment
At each balance sheet date, the Group reviews the carrying amounts of its PP&E
to determine whether there is any indication that those assets have suffered an
impairment loss. If any such indication exists, the recoverable amount of the
asset is estimated in order to determine the extent of the impairment loss (if
any). Where the asset does not generate cash flows that are independent from
other assets, the Group estimates the recoverable amount of the cash-generating
unit to which the asset belongs. The recoverable amount is the higher of fair
value less costs to sell and value in use. In assessing value in use, the
estimated future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset for which the estimates of
future cash flows have not been adjusted. In determining fair value less cost
to sell, the estimated future cash flows are discounted to their present value
using a post-tax discount rate that reflects current market assessments of the
time value of money and the risks specific to the asset for which the estimates
of future cash flows have not been adjusted. Such cash flows include relevant
development expenditure that a market participant would reasonably be expected
to undertake.
If the recoverable amount of an asset (or cash-generating unit) is estimated to
be less than its carrying amount, the carrying amount of the asset
(cash-generating unit) is reduced to its recoverable amount. An impairment loss
is recognised as an expense immediately.
Where an impairment loss subsequently reverses, the carrying amount of the
asset (cash-generating unit) is increased to the revised estimate of its
recoverable amount, but so that the increased carrying amount does not exceed
the carrying amount that would have been determined had no impairment loss been
recognised for the asset (cash-generating unit) in prior years. A reversal of
an impairment loss is recognized as income immediately.
(l) Inventories
Oil and gas stock and spare parts are stated at the lower of cost and net
realisable value. Costs comprise direct materials and, where applicable, direct
labour costs and those overheads that have been incurred in bringing the
inventories to their present location and condition. Cost is allocated using
the weighted average method. Net realisable value represents the estimated
selling price less all estimated costs of completion and costs to be incurred
in marketing, selling and distribution.
(m) Financial instruments
Financial assets and financial liabilities are recognized in the consolidated
statement of financial position when the Group becomes party to the contractual
provisions of the instrument.
Loan classified at fair value through profit and loss (applicable for 2020)
Loan instruments which include options to convert the instrument into equity
are classified as fair value through profit and loss instruments because they
do not meet the criteria for amortized cost measurement as they are not held
for the collection of contractual cash flows representing solely payments of
principal and interest. Such loan instruments are initially recorded at fair
value which is typically the cash advanced under the instrument and
subsequently recorded at fair value with changes in fair value recorded in the
income statement. Transaction costs for loans classified at fair value through
profit or loss are expensed in the income statement.
Loan classified at amortised cost (applicable for 2021)
Loan is measured at the amount recognised at initial recognition minus
principal repayments, plus or minus the cumulative amortization of any
difference between that initial amount and the maturity amount, and any loss
allowance. Interest income is calculated using the effective interest method
and is recognised in profit and loss. Changes in fair value are recognised in
profit and loss when the asset is derecognised or reclassified. In accordance
with IFRS 9, the loan is measured at amortised cost. The Group applies the
simplified approach to providing for expected credit losses (ECL) prescribed by
IFRS 9, which permits the use of the lifetime expected loss provision for the
loan. Expected credit losses are assessed on a forward-looking basis. The loss
allowance is measured at initial recognition and throughout its life at an
amount equal to lifetime ECL. Any impairment is recognized in the income
statement.
Trade and other payables
Payables are initially measured at fair value, net of transaction costs and are
subsequently measured at amortized cost using the effective interest method.
Trade and other receivables
Trade and other receivables are recognized initially at their transaction price
in accordance with IFRS 9 and are subsequently measured at amortised cost. The
Group applies the simplified approach to providing for expected credit losses
(ECL) prescribed by IFRS 9, which permits the use of the lifetime expected loss
provision for all trade receivables. Expected credit losses are assessed on a
forward-looking basis. The loss allowance is measured at initial recognition
and throughout its life at an amount equal to lifetime ECL. Any impairment is
recognized in the income statement.
Cash
Cash comprise cash on hand and on-demand deposits. Deposits are recorded as
cash and cash equivalents when they have a maturity of less than 90 days at
inception.
(n) Provisions
Provisions are recognized when the Group has a present obligation (legal or
constructive) as a result of a past event, it is probable that the Group will
be required to settle that obligation and a reliable estimate can be made of
the amount of the obligation. The amount recognized as a provision is the best
estimate of the consideration required to settle the present obligation at the
balance sheet date, taking into account the risks and uncertainties surrounding
the obligation. When a provision is measured using the cash flows estimated to
settle the present obligation, its carrying amount is the present value of
those cash flows.
(o) Decommissioning
A provision for decommissioning is recognized in full when the related
facilities are installed. The decommissioning provision is calculated as the
net present value of the Group's share of the expenditure expected to be
incurred at the end of the producing life of each field in the removal and
decommissioning of the production, storage and transportation facilities
currently in place. The cost of recognizing the decommissioning provision is
included as part of the cost of the relevant asset and is thus charged to the
income statement on a unit of production basis in accordance with the Group's
policy for depletion and depreciation of tangible non-current assets. Period
charges for changes in the net present value of the decommissioning provision
arising from discounting are included within finance costs.
(p) Leases
At inception of a contract, the Group assesses whether a contract is, or
contains, a lease based on whether the contract conveys the right to control
the use of an identified asset for a period of time in exchange for
consideration. Service agreements for equipment on the working sites are not
considered leases as, based upon an assessment of the terms and nature of their
contractual arrangements, the contracts do not convey the right to control the
use of an identified asset.
The right-of-use asset is initially measured based on the initial amount of the
lease liability adjusted for any lease payments made at or before the
commencement date, plus any initial direct costs incurred and an estimate of
costs to dismantle and remove the underlying asset or to restore the underlying
asset or the site on which it is located, less any lease incentives received.
The asset is depreciated to the earlier of the end of the useful life of the
right-of-use asset or the lease term using the straight-line method as this
most closely reflects the expected pattern of consumption of the future
economic benefits. The lease term includes periods covered by an option to
extend if the Group is reasonably certain to exercise that option. In addition,
the right-of-use asset is periodically reduced by impairment losses, if any,
and adjusted for certain remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease
payments that are not paid at the commencement date, discounted using the
interest rate implicit in the lease or, if that rate cannot be readily
determined, the incremental borrowing rate. The lease liability is measured at
amortized cost using the effective interest method. It is remeasured when there
is a change in future lease payments arising from a change in an index or rate,
if there is a change in the Group's estimate of the amount expected to be
payable under a residual value guarantee, or if the Group changes its
assessment of whether it will exercise a purchase, extension or termination
option. When the lease liability is remeasured in this way, a corresponding
adjustment is made to the carrying amount of the right-of-use asset, or the
effect is recorded in profit or loss if the carrying amount of the right-of-use
asset has been reduced to zero.
The Group elected to apply the practical expedient not to recognise
right-of-use assets and lease liabilities for short-term leases that have a
lease term of 12 months or less and leases of low-value assets. The Group also
made use of the practical expedient to not recognize a right-of-use asset or a
lease liability for leases for which the lease term ends within 12 months of
the date of initial application.
The lease payments associated with these leases are recognized as an expense on
a straight-line basis over the lease term.
4. Critical accounting judgements and key sources of estimation
uncertainty
In the application of the Group's accounting policies, which are described in
note 3, the Directors are required to make judgements, estimates and
assumptions about the carrying amounts of the assets and liabilities that are
not readily apparent from other sources. The estimates and associated
assumptions are based on historical experience and other factors that are
considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognized in the period in which the
estimate is revised if the revision affects only that period or in the period
of the revision and future periods if the revision affects both the current and
future periods.
The following are the critical judgements and estimates that the Directors have
made in the process of applying the Group's accounting policies and that have
the most significant effect on the amounts recognized in the financial
statements.
Critical judgements and estimates
(a) Impairment indicator assessment for E&E assets
Cadogan has fully complied with legislative requirements and submitted its
application for a 20-year exploration and production license 5 months before
its expiry on 23 December 2019. A decision on the award was expected to be
provided by State Geological Service of Ukraine before 19 January 2020, since
all other intermediary approvals had been secured in line with the applicable
legislation requirements. Given the delay to granting of the new license beyond
the regular timeline provided by legislation in the Ukraine, Cadogan has
launched a claim before the Administrative Court to challenge the non-granting
of the 20-year production license by the Licensing Authority.
In February 2022 the company received information from public register that its
claim was rejected by the Court. Despite the restrictions imposed by the
martial law in Ukraine, Usenco Nadra exercised its right for appeal.
The current geopolitical and military situation in Ukraine do not allow to make
any grounded expectation on the legal process time frame and the Court of
appeal decision. Considering this fact, Cadogan has fully impaired the
Bitlyanska license (note 15).
(b) Impairment of PP&E
Management assesses its development and production assets for impairment
indicators and if indicators of impairment are identified performs an
impairment test. Management performed an impairment assessment using a
discounted cash flow model which required estimates including forecast oil
prices, reserves and production, costs and discount rates (note 16).
(c) 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 considers 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.
(d) Classification of the Loan instrument in 2020 and the Loan in 2021
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 amortised cost' at the value carried at the Company balance at the date of
the Call Option expiry.
(e) Well services and rental agreements
The Group's well rental arrangements in Ukraine for oil and gas extraction
activities are outside of the scope of IFRS 16. Judgment was required in
forming this assessment, based on analysis of the scope of IFRS 16 and the
nature of the well rental arrangements. This assessment focused on the extent
to which the rental agreements provided access to sub-surface well structures
to extract hydrocarbons versus surface level infrastructure for the transport
and processing of extracted hydrocarbons.
(f) Contingent liabilities
Judgment has been applied in assessing the likelihood of financial loss in
respect of the ongoing litigation in respect of VAT and tax losses detailed in
note 27. In forming the conclusion no provision is required management
considered the findings of the first and second instance courts, although the
matter remains subject to appeal.
(g) Deferred tax assets
Deferred tax assets and liabilities require management judgement in determining
the amounts to be recognised. In particular, significant judgement is used when
assessing the extent to which deferred tax assets should be recognised, with
consideration given to the timing and level of future taxable income in the
relevant tax jurisdiction.
5. 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 reports provided to
the Group's chief operating decision maker ("CODM"). The Group has identified
its senior management team as its CODM and the internal reports used by the
senior management team to oversee operations and make decisions on allocating
resources serve as the basis of information presented. These internal reports
are prepared on the same basis as these consolidated financial statements.
Segment information is analysed on the basis of the type of activity, products
sold, or services provided. The majority of the Group's operations and all
Group's revenues 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 exploration and production licences for natural gas,
oil and condensate.
Service
* Drilling services to exploration and production companies; and
* Civil works services to exploration and production companies.
Trading
* Import of natural gas from European countries; and
* 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 described in note 3. Sales between segments are carried out
at rates considered to approximate market prices. The segment result represents
operating profit under IFRS before unallocated corporate expenses. Unallocated
corporate expenses include management remuneration, representative expenses 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. 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 31 December 2021 and for the year then ended the Group's segmental
information was as follows:
Exploration Services(2) Trading Consolidated
and
Production
$'000 $'000 $'000 $'000
Sales of hydrocarbons 7,017 - 1,769 8,786
Other revenue - 7 - 7
Sales between segments - - - -
Total revenue 7,017 7 1,769 8,793
Cost of sales (5,262) (6) (1,104) (6,372)
Administrative expenses (428) (59) (145) (632)
Other operating costs (35) - - (35)
Impairment of other assets, net (974) - - (974)
Impairment of oil and gas (2,474) - - (2,474)
assets
Finance income (1) - - 68 68
Segment results (2,156) (58) 588 (1,626)
Unallocated administrative - - - (3,080)
expenses
Other income, net (3) - - - 1,199
Net foreign exchange loss - - - (1,591)
Loss before tax - - - (5,098)
1. Net finance income includes $68 thousand of interest on cash deposits used
for trading.
2. The services business segment in 2021 primarily provided well workovers and
other works to other Group companies.
3. Includes interest on loan of $1,225 thousand.
As of 31 December 2020 and for the year then ended the Group's segmental
information was as follows:
Exploration Services(5) Trading Consolidated
and
Production
$'000 $'000 $'000 $'000
Sales of hydrocarbons 3,457 - 1,643 5,100
Other revenue - 5 - 5
Sales between segments - - - -
Total revenue 3,457 5 1,643 5,105
Cost of sales (3,033) (7) (1,460) (4,500)
Administrative expenses (509) (53) (135) (697)
Other operating costs (55) - - (55)
Impairment of other assets (53) - - (53)
Reversal of impairment of VAT 74 - 570 644
recoverable
Finance income (4) - - 25 25
Segment results (119) (55) 643 469
Unallocated administrative - - - (3,074)
expenses
Other costs, net (6) - - - (335)
Net foreign exchange gain - - - 1,938
Loss before tax - - - (1,002)
1. Net finance income includes $25 thousand of interest on cash deposits used
for trading.
2. The services business segment in 2020 primarily provided well workovers and
other works to other Group companies.
3. Includes decrease in FVPL of $334 thousand.
6. Revenue
2021 2020
$'000 $'000
Sale of hydrocarbons (exploration and production) - point in 7,017 3,457
time
Sale of hydrocarbons (trading) - point in time 1,769 1,643
Service revenues - over time 7 5
8,793 5,105
Revenue is generated in the Ukraine. Refer to note 3 (f) for details of the
performance obligations. Service revenue and associated contract assets and
liabilities are immaterial.
Information about major customers
Included in revenues arising from the Trading segment for the year ended 31
December 2021 are revenues of $1.8 million, which arose from sales to the
Group's four customers.
65% of exploration and production business segment revenue arose from sales to
four largest customers. Each of them contributed for more than 10% of the total
revenue of the exploration and production business segment revenue for the year
ended 31 December 2021.
In 2020, Trading segment revenue for the year ended 31 December 2020 of $1.6
million arose from sales to the Group's four customers. Each of them
contributed for more than 10% of the total revenue of the exploration and
production business segment revenue for the year ended 31 December 2020.
7. Administrative expenses
2021 2020
$'000 $'000
Staff 1,897 1,982
Professional fees 827 895
Insurance 350 183
Office costs including utilities 73 170
and maintenance
IT and communication 68 81
Bank charges 43 40
Travel 29 25
Other 425 395
3,712 3,771
8. Reversal of impairment/(impairment) of inventory and other assets
2021 2020
$'000 $'000
VAT recoverable - 644
Other receivables 20 -
Reversal of impairment of other assets 20 644
In 2020, $0.6 million of provision against VAT has been released in respect of
input VAT historically impaired that has been offset against output VAT.
$1.5 million (2020: $1.5 million) of historical VAT receivables remain
impaired. Refer to Note 4.
2021 2020
$'000 $'000
Inventories (994) (50)
Other receivables - (3)
VAT recoverable - -
Impairment of inventory and other assets (994) (53)
Impairment totalled $1 million (2020: $53 thousand) includes impairment of
inventories.
9. Other operating expenses, net
2021 2020
$'000 $'000
Other expenses (18) (71)
(18) (71)
For the details on disposal of subsidiaries please refer to Note 17.
10. Auditor's remuneration
The analysis of auditor's remuneration is as follows:
2021 2020
$'000 $'000
Audit fees
Fees payable to the Company's auditor and their associates for 156 157
the audit of the Company's annual accounts
Fees payable to the Company's auditor and their associates for
other services to the Group:
- The audit of the Company's subsidiaries 8 8
Total audit fees 164 165
Non-audit fees
- Review of regulatory communications - 5
Non-audit fees - 5
Audit fees for 2021 refer to Grant Thornton of $164 thousand for the audit of
group accounts and subsidiaries as of and for the year ended 31 December 2021.
11. Staff costs
The average monthly number of employees (including Executive Directors) was:
2021 2020
Number Number
Executive Director 1 1
Other employees 77 79
78 80
Total number of employees at 31 December 78 80
$'000 $'000
Their aggregate remuneration comprised:
Wages and salaries 1,671 1,689
Social security costs 307 356
Annual bonus - 131
Charge for bonus granted in shares - -
1,978 2,176
12. Finance income/(costs), net
2021 2020
$'000 $'000
Interest on loan (note 26) 1,225 -
Interest income on cash deposits in Ukraine 68 25
Investment revenue 8 37
Total interest income on financial assets 1,301 62
Interest on lease (28) -
Unwinding of discount on decommissioning provision (note 24) (23) (22)
1,250 40
13. Tax
2021 2020
$'000 $'000
Current tax - -
Deferred tax - -
- -
The Group's operations are conducted primarily outside the UK, namely in
Ukraine. The most appropriate tax rate for the Group is therefore considered to
be 18 % (2020: 18%), the rate of profit tax in Ukraine, which is the primary
source of revenue for the Group. Taxation for other jurisdictions is calculated
at the rates prevailing in the respective jurisdictions.
The taxation charge for the year can be reconciled to the profit/(loss) per the
income statement as follows:
2021 2021 2020 2020
$'000 % $'000 %
Loss before tax (5,098) 100 (1,002) 100
Tax credit at Ukraine corporation tax rate of (918) 18 (180) 18
18% (2018: 18%)
Permanent differences (920) 20 (829) 83
Unrecognized tax losses generated in the year 1,969 (41) 1,125 (112)
Effect of different tax rates (131) 3 (116) 11
- - - -
Adjustments recognized in the current year in
relation - - - -
with the current tax of prior years
Income tax benefit/(expense) recognized in - - - -
profit or loss
Permanent differences mostly represent items, including provisions, accruals
and impairments related to taxation in Ukraine, these are items not deductible
in tax computations.
14. Loss per Ordinary share
Loss attributable to owners of the Company 2021 2020
$'000 $'000
Loss for the purposes of basic loss per share being net loss (5,070) (996)
attributable to owners of the Company
Number Number
Number of shares '000 '000
Weighted average number of Ordinary shares used in calculation
of earnings per share:
Basic 244,128 240,628
Diluted 244,128 244,128
Cent Cent
Loss per Ordinary share
Basic and diluted (2.1) (0.4)
Basic loss per Ordinary share is calculated by dividing the net loss for the
year attributable to owners of the Company by the weighted average number of
Ordinary shares outstanding during the year. The calculation of the basic loss
per share is based on the following data:
In 2021 and 2020 the Group generated a loss and therefore there is no
difference between basic and diluted EPS.
15. Intangible exploration and evaluation assets
$'000
Cost
At 1 January 2020 19,518
Additions 32
Disposals (127)
Change in estimate of decommissioning assets (note (12)
24)
Exchange differences (3,200)
At 1 January 2021 16,211
Additions -
Disposals -
Change in estimate of decommissioning assets (note 25
24)
Exchange differences 465
At 31 December 2021 16,701
Impairment
At 1 January 2020 16,547
Disposals -
Exchange differences (2,717)
At 1 January 2021 13,830
Addition 2,474
Exchange differences 397
At 31 December 2021 16,701
Carrying amount
At 31 December 2021 -
At 31 December 2020 2,381
The carrying amount of E&E assets at 31 December 2021 relates to the Bitlyanska
license.
Cadogan has fully complied with legislative requirements and submitted its
application for a 20-year exploration and production license 5 months before
its expiry on 23 December 2019. A decision on the award was expected to be
provided by State Geological Service of Ukraine before 19 January 2020, since
all other intermediary approvals had been secured in line with the applicable
legislation requirements. Given the delay to granting of the new license beyond
the regular timeline provided by legislation in the Ukraine, Cadogan has
launched a claim before the Administrative Court to challenge the non-granting
of the 20-year production license by the Licensing Authority.
In February 2022 the company received information from public register that its
claim was rejected by the Court. Despite the restrictions imposed by the
martial law in Ukraine, Usenco Nadra exercised its right for appeal.
The current geopolitical and military situation in Ukraine do not allow to make
any grounded expectation on the legal process time frame and the Court of
appeal decision. Considering this fact, Cadogan has fully impaired the
Bitlyanska license.
16. Property, plant and equipment
Cost Development
and
production Other Total
assets $'000 $'000
$'000
At 1 January 2020 16,512 3,246 19,758
Additions 259 147 406
Change in estimate of decommissioning (30) - (30)
assets (note 24)
Exchange differences (2,723) (540) (3,263)
At 1 January 2021 14,018 2,853 16,871
Additions 127 23 150
Change in estimate of decommissioning 22 - 22
assets (note 24)
Disposal (2) (27) (29)
Exchange differences 402 81 483
At 31 December 2021 14,567 2,930 17,497
Accumulated depreciation and impairment
At 1 January 2020 4,705 2,715 7,420
Charge for the year 595 139 734
Exchange differences (801) (445) (1,246)
At 1 January 2021 4,499 2,409 6,908
Charge for the year 647 150 797
Disposals - (2) (2)
Exchange differences 127 69 196
At 31 December 2021 5,273 2,626 7,899
Carrying amount
At 31 December 2021 9,294 304 9,598
At 31 December 2020 9,519 444 9,963
Other property, plant and equipment include fixtures and fittings for the
development and production activities.
The carrying amount of development and production assets at 31 December 2021 of
$9,3 million relates to the Blazhiv license. Depreciation includes $0.7 million
for the Blazhiv license.
Management has performed an impairment review of Development and production
assets. As part of the information considered management carried out the
assessment of the Blazhivska license's recoverable amount based on the
underlying discounted cash flow forecasts. The impairment review supported the
conclusion that no impairment was applicable. Key assumptions used in the
impairment assessment were: future oil prices which were assumed at a constant
$401 (2020: $297), real per tonne; a production forecast with a natural
decline; estimated reserves and a discount rate of 15%, nominal.
Sensitivity analysis for the Blazhiv license
Any impairment is dependent on judgement used in determining the most
appropriate basis for the assumptions and estimates made by management,
particularly in relation to the key assumptions described above. Sensitivity
analysis to potential changes in key assumptions to reach break-even has been
provided below:
Change in the assumptions to be break even
Oil price (34%)
Oil production volumes (28%)
Discount rate 133%
17. Subsidiaries
The Company had investments in the following subsidiary undertakings at 31
December 2021:
Name Country of Proportion Activity Registered office
incorporation of voting
and operation interest %
Directly held
Cadogan Petroleum UK 100 Holding 6th Floor 60 Gracechurch
Holdings Ltd company Street, London, United
Kingdom, EC3V 0HR
Indirectly held
Cadogan Petroleum Netherlands 100 Holding Hoogoorddreef 15, 1101 BA
Holdings BV company Amsterdam
Cadogan Bitlyanske BV Netherlands 100 Holding Hoogoorddreef 15, 1101 BA
company Amsterdam
Zagoryanska Petroleum Netherlands 100 Holding Hoogoorddreef 15, 1101 BA
BV company Amsterdam
LLC Cadogan Ukraine Ukraine 100 Holding 48/50a, Zhylyanska Street,
company Kyiv, Ukraine
LLC Astro Gas Ukraine 100 Exploration 5a, Pogrebnyak Street, ap. 2,
Zinkiv, Poltava region,
Ukraine, 38100
LLC Astroinvest-Energy Ukraine 100 Trading 5a, Pogrebnyak Street, ap. 2,
Zinkiv, Poltava region,
Ukraine, 38100
DP USENCO Ukraine Ukraine 100 Production 8, Mitskevycha sq.,Lviv,
Ukraine,79000
LLC USENCO Nadra Ukraine 95 Production 9a, Karpenka-Karoho str.,
Sambir, Lviv region, Ukraine
LLC Astro-Service Ukraine 100 Service 3 Petro Kozlaniuk str,
Company Kolomyia, Ukraine
Exploenergy s.r.l. Italy 90 Exploration Via Triulziana 16c, San
Donato Milanese Milano, CAP
20097, Italy
During the year ended 31 December 2021, the Group's structure continued to be
rationalised both to reduce the number of legal entities and to replace the
structure of multiple jurisdictions with one based on a series of sub-holding
companies incorporated in the Netherlands for each licence area. In December
2021, the Group sold Ramet Holding Ltd which holds 79.9% of OJSC
AgroNaftoGasTechService for nominal consideration. Investments into Ramet
Holdings Ltd had been impaired in the past reporting periods.
18. Inventories
2021 2020
$'000 $'000
Natural gas - 1,825
Other inventories 1,700 1,607
Impairment provision (1,523) (1,276)
Carrying amount 177 2,156
The impairment provision at 31 December 2021 and 2020 is made so as to reduce
the carrying value of the inventories to the net realizable value.
19. Trade and other receivables
2021 2020
$'000 $'000
VAT recoverable 64 1,500
Other receivables 154 132
218 1,632
The Group considers that the carrying amount of receivables approximates their
fair value.
VAT recoverable is presented net of the cumulative provision of $1.3 million
(2020: $1.5 million) against Ukrainian VAT receivable that has been recognized
as at 31 December 2021. VAT recoverable relates to the oil production and gas
trading operations and is expected to be recovered through the gas and oil
sales VAT.
20. Notes supporting statement of cash flows
Cash at 31 December 2021 of $15.0 million (2020: $13.3 million) comprise cash
held by the Group. The Directors consider that the carrying amount of these
assets approximates to their fair value. There were no cash transactions from
financing activities for the year 2021.
21. Deferred tax
The following are the major deferred tax liabilities and assets recognised by
the Group and movements thereon during the current and prior reporting period:
Temporary differences
$'000
Asset at 1 January 2020 501
Deferred tax benefit -
Exchange differences (82)
Asset at 1 January 2021 419
Deferred tax benefit -
Exchange differences 12
Asset at 31 December 2021 431
At 31 December 2021, the Group had the following unused tax losses available
for offset against future taxable profits:
2021 2020
$'000 $'000
UK 19,949 56,437
Ukraine 50,782 49,364
70,731 105,801
21. Deferred tax (continued)
Deferred tax assets have been recognized in respect of those tax losses where
there is sufficient certainty that profit will be available in future periods
against which they can be utilized. The Group's unused tax losses of $19.9
million (2020: $56.4 million) relating to losses incurred in the UK are
available to shelter future non-trading profits arising within the Company.
These losses are not subject to a time restriction on expiry. No deferred tax
asset is recorded.
Unused tax losses incurred by Ukraine subsidiaries amount to $50.8 million
(2020: $49.4 million). Under general tax law provisions, these losses may be
carried forward indefinitely to be offset against any type of taxable income
arising from the same company. Tax losses may not be surrendered from one
Ukraine subsidiary to another. The deferred tax asset recorded is expected to
be utilized based on forecasts and relates to oil production subsidiaries which
are generating taxable profits in the foreseeable future.
22. Lease liabilities
The Group recognized right-of-use assets and lease liabilities based on rental
contract for a rent of Kyiv office with maturity date end of February 2024. The
Group initially recognized right-of-use assets of $292 thousand as of 31
December 2020. Right-of-use asset is depreciated over the useful life of the
underlying asset. Depreciation of $92 thousand is recognized for the year 2021
and represented as a part of other administrative expenses. Carrying value of
right-of-use assets is $200 thousand as of 31 December 2021.
The following table sets out a maturity analysis of lease liability, showing
the undiscounted lease payments to be paid after the reporting date.
2021 2020
$'000 $'000
Year 1 106
Year 2 110 110
Year 3 118 118
Year 4 20 20
Less: unearned interest (42) (62)
Lease liabilities 206 292
2021 2020
$'000 $'000
Analysed as:
Current 102 97
Non-current 104 195
Lease liabilities 206 292
23. Trade and other payables
2021 2020
$'000 $'000
Accruals 194 213
Trade creditors 498 605
Other payables 787 569
1,479 1,387
Trade creditors and accruals principally comprise amounts outstanding for
ongoing costs. The average credit period taken for trade purchases is 29 days
(2020: 30 days). The Group has financial risk management policies to ensure
that all payables are paid within the credit timeframe.
Other payables include unused vacation reserve provision of $0.34 million
(2020: $0.28 million), subsoil tax payables of $0.35 million (2020: $0.17) and
other payables of $0.1 million (2020: $0.12).
The Directors consider that the carrying amount of trade and other payables
approximates to their fair value. No interest is generally charged on
outstanding balances.
24. Provisions
The provisions at 31 December 2021 comprise of $0.3 million (2020: $0.2
million) of decommissioning provision.
Decommissioning
$'000
At 1 January 2020 289
Change in estimate (note 15 and 16) (42)
Additional provisions recognized in the period -
Utilization of provision on impaired oil and gas -
assets
Unwinding of discount on decommissioning 22
provision (note 12)
Exchange differences (46)
At 1 January 2021 223
Change in estimate (note 15 and 16) 25
Additional provisions recognized in the period -
Utilization of provision on impaired oil and gas -
assets
Unwinding of discount on decommissioning 22
provision (note 12)
Exchange differences 30
At 31 December 2021 300
$'000
At 1 January 2020 289
Non-current 223
Current -
At 1 January 2021 223
Non-current 300
Current -
At 31 December 2021 300
In accordance with the Group's environmental policy and applicable legal
requirements as of 31st December 2021, the Group intends to restore the sites
it is working on after completing exploration or development activities.
A long-term provision of $0.3 million (2020: $0.2 million) has been made for
decommissioning costs, which are expected to be incurred at the end of the
licenses period as a result of the demobilization of gas and oil facilities and
respective site restoration.
25. Share capital
Authorised and issued equity share capital
2021 2020
Number $'000 Number $'000
('000) ('000)
Authorized 1,000,000 57,713 1,000,000 57,713
Ordinary shares of £0.03 each
Issued
Ordinary shares of £0.03 each 244,128 13,832 244,128 13,832
Authorized but unissued share capital of £30 million has been translated into
US dollars at the historic exchange rate of the issued share capital. The
Company has one class of Ordinary shares, which carry no right to fixed income.
Issued equity share capital
Ordinary shares
of £0.03
At 31 December 2019 235,729,322
Issued during year 8,399,165
At 31 December 2020 244,128,487
Issued during year -
At 31 December 2021 244,128,487
Mr. Khallouf was appointed as Chief Executive Officer on 15 November 2019. As
part of Mr. Khallouf's employment agreement, a welcome bonus equivalent in
value to 5,500,000 ordinary shares (using the market value of the shares on the
business day prior to the date of issue) is payable to Mr. Khallouf and a
holding period of two years is applicable to the shares acquired. Pursuant to
the terms of the bonus, the amount must be subscribed for ordinary shares in
the Company at such time as the executive agrees. The welcome bonus was
provided to Mr. Khallouf in May 2020.
26. Financial instruments
Capital risk management
The Group manages its capital to ensure that entities in the Group will be able
to continue as a going concern, while maximising the return to shareholders.
The capital resources of the Group consist of cash arising from equity
attributable to owners of the Company, comprising issued capital, reserves and
retained earnings as disclosed in the Consolidated Statement of Changes in
Equity.
Externally imposed capital requirement
The Group is not subject to externally imposed capital requirements.
Categories of financial instruments
2021 2020
$'000 $'000
Financial assets (includes cash)
Loan provided at amortised cost 16,724 -
Loan instrument provided at FVTPL - 16,812
Cash - amortised cost 15,011 13,253
Other receivables- amortized cost 154 132
31,889 30,197
Financial liabilities - measured at amortized cost
Trade creditors 498 605
Lease liabilities 206 292
Accruals 194 213
Other payables 787 569
1,685 1,679
Refer to note 4(d) for details of the terms of the Proger loan recorded as a
financial asset at fair value through profit and loss. The instrument was
recorded at management's best estimate of fair value as set out in note 4(d)
although management had not been able to undertake a valuation exercise under
the income method based on Proger's underlying cash flows or market-based
method which would incorporate relevant recent financial information on the
investee or its prospects.
Financial assets at fair value through profit and loss
$'000
As at 1 January 2019 -
Long-term loans provided 15,246
Movement in FVPL 697
Exchange differences (236)
As at 1 January 2020 15,707
Movement in FVPL (334)
Exchange differences 1,439
As at 31 December 2020 16,812
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%.
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 fair Financial assets at
value through profit and amortised cost
loss
$'000 $'000
As at 1 January 2021 16,812 -
Reclassification from FVPL (16,812) 16,812
to AC
Addition - 1,225
Exchange differences - (1,313)
As at 31 December 2021 - 16,724
The Group considers that the carrying amount of financial instruments
approximates their fair value.
Financial risk management objectives
Management co-ordinates access to domestic and international financial markets
and monitors and manages the financial risks relating to the operations of the
Group in Ukraine through internal risks reports, which analyse exposures by
degree and magnitude of risks. These risks include commodity price risks,
foreign currency risk, credit risk, liquidity risk and cash flow interest rate
risk. The Group does not enter into or trade financial instruments, including
derivative financial instruments, for speculative purposes.
The Audit Committee of the Board reviews and monitors risks faced by the Group
at meetings held throughout the year.
Interest rate risk
Interest rate risk arises from the possibility that changes in interest rates
will affect the value of the financial instruments. The Group is not exposed to
interest rate risk because entities of the Group borrow funds at fixed interest
rates.
Commodity price risk
The commodity price risk related to Ukrainian gas and condensate prices and
prices for crude oil are the Group's most significant market risk exposures.
World prices for gas and crude oil are characterised by significant
fluctuations that are determined by the global balance of supply and demand and
worldwide political developments, including actions taken by the Organization
of Petroleum Exporting Countries.
These fluctuations may have a significant effect on the Group's revenues and
operating profits going forward. In 2020 the price for Ukrainian gas
significantly decreased and was mainly based on the current price of the
European gas imports. Management continues to expect that the Group's principal
market for gas will be the Ukrainian domestic market.
The Group does not hedge market risk resulting from fluctuations in gas,
condensate and oil prices, and holds no financial instruments, which are
sensitive to commodity price risk.
Foreign exchange risk and foreign currency risk management
The Company holds a large portion of its monetary assets in the US Dollars and
Euro, mitigating the exchange risk between the US Dollars and Euro and monetary
liability in the US Dollars.
Sensitivity analysis is represented below based on 10% exchange rate deviation:
As at 31 December 2021 Change in EURO/USD
exchange rate
$'000 +10% -10%
Cash position 15,010 334 (334)
Loan receivable at amortised cost 16,724 1,672 (1,672)
Net assets 40,347 2,006 (2,006)
Inflation risk management
Inflation in Ukraine and in the international market for oil and gas may affect
the Group's cost for equipment and supplies. The Directors will proceed with
the Group's practices of keeping deposits in US dollar accounts until funds are
needed and selling its production in the spot market to enable the Group to
manage the risk of inflation.
Credit risk management
Credit risk refers to the risk that counterparty will default on its
contractual obligations resulting in financial loss to the Group. The Group's
credit management process includes the assessment, monitoring and reporting of
counterparty exposure on a regular basis. Credit risk with respect to
receivables and advances is mitigated by active and continuous monitoring the
credit quality of its counterparties through internal reviews and assessment.
There was no material past due receivables as at year end.
The Group makes allowances for expected credit losses on receivables in
accordance with its accounting policy.
The credit risk on liquid funds (cash) is considered to be limited because the
counterparties are financial institutions with high and good credit ratings,
assigned by international credit-rating agencies in the UK and Ukraine
respectively.
The carrying amount of financial assets recorded in the financial statements
represents the Group's maximum exposure to credit risk.
Liquidity risk management
Ultimate responsibility for liquidity risk management rests with the Board of
Directors, which has built an appropriate liquidity risk management framework
for the management of the Group's short, medium and long-term funding and
liquidity management requirements. The Group manages liquidity risk by
maintaining adequate cash reserves and by continuously monitoring forecast and
actual cash flows.
The following tables sets out details of the expected contractual maturity of
financial liabilities.
3 months More than
Within to 1 1 year Total
3 months year
$'000 $'000 $'000 $'000
At 31 December 2020
Trade and other payables 1,387 - - 1,387
Lease liability - 106 248 354
At 31 December 2021
Trade and other payables 1,479 - - 1,479
Lease liability - 110 138 248
27. Commitments and contingencies
Licence contingent liability
The Group has working interests in Blazhiv licence to conduct its exploration
and development activities in Ukraine. The licence is not holding any
obligation for carrying exploration activities within its term.
Tax contingent liabilities
The Group assesses its liabilities and contingencies for all tax years open for
audit by UK, Netherlands and Ukraine tax authorities based upon the latest
information available. Where management concludes that it is not probable that
a particular tax treatment is accepted, a provision is recorded based on the
most likely amount or the expected value of the tax treatment when determining
taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and
tax rates. The decision should be based on which method provides better
predictions of the resolution of the uncertainty. Inherent uncertainties exist
in estimates of tax contingencies due to complexities of interpretation and
changes in tax laws.
Whilst the Group believes it has adequately provided for the outcome of these
matters, certain periods are under audit by the UK, Netherlands and Ukraine tax
authorities, and therefore future results may include favourable or
unfavourable adjustments to these estimated tax liabilities in the period the
assessments are made or resolved. The final outcome of tax examinations may
result in a materially different outcome than assumed in the tax liabilities.
After an inspection conducted by Ukraine's tax authorities in September 2019,
Astroinvest Energy LLC was notified of a tax claim related to the historic
costs for the liquidation of wells on the Zagoryanska license. The tax
authorities notified Astroinvest Energy LLC that they consider recoverable VAT
($3.6 million) that has subsequently been used to offset output VAT to be
non-deductible and additionally that the subsidiary's tax losses carry forward
should be reduced by $15.3 million (Note 21). Astroinvest Energy LLC has
launched a claim against the tax authority's decision on the basis of the
current tax legislation and related court decisions and considers the potential
for a liability to be less than probable.
If unsuccessful Astroinvest Energy LLC would offset the amount of notified tax
losses with part of the historical accumulated tax losses. The disputed amount
of VAT would be partially covered with recoverable VAT not recognized as of 31
December 2020 (note 19) such that the eventual impact would be $2.1 million.
28. Related party transactions
All transactions between the Company and its subsidiaries, which are related
parties, have been eliminated on consolidation and are not disclosed in this
note.
In February 2019, the Group entered in a 2-year loan agreement with Proger
Management & Partners Srl with an option to convert it into a direct 33% equity
interest in Proger Ingegneria. At that time, Mr Michelotti was a non-executive
Director of Proger Ingegneria Srl and Proger Spa, and CEO of Cadogan Petroleum
PLC. Mr Michelotti did not participate to the voting for the approval of the
loan agreement at the Board of Cadogan.Directors' remuneration
The remuneration of the Directors, who are the key management personnel of the
Group, is set out below in aggregate for each of the categories specified in
IAS 24 Related Party Disclosures. Further information about the remuneration of
individual Directors is provided in the audited part of the Annual Report on
Remuneration 2020 on page 44.
Purchase of Amounts owing
services
2021 2020 2021 2020
$'000 $'000 $'000 $'000
Directors' remuneration 754 781 - -
Social contribution on Directors' 126 81 - -
remuneration
The total remuneration of the highest paid Director was $0.5 million in the
year (2020: $0.6 million).
No guarantees have been given or received and no provisions have been made for
doubtful debts in respect of the amounts owed by related parties.
29. Events after the balance sheet date
In February 2022, Usenco Nadra received information from a public register that
its claim was rejected by the Court of first instance. Despite the restrictions
imposed by the martial law in Ukraine, Usenco Nadra exercised its right for
appeal. As a result and given the present uncertainty with the military
situation on the process and decision timing, the Group recognized impairment
on the full balance sheet value of E&E assets in an amount of $2.5 million.
After several months of military confrontation, Russia invaded Ukraine on 24
February 2022. The war is increasingly affecting the economy of Europe and
exacerbating ongoing economic challenges, including issues such as rising
inflation and supply-chain disruption. The degree to which the Group will be
affected by them largely depends on the nature and duration of uncertain and
unpredictable events, such as further military action and reactions to ongoing
developments by global financial markets. At the beginning of March 2022, the
Company stopped its production operations for 3 weeks and was able to resume
them after having secured its employees safety, the transactions with its
customers and deliveries. Starting the end of March 2022 and till the date of
the report the Group is operating in due course, production operates with a
full capacity, product shipments are not interrupted.
Company Balance Sheet as at 31 December 2021
Notes 2021 2020
$'000 $'000
ASSETS
Non-current assets
Receivables from subsidiaries 33 36,769 38,598
36,769 38,598
Current assets
Trade and other receivables 3 3
Cash 33 3,857 5,759
3,860 5,762
Total assets 40,629 44,360
LIABILITIES
Current liabilities
Trade and other payables 34 (255) (240)
(255) (240)
Total liabilities (255) (240)
Net assets 40,374 44,120
EQUITY
Share capital 35 13,832 13,832
Share premium 514 514
Retained earnings[19] 134,747 138,493
Cumulative translation reserves 36 (108,719) (108,719)
Total equity 40,374 44,120
The financial statements of Cadogan Petroleum plc, registered in England and
Wales no. 05718406, were approved by the Board of Directors and authorized for
issue on 28 April 2022.
They were signed on its behalf by:
Fady Khallouf
Chief Executive Officer
28 April 2022
The notes on pages 115 to 118 form part of these financial statements.
Company Cash Flow Statement for the year ended 31
December 2021
2021 2020
$'000 $'000
Operating activities
Profit/(loss) for the year (3,746) 175
Adjustments for:
Interest received - (24)
Impairment of receivables from subsidiaries 665 -
Effect of foreign exchange rate changes 1,451 (1,617)
Movement in provisions 58 (32)
Operating cash flows before movements in working capital (1,572) (1,498)
Increase in receivables (4) (77)
Decrease in payables (38) (80)
Cash used in operations (1,614) (1,655)
Income taxes paid - -
Net cash outflow from operating activities (1,614) (1,655)
Investing activities
Interest received - 24
Net cash used in investing activities - 24
Net decrease in cash (1,614) (1,631)
Effect of foreign exchange rate changes (288) 419
Cash at beginning of year 5,759 6,971
Cash at end of year 3,857 5,759
Company Statement of Changes in Equity for the year ended 31 December 2021
Share Cumulative
Share premium Retained Other translation
capital account earnings Reserve reserves Total
$'000 $'000 $'000 $'000 $'000 $'000
As at 1 January 2020 13,525 329 138,318 492 (108,719) 43,945
Net loss for the year - - 175 - - 175
Total comprehensive loss - - 175 - - 175
for the year
Issue of ordinary shares 307 185 - (492) - -
As at 1 January 2021 13,832 514 138,493 - (108,719) 44,120
Net income for the year - - (3,746) - - (3,746)
Total comprehensive income - - (3,746) - - (3,746)
for the year
As at 31 December 2021 13,832 514 134,747 - (108,719) 40,374
Notes to the Company Financial Statements for the year ended 31 December 2021
30. Significant accounting policies
The separate financial statements of the Company are presented as required by
the Companies Act 2006 (the "Act"). As permitted by the Act, the separate
financial statements have been prepared in accordance with UK-adopted
international accounting standards ("IFRSs").
The financial statements have been prepared on the historical cost basis. The
principal accounting policies adopted are the same as those set out in note 3
to the Consolidated Financial Statements except as noted below.
As permitted by section 408 of the Act, the Company has elected not to present
its profit and loss account for the year. Cadogan Petroleum plc reports a loss
for the financial year ended 31 December 2021 of $3.7 million (2020: profit
$0.2 million).
Investments
Investments in subsidiaries are stated at cost less, where appropriate,
provisions for impairment.
Receivables from subsidiaries
Loans to subsidiary undertakings are subject to IFRS 9's new expected credit
loss model. As all intercompany loans are repayable on demand, the loan is
considered to be in stage 3 of the IFRS 9 ECL model on the basis the subsidiary
does not have enough liquid assets in order to repay the loans if demanded.
Lifetime ECLs are determined using all relevant, reasonable and supportable
historical, current and forward-looking information that provides evidence
about the risk that the subsidiaries will default on the loan and the amount of
losses that would arise as a result of that default. Analysis indicated that
the Company will fully recover the carrying value of the loans (net of historic
credit loss provisions) so no additional ECL has been recognised in the current
period.
Critical accounting judgements and key sources of estimation uncertainty
The Company's financial statements, and in particular its investments in and
receivables from subsidiaries, are affected by certain of the critical
accounting judgements and key sources of estimation uncertainty.
The critical estimates and judgments referred to application of the expected
credit loss model to intercompany receivables (note 33). Management determined
that the interest free on demand loans were required to be assessed on the
lifetime expected credit loss approach and assessed scenarios considering risks
of loss events and the amounts which could be realised on the loans. In doing
so, consideration was given to factors such as the cash held by subsidiaries
and the underlying forecasts of the Group's divisions and their incorporation
of prospective risks and uncertainties.
31. Auditor's remuneration
The auditor's remuneration for audit and other services is disclosed in note 10
to the Consolidated Financial Statements.
32. Investments
The Company's subsidiaries are disclosed in note 17 to the Consolidated
Financial Statements. The investments in subsidiaries are all stated at cost
less any provision for impairment.
33. Financial assets
The Company's principal financial assets are bank balances and cash and
receivables from related parties none of which are past due. The Directors
consider that the carrying amount of receivables from related parties
approximates to their fair value.
Receivables from subsidiaries
At the balance sheet date gross amounts receivable from the fellow Group
companies were $350 million (2020: $351 million). The Company recognized
additional expected credit loss provisions in relation to receivables from
subsidiaries of $0.7 million in 2021 (2020: nil). The accumulated provision on
receivables at 31 December 2021 was $313.2 million (2020: $312.4 million). The
carrying value of the receivables from the fellow Group companies at 31
December 2021 was $36.8 million (2020: $38.6 million). Receivables from
subsidiaries are interest free and repayable on demand. There are no past due
receivables. The receivables are classified as non-current based on the
expected timing of receipt notwithstanding their terms.
Cash
Cash comprises cash held by the Company and short-term bank deposits with an
original maturity of three months or less. The carrying value of these assets
approximates to their fair value.
34. Financial liabilities
Trade and other payables
2021 2020
$'000 $'000
Accruals 174 139
Trade creditors 81 101
255 240
Trade payables principally comprise amounts outstanding for trade purchases and
ongoing costs. The average credit period taken for trade purchases is 29 days
(2020: 30 days).
The Directors consider that the carrying amount of trade and other payables
approximates to their fair value. No interest is charged on balances
outstanding.
35. Share capital
The Company's share capital is disclosed in note 25 to the Consolidated
Financial Statements.
36. Cumulative translation reserve
The directors decided to change the functional currency of the Company from
sterling to US dollars with effect from 1 January 2016. The effect of a change
in functional currency is accounted for prospectively. In other words, the
Company translates all items into the US dollar using the exchange rate at the
date of the change. The resulting translated amounts for non-monetary items are
treated as their historical cost. Exchange differences arising from the
translation of an operation previously recognised in other comprehensive income
in accordance with paragraphs 32 and 39(c) IAS 21 "Foreign Currency" are not
reclassified from equity to profit or loss until the disposal of the operation.
37. Financial instruments
The Company manages its capital to ensure that it is able to continue as a
going concern while maximising the return to shareholders. Refer to note 26 for
the Group's overall strategy and financial risk management objectives.
The capital resources of the Company consist of cash arising from equity,
comprising issued capital, reserves and retained earnings.
Categories of financial instruments
2021 2020
$'000 $'000
Financial assets - loans and receivables (includes cash)
Cash 3,857 5,759
Amounts due from subsidiaries 36,769 38,598
40,626 44,357
Financial liabilities - measured at amortized cost
Trade creditors (81) (101)
(81) (101)
Interest rate risk
All financial liabilities held by the Company are non-interest bearing. As the
Company has no committed borrowings, the Company is not exposed to any
significant risks associated with fluctuations in interest rates.
Credit risk
Credit risk refers to the risk that counterparty will default on its
contractual obligations resulting in financial loss to the Company. For cash,
the Company only transacts with entities that are rated equivalent to
investment grade and above. Other financial assets consist of amounts
receivable from related parties.
The Company's credit risk on liquid funds is limited because the counterparties
are banks with high credit ratings assigned by international credit-rating
agencies.
The carrying amount of financial assets recorded in the Company financial
statements, which is net of any impairment losses, represents the Company's
maximum exposure to credit risk.
Liquidity risk management
Ultimate responsibility for liquidity risk management rests with the Board of
Directors, which has built an appropriate liquidity risk management framework
for the management of the Company's short, medium and long-term funding and
liquidity management requirements. The Company maintains adequate reserves, by
continuously monitoring forecast and actual cash flows.
The Company's financial liabilities are not significant and therefore no
maturity analysis has been presented.
Foreign exchange risk and foreign currency risk management
The Company holds a large portion of its monetary assets in the US Dollars and
Euro, mitigating the exchange risk between the US Dollars and Euro and monetary
liability in the US Dollars. More information on the foreign exchange risk and
foreign currency risk management is disclosed in note 26 to the Consolidated
Financial Statements.
38. Related parties
Amounts due from subsidiaries
The Company has entered into a number of unsecured related party transactions
with its subsidiary undertakings. The most significant transactions carried out
between the Company and its subsidiary undertakings are mainly for short and
long-term financing. Amounts owed from these entities are detailed below:
2021 2020
$'000 $'000
Cadogan Petroleum Holdings Limited 36,769 38,598
36,769 38,598
Refer to note 32 for details on the Company's receivables due from
subsidiaries.
The remuneration of the Directors, who are the key management personnel of the
Group, is set out below in aggregate for each of the categories specified in
IAS 24 Related Party Disclosures. In 2021 there were no other employees in the
Company. Further information about the remuneration of individual Directors is
provided in the audited part of the Annual Report on Remuneration 2021 on pages
45 to 52.
Purchase of Amounts owing
services
2021 2020 2021 2020
$'000 $'000 $'000 $'000
Directors' remuneration 754 781 - -
Social contribution on Directors' 126 81 - -
remuneration
The total remuneration of the highest paid Director was $0.6 million in the
year (2019: $0.6 million).
39. Events after the balance sheet date
Events after the balance sheet date are disclosed in note 29 to the
Consolidated Financial Statements.
Glossary
IFRSs International Financial Reporting Standards
JAA Joint activity agreement
UAH Ukrainian hryvnia
GBP Great Britain pounds
$ United States dollars
bbl Barrel
boe Barrel of oil equivalent
mmboe Million barrels of oil equivalent
mboe Thousand barrels of oil equivalent
mboepd Thousand barrels of oil equivalent per day
boepd Barrels of oil equivalent per day
bcf Billion cubic feet
mmcm Million cubic metres
mcm Thousand cubic metres
Reserves Those quantities of petroleum anticipated to be
commercially recoverable by application of
development projects to known accumulations from
a given date forward under defined conditions.
Reserves include proved, probable and possible
reserve categories.
Proved Reserves Those additional Reserves which analysis of
geoscience and engineering data can be estimated
with reasonable certainty to be commercially
recoverable, from a given date forward, from
reservoirs and under defined economic
conditions, operating methods and government
regulations.
Probable Reserves Those additional Reserves which analysis of
geoscience and engineering data indicate are
less likely to be recovered than proved
Resources but more certain to be recovered than
possible Reserves.
Possible Reserves Those additional Reserves which analysis of
geoscience and engineering data indicate are
less likely to be recoverable than probable
Reserves.
Contingent Resources Those quantities of petroleum estimated, as of a
given date, to be potentially recoverable from
known accumulations by application of
development projects, but which are not
currently considered to be commercially
recoverable due to one or more contingencies.
Prospective Resources Those quantities of petroleum which are
estimated as of a given date to be potentially
recoverable from undiscovered accumulations.
P1 Proved Reserves
P2 Probable Reserves
P3 Possible Reserves
1P Proved Reserves
2P Proved plus Probable Reserves
3P Proved plus Probable plus Possible Reserves
Workover The process of performing major maintenance or
remedial treatment of an existing oil or gas
well
E&E / E&P Exploration and Evaluation / Exploration and
Production
LTI Lost time incidents
Shareholder Information
Enquiries relating to the following administrative matters should be addressed
to the Company's registrars: Link Group, 10th Floor, Central Square, 29
Wellington Street, Leeds LS1 4DL.
Telephone: 0371 664 0300. Calls are charged at the standard geographic rate and
will vary by provider. Calls outside the United Kingdom will be charged at the
applicable international rate. Lines are open between 09:00 - 17:30, Monday to
Friday excluding public holidays in England and Wales.
* Loss of share certificates.
* Notification of change of address.
* Transfers of shares to another person.
* Amalgamation of accounts: if you receive more than one copy of the Annual
Financial Report, you may wish to amalgamate your accounts on the share
register.
You can access your shareholding details and a range of other services at the
Shareholder Portal www.signalshares.com.
Information concerning the day-to-day movement of the share price of the
Company can be found on the Group's website www.cadoganpetroleum.com or that of
the London Stock exchange www.prices.londonstockexchange.com.
Unsolicited mail
As the Company's share register is, by law, open to public inspection,
shareholders may receive unsolicited mail from organisations that use it as a
mailing list. To reduce the amount of unsolicited mail you receive, contact:
The Mailing Preference Service, FREEPOST 22, London W1E 7EZ. Telephone: 0845
703 4599. Website: www.mpsonline.org.uk.
Financial calendar 2021/2022
Annual General Meeting June 2022
Half Yearly results September 2021
announced
Annual results announced April 2022
Investor relations
Enquiries to: info@cadoganpetroleum.com
Registered office
Shakespeare Martineau LLP,
6th Floor, 60 Gracechurch Street, London EC3V 0HR
Registered in England and Wales no. 05718406
Ukraine
48/50A Zhylyanska Street
Business center "Prime", 8th floor
01033 Kyiv
Ukraine
Email: info@cadoganpetroleum.com
Tel: +38 044 594 58 70
Fax: +38 044 594 58 71
www.cadoganpetroleum.com
References to page numbers throughout this announcement relates to the page
numbers within the Annual Report of the Company for the year ended 31st
December 2021. In addition all graphs and graphics have been removed for the
purposes of the announcement.
_________________________
[1] Gross revenues of $8.8 million (2020: $5.1 million) included $1.8 million
(2020: $1.6 million) from trading of natural gas, $7.0 million (2020: $3.5
million) from exploration and production
[2] Administrative expenses ("G&A")
[3] Astroservice LLC used its rig for the workover campaign on the Blazhiv
license
[4] LTI: Lost Time Incidents; TRI: Total Recordable Incidents
[5] Taxable benefits include life and medical insurance provided to the
executive and leased car.
[6] Amount includes catchup payment for two months 2019.
[7] 2015 CEO's salary is the sum of Mr. des Pallieres' salary for the period
January to June and of Mr. Michelotti's salary for the period July to December.
[8] In relation to performance in 2016 and 2015, the CEO used the entire amount
of the bonus to buy at market price newly issued company shares on 22 September
2017.
[9] 2019 Annual bonus is a sum of Mr Michelotti's bonus of $112,140 and welcome
bonus for Mr Khallouf equivalent in value of 5,500,000 ordinary shares based on
share's price of £0.0525. Welcome bonus for Mr Khallouf was provided in May
2020 based on share's price of £0.03. Respective correction of the bonus
reserve equivalent to $185 thousand was recognised through share premium
account in 2020.
[10] Includes a welcome bonus for Mr Khallouf equivalent in value of 5,500,000
ordinary shares based on share's price of £0.0525.
[11] Mr Michelotti undertook to use the entire bonus to buy company's share at
market price in order to leave the Company cash neutral.
[12] Year-end performance-based bonus was an alternative to an up-front sign-on
bonus. Mr Michelotti use the entire bonus to buy company's share at market
price on 22 September 2017.
[13] $280,298 paid as fees, pension and loss of office.
[14] From 1 August, 2011.
[15] From 19 March 2009.
[16] All employees mean all employees of the Group, including CEO and other
Directors (note 11, page 98).
[17] Includes taxable benefits for 2019.
[18] Please note that the salary of the CEO for 2022 remain at ?440,000.
[19] Included in retained earnings, loss for the financial year ended 31
December 2021 was $3.7 million (2020: profit $0.2 million).
END
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