CADOGAN PETROLEUM PLC
ANNUAL FINANCIAL REPORT
2015
Contents
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CADOGAN PETROLEUM PLC
OVERVIEW
Summary of 2015
Group Overview
STRATEGIC REPORT
Chairman’s Statement
Chief Executive’s Review
Operations Review
Financial Review
Risks and Uncertainties
Statement of Reserves and Resources
Corporate Responsibility
CORPORATE GOVERNANCE
Board of Directors
Report of the Directors
Viability statement
Corporate Governance Statement
Board Committee Reports
Annual Report on Remuneration 2015
FINANCIAL STATEMENTS
Statement of Directors’ Responsibilities
Independent Auditor’s Report
Financial Statements of Cadogan Petroleum plc
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet
Consolidated Cash Flow Statement
Consolidated Statement of Changes in Equity
Notes to the Consolidated Financial Statements
Company Balance Sheet
Company Cash Flow Statement
Company Statement of Changes in Equity
Notes to the Company Financial Statements
GLOSSARY
SHAREHOLDER INFORMATION
1
2
3
4
5
8
10
13
16
17
20
22
27
28
31
39
45
46
52
53
54
55
56
57
89
90
91
92
96
97
Summary of 2015
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CADOGAN PETROLEUM PLC
Key highlights of 2015:
LTI/TRI1: 0/0 (2014: 0/0)
Greenhouse gases emissions: 1,295 tonnes CO2 equiv. (2014: 1,620)
Production: 39,680 boe (2014: 39,834 boe)
Realised price at year end: 35.7$/boe (2014: 60.5$/boe)
Gross revenues2: $75.4 million (2014: $32.6 million)
Gross profit: $5.9 million (2014 : $2.8 million)
Loss for the year: $23.3 million (2014: $59.3 million)
Cash and cash equivalent at 31 December 2015 increased by $0.5 million to $49.4 million (2014:
decreased by $7.6 million to $48.9 million)
Net cash, which included cash and cash equivalents less short-term borrowings, increased to $36.5
million at 31 December 2015 compared to $31.6 million at 31 December 2014.
1 LTI Lost Time Incidents; TRI: Total Recordable Incidents
2 Gross revenues of $75.4 million (2014: $32.6 million) included $73.3 million (2014: $29.4 million) from trading of natural gas, $1.8 million (2014:
$2.4 million) from exploration and production and $0.4 million (2014: $0.8 million) from service
3 Excluding $0.9 million (2014: $0.5 million) of Cadogan’s share of cash and cash equivalents in joint ventures
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CADOGAN PETROLEUM PLC
Group Overview
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The Group has continued to maintain exploration and production assets in Ukraine, to conduct trading
operations, which include the importing of gas from Slovakia and Poland and local purchasing and sales with
physical delivery of natural gas, and to operate a service business which includes work-over, civil works
services, assistance in obtaining legal permits and other services provided to E&P companies.
The Group’s assets are located in both of the proven hydrocarbon basins in on-shore Ukraine, the Dnieper-
Donets basin and the Carpathian basin.
The Group commissioned to an independent third party the assessment of the Reserves and Resources as
of 31 December 2015. The evaluation was done according to the SPE “Guidelines for Application of the
Petroleum Resources Management System” (PRMS).
The summary of the Group’s Reserves and Resources in the nine licences is reported in the table in page 16.
Borynya and Bitlyanska fields
The Bitlyanska exploration and development licence covers an area of 390 square kilometres, tectonically
belonging to the Krosno zone of the folded Carpathians and includes the Borynya, Bitlyanska and
Vovchenska structures. It holds Probable and Possible reserves; as well as Contingent and Prospective
resources.
Borynya 3 well was re-entered and tested Krosno 1 interval with promising results in 2013. The well is
monitored, routinely bled-off, fluid samples extracted, measured and kept on hold for an eventual
fracturing job and possible re-entry to the deeper intervals.
Monastyretska field
The Monastyretska licence covers an area of 25.9 square kilometres, located in the Carpathian fold belt
(Skuba unit) in Western Ukraine. It includes three structures, one of which is regularly producing oil. It
holds Proved, Probable and Possible reserves; as well as Contingent and Prospective resources.
Pokrovskoe field
The Pokrovska licence area covers 49.5 square kilometres and is located in the Dnieper-Donets basin. It
holds contingent resources in the Visean and prospective resources in the Permian. Facilities in the
Pokrovska area are approximately 10 kilometres away from the UkrTransGas system. The licence will expire
on 10 August 2016. The work programme obligation for the licence has been fulfilled.
Zagoryanska field
The Zagoryanska licence expired on 24 April 2014, and covered an area of 49.6 square kilometres located in
the Dnieper-Donets basin, with gas being discovered in the Visean and Turnesian reservoirs.
Cadogan alone, as Eni had no interest, has requested via one of its subsidiaries a 20 years production
licence covering an area of 34 square kilometres as ENI had no interest to enter into the production phase.
All assets on the Group’s Balance Sheet related to this licence were impaired in full in 2013.
Pirkovskoe field
The Pirkovska licence expired on 19 October 2015, and covered an area of 71.6 square kilometres, adjacent
to the Group’s Zagoryanska licence.
It holds contingent resources in the Turnesian and in the Visean; and prospective resources in the Permian.
Cadogan owns the Krasnozayarska gas treatment plant in the Pirkovska licence area which is connected to
the UkrTransGas system. The plant is presently under conservation. Cadogan has requested a 20 years
production licence. All E&E assets on the Group’s Balance Sheet related to this licence have been impaired
in full.
Minor fields
Cadogan owns three exploration, development and production licences either directly or through subsidiaries
and joint ventures in other minor fields, of which two are currently in commercial production (Debeslavetska
and Cheremkhivska) and one (Slobodo-Rungurska) has no activity ongoing.
Shale gas
In addition to the above licences the Group has a 15% interest in Westgasinvest LLC (“WGI”), which holds
the Reklynetska, Zhuzhelianska, Cheremkhivsko-Strupkivska, Debeslavetska Exploration, Debeslavetska
Production, Baulinska, Filimonivska, Kurinna, Sandugeyivska and Yakovlivska licences for unconventional
activities.
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CADOGAN PETROLEUM PLC
Strategic Report
Strategic Report
The Strategic Report has been prepared in accordance with Section 414A of the Companies Act 2006 (the
“Act”) and presented on page 3 to 19. Its purpose is to inform members of the Company and help them
assess how the Directors have performed their legal duty under Section 172 of the Act to promote the
success of the Company.
Our business model
We aim to increase value through:
Sourcing additional E&P assets to diversify Cadogan’s portfolio both geographically and
operationally; we will pursue exploration and/or near term development assets with significant
upside as well as producing assets to cover G&A and provide free cash flow for exploration
activities
Pursuing farm-out to contain investments in Ukraine
Maintaining sufficient capital base, complementing E&P cash flow with revenues from gas trading
and oil services businesses
Principal activity and status of the Company
The Company is registered as a public limited company (registration number 05718406) in England and
Wales. Its principal activity is oil and gas exploration, development and production and gas trading.
The Company’s shares have a standard listing on the Official List of the UK Listing Authority and are traded
on the main market of the London Stock Exchange.
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CADOGAN PETROLEUM PLC
Chairman’s Statement
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Though the events of the Euromaidan Revolution are now more than two years behind us, the full extent of
the political and economic repercussions have yet to be felt. Ukraine has still not entered a period of real
stability and its political leadership is struggling to utilize the broad mandate it was granted to implement
the types of changes and reforms most of the citizens expect.
Within the context of corruption-related scandals and a high-profile cabinet member resignation,
implementation of the reform program put forth by the European Community, the United States and
financial institutions such as the International Monetary Fund and the European Bank for Reconstruction
and Development has been delayed. These delays, coupled with the unresolved tensions with Russia
surrounding the annexation of Crimea and ongoing confrontations in eastern Ukraine, have only served to
add to the short-term uncertainty plaguing the country.
This unstable environment has led to a further devaluation of the local currency. In the oil and gas sector,
delays in the renewal and approval process for licences as well as the extension of the ”temporary”
punitive 70% subsoil use tax regime for the remainder of the year, have created additional challenges. For
Cadogan, this has translated into a severe cash drain from the E&P gross revenues derived from gas; a
reduction of the USD value of its non-current assets accounted in local currency; and the impairment of the
Pirkovska licence’s book value as a result of delayed responses to the company’s application for converting
this exploration licence into a 20-year production licence.
On a more positive note, some reforms have in fact been initiated and the unwinding of the post-Soviet
regulatory system is well on its way. The country has started the adoption of the Third European Energy
Package; while its implementation is currently in progress, some delays might be expected due to ongoing
discussions on the unbundling model for Naftogaz. Significant progress has also been made in diversifying
the supply of imported gas thanks to the implementation of reverse flow from Europe.
Despite the challenging business climate, Cadogan has performed well. Production has been maintained at
similar levels to the previous year, CO2 emissions have been reduced, traded volumes of gas have been
significantly increased and efforts to streamline and contain costs have turned the company into a cash
neutral position, or actually, slightly cash positive. This is a remarkable achievement given the combination
of adverse factors -- including the reduction of the oil and gas prices -- which have created havoc for many
of Cadogan’s peers.
Notwithstanding the positive results achieved by Cadogan and its Management, there remains a compelling
need to diversify its portfolio geographically. This drive to diversify is one of the cornerstones of the new
strategy that was approved by the Board in the second half of the year. Management is pursuing
opportunities to diversify while building a more robust production base. With its solid balance sheet, low
cost operations, proven resilience to a low price environment and the international experience of its
leadership team, Cadogan is poised to leverage its strengths and take advantage of the very real
opportunities that lie ahead.
Zev Furst
Non-executive Chairman
25 April 2016
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CADOGAN PETROLEUM PLC
Chief Executive’s Review
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2015 has been another challenging year for the oil and gas industry and for Ukraine. Cadogan has
weathered the storm by continuing with its cost reduction initiatives, by applying strict discipline to all
spending and by reducing the working capital. The result is that cash has been preserved and is available to
be used to capture the opportunities that will materialize in a distressed market.
Key developments during the year:
G&A have been further reduced by decreasing the head count, replacing expatriates with Ukrainian
nationals and moving Kiev office to smaller, cheaper premises still located in the city centre.
Current G&A on annualized basis are 13% lower than what they were in 2014
Work-over on gas wells and production optimization on the oil well allowed Cadogan to meet the
production budget notwithstanding a 4 month delay in the renewal of the Monastyretska licence
Applications have been filed to convert Pirkovska from exploration licence into 20 year production
licence
Volumes of traded gas have more than tripled over the previous year as a result of broadening both
the supplier and the client base
Gross profits, before G&A and taxes, have more than doubled, from $2.8 million in 2014 to $5.9
million this year
Cash and cash equivalents1 at year-end total $49.4 million (2014: $48.9 million), excluding $0.9
million (2014: $0.5 million) of Cadogan’s share of cash and cash equivalents in joint ventures. Net
cash, which included cash and cash equivalents mostly denominated in USD net of short-term
borrowings denominated in UAH, increased to $36.5 million at 31 December 2015 compared to
$31.6 million at 31 December 2014.
*Source: eia
**Peers included JKX, Regal Petroleum, Misen Energy, Cub energy
Throughout 2015 Cadogan has protected shareholder value, increased its resilience to a low price
environment and has made a step towards becoming more integrated along the business chain by further
developing the gas trading business. Its low cost basis combined with the revenues generated by the
trading and service businesses have helped preserve the cash that will be used to fuel a strategy of growth
and geographic diversification.
I consider this as a positive result given the unfavourable scenario in which Cadogan has operated.
2015 has not been a turning point for both Ukraine and the oil industry. Whilst military confrontation in the
East of the country has receded, the country has remained embroiled in a political and economic crisis.
Besides, the subsoil use tax has remained enforced at a punitive 70% rate throughout the year despite the
anticipation that it would be revoked. Oil and gas prices have continued to fall and this has posed an
unprecedented level of strain on all key players, sometimes challenging the very business model on which
the oil and industry has prospered over the last decade.i
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CADOGAN PETROLEUM PLC
Chief Executive’s Review (continued)
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In such an extremely challenging context, Cadogan has focused on protecting shareholders’ value by
pursing cash neutrality acting on three levers: cost efficient production of its proved reserves, relentless
pursuit of all possible cost savings initiatives combined with strict discipline in spending, and gas trading.
All these initiatives successfully brought Cadogan to be slightly cash generative; they have also made
Cadogan stronger than most of its peers and well equipped to pursue its strategy of growth and asset
diversification in the current challenging context.
Core Operations
Core operations have concentrated on safely and cost efficiently managing the producing assets while
taking all necessary actions to preserve the portfolio of licences. Applications for the conversion of
Zagoryanska and Pirkovska exploration licences into 20-year production licences have been filed and the
outcome of the applications is expected in the first half of 2016. As the award of Pirkovska licence was not
received at the time of issuing this report, respective E&E assets were impaired.
A revision of the reserves and resources was requested to a third party to update previous evaluation in
light of the recent developments, including the internal prospect generation work of the previous year; its
results are encouraging as they have identified volumes of 3P reserves and 2C resources larger than
anticipated.
Work-overs on Debeslavetska and production optimization on Monastyretska fields have allowed Cadogan
to meet the production budget notwithstanding a four months’ delay in the award of the licence. This
remarkable achievement has been somewhat down-played by the subsoil use tax, which has been
maintained at 70% throughout the year; higher taxes and lower prices have prevented Cadogan from
meeting its production revenue budget.
Opportunities to grow and diversify the portfolio have been pursued in the second part of the year, but
none of them has been finalized primarily because of a value gap between market and sellers`
expectations; additionally, many potentially interesting opportunities are with companies with heavy debt
burden.
Last, but not the least, all activities have been conducted with the utmost attention to safety and
environmental protection. No accidents or spills have occurred during 2015 and LTI stands at a remarkable
zero since 23 July 2011 (over 2.2 million worked hours). All Cadogan staff and management deserve to be
commended for this outstanding achievement.
Non-E&P Operations
The service business has been penalized by the oil and gas industry crisis in Ukraine, with companies
cancelling or deferring the execution of works. While this has negatively impacted 2015 revenues, there are
reasonable expectations that some of the work deferred will be executed in 2016.
In 2015 trading business segment generated $73.3 million of revenues and $4.6 million of gross profit.
Trading margins have remained healthy through the year, but are expected to be eroded by new
legislation, which requires sellers to store 50% of the gas sold to final consumers and to provide financial
guarantee for 20% of the traded volumes, as well as by increased competition, with more traders
interested in entering the Ukrainian market. We intend to balance this erosion of margins by broadening
our client base and leveraging on the competitive advantage of being one of the first companies to have
used the reverse flow opportunity to import gas in Ukraine.
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CADOGAN PETROLEUM PLC
Chief Executive’s Review (continued)
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Outlook
The management team is of the firm opinion that Cadogan is well positioned to succeed in the current
challenging context as it has:
a strong balance sheet, with nearly $50 million of cash, including $20 million of restricted cash,
pledged for credit line used for trading1;
a low cost operation model which can be replicated both in and outside of Ukraine;
non E&P activities whose net revenues nearly balance the G&A, thus allowing Cadogan to manage
this transitional period without burning cash.
While Ukraine remains the country where Cadogan is rooted, a geographic diversification of the portfolio
will be an objective while pursuing value growth. In support of this strategy Cadogan has entered into
Technical Service Agreements with reputable consultancy firms to strengthen and broaden its pool of
competences.
Guido Michelotti
Chief Executive Officer
25 April 2016
1 $12.9 million of the credit line was outstanding as at 31 December 2015 (2014: $17.3 million)
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CADOGAN PETROLEUM PLC
Operations Review
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In 2015 the Group held working interests in nine conventional (2014: nine) gas, condensate and oil
exploration and production licences in the east and west of Ukraine. All these assets are operated by the
Group and are located in either the Carpathian basin or the Dnieper-Donets basin, in close proximity to the
Ukrainian gas distribution infrastructures. The Zagoryanska and Pirkovska licences expired and the process
to have the licences re-awarded is ongoing.
Working
interest (%)
Major licences
40.0
70.0
100.0
99.8
Minor licences
99.2
99.2
54.2
100.0
99.2
Summary of the Group’s licences (as at 31 December 2015)
Licence
Expiry
Licence type(1)
Zagoryanska
Pokrovska
Pirkovska
Bitlyanska
Debeslavetska(2)
Debeslavetska(2)
Cheremkhivska(2)
Slobodo-Rungurska
Monastyretska
Expired(3) (4)
August 2016
Expired(3)
December 2019
November 2026
September 2016
May 2018
April 2016(5)
November 2019
E&D
E&D
E&D
E&D
Production
E&D
Production
E&D
E&D
(1) E&D = Exploration and Development.
(2) Debeslavetska and Cheremkhivska licences are held by WGI, in which the Group has a 15% interest. The Group has 99.2%
and 53.4% of economic benefit in conventional activities in Debeslavetska and Cheremkhivska licences respectively
through Joint Activity Agreements (“JAA”).
(3) The application for the award of a 20 year production licence has been filed. Though the Group has fulfilled the legal
obligations and requirements and applied for the licence before the expiration date delays are expected because of
recently introduced changes to the awarding process.
(4) The application for the award of a 20 year production licence has been filed by a wholly-owned Cadogan subsidiary as eni
was not interested
(5) The licence expired on 11 April 2016
In addition to the above licences the Group has a 15 per cent interest in Westgasinvest LLC (“WGI”), which
holds the Reklynetska, Zhuzhelianska, Cheremkhivska, Debeslavetska Exploration, Debeslavetska
Production, Baulinska, Filimonivska, Kurinna, Sandugeyivska and Yakovlivska licences for unconventional
activities.
Late in the year Cadogan engaged Brend Vik, one of the major Ukrainian G&G consultants, to update its
reserves and resources in lights of the developments occurred since the last evaluation of 2009. Brend Vik
has recently completed its evaluation and the results are presented on page 16.
In general, 3P reserves and 2C resources increased if compared to in-house evaluation, while the
perspective resources decreased. In particular, the Permian and Upper Carboniferous intervals in
Pokrovskoe and Pirkovskoe, well identifiable by seismic analysis, were not considered adequately
correlated with existing log and wells’ data; supplementary data collection is required from future wells’ re-
entry and drilling in order to move these potential volumes back to the prospective status.
8
CADOGAN PETROLEUM PLC
Operations Review (continued)
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Bitlyanska licence area
The Group holds a 99.8 per cent working interest in the Bitlyanska exploration and development licence. The
Bitlyanska licence covers an area of 390 square kilometres. Bitlyanska, Borynya and Vovchenska are three
hydrocarbon discoveries in this licence area.
Borynya 3 well, during monitoring and routine bleed-off always flows methane shows.
Monastyretska licence area
The Group holds a 99.2 per cent working interest in Monastyretska licence. A new exploration and
development period was granted up to November 2019. The licence has been regularly producing oil at a
rate of 48boepd. Evaluation of a re-entry and stimulation of two existing wells is ongoing.
Pokrovska licence
The Group holds a 70 per cent working interest in the Pokrovska exploration and development licence. The
Pokrovska licence area covers 49.5 square kilometres.
The licence will expire on 10 August 2016 and Cadogan is preparing to eventually file an application for the
award of a new licence.
Zagoryanska licence (expired)
The Zagoryanska licence expired in April 2014. Cadogan, via its subsidiary LLC Zagvydobuvannya, requested
the awarding of a 20 years’ production licence, which licence area covers 34 square kilometres. The Ministry
of Ecology issued the approval and the process was at the level of the regional authorities, before the final
approval. The process has been delayed because of the recent introduction of a new law which re-allocates
the authority amongst the involved state entities. The plug and abandonment of wells has started and the
activity is being conducted by one of Cadogan’s subsidiaries (Astro-Service LLC) and jointly funded by the
former licencees (eni and Cadogan) in proportion to their participating interests.
Pirkovska licence (expired)
The Pirkovska licence expired on 19 October 2015 and Cadogan has requested the award of a 20 years’
production licence. The licence covers an area of 88 square kilometres. Likewise for Zagoryanska licence, the
approval process has been delayed by changes introduced by a new law.
Minor fields
These fields are contained in licences located in Western Ukraine, and include the following:
Debeslavetska Production licence area
The field is currently producing 60 boepd (2014: 65 boepd). A work-over activity is ongoing to
mitigate the production decline.
Debeslavetska Exploration licence area
In the exploration licence, surrounding the Debeslavetska Production area, two prospects have
been identified. The licence holds prospective resources and will expire on 7 September 2016.
Cadogan is evaluating whether to apply for a new E&P period after the expiry of the current licence
terms.
Cheremkhivska Production licence area
This licence is currently producing 15.7 boepd (2014: 17.4 boepd).
Slobodo-Rungurska exploration and development licence area
The licence expired on 11 April 2016. Cadogan is evaluating whether to apply for a new E&P period
after the expiry of the current licence terms.
9
CADOGAN PETROLEUM PLC
Financial review
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Overview
Together with completion of E&P programme, in 2015 the Group continued to approach cash neutrality
through a number of cost reduction initiatives, and developing service activities and energy trading
businesses.
Revenue has increased from $32.6 million in 2014 to $75.4 million in 2015 due to gas trading operations,
which represent $73.3 million (2014: $29.4 million) of total revenues; revenues from production have
slightly declined to $1.8 million (2014: $2.4 million) owing to lower realized price.
Revenue from the service business, which includes drilling and civil works services, decreased to $0.4
million (2014: $0.8 million) mainly due to the postponement of service contracts by clients as a result of the
situation in Ukraine.
The cash position of $49.4 million at 31 December 2015, including restricted cash of $20 million used as a
pledge for credit line, has increased from $48.9 million at 31 December 2014. Net cash, which included cash
and cash equivalents mostly denominated in USD net of short-term borrowings denominated in UAH,
increased to $36.5 million at 31 December 2015 compared to $31.6 million at 31 December 2014
Income statement
Loss before tax was $22.2 million (2014: $59.1 million), of which $10.5 million (2014: $5.1 million) is
impairment of oil and gas assets and $12.8 million (2014: $54.7 million) is a share of losses of joint
ventures. Share of losses in joint ventures mainly include the impairment of oil and gas assets in joint
ventures and losses arising on translation of Balance Sheet items from UAH to the presentation currency of
the Group USD.
Revenues of $75.4 million (2014: $32.6 million) are comprised of $73.3 million (2014: 29.4 million) in gas
and diesel sales of trading reportable segment, $1.8 million (2014: $2.4 million) gas sales of E&P reportable
segment and $0.4 million (2014: $0.8 million) sales of service reportable segment. Cost of sales represents
$67.4 million (2014: $26.8 million) of purchases of gas for trading operating segment, $2.2 million (2014:
$2.9 million) of production royalties and taxes, depreciation and depletion of producing wells and direct
staff costs for exploration and development and service segment. Gross profit has increased to $5.9 million
(2014: $2.8 million).
Administrative expenses of $6.1 million (2014: $7.0 million) comprise staff costs, professional fees,
Directors’ remuneration and depreciation charges on non-producing property, plant and equipment.
Reversal of impairment of other assets of $1.3 million (2014: $0.9 million) comprised of $0.1 million
provision for inventory (2014: $0.3 million) and $1.4 million release in relation to an impairment of
Ukrainian VAT (2014: $1.1 million).
Share of losses in joint ventures of $12.8 million (2014: $54.7 million) comprised of loss of: i) $8.8
million in relation to non-cash impairment of non-current assets of Pokrovska licence, $2.6 million
(2014: $12.7 million) of translation loss which arose mainly on translation of non-current assets of
Gazvydobuvannya LLC (Pokrovska licence) from UAH to USD, being the presentation currency of the
Group, $0.9 million loss from operations, ii) $0.2 million in relation to Zagoryanska licence; and iii) loss
of $0.3 million (2014: $0.7 million) from operations of Westgasinvest LLC.
Net foreign exchange gain of $2.5 million (2014: $3.0 million) mainly relates to the revaluation of the
USD-denominated monetary assets of the Group’s UK entities which have GBP as a functional currency.
Finance costs of $2.6 million (2014: $0.5 million) represent $2.4 million (2014: $0.4 million) of interest on
credit line used for trading and $0.2 million (2014: $nil) of interest on tax provision.
10
CADOGAN PETROLEUM PLC
Financial review (continued)
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Cash flow statement
The Consolidated Cash Flow Statement on page 55 shows operating cash outflow before movements in
working capital of $1.1 million (2014: $3.9 million). In addition, the Group has incurred capital expenditure
of $0.3 million (2014: $0.5 million) on intangible Exploration and Evaluation (“E&E”) assets and $0.2 million
(2014: $1.6 million) on Property, Plant and Equipment (“PP&E”). In 2015 the Group contributed $0.7 million
(2014: $3.0 million) into joint ventures to repay its current liabilities.
In 2015 the Group financed its trading operations with short-term borrowings (note 24) with proceeds of
$13.2 million and repayments of $12.2 million (2014: proceeds of $17.3 million)
Balance sheet
The cash position of $49.4 million at 31 December 2015, including restricted cash of $20 million used as a
pledge for credit line, has increased from $48.9 million at 31 December 2014. Net cash, which included cash
and cash equivalents mostly denominated in USD net of short-term borrowings denominated in UAH,
increased to $36.5 million at 31 December 2015 compared to $31.6 million at 31 December 2014
Intangible E&E assets of $2.7 million (2014: $18.3 million) represent the carrying value of the Group’s
investment in E&E assets as at 31 December 2015. The PP&E balance was $1.7 million at 31 December 2015
(2014: $3.8 million).
Investments in joint ventures of $2.2 million (2014: $14.3 million) mainly represent the carrying value of
the Group’s investments into Pokrovska licences and Westgasinvest LLC (costs related to Zagoryanska
licence have been fully impaired (note 19).
Trade and other receivables of $14.4 million (2014: $17.9 million) include $11.7 million (2014: $13.6
million) trading prepayments and receivables, $1.8 million receivable from joint ventures in respect of
management charges (2014: $1.9 million).
The $12.9 million outstanding short-term borrowings as of 31 December 2015 (2014: $17.3 million)
represents UAH 313.2 million borrowed in UAH to purchase natural gas and diesel (2014: UAH 278.9
million). Borrowings are represented by credit line drawn in UAH at Ukrainian bank, 100% subsidiary of UK
bank. Credit line is secured by $20 million of cash balance placed at UK bank. Borrowings are taken in UAH
in order to preserve the USD amount of own cash and mitigate a risk related to currency fluctuations in
Ukraine. A short-term credit line provide an easy access to quick financings to support the Group’s trading
operations.
The $3.7 million of trade and other payables as of 31 December 2015 (2014: $5.1 million) represent $0.9
million (2014: $0.3 million) worth of trading payables for supplies of natural gas, $0.9 million of VAT
payable for supplies of natural gas, $0.2 million (2014: $0.2 million) of interest accrued and $1.7 million
(2014: $2.1 million) of other creditors and accruals.
Provisions include $0.7 million of long-term provision for decommission costs (2014: $0.1 million of long-
term provision and $0.6 million of current provision) and $1.5 million provision for corporate tax for the
dispute on the treatment of taxable income and expenses.
11
CADOGAN PETROLEUM PLC
Financial review (continued)
_______________________________________________________________________________________
Key performance indicators
The Group monitors its performance with reference to clear targets set out through three key financial and
one key non-financial performance indicators (“KPIs”):
to increase oil, gas and condensate production measured on number of barrels of oil equivalent
produced per day (“boepd”);
to decrease administrative expenses;
to increase the Group’s basic earnings per share; and
to maintain no lost time incidents.
The Group’s performance in 2015 against these targets is set out in the table below, together with the prior
year performance data.
Unit
2015
2014
Financial KPIs
Average production (working interest basis) (1)
Administrative expenses
Basic loss per share (2)
Non-financial KPIs
Lost time incidents (3)
(1) Average production is calculated as the average daily production during the year
(2) Basic loss per Ordinary share is calculated by dividing the net loss for the year attributable to equity holders of the parent company by the
boepd
$ million
cents
109
6.1
(10.1)
109
7.0
(25.6)
incidents
0
0
weighted average number of Ordinary shares during the year
(3) Lost time incidents in million working hours relate to injuries where an employee/contractor is injured and has time off work (IOGP
classification)
Related party transactions
Related party transactions are set out in note 30 to the Consolidated Financial Statements.
Treasury
The Group continually monitors its exposure to currency risk. It maintains a portfolio of cash and cash
equivalent balances mainly in US dollars (“USD”) held primarily in the UK. Production revenues from the
sale of hydrocarbons are received in the local currency in Ukraine; however the hydrocarbon prices are
linked to the USD denominated gas and oil prices. To date, funds from such revenues have been held in
Ukraine for further use in operations rather than being remitted to the UK.
12
CADOGAN PETROLEUM PLC
Risks and uncertainties
_______________________________________________________________________________________
Risks and uncertainties
There are a number of potential risks and uncertainties, which could have a material impact on the Group’s
long-term performance and could cause the results to differ materially from expected and historical results.
Executive management review the potential risks and then classify them as having a high impact, above $5
million, medium impact, above $1 million but below $5 million, and low impact, below $1 million. They also
assess the likelihood of these risks occurring. Risk mitigation factors are reviewed and documented based
on the level and likelihood of occurrence. The Audit Committee reviews the risk register and monitors the
implementation of improved risk mitigation procedures via Executive management.
The Group has analysed the following categories as key risks:
Risk
Operational risks
Health, Safety and Environment (“HSE”)
The oil and gas industry by its nature conducts
activities which can cause health, safety and
environmental incidents. Serious incidents can have
not only a financial impact but can also damage the
Group’s reputation and the opportunity to undertake
further projects.
Drilling and Work-Over operations
The technical difficulty of drilling or re-entering wells
in the Group’s locations and equipment limitations
can result in the unsuccessful completion of the well.
Production and maintenance
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.
Sub-surface risks
The success of the business relies on accurate and
detailed analysis of the sub-surface. This can be
impacted by poor quality data, either historic or
recently gathered, and
limited coverage. Certain
information provided by external sources may not be
accurate.
can be misinterpreted
local contractors may not acquire data
Some
accurately, and there is frequently limited choice of
locally available equipment or contractors of a
desirable standard.
the
Data
construction of inaccurate models and subsequent
plans.
Area available for drilling operations is limited by
infrastructures and moratorium. This
logistics,
increases
setting optimum well
the
coordinates.
leading
risk
for
to
Mitigation
The Group maintains a HSE management system in place
and demands that management, staff and contractors
adhere to it. The system ensures that the Group meets
Ukraine
full and achieves
standards
international standards to the maximum extent possible.
legislative
in
The incorporation of detailed sub-surface analysis into a
robustly engineered well design and work programme, with
appropriate procurement procedures and competent on
site management, aims to minimise risk.
All plants are operated and maintained at standards above
the Ukraine minimum legal requirements. Operative staff is
experienced and receive supplemental training to ensure
that facilities are properly operated and maintained. When
facilities are properly kept under
not
conservation and routine monitoring.
Service providers are rigorously reviewed at the tender
stage and are monitored during the contract period.
in use
the
All externally provided and historic data
is rigorously
examined and discarded when appropriate. New data
acquisition
is considered and appropriate programmes
implemented, but historic data can be reviewed and
improve the overall knowledge base.
reprocessed to
Agreements with qualified local and international G&G
contractors have been entered into to supplement and
broaden the pool of expertise available to the Company.
local contractors by Cadogan
Detailed supervision of
management
in
advance with both local and international contractors in an
effort to ensure that appropriate equipment is available.
All analytical outcomes are challenged internally and peer
reviewed. Interpretations are carried out on modern
geological software.
If not covered by 3D seismic or fitting over 2D seismic lines,
the eventual well’s dislocation will not be accepted.
is followed. Plans are discussed well
13
CADOGAN PETROLEUM PLC
Risks and uncertainties (continued)
_______________________________________________________________________________________
from
Risk
in achieving
The Group may not be successful
and
asset
an
commercial production
consequently the carrying values of the Group’s oil
and gas assets may not be recovered through future
revenues, because of reservoir performances below
the expectations
Financial risks
There is a risk that insufficient funds are available to
meet development obligations to commercialise the
Group’s major licences.
certain
The Group could be impacted by failing to meet
regulatory reporting requirements in the UK, and
statutory tax and filing requirements in both Ukraine
and the UK.
The Group operates primarily in Ukraine, an emerging
market, where
inappropriate business
practices may from time to time occur. This includes
bribery, theft of Group property and fraud, all of
which can lead to financial loss.
The Group is at risk from changes in the economic
environment both in Ukraine and globally, which can
cause foreign exchange movements, changes in the
rate of inflation and interest rates and lead to credit
risk in relation to the Group’s key counterparties.
The Group is at risk that the counterparty will default
on its contractual obligations resulting in a financial
loss to the Group.
The Group is at risk that fluctuations in gas prices will
have a negative result for the trading operations
resulting in a financial loss to the Group.
Mitigation
Group performs a review of its oil and gas assets for
impairment on annual basis, and considers whether to
commission a review from a third or a Competent Person’s
Report (“CPR”) from an independent qualified contractor
depending on the circumstances.
The Group manages the risk by maintaining adequate cash
reserves and by closely monitoring forecasted and actual
cash flow, as well as short and longer funding requirements.
Management reviews these forecasts regularly and updates
are made where applicable and submitted to the Board for
consideration.
The farm-out campaign to maintain current cash balances
and mitigate risk will continue through 2016.
These risks are mitigated by employing suitably qualified
professionals who, working with advisers when needed, are
monitoring regulatory reporting requirements and ensuring
that timely submissions are made.
Clear authority levels and robust approval processes are in
place, with stringent controls over cash management and
the tendering and procurement processes. Adequate office
and site protection is in place to protect assets. Anti-bribery
policies are also in place.
Revenues in Ukraine are received in UAH and expenditure is
made in UAH, however the prices for hydrocarbons are
implicitly linked to USD prices.
The Group continues to hold most of its cash reserves in the
UK mostly in USD. Cash reserves are placed with leading
financial institutions which are approved by the Audit
Committee. The Group
is predominantly a USD
denominated business. Foreign exchange risk is considered
a normal and acceptable business exposure and the Group
does not hedge against this risk for its E&P operations.
For trading operations, the Group matches the revenues
and the source of financing.
Refer to note 28 to the Consolidated Financial Statements
for detail on financial risks.
We monitor the credit quality of our counterparties and
seek to reduce the risk of customer non-performance by
limiting the title transfer to product until the payment is
received, prepaying only to known credible suppliers.
The Group mostly enters into back-to-back transactions
where the price is known at the time of committing to
purchase and sell the product. Sometimes the Group takes
exposure to open inventory positions when justified by the
market conditions in Ukraine.
14
CADOGAN PETROLEUM PLC
Risks and uncertainties (continued)
_______________________________________________________________________________________
Risk
Corporate risks
licence
Should the Group fail to comply with
obligations, there is a risk that its entitlement to the
licence will be lost.
Legislative changes may bring unexpected risk and
time consuming for securing the licences obligations.1
Ukraine is an emerging market and as such the Group
is exposed to greater regulatory, economic and
political risks, more than other jurisdictions. Emerging
economies are generally subject to a volatile political
environment which could adversely impact Cadogan’s
ability to operate in the market.
success depends upon
The Group's
skilled
management as well as technical and administrative
staff. The loss of service of critical members from the
Group's team could have an adverse effect on the
business.
1 New risk of 2015
Mitigation
The Group designs a work programme and budget to ensure
that all licence obligations are met. The Group engages
proactively with government to re-negotiate terms and
ensure that they are not onerous.
Accurate monitoring and dialogue with competent
authorities are kept in place to minimize the risk.
The Group minimises this risk by maintaining the funds in
international banks outside Ukraine and by continuously
maintaining a working dialogue with the regulatory
authorities.
The Group periodically reviews the compensation and
contract terms of its staff.
15
CADOGAN PETROLEUM PLC
Statement of Reserves and Resources
_______________________________________________________________________________________
In December 2015, the Group commissioned a third party for the Reserves and Resources Evaluation of the
Group’s oil and gas assets in Ukraine. The evaluation was assigned to a qualified Ukrainian G&G consulting
contractor which delivered its final report in March 2016. The evaluation was conducted in accordance with
SPE Petroleum Resources Management System (‘PRMS’). The summary of the Reserves and Resources as
per the report issued in March 2016 (as at 31 December 2015) is presented below.
Summary of Reserves1
at 31 December 2015
Proved, Probable and Possible Reserves at 1 January 2015
Production
Revisions
Proved, Probable and Possible Reserves at 31 December 20152
Reserves for Zagoryanska and Pirkovska as at 31 December 20153
Total Proved, Probable and Possible Reserves at 31 December 2015
mmboe
5.58
(0.04)
3.17
8.71
14.30
23.01
1 The study has been conducted by third-party Brend Vik and since then Cadogan has entered into a Technical Service Agreement with Brend Vik.
2 Proved, Probable and Possible Reserves at 31 December includes 0.80 mmboe assigned to Pokrovska licence in which the Group holds 70% at 31 December 2015.
3 Zagoryanska and Pirkovska licence were expired as at 31 December 2015.
Reserves are assigned to the Bitlyanska, Monastyretska, Debeslavetska, Pokrovskoe fields. The reserves for
Zagoryanska and Pirkovska fields were presented separately due to the fact that these licences were under
renewal at 31 December 2015.
Brend Vik also estimated resources in its evaluation. In particular 30.1 mmboe of contingent resources were
assigned to the Bitlyanska, Monastyretska, Pokrovska licences; 8.8 mmboe were assigned to Zagoryanska and
Pirkovska licences which were under renewal at 31 December 2015. In terms of Prospective Resources, 9.5
mmboe were assigned to Bitlyanska, Monastyretska, Debeslavetska, Cheremkhivska, Pokrovska and Slobodo-
Rungurska licences and 5.0 mmboe to Pirkovska licence which was under renewal at 31 December 2015.
16
CADOGAN PETROLEUM PLC
Corporate Responsibility
_______________________________________________________________________________________
The Board recognises the requirement under Section 414C of the Companies Act 2006 (the “Act”) to detail
information about employees, human rights and community issues, including information about any
policies it has in relation to these matters and the effectiveness of these policies.
The Group considers the sustainability of its business as a key and competitive element of its strategy.
Meeting the expectations of our stakeholders is the way in which we secure our licence to operate, and to
be recognised in the values we declare is the best added value we can bring in order to profitably prolong
our business. The Board recognises that it has an obligation to protect the health and safety of its
employees and communities as well as the environment it impacts; these are the key drivers for the
sustainable development of the Company’s activity. Our Code of Ethics and the adoption of internationally
recognised best practices and standards are our, and our employees’, references for conducting our
operations.
Our activities are carried out in accordance with a policy manual, endorsed by the Board, which has been
disseminated to all staff. The manual includes policies on business conduct and ethics, anti-bribery, the
acceptance of gifts and hospitality and whistleblowing.
The Group’s Health, Safety and Environment Manager reports directly to the Chief Operations Officer. His
role is to ensure that the Group has developed suitable procedures, and that operational management
have incorporated them into daily operations and that he has the necessary level of autonomy and
authority to discharge his duties effectively and efficiently.
The Board believes that health and safety procedures and training across the Group should be to the
standard expected in any company operating in the oil and gas sector. Accordingly, it has set up a
Committee to review and agree health and safety initiatives and report back on progress. Management is
regularly reporting to the Board on health, safety and environment and key safety and environmental
issues which are discussed by the Executive Management. The Health, Safety and Environment Committee
Report is on page 35 to 36.
Health, safety and environment
The Group has developed an integrated Health, Safety and Environmental (“HSE”) management system.
The system aims, by a continuous improvement programme, to ensure that a safety and environmental
protection culture is embedded in the organisation. The HSE management system ensures that both
Ukrainian and international standards are met, with the Ukrainian HSE legislation requirements taken as an
absolute minimum although the international requirements are in the main met or exceeded. All the
Group’s local operating companies in east and west Ukraine have all the necessary documentation and
systems in place to ensure compliance with Ukrainian legislation.
A proactive approach to the prevention of incidents has been in place throughout 2015, which relies on an
observation cards system and reliable near-miss reporting. Staff training on HSE matters is recognised as
the key factor to generate continuous improvement. In-house training is provided to help staff meet
international standards and follow best practice. At present, special attention is being given to training on
risk assessments, emergency response, incident prevention, reporting and investigation, as well as hazard
and operational (“HAZOP”) studies to ensure that international standards are maintained even if they
exceed those required by Ukrainian legislation.
The Board monitors lost time incidents as a key performance indicator of the business, to reasonably verify
that the procedures in place are robust. The Board has benchmarked safety performance against the HSE
performance index measured and published annually by the International Association of Oil & Gas
Producers. In 2015, the Group recorded close to 324,000 man hours worked. There were no Lost Time
17
CADOGAN PETROLEUM PLC
Corporate Responsibility (continued)
_______________________________________________________________________________________
Incidents (“LTIs”) recorded in 2015 and over two million man hours have been worked without an LTI since
the previous incident was recorded in July 2011.
Vehicle safety and driving conduct remain among the Company’s priorities in controlling hazards and
preventing injuries. As of the end of 2015, the Company has recorded almost ten million kilometres driven
without an LTI.
During the year 2015 the Company continued to monitor the activity’s performances in terms of
greenhouse gas emissions reporting, as well as Company-wide collection of statistical data related to
consumption of electricity and industrial water and fuel consumption by cars, plants and other work sites.
Employees
Wellness and professional development is part of the Company’s sustainable development policy and
wherever possible local staff is recruited; procedures are in place to ensure that all recruitments are
undertaken on a transparent and fair basis with no discrimination against applicants. Each operating
company has its own Human Resources staff to ensure that the Group’s employment policies are properly
implemented and followed. As required by Ukrainian legislation, Collective Agreements are in place with
the Group’s Ukrainian subsidiary companies which provide an agreed level of staff benefits and other
safeguards for employees. The Group’s Human Resources policy covers key areas such as equal
opportunities, wages, overtime and non-discrimination. All staff is aware of the Group’s grievance
procedures.
The contingent E&P industry conditions forced the Group to reduce the level of staffing; the concerned
personnel were duly informed and all the necessary procedures for a smooth solution were applied. Local
qualified contractors are considered for supplementing the required expertise when and to the extent
which is necessary.
Sufficient levels of health insurance are provided by the Group to employees to ensure they have access to
good medical facilities. Each employee’s training needs are assessed on an individual basis to ensure that
their skills are adequate to support the Group’s operations, and to help them to develop.
Gender diversity
The Board of Directors of the Company comprised six male Directors throughout the year to 31 December
2015. The appointment of any new Director is made on the basis of merit. See pages 20 to 21 for more
information on the composition of the Board. In 2015 the new nominated Company Secretary is female.
As at 31 December 2015, the Company comprised a total of 84 employees, as follows:
Non-executive directors
Executive directors
Management, other than Executive directors
Other employees
All employees
Male Female
-
-
3
22
25
4
3
7
45
59
Human rights
Cadogan’s commitment to the fundamental principles of human rights is embedded in our HSE polices and
throughout our business processes. We promote the core principles of human rights pronounced in the UN
Universal Declaration of Human Rights. Our support for these principles is embedded throughout our Code
of Conduct, our employment practices and our relationships with suppliers and partners wherever we do
business.
Community
18
Corporate Responsibility (continued)
_______________________________________________________________________________________
CADOGAN PETROLEUM PLC
The Group’s activities are carried out in rural areas of Ukraine and the Board is aware of its responsibilities
to the local communities in which the Group operates and from which some of the employees are
recruited. At current operational sites, management works with the local councils to ensure that the impact
of operations is as low as practicable by putting in place measures to mitigate their effect. Key projects
undertaken include improvement of the road infrastructure in the area, which provides easier access to the
operational sites while at the same time minimising inconvenience for the local population and allowing
improved road communications in the local communities. Specific community activities are undertaken for
the direct benefit of local kindergartens, schools, sporting facilities and medical services, as well as other
community-focused facilities. All activities are followed and supervised by managers who are given specific
responsibility for such tasks.
The Group’s local companies see themselves as part of the community and are involved not only with
financial assistance, but also with practical help and support. The recruitment of local staff generates
additional income for areas that otherwise are predominantly dependent on the agricultural sector.
Approval
The Strategic Report was approved by the Board of Directors on 25 April 2016 and signed on its behalf by:
Marta Halabala
Company Secretary
25 April 2016
19
Board of Directors
_______________________________________________________________________________________
CADOGAN PETROLEUM PLC
Zev Furst, 68, American
Independent Non-executive Chairman
Appointed to the Board on 2 August 2011, Mr Furst is a leading global business and communications
strategist who has advised political leaders, foreign principals and corporate executives of Fortune 100
companies. He is the Chairman and CEO of First International Resources, an international corporate and
political consulting firm he founded in 1992. Mr Furst specialises in providing strategic counsel on crisis
management, market entry, corporate positioning and personal reputational issues. In recent years, he has
also advised and consulted with candidates running for national office in Israel, Japan, Mexico and Ukraine.
In 1986, Mr Furst was a founding partner of Meridian Resources and Development Ltd, an international
commodities trading company specialising in chemicals and petroleum products.
Mr Furst currently serves as Chairman of the International Board of the Peres Center for Peace and is a
member of the Advisory Board of the Kennan Institute in Washington, DC. He has written and lectured
extensively on international affairs, business and political strategy and the role of media in politics and
diplomacy.
Mr Furst is Chairman of the Company’s Nomination Committee and a member of the Remuneration
Committee.
Guido Michelotti, 61, Swiss
Chief Executive Officer
Mr Michelotti was appointed to the Board of Directors as Chief Executive Officer on 25 June 2015. An Oil &
Gas executive with over 30 years of international experience across the entire E&P cycle, he spent more
than 10 years in senior executive roles with eni, leading E&P companies as well as managing major capital
projects.
Prior to joining Cadogan he was CEO of a Luxembourg based Private Equity fund investing in E&P.
Mr Michelotti is a Senior Advisor to the Energy Practice of the Boston Consulting Group, a member of the
Society of Petroleum Engineers (SPE) and a former member of SPE’s Industry Advisory Council.
Bertrand des Pallieres, 49, French
Chief Trading Officer
Mr des Pallieres was appointed as Chief Executive Officer on 1 August 2011, having joined the Board as a
non-executive Director on 26 August 2010. Mr des Pallieres is also the CEO of SPQR Capital Holdings SA, a
major shareholder of the Company. On 22 June 2015, Mr des Pallieres was appointed as Chief Trading
Officer.
Previously he was the Global Head of Principal Finance and member of the Global Market Leadership Group
of Deutsche Bank from 2005 to 2007. From 1992 to 2005 he held various positions at JPMorgan including
Global Head of Structured Credit, European Head of Derivatives Structuring and Marketing, and Co-Head of
sales for Europe, Middle East and Africa. He is a non-executive director of Versatile Systems Inc. listed on
the Toronto and London Stock Exchanges and Equus Total return, Inc., listed on the NYSE.
Mr des Pallieres is a member of the Nomination Committee.
Adelmo Schenato, 64, Italian
Chief Operating Officer
Mr Schenato was appointed to the Board as Chief Operating Officer on 25 January 2012. He joined the
Company after a 35 year career at Eni S.p.A (“Eni”), the Italian integrated energy business, where he served
in senior global and regional positions.
20
CADOGAN PETROLEUM PLC
Board of Directors (continued)
_______________________________________________________________________________________
His global roles at Eni included Well Operations Research and Development and Technical Management,
and Vice President HSE & Sustainability. His regional roles include General Manager of Tunisia, Gabon and
Angola as well as CEO of Eni’s Italian gas storage company.
Mr Schenato is a member of the Health, Safety and Environment Committee.
Gilbert Lehmann, 70, French
Senior Independent non-executive Director
Mr Lehmann was appointed to the Board on 18 November 2011. He is currently acting as an adviser to the
Executive Board of Areva, the French nuclear energy business, having previously been its Deputy Chief
Executive Officer responsible for finance. He is also a former Chief Financial Officer and deputy CEO of
Framatone, the predecessor to Areva, and was CFO of Sogee, part of the Rothschild Group. Mr Lehmann is
also Deputy Chairman and Chairman of the Audit Committee of Eramet, the French minerals and alloy
business. He is Deputy Chairman and Audit Committee Chairman of Assystem SA, the French engineering
and innovation consultancy. He was Chairman of ST Microelectronics NV, one of the world’s largest
semiconductor companies, from 2007 to 2009, and stepped down as Vice Chairman in 2011.
Mr Lehmann is currently Chairman of the Company’s Audit Committee and a member of the Remuneration
and Nomination Committees.
Michel Meeùs, 63, Belgian
Non-Independent non-executive Director
Mr Meeùs was appointed as a Non-executive Director on 23 June 2014. Mr. Meeùs is currently acting as
Chairman of the Board of Directors of Theolia, an independent international developer and operator of
wind energy projects, of which he is a major shareholder. Since 2007, he has been a director within the
Alcogroup SA Company (which gathers the ethanol production units of the homonymous group), as well as
within some of its subsidiaries. Before joining Alcogroup, Mr Meeùs carried out a career in the financial
sector, at Chase Manhattan Bank in Brussels and London, then at Security Pacific Bank in London, then
finally at Electra Kingsway Private Equity in London.
Enrico Testa, 64, Italian
Independent non-executive Director
Appointed to the Board on 1 October 2011, Mr Testa has a long and varied background in the energy
market. He was Chairman of the Board of ACEA (the Rome electricity and water utility company) from 1996
to 2002. He was Chairman of the Board of Enel S.p.A, the major Italian electricity supplier, during its
privatisation. From 2005 to 2009 he was Chairman of Roma Metropolitane, the Rome council-owned
company constructing new underground lines. He was also Chairman of the Organising Committee for the
20th World Energy Congress held in Rome in November 2007, Senior Partner at the Franco Bernabè Group
which owns several investments in the IT sector from 2002 to 2005 he was member of the Advisory Board
of Carlyle Europe and has been Chairman of the Italian Nuclear Forum since 2010. In addition, between
2004 and August 2012 Mr Testa was Managing Director of Rothschild S.p.A.
He is currently Chairman of the AIM listed telecommunications company Telit Communications Plc, Vice
Chairman of Intecs S.p.A and Chairman of E.VA – Energie Valsabbia S.p.A. – a company developing
hydropower and solar generating plants.
Mr Testa is Chairman of the Company’s Remuneration Committee and a member of the Audit and
Nomination Committees.
21
Report of the Directors
_______________________________________________________________________________________
CADOGAN PETROLEUM PLC
Directors
The Directors in office during the year and at the date of this report are as shown below:
Non-executive Directors
Zev Furst (Chairman)
Gilbert Lehmann
Michel Meeùs
Enrico Testa
Directors’ re-election
Executive Directors
Guido Michelotti
Bertrand des Pallieres
Adelmo Schenato
The Board has decided previously that all Directors must be subject to annual election by shareholders, in
accordance with the best practice guidance for FTSE 350 companies contained in the UK Corporate
Governance Code that was issued in September 2014 by the Financial Reporting Council (the ‘Code’). As such,
all of the Directors will be seeking re-election at the Annual General Meeting to be held on 22 June 2016.
The biographies of the Directors in office at the date of this report are shown on pages 20 and 21.
Appointment and replacement of Directors
The Board may appoint any individual willing to act as a Director either to fill a vacancy or act as an additional
Director. The appointee may hold office only until the next annual general meeting of the Company
whereupon his or her election will be proposed to the shareholders.
The Company’s Articles of Association prescribe that there shall be no fewer than three Directors and no
more than fifteen.
Directors’ interests in shares
The beneficial interests of the Directors in office as at 31 December 2015 and their connected persons in the
Ordinary shares of the Company at 31 December 2015 are set out below.
Director
Z Furst
G Michelotti
B des Pallieres
G Lehmann
M Meeùs
A Schenato
E Testa
Number of
Shares
-
-
200,000
-
26,000,000
-
-
Directors’ indemnities and insurance
The Company continues to maintain Directors’ and Officers’ Liability Insurance. The Company’s Articles of
Association provide, subject to the provisions of the Companies Act 2006, an indemnity for Directors in
respect of any liability incurred in connection with their duties, powers or office. Save for such indemnity
provisions, there are no qualifying third party indemnity provisions.
Powers of Directors
The Directors are responsible for the management of the business and may exercise all powers of the
Company (including powers to issue or buy back the Company’s shares), subject to UK legislation, any
directions given by special resolution and the Articles of Association. The authorities to issue and buy back
shares, granted at the 2015 Annual General Meeting, remains unused.
22
Report of the Directors (continued)
_______________________________________________________________________________________
CADOGAN PETROLEUM PLC
Dividends
The Directors do not recommend payment of a dividend for the year to 31 December 2015 (2014: nil).
Principal activity and status
The Company is registered as a public limited company (registration number 05718406) in England and Wales.
Its principal activity is oil and gas exploration, development and production.
Structure of share capital
The authorised share capital of the Company is currently £30,000,000 divided into 1,000,000,000 Ordinary
shares of 3 pence each. The number of shares in issue as at 31 December 2015 was 231,091,734 Ordinary
shares of 3 pence each with a nominal value of £6,932,752. The Companies (Acquisition of Own Shares)
(Treasury Shares) Regulations 2003 allow companies to hold shares in treasury rather than cancel them.
Following the consolidation of the issued capital of the Company on 10 June 2008, there were 66 residual
Ordinary shares which were transferred to treasury. No dividends may be paid on shares whilst held in
treasury and no voting rights attach to shares held in treasury. Total voting rights amount to 231,091,668.
Rights and obligations of Ordinary shares
On a show of hands at a general meeting every holder of Ordinary shares present in person or by proxy and
entitled to vote shall have one vote and, on a poll, every member present in person or by proxy, shall have
one vote for every Ordinary share held. In accordance with the provisions of the Company’s Articles of
Association, holders of Ordinary shares are entitled to a dividend where declared and paid out of profits
available for such purposes. On a return of capital on a winding up, holders of Ordinary shares are entitled to
participate in such a return.
Exercise of rights of shares in employee share schemes
None of the share awards under the Company’s incentive arrangements are held in trust on behalf of the
beneficiaries.
Agreements between shareholders
The Board is unaware of any agreements between shareholders which may restrict the transfer of securities
or voting rights.
Restrictions on voting deadlines
The notice of any general meeting of the Company shall specify the deadline for exercising voting rights and
appointing a proxy or proxies to vote at a general meeting. It is the Company’s policy at present to take all
resolutions at a general meeting on a poll and the results of the poll are published on the Company’s website
after the meeting.
Substantial shareholdings
As at 31 December 2015 and 25 April 2016, the Company had been notified of the following interests in
voting rights attached to the Company’s shares:
Major shareholder
SPQR Capital Holdings SA
Mr Pierre Salik
Mr Michel Meeùs
Credit Agricole Indosuez (Suisse) SA
Kellet Overseas Inc.
Credit Suisse Private Banking
Cynderella Trust
31 December 2015
Number of
shares held
67,298,498
40,550,000
26,000,000
14,383,000
14,002,696
9,629,091
7,657,886
% of total
voting rights
29.12
17.55
11.25
6.22
6.06
4.17
3.31
25 April 2016
Number of
shares held
67,298,498
40,550,000
26,000,000
14,383,000
14,002,696
9,062,091
7,657,886
% of total
voting rights
29.12
17.55
11.25
6.22
6.06
3.92
3.31
23
CADOGAN PETROLEUM PLC
Report of the Directors (continued)
_______________________________________________________________________________________
Amendment of the Company’s Articles of Association
The Company’s Articles of Association may only be amended by a special resolution of shareholders.
Disclosure of information to auditor
As required by section 418 of the Companies Act 2006, each of the Directors as at 25 April 2016 confirms that:
(a) so far as the Director is aware, there is no relevant audit information of which the Company’s auditor is
unaware; and
(b) the Director has taken all the steps that he ought to have taken as a Director in order to make himself
aware of any relevant audit information and to establish that the Company’s auditor is aware of that
information.
This confirmation is given and should be interpreted in accordance with section 418 of the Companies Act
2006.
Going concern
After making enquiries, the Directors have a reasonable expectation that the Company and the Group have
adequate resources to continue in operational existence for the foreseeable future. Accordingly, they
continue to adopt the going concern basis in preparing the Consolidated and Company Financial Statements.
For further detail refer to the detailed discussion of the assumptions outlined in note 3(b) to the Consolidated
Financial Statements.
Change of control – significant agreements
The Company has no significant agreements containing provisions which allow a counterparty to alter and
amend the terms of the agreement following a change of control of the Company.
Should a change in control occur then certain Executive directors are entitled to a payment of salary and
benefits for a period of six months.
Global greenhouse gas emissions
This section contains information on greenhouse gas (“GHG”) emissions required by the Companies Act 2006
(Strategic Report and Directors' Report) Regulations 2013 (the “Regulations”).
Reporting year
The reporting year coincides with the Company's fiscal year, which is 1 January 2015 to 31 December 2015.
24
Report of the Directors (continued)
_______________________________________________________________________________________
CADOGAN PETROLEUM PLC
Methodology
The principal methodology used to calculate the emissions is drawn from the ‘Environmental Reporting
Guidelines: including mandatory greenhouse gas emissions reporting guidance (June 2013)’, issued by the
Department for Environment, Food and Rural Affairs (“DEFRA”). Additionally, ‘Petroleum Industry Guidelines
for Reporting Greenhouse Gas Emissions (2nd edition, May 2011)’ were used to cover issues specific for the
petroleum industry. DEFRA GHG conversion factors for company reporting were utilised to calculate the CO2
equivalent of emissions from various sources. In certain limited cases, where information was available only
for a part of the reporting period, the total emissions were extrapolated by extending the available
information to cover the full reporting period. This occurred where it was not possible to retrieve information
on the amount of heating supplied to one of the Company’s office buildings, due to an office move.
The Company has reported on all of the emission sources required under the Regulations.
The Company does not have responsibility for any emission sources that are not included in its consolidated
statement.
Consolidation approach and organisation boundary
An operational control approach was used to define the Company's organisational boundary and
responsibility for GHG emissions. All material emission sources within this boundary have been reported
upon, in line with the requirements of the Regulations.
Scope of reported emissions
Emissions data from the sources within Scope 1 and Scope 2 of the Company's operational boundaries is
detailed below. This includes direct emissions from assets that fall within the Company’s organisational
boundaries (Scope 1 emissions), as well as indirect emissions from energy consumption, such as purchased
electricity and heating (Scope 2 emissions).
Intensity ratio
In order to express the GHG emissions in relation to a quantifiable factor associated with the Company's
activities, wellhead production of crude oil, condensates and natural gas has been chosen as the
normalisation factor for calculating the intensity ratio. This will allow comparison of the Company’s
performance over time, as well as with other companies in the Company’s peer group.
Total greenhouse gas emissions data for period from 1 January 2015 to 31 December 2015
Greenhouse gas emissions source
2015
2014
Scope 1
Direct emissions, including combustion of fuel and operation of
facilities (tonnes of CO2 equivalent)
Scope 2
Indirect emissions from energy consumption, such as electricity
and heating purchased for own use (tonnes of CO2 equivalent)
Total (Scope 1 & 2)
Normalisation factor
Barrels of oil equivalent
Intensity ratio
Emissions reported above normalised to tonnes of CO2e per total
wellhead production of crude oil, condensates and natural gas, in
thousands of Barrel of Oil Equivalent
554
842
741
1,295
778
1,620
42,493
41,363
30.47
39.15
25
Report of the Directors (continued)
_______________________________________________________________________________________
CADOGAN PETROLEUM PLC
2016 Annual General Meeting
The 2016 Annual General Meeting (“AGM”) of the Company will be an opportunity to communicate with
shareholders and the Board welcomes their participation. Board members constantly strive to keep in touch
with shareholder opinion and to discuss strategy and governance issues with them through direct contacts.
The Board looks forward to welcoming shareholders to the AGM and shareholder information will be
enclosed as usual with the AGM notice to facilitate voting and feedback in the usual way.
The AGM notice will be issued to shareholders well in advance of the meeting with notes to provide an
explanation of all of the resolutions to be put to the AGM. The Board considers that the resolutions to be put
to the AGM are in the best interests of the Company and the shareholders as a whole. Accordingly, the
Directors unanimously recommend that the shareholders vote in favour of the proposed resolutions at the
AGM, as the Directors intend to do in respect of their own beneficial holdings.
Board and committee members will be available for shareholders participation at the AGM. All relevant
shareholder information including the annual report for 2015 and any other announcements will be published
on our website – www.cadoganpetroleum.com
This Report of Directors comprising pages 22 to 26 has been approved by the Board and signed on its behalf
by:
Marta Halabala
Company Secretary
25 April 2016
26
CADOGAN PETROLEUM PLC
Viability statement
_______________________________________________________________________________________
In accordance with provision C2.2 of the 2014 revision of the UK Corporate Governance Code, the Board
has assessed the prospect of the Group over a longer period than the twelve months required by the ‘Going
Concern’ provision. The Board selected three-year period as appropriate for the assessment for the reason
that the Group’s strategy is aligned with a three-year view and that the current volatility in commodity
markets makes confidence in a longer assessment of prospects highly challenging.
The Board has conducted a stress test in three scenarios as well as assessment of the principal risks facing
the Group (as set out on pages 13 to 15), including those that would threaten its business model, future
performance, solvency or liquidity. These scenarios include:
consideration of potential impact of political situation and renewal of the licences that will expire
during following three years
foreign exchange movements to which the Group is exposed as a result of its operations in Ukraine
downturn in the price and demand of hydrocarbon products most impacting Group’s operations
Based on the results of the related analysis and taking account of the Group’s current position, particularly
its cash availability, and the principal risks, and the effect of the licences that expired during the year the
Board has a reasonable expectation that the Group will be able to continue its operation and meet its
liabilities as they fall due over the three-year period of the assessment.
27
CADOGAN PETROLEUM PLC
Corporate Governance Statement
This Corporate Governance Statement forms part of the Directors’ Report
_______________________________________________________________________________________
The Board of the Company is committed to the highest standards of corporate governance and bases its
actions on the principles set out in the Code issued by the Financial Reporting Council (‘FRC’) in September
2014 (the ‘Code’). The Code can be found on the FRC’s website at www.frc.org.uk
This statement describes how the Group applies the principles of the Code. On 20 December 2011 the
Company’s listing category on the London Stock Exchange was transferred from ‘Premium Listing’ to
‘Standard Listing’. Although companies with a standard listing are subject to less stringent corporate
governance requirements, the Board has decided that the Group will continue to govern itself in accordance
with the principles of the Code and explain why it has chosen not to comply with any of the provisions of the
Code.
During the year under review, the Group has complied with the Code’s provisions with the following
exceptions:
Code provision A.4.2 – During the year, the Chairman did not hold meetings with the non-executive
Directors without the executives present
Code provision E.1.1 – The Senior Independent Director has not attended meetings with major
shareholders
The reasons for these two areas of non-compliance are as follows:
Although the Chairman did not hold formal meetings of the non-executive Directors during the year,
regular discussions took place by telephone and email.
The Senior Independent Director, Mr Lehmann, did not attend meetings with major shareholders as
this responsibility was undertaken by the Chairman and the Executive Directors. Mr Lehmann is
available to shareholders who have concerns that they feel would be inappropriate to raise via the
Chairman or Executive Directors.
Board
The Board provides leadership and oversight. The Board comprises a non-executive Chairman, Chief Executive
Officer, Chief Trading Officer, Chief Operating Officer, two independent non-executive Directors and one non-
executive Director who is not deemed independent. The membership of the Board and biographical details
for each of the Directors are incorporated into this report by reference and appear on page 20 and 21.
As at the date of this report, the Chairman had no significant commitments that might affect his ability to
allocate sufficient time to the Company to discharge his responsibilities effectively.
Under the Company’s Articles of Association, all Directors must seek re-election by members at least once
every three years. However, the Board has agreed that all Directors will be subject to annual election by
shareholders, as recommended by the Code in respect of FTSE 350 companies. Accordingly, all members of
the Board will be standing for re-election at the 2016 Annual General Meeting due to be held on 22 June
2016.
The Board has a formal schedule of matters specifically reserved for it to decide, including approval of
acquisitions and disposals, major capital projects, financial results, Board appointments, dividend
recommendations, material contracts and Group strategy.
The Chairman, in conjunction with the Company Secretary, plans the programme for the Board during the
year. The agenda for Board and Committee meetings is considered by the relevant Chairman and issued with
supporting papers during the week preceding the meeting. For each Board meeting, the Directors receive a
Board pack including management accounts, briefing papers on commercial and operational matters and
major capital projects including acquisitions. The Board also receives briefings from key management on
specific issues. Eight Board meetings took place during 2015.The attendance of those Directors in place at the
year end at Board and Committee meetings during the year was as follows:
28
Corporate Governance Statement (continued)
_______________________________________________________________________________________
CADOGAN PETROLEUM PLC
No. Held
No. Attended:
Z Furst
G Michelotti
B des Pallieres
G Lehmann
M Meeùs
A Schenato
E Testa
Audit
Committee
3
Nomination
Committee
1
Remuneration
Committee
4
Board
8
7
3
6
7
7
7
5
n/a
n/a
n/a
3
n/a
n/a
3
1
n/a
1
1
n/a
n/a
-
4
n/a
n/a
4
n/a
n/a
4
A procedure exists for the Directors, in the furtherance of their duties, to take independent professional
advice if necessary, under the guidance of the Company Secretary and at the Company’s expense. All
Directors have access to the advice and services of the Company Secretary, who is responsible to the
Chairman for ensuring that Board procedures are complied with and that applicable rules and regulations
are followed.
Board independence
The roles and responsibilities of the Chairman and Chief Executive Officer are separate. A formal division of
each individual’s responsibilities has been agreed and documented by the Board. Mr Lehmann is the Senior
Independent Director.
The non-executive Directors bring an independent view to the Board’s discussions and the development of
its strategy. Their range of experience ensures that management’s performance in achieving the business
goals is challenged appropriately. Two non-executive Directors, Lehmann and Testa are considered by the
Board in accordance with the Code, to be independent. Michel Meeùs, who is a significant shareholder, is
not considered to be independent. The letters of appointment for the independent non-executive Directors
are available for review at the Registered Office and prior to the Annual General Meeting.
Responsibilities and membership of Board Committees
The Board has agreed written terms of reference for the Nomination Committee, Remuneration Committee
and Audit Committee. The terms of reference for all three Board Committees are published on the
Company’s website, www.cadoganpetroleum.com, and are also available from the Company Secretary at
the Registered Office. A review of the terms of reference, membership and activities of all Board
Committees is provided on pages 31 to 38.
Board performance evaluation
Principle B.6 of the Code recommends that boards undertake a formal and rigorous annual evaluation of its
own performance and that of its committees and individual directors. The Board is mindful that it needs to
continually monitor and identify ways in which it might improve its performance and recognises that board
evaluation is a useful tool for enhancing a board’s effectiveness. For the year ended 31 December 2015, the
Board opted to undertake self-evaluation by way of a questionnaire designed specifically to assess the
strengths of the Board and identify any areas for development.
The process was led by Mr Furst as Chairman and the evaluation of the Chairman’s performance was led by
Mr Lehmann as the Senior Independent Director. The Board discussed the evaluation questionnaire
findings, which were also used by the Nomination Committee in its annual assessment of the Board’s
composition. The Directors are committed to ensuring that the Board continues to represent a broad
balance of skills, experience, independence and knowledge and that there is sufficient diversity within the
composition of the Board. All appointments are made on merit against objective criteria – which include
gender and diversity generally – in the context of the requirements of the business and the overall balance
of skills and backgrounds that the Board needs to maintain in order to remain effective.
29
Corporate Governance Statement (continued)
_______________________________________________________________________________________
CADOGAN PETROLEUM PLC
Internal control
The Directors are responsible for the Group’s system of internal control and for maintaining and reviewing
its effectiveness. The Board has delegated responsibility for the monitoring and review of the Group’s
internal controls to the Audit Committee. The Group’s systems and controls are designed to safeguard the
Group’s assets and to ensure the reliability of information used both within the business and for
publication.
Systems are designed to manage, rather than eliminate, the risk of failure to achieve business objectives
and can provide only reasonable, and not absolute, assurance against material misstatement or loss.
The key features of the internal control systems which operated during 2015 and up to the date of signing
the Financial Statements are documented in the Group’s Corporate Governance Policy Manual and Finance
Manual. These manuals have been circulated throughout the Group. In addition, the Company’s joint
venture entities adopted policies that mirror the Company’s own, except Westgasinvest LLC (“WGI”), where
Eni’s policies are adopted.
Day-to-day responsibility for the management and operations of the business has been delegated to the
Chief Executive Officer and senior management.
Certain specific administrative functions are controlled centrally. Taxation, treasury and insurance functions
report to the Group Director of Finance who reports directly to the Chief Executive Officer. Trading
business is managed by the Chief Trading Officer who reports directly to Chief Executive Officer. The legal
function is managed by the General Counsel who reports to the Chief Executive Officer. The Health, Safety
and Environment functions report to the Chief Operating Officer. An overview of the Group’s treasury
policy is set out on page 12.
The Group does not have an internal audit function. Due to the small scale of the Group’s operations at
present, the Board does not feel that it is appropriate or economically viable to have this function in place.
The Audit Committee will continue to consider the position annually.
The Board has reviewed the process, which has been in place from the start of the year to the date of
approval of this report and which is in accordance with the Code. During the course of its review of the risk
management and internal control systems, the Board has not identified nor been advised of any failings or
weaknesses which it has deemed to be significant. Therefore a confirmation in respect of necessary actions
has not been considered appropriate.
Relations with shareholders
The Chairman and Executive Directors of the Company have a regular dialogue with analysts and
substantial shareholders. The outcome of these discussions is reported to the Board and discussed in detail.
Mr Lehmann, as the Senior Independent Director, is available to shareholders who have questions that they
feel would be inappropriate to raise via the Chairman or Executive Directors.
The Annual General Meeting is used as an opportunity to communicate with all shareholders. In addition,
financial results are posted on the Company’s website, www.cadoganpetroleum.com, as soon as they are
announced. The Notice of the Annual General Meeting is contained also on the Company’s website,
www.cadoganpetroleum.com. It is intended that the Chairmen of the Nomination, Audit and Remuneration
Committees will be present at the Annual General Meeting. The results of all resolutions will be published
on the Company’s website, www.cadoganpetroleum.com
30
CADOGAN PETROLEUM PLC
Board Committee Reports
_______________________________________________________________________________________
Audit Committee Report
The Audit Committee is appointed by the Board, on the recommendation of the Nomination Committee, from
the non-executive Directors of the Group. The Audit Committee’s terms of reference include all matters
indicated by the Code. They are reviewed annually by the Audit Committee and any changes are then referred
to the Board for approval. The terms of reference of the Committee are published on the Company’s website,
www.cadoganpetroleum.com, and are also available from the Company Secretary at the Registered Office.
Two members constitute a quorum.
Responsibilities
To monitor the integrity of the annual and interim financial statements, the accompanying reports to
shareholders, and announcements regarding the Group’s results.
To review and monitor the effectiveness and integrity of the Group’s financial reporting and internal
financial controls.
To review the effectiveness of the process for identifying, assessing and reporting all significant business
risks and the management of those risks by the Group.
To oversee the Group’s relations with the external auditor and to make recommendations to the Board,
for approval by shareholders, on the appointment and removal of the external auditor.
To consider whether an internal audit function is appropriate to enable the Audit Committee to meet its
objectives.
To review the Group’s arrangements by which staff of the Group may, in confidence, raise concerns
about possible improprieties in matters of financial reporting or other matters.
Assessment of the effectiveness of the external auditor
The Committee has assessed the effectiveness of the external audit process. They did this by:
Reviewing the 2015 external audit plan;
Discussing the results of the audit including the auditor’s views on material accounting issues and key
judgements and estimates, and their audit report;
Considering the robustness of the audit process;
Reviewing the quality of the service and people provided to undertake the audit; and
Considering their independence and objectivity.
Governance
Mr Testa and Mr Lehmann, who are both independent non-executive Directors under provision B.1.1 of the
Code, are the members of the Audit Committee. The Audit Committee is chaired by Mr Lehmann who has
recent and relevant financial experience as a former finance director of major European companies as well as
holding several non-executive roles in major international entities.
At the invitation of the Audit Committee, the Group Director of Finance and external auditor regularly attend.
The Company Secretary attends all meetings of the Audit Committee.
The Audit Committee also meets the external auditor without management being present.
Activities of the Audit Committee
During the year, the Audit Committee discharged its responsibilities as follows:
Financial statements
The Audit Committee examined the Group’s consolidated and Company’s financial statements and, prior to
recommending them to the Board, considered the appropriateness of the accounting policies adopted and
reviewed critical judgements, estimates and underlying assumptions and whether the financial statements
represented a true and fair view.
31
CADOGAN PETROLEUM PLC
Board Committee Reports (continued)
_______________________________________________________________________________________
Significant issues relating to the 2015 financial statements
For the year ended 31 December 2015 the Audit Committee identified the significant issues that should be
considered in relation to the financial statements, being areas which may be subject to heightened risk of
material misstatement.
Impairment of E&E and D&P
The Audit Committee considered the Group’s intangible exploration and evaluation assets and interests in
exploration and evaluation assets held through joint ventures individually for any indicators of impairment,
including those indicators set out in IFRS 6 Exploration for and Evaluation of Mineral Resources. The
uncertainties on the timing and outcome of the licence renewal and award process and the persistent difficult
situation faced by Ukraine have suggested a prudent approach to the treatment of E&E assets. The Audit
Committee agreed to the identified indicators of impairment and recognised impairment charge of oil and gas
assets of $10.1 million in the financial statements as at 31 December 2015. The Audit Committee has
discussed the Group’s exploration and evaluation assets with both management and the auditors and concurs
with the treatment adopted.
Following discussions with management and the auditor, including discussing the range of sensitivities, the
Committee is satisfied with results of the assessment of the recoverable amount of development and
production assets. The recoverability assessment involves the use of significant judgment both in the review
of impairment indicators and, in any subsequent impairment test, the consideration of estimates which are
dependent on assumptions about the future.
Reserves
Oil and gas reserves, as discussed in the Statement of Reserves and Resources, are based on the Independent
Reserves and Resources Evaluation performed by Brend Vik, referred to 31 December 2015 and concluded in
March 2016.
However, reserves estimates are inherently uncertain, especially under present market volatility or in the
early stages of a field’s life, and are routinely revised over the producing lives of oil and gas fields as new
information becomes available and as economic conditions evolve. The Audit Committee acknowledges that
such revisions may impact the Group’s future financial position and results, in particular, in relation to
impairment testing of oil and gas property, plant and equipment.
Recoverability of investments in joint ventures
Recoverability of the Group’s investments in joint ventures is based on assessment of exploration and
evaluation assets impairment which constitute most of the investments in joint ventures cost. As of 31
December 2015 impairment assessment of the joint ventures’ exploration and evaluation assets was based on
the value in use of the assets held by each individual joint venture company.
Going concern
After making enquiries and considering the uncertainties described above, the Committee has a reasonable
expectation that the Company and the Group have adequate resources to continue in operational existence
for the foreseeable future and consider the going concern basis of accounting to be appropriate. For further
detail refer to the detailed discussion of the assumptions outlined in note 3(b) to the Consolidated Financial
Statements. The Committee also support the Group’s viability statement presented on page 27.
Political and economic situation in Ukraine
Recent political situation in Ukraine has made it necessary for management to assess the extent of its impact
on the Group’s operations and assets.
The Committee reviewed reports from management which considered whether adjustments are required to
the carrying values of assets and the appropriateness of the going concern assumption. As a result
management have concluded that, other than the impacts derived from the Subsoil use tax and the
32
CADOGAN PETROLEUM PLC
Board Committee Reports (continued)
_______________________________________________________________________________________
uncertainties on the timing of the approval process, there were no significant adverse consequences in
relation to the Group’s operations, cash flows and assets that impact the 2015 financial statements.
In discussion with management, the Committee acknowledged the inherent difficulty in making any
assessment as to the eventual outcome of the present political situation and, as a consequence, the difficulty
of making a reliable judgement as to the future impact, if any, on the Group’s business. The Committee
concurs with conclusions reached by management summarised in Note 4 and in Note 31 to the financial
statements.
Internal controls and risk management
The Audit Committee reviews and keeps under review financial and control issues throughout the Group
including the Group’s key risks and the approach for dealing with them.
External auditor
The Audit Committee is responsible for recommending to the Board, for approval by the shareholders, the
appointment of the external auditor.
The Audit Committee considers the scope and materiality for the audit work, approves the audit fee, and
reviews the results of the external auditor’s work. Following the conclusion of each year’s audit, it considers
the effectiveness of the external auditor during the process. An assessment of the effectiveness of the audit
process was made, giving consideration to reports from the auditor on its internal quality procedures. The
Committee reviewed and approved the terms and scope of the audit engagement, the audit plan and the
results of the audit with the external auditor, including the scope of services associated with audit-related
regulatory reporting services. Additionally, auditor independence and objectivity were assessed, giving
consideration to the auditor’s confirmation that its independence is not impaired, the overall extent of non-
audit services provided by the external auditor and the past service of the auditor.
We have also taken account of the latest recommendations of the Code in relation to the regular tendering of
the external audit appointment.
Deloitte LLP was first appointed in 2005. Having satisfied itself as to their qualifications, expertise, resources
and independence and the effectiveness of the audit process, the Audit Committee has recommended to the
Board, for approval by shareholders, the reappointment of Deloitte LLP as the Company’s external auditor.
There is an agreed policy on the engagement of the external auditor for non-audit services to ensure that its
independence and objectivity are safeguarded. Work closely related to the audit, such as taxation or financial
reporting matters, can be awarded to the external auditor by the executive Directors provided the work does
not exceed £50,000 in fees per item. Work exceeding £50,000 requires approval by the Audit Committee. All
other non-audit work either requires Audit Committee approval or forms part of a list of prohibited services,
where it is felt the external auditor’s independence or objectivity may be compromised.
A breakdown of the non-audit fees is disclosed in note 10 to the Consolidated Financial Statements. The
Company’s external auditor, Deloitte LLP, has provided non-audit services (excluding audit related services)
which amounted to $125,000 (2014: $63,000). The Audit Committee has reviewed the level of these services
in the course of the year and is confident that the objectivity and independence of the auditor are not
impaired by the reason of such non-audit work.
The Company is aware that, as a result of the EU Audit Directive and Regulation, companies where the auditor
was appointed between 17 June 2003 and 16 June 2006 will need to conduct a tender and either reappoint
the existing auditor or appoint new auditors for the audit for the year end at 31 December 2017. Accordingly,
the Company intends to conduct a tender following the Annual General Meeting to be held on 22 June 2016.
33
Board Committee Reports (continued)
_______________________________________________________________________________________
CADOGAN PETROLEUM PLC
Internal audit
The Audit Committee considers annually the need for an internal audit function and believes that, due to the
size of the Group and its current stage of development, an internal audit function will be of little benefit to the
Group.
The Group’s whistleblowing policy encourages employees to report suspected wrongdoing and sets out the
procedures employees must follow when raising concerns. The policy, which was implemented during 2008,
was refreshed in 2013 and recirculated to staff as part of a manual that includes the Company’s policies on
anti-bribery, the acceptance of gifts and hospitality, and business conduct and ethics.
Overview
As a result of its work during the year, the Audit Committee has concluded that it has acted in accordance
with its terms of reference and has ensured the independence and objectivity of the external auditor. A
formal review of the Audit Committee’s performance was undertaken after the year end and concluded that
the Committee is effective in its scrutiny of the accounts and financial reporting process, its oversight of risk
management systems and its monitoring of internal control testing.
The Chairman of the Audit Committee will be available at the Annual General Meeting to answer any
questions about the work of the Audit Committee.
Gilbert Lehmann
Chairman of the Audit Committee
25 April 2016
34
CADOGAN PETROLEUM PLC
Board Committee Reports (continued)
_______________________________________________________________________________________
Health, Safety and Environment Committee Report
The Health, Safety and Environment Committee (the ”HSE Committee”) is appointed by the Board, on the
recommendation of the Nomination Committee. The HSE Committee’s terms of reference are reviewed
annually by the HSE Committee and any changes are then referred to the Board for approval. The terms of
reference of the Committee are published on the Company’s website, www.cadoganpetroleum.com, and are
also available from the Company Secretary at the Registered Office. Two members constitute a quorum, one
of whom must be a Director.
Responsibilities
To develop a framework of the policies and guidelines for the management of health, safety and
environment issues within the Group.
Evaluate the effectiveness of the Group’s policies and systems for identifying and managing health,
safety and environmental risks within the Group’s operation.
Assess the policies and systems within the Group for ensuring compliance with health, safety and
environmental regulatory requirements.
Assess the performance of the Group with regard to the impact of health, safety, environmental and
community relations decisions and actions upon employees, communities and other third parties and
also assess the impact of such decisions and actions on the reputation of the Group and make
recommendations to the Board on areas for improvement.
On behalf of the Board, receive reports from management concerning any fatalities and serious
accidents within the Group and actions taken by management as a result of such fatalities or serious
accidents.
Evaluate and oversee, on behalf of the Board, the quality and integrity of any reporting to external
stakeholders concerning health, safety, environmental and community relations issues.
Where it deems it appropriate to do so, appoint an independent auditor to review performance in regard
to health, safety, environmental and community relations matters and review any strategies and action
plans developed by management in response to issues raised and, where appropriate, make
recommendations to the Board concerning the same.
Governance
The HSE Committee was in place throughout 2015. Members of the HSE Committee are Mr Adelmo Schenato
(Chief Operating Officer and HSE Committee Chairman), Ms Snizhana Buryak (HSE Manager), Mr Andriy Bilyi
(Deputy Operations Manager). The Company Secretary attends meetings of the HSE Committee. The HSE
Committee meets monthly to monitor continuously progress by management.
Activities of the Health, Safety and Environment Committee
During the year, the HSE Committee discharged its responsibilities as follows:
The ongoing review of existing HSE policies and procedures, as well as development of new ones, was
regularly discussed at the Committee meetings in relation to the current activities.
Compliance with HSE regulatory requirements was ensured through discussion of any inspections, both
internal ones and those carried out by the Authorities.
HSE performances, key indicators and statistics were a standing item on the agenda, allowing the HSE
Committee to assess the Company’s activities performance by analysing any lost-time incidents (of which
there were none during 2013, 2014 and 2015), near misses, HSE training and other indicators.
Interaction with contractors, Authorities, local communities and other stakeholders was discussed
among other HSE activities.
35
Board Committee Reports (continued)
_______________________________________________________________________________________
CADOGAN PETROLEUM PLC
Overview
As a result of its work during the year, the HSE Committee has concluded that it has acted in accordance with
its terms of reference.
Adelmo Schenato
Chairman of the Health, Safety and Environment Committee
25 April 2016
36
CADOGAN PETROLEUM PLC
Board Committee Reports (continued)
_______________________________________________________________________________________
Nomination Committee Report
The Nomination Committee is appointed by the Board predominantly from the non-executive Directors of the
Group. The Nomination Committee’s terms of reference include all matters indicated by the Code. They are
reviewed annually by the Nomination Committee and any changes are then referred to the Board for
approval. The terms of reference of the Nomination Committee are published on the Company’s website,
www.cadoganpetroleum.com, and are also available from the Company Secretary at the Registered Office.
Two members constitute a quorum.
Responsibilities
To regularly review the structure, size and composition (including the skills, knowledge and experience)
required of the Board compared to its current position and make recommendations to the Board with
regard to any changes.
Be responsible for identifying and nominating for the approval of the Board candidates to fill Board
vacancies as and when they arise.
Before appointment is made by the Board, evaluate the balance of skills, knowledge, experience and
diversity on the Board and, in the light of this evaluation, prepare a description of the role and
capabilities required for a particular appointment.
In identifying suitable candidates, the Nomination Committee shall use open advertising or the services of
external advisers to facilitate the search and consider candidates from a wide range of backgrounds on merit,
taking care that appointees have enough time available to devote to the position.
The Nomination Committee shall also make recommendations to the Board concerning:
Formulating plans for succession for both executive and non-executive Directors and in particular for the
key roles of Chairman and Chief Executive Officer.
Membership of the Audit and Remuneration Committees, in consultation with the Chairmen of those
committees.
The reappointment of any non-executive Director at the conclusion of their specified term of office,
having given due regard to their performance and ability to continue to contribute to the Board in the
light of the knowledge, skills and experience required.
The re-election by shareholders of any Director having due regard to their performance and ability to
continue to contribute to the Board in the light of the knowledge, skills and experience required.
Any matters relating to the continuation in office of any Director at any time including the suspension or
termination of service of an executive Director as an employee of the Company subject to the provisions
of the law and their service contract.
Governance
Mr Zev Furst (Board and Nomination Committee Chairman), Mr Bertrand des Pallieres (Chief Trading Officer),
and Messrs Gilbert Lehmann and Enrico Testa (independent non-executive Directors) are the members of the
Nomination Committee. The Company Secretary attends all meetings of the Nomination Committee.
Activities of the Nomination Committee
The Nomination Committee carried out a review of the size, structure and composition of the Board after the
year end and concluded that it had the appropriate balance of skills, knowledge, independence and
experience. The Nomination Committee recommends the re-election of each of the Directors at the AGM.
Overview
As a result of its work during the year, the Nomination Committee has concluded that it has acted in
accordance with its terms of reference. The Chairman of the Nomination Committee will be available at the
Annual General Meeting to answer any questions about the work of the Nomination Committee.
37
_________________________________________________________________________________
CADOGAN PETROLEUM PLC
Board Committee Reports (continued)
Remuneration Committee
Statement from the Chairman
I am pleased to present the Annual Report on Remuneration for the year ended 31 December 2015.
During 2015 there were no substantial changes made to the Remuneration Policy, nor to the composition of
directors' remuneration, and there was no increase to executive and non-executive directors' salary and fees
in base currency. During 2015 there were no performance payments made.
In June 2015 Mr Guido Michelotti replaced Mr Bertrand des Pallieres as a Chief Executive Officer. Mr des
Pallieres has been appointed as Chief Trading Officer.
The Remuneration Policy 2014 was presented for a binding shareholder vote and approved at the Annual
General Meeting 2015 held on 25 June 2015. No major changes have been made to the Remuneration Policy,
which can be found at our website. Shareholders at the Annual General Meeting will be asked to approve the
Remuneration Policy every three years, unless there is a need to amend the Policy in the interim. The Annual
Report on Remuneration 2015 will be presented for a shareholder vote at the Annual General Meeting 2016
to be held on 22 June 2016.
Given the challenging political situation in Ukraine, the Company’s aim to develop a revised, long-term and
balanced Remuneration Policy aligned to strategy and performance and linked to shareholder preferences
took second precedence last year to other pressing matters. In my statement last year, I explained that the
Company would maintain its current approach to remuneration, already long-term, balanced and aligned to
strategy and performance.
Enrico Testa
Chairman of the Remuneration Committee
25 April 2016
38
_________________________________________________________________________________
CADOGAN PETROLEUM PLC
Annual Report on Remuneration 2015
ANNUAL REPORT ON REMUNERATION
Remuneration Committee Report
The Remuneration Committee is committed to principles of accountability and transparency to ensure that
remuneration arrangements demonstrate a clear link between reward and performance. In its work, the
Remuneration Committee considers fully the principles and provisions of the Code. In designing performance-
related remuneration schemes for executive Directors, the Remuneration Committee has considered and
applied Schedule A of the Code.
Governance
The Remuneration Committee is appointed by the Board from the non-executive Directors of the Company.
The Remuneration Committee’s terms of reference include all matters indicated by the Code. They are
reviewed annually by the Remuneration Committee and any changes are then referred to the Board for
approval. The terms of reference of the Remuneration Committee are published on the Company’s website,
www.cadoganpetroleum.com, and are also available from the Company Secretary at the Registered Office.
The Remuneration Committee consists of Mr Enrico Testa, Mr Zev Furst and Mr Gilbert Lehmann. At the
discretion of the Remuneration Committee, the Chief Executive Officer is invited to attend meetings when
appropriate, but is not present when his own remuneration is being discussed. None of the directors are
involved in deciding their own remuneration. The Remuneration Committee is also supported by the
Company Secretary.
Responsibilities
In summary, the Remuneration Committee’s responsibilities, as set out in its terms of reference, are as
follows:
To determine and agree with the Board the policy for the remuneration of the executive Directors, the
Company Secretary and other members of executive management as appropriate.
To consider the design, award levels, performance measures and targets for any annual or long-term
incentives and approve any payments made and awards vesting under such schemes.
Within the terms of the agreed remuneration policy, to determine the total individual remuneration
package of each executive Director and other senior executives including bonuses, incentive payments and
share options or other share awards.
To ensure that contractual terms on termination, and any payments made, are fair to the individual and
the Company, that failure is not rewarded and that the duty to mitigate loss is fully recognised.
Overview
As a result of its work during the year, the Remuneration Committee has concluded that it has acted in
accordance with its terms of reference. The chairman of the Remuneration Committee will be available at the
Annual General Meeting to answer any questions about the work of the Committee. The Chairman and
Executive Directors of the Company have a regular dialogue with analysts and substantial shareholders, which
includes the subject of Directors’ Remuneration. The outcome of these discussions are reported to the Board
and discussed in detail both there and during meetings of the Remuneration Committee. Mr Lehmann, as the
Senior Independent Director, is available to shareholders who have concerns that they feel would be
inappropriate to raise via the Chairman or Executive Directors.
The Remuneration Committee unanimously recommends that shareholders vote to approve the Annual
Report on Remuneration at the 2016 Annual General Meeting.
39
CADOGAN PETROLEUM PLC
Annual Report on Remuneration 2015 (continued)
_______________________________________________________________________________________
Remuneration consultants
The Remuneration Committee did not take any advice from external remuneration consultants.
Single total figure of remuneration for executive and non-executive directors (audited)
Salary and fees
$
Taxable
benefits
$
Annual
bonus
$
Long-term
incentives
$
Pension
$
Total
$
Executive Directors
2015
242,902
2014
2015
- 15,987
-
2014 2015 2014 2015 2014 2015 2014
357,231 405,433
- 20,734
282,014 333,703
- 18,195
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2015
- 258,889
2014
-
- 357,231 426,167
- 282,014 351,898
G
Michelotti
B des
Pallieres
A
Schenato
Non-executive Directors
Z Furst
G
Lehmann
E Testa
M Meeùs
2015
2014
129,957 140,089
74,165
68,801
2015
-
-
53,512
53,512
57,684
-
-
-
2014 2015 2014 2015 2014 2015 2014
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2015
2014
- 129,957 140,089
74,165
-
68,801
-
53,512
53,512
57,684
-
In 2015 there was no increase in executive and non-executive directors' salary in base currency. The
difference in pay represents the change in exchange rate between the base currency and USD as a reporting
currency.
Notes to the table
In June 2015 Mr Guido Michelotti was appointed as Chief Executive Officer. Mr Michelotti’s salary is €440,000
($488,708) per annum.
In June 2015, Mr Bertrand des Pallieres was appointed as Chief Trading Officer. Mr des Pallieres’ salary is
£221,400 ($338,498) per annum, comprising £194,400 ($297,218) per annum under a consultancy agreement
(the terms of which are reviewed by the Remuneration Committee annually) and £27,000 ($41,280) per
annum under a services agreement.
Adelmo Schenato continued as Chief Operating Officer of the Company throughout 2015. Mr Schenato’s basic
salary is £184,393 ($281,918) comprising €225,000 per annum under a consultancy agreement and £21,000
under a services agreement.
In 2015 none of the directors participated in an annual bonus and long-term incentives.
In May 2011 the Board agreed that the Chairman’s fee be set at £85,000 ($129,957) and that the fee for
acting as an independent non-executive Director be set at £35,000 ($53,512) with an additional £10,000
($15,289) for acting as Chairman of the Audit Committee. There has been no increase in non-executive
Directors’ fees since that time.
Benefits may be provided to the executive directors, in the form of private medical insurance and life
assurance.
40
Annual Report on Remuneration 2015 (continued)
_______________________________________________________________________________________
CADOGAN PETROLEUM PLC
Scheme interests awarded during the financial year (audited)
There were no scheme interests awarded during the year.
Payments to past directors (audited)
In 2015 there were no payments to past directors.
Payments for loss of office (audited)
No payments were made to directors for loss of office in 2015.
Directors’ interests in shares (audited)
The beneficial interests of the Directors in office as at 31 December 2015 and their connected persons in the
Ordinary shares of the Company at 31 December 2015 are set out below.
Shares as at 31 December
Z Furst
B des Pallieres
G Lehmann
M Meeùs
A Schenato
E Testa
The Company does not currently operate formal shareholding guidelines.
2015
-
200,000
-
26,000,000
-
-
2014
-
200,000
-
26,000,000
-
-
41
CADOGAN PETROLEUM PLC
Annual Report on Remuneration 2015 (continued)
_______________________________________________________________________________________
The Company’s performance
The graph below highlights the Company’s total shareholder return (“TSR”) performance for the last seven
years compared to the FTSE All Share Oil & Gas Producers index. This index has been selected on the basis
that it represents a sector specific group which is an appropriate group for the Company to compare itself
against. TSR is the return from a share or index based on share price movements and notional reinvestment
of declared dividends.
250.00
200.00
150.00
100.00
50.00
0.00
Cadogan Petroleum Plc
FTSE All Share Oil & Gas
Historic Remuneration of Chief Executive
Taxable
benefits
$
Annual
bonus
$
Salary
$
422,533
547,067
669,185
511,459
384,941
405,433
432,409
- 284,552
-
-
-
-
-
-
-
-
-
20,734
-
15,987
Long-
term
incentives
$
-
-
-
-
-
-
-
Pension
$
-
-
-
31,966
-
-
-
Loss of office
$
-
-
-
126,808
-
-
-
2009
2010
2011
2012
2013
2014
2015
Total
$
707,085
547,067
669,185
670,233
384,941
426,167
448,396
In 2015 none of the directors participated in an annual bonus and long-term incentives.
42
CADOGAN PETROLEUM PLC
Annual Report on Remuneration 2015 (continued)
_______________________________________________________________________________________
Percentage change in the remuneration of the Chief Executive
The following table shows the percentage change in the remuneration of the Chief Executive in 2015 and
2014 compared to that of all employees within the Group.
Base salary
CEO
All employees
Taxable benefits
CEO
All employees
Total remuneration
CEO
All employees
2015
$’000
432
3,121
2014 Change
%
$’000
405
7
(30)
4,467
2015
$’000
16
27
2014
$’000
20
91
2015
$’000
448
3,148
2014
$’000
426
4,558
(20)
(70)
5
(31)
In 2015 none of the directors participated in an annual bonus and long-term incentives.
In 2015 there was no increase in executive and non-executive directors' salary in base currency. The
difference in pay represents the change in exchange rate between the base currency and USD as a reporting
currency. The decrease in employee remuneration is due to a reduction in employees as at 31 December
2015 to 80 (2014: 100).
Loss of Office
In 2015 no loss of office payments were made to the directors.
Relative importance of spend on pay
The table below compares shareholder distributions (i.e. dividends and share buybacks) and total employee
pay expenditure of the Group for the financial years ended 31 December 2014 and 31 December 2015.
All-employee remuneration
Distributions to shareholders
2015
2014
$’000
$’000
3,596
4,984
-
-
Year-on-year
change, %
(28)
N/A
43
Annual Report on Remuneration 2015 (continued)
_______________________________________________________________________________________
CADOGAN PETROLEUM PLC
Shareholder voting at the Annual General Meeting
The Directors’ Remuneration Report for the year ended 31 December 2014 and the Directors’
Remuneration Policy were approved by shareholders at the Annual General Meeting held on 25 June 2015.
The Remuneration Policy can be found on the Group’s website.
The votes cast by proxy were as follows:
Director’s Remuneration Report
For
Against
Total votes cast
Number of votes withheld
Director’s Remuneration Policy
For
Against
Total votes cast
Number of votes withheld
Number of votes
58,983,662
56,000
59,039,662
0
Number of votes
58,983,662
56,000
59,039,662
0
% of votes cast
99.91
0.09
100.00
% of votes cast
99.91
0.09
100.00
Implementation of Remuneration Policy in 2016
The Remuneration Committee proposes to continue to implement a Remuneration Policy approved by the
shareholders at the 2015 AGM.
Approval
The Directors’ Remuneration Report was approved by the Board on 25 April 2016 and signed on its behalf by:
Zev Furst
Chairman
25 April 2016
44
CADOGAN PETROLEUM PLC
Statement of Directors’ Responsibilities
_______________________________________________________________________________________
Statement of Directors’ Responsibilities in respect of the Annual Report and the Financial Statements
The Directors are responsible for preparing the Annual Report and the financial statements in accordance
with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each financial year. The Directors are
required by law to prepare the Group financial statements in accordance with International Financial
Reporting Standards (“IFRSs”) as adopted by the European Union and Article 4 of the International Accounting
Standards (“IAS”) regulation and have also elected to prepare the Parent Company financial statements under
IFRSs as adopted by the European Union. Under Company law, the Directors must not approve the Financial
Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company
and Group and of the profit or loss for that period. In preparing the Company and Group’s financial
statements, IAS Regulation requires that Directors:
properly select and apply accounting policies;
present information, including accounting policies, in a manner that provides relevant, reliable,
comparable and understandable information;
provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to
enable users to understand the impact of particular transactions, other events and conditions on the
Company’s and Group’s financial position and financial performance; and
make an assessment of the Company’s and Group’s ability to continue as a going concern.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain
the Company and Group’s transactions and disclose with reasonable accuracy at any time the financial
position of the Company and Group and enable them to ensure that the financial statements comply with the
Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for
taking reasonable steps for the prevention and detection of fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report,
Directors’ Report, Annual Report on Remuneration, Directors’ Remuneration Policy and Corporate
Governance Statement that comply with that law and those regulations.
The Directors are responsible for the maintenance and integrity of the corporate and financial information
included on the Company’s website, www.cadoganpetroleum.com. Legislation in the United Kingdom
governing the preparation and dissemination of the financial statements may differ from legislation in other
jurisdictions.
Responsibility Statement of the Directors in respect of the Annual Report
We confirm to the best of our knowledge:
(1) the financial statements, prepared in accordance with International Financial Reporting Standards as
adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit
or loss of the Company and the undertakings included in the consolidation as a whole; and
(2) the Strategic Report, includes a fair review of the development and performance of the business and the
position of the Company and the undertakings included in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that they face; and
(3) the annual report and the financial statements, taken as a whole, are fair, balanced and understandable
and provide the information necessary for the shareholders to assess the Group’s position, performance,
business model and strategy.
On behalf of the Board
Zev Furst
Chairman
25 April 2016
45
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CADOGAN PLC
_______________________________________________________________________________________
CADOGAN PETROLEUM PLC
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CADOGAN PETROLEUM PLC
Opinion on
financial
statements of
Cadogan
Petroleum plc
Going concern
and the directors’
assessment of the
principal risks
that would
threaten the
solvency or
liquidity of the
group
In our opinion:
the financial statements give a true and fair view of the state of the Group’s
and of the Parent Company’s affairs as at 31 December 2015 and of the
Group’s loss for the year then ended;
the Group financial statements have been properly prepared in accordance
with International Financial Reporting Standards (IFRSs) as adopted by the
European Union;
the Parent Company financial statements have been properly prepared in
accordance with IFRSs as adopted by the European Union and as applied in
accordance with the provisions of the Companies Act 2006; and
the financial statements have been prepared in accordance with the
requirements of the Companies Act 2006 and, as regards the Group financial
statements, Article 4 of the IAS Regulation.
The financial statements comprise the Consolidated Statement of Comprehensive Income,
the Group and Company Balance Sheets, the Group and Company Statement of Changes
in Equity, the Group and Company Cash Flow Statements and the related notes 1 - 42.
The financial reporting framework that has been applied in their preparation is applicable
law and IFRSs as adopted by the European Union and, as regards the Parent Company
financial statements, as applied in accordance with the provisions of the Companies Act
2006.
We have nothing material to add or draw attention to in relation to:
the Directors’ confirmation on page 27 that they have carried out a robust
assessment of the principal risks facing the Group, including those that would
threaten its business model, future performance, solvency or liquidity;
the disclosures on pages 13 to 15 that describe those risks and explain how they
are being managed or mitigated;
the Directors’ statement in note 3 to the financial statements about whether they
considered it appropriate to adopt the going concern basis of accounting in
preparing them and their identification of any material uncertainties to the
Group’s ability to continue to do so over a period of at least 12 months from the
date of approval of the financial statements; and
the Director’s explanation on page 27 as to how they have assessed the
prospects of the Group, over what period they have done so and why they
consider that period to be appropriate, and their statement as to whether they
have a reasonable expectation that the Group will be able to continue in
operation and meet its liabilities as they fall due over the period of their
assessment.
We agreed with the Directors’ adoption of the going concern basis of accounting and we
did not identify any such material uncertainties. However, because not all future events or
conditions can be predicted, this statement is not a guarantee as to the Group’s ability to
continue as a going concern.
Independence
We are required to comply with the Financial Reporting Council’s Ethical Standards for
Auditors and we confirm that we are independent of the Group and we have fulfilled
our other ethical responsibilities in accordance with those standards. We also confirm we
have not provided any of the prohibited non-audit services referred to in those standards.
46
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CADOGAN PLC
_______________________________________________________________________________________
CADOGAN PETROLEUM PLC
Our assessment
of risks of
material
misstatement
The assessed risks of material misstatement described below are those that had the
greatest effect on our audit strategy, the allocation of resources in the audit and directing
the efforts of the engagement team:
Risk
Political and economic turmoil in Ukraine
Substantially all the Group’s operating activities and
assets are located in Ukraine. The potential future
impact of the political and economic situation on the
business operations is highly uncertain.
Consideration is required whether the carrying values
of non-current assets of the $6.5m and receivables of
the $14.4m remain recoverable, whether assumptions
including future gas prices, foreign currency exchange
rates, discount factor and inflation assumptions used in
impairment assessments are reasonable, whether the
going concern assumption is appropriate and whether
sufficiently detailed disclosures have been made.
The Group has assessed its portfolio of the assets in
the context of the political and economic situation in
Ukraine, including the considerations mentioned above,
and potential difficulties with the current and upcoming
extension of licences. As a result management decided
to impair the exploration and evaluation assets
associated with the Pirkovska licence by $10.1m down
to $0m due to a significant uncertainty in relation to the
timing of the renewal of the Pirkovska licence that
expired in October 2015.
Details of the Group’s assessment of the operating
environment in Ukraine and uncertainties about key
assumptions made by management in assessing the
recoverable amount of oil and gas assets are disclosed
in notes 4 and 35.
Recoverability of non-current assets
The carrying value of the Group’s non-current assets,
which includes intangible exploration and evaluation
assets, property, plant and equipment and investments
in joint ventures, amounted to $6.5 million at 31
December 2015.
Assessment of the carrying value of non-current assets
requires significant judgement, including the Group’s
intention and ability to proceed with a future work
programme for a prospect or licence, the likelihood of
licence renewal or extension, and the expected or
actual success of drilling and geological analysis.
Recoverability of non-current assets is dependent on
macro-economic assumptions and estimates about
future oil and gas prices, inflation, discount and
exchange rates as well as forecast assumptions related
to future production levels, reserves and operating
costs. The outcome of impairment assessments could
vary significantly were different assumptions applied.
The continued instability of political and economic
situation in Ukraine and devaluation of functional
currency to which the Group is significantly exposed
and the Group’s reduction in production and
exploration activities are factors which heighten the risk
How the scope of our audit responded to the risk
Using sensitivity analysis we have assessed the
potential impact of ongoing political instability in
Ukraine on the key assumptions used by
management in the calculation of the recoverable
amount of non-current assets and assessment of the
going concern, including gas prices, inflation
assumption, the discount factor and currency
exchange rates.
We also assessed the potential impact of the ongoing
political instability on the going concern assumption
by modelling the impact of various downside
scenarios, including inflation caused by depreciation
of the national currency, potential difficulties with the
upcoming extension of licences and changes to oil
and gas trading regulation in Ukraine.
We considered the adequacy of the disclosures made
in the financial statements and the annual report.
We evaluated management’s assessment of
indicators of impairment and recoverability
assessment for the Group’s non-current assets,
including potential difficulties with the upcoming
extension of licences. We analysed the
reasonableness of the estimates such as oil and gas
resources and future production levels, future oil and
gas prices, future costs and performed the
benchmarking of inflation and discount rates to
estimates used by the peer companies and Deloitte
developed discount rates. We also considered actual
facts and circumstances of the operating environment
of the Group.
Our work included discussion of the latest status and
future appraisal plans on each licence with
operational staff and Group management. We
gathered evidence such as budgets, field
development plans, contracts for future drilling and
geological and geophysical activities to verify that
management intention to continue exploration efforts
is supported by funding commitments.
We have also obtained and reviewed documentary
evidence, such as budgets, field working
47
CADOGAN PETROLEUM PLC
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CADOGAN PLC
_______________________________________________________________________________________
of impairment associated with the Group’s non-current
assets.
programmes, contracts for future geological and
geophysical activities, and licence documents.
In total, impairments of intangible exploration and
evaluation assets, property plant and equipment and
investments in joint ventures amounting to $10.1
million, $0.4 million and $8.8 million, respectively were
recognised in the year ended 31 December 2015.
Refer to Group’s policies and key estimates and
assumptions within note 1 and additional notes 16,17
and 19.
We evaluated management’s assessment of whether
there were any indicators of impairment for the
Group’s interests in joint ventures, taking into
consideration the impairment indicators outlined in
IFRS 6 for the purpose of impairment assessment of
exploration and evaluation assets within the joint
ventures. We held discussions on the latest status
and future appraisal plans on each licence with
operational staff and Group management and
compared these plans with approved budgets and
considered Group’s future funding responsibilities.
We undertook a detailed analysis and challenge of
the significant judgements and estimates used in
management’s impairment tests of exploration and
evaluation assets held by the joint ventures of the
Group. Our analysis included comparison of gas price
assumptions to publicly available forecasts,
benchmarking the discount rate applied by
management to Deloitte developed discount rate, and
the comparison of future cost estimates against actual
historic cost levels and budgets.
Although separate impairment assessments have been undertaken and audited, we
have aggregated our explanation of risks and the scope for the recoverability of
intangible exploration and evaluation (E&E) assets, development of producing oil
and gas properties within property, plant and equipment, recoverability of
investments in joint ventures into the recoverability of non-current assets.
The description of risks above should be read in conjunction with the significant
issues considered by the Audit Committee and discussed on page 32-34.
Our audit procedures relating to these matters were designed in the context of our
audit of the financial statements as a whole, and not to express an opinion on
individual accounts or disclosures. Our opinion on the financial statements is not
modified with respect to any of the risks described above, and we do not express an
opinion on these individual matters.
48
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CADOGAN PLC
_______________________________________________________________________________________
CADOGAN PETROLEUM PLC
Our application of
materiality
An overview of the
scope of our audit
Opinion on other
matter prescribed by
the Companies Act
2006
Matters on which we
are required to report
by exception
Adequacy of
explanations received
and accounting records
We define materiality as the magnitude of misstatement in the financial statements
that makes it probable that the economic decisions of a reasonably knowledgeable
person would be changed or influenced. We use materiality both in planning the
scope of our audit work and in evaluating the results of our work.
When determining materiality, among other factors we considered the Group’s pre-
tax loss in the current period as well as in recent periods; the occurrence of any non-
recurring or fluctuating gains and losses (such as exploration and evaluation assets
impairments) and the level of consolidated shareholders’ equity.
We determined our materiality based on the expected consolidated shareholders’
equity as at 31 December 2015. Consistent with the prior year, we used
consolidated shareholders’ equity to determine materiality as the entity has a history
of operating losses. Materiality was determined to be $2,020,000, which was 3% of
expected consolidated shareholders’ equity. Subsequently, a non-current assets
impairment of $19.3 million was recognised which impacted consolidated
shareholders’ equity and thus the benchmark based on which we determined our
materiality initially. We assessed whether the scope of the business had changed as
a result of this impairment and determined that it had not. Therefore we consider it
appropriate to retain our original materiality of $2,020,000, which is now 3.7% of
consolidated shareholders’ equity (2014: $2,700,000 which was 3% of consolidated
shareholders’ equity).
We agreed with the Audit Committee that we would report to the Committee all audit
differences in excess of $40,000 (2014: $54,000), as well as differences below that
threshold that, in our view, warranted reporting on qualitative grounds. We also
report to the Audit Committee on disclosure matters that we identified when
assessing the overall presentation of the financial statements.
Our Group audit was scoped by obtaining an understanding of the group and its
environment, including group-wide controls, and assessing the risks of material
misstatement at the group level. Based on that assessment, we have included in the
group audit scope the full audit of all significant entities in Ukraine and in the UK.
These businesses account for over 90% (2014: over 90%) of the Group’s net
assets, revenue and loss before tax. The group audit team was led by the Deloitte
UK Senior Statutory Auditor and managers and included junior audit members and
senior tax specialists from Deloitte Ukraine as all assets are located there and
appropriate knowledge of local legislation and tax regulations is required.
The Senior Statutory Auditor and managers from the Deloitte UK visited the Ukraine
during the planning and fieldwork stages of the audit.
At the parent entity level we also tested the consolidation process and carried out
analytical procedures to confirm our conclusion that there were no significant risks of
material misstatement of the aggregated financial information of the remaining
balances not subject to audit or audit of specified account balances.
In our opinion:
the part of the Directors’ Remuneration Report to be audited has been
properly prepared in accordance with the Companies Act 2006; and
the information given in the Strategic Report and the Directors’ Report for the
financial year for which the financial statements are prepared is consistent
with the financial statements.
Under the Companies Act 2006 we are required to report to you if, in our opinion:
we have not received all the information and explanations we require for our
audit; or
adequate accounting records have not been kept by the Parent Company, or
returns adequate for our audit have not been received from branches not
visited by us; or
49
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CADOGAN PLC
_______________________________________________________________________________________
CADOGAN PETROLEUM PLC
Directors’ remuneration
Our duty to read other
information in the Annual
Report
the Parent Company financial statements are not in agreement with the
accounting records and returns.
We have nothing to report in respect of these matters.
Under the Companies Act 2006 we are also required to report if in our opinion
certain disclosures of directors’ remuneration have not been made, or the part of the
Directors’ Remuneration Report to be audited is not in agreement with the
accounting records and returns. We have nothing to report arising from these
matters.
Under International Standards on Auditing (UK and Ireland), we are required to
report to you if, in our opinion, information in the annual report is:
materially inconsistent with the information in the audited financial
statements; or
apparently materially incorrect based on, or materially inconsistent with, our
knowledge of the Group acquired in the course of performing our audit; or
otherwise misleading.
In particular, we are required to consider whether we have identified any
inconsistencies between our knowledge acquired during the audit and the Directors’
statement that they consider the annual report is fair, balanced and understandable
and whether the annual report appropriately discloses those matters that we
communicated to the audit committee which we consider should have been
disclosed. We confirm that we have not identified any such inconsistencies or
misleading statements.
Other matter
Although not required to do so, the directors have voluntarily chosen to make a
corporate governance statement detailing the extent of their compliance with the UK
Corporate Governance Code. We reviewed the part of the Corporate Governance
Statement relating to the company’s compliance with certain provisions of the UK
Corporate Governance Code. We have nothing to report arising from our review.
Respective
responsibilities of
Directors and Auditor
As explained more fully in the Directors’ Responsibilities Statement, the Directors
are responsible for the preparation of the financial statements and for being satisfied
that they give a true and fair view. Our responsibility is to audit and express an
opinion on the financial statements in accordance with applicable law and
International Standards on Auditing (UK and Ireland). Those standards require us to
comply with the Auditing Practices Board’s Ethical Standards for Auditors. We also
comply with International Standard on Quality Control 1 (UK and Ireland). Our audit
methodology and tools aim to ensure that our quality control procedures are
effective, understood and applied. Our quality controls and systems include our
dedicated professional standards review team and independent partner reviews.
This report is made solely to the Company’s members, as a body, in accordance
with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been
undertaken so that we might state to the Company’s members those matters we are
required to state to them in an auditor’s report and/or those further matters we have
expressly agreed to report to them on in our engagement letter and for no other
purpose. To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company’s members as a
body, for our audit work, for this report, or for the opinions we have formed.
Scope of the audit of
the financial
statements
An audit involves obtaining evidence about the amounts and disclosures in the
financial statements sufficient to give reasonable assurance that the financial
statements are free from material misstatement, whether caused by fraud or error.
This includes an assessment of: whether the accounting policies are appropriate to
the Group’s and the Parent Company’s circumstances and have been consistently
applied and adequately disclosed; the reasonableness of significant accounting
estimates made by the Directors; and the overall presentation of the financial
statements. In addition, we read all the financial and non-financial information in the
50
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CADOGAN PLC
_______________________________________________________________________________________
CADOGAN PETROLEUM PLC
annual report to identify material inconsistencies with the audited financial
statements and to identify any information that is apparently materially incorrect
based on, or materially inconsistent with, the knowledge acquired by us in the
course of performing the audit. If we become aware of any apparent material
misstatements or inconsistencies we consider the implications for our report.
Timothy Biggs FCA (Senior statutory auditor)
for and on behalf of Deloitte LLP
Chartered Accountants and Statutory Auditor
London, United Kingdom
25 April 2016
51
CADOGAN PETROLEUM PLC
Consolidated Income Statement
For the year ended 31 December 2015
______________________________________________________________________________________
CONTINUING OPERATIONS
Revenue
Cost of sales
Gross profit
Administrative expenses
Impairment of oil and gas assets
Reversal of impairment of other assets
Share of losses in joint ventures
Net foreign exchange gains
Other operating income, net
Operating loss
Investment income
Finance costs
Loss before tax
Tax credit/(charge)
Loss for the year
Attributable to:
Owners of the Company
Non-controlling interest
Loss per Ordinary share
Basic
Notes
2015
$’000
2014
$’000
6
75,440
(69,562)
5,878
32,623
(29,813)
2,810
(6,115)
8 (10,480)
1,300
8
(15,295)
(7,002)
(5,134)
877
(11,259)
19 (12,844)
2,494
31
(19,736)
7
(54,664)
3,036
547
(59,530)
12
13
118
(2,625)
(22,243)
852
(468)
(59,146)
14
(1,040)
9 (23,283)
(166)
(59,312)
(23,261)
(22)
(23,283)
(59,271)
(41)
(59,312)
cents
(10.1)
cents
(25.6)
15
52
CADOGAN PETROLEUM PLC
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2015
______________________________________________________________________________________
Loss for the year
Other comprehensive loss
Items that may be reclassified subsequently to profit or loss:
Unrealised currency translation differences
Other comprehensive loss
Total comprehensive loss for the year
Attributable to:
Owners of the Company
Non-controlling interest
2015
$’000
2014
$’000
(23,283)
(59,312)
(11,521)
(11,521)
(28,153)
(28,153)
(34,804)
(87,465)
(34,782)
(22)
(34,804)
(87,424)
(41)
(87,465)
53
CADOGAN PETROLEUM PLC
Consolidated Balance Sheet
As at 31 December 2015
_______________________________________________________________________________________
ASSETS
Non-current assets
Intangible exploration and evaluation assets
Property, plant and equipment
Investments in joint ventures
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
LIABILITIES
Non-current liabilities
Deferred tax liabilities
Provisions
Current liabilities
Short-term borrowings
Trade and other payables
Provisions
Total liabilities
NET ASSETS
EQUITY
Share capital
Retained earnings
Cumulative translation reserves
Other reserves
Equity attributable to owners of the Company
Non-controlling interest
TOTAL EQUITY
Notes
16
17
19
20
21
22
23
26
24
25
26
27
2015
$’000
2,700
1,661
2,181
6,542
3,503
14,411
49,407
67,321
73,863
-
(726)
(726)
(12,903)
(3,682)
(1,523)
(18,108)
(18,834)
2014
$’000
18,289
3,846
14,325
36,460
9,940
17,891
48,927
76,758
113,218
(288)
(55)
(343)
(17,327)
(5,068)
(647)
(23,042)
(23,385)
55,029
89,833
13,337
200,339
(160,512)
1,589
54,753
276
55,029
13,337
223,600
(148,991)
1,589
89,535
298
89,833
The consolidated financial statements of Cadogan Petroleum plc, registered in England and Wales no. 5718406, were
approved by the Board of Directors and authorised for issue on 25 April 2016. They were signed on its behalf by:
Guido Michelotti
Chief Executive Officer
25 April 2016
The notes on pages 57 to 95 form an integral part of these financial statements.
54
CADOGAN PETROLEUM PLC
Consolidated Cash Flow Statement
For the year ended 31 December 2015
_______________________________________________________________________________________
Operating loss
Adjustments for:
Depreciation of property, plant and equipment
Impairment of oil and gas assets
Share of losses in joint ventures
Charge of impairment of inventories (note 8)
Reversal of impairment of VAT recoverable (note 8)
Loss on disposal of property, plant and equipment
Effect of foreign exchange rate changes
Operating cash flows before movements in working capital
Decrease/(increase) in inventories
Decrease/(increase) in receivables
(Decrease)/increase in payables and provisions
Cash from/(used in) operations
Interest paid
Income taxes paid
Net cash inflow/(outflow) from operating activities
Investing activities
Investments in joint ventures
Purchases of property, plant and equipment
Purchases of intangible exploration and evaluation assets
Proceeds from sale of property, plant and equipment
Interest received
Net cash used in investing activities
Financing activities
Proceeds from short-term borrowings
Repayments of short-term borrowings
Net cash from financing activities
Net increase/(decrease) in cash and cash equivalents
Effect of foreign exchange rate changes
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
2015
$’000
(19,736)
434
10,480
12,844
90
(1,390)
24
(3,827)
(1,081)
1,258
4,871
(1,429)
3,619
(2,379)
-
1,240
(700)
(261)
(281)
5
118
(1,119)
13,187
(12,225)
962
1,083
(603)
48,927
49,407
2014
$’000
(59,530)
938
5,134
54,664
253
(727)
211
(4,892)
(3,949)
(7,242)
(10,285)
1,424
(20,052)
(218)
(373)
(20,643)
(3,024)
(1,611)
(468)
84
852
(4,167)
17,327
-
17,327
(7,483)
(74)
56,484
48,927
55
CADOGAN PETROLEUM PLC
Consolidated Statement of Changes in Equity
For the year ended 31 December 2015
_______________________________________________________________________________________
As at 1 January 2014
Net loss for the year
Other comprehensive loss
Total comprehensive loss for the year
As at 1 January 2015
Net loss for the year
Other comprehensive loss
Total comprehensive loss for the year
As at 31 December 2015
Share
capital
$’000
13,337
-
-
-
13,337
-
-
-
13,337
Retained
earnings
$’000
282,871
(59,271)
-
(59,271)
223,600
(23,261)
-
(23,261)
200,339
Cumulative
translation
reserves
$’000
(120,838)
-
(28,153)
(28,153)
(148,991)
-
(11,521)
(11,521)
(160,512)
Reorgani-
sation
$’000
1,589
-
-
-
1,589
-
-
-
1,589
Equity
attributable
to owners of
the Company
176,959
(59,271)
(28,153)
(87,424)
89,535
(23,261)
(11,521)
(34,782)
54,753
Non-
controlling
interest
$’000
339
(41)
-
(41)
298
(22)
-
(22)
276
Total
$’000
177,298
(59,312)
(28,153)
(87,465)
89,833
(23,283)
(11,521)
(34,804)
55,029
56
CADOGAN PETROLEUM PLC
Notes to the Consolidated Financial Statements
For the year ended 31 December 2015
_______________________________________________________________________________________
1.
General information
Cadogan Petroleum plc (the “Company”, together with its subsidiaries the “Group”), is registered in England
and Wales under the Companies Act 2006. The address of the registered office is c/o Bridgehouse Company
Secretaries Ltd, Unit 205, Clerkenwell Workshops, 31 Clerkenwell Close, London EC1R 0AT. The nature of the
Group’s operations and its principal activities are set out in the Operations Review on pages 8 to 9 and the
Financial Review on pages 10 to 12.
2.
Adoption of new and revised Standards
The accounting policies applied are consistent with those adopted and disclosed in the Group financial
statements for the year ended 31 December 2014, except for changes arising from the adoption of the
following new accounting pronouncements which became effective in the current reporting period:
Amendments to IAS 19 Employee Benefits: Defined Benefit Plans –Employee Contributions.
Annual Improvements to IFRSs 2010-2012 cycle
Annual Improvements to IFRSs 2011-2013 cycle
The adoption of these new accounting pronouncements has not had a significant impact on the accounting
policies, methods of computation or presentation applied by the Group. The Group has not early adopted any
other amendment, standard or interpretation that has been issued but is not yet effective. It is expected that
where applicable, these standards and amendments will be adopted on each respective effective date.
New IFRS accounting standards, amendments and interpretations not yet adopted
The following new IFRS accounting standards in issue but not yet effective could have a significant impact on
the Group:
IFRS 15 Revenue from Contracts with Customers
IFRS 15 will replace IAS 18 Revenue and IAS 11 Construction Contracts and establishes a unified framework for
determining the timing, measurement and recognition of revenue. The principle of the new standard is to
recognise revenue as performance obligations are met rather than based on the transfer of risks and rewards.
The effective date of the standard has been deferred to 1 January 2018 to allow companies more time to deal
with transitional issues of application.
The Group is currently reviewing the potential impact of adopting IFRS 15 with the primary focus being
understanding those sales contracts where the timing and amount of revenue recognised could differ under
IFRS 15, which may occur for example if contracts with customers incorporate performance obligations not
currently recognised separately, or where such contracts incorporate variable consideration. As the Group’s
revenue is predominantly derived from arrangements in which the transfer of risks and rewards coincides
with the fulfilment of performance obligations, the timing and amount of revenue recognised is unlikely to be
materially affected for the majority of sales.
IFRS 15 also includes disclosure requirements including qualitative and quantitative information about
contracts with customers to help users of the financial statements understand the nature, amount, timing and
uncertainty of revenue.
In addition to the potential accounting implications outlined above, the implementation of IFRS 15 is expected
to impact the Group’s systems, processes and controls. The Group will start developing a transition plan to
identify and implement the required changes during 2016.
57
CADOGAN PETROLEUM PLC
Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December 2015
_______________________________________________________________________________________
IFRS 9 Financial Instruments
IFRS 9 will replace IAS 39 Financial Instruments: Recognition and Measurement and addresses the following
three key areas:
Classification and measurement establishes a single, principles-based approach for the classification
of financial assets, which is driven by cash flow characteristics and the business model in which an
asset is held. This is expected to have a number of presentational impacts on the Group financial
statements including changes in the presentation of gains and losses on financial assets and liabilities
carried at fair value on the balance sheet.
Impairment introduces a new ‘expected credit loss’ impairment model, requiring expected credit
losses to be recognised from when financial instruments are first recognised. The transition to this
model is expected to result in changes in the systems and computational methods used by the Group
to assess receivables and similar assets for impairment. However, given the profile of the Group’s
counterparty exposures, this is not expected to have a material impact on the amounts recorded in
the financial statements.
Hedge Accounting aligns the accounting treatment with risk management practices of an entity,
including making a broader range of exposures eligible for hedge accounting and introducing a more
principles-based approach to assessing hedge effectiveness. The adoption of IFRS 9 will not require
changes to existing hedging arrangements but may provide scope to apply hedge accounting to a
broader range of transactions in the future.
IFRS 9 is effective for annual reporting periods beginning on or after 1 January 2018.
The Group’s implementation activities to date have principally focused on gaining a high level understanding
of the likely effects of IFRS 9 given the nature of financial instruments held by the Group. A more detailed
impact analysis and transition activities will be undertaken during 2016.
IFRS 16 Leases
IFRS 16 replaces the following standards and interpretations: IAS 17 Leases and IFRIC 4 Determining whether
an Arrangement contains a Lease. The new standard provides a single lessee accounting model for the
recognition, measurement, presentation and disclosure of leases. IFRS 16 applies to all leases including
subleases and requires lessees to recognise assets and liabilities for all leases, unless the lease term is 12
months or less, or the underlying asset has a low value. Lessors continue to classify leases as operating or
finance.
IFRS 16 was issued in January 2016 and applies to annual reporting periods beginning on or after 1 January
2019. The Group will evaluate the potential impact of IFRS 16 on the financial statements and performance
measures. This will include an assessment of whether any arrangements the Group enters into will be
considered a lease under IFRS 16.
Standards and Interpretations in issue but not effective
The following new amendments and interpretations in issue but not yet effective are not expected to have a
significant impact on the Group:
Amendments to IAS 1 Presentation of Financial Statements: Disclosure Initiative provides guidance on
the use of judgement in presenting financial statement information, including: the application of
materiality; order of notes; use of subtotals; accounting policy referencing and disaggregation of
financial and non-financial information.
Amendments to IAS 27 Equity Method in Separate Financial Statements will allow entities to use the
58
CADOGAN PETROLEUM PLC
Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December 2015
_______________________________________________________________________________________
equity method in their separate financial statements to measure investments in subsidiaries, joint
ventures and associates.
Amendments to IAS 16 Property, Plant and Equipment and IAS 38 Clarification of Acceptable Methods
of Depreciation clarify that a revenue based method of depreciation or amortisation is generally not
appropriate.
Amendments to IFRS 10 Consolidated Financial Statements and IAS 28 Joint Ventures: Sale or
Contribution of Assets between an Investor and its Associate or Joint Venture remove an
inconsistency between the two standards on the accounting treatment for gains and losses arising on
the sale or contribution of assets by an investor to its associate or joint venture. Following the
amendment, such gains and losses may only be recognised to the extent of the unrelated investor’s
interest, except where the transaction involves assets that constitute a business.
Amendments to IFRS 11 Accounting for Acquisitions of Interests in Joint Operations and IAS 28
Investments in Associates and Joint Ventures clarify the accounting for the acquisition of an interest
in a joint operation where the activities of the operation constitute a business.
Other issued standards and amendments that are not yet effective are not expected to have an impact on the
financial statements.
3. Significant accounting policies
(a) Basis of accounting
The financial statements have been prepared in accordance with International Financial Reporting Standards
(“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and as adopted by the European
Union (“EU”), and therefore the Group financial statements comply with Article 4 of the EU IAS Regulation.
The financial statements have been prepared on the historical cost convention basis, except for share-based
payments, accounting for the WGI transaction and other financial assets and liabilities, which have been
measured at fair values and using accounting policies consistent with IFRS.
The principal accounting policies adopted are set out below:
(b) Going concern
The Group's business activities, together with the factors likely to affect future development, performance
and position are set out in the Strategic Report on pages 3 to 19. The financial position of the Group, its cash
flow and liquidity position are described in the Financial Review on pages 10 to 12.
The Group’s cash balance at 31 December 2015 was $49.4 million (2014: $48.9 million) excluding $0.9 million
(2014: $0.5 million) of Cadogan’s share of cash and cash equivalents in joint ventures. It includes $20 million
of restricted cash held in UK bank which represent security of borrowings (note 24). The Directors believe
that the funds available at the date of the issue of these financial statements are sufficient for the Group to
manage its business risks successfully.
The Group’s forecasts and projections, taking into account reasonably possible changes in trading activities,
operational performance, start dates and flow rates for commercial production and the price of hydrocarbons
sold to Ukrainian customers, show that there are reasonable expectations that the Group will be able to
operate on funds currently held and those generated internally, for the foreseeable future.
The Group continues to pursue its farm-out campaign, which, if successful, will enable it to farm-out a portion
of its interests in its oil and gas licences to spread the risks associated with further exploration and
development.
59
CADOGAN PETROLEUM PLC
Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December 2015
_______________________________________________________________________________________
3. Significant accounting policies (cont.)
(b) Going concern (cont.)
After making enquiries and considering the uncertainties described above, the Directors have a reasonable
expectation that the Company and the Group have adequate resources to continue in operational existence
for the foreseeable future and consider the going concern basis of accounting to be appropriate and, thus,
they continue to adopt the going concern basis of accounting in preparing the annual financial statements. In
making its statement the Directors have considered the recent political and economic situation in Ukraine, as
described further in the note 4 (e).
(c) Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities
controlled by the Company (its subsidiaries) made up to 31 December each year. IFRS 10 defines control to be
investor control over an investee when it is exposed, or has rights, to variable returns from its involvement
with the investee and has the ability to control those returns through its power over the investee.
The results of subsidiaries acquired or disposed of during the year are included in the consolidated income
statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where
necessary, adjustments are made to the financial statements of subsidiaries to bring accounting policies used
into line with those used by the Group. All intra-group transactions, balances, income and expenses are
eliminated on consolidation.
Non-controlling interests in subsidiaries are identified separately from the Group’s equity therein. Those
interests of non-controlling shareholders that are present ownership interests entitling their holders to a
proportionate share of net assets upon liquidation may be initially measured at fair value or at the non-
controlling interests’ proportionate share of the fair value of the acquiree’s identifiable net assets. The choice
of measurement is made on an acquisition-by-acquisition basis. Other non-controlling interests are initially
measured at fair value.
Subsequent to acquisition, the carrying amount of non-controlling interests is the amount of those interests
at initial recognition plus the non-controlling interests’ share of subsequent changes in equity. Total
comprehensive income is attributed to non-controlling interests even if this results in the non-controlling
interests having a deficit balance.
Changes in the Group’s interests in subsidiaries that do not result in a loss of control are accounted for as
equity transactions. The carrying amount of the Group’s interests and the non-controlling interests are
adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the
amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or
received is recognised directly in equity and attributed to the owners of the Company.
When the Group loses control of a subsidiary, the profit or loss on disposal is calculated as the difference
between (i) the aggregate of the fair value of the consideration received and the fair value of any retained
interest and (ii) the previous carrying amount of the assets (including goodwill), less liabilities of the subsidiary
and any non-controlling interests. Amounts previously recognised in other comprehensive income in relation
to the subsidiary are accounted for (i.e. reclassified to profit or loss or transferred directly to retained
earnings) in the same manner as would be required if the relevant assets or liabilities are disposed of. The fair
value of any investment retained in the former subsidiary at the date when control is lost is regarded as the
fair value on initial recognition for subsequent accounting under IAS 39 Financial Instruments: Recognition
and Measurement or, when applicable, the costs on initial recognition of an investment in an associate or
jointly controlled entity.
60
CADOGAN PETROLEUM PLC
Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December 2015
_______________________________________________________________________________________
3. Significant accounting policies (cont.)
(d) Business combinations
The acquisition of subsidiaries is accounted for using the acquisition method. The cost of the acquisition is
measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or
assumed, and equity instruments issued in exchange for control of the acquiree. Acquisition-related costs are
recognised in profit or loss as incurred. The acquiree’s identifiable assets, liabilities and contingent liabilities
that meet the conditions for recognition under IFRS 3 Business Combinations are recognised at their fair value
at the acquisition date, except for non-current assets (or disposal groups) that are classified as held for resale
in accordance with IFRS 5 Non-Current Assets held for sale and Discontinued Operations. These are
recognised and measured at fair value less costs to sell.
(e)
Investments in joint ventures
A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have
rights to the net assets of the arrangement. A joint venture firm recognises its interest in a joint venture as an
investment and shall account for that investment using the equity method in accordance with IAS 28
Investments in Associates and Joint Ventures.
Under the equity method, the investment is carried on the balance sheet at cost plus changes in the Group’s
share of net assets of the entity, less distributions received and less any impairment in value of the
investment. The Group Consolidated Income Statement reflects the Group’s share of the results after tax of
the equity-accounted entity, adjusted to account for depreciation, amortisation and any impairment of the
equity accounted entity’s assets. The Group Statement of Comprehensive Income includes the Group’s share
of the equity-accounted entity’s other comprehensive income.
Financial statements of equity-accounted entities are prepared for the same reporting year as the Group. The
Group assesses investments in equity-accounted entities for impairment whenever events or changes in
circumstances indicate that the carrying value may not be recoverable. If any such indication of impairment
exists, the carrying amount of the investment is compared with its recoverable amount, being the higher of its
fair value less costs of disposal and value in use. If the carrying amount exceeds the recoverable amount, the
investment is written down to its recoverable amount.
The Group ceases to use the equity method of accounting from the date on which it no longer has joint
control over the joint venture or significant influence over the associate, or when the interest becomes
classified as an asset held for sale.
(f) Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable and represents amounts
receivable for hydrocarbon products and services provided in the normal course of business, net of discounts,
value added tax (‘VAT’) and other sales-related taxes. Sales of hydrocarbons are recognised when the title has
passed. Revenue from services is recognised in the accounting period in which services are rendered. The
main types of services provided by the Group are drilling and civil works services.
Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective
interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the
expected life of the financial asset to that asset’s net carrying amount on initial recognition.
To the extent that revenue arises from test production during an evaluation programme, an amount is
charged from evaluation costs to cost of sales, so as to reflect a zero net margin.
61
CADOGAN PETROLEUM PLC
Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December 2015
_______________________________________________________________________________________
3. Significant accounting policies (cont.)
(g) Foreign currencies
The individual financial statements of each Group company are presented in the currency of the primary
economic environment in which it operates (its functional currency). The functional currency of the Company
is pounds sterling. For the purpose of the consolidated financial statements, the results and financial position
of each Group company are expressed in US dollars, which is the presentation currency for the consolidated
financial statements.
In preparing the financial statements of the individual companies, transactions in currencies other than the
functional currency of each Group company (‘foreign currencies’) are recorded in the functional currency at
the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets
and liabilities that are denominated in foreign currencies are retranslated into the functional currency at the
rates prevailing on the balance sheet date. Non-monetary assets and liabilities carried at fair value that are
denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was
determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not
retranslated. Foreign exchange differences on cash and cash equivalents are recognised in operating profit or
loss in the period in which they arise.
Exchange differences are recognised in the profit or loss in the period in which they arise except for exchange
differences on monetary items receivable from or payable to a foreign operation for which settlement is
neither planned nor likely to occur. This forms part of the net investment in a foreign operation which is
recognised in the foreign currency translation reserve and in profit or loss on disposal of the net investment.
For the purpose of presenting consolidated financial statements, the results and financial position of each
entity of the Group are translated into US dollars as follows:
i.
ii.
iii.
assets and liabilities of the Group’s foreign operations are translated at the closing rate on the
balance sheet date;
income and expenses are translated at the average exchange rates for the period, unless
exchange rates fluctuate significantly during that period, in which case the exchange rates at the
date of the transactions are used; and
all resulting exchange differences arising, if any, are recognised in other comprehensive income
and accumulated equity (attributed to non-controlling interests as appropriate), transferred to
the Group’s translation reserve. Such translation differences are recognised as income or as
expenses in the period in which the operation is disposed of.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and
liabilities of the foreign entity and translated at the closing rate.
The relevant exchange rates used were as follows:
Closing rate
Average rate
Year ended 31 December 2015
USD/UAH
GBP/USD
24.2731
1.4805
22.0584
1.5289
Year ended 31 December 2014
USD/UAH
GBP/USD
16.0960
1.5534
12.1705
1.6481
62
CADOGAN PETROLEUM PLC
Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December 2015
_______________________________________________________________________________________
3. Significant accounting policies (cont.)
(h) Taxation
The tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as
reported in the consolidated income statement because it excludes items of income or expense that are
taxable or deductible in other years and it further excludes items that are never taxable or deductible. The
Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted
by the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of
assets and liabilities in the financial statements and the corresponding tax bases used in the computation of
taxable profit. This is accounted for using the balance sheet liability method. Deferred tax liabilities are
generally 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 the initial
recognition of goodwill or from the initial recognition (other than in a business combination) of other assets
and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax
liabilities are 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.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent
that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to
be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the
liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except
when it relates to items charged or credited in other comprehensive income, in which case the deferred tax is
also dealt with in other comprehensive income.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax
assets against current tax liabilities and when they relate to income taxes levied by the same taxation
authority and the Group intends to settle its current tax assets and liabilities on a net basis.
(i) Other property, plant and equipment
Property, plant and equipment (‘PP&E’) are carried at cost less accumulated depreciation and any recognised
impairment loss. Depreciation and amortisation is charged so as to write-off the cost or valuation of assets,
other than land, over their estimated useful lives, using the straight-line method, on the following bases:
Buildings
Fixtures and equipment
4%
10% to 30%
The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the
sales proceeds and the carrying amount of the asset and is recognised in income.
63
CADOGAN PETROLEUM PLC
Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December 2015
_______________________________________________________________________________________
3. Significant accounting policies (cont.)
(j)
Impairment of development and production assets and other property, plant and equipment
At each balance sheet date, the Group reviews the carrying amounts of its PP&E to determine whether there
is any indication that those assets have suffered an impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any).
Where the asset does not generate cash flows that are independent from other assets, the Group estimates
the recoverable amount of the cash-generating unit to which the asset belongs. The recoverable amount is
the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash
flows are discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset for which the estimates of future
cash flows have not been adjusted.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying
amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An
impairment loss is recognised as an expense immediately.
Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is
increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does
not exceed the carrying amount that would have been determined had no impairment loss been recognised
for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income
immediately.
(k)
Intangible exploration and evaluation assets
The Group applies the modified full cost method of accounting for intangible exploration and evaluation
(‘E&E’) expenditure which complies with requirement set out in IFRS 6 Exploration for and Evaluation of
Mineral Resources. Under the modified full cost method of accounting, expenditure made on exploring for
and evaluating oil and gas properties is accumulated and initially capitalised as an intangible asset, by
reference to appropriate cost centres being the appropriate oil or gas property. E&E assets are then assessed
for impairment on a geographical cost pool basis.
E&E assets comprise costs of (i) E&E activities which are in progress at the balance sheet date, but where the
existence of commercial reserves has yet to be determined (ii) E&E expenditure which, whilst representing
part of the E&E activities associated with adding to the commercial reserves of an established cost pool, did
not result in the discovery of commercial reserves.
Costs incurred prior to having obtained the legal rights to explore an area are expensed directly to the income
statement as incurred.
Exploration and Evaluation costs
E&E expenditure is initially capitalised as an E&E asset. Payments to acquire the legal right to explore, costs of
technical services and studies, seismic acquisition, exploratory drilling and testing are also capitalised as
intangible E&E assets.
Tangible assets used in E&E activities (such as the Group’s vehicles, drilling rigs, seismic equipment and other
property, plant and equipment) are normally classified as PP&E. However, to the extent that such assets are
consumed in developing an intangible E&E asset, the amount reflecting that consumption is recorded as part
of the cost of the intangible asset. Such intangible costs include directly attributable overheads, including the
depreciation of PP&E items utilised in E&E activities, together with the cost of other materials consumed
during the exploration and evaluation phases.
E&E assets are not amortised prior to the conclusion of appraisal activities.
64
CADOGAN PETROLEUM PLC
Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December 2015
_______________________________________________________________________________________
3. Significant accounting policies (cont.)
(k)
Intangible exploration and evaluation assets (cont.)
Treatment of E&E assets at conclusion of appraisal activities
Intangible E&E assets related to each exploration property are carried forward, until the existence (or
otherwise) of commercial reserves has been determined. If commercial reserves have been discovered, the
related E&E assets are assessed for impairment on individual assets basis as set out below and any
impairment loss is recognised in the income statement. Upon approval of a development programme, the
carrying value, after any impairment loss, of the relevant E&E assets is reclassified to the development and
production assets within PP&E.
Intangible E&E assets that relate to E&E activities that are determined not to have resulted in the discovery of
commercial reserves remain capitalised as intangible E&E assets at cost less accumulated amortisation,
subject to meeting a pool-wide impairment test in accordance with the accounting policy for impairment of
E&E assets set out below.
Impairment of E&E assets
E&E assets are assessed for impairment when facts and circumstances suggest that the carrying amount may
exceed its recoverable amount. Such indicators include, but are not limited to, those situations outlined in
paragraph 20 of IFRS 6 Exploration for and Evaluation of Mineral Resources and include the point at which a
determination is made as to whether or not commercial reserves exist.
Where there are indications of impairment, the E&E assets concerned are tested for impairment. Where the
E&E assets concerned fall within the scope of an established full cost pool, they are tested for impairment
together with all development and production assets associated with that cost pool, as a single cash
generating unit.
The aggregate carrying value of the relevant assets is compared against the expected recoverable amount of
the pool, generally by reference to the present value of the future net cash flows expected to be derived from
production of commercial reserves from that pool. Where the assets fall into an area that does not have an
established pool or if there are no producing assets to cover the unsuccessful exploration and evaluation
costs, those assets would fail the impairment test and be written off to the income statement in full.
Impairment losses are recognised in the income statement as additional depreciation and amortisation and
are separately disclosed.
Reclassification from development and production assets back to exploration and evaluation
Where development efforts are unsuccessful in the target geological formation of the licence area but the
Company see a potential for oil and gas discoveries in other geological formations of the same licence area,
reclassification of recoverable amount of assets from development and production assets back to exploration
and evaluation is appropriate following the impermanent assessment.
(l) Development and production assets
Development and production assets are accumulated on a field-by-field basis and represent the cost of
developing the commercial Reserves discovered and bringing them into production, together with E&E
expenditures incurred in finding commercial Reserves transferred from intangible E&E assets.
The cost of development and production assets comprises the cost of acquisitions and purchases of such
assets, directly attributable overheads, finance costs capitalised, and the cost of recognising provisions for
future restoration and decommissioning.
65
CADOGAN PETROLEUM PLC
Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December 2015
_______________________________________________________________________________________
3. Significant accounting policies (cont.)
(l) Development and production assets (cont.)
Depreciation of producing assets
Depreciation is calculated on the net book values of producing assets on a field-by-field basis using the unit of
production method. The unit of production method refers to the ratio of production in the reporting year as a
proportion of the Proved and Probable Reserves of the relevant field, taking into account future development
expenditures necessary to bring those Reserves into production.
Producing assets are generally grouped with other assets that are dedicated to serving the same Reserves for
depreciation purposes, but are depreciated separately from producing assets that serve other Reserves.
(m) Inventories
Oil and gas stock and spare parts are stated at the lower of cost and net realisable value. Costs comprise
direct materials and, where applicable, direct labour costs and those overheads that have been incurred in
bringing the inventories to their present location and condition. Cost is allocated using the weighted average
method. Net realisable value represents the estimated selling price less all estimated costs of completion and
costs to be incurred in marketing, selling and distribution.
(n) Financial instruments
Recognition of financial assets and financial liabilities
Financial assets and financial liabilities are recognised on the Group’s balance sheet when the Group becomes
a party to the contractual provisions of the instrument.
Derecognition of financial assets and financial liabilities
The Group derecognises a financial asset only when the contractual rights to cash flows from the asset expire;
or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to
another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership
and continues to control the transferred asset, the Group recognises its retained interest in the asset and an
associated liability for the amount it may have to pay. If the Group retains substantially all the risks and
rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and
also recognises a collateralised borrowing for the proceeds received.
The Group derecognises financial liabilities when the Group’s obligations are discharged, cancelled or expired.
Financial assets
The Group classifies its financial assets in the following categories: loans and receivables; available-for-sale
financial assets; held to maturity investments; and financial assets at fair value through profit or loss
(“FVTPL”). The classification depends on the purpose
financial assets were
acquired. Management determines the classification of its financial assets at initial recognition and
re-evaluates this designation at every reporting date.
for which the
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not
quoted in an active market. They are included in current assets, except for those with maturities greater
than twelve months after the balance sheet date which will then be classified as non-current assets. Loans
and receivables are classified as “other receivables” and “cash and cash equivalents” in the balance sheet.
Trade and other receivables
Trade and other receivables are measured at initial recognition at fair value, and are subsequently measured
at amortised cost using the effective interest rate method.
66
CADOGAN PETROLEUM PLC
Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December 2015
_______________________________________________________________________________________
3. Significant accounting policies (cont.)
(n) Financial instruments (cont.)
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, on-demand deposits, and other short-term highly liquid
investments that are readily convertible to a known amount of cash with three months or less remaining to
maturity and are subject to an insignificant risk of changes in value.
Restricted cash balances represent components of cash and cash equivalents that are not available for use by
the Group.
Financial assets at FVTPL
Financial assets at FVTPL are stated at fair value, with any gains or losses arising on remeasurement
recognised in profit or loss which is included in the ‘Other gains and losses’ line item in the consolidated
income statement.
Impairment of financial assets
Financial assets, other than those at FVTPL, are assessed for indicators of impairment at each balance sheet
date. Appropriate allowances for estimated irrecoverable amounts are recognised in profit or loss when
there is objective evidence that the asset is impaired. The allowance recognised is measured as the
difference between the asset’s carrying amount of the financial asset and the present value of estimated
future cash flows discounted at the effective interest rate computed at initial recognition.
Evidence of impairment could include:
significant financial difficulty of the issuer or counterparty;
default or delinquency in interest or principal payments; or
it becoming probable that the borrower will enter bankruptcy or financial re-organisation.
For certain categories of financial assets, such as trade receivables, assets that are assessed not to be
impaired individually are, in addition, assessed for impairment on a collective basis.
The carrying amount of the financial assets is reduced by the impairment loss directly for all financial assets
with the exception of trade receivables, where the carrying amount is reduced through the use of an
allowance account. Subsequent recoveries of amounts previously written off are credited against the
allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related
objectively to an event occurring after the impairment was recognised, the previously recognised impairment
loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the
impairment is reversed does not exceed what the amortised cost would have been had the impairment not
been recognised.
Financial liabilities
Financial liabilities are classified as either financial liabilities ‘at FVTPL’ or ‘other financial liabilities’
Financial liabilities at FVTPL
Financial liabilities at FVTPL are stated at fair value, with any resultant gain or loss recognised in profit or
loss and is included in the ‘Other gains and losses’ line item in the income statement. Fair value is
determined in the manner described in note 28.
Trade payables and short-term borrowings
Trade payables and short-term borrowings are initially measured at fair value, and are subsequently
measured at amortised cost, using the effective interest rate method.
67
CADOGAN PETROLEUM PLC
Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December 2015
_______________________________________________________________________________________
3. Significant accounting policies (cont.)
(o) Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past
event, it is probable that the Group will be required to settle that obligation and a reliable estimate can be
made of the amount of the obligation. The amount recognised as a provision is the best estimate of the
consideration required to settle the present obligation at the balance sheet date, taking into account the risks
and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to
settle the present obligation, its carrying amount is the present value of those cash flows.
(p) Decommissioning
A provision for decommissioning is recognised in full when the related facilities are installed. The
decommissioning provision is calculated as the net present value of the Group’s share of the expenditure
expected to be incurred at the end of the producing life of each field in the removal and decommissioning of
the production, storage and transportation facilities currently in place. The cost of recognising the
decommissioning provision is included as part of the cost of the relevant asset and is thus charged to the
income statement on a unit of production basis in accordance with the Group’s policy for depletion and
depreciation of tangible non-current assets. Period charges for changes in the net present value of the
decommissioning provision arising from discounting are included within finance costs.
4. Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group’s accounting policies, which are described in note 3, the Directors are required
to make judgements, estimates and assumptions about the carrying amounts of the assets and liabilities that
are not readily apparent from other sources. The estimates and associated assumptions are based on
historical experience and other factors that are considered to be relevant. Actual results may differ from these
estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognised in the period in which the estimate is revised if the revision affects only that period
or in the period of the revision and future periods if the revision affects both the current and future periods.
The following are the critical judgements and estimates that the Directors have made in the process of
applying the Group’s accounting policies and that have the most significant effect on the amounts recognised
in the financial statements:
(a)
Impairment of E&E
The outcome of ongoing exploration, and therefore the recoverability of the carrying value of intangible
exploration and evaluation assets, is inherently uncertain. Management makes the judgements necessary
to implement the Group’s policy with respect to exploration and evaluation assets and considers these
assets for impairment at least annually with reference to indicators in IFRS 6.
(b) Impairment of development and production assets
IAS 36 Impairment of Assets require that a review for impairment to be carried out if events or changes in
circumstances indicate that the carrying amount of an asset may not be recoverable.
Management assessed whether any impairment triggers were present at 31 December 2015 and concluded
that there were no impairment indicators for the PP&E assets of the Group.
68
CADOGAN PETROLEUM PLC
Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December 2015
_______________________________________________________________________________________
4. Critical accounting judgements and key sources of estimation uncertainty (cont.)
(с) Impairment of investments in joint ventures
The Group’s investments in joint ventures are accounted for using the equity method. The carrying value of
the Group’s investments is reviewed at each balance sheet date. This review requires estimation of the future
cash flows expected to be received by the Group mainly from the joint ventures’ exploration and evaluation
assets. As of 31 December 2015 exploration and evaluation assets of the joint venture entity LLC Industrial
Company Gazvydobuvannya have been assessed for impairment through calculation of the recoverable
amount as a fair value less cost to sell. As a result impairment has been recognised in the accounts of the joint
venture and the Group’s share was included in the consolidated financial statements as share of losses in joint
ventures. Further details are provided in note 19.
(d) Assessment of political and economic situation in Ukraine impact on Group operations
In 2015, an armed conflict with separatists continued in certain parts of Luhansk and Donetsk regions, and a
peaceful resolution of the conflict did not occur as it was foreseen by the Minsk agreements. In 2015, the
Ukrainian economy was going through a recession, a gross domestic product has contracted by 10% (2014:
7%), and an annual inflation rate reached 43% (2014: 25%). Unfavourable conditions on markets where
Ukraine’s primary commodities where traded were influencing further devaluation of the Ukrainian Hryvnia
against major foreign currencies. The Ukrainian companies and banks continued to suffer from lack of
funding from domestic and international financial markets. The National Bank of Ukraine (the “NBU”)
extended its range of measures that were introduced in 2014 and aimed at limiting the outflow of foreign
currency from the country, inter alia, a mandatory sale of foreign currency earnings, certain restrictions on
purchases of foreign currencies on the interbank market and on usage of foreign currencies for settlement
purposes, limitations on remittances abroad.
In early 2015, the Government of Ukraine agreed with the IMF a four-year program for USD 17.5 billion loan
aimed at supporting the economic stabilization of Ukraine. The program defines economic reforms that must
be undertaken by the Government of Ukraine to reinstate a sustainable economic growth in the mid-term
perspective. In 2015, political and economic relationships between Ukraine and the Russian Federation
remained strained that led to a significant reduction in trade and economic cooperation. On 1 January 2016,
a free-trade element of Ukraine’s association agreement with the European Union is coming into force. In
late 2015, the Russian Federation denounced the free trade zone agreement with Ukraine and further trade
restrictions were announced by both countries.
Stabilization of the economic and political situation depends, to a large extent, upon the ability of the
Ukrainian Government to continue reforms and the efforts of the NBU to further stabilize the banking sector,
as well as upon the ability of the Ukrainian economy in general to respond adequately to changing markets.
Nevertheless, further economic and political developments, as well as the impact of the above factors on the
Group, its customers, and contractors are currently difficult to predict.
Management is monitoring how the political and economic situation may affect the Group operations, and
has considered whether adjustments are required to the carrying values of assets and the appropriateness of
the going concern assumption. As a result management have concluded that there were no significant
adverse consequences in relation to the Group’s operations, cash flows and assets that impact the 2015
financial statements, apart from continuous uncertainty related to key assumptions used by management in
assessment of the recoverable amount of production assets as described above. Management noted that
none of the Group’s assets are located in areas of current conflict. Though not predictable and quite
improbable, any further escalations of the political crisis may impact the Group’s normal business activities,
and increase the risks relating to its business operations, financial status and maintenance of its Ukrainian
production licences.
69
CADOGAN PETROLEUM PLC
Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December 2015
_______________________________________________________________________________________
Segment information
5.
Segment information is presented on the basis of management’s perspective and relates to the parts of the
Group that are defined as operating segments. Operating segments are identified on the basis of internal
reports provided to the Group’s chief operating decision maker (“CODM”). The Group has identified its top
management team as its CODM and the internal reports used by the top management team to oversee
operations and make decisions on allocating resources serve as the basis of information presented. These
internal reports are prepared on the same basis as these consolidated financial statements.
Segment information is analysed on the basis of the type of activity, products sold or services provided.
The majority of the Group’s operations are located within Ukraine.
Segment information is analysed on the basis of the types of goods supplied by the Group’s operating
divisions. The Group’s reportable segments under IFRS 8 are therefore as follows:
Exploration and Production
E&P activities on the production licences for natural gas, oil and condensate
Service
Drilling services to exploration and production companies
Civil works services to exploration and production companies
Trading
Import of natural gas and diesel from European countries
Local purchase and sales of natural gas operations with physical delivery of natural gas
The accounting policies of the reportable segments are the same as the Group’s accounting policies described
in Note 3. Sales between segments are carried out at market prices. The segment result represents operating
include
profit under IFRS before unallocated corporate expenses. Unallocated corporate expenses
management remuneration, representative expenses and expenses incurred in respect of the maintenance of
office premises. This is the measure reported to the CODM for the purposes of resource allocation and
assessment of segment performance.
The Group does not present information on segment assets and liabilities as the CODM does not review such
information for decision-making purposes.
As of 31 December 2015 and for the year then ended the Group’s segmental information was as follows:
Service
Trading
Consolidated
Exploration and
Production
$’000
521
-
1,314
1,835
(1,932)
(548)
-
(645)
Sales of hydrocarbons
Other revenue
Sales between segments
Total revenue
Cost of sales
Administrative expenses
Interest on short-term borrowings (Note 13)
Segment results
Unallocated administrative expenses
Other income, net
Impairment(1)
Share of losses in joint ventures(2)
Net foreign exchange gains
Loss before tax
(1) Impairment loss recognised in 2015 of $10.3 million related to exploration and production segment.
$’000
-
354
-
354
(250)
-
-
104
$’000
74,565
-
(1,314)
73,251
(67,380)
(641)
(2,411)
2,819
(2) Share of losses in joint ventures includes $9.1 million of impairment loss that relates to exploration and production segment.
$’000
75,086
354
-
75,440
(69,562)
(1,189)
(2,411)
2,278
(4,926)
1,235
(10,480)
(12,844)
2,494
(22,243)
70
CADOGAN PETROLEUM PLC
Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December 2015
_______________________________________________________________________________________
As of 31 December 2014 and for the year then ended the Group’s segmental information was as follows:
Exploration and
Production
$’000
1,291
-
1,077
2,368
(2,579)
(1,347)
-
(1,558)
Sales of hydrocarbons
Other revenue
Sales between segments
Total revenue
Cost of sales
Administrative expenses
Interest on short-term borrowings (Note 13)
Segment results
Unallocated administrative expenses
Other income, net
Impairment(1)
Share of losses in joint ventures
Net foreign exchange gains
Loss before tax
(1) Impairment loss recognised in 2014 of $5.1 million related to exploration and production segment.
6.
Revenue
Sale of hydrocarbons
Other revenues
Service
Trading
Consolidated
$’000
-
846
-
846
(386)
-
-
460
$’000
30,253
233
(1,077)
29,409
(26,848)
(379)
(420)
1,762
$’000
31,544
1,079
-
32,623
(29,813)
(1,726)
(420)
664
(5,276)
2,228
(5,134)
(54,664)
3,036
(59,146)
2015
$’000
75,086
354
75,440
2014
$’000
31,544
1,079
32,623
Other revenues include revenues from services provided to third parties of $0.4 million (2014: $0.8 million).
Information about major customers
Included in revenues for the year ended 31 December 2015 are revenues of $35.7 million (2014: $25.3
million) which arose from sales to the Group’s two largest customer. None other single customers
contributed 10% or more to the Group revenue for both 2015 and 2014 years.
7.
Other operating income, net
Transactions with JV partner
Other income, net
2015
$’000
-
31
31
2014
$’000
510
37
547
71
CADOGAN PETROLEUM PLC
Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December 2015
_______________________________________________________________________________________
8.
Impairment
Impairment of oil and gas assets (note 16, 17)
Inventories
VAT recoverable
Reversal of impairment of other assets
2015
$’000
(10,480)
(90)
1,390
1,300
2014
$’000
(5,134)
(253)
1,130
877
The carrying value of inventory as at 31 December 2015 and 2014 has been impaired to reduce it to net
realisable value (see note 20). During 2015, the Group gross sales of inventory to third parties comprised
$0.1 million (2014: $0.1 million).
During the year VAT impairment in the amount of $1.3 million (2014: $1.1 million) has been released
mainly as a result VAT recovery of historical balances through offset of VAT liabilities arising on sales.
9. Loss for the year
The loss for the year has been arrived at after (charging)/crediting:
Depreciation of property, plant and equipment
Loss on disposal of property, plant and equipment
Reversal of impairment of other assets (note 8)
Impairment of oil and gas assets (note 17)
Staff costs
Net foreign exchange gain
2015
$’000
(434)
(24)
1,300
(10,480)
(2,996)
2,494
2014
$’000
(938)
(211)
877
(5,134)
(4,039)
3,036
In addition to the depreciation of PP&E of $nil million (2014: $0.9 million) in the year ended 31 December
2015, depreciation of $nil million (2014: $0.04 million) was capitalised to E&E assets being depreciation of
tangible assets used in E&E activities.
10. Auditor’s remuneration
The analysis of auditor’s remuneration is as follows:
Audit fees
Fees payable to the Company’s auditor and their associates for the audit of the Company’s
180
194
2015
$’000
2014
$’000
annual accounts
Fees payable to the Company’s auditor and their associates for other services to the Group:
- The audit of the Company’s subsidiaries
Total audit fees
Non-audit fees
- Audit-related assurance services
- Taxation compliance services
Non-audit fees
35
215
30
224
66
59
125
38
25
63
72
CADOGAN PETROLEUM PLC
Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December 2015
_______________________________________________________________________________________
11. Staff costs
The average monthly number of employees (including Executive Directors) was:
Executive Directors
Other employees
Total number of employees at 31 December
Their aggregate remuneration comprised:
Wages and salaries
Social security costs
2015
Number
3
77
80
2014
Number
2
98
100
80
100
$’000
$’000
2,895
226
3,121
4,012
455
4,467
Within wages and salaries $0.9 million (2014: $0.8 million) relates to amounts accrued and paid to executive
Directors for services rendered.
Included within wages and salaries is $0.1 million (2014: $0.4 million) capitalised to intangible E&E assets and
$0.1 million (2014: $nil) capitalised to development and production assets.
12. Investment income
Interest on bank deposits
Interest on loans issued
13. Finance costs
Interest on short-term borrowings
Interest on tax provision (note 26)
Unwinding of discount on decommissioning provision (note 26)
2015
$’000
118
-
118
2014
$’000
27
825
852
2015
$’000
(2,411)
(201)
(13)
(2,625)
2014
$’000
(420)
-
(48)
(468)
73
CADOGAN PETROLEUM PLC
Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December 2015
_______________________________________________________________________________________
14. Tax
Current tax
Adjustment in relation to the current tax of prior years
Deferred tax (benefit)/charge (note 23)
2015
$’000
11
1,317
(288)
1,040
2014
$’000
11
362
(207)
166
The Group’s operations are conducted primarily outside the UK. The most appropriate tax rate for the
Group is therefore considered to be 18 per cent (2014: 18 per cent), the rate of profit tax in Ukraine which
is the primary source of revenue for the Group. Taxation for other jurisdictions is calculated at the rates
prevailing in the respective jurisdictions.
As at 31 December 2015 the Group recognised short-term provision in respect of possible corporate tax
obligation in respect of dispute on classification taxable income and expenses (note 26).
The taxation charge for the year can be reconciled to the loss per the income statement as follows:
Loss before tax
Tax credit at Ukraine corporation tax rate of 18% (2014: 18%)
Tax credit related to the Joint venture losses
Permanent differences
Unrecognised tax losses utilised in the year
Effect of different tax rates
Adjustments recognised in the current year in relation
to the current tax of prior years
Income tax expense recognised in profit or loss
15. Loss per Ordinary share
2015
2015
$’000
%
(22,243) 100.0
18.0
(10.4)
(6.8)
0.5
(0.1)
1.3
(4,004)
2,312
1,511
(107)
11
(277)
2014
$’000
2014
%
(59,146) 100.0
18.0
(10,646)
(15.7)
9,292
(2.6)
1,543
1.4
(839)
(0.8)
454
0.3
(196)
1,317
1,040
-
-
362
166
-
-
Basic loss per Ordinary share is calculated by dividing the net loss for the year attributable to owners of the
Company by the weighted average number of Ordinary shares outstanding during the year. The calculation of
the basic loss per share is based on the following data:
Loss attributable to owners of the Company
Loss for the purposes of basic loss per share being net loss attributable to owners of the
Company
Number of shares
Weighted average number of Ordinary shares for the purposes of
basic loss per share
Loss per Ordinary share
Basic
2015
$’000
(23,261)
2014
$’000
(59,271)
2015
Number
‘000
2014
Number
‘000
231,092 231,092
2015
Cent
2014
cent
(10.1)
(25.6)
The Group has no potentially dilutive instruments in issue. Therefore no diluted loss per share is presented
above.
74
CADOGAN PETROLEUM PLC
Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December 2015
_______________________________________________________________________________________
16. Intangible exploration and evaluation assets
Cost
At 1 January 2014
Additions
Change in estimate of decommissioning assets (note 26)
Transfer from property, plant and equipment (note 17)
Disposals
Exchange differences
At 1 January 2015
Additions
Change in estimate of decommissioning assets (note 26)
Disposals
Exchange differences
At 31 December 2015
Impairment
At 1 January 2014
Transfer from property, plant and equipment (note 17)
Exchange differences
At 1 January 2015
Impairment charge
Exchange differences
At 31 December 2015
Carrying amount
At 31 December 2015
At 31 December 2014
$’000
34,895
468
95
18,467
(1)
(16,743)
37,181
281
183
(2)
(12,310)
25,333
28,937
3,826
(13,871)
18,892
10,105
(6,364)
22,633
2,700
18,289
During the year additions to the exploration and evaluation assets include $nil million (2014: $0.1 million)
of capitalised depreciation of development and production assets used in exploration and evaluation
activities.
As at 31 December 2015, due to the expiration of the Pirkovska licence and uncertainty as for the timing for
the licence re-awarding due to the change in the legislative process and respective delays in responses from
the government authorities, the Group decided to impair E&E assets of Pirkovska licence in the amount of
$10.1 million.
The carrying amount of E&E assets as at 31 December 2015 of $2.7 million (2014: $3.6 million) mainly
relates to Bitlyanska licence. As of 31 December 2015 management of the Group carried out the
assessment of the Bitlyanska licences value in use and recognised no impairment as recoverable amount
was higher than the book value of the assets. Key assumptions used in the impairment assessment were as
follows:
Future gas price was assumed to be flat $210, real per m3;
The pre-tax discount rate used was 24%, real.
75
CADOGAN PETROLEUM PLC
Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December 2015
_______________________________________________________________________________________
17. Property, plant and equipment
Cost
At 1 January 2014
Additions
Transfer to intangible exploration and evaluation assets
Transfer between property, plant and equipment
Change in estimate of decommissioning assets (note 26)
Disposals
Exchange differences
At 1 January 2015
Additions
Change in estimate of decommissioning assets (note 26)
Disposals
Exchange differences
At 31 December 2015
Accumulated depreciation and impairment
At 1 January 2014
Impairment
Charge for the year
Transfer to intangible exploration and evaluation assets
Disposals
Exchange differences
At 1 January 2015
Impairment
Charge for the year
Disposals
Exchange differences
At 31 December 2015
Carrying amount
At 31 December 2015
At 31 December 2014
Development
and
production assets
$’000
50,942
1,235
(18,467)
(54)
201
(587)
(24,492)
8,778
172
79
(1)
(2,934)
6,094
54
-
(89)
Other
$’000
9,650
376
Total
$’000
60,592
1,611
- (18,467)
-
201
(676)
(4,801) (29,293)
13,968
261
79
(44)
(4,997)
9,267
5,190
89
-
(43)
(2,063)
3,173
13,489
5,134
614
(3,826)
(188)
(6,787)
8,436
375
82
(1)
(2,798)
6,094
3,217
-
359
-
(76)
(1,814)
1,686
-
352
(16)
(510)
1,512
16,706
5,134
973
(3,826)
(264)
(8,601)
10,122
375
434
(17)
(3,308)
7,606
-
342
1,661
3,504
1,661
3,846
As of 31 December 2015 management of the Group carried out the assessment of the Debeslavetska and
Cheremkhivska licences value in use and recognised an impairment of these oil and gas assets of $0.4
million. Recoverable amount was assessed at $nil million as at 31 December 2015.
Key assumptions used in the impairment assessment were as follows:
Future gas price was assumed to be flat $210, real per m3;
The pre-tax discount rate used was 24%, real.
During the year ended 31 December 2015 the depreciation charge of $nil million (2014: $0.1 million) of
development and production assets used in exploration and evaluation activities has been capitalised and
accounted as additions to the exploration and evaluation assets (note 16).
76
CADOGAN PETROLEUM PLC
Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December 2015
_______________________________________________________________________________________
18. Subsidiaries
The Company had investments in the following subsidiary undertakings as at 31 December 2015, which
principally affected the profits and net assets of the Group:
Name
Directly held
Cadogan Petroleum Holdings Ltd
Ramet Holdings Ltd
Indirectly held
Rentoul Ltd
Cadogan Petroleum Holdings BV
Cadogan Bitlyanske BV
Cadogan Delta BV
Cadogan Astro Energy BV
Cadogan Pirkovskoe BV
Cadogan Zagoryanske Production BV
Momentum Enterprise (Europe) Ltd
Cadogan Ukraine Holdings Limited
Cadogan Momentum Holdings Inc
Radley Investments Ltd
Cadogan Petroleum Trading SAGL
Global Commodities NC
LLC AstroInvest-Ukraine
LLC Zagvydobuvannya
LLC Astro Gas
DP USENCO Ukraine
LLC USENCO Nadra
JV Delta
LLC WestGasInvest
LLC Astro-Service
OJSC AgroNaftoGasTechService
LLC Cadogan Ukraine
Country of
incorporation
and operation
Proportion
of voting
interest %
Activity
UK
Cyprus
Isle of Man
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Netherlands
Cyprus
Cyprus
Canada
UK
Switzerland
France
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
100
100
100
100
100
100
100
100
100
100
100
100
100
100
80
100
100
100
100
95
100
100
100
79.9
100
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Holding company
Trading company
Trading company
Exploration
Exploration
Exploration
Exploration
Exploration
Exploration
Exploration
Service Company
Construction services
Corporate services
77
CADOGAN PETROLEUM PLC
Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December 2015
_______________________________________________________________________________________
19. Joint ventures
Details of each Group’s joint ventures at the end of the 2015 and 2014 reporting periods are as follows:
Company name
Licences held
Country of
incorporation
and operation
Ownership
share %
Activity
LLC Astroinvest-Energy
LLC Industrial Company
Gazvydobuvannya
LLC Westgasinvest
Zagoryanska exploration licence Ukraine
Ukraine
Pokrovska exploration licence
Ukraine
Reklynetska, Zhuzhelianska,
Cheremkhivsko-Strupkivska,
Baulinska, Filimonivska,
Kurinna, Sandugeyivska,
Yakovlivska, and Debeslavetska
Exploration, Debeslavetska
Production licence
40
70
15
Exploration
Exploration
Exploration
All of the above joint ventures are accounted for using the equity method in these consolidated financial
statements. According to the shareholders’ agreements, which regulate the activities of the jointly
controlled entities, all key decisions require unanimous approval from the shareholders, therefore these
entities are jointly controlled.
Summarised financial information in respect of each of the Group’s material joint ventures is set out below.
The summarised financial information below represents amounts shown in the joint venture’s financial
statements prepared in accordance with IFRSs.
LLC Astroinvest-Energy
Non-current assets
Current assets
Non-current liabilities
Current liabilities
Revenue
Loss for the period
Other comprehensive (loss)/income
Total comprehensive loss
Net deficit of the joint venture
2015
$’000
4
735
-
(6,986)
-
(6,107)
(3)
(6,110)
(6,247)
2014
$’000
886
1,234
(598)
(4,742)
-
(3,058)
(73)
(3,131)
(3,220)
78
CADOGAN PETROLEUM PLC
Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December 2015
_______________________________________________________________________________________
LLC Industrial Company Gazvydobuvannya
Non-current assets
Current assets
Non-current liabilities
Current liabilities
Revenue
Loss for the period
Other comprehensive income/(loss)
Total comprehensive loss
Net assets of the joint venture
2015
$’000
2,113
2,164
-
(2,652)
-
(13,822)
(3,729)
(17,551)
1,625
2014
$’000
20,273
2,106
(312)
(2,821)
-
(56,559)
(18,727)
(75,286)
19,246
As of 31 December 2015 joint venture LLC Industrial Company Gazvydobuvannya conducted an impairment
assessment of its exploration and evaluation assets. The impairment charge of $12.6 million recognised as
the result of exploration and evaluation assets value recoverability assessment was included in the loss for
the period.
Key assumptions used in the impairment assessment were as follows:
Future gas price was assumed to be flat $210, real per m3;
The pre-tax discount rate used was 24%, real.
LLC Westgasinvest
Non-current assets
Current assets
Non-current liabilities
Current liabilities
Revenue
Loss for the period
Other comprehensive income
Total comprehensive loss
Net assets/(deficit) of the joint venture
2015
$’000
83
562
-
(313)
-
(1,854)
(322)
(2,176)
332
2014
$’000
73
123
-
(2,893)
-
(3,717)
(1,024)
(4,741)
(2,697)
79
CADOGAN PETROLEUM PLC
Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December 2015
_______________________________________________________________________________________
The carrying amounts of the Group’s interest in joint ventures recognized in the financial statements of the
Group using the equity method are set out in the tables below:
LLC
Astroinvest-
Energy
$’000
LLC Industrial
company
Gazvydo-
buvannya
$’000
LLC Westgasinvest
Total
$’000
$’000
4,922
65,965
62,283
(1,240)
224
(1,253)
(Deficit)/ net assets recognised
as at 1 January 2014
Investments during the year
Loss for the year
(Deficit)/ net assets recognised
as at 1 January 2015
Investments during the year
Loss for the year
Carrying amount of Group’s interest
as at 31 December 2015
The Group is committed together with ENI to fund LLC Astroinvest-Energy subsequently to the year end
with the necessary amount of $2.5 million in order to close current liabilities of the joint venture. Most of
the funds will be used to repay the costs charged by the partners.
2,800
(52,700)
700
(12,286)
3,024
(54,664)
700
(12,844)
-
(228)
-
(711)
-
(330)
(2,269)
(2,497)
12,383
14,325
2,181
3,881
4,211
797
20. Inventories
Natural gas
Diesel
Other inventories
Impairment provision for obsolete inventory
Carrying amount
2015
$’000
2,525
38
1,148
(208)
3,503
2014
$’000
8,124
258
1,751
(193)
9,940
The impairment provision as at 31 December 2015 and 2014 is made so as to reduce the carrying value of
the obsolete inventories to net realisable value. During 2015 impairment charge $0.1 million (2014: $0.4
million) has been recognised in respect of other inventories.
21. Trade and other receivables
Trading receivables
Trading prepayments
Receivable from joint venture
Prepayments
VAT recoverable
Other receivables
2015
$’000
8,514
3,206
1,824
64
-
803
14,411
2014
$’000
5,060
8,584
1,938
166
1,674
469
17,891
Trading prepayments represent actual payments made by the Group to suppliers for the January 2016 gas
supply.
80
CADOGAN PETROLEUM PLC
Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December 2015
_______________________________________________________________________________________
Trading receivables represent current receivables from customers and are to be repaid within three months
after the year end. As of 31 December 2015 there were no past due receivables and no related impairment
provision. The Group considers that the carrying amount of receivables approximates their fair value.
VAT recoverable is presented net of the cumulative provision of $1.1 million (2014: $4.4 million) against
Ukrainian VAT receivable has been recognised as at 31 December 2015.
Receivable from joint ventures comprise $1.0 million from Astroinvest-Energy LLC (2014: $1.2 million) and
$0.8 million from Gazvydobuvannya LLC (2014: $0.7 million).
22. Cash and cash equivalents
Cash and cash equivalents as at 31 December 2015 of $49.4 million (2014: $48.9 million) comprise cash
held by the Group. The Directors consider that the carrying amount of these assets approximates to their
fair value.
As of 31 December 2015 part of the cash and cash equivalents in amount of $20 million related to security
of borrowings and held at UK bank is considered to be restricted cash balance (note 24).
23. Deferred tax
The following are the major deferred tax liabilities and assets recognised by the Group and movements
thereon during the current and prior reporting period:
Liability as at 1 January 2014
Deferred tax benefit
Exchange differences
Liability as at 1 January 2015
Deferred tax benefit
Exchange differences
Liability as at 31 December 2015
Temporary
differences
$’000
675
(207)
(180)
288
(287)
(1)
-
At 31 December 2015, the Group had the following unused tax losses available for offset against future
taxable profits:
UK
Ukraine
2015
$’000
9,054
78,859
87,913
2014
$’000
10,274
69,010
79,284
Deferred tax assets have not been recognised in respect of these tax losses owing to the uncertainty that
profits will be available in future periods against which they can be utilised.
The Group’s unused tax losses of $9.1 million (2014: $10.3 million) relating to losses incurred in the UK are
available to shelter future non-trading profits arising within the Company. These losses are not subject to a
time restriction on expiry.
Unused tax losses incurred by Ukraine subsidiaries amount to $78.9 million (2014: $69.0 million). Under
general provisions, these losses may be carried forward indefinitely to be offset against any type of taxable
income arising from the same company of origination. Tax losses may not be surrendered from one Ukraine
subsidiary to another. However, in the past, Ukrainian legislation has been imposed which restricted the
carry forward of tax losses. During 2011 a new tax legislation in Ukraine was implemented which resulted in
81
CADOGAN PETROLEUM PLC
Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December 2015
_______________________________________________________________________________________
the restriction to recognition of accumulated losses at 1 April 2011. Starting 1 January 2012 only 25% of
accumulated losses as at this date are allowed to be utilised each year for the period from 2012 till 2015 in
the calculation of taxable income of the company. Tax losses accumulated after 1 January 2012 have no
restrictions.
24. Short-term borrowings
In October 2014 the Group started to use short-term borrowings as a financing facility for its trading
activities. Borrowings are represented by credit line drawn in short-term tranches in UAH at Ukrainian
bank, 100% subsidiary of UK bank. Credit line is secured by $20 million of cash balance placed at the
European bank in the UK.
Outstanding amount as at 31 December 2015 was $12.9 million (2014: $17.3 million) with effective interest
rate 20%p.a. (2014: 16%p.a.). Interest is paid monthly and as at 31 December 2015 accrued interest
amounted to $0.2 million (2014: $0.2 million).
25. Trade and other payables
Trade creditors
Trading payables
VAT payable
Accruals
Payables to joint ventures
Taxes and social security
Payments received in advance
Other payables
2015
$’000
921
907
899
635
96
77
6
141
3,682
2014
$’000
723
312
-
631
159
425
2,470
348
5,068
Prepayments received represent payments from the customers for the natural gas to be supplied in January
2016.
Trading payables represent liability to suppliers for the natural gas supply in December 2015.
Trade creditors and accruals principally comprise amounts outstanding for capital work programme
purchases and ongoing costs. The average credit period taken for trade purchases is 24 days (2014: 91
days). The Group has financial risk management policies to ensure that all payables are paid within the
credit timeframe.
The Directors consider that the carrying amount of trade and other payables approximates to their fair
value. No interest is generally charged on outstanding balances.
82
CADOGAN PETROLEUM PLC
Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December 2015
_______________________________________________________________________________________
26. Provisions
The provisions at 31 December 2015 comprise of $2.3 million of probable tax obligation and
decommissioning provision.
As at 31 December 2015 the Group recognised short-term provision in respect of possible corporate tax
obligation in respect of dispute on classification taxable income and expenses. The Group appealed to the
Tribunal, however given the uncertainty around the final position the provision of $1.3 million (£0.9 million)
and up to $0.2 million (£0.1 million) of interest was recognised in the financial statements.
Decommissioning
At 1 January 2014
Change in estimate (note 16 and 17)
Unwinding of discount on decommissioning provision (note 13)
Exchange differences
At 1 January 2015
Change in estimate (note 16 and 17)
Unwinding of discount on decommissioning provision (note 13)
Exchange differences
At 31 December 2015
At 1 January 2014
Non-current
Current
At 1 January 2015
Non-current
Current
At 31 December 2015
$’000
708
296
48
(350)
702
262
13
(245)
732
708
55
647
702
726
6
732
In accordance with the Group’s environmental policy and applicable legal requirements, the Group intends
to restore the sites it is working on after completing exploration or development activities.
A short-term provision of $6 thousand (2014: $0.6 million) has been made for decommissioning costs,
which are expected to be incurred within the next year as a result of the demobilisation of drilling
equipment and respective site restoration. In addition to that there is a short-term provision for
decommissioning costs at Zagoryanska licence of $3.7 million and at Pokrovska licence of $1.9 million in the
account of joint ventures (note 19).
The long-term provision recognised in respect of decommissioning reflects management’s estimate of the
net present value of the Group’s share of the expenditure expected to be incurred in this respect. This
amount has been recognised as a provision at its net present value, using a discount rate that reflects the
market assessment of time value of money at that date, and the unwinding of the discount on the provision
has been charged to the income statement. These expenditures are expected to be incurred at the end of
the producing life of each field in the removal and decommissioning of the facilities currently in place
(currently estimated to be between 1 and 17 years).
83
CADOGAN PETROLEUM PLC
Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December 2015
_______________________________________________________________________________________
27. Share capital
Authorised and issued equity share capital
Authorised
Ordinary shares of £0.03 each
Issued
Ordinary shares of £0.03 each
2015
Number
2014
Number
’000
$’000
’000
$’000
1,000,000
57,713 1,000,000
57,713
231,092
13,337
231,092
13,337
Authorised but unissued share capital of £30 million has been translated into US dollars at the historic
exchange rate of the issued share capital. The Company has one class of Ordinary shares which carry no
right to fixed income.
Issued equity share capital
At 31 December 2014 and 2015
28. Financial instruments
Capital risk management
Ordinary shares
of £0.03
231,091,734
The Group manages its capital to ensure that entities in the Group will be able to continue as a going
concern, while maximising the return to shareholders.
The capital resources of the Group consists of cash and cash equivalents arising from equity attributable to
owners of the Company, comprising issued capital, reserves and retained earnings as disclosed in the
Consolidated Statement of Changes in Equity.
Externally imposed capital requirement
The Group is not subject to externally imposed capital requirements.
Categories of financial instruments
Financial assets – loans and receivables (includes cash and cash equivalents)
Cash and cash equivalents
Trading receivable
Receivable from joint venture
Other receivables
Financial liabilities – measured at amortised cost
Short-term borrowings
Trade creditors
Trading payables
Accruals
Other payables
Payables to joint ventures
2015
$’000
2014
$’000
49,407
8,514
1,824
801
60,546
12,903
921
907
635
141
96
15,603
48,927
5,060
1,938
469
56,394
17,327
723
312
631
348
159
19,500
84
CADOGAN PETROLEUM PLC
Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December 2015
_______________________________________________________________________________________
28. Financial instruments (continued)
Financial risk management objectives
Management provides services to the business, co-ordinates access to domestic and international financial
markets and monitors and manages the financial risks relating to the operations of the Group in Ukraine
through internal risks reports which analyse exposures by degree and magnitude of risks. These risks
include commodity price risks, foreign currency risk, credit risk, liquidity risk and cash flow interest rate risk.
The Group does not enter into or trade financial instruments, including derivative financial instruments, for
speculative purposes.
The Audit Committee of the Board reviews and monitors risks faced by the Group through meetings held
throughout the year.
Interest rate risk
Interest rate risk arises from the possibility that changes in interest rates will affect the value of the
financial instruments. The Group is not exposed to interest rate risk because entities of the Group borrow
funds at fixed interest rates.
Commodity price risk
The commodity price risk related to Ukrainian gas and condensate prices and, to a lesser extent, prices for
crude oil are the Group’s most significant market risk exposures. World prices for gas and crude oil are
characterised by significant fluctuations that are determined by the global balance of supply and demand
and worldwide political developments, including actions taken by the Organisation of Petroleum Exporting
Countries.
These fluctuations may have a significant effect on the Group’s revenues and operating profits going
forward. In 2015 the price for Ukrainian gas was mainly based on the current price of the European gas
imports. Management continues to expect that the Group’s principal market for gas will be the Ukrainian
domestic market.
The Group does not hedge market risk resulting from fluctuations in gas, condensate and oil prices, and
holds no financial instruments which are sensitive to commodity price risk.
Foreign exchange risk and foreign currency risk management
The Group undertakes certain transactions denominated in foreign currencies. Hence, exposures to
exchange rate fluctuations arise. The Group to date has elected not to hedge its exposure to the risk of
changes in foreign currency exchange rates.
The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary
liabilities at the reporting date are as follows:
Monetary balance denominated in USD where functional currency is GBP
Foreign currency sensitivity analysis
Liabilities
2014
$’000
105
Assets
2014
$’000
48,860 46,484
2015
$’000
2015
$’000
157
The Group is exposed primarily to movements in currencies against the US dollar as this is the presentation
currency of the Group. In order to fund operations, US dollar funds are converted to UAH just before being
contributed to the Ukrainian subsidiaries. Sensitivity analyses have been performed to indicate how the
profit or loss would have been affected by changes in the exchange rate between the GBP and US dollar.
The analysis is based on a weakening of the US dollar by 10 per cent against GBP, a functional currency in
the entities of the Group which have significant monetary assets and liabilities at the end of each respective
85
CADOGAN PETROLEUM PLC
Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December 2015
_______________________________________________________________________________________
28. Financial instruments (continued)
period. A movement of 10 per cent reflects a reasonably possible sensitivity when compared to historical
movements over a three to five year timeframe. The sensitivity analysis includes only outstanding foreign
currency denominated monetary items and adjusts their translation at the period end for a 10 per cent
change in foreign currency rates.
A number below indicates a decrease in profit where US dollar strengthens 10 per cent against the other
currencies. For a 10 per cent weakening of the US dollar against the other currencies, there would be an
equal and opposite impact on the profit or loss, and the balances would be negative.
The Group is not exposed to significant foreign currency risk in other currencies.
The following table details the Group’s sensitivity to a 10 per cent decrease in the US dollar against the
GBP.
Income statement
2015
$’000
2014
$’000
(4,572)
(4,473)
Inflation risk management
Inflation in Ukraine and in the international market for oil and gas may affect the Group’s cost for
equipment and supplies. The Directors will proceed with the Group’s practices of keeping deposits in US
dollar accounts until funds are needed and selling its production in the spot market to enable the Group to
manage the risk of inflation.
Credit risk management
Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial
loss to the Group. The Group’s credit management process includes the assessment, monitoring and
reporting of counterparty exposure on a regular basis. Credit risk with respect to receivables and advances
is mitigated by active and continuous monitoring the credit quality of its counterparties through internal
reviews and assessment. Trading receivables as at 31 December 2015 have been paid within four months
after year end.
The Group makes allowances for impairment of receivables where there is an identified event which, based
on previous experience, is evidence of a reduction in the recoverability of cash flows.
The credit risk on liquid funds (cash) is considered to be limited because the counterparties are financial
institutions with high and good credit ratings, assigned by international credit-rating agencies in the UK and
Ukraine respectively.
The carrying amount of financial assets recorded in the financial statements represents the Group’s
maximum exposure to credit risk.
Liquidity risk management
Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has built an
appropriate liquidity risk management framework for the management of the Group’s short-, medium- and
long-term funding and liquidity management requirements. The Group manages liquidity risk by
maintaining adequate cash reserves and by continuously monitoring forecast and actual cash flows.
86
CADOGAN PETROLEUM PLC
Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December 2015
_______________________________________________________________________________________
The following tables sets out details of the expected contractual maturity of financial liabilities.
At 31 December 2015
Short-term borrowings
Trade and other payables
At 31 December 2014
Short-term borrowings
Trade and other payables
29. Commitments and contingencies
Joint activity agreements
Within
3 months
$’000
3 months
to 1 year
$’000
More than
1 year
$’000
12,903
3,019
17,327
1,683
-
657
-
915
-
-
-
-
Total
$’000
12,903
3,676
17,327
2,598
The Group has working interests in nine licences to conduct its exploration and development activities in
Ukraine. Each licence is held with the obligation to fulfil a minimum set of exploration activities within its
term and is summarised on an annual basis, including the agreed minimum amount forecasted expenditure
to fulfil those obligations. The activities and proposed expenditure levels are agreed with the government
licensing authority.
The required future financing of exploration and development work on fields under the licence obligations
are as follow:
Within one year
Between two and five years
2015
$’000
234
1,135
1,369
2014
$’000
580
520
1,100
The Group has revised its minimum working programmes and resubmitted the required documentation to
the government authorities; updated commitments have slightly increased for all licences from $1.1 million
to $1.4 million. Licence obligations of the joint ventures as at 31 December 2015 amounted to $0.1 million
(2014: $0.5 million) of obligations within one year and $nil million (2014: $0.4 million) of obligations
between two and five years.
In addition to licence commitments, the Group is committed together with ENI to fund LLC Astroinvest-
Energy subsequently to year end with the necessary amount of $2.2 million (2014: $2.3 million) in order to
close current liabilities of the joint venture.
Tax contingent liabilities
The Group assesses its liabilities and contingencies for all tax years open for audit by UK and Ukraine tax
authorities based upon the latest information available. For those matters where it is probable that an
adjustment will be made, the Group records its best estimate of these tax liabilities, including related
interest charges. Inherent uncertainties exist in estimates of tax contingencies due to complexities of
interpretation and changes in tax laws.
Whilst the Group believes it has adequately provided for the outcome of these matters, certain periods are
under audit by the UK and Ukraine tax authorities, and therefore future results may include favourable or
unfavourable adjustments to these estimated tax liabilities in the period the assessments are made, or
resolved. The final outcome of tax examinations may result in a materially different outcome than assumed
in the tax liabilities.
87
CADOGAN PETROLEUM PLC
Notes to the Consolidated Financial Statements (continued)
For the year ended 31 December 2015
_______________________________________________________________________________________
30. Related party transactions
All transactions between the Company and its subsidiaries, which are related parties, have been eliminated
on consolidation and are not disclosed in this note. The application of IFRS 11 has resulted in the existing
joint ventures LLC Astroinvest-Energy, LLC Gazvydobuvannya and LLC Westgasinvest being accounted for
under the equity method and disclosed as related parties.
During the period, Group companies entered into the following transactions with joint ventures who are
considered as related parties of the Group:
Revenues from services provided and sales of goods
Purchases of goods
Amounts owed by related parties
Amounts owed to related parties
Directors’ remuneration
2015
$’000
508
9
1,824
96
2014
$’000
597
87
1,938
159
The remuneration of the Directors, who are the key management personnel of the Group, is set out below
in aggregate for each of the categories specified in IAS 24 Related Party Disclosures. Further information
about the remuneration of individual Directors is provided in the audited part of the Annual Report on
Remuneration 2015 on pages 39 and 44.
Short-term employee benefits
Purchase of services
Amounts owing
2015
$’000
1,282
2014
$’000
1,148
2015
$’000
169
2014
$’000
137
The total remuneration of the highest paid Director was $0.4 million in the year (2014: $0.4 million).
The amounts outstanding are unsecured and will be settled in cash. No guarantees have been given or
received and no provisions have been made for doubtful debts in respect of the amounts owed by related
parties.
31. Events after the balance sheet date
Starting 1 January 2016 the new regulations on the gas trading in Ukraine came into force implying the
additional requirement of the covered bank guarantee for 20% of trading volumes that will effect cost of
supply.
Subsequent to 31 December 2015, in April 2016 the Group has contributed, together with eni, $1 million to
LLC Astroinvest-energy as part of commitment to fund its current liabilities.
Political and economic situation in Ukraine
We are monitoring the current political situation in Ukraine carefully and there have been no disruptions to
the Company’s operations in either of our operating locations.
We have reassessed the key judgements and critical accounting estimates as at the date of this report and,
based on the current status of operations, no adjustments have been made.
88
CADOGAN PETROLEUM PLC
Company Balance Sheet
As at 31 December 2015
_______________________________________________________________________________________
ASSETS
Non-current assets
Investments
Receivables from subsidiaries
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Total liabilities
Net assets
EQUITY
Share capital
Retained earnings
Cumulative translation reserves
Total equity
Notes
2015
$’000
2014
$’000
34
35
35
35
36
-
26,905
26,905
778
44,882
45,660
72,565
-
73,750
73,750
3,333
46,634
49,967
123,717
(380)
(380)
(380)
(370)
(370)
(370)
72,185
123,347
37
38
13,337
167,567
(108,719)
72,185
13,337
212,902
(102,892)
123,347
The financial statements of Cadogan Petroleum plc, registered in England and Wales no. 5718406, were approved by
the Board of Directors and authorised for issue on 25 April 2016.
They were signed on its behalf by:
Guido Michelotti
Chief Executive Officer
25 April 2016
The notes on pages 92 to 95 form part of these financial statements.
89
CADOGAN PETROLEUM PLC
Company Cash Flow Statement
For the year ended 31 December 2015
_______________________________________________________________________________________
Net cash inflow from operating activities
Investing activities
Interest received
Loans to subsidiary companies
Net cash used in investing activities
Net (decrease)/increase in cash and cash equivalents
Effect of foreign exchange rate changes
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Note
39
2015
$’000
3,655
79
(3,633)
(3,554)
101
(1,853)
46,634
44,882
2014
$’000
(633)
827
-
827
194
(3,840)
50,280
46,634
90
CADOGAN PETROLEUM PLC
Company Statement of Changes in Equity
For the year ended 31 December 2015
_______________________________________________________________________________________
As at 1 January 2014
Net income for the year
Exchange translation differences
As at 1 January 2015
Net loss for the year
Exchange translation differences
As at 31 December 2015
Share
capital
$’000
13,337
-
-
13,337
-
-
13,337
Retained
earnings
$’000
210,297
2,605
-
212,902
(45,335)
-
167,567
Cumulative
translation
reserves
$’000
(95,296)
-
(7,596)
(102,892)
-
(5,827)
(108,719)
Total
$’000
128,338
2,605
(7,596)
123,347
(45,335)
(5,827)
72,185
91
CADOGAN PETROLEUM PLC
Notes to the Company Financial Statements
For the year ended 31 December 2015
_______________________________________________________________________________________
32. Significant accounting policies
The separate financial statements of the Company are presented as required by the Companies Act 2006
(the “Act”). As permitted by the Act, the separate financial statements have been prepared in accordance
with International Financial Reporting Standards.
The financial statements have been prepared on the historical cost basis. The principal accounting policies
adopted are the same as those set out in note 3 to the Consolidated Financial Statements except as noted
below.
As permitted by section 408 of the Act, the Company has elected not to present its profit and loss account
for the year. Cadogan Petroleum plc reports a loss for the financial year ended 31 December 2015 of $45.3
million (2014: $2.6 million) of which $46.5 million relates to the impairment of receivables from
subsidiaries.
Investments
Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment.
Critical accounting judgements and key sources of estimation uncertainty
The Company’s financial statements, and in particular its investments in and receivables from subsidiaries, are
affected by certain of the critical accounting judgements and key sources of estimation uncertainty
described in note 4 to the Consolidated Financial Statements.
33. Auditor’s remuneration
The auditor’s remuneration for audit and other services is disclosed in note 10 to the Consolidated Financial
Statements.
34. Investments
The Company’s subsidiaries are disclosed in note 18 to the Consolidated Financial Statements. The
investments in subsidiaries are all stated at cost less any provision for impairment.
35. Financial assets
The Company’s principal financial assets are bank balances and cash and cash equivalents, prepayments
and receivables from related parties none of which are past due. The Directors consider that the carrying
amount of receivables from related parties approximates to their fair value.
Receivables from subsidiaries
At the balance sheet date gross amounts receivable from the fellow Group companies were $316.7 million
(2014: $329.0 million). The Group recognised impairment of $46.5 million in relation to receivables from
subsidiaries in 2015 (2014: $nil). The carrying value of the receivables from the fellow Group companies as
at 31 December 2015 was $26.9 million (2014: $73.8 million). There are no past due receivables.
Trade and other receivables
Prepayments
VAT recoverable
Other receivables
2015
$’000
752
-
26
778
2014
$’000
3,272
37
24
3,333
92
CADOGAN PETROLEUM PLC
Notes to the Company Financial Statements (continued)
For the year ended 31 December 2015
_______________________________________________________________________________________
35. Financial assets (continued)
In December 2015 the Company has made a prepayment for the natural gas on behalf of its Ukrainian
subsidiary due to difficulties of currency purchase in Ukraine. In 2016 this prepayment has been settled in
full to the Company.
Cash and cash equivalents
Cash and cash equivalents comprise cash held by the Company and short-term bank deposits with an
original maturity of three months or less. The carrying value of these assets approximates to their fair
value.
As of 31 December 2015 cash and cash equivalents in the amount of $20 million, related to security of the
loan provided to the Ukrainian subsidiary and held at UK bank, was restricted (note 24).
36. Financial liabilities
Trade and other payables
Trade creditors
Accruals
2015
$’000
237
143
380
2014
$’000
179
191
370
Trade payables principally comprise amounts outstanding for trade purchases and ongoing costs. The
average credit period taken for trade purchases is 126 days (2014: 82 days).
The Directors consider that the carrying amount of trade and other payables approximates to their fair
value. No interest is charged on balances outstanding.
37. Share capital
The Company’s share capital is disclosed in note 27 to the Consolidated Financial Statements.
38. Cumulative translation reserve
The functional currency of the Company is pounds sterling. The financial statements of the Company are
expressed in US dollars, which is its presentation currency. Cumulative translation reserve represents the
effect of translating the results and financial position of the Company into US dollars.
39. Notes to the cash flow statement
(Loss)/profit for the year
Adjustments for:
Interest received
Impairment of receivables from subsidiaries
Operating cash flows before movements in working capital
Decrease/(increase) in receivables
Increase/(decrease) in payables
Cash from operations
Income taxes paid
Net cash inflow from continuing operations
2015
$’000
(45,335)
(79)
46,504
1,090
2,555
10
3,655
-
3,655
2014
$’000
2,605
(827)
-
1,778
(1,570)
(841)
(633)
-
(633)
93
CADOGAN PETROLEUM PLC
Notes to the Company Financial Statements (continued)
For the year ended 31 December 2015
_______________________________________________________________________________________
40. Financial instruments
The Company manages its capital to ensure that it is able to continue as a going concern while maximising
the return to shareholders. Refer to note 28 for the Group’s overall strategy and financial risk management
objectives.
The capital resources of the Group consist of cash and cash equivalents arising from equity, comprising
issued capital, reserves and retained earnings.
Categories of financial instruments
Financial assets – loans and receivables (includes cash and cash equivalents)
Cash and cash equivalents
Amounts due from subsidiaries
Financial liabilities – measured at amortised cost
Trade creditors
Interest rate risk
2015
$’000
2014
$’000
44,882
26,905
71,787
46,634
73,750
120,384
(237)
(237)
(179)
(179)
All financial liabilities held by the Company are non-interest bearing. As the Company has no committed
borrowings, the Company is not exposed to any significant risks associated with fluctuations in interest
rates.
Credit risk
Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial
loss to the Company. For cash and cash equivalents, the Company only transacts with entities that are rated
equivalent to investment grade and above. Other financial assets consist of amounts receivable from
related parties.
The Company’s credit risk on liquid funds is limited because the counterparties are banks with high credit-
ratings assigned by international credit-rating agencies.
The carrying amount of financial assets recorded in the Company financial statements, which is net of any
impairment losses, represents the Company’s maximum exposure to credit risk.
Liquidity risk management
Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has built an
appropriate liquidity risk management framework for the management of the Company’s short, medium
and long-term funding and liquidity management requirements. The Company maintains adequate
reserves, by continuously monitoring forecast and actual cash flows.
The Company’s financial liabilities are not significant and therefore no maturity analysis has been
presented.
Foreign exchange risk and foreign currency risk management
The Company undertakes certain transactions denominated in foreign currencies. Hence, exposures to
exchange rate fluctuations arise. The Company holds a large portion of its foreign currency denominated
monetary assets and monetary liabilities in US dollars. More information on the foreign exchange risk and
foreign currency risk management is disclosed in note 28 to the Consolidated Financial Statements.
94
CADOGAN PETROLEUM PLC
Notes to the Company Financial Statements (continued)
For the year ended 31 December 2015
_______________________________________________________________________________________
41. Related parties
Amounts due from subsidiaries
The Company has entered into a number of unsecured related party transactions with its subsidiary
undertakings. The most significant transactions carried out between the Company and its subsidiary
undertakings are mainly for short and long-term financing. Amounts owed from these entities are detailed
below:
Cadogan Petroleum Holdings Limited
2015
$’000
26,905
26,905
2014
$’000
73,750
73,750
Refer to note 35 for details on the Company’s receivables due from subsidiaries.
The remuneration of the Directors, who are the key management personnel of the Group, is set out below
in aggregate for each of the categories specified in IAS 24 Related Party Disclosures. Further information
about the remuneration of individual Directors is provided in the audited part of the Annual Report on
Remuneration 2015 on pages 39 to 44.
Short-term employee benefits
Remuneration
2015
$’000
603
2014
$’000
334
Amounts owing
2015
$’000
28
2014
$’000
54
The total remuneration of the highest paid Director was $0.4 million in the year (2014: $0.4 million).
42. Events after the balance sheet date
Events after the balance sheet date are disclosed in note 31 to the Consolidated Financial Statements.
95
Glossary
_______________________________________________________________________________________
CADOGAN PETROLEUM PLC
IPO
IFRSs
JAA
UAH
GBP
$
bbl
boe
mmboe
mboe
mboepd
boepd
bcf
mmcm
mcm
Reserves
Proved Reserves
Probable Reserves
Initial public offering
International Financial Reporting Standards
Joint activity agreement
Ukrainian hryvnia
Great Britain pounds
United States dollars
Barrel
Barrel of oil equivalent
Million barrels of oil equivalent
Thousand barrels of oil equivalent
Thousand barrels of oil equivalent per day
Barrels of oil equivalent per day
Billion cubic feet
Million cubic metres
Thousand cubic metres
Those quantities of petroleum anticipated to be commercially recoverable by application of
development projects to known accumulations from a given date forward under defined
conditions. Reserves include proved, probable and possible reserve categories.
Those additional Reserves which analysis of geoscience and engineering data can be estimated
with reasonable certainty to be commercially recoverable, from a given date forward, from
reservoirs and under defined economic conditions, operating methods and government
regulations.
Those additional Reserves which analysis of geoscience and engineering data indicate are less
likely to be recovered than proved Resources but more certain to be recovered than possible
Reserves.
Possible Reserves
Those additional Reserves which analysis of geoscience and engineering data indicate are less
likely to be recoverable than probable Reserves.
Contingent Resources
Those quantities of petroleum estimated, as of a given date, to be potentially recoverable from
known accumulations by application of development projects, but which are not currently
considered to be commercially recoverable due to one or more contingencies.
Prospective Resources Those quantities of petroleum which are estimated as of a given date to be potentially
recoverable from undiscovered accumulations.
P1
P2
P3
1P
2P
3P
Proved Reserves
Probable Reserves
Possible Reserves
Proved Reserves
Proved plus probable Reserves
Proved plus probable plus possible Reserves
Carboniferous
A geological period 295 million to 354 million years before present
Devonian
Visean
Spud
TD
Workover
A geological period between 417 million and 354 million years before present
Geological period within the early to middle Carboniferous
To commence drilling, once the cement cellar and conductor pipe at the well-head have been
constructed
Target depth
The process of performing major maintenance or remedial treatment of an existing oil or gas
well
LWD
Logging while drilling
96
CADOGAN PETROLEUM PLC
Shareholder Information
________________________________________________________________________
Enquiries relating to the following administrative matters should be addressed to the Company’s
registrars: Capita Asset Services, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU
Telephone number:
UK: 0871 664 0300 (calls cost 10p per minute plus network extras).
International: +44 (0) 371 664 0300
Lines are open 9am – 5.30pm, Monday – Friday, excluding public holidays.
Loss of share certificates.
Notification of change of address.
Amalgamation of accounts: if you receive more than one copy of the Annual Financial Report, you
Transfers of shares to another person.
may wish to amalgamate your accounts on the share register.
You can access your shareholding details and a range of other services at the Capita website
www.capitashareportal.com.
Information concerning the day-to-day movement of the share price of the Company can be found on
the Group’s website www.cadoganpetroleum.com or that of the London Stock exchange
www.prices.londonstockexchange.com.
Unsolicited mail
As the Company’s share register is, by law, open to public inspection, shareholders may receive
unsolicited mail from organisations that use it as a mailing list. To reduce the amount of unsolicited mail
you receive, contact: The Mailing Preference Service, FREEPOST 22, London W1E 7EZ. Telephone: 0845
703 4599. Website: www.mpsonline.org.uk.
97
________________________________________________________________________
CADOGAN PETROLEUM PLC
Shareholder Information
Financial calendar 2016/2017
Annual General Meeting
Half Yearly results announced
Annual results announced
22 June 2016
August 2016
April 2017
Investor relations
Enquiries to: info@cadoganpetroleum.com
Registered office
c/o Bridgehouse Company Secretaries Ltd, Unit 205,
Clerkenwell Workshops, 31 Clerkenwell Close, London EC1R 0AT
Registered in England and Wales no. 5718406
Ukraine
48/50A Zhylyanska Street
Business center «Prime», 8th floor
01033 Kyiv
Ukraine
Email:
info@cadoganpetroleum.com
Tel:
Fax:
+38 044 594 58 70
+38 044 594 58 71
www.cadoganpetroleum.com
98