21 December 2023
ENWELL ENERGY PLC
2022 AUDITED RESULTS
Enwell Energy plc ("Enwell Energy" or the "Company", and together with its subsidiaries, the "Group"), the AIM-quoted (AIM: ENW) oil and gas exploration and production group, today announces its audited results for the year ended 31 December 2022.
2022 Highlights
Operational
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Aggregate average daily production of 2,956 boepd (calculated on the days when the Group's fields were actually in production) (2021: 4,730 boepd)
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SV-31 development well successfully completed and brought on production in Q2 2022
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SC-4 appraisal well tested and produced hydrocarbons from its primary target reservoir in Q4 2022
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GOL-107 development well successfully completed in Q4 2023 and is undergoing long-term test production
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Financial
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Revenue of
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Gross profit of
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Operating profit of
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Net profit of
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Cash, cash equivalents and short-term investments of
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Average realised gas, condensate and LPG prices in
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Interim dividend of |
Outlook
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The Russian invasion of
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In April and May 2023, the Ukrainian authorities took a number of regulatory actions against the Group, which included the suspension of the VAS production licence and SC exploration licence, and consequently all work at these licences has been suspended
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Subject to the resolution of the regulatory issues and the Group's ability to operate safely, development work planned for the remainder of 2023 and 2024 at the MEX-GOL and SV fields includes planning the deepening of the MEX-109 well to explore a deeper horizon, investigating the hydraulic fracturing of the SV-29 well, planning a workover of the MEX-102 well to access a shallower horizon, investigating the possible sidetracking of the MEX-119 well to access additional reserves, installing additional compression equipment and upgrading the flow-line network and other field infrastructure
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Further work on the VAS field and SC licence area will remain suspended until there is a resolution of the regulatory issues, including the lifting of the suspension orders
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Currently, the Group retains approximately a quarter of its cash outside
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Development programme for the remainder of 2023 and 2024 expected to be funded from existing cash resources and operational cash flow |
Sergii Glazunov, CEO, commented: "While 2022 was a strong operational year for Enwell Energy, these achievements are entirely overshadowed by the ongoing war in
The Annual Report and Financial Statements for 2022 will shortly be available on the Company's website and will be posted to shareholders on 27 December 2023, and a formal Notice of Annual General Meeting will follow later during January 2024.
This announcement contains inside information for the purposes of Article 7 of EU Regulation No. 596/2014, which forms part of
For further information, please contact:
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Enwell Energy plc |
Tel: 020 3427 3550 |
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Chris Hopkinson, Chairman |
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Sergii Glazunov, Chief Executive Officer |
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Bruce Burrows, Finance Director |
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Strand Hanson Limited |
Tel: 020 7409 3494 |
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Rory Murphy / Matthew Chandler |
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Zeus Capital Limited |
Tel: 020 7614 5900 |
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Alexandra Campbell-Harris (Corporate Finance) |
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Simon Johnson (Corporate Broking) |
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Citigate Dewe Rogerson |
Tel: 020 7638 9571 |
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Ellen Wilton |
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Dr Gehrig Schultz, BSc Geophysical Engineering, PhD Geophysics, Member of the European Association of Geophysical Engineers, Member of the Executive Coordinating Committee of the Continental European Energy Council, and a Non-Executive Director of the Company, has reviewed and approved the technical information contained within this announcement in his capacity as a qualified person, as required under the AIM Rules for Companies.
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Glossary |
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AAPG |
American Association of Petroleum Geologists |
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Arkona |
LLC Arkona Gas-Energy |
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bbl |
barrel |
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bbl/d |
barrels per day |
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Bm3 |
thousands of millions of cubic metres |
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boe |
barrels of oil equivalent |
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boepd |
barrels of oil equivalent per day |
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Bscf |
thousands of millions of scf |
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Company |
Enwell Energy plc |
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D&M |
DeGolyer and MacNaughton |
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€ |
Euro |
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Group |
Enwell Energy plc and its subsidiaries |
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km |
kilometre |
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km2 |
square kilometre |
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LPG |
liquefied petroleum gas |
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MEX-GOL |
Mekhediviska-Golotvshinska |
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m3 |
cubic metres |
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m³/d |
cubic metres per day |
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Mboe |
thousand barrels of oil equivalent |
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Mm³ |
thousand cubic metres |
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MMbbl |
million barrels |
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MMboe |
million barrels of oil equivalent |
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MMm3 |
million cubic metres |
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MMscf |
million scf |
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MMscf/d |
million scf per day |
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Mtonnes |
thousand tonnes |
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% |
per cent. |
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QCA Code |
Quoted Companies Alliance Corporate Governance Code 2018 |
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QHSE |
quality, health, safety and environment |
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SC |
Svystunivsko-Chervonolutskyi |
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scf |
standard cubic feet measured at 20 degrees Celsius and one atmosphere |
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SPE |
Society of Petroleum Engineers |
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SPEE |
Society of Petroleum Evaluation Engineers |
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SV |
Svyrydivske |
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Tscf |
trillion scf |
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$ |
United States Dollar |
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UAH |
Ukrainian Hryvnia |
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VAS |
Vasyschevskoye |
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VED |
Vvdenska |
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WPC |
World Petroleum Council |
Chairman's Statement
I present the 2022 Annual Report and Financial Statements in circumstances that I wish were different. The invasion of
The invasion has had a significant impact on all aspects of life in
Notwithstanding the disruption caused by the war, during 2022, the Group continued with some development activities at the MEX-GOL, SV and VAS gas and condensate fields and SC licence in north-eastern
Aggregate average daily production (calculated on the days when the fields were actually in production) from the MEX-GOL, SV and VAS fields during the year was 2,956 boepd, which is lower than the aggregate daily production rate of 4,730 boepd achieved during 2021 due to the disruption caused by the war and natural field decline.
Although production volumes were lower, the dramatic rise in gas prices during the year has meant that revenues were still strong at
There is significant disruption to the fiscal and economic environment in
The Ukrainian Government has implemented a number of reforms in the oil and gas sector in recent years, which include the deregulation of the gas supply market in late 2015, and subsequently, simplification of the regulatory procedures applicable to oil and gas exploration and production activities in
The deregulation of the gas supply market, supported by electronic gas trading platforms and improved pricing transparency, has meant that Ukrainian market prices for gas broadly correlated with imported gas prices. During 2022, gas prices increased significantly, reflecting a similar trend in European gas prices, substantially as a result of the disruption to worldwide oil and gas supplies caused by the conflict. Condensate and LPG prices were also higher by comparison to the previous year for the same reason.
Restructuring of Smart Holding Group
In January 2023, the Company was notified that there had been a restructuring of the ownership of the PJSC Smart-Holding Group, a member of which held a major shareholding in the Company, and which was ultimately controlled by Mr Vadym Novynskyi ("Mr Novynskyi"). Under this restructuring, which occurred with effect from 1 December 2022, Mr Novynskyi disposed of his major indirect shareholding interest in the Company to two trusts registered in
Regulatory Actions by Ukrainian Authorities and Suspension of VAS and SC Licences
In early December 2022, the Ukrainian Government imposed sanctions on Mr Novynskyi, as set out in the Company's announcement dated 9 December 2022.
As announced on 4 January 2023, new legislation, Law No. 2805-IX, relating to the natural resources sector was enacted in
Following Law No. 2805-IX coming into force on 28 March 2023, the Ukrainian authorities have taken a number of regulatory actions against certain of the Group's subsidiary companies in
As announced on 12 April 2023, such regulatory actions included conducting a search at the Group's Yakhnyky office, from where the MEX-GOL and SV fields are operated, and placing certain physical assets of the Ukrainian branch (representative) office of Regal Petroleum Corporation Limited ("RPC") and LLC Arkona Gas-Energy ("Arkona") (which respectively hold the MEX-GOL and SV fields and the SC exploration licence) under seizure, thereby restricting any actions that would change registration of the property rights relating to such assets, although the use of such assets was not restricted and therefore the Company has been able to continue to operate and produce gas and condensate from the MEX-GOL and SV fields. In addition, the Ministry of Justice of
On 2 May 2023, the MoJ made further Orders cancelling the registration entry made on behalf of three further Ukrainian subsidiaries of the Company named LLC Prom-Enerho Produkt ("PEP"), Arkona and LLC Well Investum ("Well Investum") respectively in the State Register relating to the ultimate beneficial owners of such companies, which again were stated as being the trustees of the SMART Trust and STEP Trust, thereby restoring the previous entry, Mr Novynskyi. PEP holds the VAS production licence, Arkona holds the SC exploration licence and Well Investum is a dormant company.
Following the issuance of the abovementioned Orders by the MoJ, Mr Novynskyi is registered in the State Register as the ultimate beneficial owner of each of PEP and Arkona, and is consequently recognised by the SGSS as the ultimate beneficial owner of each of the VAS production licence and SC exploration licence. As a result, on 4 May 2023, the SGSS issued orders suspending the VAS production licence and SC exploration licence for a period of 5 years effective from that date. Accordingly, the Company ceased all field and production operations on the VAS and SC licence areas.
New Auditor and Temporary Suspension from trading on AIM
In December 2022, as a result of the sanctions imposed on Mr Novynskyi, the Company's previous auditor resigned, but I am now pleased to welcome Zenith Audit Ltd as the Company's new auditor, with such appointment being finalised in September 2023. As the Company did not have an auditor prior to the appointment of Zenth Audit Ltd, it was not able to publish and post its audited 2022 Annual Report and Financial Statements to shareholders by the requisite deadline of 30 June 2023 as required by Rule 19 of the AIM Rules for Companies. As a result, trading in the Company's ordinary shares on AIM was suspended with effect from 3 July 2023 pending the Company's compliance with such requirements. However, with the publication and posting to shareholders of this 2022 Annual Report and Financial Statements, and upon the forthcoming publication of the Company's unaudited interim results for the six month period ended 30 June 2023, which is anticipated to occur shortly, it is currently expected that the suspension from trading will be lifted.
Board Changes
In August 2022, Dmitry Sazonenko stepped down from the Board, and Dr Gehrig Schultz joined the Board as a Non-Executive Director. Gehrig is a very experienced geoscientist, and provides valuable technical input in the oversight of the Company's operations.
On behalf of the Board, I would like to thank Dmitry for his valued contribution during his tenure with the Company, and to welcome Gehrig to the Board.
Interim Dividend
On 15 June 2023, the Company paid an interim dividend of
Outlook
The ongoing war in
These circumstances mean that it is extremely difficult to plan future investment and operational activities at the Group's fields but, subject to resolution of the current regulatory issues with the Ukrainian authorities, and subject to it being safe to do so, the Group is planning to undertake further limited development activities during the remainder of 2023 and beyond in order to continue the development of its fields. However, in doing so, the Group is taking and will take all measures available to protect and safeguard its personnel and business, with the safety and wellbeing of its personnel and contractors being paramount. The Group retains approximately a quarter of its cash reserves outside
In conclusion, on behalf of the Board, I would like to thank all of our staff for the continued dedication and support they showed during the 2022 year, especially their remarkable fortitude since the invasion of
Chris Hopkinson
Chairman
Chief Executive's Statement
Introduction
The war in
On the SC licence area, drilling of the SC-4 appraisal well was suspended for a period, but drilling resumed in July 2022, and the well was completed and successfully tested in October 2022. In addition, the interpretation of the 150 km2 of 3D seismic, which was acquired over the 2021-2022 winter period, was completed.
At the VAS field, all operations were suspended until October 2022, when production operations resumed. In addition, planning for the further development of the field, as well as for a proposed new well to explore the VED prospect within the VAS licence area continued.
Overall production in 2022 was lower than the 2021 year due to the disruption to production operations caused by the war in
Quality, Health, Safety and Environment ("QHSE")
The Group is committed to maintaining the highest QHSE standards and the effective management of these areas is an intrinsic element of its overall business ethos. The Group's QHSE policies and performance are overseen by the Health, Safety and Environment Committee. Through strict enforcement of the Group's QHSE policies, together with regular management meetings, training and the appointment of dedicated safety professionals, the Group strives to ensure that the impact of its business activities on its staff, contractors and the environment is as low as is reasonably practicable. The Group reports safety and environmental performance in accordance with industry practice and guidelines.
I am pleased to report that during 2022, a total of 704,773 man-hours of staff and contractor time were recorded without a Lost Time Incident occurring. The total number of safe man-hours now stands at over 4,997,406 man-hours without a Lost Time Incident. No environmental incidents were recorded during the year.
Production
The average daily production of gas, condensate and LPG for the 351 days that the MEX-GOL and SV fields were producing and for the 147 days that the VAS field was producing, in each case, during the year ended 31 December 2022 is shown below:
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Field |
Gas (MMscf/d) |
Condensate (bbl/d) |
LPG (bbl/d) |
Aggregate boepd |
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2022 |
2021 |
2022 |
2021 |
2022 |
2021 |
2022 |
2021 |
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MEX-GOL & SV
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11.0 |
18.9 |
445 |
681 |
318 |
308 |
2,604 |
4,237 |
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VAS
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1.8 |
2.6 |
18 |
26 |
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352 |
493 |
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Total
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12.8 |
21.5 |
463 |
707 |
318 |
308 |
2,956 |
4,730 |
The Russian invasion of
In addition, as announced on 4 May 2023, as a result of regulatory actions by the Ukrainian authorities, the VAS production licence and the SC exploration licence have been suspended for a period of five years.
Nevertheless, production is currently continuing at the MEX-GOL and SV fields at a rate of approximately 2,200 boepd.
Operations
In the period leading up to the Russian invasion of
During 2022, the Group continued to refine its geological subsurface models of the MEX-GOL, SV and VAS fields, as well as the SC licence area, in order to enhance its strategy for the further development of such fields and licence area, including the timing and level of future capital investment required to exploit the hydrocarbon resources.
At the MEX-GOL and SV fields, the SV-31 development well was completed in May 2022, having been drilled to a final depth of 5,240 metres. At that time, one interval, at a drilled depth of 5,210 - 5,219 metres, within the V-22 Visean formation was perforated, and, following initial testing, the well was hooked up to the gas processing facilities. The well has produced strongly since then, and pursuant to the plans for this well, two additional intervals, at drilled depths of 5,187 - 5,189 and 5,120 - 5,123 metres, respectively within the V-22 and V-21 Visean formations, have also been perforated to access additional reserves. These additional intervals have also proved productive and materially boosted production rates from this well.
At the SV-29 development well, additional intervals, at drilled depths of 4,955 - 4,960 and 5,037 - 5,046 metres, within the V-19 and V-20 Visean formation respectively were perforated, but such intervals were not productive. This well was completed in August 2021, having been drilled to a final depth of 5,450 metres. Previously, two intervals, at drilled depths of 5,246 - 5,249 metres and 5,228 - 5,232 metres respectively, within the V-22 Visean formation, were perforated, and although some gas flows were achieved, a stabilised flow from these intervals was not established. In light of the intermittent gas flows in these intervals, the possible hydraulic fracturing of the well is now under consideration.
Drilling of the GOL-107 development well, targeting production from the V-20 and V-23 Visean formations, commenced in December 2022 and was completed in late October 2023, with the well having been drilled to a final depth of 5,190 metres. One interval, at a drilled depth of 5,140 - 5,143 metres, within the V-23 formation, was perforated and demonstrated gas flows, but at lower than anticipated rates. The well has now been hooked up to the gas processing facilities to undergo longer-term testing to establish its optimal operating parameters and assess whether stimulation of the well may improve flow rates. The well is currently producing at a flow rate of approximately 353 MMscf/d of gas and 11 bbl/d of condensate (73 boepd in aggregate).
The Group continued to operate each of the SV-2 and SV-12 wells under joint venture agreements with NJSC Ukrnafta, the majority State-owned oil and gas producer. Under the agreements, the gas and condensate produced from the respective wells is sold under an equal net profit sharing arrangement between the Group and NJSC Ukrnafta, with the Group accounting for the hydrocarbons produced and sold from the wells as revenue, and the net profit share due to NJSC Ukrnafta being treated as a lease expense in cost of sales. However, during Q4 2021, the SV-2 well experienced water ingress and consequently had to be taken off production. A workover of this well was undertaken to replace the production string and remove obstructions in the well, but this work was unsuccessful and further remedial work is now being considered.
In addition, in Q4 2021, the MEX-109 well also experienced water ingress and as a result was taken off production. A workover of the well was commenced, and steps were taken to seal the source of the water ingress, but the work was suspended as a result of the Russian invasion. However, the workover operations have now been completed, and the previously producing horizon has now been sealed to prevent water ingress into that horizon, so as to avoid possible disruption to another well which is producing from the same horizon. As a result, further production from such horizon in this well will not be possible, and the possible deepening of this well to explore deeper horizons is now being considered.
Finally, at the MEX-GOL and SV fields, the upgrades to the gas processing facilities have been completed. These works involved an upgrade of the LPG extraction circuit, an increase to the flow capacity of the facilities, and a significant increase to the liquids tank storage capacity, which are designed to improve overall plant efficiencies, improve the quality of liquids produced and boost recoveries of LPG, while reducing environmental emissions.
On the SC licence area, after a period of suspension, drilling operations resumed at the SC-4 well in July 2022 and the well was drilled to its final depth of 5,585 metres. The well is primarily an appraisal well, targeting production from the V-22 horizon, as well as exploring the V-16 and V-21 horizons, in the Visean formation. The well was successfully tested, demonstrating stabilised flow rates of 3 MMscf/d of gas and 3 bbl/d of condensate (535 boepd in aggregate), and planning for the installation of gas processing and other surface facilities has been undertaken. In addition, the interpretation of the 150 km2 of 3D seismic, that was acquired over the 2021 - 22 winter, was completed.
At the VAS field, production operations resumed in October 2022, and planning for the further development of the field, as well as for a proposed new well to explore the VED prospect within the VAS licence area, has continued.
Outlook
The ongoing war in
At the MEX-GOL and SV fields, the development programme includes planning the deepening of the MEX-109 well to explore a deeper horizon in the Visean formation, investigating the hydraulic fracturing of the SV-29 well, planning a workover of the MEX-102 well to access a shallower horizon, investigating the possible sidetracking of the MEX-119 well to access additional reserves, installing additional compression equipment and upgrading and maintaining the flow-line network and pipelines and other field infrastructure, as well as planning for the further development of the fields.
Further work on the VAS and SC licence areas will remain suspended until there is a resolution of the regulatory issues, including the lifting of the suspension orders made in respect of those licences.
Finally, I would like to add my thanks to all of our staff for the continued hard work and dedication they have shown over the course of 2022, and to especially recognise their continuing efforts and professionalism in the face of the extremely challenging current situation in
Sergii Glazunov
Chief Executive Officer
Overview of Assets
We operate four fields in the Dnieper-Donets basin in north-eastern
MEX-GOL and SV fields
The MEX-GOL and SV fields are held under two adjacent production licences, but are operated as one integrated asset, and have significant gas and condensate reserves and potential resources of unconventional gas.
Production Licences
We hold a 100% working interest in, and are the operator of, the MEX-GOL and SV fields. The production licences for the fields were granted to the Group in July 2004 with an initial duration of 20 years, and the duration of these licences have recently been extended to 2044 in order to fully develop the remaining reserves. The economic life of these fields extend to 2038 and 2042 respectively pursuant to the most recent reserves and resources assessment by DeGolyer and MacNaughton ("D&M") as at 31 December 2017.
The two licences, located in
Geology
Geologically, the fields are located towards the middle of the Dnieper-Donets sedimentary basin which extends across the major part of north-eastern
Analysis suggests that the origin of these deposits ranges from fluvial to deltaic, and much of the trapping at these fields is stratigraphic. Below these reservoirs is a thick sequence of shale above deeper, similar, sandstones at a depth of around 5,800 metres. These sands are of Tournasian age and offer additional gas potential. Deeper sandstones of Devonian age have also been penetrated in the fields.
Reserves
The development of the fields began in 1995 by the Ukrainian State company Chernihivnaftogasgeologiya ("CNGG"), and shortly after this time, the Group entered a joint venture with CNGG in respect of the exploration and development of these fields.
The fields have been mapped with 3D seismic, and a geological subsurface model has been developed and refined using data derived from high-level reprocessing of such 3D seismic and new wells drilled on the fields.
The assessment undertaken by D&M as at 31 December 2017 estimated proved plus probable (2P) reserves attributable to the fields of 50.0 MMboe, with 3C contingent resources of 25.3 MMboe.
VAS field
The VAS field is a smaller field with interesting potential. The field has assessed proved plus probable reserves in excess of 3 MMboe and substantial contingent and prospective resources, as well as potential resources of unconventional gas.
Production Licence
We hold a 100% working interest in, and are the operator of, the VAS field. The production licence for the field was granted in August 2012 with a duration of 20 years. The economic life of the field extends to 2032 pursuant to the most recent reserves and resources assessment by D&M as at 31 December 2018.
The licence extends over an area of 33.2 km² and is located 17 km south-east of Kharkiv, in the Kharkiv region of
Geology
Geologically, the field is located towards the middle of the Dnieper-Donets sedimentary basin in north-east
The productive reservoirs are at depths between 3,370 and 3,700 metres.
Reserves
The field has been mapped with 3D seismic, and a geological subsurface model has been developed and refined using data derived from such 3D seismic and new wells drilled on the field.
The assessment undertaken by D&M as at 31 December 2018 estimated proved plus probable (2P) reserves of 3.1 MMboe, with 3C contingent resources of 0.6 MMboe, and prospective resources of 7.7 MMboe in the VED area of the field. The next well planned on the field is designed to explore the VED area of the field.
SC Licence
The SC licence area is located near to and has similar characteristics to the SV field, and is prospective for gas and condensate.
Exploration Licence
We hold a 100% working interest in, and are the operator of, the SC licence. The licence was granted in May 2017 with a duration of 20 years.
The licence extends over an area of 97 km2, and is located in the Poltava region in north-eastern
Geology
Geologically, the field is located towards the middle of the Dnieper-Donets sedimentary basin which extends across the major part of north-eastern
Resources
The licence is prospective for gas and condensate, and has been the subject of exploration since the 1980s, with five wells having been drilled on the licence since then, although none of these wells are currently on production.
The assessment undertaken by D&M as at 1 January 2021 estimated proved plus probable (2P) reserves of 12.1 MMboe, with 3C contingent resources of 15.0 MMboe.
Overview of Reserves
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1. |
MEX-GOL and SV fields |
The Group's estimates of the remaining Reserves and Resources at the MEX-GOL and SV fields are derived from an assessment undertaken by D&M, as at 31 December 2017 (the "MEX-GOL-SV Report"), which was announced on 31 July 2018. During the period from 1 January 2018 to 31 December 2022, the Group has produced 6.14 MMboe from these fields.
The MEX-GOL-SV Report estimated the remaining Reserves as at 31 December 2017 in the MEX-GOL and SV fields as follows:
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Proved (1P) |
Proved + Probable (2P) |
Proved + Probable + Possible (3P) |
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Gas
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121.9 Bscf / 3.5 Bm3 |
218.3 Bscf / 6.2 Bm3 |
256.5 Bscf / 7.3 Bm3 |
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Condensate
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4.3 MMbbl / 514 Mtonne |
7.9 MMbbl / 943 Mtonne |
9.2 MMbbl / 1,098 Mtonne |
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LPG
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2.8 MMbbl / 233 Mtonne |
5.0 MMbbl / 418 Mtonne |
5.8 MMbbl / 491 Mtonne |
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Total
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27.8 MMboe |
50.0 MMboe |
58.6 MMboe |
The MEX-GOL-SV Report estimated the Contingent Resources as at 31 December 2017 in the MEX-GOL and SV fields as follows:
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Contingent Resources (1C) |
Contingent Resources (2C) |
Contingent Resources (3C) |
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Gas
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14.7 Bscf / 0.42 Bm3 |
38.3 Bscf / 1.08 Bm3 |
105.9 Bscf / 3.00 Bm3 |
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Condensate
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1.17 MMbbl / 144 Mtonne |
2.8 MMbbl / 343 Mtonne |
6.6 MMbbl / 812 Mtonne |
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Total
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3.8 MMboe |
9.6 MMboe |
25.3 MMboe |
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2. |
VAS field |
The Group's estimates of the remaining Reserves and Resources at the VAS field and the Prospective Resources at the VED prospect are derived from an assessment undertaken by D&M as at 31 December 2018 (the "VAS Report"), which was announced on 21 August 2019. During the period from 1 January 2019 to 31 December 2022, 0.76 MMboe were produced from the field.
The VAS Report estimated the remaining Reserves as at 31 December 2018 in the VAS field as follows:
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Proved (1P) |
Proved + Probable (2P) |
Proved + Probable + Possible (3P) |
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Gas
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9,114 MMscf / 258 MMm3 |
15,098 MMscf / 427 MMm3 |
18,816 MMscf / 533 MMm3 |
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Condensate
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205 Mbbl / 25 Mtonne |
346 Mbbl / 42 Mtonne |
401 Mbbl / 48 Mtonne |
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Total
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1.895 MMboe |
3.145 MMboe |
3.890 MMboe |
The VAS Report estimated the Contingent Resources as at 31 December 2018 in the VAS field as follows:
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Contingent Resources (1C) |
Contingent Resources (2C) |
Contingent Resources (3C) |
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Gas
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- |
- |
2,912 MMscf / 83 MMm3 |
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Condensate
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- |
- |
74 Mbbl / 9 Mtonne |
The VAS Report estimated the Prospective Resources as at 31 December 2018 in the VED prospect as follows:
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Low (1U) |
Best (2U) |
High (3U) |
Mean |
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Gas
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23,721 MMscf / 672 MMm3 |
38,079 MMscf / 1,078 MMm3 |
62,293 MMscf / 1,764 MMm3 |
41,291 MMscf / 1,169 MMm3 |
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3. |
SC Licence |
The Group's estimates of the remaining Reserves and Contingent Resources at the SC Licence are derived from an assessment undertaken by D&M as at 1 January 2021 (the "SC Report"), which was announced on 2 June 2021.
The SC Report estimated the remaining Reserves as at 1 January 2021 in the SC licence area as follows:
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|
Proved (1P) |
Proved + Probable (2P) |
Proved + Probable + Possible (3P) |
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Gas
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17.20 Bscf / 0.49 Bm3 |
65.16 Bscf / 1.85 Bm3 |
85.03 Bscf / 2.41 Bm3 |
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Condensate
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145 Mbbl / 16 Mtonne |
548 Mbbl / 61 Mtonne |
716 Mbbl / 80 Mtonne |
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Total
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3.2 MMboe |
12.1 MMboe |
15.7 MMboe |
The SC Report estimated the Contingent Resources as at 1 January 2021 in the SC licence area as follows:
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|
Contingent Resources (1C) |
Contingent Resources (2C) |
Contingent Resources (3C) |
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Gas
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8.56 Bscf / 0.24 Bm3 |
14.18 Bscf / 0.40 Bm3 |
81.16 Bscf / 2.30 Bm3 |
|
Condensate
|
72 Mbbl / 8 Mtonne |
119 Mbbl / 13 Mtonne |
682 Mbbl / 75 Mtonne |
|
Total
|
1.6 MMboe |
2.6 MMboe |
15.0 MMboe |
Finance Review
Despite the significant disruption caused by the Russian invasion of
Revenue for the year, derived from the sale of the Group's Ukrainian gas, condensate and LPG production, was up at
Aggregate production for the year (calculated on the days when the Group's fields were actually in production) was down approximately 37.5% at 2,956 boepd (2021: 4,730 boepd) due to the disruption to operations as a result of the Russian invasion of
During 2022, global, and particularly European, commodity prices increased, and these increases also occurred in
During the period from 1 January 2023 to 14 December 2023, the average realised gas, condensate and LPG prices were
Gross profit for the year was higher at
Cost of sales for the year was unchanged at
Cash generated from operations fell 39% to
The subsoil tax rates applicable to gas production were stable during the first two months of 2022 at 29% for gas produced from deposits at depths shallower than 5,000 metres and 14% for gas produced from deposits deeper than 5,000 metres, except in respect of gas produced from new wells drilled after 1 January 2018, where the subsoil tax rates were reduced from 29% to 12% for gas produced from deposits at depths shallower than 5,000 metres and from 14% to 6% for gas produced from deposits deeper than 5,000 metres for the period between 2018 and 2022. The subsoil tax rates for condensate were 31% for condensate produced from deposits shallower than 5,000 metres and 16% for condensate produced from deposits deeper than 5,000 metres.
However, with effect from 1 March 2022, changes to the subsoil production tax rates applicable to gas production were introduced. These changes modified the applicable tax rates based on gas prices, extended the incentive rates for new wells for a further 10 years and made improvements to the regulatory environment. The legislation which introduced these changes also included provisions that these rates will not be increased for 10 years.
The new subsoil production tax rates applicable to gas production are as follows:
|
(i) |
when gas prices are up to
|
|
(ii) |
when gas prices are between
|
|
(iii) |
when gas prices are more than |
The tax rates applicable to condensate production were unchanged and so remain at 31% for condensate produced from deposits shallower than 5,000 metres and 16% for condensate produced from deposits deeper than 5,000 metres, for both old and new wells.
As a direct result of the war in
In addition, the excise tax on LPG sales was suspended between 24 February 2022 and 30 September 2022, but was then reinstated, and the VAT rate applicable to condensate and LPG sales was reduced to 7% (from 20%) with effect from 18 March 2022.
Finally, in early 2022, the Ukrainian Government imposed temporary and partial gas price regulation to support the production of certain food products through the supply of gas at regulated prices to the producers of such products. Under this scheme, all independent gas producers in
Administrative expenses for the year were 19% lower at
Other expenses in the year increased as a result of the charitable donation of
The tax charge for the year was steady at
A deferred tax asset relating to the Group's provision for decommissioning as at 31 December 2022 of
A deferred tax asset relating to the Group's provision for decommissioning as at 31 December 2022 of
Capital investment of
A review of any indicators of impairment of the carrying value of the Group's assets was undertaken at the year end and this review did conclude that the Russian invasion of
With the material increase in commodity prices during the year, and necessary payment term accommodations that needed to be agreed with the Group's largest indirect off-taker pursuant to a contract facilitated by the Group's related party, LLC Smart Energy, trade receivables were up materially at
Cash, cash equivalents and short-term investments held as at 31 December 2022 were slightly lower at
During 2022, the Ukrainian Hryvnia was relatively stable against the US Dollar, weakening from UAH27.3/
Cash from operations has funded the capital investment during the year, and the Group's current cash position and positive operating cash flow are the sources from which the Group plans to fund the development programmes for its assets over the remainder of 2022 and beyond. This is coupled with the fact that the Group is currently debt-free, and therefore has no debt covenants that may otherwise impede its ability to implement contingency plans if domestic and/or global circumstances dictate. This flexibility and ability to monitor and manage development plans and liquidity is a cornerstone of our planning, and underpins our assessments of the future. With monetary resources at the end of the year of
On 15 June 2023, the Company paid an interim dividend of
Bruce Burrows
Finance Director
Principal Risks and How We Manage Them
The Group has a risk evaluation methodology in place to assist in the review of the risks across all material aspects of its business. This methodology highlights external, operational and technical, financial and corporate risks and assesses the level of risk and potential consequences. It is periodically presented to the Audit Committee and the Board for review, to bring to their attention potential risks and, where possible, propose mitigating actions. Key risks recognised and mitigation factors are detailed below:-
|
Risk |
Mitigation |
|
External risks |
|
|
War in |
|
|
On 24 February 2022, |
The Group has assets in the areas of conflict in the east of |
|
Risk relating to |
|
|
|
The Group minimises this risk by continuously monitoring the market in
|
|
Banking system in |
|
|
The banking system in |
The creditworthiness and potential risks relating to the banks in |
|
Geopolitical environment in |
|
|
Although there were some improvements in recent years, there has not been a final resolution of the political, fiscal and economic situation in |
The Group continually monitors the market and business environment in |
|
Climate change |
|
|
Any near and medium-term continued warming of the planet can have potentially increasing negative social, economic and environmental consequences, generally, globally and regionally, and specifically in relation to the Group. The potential impacts include: loss of market; and increased costs of operations through increasing regulatory oversight and controls, including potential effective or actual loss of licences to operate. As a diligent operator aware of and responsive to its good stewardship responsibilities, the Group not only needs to monitor and modify its business plans and operations to react to changes, but also to ensure its environmental footprint is as minimal as it can practicably be in managing the hydrocarbon resources the Group produces. |
The Group's plans include: assessing, reducing and/or mitigating its emissions in its operations; and identifying climate change-related risks and assessing the degree to which they can affect its business, including financial implications. The HSE Committee is specifically tasked with overseeing, measuring, benchmarking and mitigating the Group's environmental and climate impact, which will be reported on in future periods. At this stage, the Group does not consider climate change to have any material implications on the Group's financial statements, including accounting estimates. |
|
Operational and technical risks |
|
|
Quality, Health, Safety and Environment ("QHSE") |
|
|
The oil and gas industry, by its nature, conducts activities which can cause health, safety, environmental and security incidents. Serious incidents can not only have a financial impact but can also damage the Group's reputation and the opportunity to undertake further projects. The war in |
The Group maintains QHSE policies and requires that management, staff and contractors adhere to these policies. The policies ensure that the Group meets Ukrainian legislative standards in full and achieves international standards to the maximum extent possible. As a result of the COVID-19 pandemic the Group has implemented processes and controls intended to ensure protection of all our stakeholders and minimise any disruption to our business. As a consequence of the current war in
|
|
Industry risks |
|
|
The Group is exposed to risks which are generally associated with the oil and gas industry. For example, the Group's ability to pursue and develop its projects and undertake development programmes depends on a number of uncertainties, including the availability of capital, seasonal conditions, regulatory approvals, gas, oil, condensate and LPG prices, development costs and drilling success. As a result of these uncertainties, it is unknown whether potential drilling locations identified on proposed projects will ever be drilled or whether these or any other potential drilling locations will be able to produce gas, oil or condensate. In addition, drilling activities are subject to many risks, including the risk that commercially productive reservoirs will not be discovered. Drilling for hydrocarbons can be unprofitable, not only due to dry holes, but also as a result of productive wells that do not produce sufficiently to be economic. In addition, drilling and production operations are highly technical and complex activities and may be curtailed, delayed or cancelled as a result of a variety of factors. |
The Group has well qualified and experienced technical management staff to plan and supervise operational activities. In addition, the Group engages with suitably qualified local and international geological, geophysical and engineering experts and contractors to supplement and broaden the pool of expertise available to the Group. Detailed planning of development activities is undertaken with the aim of managing the inherent risks associated with oil and gas exploration and production, as well as ensuring that appropriate equipment and personnel are available for the operations, and that local contractors are appropriately supervised. |
|
Production of hydrocarbons |
|
|
Producing gas and condensate reservoirs are generally characterised by declining production rates which vary depending upon reservoir characteristics and other factors. Future production of the Group's gas and condensate reserves, and therefore the Group's cash flow and income, are highly dependent on the Group's success in operating existing producing wells, drilling new production wells and efficiently developing and exploiting any reserves, and finding or acquiring additional reserves. The Group may not be able to develop, find or acquire reserves at acceptable costs. The experience gained from drilling undertaken to date highlights such risks as the Group targets the appraisal and production of these hydrocarbons. |
In recent years, the Group has engaged external technical consultants to undertake a comprehensive review and re-evaluation study of the MEX-GOL and SV fields in order to gain an improved understanding of the geological aspects of the fields and reservoir engineering, drilling and completion techniques, and the results of this study and further planned technical work are being used by the Group in the future development of these fields. The Group has established an ongoing relationship with such external technical consultants to ensure that technical management and planning is of a high quality in respect of all development activities on the Group's fields.
|
|
Risks relating to the further development and operation of the Group's gas and condensate fields in |
|
|
The planned development and operation of the Group's gas and condensate fields in |
The Group's technical management staff, in consultation with its external technical consultants, carefully plan and supervise development and operational activities with the aim of managing the risks associated with the further development of the Group's fields in |
|
Drilling and workover operations |
|
|
Due to the depth and nature of the reservoirs in the Group's fields, the technical difficulty of drilling or re-entering wells in the Group's fields is high, and this and the equipment limitations within |
The utilisation of detailed sub-surface analysis, careful well planning and engineering design in designing work programmes, along with appropriate procurement procedures and competent on-site management, aims to minimise these risks. |
|
Maintenance of facilities |
|
|
There is a risk that production or transportation facilities can fail due to non-adequate maintenance, control or poor performance of the Group's suppliers.
|
The Group's facilities are operated and maintained at standards above the Ukrainian minimum legal requirements. Operations staff are experienced and receive supplemental training to ensure that facilities are properly operated and maintained. Service providers are rigorously reviewed at the tender stage and are monitored during the contract period. |
|
Financial risks |
|
|
Exposure to cash flow and liquidity risk |
|
|
There is a risk that insufficient funds are available to meet the Group's development obligations to commercialise the Group's oil and gas assets. Since a significant proportion of the future capital requirements of the Group is expected to be derived from operational cash generated from production, including from wells yet to be drilled, there is a risk that in the longer term insufficient operational cash is generated, or that additional funding, should the need arise, cannot be secured. The war in |
The Group maintains adequate cash reserves and closely monitors forecasted and actual cash flow, as well as short and longer-term funding requirements. The Group aims to maintain a significant proportion of its cash resources outside |
|
Ensuring appropriate business practices |
|
|
The Group operates in |
The Group maintains anti-bribery and anti-corruption policies in relation to all aspects of its business, and ensures that clear authority levels and robust approval processes are in place, with stringent controls over cash management and the tendering and procurement processes. In addition, office and site protection is maintained to protect the Group's assets.
|
|
Hydrocarbon price risk |
|
|
The Group derives its revenue principally from the sale of its Ukrainian gas, condensate and LPG production. These revenues are subject to commodity price volatility and political influence. A prolonged period of low gas, condensate and LPG prices may impact the Group's ability to maintain its long-term investment programme with a consequent effect on its growth rate, which in turn may impact the Company's share price or any shareholder returns. Lower gas, condensate and LPG prices may not only decrease the Group's revenues per unit, but may also reduce the amount of gas, condensate and LPG which the Group can produce economically, as would increases in costs associated with hydrocarbon production, such as subsoil taxes and royalties. The overall economics of the Group's key assets (being the net present value of the future cash flows from its Ukrainian projects) are far more sensitive to long term gas, condensate and LPG prices than short-term price volatility. However, short-term volatility does affect liquidity risk, as, in the early stage of the projects, income from production revenues is offset by capital investment. In addition, the war in |
The Group sells a proportion of Its hydrocarbon production through offtake arrangements, which include pricing formulae so as to ensure that it achieves market prices for its products, as well utilising the electronic market platforms in
|
|
Currency risk |
|
|
Since the beginning of 2014, the Ukrainian Hryvnia significantly devalued against major world currencies, including the US Dollar, where it has fallen from UAH8.3/ |
The Group's sales proceeds are received in Ukrainian Hryvnia, and the majority of the capital expenditure costs for the current investment programme will be incurred in Ukrainian Hryvnia, thus the currency of revenue and costs are largely matched. In light of the previous devaluation and volatility of the Ukrainian Hryvnia against major world currencies, and since the Ukrainian Hryvnia does not benefit from the range of currency hedging instruments which are available in more developed economies, the Group has adopted a policy that, where possible, funds not required for use in |
|
Counterparty and credit risk |
|
|
The challenging political and economic environment in |
The Group monitors the financial position and credit quality of its contractual counterparties and seeks to manage the risk associated with counterparties by contracting with creditworthy contractors and customers. Hydrocarbon production is sold on terms that limit supply credit and/or title transfer until payment is received. |
|
Financial markets and economic outlook |
|
|
The performance of the Group is influenced by global economic conditions and, in particular, the conditions prevailing in the |
The Group's sales proceeds are received in Ukrainian Hryvnia and a significant proportion of investment expenditure is made in Ukrainian Hryvnia, which minimises risks related to foreign exchange volatility. However, hydrocarbon prices in |
|
Corporate risks |
|
|
Ukrainian production licences |
|
|
The Group operates in a region where the right to production can be challenged by State and non-State parties. During 2010, this manifested itself in the form of a Ministry Order instructing the Group to suspend all operations and production from its MEX-GOL and SV production licences, which was not resolved until mid-2011. In 2013, new rules relating to the updating of production licences led to further challenges being raised by the Ukrainian authorities to the production licences held by independent oil and gas producers in |
The Group ensures compliance with commitments and regulations relating to its production licences through Group procedures and controls or, where this is not immediately feasible for practical or logistical considerations, seeks to enter into dialogue with the relevant Government bodies with a view to agreeing a reasonable time frame for achieving compliance or an alternative, mutually agreeable course of action. Work programmes are designed to ensure that all licence obligations are met and continual interaction with Government bodies is maintained in relation to licence obligations and commitments.
|
|
Risks relating to key personnel |
|
|
The Group's success depends upon skilled management as well as technical expertise and administrative staff. The loss of service of critical members from the Group's team could have an adverse effect on the business. The current war in |
The Group periodically reviews the compensation and contractual terms of its staff. In addition, the Group has developed relationships with a number of technical and other professional experts and advisers, who are used to provide specialist services as required. As a result of the war, only essential staff are located at site, and all other staff are working remotely, either from areas away from the conflict areas or outside |
Consolidated Income Statement
for the year ended 31 December 2022
|
|
|
|
|
|
|
|
2022 |
2021 |
|
|
Note |
$000 |
$000 |
|
|
|
|
|
|
Revenue |
5 |
133,380 |
121,353 |
|
Cost of sales |
6 |
(47,457) |
(47,422) |
|
Gross profit |
|
85,923 |
73,931 |
|
Administrative expenses |
7 |
(6,830) |
(8,350) |
|
Other operating (losses)/gains, (net) |
10 |
(3,320) |
654 |
|
Operating profit |
|
75,773 |
66,235 |
|
Finance income |
11 |
1,126 |
1,394 |
|
Finance costs |
12 |
(1,410) |
(752) |
|
Net impairment (losses)/gains on financial assets |
|
(444) |
(177) |
|
Other losses, (net) |
13 |
(1,738) |
(108) |
|
Profit before taxation |
|
73,307 |
66,592 |
|
Income tax expense |
14 |
(13,124) |
(15,473) |
|
Profit for the year |
|
60,183 |
51,119 |
|
Earnings per share (cents) |
|
|
|
|
Basic and diluted |
16 |
18,8c |
15.9c |
The Notes set out below are an integral part of these consolidated financial statements.
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2022
|
|
|
2022 |
2021 |
|
|
|
$000 |
$000 |
|
|
|
|
|
|
Profit for the year |
|
60,183 |
51,119 |
|
|
|
|
|
|
Other comprehensive income/(expense): |
|
|
|
|
Items that may be subsequently reclassified to profit or loss: |
|
|
|
|
Equity - foreign currency translation |
|
(38,094) |
1,611 |
|
Items that will not be subsequently reclassified to profit or loss: |
|
|
|
|
Re-measurements of post-employment benefit obligations |
|
53 |
172 |
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive (expense)/income |
|
(38,041) |
1,783 |
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income for the year |
|
22,142 |
52,902 |
Company Statement of Comprehensive Income
for the year ended 31 December 2022
|
|
Note |
|
2022 |
2021 |
|
|
|
|
$000 |
$000 |
|
|
|
|
|
|
|
(Loss)/profit for the year |
15 |
|
(6,358) |
16,330 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive (loss)/income for the year |
|
|
(6,358) |
16,330 |
The Notes set out below are an integral part of these consolidated financial statements.
Consolidated Balance Sheet
as at 31 December 2022
|
|
|
|
|
|
|
|
2022 |
2021 |
|
|
Note |
$000 |
$000 |
|
Assets |
|
|
|
|
Non-current assets |
|
|
|
|
Property, plant and equipment |
17 |
74,256 |
87,418 |
|
Intangible assets |
18 |
8,994 |
12,340 |
|
Right-of-use assets |
19 |
364 |
1,008 |
|
Deferred tax asset |
26 |
287 |
361 |
|
Prepayments for fixed assets |
|
5,385 |
4,933 |
|
|
|
89,286 |
106,060 |
|
|
|
|
|
|
Current assets |
|
|
|
|
Inventories |
21 |
3,358 |
1,862 |
|
Trade and other receivables |
22 |
60,438 |
8,126 |
|
Cash and cash equivalents |
23 |
88,652 |
87,780 |
|
Other short-term investments |
23 |
- |
4,762 |
|
|
|
152,448 |
102,530 |
|
|
|
|
|
|
Total assets |
|
241,734 |
208,590 |
|
|
|
|
|
|
Liabilities |
|
|
|
|
Current liabilities |
|
|
|
|
Trade and other payables |
24 |
(27,529) |
(12,306) |
|
Lease liabilities |
19 |
(229) |
(455) |
|
Corporation tax payable |
|
(2,447) |
(5,445) |
|
|
|
(30,205) |
(18,206) |
|
|
|
|
|
|
Net current assets |
|
127,628 |
89,257 |
|
|
|
|
|
|
Non-current liabilities |
|
|
|
|
Provision for decommissioning |
25 |
(6,964) |
(5,467) |
|
Lease liabilities |
19 |
(258) |
(648) |
|
Defined benefit liability |
|
(323) |
(427) |
|
Deferred tax liability |
26 |
(3,232) |
(5,197) |
|
Other non-current liabilities |
|
(93) |
(128) |
|
|
|
(10,870) |
(11,867) |
|
|
|
|
|
|
Total liabilities |
|
(41,075) |
(30,073) |
|
|
|
|
|
|
Net assets |
|
200,659 |
178,517 |
|
|
|
|
|
|
Equity |
|
|
|
|
Called up share capital |
27 |
28,115 |
28,115 |
|
Foreign exchange reserve |
28 |
(141,705) |
(103,611) |
|
Merger reserve |
28 |
(3,204) |
(3,204) |
|
Capital contributions reserve |
28 |
7,477 |
7,477 |
|
Retained earnings |
|
309,976 |
249,740 |
|
Total equity |
|
200,659 |
178,517 |
The Notes set out below are an integral part of these consolidated financial statements.
Consolidated Statement of Changes in Equity
for the year ended 31 December 2022
|
|
||||||||
|
|
Called up share capital |
Share premium account |
Merger reserve |
Capital contributions reserve |
Foreign exchange reserve* |
Retained earnings/(Accumulated losses) |
Total equity |
|
|
|
$000 |
$000 |
$000 |
$000 |
$000 |
$000 |
$000 |
|
|
|
|
|
|
|
|
|
|
|
|
As at 1 January 2021 |
28,115 |
555,090 |
(3,204) |
7,477 |
(105,222) |
(356,641) |
125,615 |
|
|
Profit for the year |
- |
- |
- |
- |
- |
51,119 |
51,119 |
|
|
Other comprehensive expense - exchange differences |
- |
- |
- |
- |
1,611 |
- |
1,611 |
|
|
- re-measurements of post-employment benefit obligations |
- |
- |
- |
- |
- |
172 |
172 |
|
|
Total comprehensive income/(expense) |
- |
- |
- |
- |
1,611 |
51,291 |
52,902 |
|
|
Cancellation of share premium account |
- |
(555,090) |
- |
- |
- |
555,090 |
- |
|
|
As at 31 December 2021 |
28,115 |
- |
(3,204) |
7,477 |
(103,611) |
249,740 |
178,517 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Called up share capital |
Share premium account |
Merger reserve |
Capital contributions reserve |
Foreign exchange reserve* |
Retained earnings/(Accumulated losses) |
Total equity |
|
|
|
$000 |
$000 |
$000 |
$000 |
$000 |
$000 |
$000 |
|
|
|
|
|
|
|
|
|
|
|
|
As at 1 January 2022 |
28,115 |
- |
(3,204) |
7,477 |
(103,611) |
249,740 |
178,517 |
|
|
Profit for the year |
- |
- |
- |
- |
- |
60,183 |
60,183 |
|
|
Other comprehensive income - exchange differences |
- |
- |
- |
- |
(38,094) |
- |
(38,094) |
|
|
- re-measurements of post-employment benefit obligations |
- |
- |
- |
- |
- |
53 |
53 |
|
|
Total comprehensive income/(expense) |
- |
- |
- |
- |
(38,094) |
60,236 |
22,142 |
|
|
As at 31 December 2022 |
28,115 |
- |
(3,204) |
7,477 |
(141,705) |
309,976 |
200,659 |
|
|
* Predominantly as a result of exchange differences on non-monetary assets and liabilities where the subsidiaries' functional currency is not the US Dollar. |
|
|||||||
The Notes set out below are an integral part of these consolidated financial statements.
Consolidated Cash Flow Statement
for the year ended 31 December 2022
|
|
|
2022 |
2021 |
|
|
Note |
$000 |
$000 |
|
|
|
|
|
|
Operating activities |
|
|
|
|
Cash generated from operations |
29 |
47,541 |
77,646 |
|
Charitable donations |
13 |
(6,534) |
(76) |
|
Income tax paid |
|
(15,863) |
(8,959) |
|
Interest received |
|
1,888 |
763 |
|
Net cash inflow from operating activities |
|
27,032 |
69,374 |
|
|
|
|
|
|
Investing activities |
|
|
|
|
Purchase of oil and gas development, production and other property, plant and equipment |
|
(19,829) |
(26,292) |
|
Purchase of oil and gas exploration and evaluation assets |
|
(4,092) |
(11,387) |
|
Sale/(Purchase) of financial instruments |
23 |
4,762 |
(4,762) |
|
Purchase of oil and gas development, production and other intangible assets |
|
(1,482) |
(539) |
|
Proceeds from return of prepayments for shares |
|
- |
250 |
|
Proceeds from sale of property, plant and equipment |
|
4 |
10 |
|
Net cash outflow from investing activities |
|
(20,637) |
(42,720) |
|
|
|
|
|
|
Financing activities |
|
|
|
|
Payment of principal portion of lease liabilities |
|
(398) |
(555) |
|
Net cash outflow from financing activities |
|
(398) |
(555) |
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
5,997 |
26,099 |
|
Cash and cash equivalents at the beginning of the year |
|
87,780 |
60,993 |
|
ECL* of cash and cash equivalents |
|
(14) |
(6) |
|
Effect of foreign exchange rate changes |
|
(5,111) |
694 |
|
Cash and cash equivalents at the end of the year |
23 |
88,652 |
87,780 |
*ECL - Expected credit losses
The Notes set out below are an integral part of these consolidated financial statements.
Notes forming part of the financial statements
1. |
Statutory Accounts |
The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 December 2022 or 2021, but is derived from those accounts. The Auditor has reported on those accounts, and its reports were unqualified and did not contain statements under sections 498(2) or (3) of the Companies Act 2006. The auditors' report on the Group financial statements included a material uncertainty in respect of the Group's ability to continue as a going concern as explained in the section "Going Concern" in Note 3 below.
The statutory accounts for 2022 will be delivered to the Registrar of Companies following publication.
While the financial information included in this preliminary announcement has been prepared in accordance with
2. |
General Information and Operational Environment |
Enwell Energy plc (the "Company") and its subsidiaries (the "Group") is a gas, condensate and LPG production group.
The Company is a public limited company quoted on the AIM Market operated by London Stock Exchange plc and incorporated in
As at 31 December 2022, the Company's immediate parent company was Smart Energy (CY) Limited, which was 100% owned by Smart Holding (
The Group's gas, condensate and LPG extraction and production facilities are located in
Impact of the ongoing war in
On 24 February 2022,
The war is continuing, causing very significant numbers of military and civilian casualties and significant dislocation of the Ukrainian population. The Russian army has occupied territories in the east and south of
On 3 June 2022, the National Bank of
The Ukrainian Government has taken action to limit the negative effects of the war on the Ukrainian economic environment during the period of martial law and beyond, including but not limited to:
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the temporary easing of the tax regime until the end of martial law, including the suspension of tax audits and the cancellation of some penalties for violating the tax law;
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gasoline, heavy distillates, liquefied gas, oil and petroleum are subject to VAT at a reduced rate of 7%, and the excise tax rate for the imported fuel group of products' is set at zero;
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a number of measures were taken to limit prices for energy resources, including prohibiting export of gas, setting a level of electricity price on transactions a day ahead and intraday markets; and
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the increase in the subsoil tax rate on natural gas production during martial law, which action introduced a differentiated subsoil tax rate on the production of natural gas depending on sale prices for natural gas.
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Additional financial support was received from a number of international institutions, including from the IMF and European Bank for Reconstruction and Development ("EBRD"), to support the economy and the population. Such financial support is critical for
Given the fast-moving nature of the situation in
Overall, the final resolution and the ongoing effects of the war and political and economic situation in
As at 14 December 2023, the official NBU exchange rate of the Ukrainian Hryvnia against the US Dollar was UAH37.0/$1.00, compared with UAH36.57/$1.00 as at 31 December 2022.
Further details of risks relating to
3. |
Accounting Policies |
The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.
Basis of Preparation
On 31 December 2020, IFRS as adopted by the European Union at that date was brought into
These consolidated financial statements have been prepared in accordance with
The preparation of financial statements in conformity with
Going Concern
The Group's business activities, together with the factors likely to affect its future operations, performance and position are set out in the Chairman's Statement, Chief Executive's Statement and Finance Review. The financial position of the Group, its cash flows and liquidity position are set out in these consolidated financial statements.
On 24 February 2022,
The production assets of the Group are located in the central and eastern part of the country (Poltava and Kharkiv regions) which are controlled by the Ukrainian Government. Following a brief period of suspension, production and field operations, as well as construction work on upgrades to the gas processing facilities, at the MEX-GOL and SV fields recommenced. As of the date of approval of these financial statements, no assets of the Group have been damaged, and the Group continues to operate its MEX-GOL and SV assets in the Poltava region, while its SC asset in the Poltava region and all production and field operations at the VAS asset located in the Kharkiv region are suspended. No military activities have occurred at the Group's field locations. The Gas Transmission System Operator of
The Group has no debt and funds its operations from its own cash resources. Cash and cash equivalents were $79.1 million as at 14 December 2023. The Directors maintain a significant level of flexibility to modify the Group's development plans as may be required to preserve cash resources for liquidity management. Absent the potential impact of the war in
In assessing the impact of the war on the ability of the Group and the Company to continue as a going concern, the Directors have analysed a number of possible scenarios of economic and military developments and the impact on the expected cash flows of the Group and Company for 2023 and 2024. This includes considering a possible (but in the view of the Directors, highly unlikely) worst case scenario in which the Group has zero production as a result of possible future military conflict dictating field operations being completely shut-in, and all other non-production related costs being maintained at current levels with no reduction or mitigating actions as would otherwise be possible. Even in this worst-case scenario, the Directors are satisfied that the Group and the Company have sufficient liquid resources to be able to meet their liabilities as they fall due and to be able to continue as a going concern for the foreseeable future.
The corporate strategy for the near term is to:
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continue production from MEX-GOL and SV licences, generating cash to cover Group costs and add to existing cash resources, whilst moderating development plans to reduce cash spend exposure whilst the war and operational/political continue;
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vigorously pursue legal initiatives to protect the Group's assets, restore all licences and production, and seek compensation for losses incurred to date and as may be incurred in the future; and
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tightly manage costs to ensure cash resources are maintained at levels capable of sustaining the business through the uncertainty that lies ahead |
In respect of the Group's operations, staff and assets in
The Company is a
New and amended standards adopted by the Group
The following amended standards became effective from 1 January 2022, but did not have a material impact on the Group's consolidated or Company's financial statements:
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Amendments to IAS 16 Property, Plant and Equipment prohibit the deduction from the cost of an item of property, plant and equipment of any proceeds from selling items produced while bringing that asset into operation and clarify that these proceeds (and the corresponding costs of production) are recognised in profit or loss
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Amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets clarify that the cost of fulfilling a contract comprises the costs that relate directly to the contract. These can either be incremental costs of fulfilling that contract or the allocation of other costs that relate directly to fulfilling contracts |
Impact of standards issued but not yet applied by the Group
Certain new standards and interpretations have been issued that are mandatory for the annual periods beginning on or after 1 January 2023 or later, and which the Group has not early adopted.
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IFRS 17 Insurance Contracts |
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Amendments to IFRS 1 Presentation of Financial Statements: Classification of Liabilities as Current or Non-current |
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Amendments to IAS 1 and IFRS Practice Statement 2: Disclosure of Accounting Policies |
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Amendments to IAS 8: Definition of Accounting Estimates |
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Amendments to IAS 12: Deferred Tax related to Assets and Liabilities arising from a Single Transaction |
These new standards and interpretations are not expected to affect significantly the Group's consolidated financial statements.
Exchange differences on intra-group balances with foreign operation
The Group has certain inter-company monetary balances of which the Company is the beneficial owner. These monetary balances are payable by a subsidiary that is a foreign operation and are eliminated on consolidation.
In the consolidated financial statements, exchange differences arising on such payables because the transaction currency differs from the subsidiary's functional currency are recognised initially in other comprehensive income if the settlement of such payables is continuously deferred and is neither planned nor likely to occur in the foreseeable future.
In such cases, the respective receivables of the Company are regarded as an extension of the Company's net investment in that foreign operation, and the cumulative amount of the abovementioned exchange differences recognised in other comprehensive income is carried forward within the foreign exchange reserve in equity and is reclassified to profit or loss only upon disposal of the foreign operation.
When the subsidiary that is a foreign operation settles its quasi-equity liability due to the Company, but the Company continues to possess the same percentage of the subsidiary, i.e. there has been no change in its proportionate ownership interest, such settlement is not regarded as a disposal or a partial disposal, and therefore cumulative exchange differences are not reclassified.
The designation of inter-company monetary balances as part of the net investment in a foreign operation is re-assessed when management's expectations and intentions on settlement change due to a change in circumstances.
Where, because of a change in circumstances, a receivable balance, or part thereof, previously designated as a net investment into a foreign operation is intended to be settled, the receivable is de-designated and is no longer regarded as part of the net investment.
In such cases, the exchange differences arising on the subsidiary's payable following de-designation are recognised within finance costs / income in profit or loss, similar to foreign exchange differences arising from financing.
Foreign exchange gains and losses not related to intra-group balances are recognised on a net basis as other gains or losses.
Basis of Consolidation
The consolidated financial statements incorporate the financial information of the Company and entities controlled by the Company (and its subsidiaries) made up to 31 December each year.
Subsidiaries
Subsidiaries are all entities (including structured entities) over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.
The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis at the non-controlling interest's proportionate share of the recognised amounts of the acquiree's identifiable net assets.
Acquisition-related costs are expensed as incurred.
If the business combination is achieved in stages, the acquisition date carrying value of the acquirer's previously held equity interest in the acquiree is re-measured to fair value at the acquisition date; any gains or losses arising from such re-measurement are recognised in profit or loss.
Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with IFRS 9 in profit or loss.
Inter-company transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated. When necessary, amounts reported by subsidiaries have been adjusted to conform with the Group's accounting policies.
Segment reporting
The Group's only class of business activity is oil and gas exploration, development and production. The Group's primary operations are located in
Commercial Reserves
Proved and probable oil and gas reserves are estimated quantities of commercially producible hydrocarbons which the existing geological, geophysical and engineering data show to be recoverable in future years from known reservoirs. Proved reserves are those quantities of petroleum that, by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be commercially recoverable from known reservoirs and under defined technical and commercial conditions. Probable reserves are those additional reserves which analysis of geoscience and engineering data indicate are less likely to be recovered than proved reserves but more certain to be recovered than possible reserves. The proved and probable reserves conform to the definition approved by the Petroleum Resources Management System.
Oil and Gas Exploration/Evaluation and Development/Production Assets
The Group applies the successful efforts method of accounting for oil and gas assets, having regard to the requirements of IFRS 6 Exploration for and Evaluation of Mineral Resources.
Exploration costs are incurred to discover hydrocarbon resources. Evaluation costs are incurred to assess the technical feasibility and commercial viability of the resources found. Exploration, as defined in IFRS 6 Exploration and evaluation of mineral resources, starts when the legal rights to explore have been obtained. Expenditure incurred before obtaining the legal right to explore is generally expensed; an exception to this would be separately acquired intangible assets such as payment for an option to obtain legal rights.
Expenditures incurred in the exploration activities are expensed unless they meet the definition of an asset. The Group recognises an asset when it is probable that economic benefits will flow to the Group as a result of the expenditure. The economic benefits might be available through commercial exploitation of hydrocarbon reserves or sales of exploration findings or further development rights. Exploration and evaluation ("E&E") assets are recognised as either property, plant and equipment or intangible assets, according to their nature, in single field cost centres.
The capitalisation point is the earlier of:
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the point at which the fair value less costs to sell the property can be reliably determined as being higher than the total of the expenses incurred and costs already capitalised (such as licence acquisition costs); and |
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an assessment of the property demonstrates that commercially viable reserves are present and hence there are probable future economic benefits from the continued development and production of the resource. |
E&E assets are reclassified from Exploration and Evaluation when evaluation procedures have been completed. E&E assets that are not commercially viable are written down. E&E assets for which commercially viable reserves have been identified are reclassified to Development and Production assets. E&E assets are tested for impairment immediately prior to reclassification out of E&E.
Once an E&E asset has been reclassified from E&E, it is subject to the normal IFRS requirements. This includes impairment testing at the cash-generating unit ("CGU") level and depreciation.
Abandonment and Retirement of Individual Items of Property, Plant and Equipment
Normally, no gains or losses shall be recognised if only an individual item of equipment is abandoned or retired or if only a single lease or other part of a group of proved properties constituting the amortisation base is abandoned or retired as long as the remainder of the property or group of properties constituting the amortisation base continues to produce oil or gas. Instead, the asset being abandoned or retired shall be deemed to be fully amortised, and its costs shall be charged to accumulated depreciation, depletion or amortisation. When the last well on an individual property (if that is the amortisation base) or group of properties (if amortisation is determined on the basis of an aggregation of properties with a common geological structure) ceases to produce and the entire property or group of properties is abandoned, a gain or loss shall be recognised. Occasionally, the partial abandonment or retirement of a proved property or group of proved properties or the abandonment or retirement of wells or related equipment or facilities may result from a catastrophic event or other major abnormality. In those cases, a loss shall be recognised at the time of abandonment or retirement.
Intangible Assets other than Oil and Gas Assets
Intangible assets other than oil and gas assets are stated at cost less accumulated amortisation and any provision for impairment. These assets represent exploration licences. Amortisation is charged so as to write off the cost, less estimated residual value on a straight-line basis of 20-25% per annum.
Depreciation, Depletion and Amortisation
All expenditure carried within each field is amortised from the commencement of commercial production on a unit of production basis, which is the ratio of gas production in the period to the estimated quantities of commercial reserves at the end of the period plus the production in the period, generally on a field by field basis. In certain circumstances, fields within a single development area may be combined for depletion purposes. Costs used in the unit of production calculation comprise the net book value of capitalised costs plus the estimated future field development costs necessary to bring the reserves into production.
Impairment
At each balance sheet date, the Group reviews the carrying amount of oil and gas development and production assets to determine whether there is any indication that those assets have suffered an impairment loss. This includes exploration and appraisal costs capitalised which are assessed for impairment in accordance with IFRS 6. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss.
For oil and gas development and production assets, the recoverable amount is the greater of fair value less costs to dispose and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using an expected weighted average cost of capital. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Impairment losses are recognised as an expense immediately. The valuation method used for determination of fair value less cost of disposal is based on unobservable market data, which is within Level 3 of the fair value hierarchy.
Should an impairment loss subsequently reverse, the carrying amount of the asset 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 in prior years. A reversal of an impairment loss is recognised as income immediately.
Decommissioning Provision
Where a material liability for the removal of existing production facilities and site restoration at the end of the productive life of a field exists, a provision for decommissioning is recognised. The amount recognised is the present value of estimated future expenditure determined in accordance with local conditions and requirements. The cost of the relevant property, plant and equipment is increased with an amount equivalent to the provision and depreciated on a unit of production basis. Changes in estimates are recognised prospectively, with corresponding adjustments to the provision and the associated fixed asset. The unwinding of the discount on the decommissioning provision is included within finance costs.
Property, Plant and Equipment other than Oil and Gas Assets
Property, plant and equipment other than oil and gas assets (included in Other fixed assets in Note 17 are stated at cost less accumulated depreciation and any provision for impairment. Depreciation is charged so as to write off the cost of assets on a straight-line basis over their useful lives as follows:
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Useful lives in years |
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Buildings and constructions |
10 to 20 years |
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Machinery and equipment |
2 to 5 years |
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Vehicles |
5 years |
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Office and other equipment |
4 to 12 years |
Spare parts and equipment purchased with the intention to be used in future capital investment projects are recognised as oil and gas development and production assets within property, plant and equipment.
Right-of-use assets
The Group leases various offices, equipment, wells and land. Contracts may contain both lease and non-lease components. The Group allocates the consideration in the contract to the lease and non-lease components based on their relative stand-alone prices.
Assets arising from a lease are initially measured on a present value basis.
Right-of-use assets are measured at cost comprising the following:
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the amount of the initial measurement of lease liability, |
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any lease payments made at or before the commencement date less any lease incentives received, |
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any initial direct costs, and |
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costs to restore the asset to the conditions required by lease agreements. |
Right-of-use assets are generally depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis. If the Group is reasonably certain to exercise a purchase option, the right-of-use asset is depreciated over the underlying assets' useful lives. Depreciation on the items of the right-of-use assets is calculated using the straight-line method over their estimated useful lives as follows:
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Useful lives in years |
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Land |
40 to 50 years |
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Wells |
10 to 20 years |
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Properties: |
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Buildings and constructions |
10 to 20 years |
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Machinery and equipment |
2 to 5 years |
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Vehicles |
5 years |
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Office and other equipment |
4 to 12 years |
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Inventories
Inventories typically consist of materials, spare parts and hydrocarbons, and are stated at the lower of cost and net realisable value. Cost of finished goods is determined on the weighted average bases. Cost of other than finished goods inventory is determined on the first in first out basis. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.
Revenue Recognition
Revenue is income arising in the course of the Group's ordinary activities. Revenue is recognised by the amount of the transaction price. Transaction price is the amount of consideration to which the Group expects to be entitled in exchange for transferring control over promised goods or services to a customer, excluding the amounts collected on behalf of third parties.
Revenue is recognised net of indirect taxes and excise duties.
Sales of gas, condensate and LPG are recognised when control of the good has transferred, being when the goods are delivered to the customer, the customer has full discretion over the goods, and there is no unfulfilled obligation that could affect the customer's acceptance of the goods. Delivery occurs when the goods have been shipped to the specific location, the risks of obsolescence and loss have been transferred to the customer, and either the customer has accepted the goods in accordance with the contract, the acceptance provisions have lapsed, or the Group has objective evidence that all criteria for acceptance have been satisfied.
A receivable is recognised when the goods are delivered as this is the point in time that the consideration is unconditional because only the passage of time is required before the payment is due.
The Group normally uses standardised contracts for the sale of gas, condensate and LPG, which define the point of control transfer. The price and quantity of each sale transaction are indicated in the specifications to the sales contracts.
The control over gas is transferred to a customer when the respective act of acceptance is signed by the parties to a contract upon delivery of gas to the point of sale specified in the contract, normally being a certain point in the Ukrainian gas transportation system. Acts of acceptance of gas are signed and the respective revenues are recognised on a monthly basis.
The control over condensate and LPG is transferred to a customer when the respective waybill is signed by the parties to a contract upon shipment of goods at the point of sale specified in the contract, which is normally the Group's production site.
Foreign Currencies
The Group's consolidated financial statements and those of the Company are presented in US Dollars. The functional currency of the subsidiaries which operate in
The functional currency of individual companies is determined by the primary economic environment in which the entity operates, normally the one in which it primarily generates and expends cash. In preparing the financial statements of the individual companies, transactions in currencies other than the entity's functional currency ("foreign currencies") are recorded 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 at the rates prevailing on the balance sheet date. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Income Statement. 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 which are measured in terms of historical cost in a foreign currency are not retranslated. Gains and losses arising on retranslation are included in net profit or loss for the period, except for exchange differences arising on balances which are considered long term investments where the changes in fair value are recognised directly in other comprehensive income.
On consolidation, the assets and liabilities of the Group's subsidiaries which do not use US Dollars as their functional currency are translated into US Dollars as follows:
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assets and liabilities for each Balance Sheet presented are translated at the closing rate at the date of that Balance Sheet;
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income and expenses for each Income Statement are translated at average monthly exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and
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all resulting exchange differences are recognised in other comprehensive income |
The principal rates of exchange used for translating foreign currency balances as at 31 December 2022 were $1:UAH36.57 (2021: $1: UAH27.28), $1:£0.827 (2021: $1:£ 0.741), $1:€0.934 (2021: $1:€0.883), and the average rates for the year were $1:UAH32.37 (2021: $1:UAH27.3), $1:£0.811 (2021: $1:£ 0.727), $1:€0.951 (2021: $1:€0.845)
None of the Group's operations are considered to use the currency of a hyperinflationary economy, however this is kept under review.
Pensions
The Group contributes to a local government pension scheme in
Defined benefit plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation.
The Group companies participate in a mandatory Ukrainian State-defined retirement benefit plan, which provides for early pension benefits for employees working in certain workplaces with hazardous and unhealthy working conditions. The Group also provides lump sum benefits upon retirement subject to certain conditions. The early pension benefit (in the form of a monthly annuity) is payable by employers only until the employee has reached the statutory retirement age. The pension scheme is based on a benefit formula which depends on each individual member's average salary, his/her total length of past service and total length of past service at specific types of workplaces ("list II" category).
The liability recognised in the Balance Sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension obligation. Since
The current service cost of the defined benefit plan, recognised in the Income Statement within the Cost of Sales in employee benefit expense, except where included in the cost of an asset, reflects the increase in the defined benefit obligation resulting from employee service in the current year, benefit changes curtailments and settlements. Past-service costs are recognised immediately in the Income Statement.
The net interest cost is calculated by applying the discount rate to the net balance of the defined benefit obligation and the fair value of plan assets. This cost is included in employee benefit expense in the Income Statement within the Cost of Sales.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise.
Taxation
The tax expense represents the sum of the current tax and deferred tax.
Current tax, including
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, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised 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 recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.
Deferred tax liabilities are recognised 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.
Deferred tax is calculated at the tax rates which are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the Income Statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.
Other taxes which include recoverable value added tax, excise tax and custom duties represent the amounts receivable or payable to local tax authorities in the countries where the Group operates.
Value added tax
Output value added tax related to sales is payable to tax authorities on the earlier of (a) collection of receivables from customers or (b) delivery of goods or services to customers. Input VAT is generally recoverable against output VAT upon receipt of the VAT invoice. The tax authorities permit the settlement of VAT on a net basis. VAT related to sales and purchases is recognised in the consolidated statement of financial position on a gross basis for different entities of the Group and disclosed separately as an asset and a liability. Where provision has been made for expected credit losses ("ECL") of receivables, the impairment loss is recorded for the gross amount of the debtor, including VAT.
Financial Instruments
Financial instruments - key measurement terms. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The best evidence of fair value is the price in an active market. An active market is one in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.
Fair value of financial instruments traded in an active market is measured as the product of the quoted price for the individual asset or liability and the number of instruments held by the entity. This is the case even if a market's normal daily trading volume is not sufficient to absorb the quantity held and placing orders to sell the position in a single transaction might affect the quoted price.
A portfolio of financial derivatives or other financial assets and liabilities that are not traded in an active market is measured at the fair value of a group of financial assets and financial liabilities on the basis of the price that would be received to sell a net long position (i.e. an asset) for a particular risk exposure or paid to transfer a net short position (i.e. a liability) for a particular risk exposure in an orderly transaction between market participants at the measurement date. This is applicable for assets carried at fair value on a recurring basis if the Group: (a) manages the group of financial assets and financial liabilities on the basis of the Group's net exposure to a particular market risk (or risks) or to the credit risk of a particular counterparty in accordance with the Group's documented risk management or investment strategy; (b) it provides information on that basis about the group of assets and liabilities to the Group's key management personnel; and (c) the market risks, including duration of the Group's exposure to a particular market risk (or risks) arising from the financial assets and financial liabilities are substantially the same.
Valuation techniques such as discounted cash flow models or models based on recent arm's length transactions or consideration of financial data of the investees are used to measure fair value of certain financial instruments for which external market pricing information is not available. Fair value measurements are analysed by level in the fair value hierarchy as follows: (i) level one are measurements at quoted prices (unadjusted) in active markets for identical assets or liabilities, (ii) level two measurements are valuations techniques with all material inputs observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices), and (iii) level three measurements are valuations not based on solely observable market data (that is, the measurement requires significant unobservable inputs).
Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial instrument. An incremental cost is one that would not have been incurred if the transaction had not taken place. Transaction costs include fees and commissions paid to agents (including employees acting as selling agents), advisers, brokers and dealers, levies by regulatory agencies and securities exchanges, and transfer taxes and duties. Transaction costs do not include debt premiums or discounts, financing costs or internal administrative or holding costs.
Fair value is the amount at which the financial instrument was recognised at initial recognition, while amortised cost ("AC") is the amount at which the financial instrument was subsequently measured after the initial recognition less any principal repayments, plus accrued interest, and for financial assets less any allowance for ECL. Accrued interest includes amortisation of transaction costs deferred at initial recognition and of any premium or discount to the maturity amount using the effective interest method. Accrued interest income and accrued interest expense, including both accrued coupon and amortised discount or premium (including fees deferred at origination, if any), are not presented separately and are included in the carrying values of the related items in the consolidated statement of financial position.
The effective interest method is a method of allocating interest income or interest expense over the relevant period, so as to achieve a constant periodic rate of interest (effective interest rate) on the carrying amount. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts (excluding future credit losses) through the expected life of the financial instrument or a shorter period, if appropriate, to the gross carrying amount of the financial instrument. The effective interest rate discounts cash flows of variable interest instruments to the next interest repricing date, except for the premium or discount which reflects the credit spread over the floating rate specified in the instrument, or other variables that are not reset to market rates. Such premiums or discounts are amortised over the whole expected life of the instrument. The present value calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate. For assets that are purchased or originated credit impaired ("POCI") at initial recognition, the effective interest rate is adjusted for credit risk, i.e. it is calculated based on the expected cash flows on initial recognition instead of contractual payments.
Financial instruments - initial recognition. Financial instruments at fair value through profit or loss ("FVTPL") are initially recorded at fair value. All other financial instruments are initially recorded at fair value adjusted for transaction costs. Fair value at initial recognition is best evidenced by the transaction price. A gain or loss on initial recognition is only recorded if there is a difference between fair value and transaction price which can be evidenced by other observable current market transactions in the same instrument or by a valuation technique whose inputs include only data from observable markets. After the initial recognition, an ECL allowance is recognised for financial assets measured at AC and investments in debt instruments measured at fair value through other comprehensive income ("FVOCI"), resulting in an immediate accounting loss.
All purchases and sales of financial assets that require delivery within the time frame established by regulation or market convention ("regular way" purchases and sales) are recorded at trade date, which is the date on which the Group commits to deliver a financial asset. All other purchases are recognised when the entity becomes a party to the contractual provisions of the instrument.
Financial assets - classification and subsequent measurement - measurement categories. The Group classifies financial assets in the following measurement categories: FVTPL, FVOCI and AC. The classification and subsequent measurement of debt financial assets depends on: (i) the Group's business model for managing the related assets portfolio and (ii) the cash flow characteristics of the asset. The Group's financial assets include cash and cash equivalents, trade and other receivables, loans to subsidiary undertakings, all of which are classified as AC in accordance with IFRS 9.
Financial assets - classification and subsequent measurement - business model. The business model reflects how the Group manages the assets in order to generate cash flows - whether the Group's objective is: (i) solely to collect the contractual cash flows from the assets ("hold to collect contractual cash flows"), or (ii) to collect both the contractual cash flows and the cash flows arising from the sale of assets ("hold to collect contractual cash flows and sell") or, if neither of (i) and (ii) is applicable, the financial assets are classified as part of "other" business model and measured at FVTPL.
Business model is determined for a group of assets (on a portfolio level) based on all relevant evidence about the activities that the Group undertakes to achieve the objective set out for the portfolio available at the date of the assessment. Factors considered by the Group in determining the business model include past experience on how the cash flows for the respective assets were collected.
The Group's business model for financial assets is to collect the contractual cash flows from the assets ("hold to collect contractual cash flows").
Financial assets - classification and subsequent measurement - cash flow characteristics. Where the business model is to hold assets to collect contractual cash flows or to hold contractual cash flows and sell, the Group assesses whether the cash flows represent solely payments of principal and interest ("SPPI"). Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are consistent with the SPPI feature. In making this assessment, the Group considers whether the contractual cash flows are consistent with a basic lending arrangement, i.e. interest includes only consideration for credit risk, time value of money, other basic lending risks and profit margin.
Where the contractual terms introduce exposure to risk or volatility that is inconsistent with a basic lending arrangement, the financial asset is classified and measured at FVTPL. The SPPI assessment is performed on initial recognition of an asset and it is not subsequently reassessed.
Financial assets - reclassification. Financial instruments are reclassified only when the business model for managing the portfolio as a whole changes. The reclassification has a prospective effect and takes place from the beginning of the first reporting period that follows after the change in the business model. The Group did not change its business model during the current and comparative period and did not make any reclassifications.
Financial assets impairment - credit loss allowance for ECL. The Group assesses, on a forward-looking basis, the ECL for debt instruments measured at AC and FVOCI and for the exposures arising for contractual assets. The Group measures ECL and recognises Net impairment losses on financial and contractual assets at each reporting date. The measurement of ECL reflects: (i) an unbiased and probability weighted amount that is determined by evaluating a range of possible outcomes, (ii) time value of money and (iii) all reasonable and supportable information that is available without undue cost and effort at the end of each reporting period about past events, current conditions and forecasts of future conditions.
Debt instruments measured at AC and contractual assets are presented in the consolidated statement of financial position net of the allowance for ECL. For loan commitments and financial guarantees, a separate provision for ECL is recognised as a liability in the consolidated statement of financial position.
The Group applies a simplified approach for impairment of cash and cash equivalents, other short-term investments and trade and other receivables, by recognising lifetime expected credit losses based on past default experience and credit profiles, adjusted as appropriate for current observable data. For other financial assets the Group applies a three stage model for impairment, based on changes in credit quality since initial recognition. A financial instrument that is not credit-impaired on initial recognition is classified in Stage 1. Financial assets in Stage 1 have their ECL measured at an amount equal to the portion of lifetime ECL that results from default events possible within the next 12 months or until contractual maturity, if shorter ("12 Months ECL"). If the Group identifies a significant increase in credit risk ("SICR") since initial recognition, the asset is transferred to Stage 2 and its ECL is measured based on ECL on a lifetime basis, that is, up until contractual maturity but considering expected prepayments, if any ("Lifetime ECL"). If the Group determines that a financial asset is credit-impaired, the asset is transferred to Stage 3 and its ECL is measured as a Lifetime ECL. For financial assets that are purchased or originated credit-impaired ("POCI Assets"), the ECL is always measured as a Lifetime ECL.
Financial assets - write-off. Financial assets are written-off, in whole or in part, when the Group has exhausted all practical recovery efforts and has concluded that there is no reasonable expectation of recovery. The write-off represents a derecognition event. The Group may write-off financial assets that are still subject to enforcement activity when the Group seeks to recover amounts that are contractually due, however, there is no reasonable expectation of recovery.
Financial assets - derecognition. The Group derecognises financial assets when (a) the assets are redeemed or the rights to cash flows from the assets otherwise expire or (b) the Group has transferred the rights to the cash flows from the financial assets or entered into a qualifying pass-through arrangement whilst (i) also transferring substantially all the risks and rewards of ownership of the assets or (ii) neither transferring nor retaining substantially all the risks and rewards of ownership but not retaining control.
Financial assets - modification. If the modified terms are substantially different, the rights to cash flows from the original asset expire and the Company derecognises the original financial asset and recognises a new asset at its fair value. The date of renegotiation is considered to be the date of initial recognition for subsequent impairment calculation purposes, including determining whether a SICR has occurred. Any difference between the carrying amount of the original asset derecognised and fair value of the new substantially modified asset is recognised in profit or loss, unless the substance of the difference is attributed to a capital transaction with owners. If the modified asset is not substantially different from the original asset and the modification does not result in derecognition. The Group recalculates the gross carrying amount by discounting the modified contractual cash flows by the original effective interest rate (or credit-adjusted effective interest rate for POCI financial assets), and recognises a modification gain or loss in profit or loss.
Financial liabilities - measurement categories. Financial liabilities are classified as subsequently measured at AC, except for (i) financial liabilities at FVTPL: this classification is applied to derivatives, financial liabilities held for trading (e.g. short positions in securities), contingent consideration recognised by an acquirer in a business combination and other financial liabilities designated as such at initial recognition and (ii) financial guarantee contracts and loan commitments. The Group's financial liabilities include trade and other payables, lease liabilities, all of which are classified as AC in accordance with IFRS 9.
Financial liabilities - derecognition. Financial liabilities are derecognised when they are extinguished (i.e. when the obligation specified in the contract is discharged, cancelled or expires).
Trade Receivables
Trade receivables are amounts due from customers for goods sold in the ordinary course of business. If collection is expected in one year or less, they are classified as current assets. If not, they are presented as non-current assets.
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less expected credit losses.
Prepayments
Prepayments are carried at cost less provision for impairment. A prepayment is classified as non-current when the goods or services relating to the prepayment are expected to be obtained after one year, or when the prepayment relates to an asset which will itself be classified as non-current upon initial recognition. Prepayments to acquire assets are transferred to the carrying amount of the asset once the Group has obtained control of the asset and it is probable that future economic benefits associated with the asset will flow to the Group. Other prepayments are written off to profit or loss when the services relating to the prepayments are received. If there is an indication that the assets, goods or services relating to a prepayment will not be received, the carrying value of the prepayment is written down accordingly and a corresponding impairment loss is recognised in profit or loss for the year.
Investments in subsidiaries
Investments made by the Company in its subsidiaries are stated at cost in the Company's financial statements and reviewed for impairment if there are indications that the carrying value may not be recoverable.
Loans issued to subsidiaries
Loans issued by the Company to its subsidiaries are initially recognised in the Company's financial statements at fair value and are subsequently carried at amortised cost using the effective interest method, less credit loss allowance. Net change in credit losses and foreign exchange differences on loans issued are recognised in the Company's statement of profit or loss in the period when incurred.
Trade and Other Payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities.
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
Lease liabilities
Liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:
|
· |
fixed payments (including in-substance fixed payments), less any lease incentives receivable, |
|
· |
variable lease payments that are based on an index or a rate, initially measured using the index or rate as at the commencement date, |
|
· |
the exercise price of a purchase option if the Group is reasonably certain to exercise that option, and |
|
· |
payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option. |
Extension and termination options are included in a number of property and equipment leases across the Group. These terms are used to maximise operational flexibility in terms of managing contracts. Extension options (or period after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated). Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability.
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases of the Group, the Group's incremental borrowing rate is used, being the rate that the Group would have to pay to borrow the funds necessary to obtain an asset of similar value in a similar economic environment with similar terms and conditions.
To determine the incremental borrowing rate, the Group:
|
· |
where possible, uses recent third-party financing received by the individual lessee as a starting point, adjusted to reflect changes in financing conditions since third party financing was received, |
|
· |
uses a build-up approach that starts with a risk-free interest rate adjusted for credit risk, and |
|
· |
makes adjustments specific to the lease, e.g. term, country, currency and collateral. |
The Group is exposed to potential future increases in variable lease payments based on an index or rate, which are not included in the lease liability until they take effect. When adjustments to lease payments based on an index or rate take effect, the lease liability is reassessed and adjusted against the right-of-use asset.
Lease payments are allocated between principal and finance costs. The finance costs are charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.
Payments associated with short-term leases and all leases of low-value assets under $5,000 are recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease term of 12 months or less.
Equity Instruments
Ordinary shares are classified as equity. Equity instruments issued by the Company and the Group are recorded at the proceeds received, net of direct issue costs. Any excess of the fair value of consideration received over the par value of shares issued is recorded as share premium in equity.
Cash and Cash Equivalents
Cash and cash equivalents comprise cash on hand and deposits held at call with banks and other short-term highly liquid investments which are readily convertible to a known amount of cash with insignificant risk of change in value. Cash and cash equivalents are carried at amortised cost. Interest income that relates to cash and cash equivalents on current and deposit accounts is disclosed within operating cash flow.
Other short-term investments
Other short-term investments include current accounts and deposits held at banks, which do not meet the cash and cash equivalents definition. Current accounts and deposits held at banks, which do not meet the cash and cash equivalents definition are measured initially at fair value and subsequently carried at amortised cost using the effective interest method. Interest received on other short-term investments is disclosed within operating cash flow.
Interest income
Interest income is recognised as it accrues, taking into account the effective yield on the asset. Interest income on current bank accounts and on demand deposits or term deposits with the maturity less than three months recognised as part of cash and cash equivalents is recognised as other operating income. Interest income on term deposits other than those classified as cash and cash equivalents is recognised as finance income.
4. |
Significant Accounting Judgements and Estimates |
The Group makes estimates and judgements concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and judgements which have a risk of causing material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
Depreciation of Oil and Gas Development and Production Assets
Development and production assets held in property, plant and equipment are depreciated on a unit of production basis at a rate calculated by reference to proved and probable reserves at the end of the period plus the production in the period, and incorporating the estimated future cost of developing and extracting those reserves. Future development costs are estimated using estimates about the number of wells required to produce those reserves, the cost of the wells, future production facilities and operating costs, together with assumptions on oil and gas realisations, and are revised annually. The reserves estimates used are determined using estimates of gas in place, recovery factors, future hydrocarbon prices and also take into consideration the Group's latest development plan for the associated development and production asset. The latest development plan and therefore the inputs used to determine the depreciation charge for the MEX-GOL, SV and VAS fields continue until the end of the economic life of the fields, which is assessed to be 2038, 2042 and 2028 respectively, based on the assessment contained in the DeGolyer & MacNaughton reserves report for these fields. The licences for the MEX-GOL and SV fields have recently been extended until 2044. Were the estimated reserves at the beginning of the year to differ by 10% from previous assumptions, the impact on depreciation for the year ended 31 December 2022 would be to increase it by $1,394,000 or decrease it by $626,000 (2021: increase by $1,195,000 or decrease by $975,000).
Provision for Decommissioning
The Group has decommissioning obligations in respect of its Ukrainian assets. The full extent to which the provision is required depends on the legal requirements at the time of decommissioning, the costs and timing of any decommissioning works and the discount rate applied to such costs.
A detailed assessment of gross decommissioning cost was undertaken on a well-by-well basis using local data on day rates and equipment costs. The discount rate applied on the decommissioning cost provision as at 31 December 2022 was 4.76% (31 December 2021: 6.29%). The discount rate is calculated in real terms based on the yield to maturity of Ukrainian Government bonds denominated in the currency in which the liability is expected to be settled and with the settlement date that approximates the timing of settlement of decommissioning obligations. Increase of the discount rate applied is caused by the growth of the Ukrainian risk-free rate.
The change in estimate applied to calculate the provision as at 31 December 2022 resulted from the revision of the estimated costs of decommissioning (increase of $1,477,000 in provision), an increase in the discount rate applied (increase of $1,020,000 in provision). The costs are expected to be incurred by 2038 on the MEX-GOL field, by 2042 on the SV field, and by 2028 on the VAS field, which is the end of the estimated economic life of the respective fields (Note 25).
Net Carrying Amount of Inter-Company Loans Receivable and Investments by the Company into a Subsidiary
The Company has certain inter-company loans receivable from a subsidiary, which are eliminated on consolidation. For the purpose of the Company's financial statements, these receivable balances are carried at amortised cost using the effective interest method, less credit loss allowance. Measurement of lifetime expected credit losses on inter-company loans is a significant judgment that involves models and data inputs including forward-looking information, current conditions and forecasts of future conditions impacting the estimated future cash flows that are expected to be recovered, time value of money, etc. In previous years, significant impairment charges were recorded against the carrying amount of the loans issued to subsidiaries as the present value of estimated future cash flows discounted at the original effective interest rate was less than the carrying amount of the loans, and the resulting impairment losses were recognised in profit or loss in the Company's financial statements.
For the purpose of assessment of the credit loss allowance as at 31 December 2022, the Company considered all reasonable and supportable forward-looking information available as at that date without undue cost and effort, which includes a range of factors, such as estimated future net cash flows to be generated by the subsidiaries operating in
The key assumptions used in the discounted cash flow model are:
|
· |
production levels for a period of five years assumed to be: at the level of 6.9 MMboe for the MEX-GOL and SV fields and zero for the period of suspension of the VAS field and SC licence area;
|
|
· |
reserves at the beginning of 2023 at the MEX-GOL and SV fields of 31.9 MMboe, at the VAS field of 1.2 MMboe and at the SC licence area of 10.8 MMboe;
|
|
· |
commodity prices - the model assumes gas prices of $464/Mm3 in 2023, $581/Mm3 in 2024, decreasing to $509/Mm3 in 2025, $450/Mm3 in 2026 and $300/Mm3 in subsequent years;
|
|
· |
discount rate applied is 11.66%, determined in real terms;
|
|
· |
production taxes applicable to gas production at variable rates under relevant legislation;
|
|
· |
capital expenditure allowance for maintenance and development of: MEX-GOL and SV fields at the level of $750,000 per year, VAS field at the level of $250,000 per year and SC licence area at the level of $100,000 per year;
|
|
· |
future capital expenditures for a period of five years assumed to be: for the MEX-GOL and SV fields at the level of $170,500,000, VAS field at the level of $200,000 and SC licence area at the level of $0;
|
|
· |
life of field for the purpose of the assessment of loans - cash flows were taken for a period of five years as management believes there is no reasonably available information to build reliable expectations and demonstrate the ability to settle the loans over a longer perspective;
|
|
· |
life of field for the purpose of the assessment of investments - cash flows were taken for a period of the full economic life of the respective CGUs. |
The resulting amount, net of the carrying value of the Company's investments in subsidiaries and loans, was compared to the discounted cash flows and net financial assets of the subsidiaries as at 31 December 2022. As such, the Company has recorded $9,942,000 of loss, being the net change in the expected credit losses for loans issued to and investments in subsidiaries in the Company's statement of profit or loss for the year ended 31 December 2022.
As with any economic forecast, the projections and likelihoods of occurrence are subject to a high degree of inherent uncertainty, and therefore the actual outcomes may be significantly different to those projected. The Company considers these forecasts to represent its best estimate of the possible outcomes.
5. |
Segmental Information |
In line with the Group's internal reporting framework and management structure, the key strategic and operating decisions are made by the Board of Directors, who review internal monthly management reports, budget and forecast information as part of this process. Accordingly, the Board of Directors is deemed to be the Chief Operating Decision Maker within the Group.
The Group's only class of business activity is oil and gas exploration, development and production. The Group's operations are located in
|
|
|
|
Total |
|
|
2022 |
2022 |
2022 |
|
|
$000 |
$000 |
$000 |
|
|
|
|
|
|
Revenue |
|
|
|
|
Gas sales |
109,461 |
- |
109,461 |
|
Condensate sales |
12,744 |
- |
12,744 |
|
Liquefied Petroleum Gas sales |
11,175 |
- |
11,175 |
|
Total revenue |
133,380 |
- |
133,380 |
|
|
|
|
|
|
Segment result |
84,750 |
(1,140) |
83,610 |
|
Depreciation and amortisation of non-current assets |
(7,837) |
- |
(7,837) |
|
Operating profit |
|
|
75,773 |
|
|
|
|
|
|
Segment assets |
158,982 |
82,752 |
241,734 |
|
|
|
|
|
|
Capital additions* |
19,807 |
- |
19,807 |
*Comprises additions to property, plant and equipment (Note 17)
There are no inter-segment sales within the Group and all products are sold in the geographical region in which they are produced. The Group is not significantly impacted by seasonality. Revenue is recognised at a point in time.
During 2022, the Group was selling all of its gas production to its related party, LLC Smart Energy ("Smart Energy"). Smart Energy has oil and gas operations in
|
|
|
|
Total |
|
|
2021 |
2021 |
2021 |
|
|
$000 |
$000 |
$000 |
|
|
|
|
|
|
Revenue |
|
|
|
|
Gas sales |
95,813 |
- |
95,813 |
|
Condensate sales |
19,260 |
- |
19,260 |
|
Liquefied Petroleum Gas sales |
6,280 |
- |
6,280 |
|
Total revenue |
121,353 |
- |
121,353 |
|
|
|
|
|
|
Segment result |
81,025 |
(2,832) |
78,193 |
|
Depreciation and amortisation of non-current assets |
(11,958) |
- |
(11,958) |
|
Operating profit |
|
|
66,235 |
|
|
|
|
|
|
Segment assets |
144,941 |
63,649 |
208,590 |
|
|
|
|
|
|
Capital additions* |
32,577 |
- |
32,577 |
*Comprises additions to property, plant and equipment (Note 17)
6. |
Cost of Sales |
|
|
2022 |
2021 |
|
|
$000 |
$000 |
|
|
|
|
|
Production taxes |
25,271 |
19,926 |
|
Depreciation of property, plant and equipment |
6,684 |
10,669 |
|
Rent expenses (Note 19) |
8,468 |
8,811 |
|
Staff costs (Note 9) |
2,149 |
2,886 |
|
Cost of inventories recognised as an expense |
1,510 |
1,708 |
|
Transmission tariff for Ukrainian gas system |
493 |
880 |
|
Amortisation of mineral reserves (Note 18) |
411 |
482 |
|
Other expenses |
2,471 |
2,060 |
|
|
47,457 |
47,422 |
A transmission tariff for use of the Ukrainian gas transit system of UAH101.93/Mm3 of gas was applicable to the Group (2021: UAH101.93/Mm3).
7. |
Administrative Expenses |
|
|
2022 |
2021 |
|
|
$000 |
$000 |
|
|
|
|
|
Staff costs (Note 9) |
4,105 |
5,019 |
|
Consultancy fees |
906 |
923 |
|
Depreciation of other fixed assets |
297 |
572 |
|
Auditors' remuneration |
326 |
352 |
|
Amortisation of other intangible assets |
169 |
235 |
|
Rent expenses |
248 |
160 |
|
Other expenses |
779 |
1,089 |
|
|
6,830 |
8,350 |
|
|
|
|
|
Auditors Remuneration |
|
|
|
|
|
|
|
PricewaterhouseCoopers LLP |
|
|
|
|
2022 |
2021 |
|
|
$000 |
$000 |
|
|
|
|
|
Audit of the Company and subsidiaries |
37 |
141 |
|
Audit of subsidiaries in |
10 |
124 |
|
Audit related assurances services - interim review |
- |
48 |
|
Total assurance services |
47 |
313 |
|
|
|
|
|
Tax compliance services |
- |
26 |
|
Tax advisory services |
3 |
13 |
|
Total non-audit services |
3 |
39 |
|
|
|
|
|
Total audit and other services |
50 |
352 |
|
|
|
|
|
|
|
|
|
Zenith Audit Ltd |
|
|
|
|
2022 |
2021 |
|
|
$000 |
$000 |
|
|
|
|
|
Audit of the Company and subsidiaries |
139 |
- |
|
Audit of subsidiaries in |
- |
- |
|
Audit related assurances services - interim review |
- |
- |
|
Total assurance services |
- |
- |
|
|
|
|
|
Tax compliance services |
- |
- |
|
Tax advisory services |
- |
- |
|
Total non-audit services |
- |
- |
|
|
|
|
|
Total audit and other services |
139 |
- |
8. |
Remuneration of Directors |
|
|
2022 |
2021 |
|
|
$000 |
$000 |
|
|
|
|
|
Directors' emoluments |
1,325 |
1,115 |
The emoluments of the individual Directors were as follows:
|
|
Total Emoluments |
Total emoluments |
|
|
2022 |
2021 |
|
|
$000 |
$000 |
|
Executive Directors: |
|
|
|
Sergii Glazunov |
473 |
307 |
|
Bruce Burrows |
546 |
484 |
|
|
|
|
|
Non-executive Directors: |
|
|
|
Chris Hopkinson |
124 |
138 |
|
Alexey Pertin |
56 |
62 |
|
Yuliia Kirianova |
56 |
62 |
|
Dmitry Sazonenko |
50 |
62 |
|
Dr Gehrig Schultz* |
20 |
- |
|
|
1,325 |
1,115 |
*appointed 24 August 2022
The emoluments include base salary, bonuses and fees. According to the Register of Directors' Interests, no rights to subscribe for shares in or debentures of any Group companies were granted to any of the Directors or their immediate families during the financial year, and there were no outstanding options to Directors.
9. |
Staff Numbers and Costs |
The average monthly number of employees during the year (including Executive Directors) and the aggregate staff costs of such employees were as follows:
|
|
Number of employees |
|
|
|
|
|
|
|
2022 |
2021 |
|
Group |
|
|
|
Management / operational |
166 |
171 |
|
Administrative support |
81 |
92 |
|
|
247 |
263 |
The prior year comparative numbers of employees were amended to conform to the current year presentation. The number of employees includes full-time and part-time employees.
|
|
2022 |
2021 |
|
|
$000 |
$000 |
|
|
|
|
|
Wages and salaries |
5,729 |
6,785 |
|
Other pension costs |
816 |
1,007 |
|
Social security costs |
90 |
113 |
|
|
6,635 |
7,905 |
10. |
Other Operating (Losses)/Gains, (net) |
|
|
2022 |
2021 |
|
|
$000 |
$000 |
|
|
|
|
|
Interest income on cash and cash equivalents |
1,888 |
763 |
|
Contractor penalties applied |
114 |
81 |
|
Gain on sales of current assets |
20 |
16 |
|
Impairment of property, plant and equipment (Note 17) |
(4,257) |
- |
|
Other operating (loss)/income, net |
(1,085) |
(206) |
|
|
(3,320) |
654 |
11. |
Finance Income |
|
|
2022 |
2021 |
|
|
$000 |
$000 |
|
|
|
|
|
Financial instrument: unwinding of discount |
1,126 |
- |
|
Foreign exchange gains less losses |
- |
1,394 |
|
|
1,126 |
1,394 |
12. |
Finance Costs |
|
|
2022 |
2021 |
|
|
$000 |
$000 |
|
|
|
|
|
Unwinding of discount on financial liabilities |
996 |
333 |
|
Unwinding of discount on provision for decommissioning (Note 25) |
293 |
250 |
|
Interest expense on lease liabilities |
121 |
169 |
|
|
1,410 |
752 |
13. |
Other Losses, (net) |
|
|
2022 |
2021 |
|
|
$000 |
$000 |
|
|
|
|
|
Charitable donations |
6,534 |
76 |
|
Foreign exchange (gains)/losses |
(4,843) |
53 |
|
Other losses/(gains), net |
47 |
(21) |
|
|
1,738 |
108 |
Charitable donations for the year ended 31 December 2022 comprise humanitarian aid in for population and armed forces of
14. |
Income Tax Expense |
|
a) |
Income tax expense and (benefit): |
|
|||
|
|
|
|
|||
|
|
|
|
2022 |
2021 |
|
|
|
|
|
$000 |
$000 |
|
|
Current tax |
|
|
|
|
|
|
|
|
|
54 |
165 |
|
|
|
|
|
- |
10 |
|
|
Overseas - current year |
|
|
14,263 |
13,130 |
|
|
Overseas - prior year |
|
|
- |
- |
|
|
|
|
|
|
|
|
|
Deferred tax (Note 26) |
|
|
|
|
|
|
|
|
|
1,852 |
2,367 |
|
|
|
|
|
(3,021) |
- |
|
|
Overseas - current year |
|
|
(24) |
(199) |
|
|
Income tax expense |
|
|
13,124 |
15,473 |
|
|
b) |
Factors affecting tax charge for the year: |
The tax assessed for the year is different from the corporation tax in the
|
|
|
|
|
|
2022 |
2021 |
|
|
$000 |
$000 |
|
|
|
|
|
Profit before taxation |
73,307 |
66,592 |
|
Tax charge at |
13,928 |
12,652 |
|
|
|
|
|
Tax effects of: |
|
|
|
Lower foreign corporate tax rates in |
(699) |
(685) |
|
Change in |
- |
1,168 |
|
Disallowed expenses and non-taxable income |
6,708 |
12,038 |
|
Previously unrecognised tax losses used to reduce income tax expense |
(3,792) |
(9,875) |
|
Adjustments in respect of prior periods |
(3,021) |
175 |
|
Total tax expense for the year |
13,124 |
15,473 |
The tax effect of disallowed expenses and non-taxable income are mainly represented by foreign exchange differences of Regal Petroleum Corporation (
The tax effect of losses not recognised as deferred tax assets are mainly represented by accumulated losses of Regal Petroleum Corporation (
15. |
Loss/Profit for the Year |
The Company has taken advantage of the exemption allowed under section 408 of the Companies Act 2006 and has not presented its own Income Statement in these financial statements. The Parent Company loss after tax was $6,358,000 for the year ended 31 December 2022 (2021: profit after tax $16,330,000).
16. |
Earnings per Share |
The calculation of basic earnings per ordinary share has been based on the profit for the year and 320,637,836 (2021: 320,637,836) ordinary shares, being the weighted average number of shares in issue for the year. There are no dilutive instruments.
17. |
Property, Plant and Equipment |
|
|
2022
|
|
2021 |
|||||||
|
|
Oil and Gas Development and Production assets |
Oil and Gas Exploration and Evaluation Assets |
Other fixed assets |
Total |
Oil and Gas Development and Production assets |
Oil and Gas Exploration and Evaluation Assets |
Other fixed assets |
Total |
||
|
Group |
$000 |
$000 |
$000 |
$000 |
$000 |
$000 |
$000 |
$000 |
||
|
|
|
|
|
|
|
|
|
|
||
|
Cost |
|
|
|
|
|
|
|
|
||
|
At the beginning of the year |
163,170 |
10,110 |
2,631 |
175,911 |
135,966 |
2,362 |
2,217 |
140,545 |
||
|
Additions |
12,872 |
6,549 |
386 |
19,807 |
24,289 |
7,763 |
524 |
32,576 |
||
|
Change in decommissioning provision |
2,596 |
38 |
- |
2,634 |
(1,921) |
70 |
- |
(1,851) |
||
|
Disposals |
(200) |
(18) |
(356) |
(574) |
(62) |
- |
(187) |
(249) |
||
|
Exchange differences |
(43,183) |
(3,586) |
(693) |
(47,462) |
4,898 |
(85) |
77 |
4,890 |
||
|
At the end of the year |
135,255 |
13,093 |
1,968 |
150,316 |
163,170 |
10,110 |
2,631 |
175,911 |
||
|
|
|
|
|
|
|
|
|
|
||
|
Accumulated depreciation and impairment |
|
|
|
|
|
|
|
|||
|
At the beginning of the year |
87,070 |
- |
1,423 |
88,493 |
73,816 |
- |
1,067 |
74,883 |
||
|
Charge for year |
6,906 |
- |
301 |
7,207 |
10,544 |
- |
343 |
10,887 |
||
|
Disposals |
(75) |
- |
(57) |
(132) |
(25) |
- |
(28) |
(53) |
||
|
Impairment charged |
2,361 |
1,896 |
|
4,257 |
|
|
|
|
||
|
Exchange differences |
(23,154) |
(219) |
(392) |
(23,765) |
2,735 |
- |
41 |
2,776 |
||
|
At the end of the year |
73,108 |
1,677 |
1,275 |
76,060 |
87,070 |
- |
1,423 |
88,493 |
||
|
Net book value at the beginning of the year |
76,100 |
10,110 |
1,208 |
87,418 |
62,150 |
2,362 |
1,150 |
65,662 |
||
|
Net book value at the end of the year |
62,147 |
11,416 |
693 |
74,256 |
76,100 |
10,110 |
1,208 |
87,418 |
||
MEX-GOL, SV, SC and VAS gas and condensate fields
In accordance with the Group's accounting policies, oil and gas development and producing assets are tested for an impairment loss at each balance sheet date. In assessing whether an impairment loss has occurred, the carrying amount of the asset is compared to its recoverable amount, which IAS 36 defines as the higher of fair value less cost to sell and value in use. Management does not believe it possible to measure fair value reliably, due to both the absence of an active market in which to sell the asset and the current political and economic climate in
Due to the suspension of the VAS and SC licences for five years, zero production was attributed for this period in the DCF models.
This resulted in the recognition of an impairment loss for the VAS assets of $4,256,000 (2012: $nil), to match the carrying value of the asset to its recoverable value, based on the revised estimate of value in use.
The calculation of value in use is most sensitive to the following assumptions:
|
· |
production levels and reserves at the beginning of 2023 at the MEX-GOL and SV fields of 31.9 MMboe, at the VAS field of 1.2 MMboe and at the SC licence area of 10.8 MMboe with zero production for the period of suspension of the VAS and SC licences; |
|
· |
commodity prices - the model assumes gas prices of $464/Mm3 in 2023, $581/Mm3 in 2024, decreasing to $509/Mm3 in 2025, $450/Mm3 in 2026 and $300/Mm3 in subsequent years; |
|
· |
discount rate applied is 11.66%, determined in real terms; |
|
· |
production taxes applicable to gas production at variable rates under relevant legislation; |
|
· |
capital expenditure allowance for maintenance and development of: MEX-GOL and SV fields at the level of $750,000 per year, VAS field at the level of $250,000 per year and SC licence area at the level of $100,000 per year; |
|
· |
future capital expenditures for a period of five years assumed to be: for the MEX-GOL and SV fields at the level of $245,700,000, VAS field at the level of $14,800,000 and SC licence area at the level of $116,700,000; |
|
· |
life of field for the purpose of the assessment of investments - cash flows were taken for a period of the full economic life of the respective CGUs (Note 4). |
18. |
Intangible Assets |
|
|
|
2022
|
|
2021 |
||||||
|
|
Mineral reserve rights |
Exploration and evaluation intangible assets |
Other intangible assets |
Total |
Mineral reserve rights |
Exploration and evaluation intangible assets |
Other intangible assets |
Total |
||
|
Group |
$000 |
$000 |
$000 |
$000 |
$000 |
$000 |
$000 |
$000 |
||
|
|
|
|
|
|
|
|
|
|
||
|
Cost |
|
|
|
|
|
|
|
|
||
|
At the beginning of the year |
6,810 |
8,651 |
752 |
16,213 |
6,570 |
8,286 |
616 |
15,472 |
||
|
Additions |
- |
- |
322 |
322 |
- |
143 |
324 |
467 |
||
|
Disposals |
- |
- |
(27) |
(27) |
- |
(80) |
(212) |
(292) |
||
|
Exchange differences |
(1,730) |
(2,218) |
(187) |
(4,135) |
240 |
302 |
24 |
566 |
||
|
At the end of the year |
5,080 |
6,433 |
860 |
12,373 |
6,810 |
8,651 |
752 |
16,213 |
||
|
|
|
|
|
|
|
|
|
|
||
|
Accumulated amortisation |
|
|
|
|
|
|
|
|||
|
At the beginning of the year |
3,439 |
- |
434 |
3,873 |
2,855 |
- |
385 |
3,240 |
||
|
Charge for year |
411 |
- |
182 |
593 |
482 |
- |
239 |
721 |
||
|
Disposals |
- |
- |
(27) |
(27) |
- |
- |
(212) |
(212) |
||
|
Exchange differences |
(925) |
- |
(135) |
(1,060) |
102 |
- |
22 |
124 |
||
|
At the end of the year |
2,925 |
- |
454 |
3,379 |
3,439 |
- |
434 |
3,873 |
||
|
Net book value at the beginning of the year |
3,371 |
8,651 |
318 |
12,340 |
3,715 |
8,286 |
231 |
12,232 |
||
|
Net book value at the end of the year |
2,155 |
6,433 |
406 |
8,994 |
3,371 |
8,651 |
318 |
12,340 |
||
|
|
|
|
|
|
|
|
|
|||
Intangible assets consist mainly of the hydrocarbon production licence relating to the VAS field which is held by one of the Group's subsidiaries, LLC Prom-Enerho Produkt, and a hydrocarbon exploration licence relating to the Svystunivsko-Chervonolutskyi ("SC") area which is held by LLC Arkona Gas-Energy. The Group amortises the hydrocarbon production licence relating to the VAS field using the straight-line method over the term of the economic life of the VAS field until 2028. The hydrocarbon exploration licence relating to the SC area is not amortised due to it being in an exploration and evaluation stage.
In accordance with the Group's accounting policies, intangible assets are tested for impairment at each balance sheet date as part of the impairment testing of the Group's oil and gas development and production assets if impairment indicators exist. As at 31 December 2022, intangible assets were tested for an impairment loss, however no loss was recognised in the period.
19. |
Right-of-use Assets |
This note provides information for right-of-use assets and leases obligations where the Group is a lessee.
Amount recognised in the balance sheet:
|
|
|
|
|
|
2022 |
2021 |
|
|
$000 |
$000 |
|
Right-of-use assets |
|
|
|
Properties |
150 |
627 |
|
Land |
170 |
242 |
|
Wells |
44 |
139 |
|
|
364 |
1,008 |
|
|
|
|
|
|
2022 |
2021 |
|
|
$000 |
$000 |
|
Lease liabilities |
|
|
|
Current |
229 |
455 |
|
Non-current |
258 |
648 |
|
|
487 |
1,103 |
After modification and due to termination of contracts disposals to the right-of-use assets during the 2022 financial year were $271,000 (2021: additions to the right-of-use assets after modification were $820,000).
Amounts recognised in the statement of profit or loss:
|
|
|
|
|
|
2022 |
2021 |
|
|
$000 |
$000 |
|
Depreciation charge |
|
|
|
Properties |
(237) |
(311) |
|
Land |
(14) |
(15) |
|
Wells |
(5) |
(34) |
|
|
(256) |
(360) |
|
|
|
|
|
Interest expense (included in finance cost) |
(121) |
(169) |
|
Expense relating to short-term leases (included in cost of sales and administrative expenses) |
(228) |
(142) |
|
Expense relating to variable lease payments not included in lease liabilities (included in cost of sales) |
(8,430) |
(8,765) |
|
Expense relating to lease payments for land under wells not included in lease liabilities (included in cost of sales) |
(38) |
(64) |
The total cash outflow for leases in 2022 was $12,464,000 (2021: $10,217,000).
20. |
Investments and Loans to Subsidiary Undertakings |
|
|
Shares in subsidiary undertakings |
Loans to subsidiary undertakings |
Total |
|
|
$000 |
$000 |
$000 |
|
Company |
|
|
|
|
As at 1 January 2021 |
35,287 |
62,828 |
98,115 |
|
Additions including accrued interest |
- |
15,447 |
15,447 |
|
Disposal of shares in subsidiary |
(3,322) |
- |
(3,322) |
|
Accumulated impairment on disposal of shares in subsidiary |
3,322 |
- |
3,322 |
|
Repayment of interest and loans |
- |
(32,132) |
(32,132) |
|
Reversal of impairment |
3,240 |
7,672 |
10,912 |
|
Exchange differences |
- |
(4,916) |
(4,916) |
|
As at 31 December 2021 |
38,527 |
48,899 |
87,426 |
|
Additions including accrued interest |
3 |
6,740 |
6,743 |
|
Repayment of interest and loans |
- |
(1,077) |
(1,077) |
|
Impairment |
(7,826) |
(2,116) |
(9,942) |
|
Exchange differences |
- |
(2,472) |
(2,472) |
|
As at 31 December 2022 |
30,704 |
49,974 |
80,678 |
The Company has recorded a loss of $2,116,000, being the net change in expected credit losses for loans issued to subsidiaries in the Company's statement of profit or loss for the year ended 31 December 2022 (Note 4). The Company also recorded a loss of $7,826,000, being the net change in credit loss allowance for shares in subsidiary undertakings.
The Company's discounted cash flow model used for the assessment of the investments recoverability, flexed for sensitivities, produced the following results:
|
|
31 December 2022 |
31 December 2021 |
|
|
$000 |
$000 |
|
|
|
|
|
Discount rate (increase)/decrease by 1% |
(247)/220 |
(641)/676 |
|
Change in gas price increase/(decrease) by 10% |
1,664/(1,647) |
3,388/(3,411) |
The table presented below discloses the changes in the gross carrying amount and credit loss allowance between the beginning and the end of the reporting period for loans to subsidiary undertakings carried at amortised cost and classified within a three-stage model for impairment assessment as at 31 December 2022:
|
|
Credit loss allowance |
Gross carrying amount |
|
|||||||
|
|
Stage 1 |
Stage 2 |
Stage 3 |
Total |
Stage 1 |
Stage 2 |
Stage 3 |
Total |
|
|
|
|
(12-months ECL) |
(lifetime ECL for SICR) |
(lifetime ECL for credit impaired) |
|
(12-months ECL) |
(lifetime ECL for SICR) |
(lifetime ECL for credit impaired) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$000 |
$000 |
$000 |
$000 |
$000 |
$000 |
$000 |
$000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at 1 January 2022 |
(637) |
- |
(16,044) |
(16,681) |
12,276 |
- |
53,304 |
65,580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Movements with impact on credit loss allowance charge for the year: |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Modification of loans |
- |
- |
(876) |
(876) |
- |
- |
876 |
876 |
|
|
|
Additions including accrued interest |
- |
- |
- |
- |
4,958 |
- |
1,782 |
6,740 |
|
|
|
Payment of interest |
- |
- |
- |
- |
- |
- |
(1,077) |
(1,077) |
|
|
|
Repayment of loans |
- |
- |
- |
- |
- |
- |
- |
- |
|
|
|
Exchange difference |
- |
- |
120 |
120 |
- |
- |
(2,592) |
(2,592) |
|
|
|
Changes to ECL measurement model assumptions |
(1,085) |
- |
(1,031) |
(2,116) |
- |
- |
- |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total movements with impact on credit loss allowance charge for the year |
(1,085) |
- |
(1,787) |
(2,872) |
4,958 |
- |
(1,011) |
3,947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at 31 December 2022 |
(1,722) |
- |
(17,831) |
(19,553) |
17,234 |
- |
52,293 |
69,527 |
|
|
ECL - Expected credit losses
SICR - Significant increase in credit risk
The table presented below discloses the changes in the gross carrying amount and credit loss allowance between the beginning and the end of the reporting period for loans to subsidiary undertakings carried at amortised cost and classified within a three-stage model for impairment assessment as at 31 December 2021:
|
|
Credit loss allowance |
Gross carrying amount |
|
|||||||
|
|
Stage 1 |
Stage 2 |
Stage 3 |
Total |
Stage 1 |
Stage 2 |
Stage 3 |
Total |
|
|
|
|
(12-months ECL) |
(lifetime ECL for SICR) |
(lifetime ECL for credit impaired) |
(12-months ECL) |
(lifetime ECL for SICR) |
(lifetime ECL for credit impaired) |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$000 |
$000 |
$000 |
$000 |
$000 |
$000 |
$000 |
$000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at 1 January 2021 |
- |
- |
(20,375) |
(20,375) |
- |
- |
83,203 |
83,203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Movements with impact on credit loss allowance charge for the year: |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
Modification of loans |
- |
- |
(5,378) |
(5,378) |
- |
- |
5,378 |
5,378 |
|
|
|
Additions including accrued interest |
- |
- |
- |
- |
12,276 |
- |
3,171 |
15,447 |
|
|
|
Payment of interest |
- |
- |
- |
- |
- |
- |
(3,134) |
(3,134) |
|
|
|
Repayment of loans |
- |
- |
- |
- |
- |
- |
(28,998) |
(28,998) |
|
|
|
Exchange difference |
- |
- |
1,400 |
1,400 |
- |
- |
(6,316) |
(6,316) |
|
|
|
Changes to ECL measurement model assumptions |
(637) |
- |
8,309 |
7,672 |
- |
- |
- |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total movements with impact on credit loss allowance charge for the year |
(637) |
- |
4,331 |
3,694 |
12,276 |
- |
(29,899) |
(17,623) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at 31 December 2021 |
(637) |
- |
(16,044) |
(16,681) |
12,276 |
- |
53,304 |
65,580 |
|
|
ECL - Expected credit losses
SICR - Significant increase in credit risk
Subsidiary undertakings
As at 31 December 2022 and 2021, the Company's subsidiary undertakings, all of which are included in the consolidated financial statements, were:
|
|
Registered address |
Country of incorporation |
Country of operation |
Principal activity |
% of shares held |
|
|
|
|
|
|
|
31 December 2022 |
31 December 2021 |
|
|
|
|
|
|
|
|
|
Regal Petroleum Corporation Limited |
3rd Floor, Charter Place, 23-27 Seaton Place, St Helier, Jersey, JE4 0WH |
Jersey |
|
Oil & Natural Gas Extraction |
100% |
100% |
|
|
|
|
|
|
|
|
|
Regal Petroleum Corporation Limited (Branch Office) |
162 Shevchenko Str., Yakhnyky Village, Lokhvytsya District, Poltava Region, 37212 |
|
|
Oil & Natural Gas Extraction |
|
|
|
|
|
|
|
|
|
|
|
LLC Arkona Gas-Energy |
162 Shevchenko Str., Yakhnyky Village, Lokhvytsya District, Poltava Region, 37212 |
|
|
Exploration and Evaluation for Oil and Natural Gas |
100% |
100% |
|
|
|
|
|
|
|
|
|
LLC Regal Petroleum Corporation ( |
162 Shevchenko Str., Yakhnyky Village, Lokhvytsya District, Poltava Region, 37212 |
|
|
Holding Company |
100% |
100% |
|
|
|
|
|
|
|
|
|
LLC Prom-Enerho Produkt |
3 Klemanska Str., |
|
|
Oil & Natural Gas Extraction |
100% |
100% |
|
|
|
|
|
|
|
|
|
Well Investum LLC |
58 Yaroslavska str., |
|
|
Dormant Company |
100% |
- |
|
|
|
|
|
|
|
|
|
*Regal Group Services Limited |
16 Old Queen Street, |
|
|
Service Company |
100% |
100% |
|
|
|
|
|
|
|
|
|
*Regal Petroleum (Jersey) Limited |
3rd Floor, Charter Place, 23-27 Seaton Place, St Helier, Jersey, JE4 0WH |
Jersey |
|
Holding Company |
- |
100% |
|
|
|
|
|
|
|
|
*Regal Petroleum (Jersey) Limited was dissolved on 11 November 2022, and Regal Group Services Limited was dissolved on 21 February 2023.
The Parent Company, Enwell Energy plc, holds direct interests in 100% of the share capital of Regal Petroleum Corporation Limited, Regal Petroleum Corporation (
21. |
Inventories |
|
|
Group |
||
|
|
2022 |
2021 |
|
|
|
$000 |
$000 |
|
|
Current |
|
|
|
|
Materials and spare parts |
1,914 |
1,705 |
|
|
Finished goods |
1,444 |
157 |
|
|
|
3,358 |
1,862 |
|
Inventories consist of materials, spare parts and finished goods. Materials and spare parts are represented by spare parts that were not assigned to any new wells, production raw materials and fuel at the storage facility. Finished goods consist of produced gas held in underground gas storage facilities and condensate and LPG held at the processing facility prior to sale.
As at 31 December 2022 allowances for impairment of materials and spare parts amounted to $705,000 (31 December 2021: $965,000).
All inventories are measured at the lower of cost or net realisable value. There was no write down of inventory as at 31 December 2022 or 2021.
22. |
Trade and Other Receivables |
|
|
Group |
Company |
||
|
|
2022 |
2021 |
2022 |
2021 |
|
|
$000 |
$000 |
$000 |
$000 |
|
|
|
|
|
|
|
Trade receivables |
46,188 |
5,308 |
- |
- |
|
Other financial receivables |
284 |
200 |
285 |
196 |
|
Financial aids |
11,316 |
- |
- |
- |
|
Less credit loss allowance |
(433) |
(140) |
- |
- |
|
Total financial receivables |
57,355 |
5,368 |
285 |
196 |
|
|
|
|
|
|
|
Prepayments and accrued income |
4,509 |
298 |
249 |
28 |
|
Other receivables |
2,574 |
2,460 |
81 |
75 |
|
Total trade and other receivables |
60,438 |
8,126 |
615 |
299 |
Due to the short-term nature of the trade and other receivables, their carrying amount is assumed to be the same as their fair value. All trade and other financial receivables, except those provided for, are considered to be of high credit quality.
As at 31 December 2022, the Group's total trade receivables, net of expected credit losses amounted to $46,033,000 and 100% were denominated in Ukrainian Hryvnia (31 December 2021: $5,169,000 and 100% were denominated in Ukrainian Hryvnia). Further description of financial receivables is disclosed in Note 30.
The majority of the trade receivables were from a related party, LLC Smart Energy, that purchased all of the Group's gas production (see Note 5). The applicable payment terms, which were revised in the period, are payment for 35% of the monthly volume of gas by the 15th of the month following the month of delivery, and payment of the remaining balance by the end of that month. This arrangement was terminated subsequent to the year end.
Analysis by credit quality of financial trade and other receivables and expected credit loss allowance as at 31 December 2022 is as follows:
|
|
Loss rate |
Gross carrying amount |
Life-time ECL |
Carrying amount |
Basis |
|
|
|
$000 |
$000 |
$000 |
|
|
|
|
|
|
|
|
|
Trade receivables from related parties |
9,99% |
46,003 |
(126) |
45,877 |
financial position of related party |
|
|
|
|
|
|
|
|
Trade receivables - -credit impaired |
100% |
98 |
(98) |
- |
number of days the asset past due |
|
|
|
|
|
|
|
|
Trade receivables - other |
9.99% |
87 |
(1) |
86 |
historical credit losses experienced |
|
|
|
|
|
|
|
|
Other financial receivables |
9.99% |
284 |
(25) |
259 |
individual default rates |
|
|
|
|
|
|
|
|
Financial aids |
|
11,316 |
(183) |
11,133 |
|
|
|
|
|
|
|
|
|
Total trade and other receivables for which individual approach for ECL is used |
|
57, 788 |
(433) |
57,355 |
|
Analysis by credit quality of financial trade and other receivables and expected credit loss allowance as at 31 December 2021 is as follows:
|
|
Loss rate |
Gross carrying amount |
Life-time ECL |
Carrying amount |
Basis |
|
|
|
$000 |
$000 |
$000 |
|
|
|
|
|
|
|
|
|
Trade receivables from related parties |
5% |
5,015 |
(7) |
5,008 |
financial position of related party |
|
|
|
|
|
|
|
|
Trade receivables - -credit impaired |
100% |
132 |
(132) |
- |
number of days the asset past due |
|
|
|
|
|
|
|
|
Trade receivables - other |
0.21% |
161 |
- |
161 |
historical credit losses experienced |
|
|
|
|
|
|
|
|
Other financial receivables |
0.48% |
200 |
(1) |
199 |
individual default rates |
|
|
|
|
|
|
|
|
Total trade and other receivables for which individual approach for ECL is used |
|
5,508 |
(140) |
5,368 |
|
ECL - Expected credit losses
The following table explains the changes in the credit loss allowance for trade and other receivables under the simplified ECL model between the beginning and the end of the year:
|
|
2022 |
2021 |
|
|
$000 |
$000 |
|
Trade and other receivables |
|
|
|
Balance as at 1 January |
140 |
133 |
|
New originated or purchased |
441 |
24 |
|
Financial assets derecognised during the year |
(172) |
(19) |
|
Changes in estimates and assumptions |
61 |
(3) |
|
Foreign exchange movements |
(37) |
5 |
|
Balance as at 31 December |
433 |
140 |
23. |
Cash and Cash Equivalents and Other short-term investments |
|
|
Group |
Company |
||
|
|
2022 |
2021 |
2022 |
2021 |
|
|
$000 |
$000 |
$000 |
$000 |
|
|
|
|
|
|
|
Cash and Cash Equivalents |
|
|
|
|
|
Cash at bank |
33,243 |
75,457 |
26,541 |
63,299 |
|
Demand deposits and term deposits with maturity of less than 3 months |
55,409 |
12,323 |
55,000 |
- |
|
|
88,652 |
87,780 |
81,541 |
63,299 |
|
|
|
|
|
|
|
Other short-term investments |
|
|
|
|
|
Demand deposits and term deposits with maturity of more than 3 months but less than a year |
- |
4,762 |
- |
- |
|
|
- |
4,762 |
- |
- |
Cash at bank earns interest at fluctuating rates based on daily bank deposit rates. Demand deposits are made for varying periods depending on the immediate cash requirements of the Group and earn interest at the respective short-term deposit rates. The terms and conditions upon which the Group's demand deposits are made allow immediate access to all cash deposits, with no significant loss of interest.
|
|
Group |
Company |
||
|
|
2022 |
2021 |
2022 |
2021 |
|
|
$000 |
$000 |
$000 |
$000 |
|
|
|
|
|
|
|
Cash and Cash Equivalents |
|
|
|
|
|
Ukrainian Hryvnia |
6,874 |
24,249 |
- |
- |
|
US Dollars |
81,282 |
63,247 |
81,046 |
63,015 |
|
British Pounds |
223 |
275 |
223 |
275 |
|
Euros |
273 |
9 |
272 |
9 |
|
|
88,652 |
87,780 |
81,541 |
63,299 |
|
|
|
|
|
|
|
Other short-term investments |
|
|
|
|
|
Ukrainian Hryvnia |
- |
4,762 |
- |
- |
|
|
- |
4,762 |
- |
- |
The credit quality of cash and cash equivalents balances and other short-term investments may be summarised based on Moody's ratings as follows as at 31 December:
|
|
Cash at bank and on hand |
Demand deposits and term deposits with maturity less than 3 months |
Demand deposits and term deposits with maturity more than 3 months |
Total cash and cash equivalents and other short-term investments |
|
|
2022 |
2022 |
2022 |
2022 |
|
|
$000 |
$000 |
|
$000 |
|
|
|
|
|
|
|
A- to A+ rated |
26,537 |
55,000 |
- |
81,537 |
|
B- to B+ rated |
- |
- |
- |
- |
|
C- to C+ rated |
3,209 |
409 |
- |
3,618 |
|
Unrated |
3,497 |
- |
- |
3,497 |
|
|
33,243 |
55,409 |
- |
88,652 |
|
|
Cash at bank and on hand |
Demand deposits and term deposits with maturity less than 3 months |
Demand deposits and term deposits with maturity more than 3 months |
Total cash and cash equivalents and other short-term investments |
|
|
2021 |
2021 |
2021 |
2021 |
|
|
$000 |
$000 |
|
$000 |
|
|
|
|
|
|
|
A- to A+ rated |
63,290 |
- |
- |
63,290 |
|
B- to B+ rated |
900 |
8,660 |
4,762 |
14,322 |
|
Unrated |
11,267 |
3,663 |
- |
14,930 |
|
|
75,457 |
12,323 |
4,762 |
92,542 |
For cash and cash equivalents and other short-term investments, the Group assessed ECL based on the Moody's rating for rated banks and based on the sovereign rating of
24. |
Trade and Other Payables |
|
|
Group |
Company |
|||
|
|
2022 |
2021 |
2022 |
2021 |
|
|
|
$000 |
$000 |
$000 |
$000 |
|
|
|
|
|
|
|
|
|
Taxation and social security |
3,347 |
5,031 |
51 |
41 |
|
|
Trade payables |
1,079 |
3,404 |
- |
- |
|
|
Accruals and other payables |
21,810 |
3,354 |
19,909 |
1,757 |
|
|
Advances received |
1,293 |
517 |
- |
- |
|
|
|
|
27,529 |
12,306 |
19,960 |
1,798 |
The carrying amounts of trade and other payables are assumed to be the same as their fair values, due to their short-term nature. Financial payables are disclosed in Note 30.
25. |
Provision for Decommissioning |
|
|
2022 |
2021 |
|
|
$000 |
$000 |
|
Group |
|
|
|
At the beginning of the year |
5,467 |
6,819 |
|
Amounts provided |
137 |
198 |
|
Unwinding of discount |
293 |
250 |
|
Change in estimate |
2,497 |
(2,049) |
|
Effect of exchange difference |
(1,430) |
249 |
|
At the end of the year |
6,964 |
5,467 |
|
|
|
|
The provision for decommissioning is based on the net present value of the Group's estimated liability for the removal of the Ukrainian production facilities and well site restoration at the end of production life.
The non-current provision of $6,964,000 (31 December 2021: $5,467,000) represents a provision for the decommissioning of the Group's MEX-GOL, SV, VAS and SC production and exploration facilities, including site restoration.
The change in estimates applied to calculate the provision as at 31 December 2022 is explained in Note 4.
The principal assumptions used are as follows:
|
|
31 December 2022 |
31 December 2021 |
|
|
|
|
|
Discount rate |
4,76% |
6.29% |
|
Average cost of restoration per well ($000) |
326 |
348 |
The sensitivity of the restoration provision to changes in the principal assumptions to the provision balance and related asset is presented below:
|
|
31 December 2022 |
31 December 2021 |
|
|
$000 |
$000 |
|
|
|
|
|
Discount rate (increase)/decrease by 1% |
(561)/665 |
(723)/860 |
|
Change in average cost of well restoration increase/ (decrease) by 10% |
451/(451) |
353/(353) |
26 |
Deferred Tax |
|
|
|
|
|
|
2022 |
2021 |
|
|
$000 |
$000 |
|
Deferred tax (liability)/asset recognised relating to oil and gas development and production assets at the MEX-GOL-SV fields and provision for decommissioning |
|
|
|
At the beginning of the year |
(5,197) |
(2,705) |
|
Charged to Income Statement - |
(1,852) |
(2,367) |
|
Charged to Income Statement - |
3,021 |
- |
|
Effect of exchange difference |
796 |
(125) |
|
At the end of the year |
(3,232) |
(5,197) |
|
|
|
|
|
|
2022 |
2021 |
|
|
$000 |
$000 |
|
Deferred tax asset/(liability) recognised relating to development and production assets at the VAS field and provision for decommissioning |
|
|
|
At the beginning of the year |
361 |
167 |
|
Credited to Income Statement - overseas current year |
24 |
199 |
|
Effect of exchange difference |
(98) |
(5) |
|
At the end of the year |
287 |
361 |
There was a further $77,072,000 (31 December 2021: $76,443,000) of unrecognised
The deferred tax asset relating to the Group's provision for decommissioning as at 31 December 2022 of $449,000 (31 December 2021: $457,000) was recognised on the tax effect of the temporary differences of the Group's provision for decommissioning at the MEX-GOL and SV fields, and its tax base. The deferred tax liability relating to the Group's development and production assets at the MEX-GOL and SV fields as at 31 December 2022 of $3,681,000 (31 December 2021: $5,654,000) was recognised on the tax effect of the temporary differences between the carrying value of the Group's development and production asset at the MEX-GOL and SV fields, and its tax base. The deferred tax liability will be settled more than twelve months after the reporting period.
The deferred tax asset relating to the Group's provision for decommissioning as at 31 December 2022 of $310,000 (31 December 2021: $315,000) was recognised on the tax effect of the temporary differences on the Group's provision on decommissioning at the VAS field, and its tax base. The deferred tax liability relating to the Group's development and production assets at the VAS field as at 31 December 2022 of $23,000 (31 December 2021: deferred tax asset of $46,000) was recognised on the tax effect of the temporary differences between the carrying value of the Group's development and production asset at the VAS field, and its tax base. The deferred tax assets are expected to be recovered more than twelve months after the reporting period.
Losses accumulated in a Ukrainian subsidiary service company of UAH 877,268,000 ($23,990,000) as at 31 December 2022 and UAH 835,298,000 ($30,621,000) as at 31 December 2021 mainly originated as foreign exchange differences on inter-company loans and for which no deferred tax asset was recognised as this subsidiary is not expected to have taxable profits to utilise these losses in the future.
As at 31 December 2022 and 2021, the Group has not recorded a deferred tax liability in respect of taxable temporary differences associated with investments in subsidiaries as the Group is able to control the timing of the reversal of those temporary differences and does not intend to reverse them in the foreseeable future.
The current Corporation tax rate of 19% generally applies to all companies whatever their size. From 1 April 2023, this rate will cease to apply and will be replaced by variable rates ranging from 19% to 25%. A small profits rate of 19% will apply to companies whose profits are equal to or less than £50,000. The main Corporation Tax rate is increased to 25% and will apply to companies with profits in excess of £250,000.
Double tax treaty
On 30 October 2019, the Parliament of
27. |
Called Up Share Capital |
|
|
2022 |
2021 |
||
|
|
Number |
$000 |
Number |
$000 |
|
Allotted, called up and fully paid |
|
|
|
|
|
Opening balance as at 1 January |
320,637,836 |
28,115 |
320,637,836 |
28,115 |
|
Issued during the year |
- |
- |
- |
- |
|
Closing balance as at 31 December |
320,637,836 |
28,115 |
320,637,836 |
28,115 |
|
|
|
|
|
|
There are no restrictions over ordinary shares issued. The Company is a public company limited by shares.
28. |
Other Reserves |
The holders of ordinary shares are entitled to receive dividends as declared and are entitled to one vote per share at any general meeting of shareholders.
Other reserves, the movements in which are shown in the statements of changes in equity, comprise the following:
Capital contributions reserve
The capital contributions reserve is non-distributable and represents the value of equity invested in subsidiary entities prior to the Company listing.
Merger reserve
The merger reserve represents the difference between the nominal value of shares acquired by the Company and those issued to acquire subsidiary undertakings. This balance relates wholly to the acquisition of Regal Petroleum (Jersey) Limited and that company's acquisition of Regal Petroleum Corporation Limited during 2002.
Foreign exchange reserve
Exchange reserve movement for the year attributable to currency fluctuations. This balance predominantly represents the result of exchange differences on non-monetary assets and liabilities where the subsidiaries' functional currency is not the US Dollar.
29. |
Reconciliation of Operating Profit to Operating Cash Flow |
|
|
|
|
|
|
2022 |
2021 |
|
|
$000 |
$000 |
|
Group |
|
|
|
Operating profit |
75,773 |
66,235 |
|
Depreciation and amortisation |
7,837 |
11,958 |
|
Less interest income recorded within operating profit |
(1,888) |
(763) |
|
Impairment of property, plant and equipment |
4,256 |
|
|
Fines and penalties received |
(114) |
(81) |
|
Gain on sales of current assets, net |
(20) |
(16) |
|
Net (gain)/loss on sale of non-current assets |
(44) |
(16) |
|
Change in working capital: |
- |
|
|
Increase in provisions |
117 |
(6) |
|
(Increase)/decrease in inventory |
(1,480) |
(104) |
|
(Increase)/decrease in receivables |
(56,849) |
(4,463) |
|
Increase/(decrease) in payables |
19,953 |
4,902 |
|
Cash generated from operations |
47,541 |
77,646 |
|
|
2022 |
2021 |
|
|
$000 |
$000 |
|
Company |
|
|
|
Operating profit |
(8,112) |
11,591 |
|
Interest received |
(2,740) |
(3,447) |
|
Change in working capital: |
|
|
|
Movement in provisions (including impairment of subsidiary loans) |
9,942 |
(10,912) |
|
Decrease/(increase) in receivables |
(316) |
136 |
|
(Decrease)/increase in payables |
22,917 |
(188) |
|
Cash used in operations |
21,691 |
(2,820) |
30. |
Financial Instruments |
Capital Risk Management
The Group defines its capital as equity. As at 31 December 2022, net assets were $200,659,000 (31 December 2021: $178,517,000). The primary source of the Group's liquidity has been cash generated from operations. The Group's objectives when managing capital are to safeguard the Group's and the Company's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets.
The capital structure of the Group consists of equity attributable to the equity holders of the parent, comprising issued share capital, share premium, reserves and retained earnings.
There are no capital requirements imposed on the Group.
Financial Risk Management
The Group's financial instruments comprise cash and cash equivalents and various items such as debtors and creditors that arise directly from its operations. The Group has bank accounts denominated in British Pounds, US Dollars, Euros and Ukrainian Hryvnia. The Group does not have any external borrowings. The main future risks arising from the Group's financial instruments are currently currency risk, interest rate risk, liquidity risk and credit risk.
The Group's financial assets and financial liabilities comprise the following:
|
Financial Assets |
|
|
|
|
2022 |
2021 |
|
|
$000 |
$000 |
|
Group |
|
|
|
Cash and cash equivalents |
88,652 |
87,780 |
|
Other short-term investments |
- |
4,762 |
|
Trade and other financial receivables |
46,039 |
5,368 |
|
|
134,691 |
97,910 |
|
|
2022 |
2021 |
|
|
$000 |
$000 |
|
Company |
|
|
|
Cash and cash equivalents |
81,541 |
63,299 |
|
Loans to subsidiary undertakings |
49,974 |
48,899 |
|
|
131,515 |
112,198 |
|
Financial Liabilities |
|
|
|
|
2022 |
2021 |
|
|
$000 |
$000 |
|
Group |
|
|
|
Lease liabilities |
487 |
1,103 |
|
Trade and other payables |
1,079 |
3,404 |
|
Other financial liabilities |
20,422 |
2,244 |
|
|
21,988 |
6,751 |
|
|
|
|
|
|
2022 |
2021 |
|
|
$000 |
$000 |
|
Company |
|
|
|
Trade and other payables |
19,923 |
1,767 |
|
|
19,923 |
1,767 |
Financial assets and financial liabilities are measured at amortised cost, which approximates their fair value as the instruments are mostly short-term. Assets and liabilities of the Group where fair value is disclosed are level 2 in the fair value hierarchy and valued using the current cost accounting technique.
Financial instruments that potentially subject the Group to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable, and financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and loans to subsidiary undertakings.
Currency Risk
The functional currencies of the Group's entities are US Dollars and Ukrainian Hryvnia. The following analysis of net monetary assets and liabilities shows the Group's currency exposures. Exposures comprise the monetary assets and liabilities of the Group that are not denominated in the functional currency of the relevant entity.
|
|
2022 |
2021 |
|
Currency |
$000 |
$000 |
|
|
|
|
|
British Pounds |
223 |
275 |
|
US Dollars |
235 |
234 |
|
Euros |
273 |
9 |
|
Net monetary assets less liabilities |
731 |
518 |
The Group's exposure to currency risk at the end of the reporting period is not significant due to immaterial balances of monetary assets and liabilities denominated in foreign currencies.
The sensitivity of the exchange rate of US Dollars is presented below:
|
|
31 December 2022 |
31 December 2021 |
|
|
$000 |
$000 |
|
|
|
|
|
Increase/(decrease) by 10% |
23/(23) |
23/(23) |
The prior year comparative figures were amended to conform to the current year presentation.
Interest Rate Risk Management
The Group is not exposed to interest rate risk on financial liabilities as none of the entities in the Group have any external borrowings. The Group does not use interest rate forward contracts and interest rate swap contracts as part of its strategy.
The Group is exposed to interest rate risk on financial assets as entities in the Group hold money market deposits at floating interest rates. The risk is managed by fixing interest rates for a period of time when indications exist that interest rates may move adversely.
The Group's exposure to interest rates on financial assets and financial liabilities are detailed in the liquidity risk section below.
Interest Rate Sensitivity Analysis
The sensitivity analysis below has been determined based on exposure to interest rates for non-derivative instruments at the balance sheet date. A 0.5% increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management's assessment of a reasonably possible change in interest rates.
If interest rates earned on money market deposits had been 0.5% higher / lower and all other variables were held constant, the Group's:
|
· |
profit for the year ended 31 December 2022 would increase by $97,000 in the event of 0.5% higher interest rates and decrease by $97,000 in the event of 0.5% lower interest rates (profit for the year ended 31 December 2021 would increase by $136,000 in the event of 0.5% higher interest rates and decrease by $136,000 in the event of 0.5% lower interest rates). |
|
· |
This is mainly attributable to the Group's exposure to interest rates on its money market deposits; and other equity reserves would not be affected (2021: not affected) |
Interest payable on the Group's liabilities would have an immaterial effect on the profit or loss for the year.
Liquidity Risk
The Group's objective throughout the year has been to ensure continuity of funding. Operations have primarily been financed through revenue from Ukrainian operations.
The table below shows liabilities by their remaining contractual maturity. The amounts disclosed in the maturity table are the contractual undiscounted cash flows including future interest. Such undiscounted cash flows differ from the amount included in the statement of financial position because the statement of financial position amount is based on discounted cash flows and does not include the interest that will be accrued in future periods.
When the amount payable is not fixed, the amount disclosed is determined by reference to the conditions existing at the reporting date. Foreign currency payments are translated using the spot exchange rate at the end of the reporting period. The maturity analysis of financial liabilities as at 31 December 2022 is as follows:
|
As at 31 December 2022 |
On demand and less than 1 month |
From 1 to 3 months |
From 3 to 12 months |
From 12 months to 5 years |
More than 5 years |
Total |
|
|
$000 |
$000 |
$000 |
$000 |
$000 |
$000 |
|
Liabilities |
|
|
|
|
|
|
|
Trade and other payables |
21,194 |
- |
307 |
- |
- |
21,501 |
|
Lease liabilities |
29 |
60 |
284 |
492 |
367 |
1,232 |
|
Other non-current liabilities |
- |
- |
- |
106 |
170 |
276 |
|
Total future payments, including future principal and interest payments |
21,223 |
60 |
591 |
598 |
537 |
23,009 |
The maturity analysis of financial liabilities as at 31 December 2021 is as follows:
|
As at 31 December 2021 |
On demand and less than 1 month |
From 1 to 3 months |
From 3 to 12 months |
From 12 months to 5 years |
More than 5 years |
Total |
|
|
$000 |
$000 |
$000 |
$000 |
$000 |
$000 |
|
Liabilities |
|
|
|
|
|
|
|
Trade and other payables |
4,030 |
1,618 |
- |
- |
- |
5,648 |
|
Lease liabilities |
39 |
80 |
381 |
661 |
492 |
1,653 |
|
Other non-current liabilities |
- |
- |
- |
142 |
256 |
398 |
|
Total future payments, including future principal and interest payments |
4,069 |
1,698 |
381 |
803 |
748 |
7,699 |
Details of the Group's cash management policy are explained in Note 23.
Liquidity risk for the Group is further detailed under the Principal Risks section above.
Credit Risk
Credit risk principally arises in respect of the Group's cash balance. For balances held outside
The Group has taken steps to diversify its banking arrangements between a number of banks in
Interest Rate Risk Profile of Financial Assets
The Group had the following cash and cash equivalent and other short-term investments balances which are included in financial assets as at 31 December with an exposure to interest rate risk:
|
Currency |
|
Total |
Floating rate financial assets |
Fixed rate financial assets |
Total |
Floating rate financial assets |
Fixed rate financial assets |
|
|
|
2022 |
2022 |
2022 |
2021 |
2021 |
2021 |
|
|
|
$000 |
$000 |
$000 |
$000 |
$000 |
$000 |
|
|
|
|
|
|
|
|
|
|
Euros |
|
273 |
273 |
- |
9 |
9 |
- |
|
British Pounds |
|
223 |
223 |
- |
275 |
275 |
- |
|
Ukrainian Hryvnia |
|
6,874 |
- |
6,874 |
29,011 |
- |
29,011 |
|
US Dollars |
|
81,282 |
81,282 |
- |
63,247 |
63,247 |
- |
|
|
|
88,652 |
81,778 |
6,874 |
92,542 |
63,531 |
29,011 |
Cash deposits included in the above balances comprise term deposits with maturity less than 3 months of $55,409,000 and no term deposits with maturity more than 3 months but less than a year (2021: term deposits with maturity less than 3 months of $12,323,000 and term deposits with maturity more than 3 months but less than a year of $4,762,000).
As at 31 December 2022, cash and cash equivalents of the Company of $81,046,000 were held in US Dollars at a floating rate (2021: $63,015,000).
Interest Rate Risk Profile of Financial Liabilities
As at 31 December 2022 and 2021, the Group had no interest bearing financial liabilities at the year end.
Maturity of Financial Liabilities
The maturity profile of financial liabilities, on an undiscounted basis, is as follows:
|
|
|
2022 |
2021 |
|
|
|
$000 |
$000 |
|
Group |
|
|
|
|
In one year or less |
|
21,988 |
6,148 |
|
|
|
21,988 |
6,148 |
|
|
|
|
|
|
|
|
2022 |
2021 |
|
|
|
$000 |
$000 |
|
Company |
|
|
|
|
In one year or less |
|
19,923 |
1,767 |
|
|
|
19,923 |
1,767 |
|
|
|
|
|
Borrowing Facilities
As at 31 December 2022 and 2021, the Group did not have any borrowing facilities available to it.
Fair Value of Financial Assets and Liabilities
The fair value of all financial instruments is not materially different from the book value.
31. |
Contingencies and Commitments |
Amounts contracted in relation to the Group's 2022 investment programme in the MEX-GOL, SV, VAS and SC fields in
Since 2010, the Group has been in dispute with the Ukrainian tax authorities in respect of VAT receivables on imported leased equipment, with a disputed liability of up to UAH 8,487,000 ($302,000) inclusive of penalties and other associated costs. There is a level of ambiguity in the interpretation of the relevant tax legislation, and the position adopted by the Group has been challenged by the Ukrainian tax authorities, which has led to legal proceedings to resolve the issue. The Group had been successful in three court cases in respect of this dispute in courts of different levels. On 20 September 2016, a hearing was held in the Supreme Court of
In March 2019, the State Geologic and Subsoil Survey of
In September 2021, an entity named JV Boryslav Oil Company ("Boryslav"), which is 25.0999% owned by PJSC Ukrnafta ("Ukrnafta"), issued legal proceedings, claiming that irregular procedures were followed in the grant of the SC exploration licence, against the State Geologic and Subsoil Survey of
32. |
Related Party Disclosures |
Key management personnel of the Group are considered to comprise only the Directors. Details of Directors' remuneration are disclosed in Note 8.
During the year, Group companies entered into the following transactions with related parties who are not members of the Group:
|
|
Total |
LLC Smart Energy |
Other |
Total |
LLC Smart Energy |
Other |
|
|
2022 |
2022 |
2022 |
2021 |
2021 |
2021 |
|
|
$000 |
$000 |
$000 |
$000 |
$000 |
$000 |
|
|
|
|
|
|
|
|
|
Sale of goods/services |
113,787 |
113,741 |
46 |
95,342 |
95,340 |
2 |
|
Purchase of goods/services |
1,061 |
571 |
490 |
1,099 |
- |
1,099 |
|
Amounts owed by related parties |
56,230 |
56,227 |
3 |
5,008 |
5,008 |
- |
|
Amounts owed to related parties |
20,603 |
20,576 |
27 |
912 |
901 |
11 |
All related party transactions were with subsidiaries of the ultimate Parent Company, and primarily relate to the sale of gas (see Note 5 for more details), the rental of office facilities and a vehicle and the sale of equipment. The amounts outstanding were unsecured and will be settled in cash.
As at the date of this report, none of the Company's controlling parties prepares consolidated financial statements available for public use.
33. |
Post Balance Sheet Events |
The ongoing war in
In January 2023, the Company was notified that there had been a restructuring of the ownership of the PJSC Smart-Holding Group, a member of which held a major shareholding in the Company, and which was ultimately controlled by Mr Vadym Novynskyi ("Mr Novynskyi"). Under this restructuring, which occurred with effect from 1 December 2022, Mr Novynskyi disposed of his major indirect shareholding interest in the Company to two trusts registered in
In December 2022, new legislation, Law No. 2805-IX, relating to the natural resources sector was enacted in
These regulatory actions included conducting a search at the Group's Yakhnyky office, from where the MEX-GOL and SV fields are operated, and placing certain physical assets of the Ukrainian branch (representative) office of Regal Petroleum Corporation Limited ("RPC") and LLC Arkona Gas-Energy ("Arkona") (which respectively hold the MEX-GOL and SV fields and the SC exploration licence) under seizure, thereby restricting any actions that would change registration of the property rights relating to such assets, although the use of such assets was not restricted and therefore the Group has been able to continue to operate and produce gas and condensate from the MEX-GOL and SV fields. In addition, the regulatory actions included the freezing of gas volumes held in gas storage on behalf of RPC (to a value of $0.27 million) and LLC Prom-Enerho Produkt ("PEP") (to a value of $0.31 million). Furthermore, the Ministry of Justice of
On 2 May 2023, the MoJ made further Orders cancelling the registration entry made on behalf of three further Ukrainian subsidiaries of the Company, being PEP, Arkona and LLC Well Investum ("Well Investum") respectively in the State Register relating to the ultimate beneficial owners of such companies, which again were stated as the trustees of the SMART Trust and STEP Trust, thereby restoring the previous entry, Mr Novynskyi. PEP holds the VAS production licence, Arkona holds the SC exploration licence and Well Investum is a dormant company.
Following the issuance of the abovementioned Orders by the MoJ, Mr Novynskyi is registered in the State Register as the ultimate beneficial owner of each of PEP and Arkona, and is consequently recognised by the SGSS as the ultimate beneficial owner of each of the VAS production licence and SC exploration licence. As a result, on 4 May 2023, the SGSS issued orders suspending the VAS production licence and SC exploration licence for a period of 5 years effective from that date. Accordingly, the Company ceased all field and production operations on the VAS and SC licence areas.
The Group is consulting with its legal advisers in order to determine appropriate actions to protect its legal rights in relation to the above regulatory actions by the Ukrainian authorities.
On 15 June 2023, the Company paid an interim dividend of 15 pence per ordinary share, aggregating approximately £48.1 million in total, which was the Company's first ever dividend payment to its shareholders.
In July 2023, new legislation was introduced in
34. |
Auditor's Limitation Liability Agreement |
An Auditor's Limitation of Liability Agreement has been entered into, subject to shareholders approval, for the financial period ended 31 December 2022. The principal terms and conditions are below:
- The Agreement limits the amount of any liability owed to the Company by the Auditor in respect of any negligence, default, breach of duty or breach of trust, occurring in the course of the audit of the Company's financial statements for the year ended 31 December 2022, for which the Auditor may otherwise be liable to the Company.
- The Agreement also stipulates the maximum aggregated amount payable in event of any of the circumstances stated above.
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