ANNUAL FINANCIAL REPORT
2020
Cadogan Petroleum plc is an independent
oil and gas exploration, development and
production company with onshore gas,
condensate and oil assets in Ukraine.
OVERVIEW
Summary of 2020
Group Overview
STRATEGIC REPORT
Chairman’s Statement
Chief Executive’s Review
Operations Review
Financial Review
Risks and Uncertainties
Summary of Reserves and Resources
Corporate Responsibility
CORPORATE GOVERNANCE
Board of Directors
Report of the Directors
Corporate Governance Statement
Board Committee Reports
Annual Report on Remuneration 2020
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
01
02
04
04
05
07
08
10
13
14
16
17
21
24
30
45
46
53
54
55
56
57
58
81
82
83
84
87
88
01
Summary of 2020
Key Financial Highlights of 2020:
> Loss for the year: $1.0 million (2019: loss of $2.1 million)
> Average realized price: $32.9/boe (2019: $47.2/boe)
> Gross revenues1: $5.1 million (2019: $5.9 million)
> G&A2: $3.8 million (2019: $5.7 million)
> Loss per share: 0.4 cents (2019: loss of 0.9 cents)
> Cash at year end: $13.3 million (2019: $12.8 million)
Key Operational Highlights of 2020:
> Production: 106,398 bbl (2019: 104,816 boe), a 1.5% increase
year-on-year
> Gas trading profit of $0.6 million (2019: loss of $2.0 million)
> Services business loss of $0.05 million (2019: loss of
$0.01 million), net of services provided to the group3
> No LTI/TRIs’4
> ISO 14001 and ISO 45001 certifications validated by annual audit
> Extension of the Blazhiv-3 and Blazhiv-Monastyrets-3 wells lease
agreements for a new 3-year term
> Introduction of a claim before the Kyiv Administrative Court
against the State Service of Geology and Subsoil of Ukraine due
to the non-granting of the Bitlyanska license
Other
> During 2020, Cadogan managed a difficult relationship with Proger Managers & Partners Srl (“PMP”)_ a privately owned
Italian company whose only interest is a 72.92% participation in Proger Ingegneria Srl (“Proger Ingegneria”), a privately
owned company which has a 75.95% participating interest in Proger Spa (“Proger”)_ to get recognized and implemented
its rights for nomination of representatives and access to information deriving from the 2-year Loan Agreement and the
Call Option Agreement. The Call Option was not exercised and the Company notified PMP for the Loan reimbursement
at the Maturity Date, 25 February 2021. According to the Loan Agreement, PMP is in default for the non-reimbursement
of EUR 14,857,350 being the principal and the accumulated interest. End of March 2021, PMP requested an arbitration to
have the Loan Agreement recognised as an equity investment contract, which is rejected by Cadogan as the terms of the
agreement are clear and include the right to repayment at maturity if the Call Option is not exercised.
1
Gross revenues of $5.1 million (2019: $5.9 million) included $1.6 million (2019: $0.9 million) from trading of natural gas, $3.5 million (2019:
$4.9 million) from exploration and production
2 Administrative expenses (“G&A”)
3 Astroservice LLC used its rig for the workover campaign on the Blazhiv license
4 LTI: Lost Time Incidents; TRI: Total Recordable Incidents
OVERVIEWSTRATEGIC REPORTCORPORATE GOVERNANCEREMUNERATION REPORTFINANCIAL STATEMENTSGLOSSARYSHAREHOLDER INFORMATIONwww.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 02
Group Overview
The Group has continued to maintain exploration and production assets, to conduct gas trading operations and to operate
an oil services business in Ukraine. Cadogan’s assets are concentrated in the West of the country, far away from the zone
of military confrontation with Russia. Gas trading includes the import of gas from Slovakia, Hungary and Poland and local
purchase and sales with physical delivery of natural gas. The oil services business focuses on workover operations, civil
works services and other services provided to Exploration and Production (“E&P”) companies in Ukraine.
Our business model
We aim to increase value through:
> Maintaining a robust balance
sheet, monetizing the remaining
value of our Ukrainian assets and
supplementing E&P cash flow with
revenues from gas trading and oil
services
>
>
Pursuing farm-out to progress
investments in Ukrainian licenses
Sourcing additional assets to
diversify Cadogan’s portfolio, both
geographically and operationally
The gas trading and the services
business optimize the use of existing
available resources, such as cash
as working capital for trading and
equipment and competences for the
services business and continue to
contribute to the Group’s goal of being
cash neutral, while actively searching
for value accretive opportunities.
Ukraine
West Ukraine
The Group continued to produce oil
from its 20-year production Blazhiv
license located in the West Ukraine.
The average net production in 2020
was 291 bbl, a 1.5% increase over the
production of the previous year. This
production result was achieved despite
the heavy impact of covid-19 pandemic
and 5.5 months shut-down of Blazhiv-3
and Blazhiv-Monasterets-3 wells due
to the expiry of the lease contracts
with PJSC Ukrnafta. Production from
the wells was resumed after the
agreements have been extended for a
3-year term on 19 June 2020.
In March 2020, after a deep and
complete analysis performed with
external legal advisors, Usenco
Nadra filed a claim with the Kyiv
Administrative Court to acknowledge
inaction of the State Service
of Geology (SGS) as unlawful,
particularly their refusal to issue the
Bitlyanska 20-year exploration and
development license. In May 2020, the
Company was informed by SGS of the
rejection of its application on the basis
of the new regulatory framework that
took effect on 25 February 2020. This
decision was taken by the subsoil
controlling authority notwithstanding
that Cadogan has fulfilled all license
obligations, obtained all regulatory
approvals and timely submitted on
19 August 2019 well ahead the license
expiry date of 23 December 2019 and
the new regulatory framework.
In August 2020, the Company filed
a second claim to expand the scope
of the first claim and requested the
Court to grant the right to carry out
commercial activities on Bitlyanska
field effective from 20 December 2019.
East Ukraine
The Pirkovska exploration license
expired in October 2015. Astrogaz filed
in due time an application for a new
exploration and production license,
but the Licensing Authority returned
it 6 times for different reasons, the
legal ground of which appeared to be
doubtful. Despite the efforts of the
Company and its reply in due time to
each of the comments, the license
was not awarded, and the 3-year
period for conversion, given to the
applicant by law, expired in October
2018. In 2019, Astrogaz launched a
litigation before the Administrative
Court against the Licensing Authority
B EL ARUS
RUSSI A
P O L AND
SLOVAKIA
Monastyretske
Bitlyanske
U KR AIN E
Pirkivske
Zagoryanske
Kyiv
HUN GARY
Cheremkhivske
Debeslavetske
M
O
L
D
O
V
A
RO MANIA
BLACK SEA
www.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020
03
for non-granting of the license. The
Court of First Instance, in its decision
of October 2020, has partly satisfied
the claim and confirmed inaction of
the Licensing Authority and obliged
it to review the application. Astrogaz
introduced a claim before the Court
of Appeal proposing license award
approval. In February 2021, the Court
of Appeal rejected Astrogaz claim.
In March 2021, the Company filed an
appeal with the Supreme Court. In
April 2021, the Supreme Court opened
cassation proceeding. The Company
has not received details of the date of
the hearing as yet.
In 2020, LLC AstroInvest-Energy, a
fully owned subsidiary of Cadogan,
introduced a claim against the State
fiscal authority regarding additional
tax assessment and penalties. The
Company won in the Court of First
Instance and in the Court of Appeal.
The State fiscal authority filed an
appeal with the Supreme Court.
Subsidiary businesses
Notwithstanding extreme volatility in
the gas market caused by the impact of
Covid-19 pandemic, consequent reduced
gas consumption and excess of gas
storage in EU and Ukraine at historical
levels as well as an extraordinary drop
of prices, Cadogan has successfully
sold 9.575 million m3 of gas during the
price peaking in 2020. The remaining
7.5 million m3 of gas was kept and sold
in the beginning of 2021.
Finally, the Group continued providing
oil services through its wholly
owned subsidiary Astroservice LLC.
Substantial resources of the company
have been engaged to support Blazhiv
license wells’ operations.
Italy
The Group owns a 90% interest in
Exploenergy s.r.l., an Italian company,
which has filed applications for two
exploration licenses (Reno Centese and
Corzano), located in the Po Valley region
(Northern Italy). The leads identified on
these licenses have combined unrisked
prospective resources estimated to be
in excess of 60 bcf of gas.
Activity through the year was focused
on maintaining the liaison with the
central and regional authorities
and on updating the Environmental
Impact studies by implementing
the suggestions received from the
authorities.
In February 2019, the Italian Parliament
approved a moratorium of 18 months in
the award of new licenses and a 25-fold
increase of license fees. Exploenergy
has subsequently reduced its activity
to the minimum required to fulfil
its statutory obligations. It has also
identified areas which can be voluntarily
released in order to mitigate the impact
of higher fees, when licenses are
awarded, with a minimum impact on
their exploration potential.
In 2020, the moratorium has been
extended. In 2021, no changes are
expected in the government’s position
regarding the possible resumption of
exploration and production activities
on land and at sea. No exploration and
evaluation assets are held on the Group
balance sheet in respect of the licences.
In February 2019, the Group entered in
a 2-year loan agreement with Proger
Management & Partners Srl with an
option to convert it into a 33% equity
interest in Proger Ingegneria Srl which
in turn held at 31 December 2020
a 75.95% equity interest in Proger
Spa. Proger is an Italian engineering
company providing services in Italy and
in different international areas.
In February 2021, Cadogan notified
PMP that according to the Loan
Agreement, the Maturity Date occurred
on 25 February 2021. As the Call Option
was not exercised, PMP must fulfill the
payment of EUR 14,857,350, being the
reimbursement of the Loan in terms
of principal and the accumulated
interest. PMP is in default since
25 February 2021. End of March 2021,
PMP requested an arbitration to have
the Loan Agreement recognised as an
equity investment contract, which is
rejected by Cadogan as the terms of the
agreement are clear and include the
right to repayment at maturity if the
Call Option is not exercised.
Corzano
Reno Centese
I T A L Y
OVERVIEWSTRATEGIC REPORTCORPORATE GOVERNANCEREMUNERATION REPORTFINANCIAL STATEMENTSGLOSSARYSHAREHOLDER INFORMATIONwww.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 04
Strategic Report
The Strategic Report has been prepared in accordance with
Section 414A of the Companies Act 2006 (the “Act”) and
presented hereunder. Its purpose is to inform stakeholders and
help them assess how the Directors have performed their legal
duty under Section 172 of the Act to promote the success of the
Company.
Section 172 Statement
The Company’s section 172
statement is presented on pages
22 and 23 and forms part of this
strategic report.
Key performance indicators
The Group monitors its performance through five key performance indicators
(“KPIs”):
to increase oil, gas and condensate production measured on the number
of barrels of oil equivalent produced per day (“boepd”);
>
Principal activity and status of
the Company
The Company is registered as a
public limited company (registration
number 05718406) in England and
Wales. Its principal activity is oil
and gas exploration, development
and production; the Company also
conducts gas trading and provides
services to other E&P operators.
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.
>
>
>
>
to decrease administrative expenses;
to increase the Group’s basic earnings per share;
to maintain no lost time incidents; and
to grow geographically and operationally diversify the portfolio.
The Group’s performance in 2020 against these KPI’s is set out in the table
below, together with the prior year performance data.
Unit
2020
2019
Average production (working interest basis)1
Overhead (G&A)
Basic (loss)/profit per share2
Lost time incidents3
Geographic diversification4
boepd
$ million
cents
incidents
new assets
291
3.8
(0.4)
–
–
288
5.7
(0.9)
–
1
2020
vs 2019
3
(1.9)
0.5
–
(1)
1 Average production is calculated as the average daily production during the year
2
Basic (loss)/profit per ordinary share is calculated by dividing the net (loss)/profit for the year attributable to equity holders of the parent
company by the weighted average number of ordinary shares during the year
3 Lost time incidents relate to the number of injuries where an employee/contractor is injured and has time off work (IOGP classification)
4 Loan to Proger Managers & Partners with an option to convert it into a 33% equity interest in Proger Ingegneria.
Chairman’s Statement
2020 will remain as a high
challenging year above any
expectation. The pandemic Covid-19,
that has been affecting all, has led
to uncertain times. The measures
that were quickly implemented have
allowed to protect our staff and keep
the Company’s activities on-going.
The effectiveness of these measures
and the dedication of everyone have
been essential to achieve this result.
Cadogan continue to be committed
to the territory and the communities
where we operate. The Company
provided sanitary material to local
medical institution to sustain the
local efforts and medical responses
to the pandemic Covid-19.
During 2020, the oil and gas markets
volatility had a severe impact on our
activities. The quick response of the
Company and the measures that
were put in place have allowed the
Company to mitigate the operational
and the economic challenges. The
negative impacts were contained and
improvements were brought to our
activities despite the year loss.
performance, financial forecasts, the
business model and the governance
in Proger, led to the conclusion that
there was no interest for Cadogan
to exercise the Call Option. Thus, the
Company asked for the reimbursement
of the loan at the maturity date.
For Ukraine, 2020 was a difficult
year beyond the Covid-19 pandemic.
The Country remains embroiled
in its military confrontation with
Russia and this situation will have
a continuous effect, in 2021, on the
investments in the Country.
Despite all these challenges, the
Company was able to improve its
fundamentals. This was possible
thanks to the commitment of all with
a competent and strong management.
The Board remain focused on
maximizing value from our assets.
2020 witnessed also the continued
difficult relationship with Proger
and confirmed that it could not be
a successful strategy for Cadogan.
The inability to obtain access to
appropriate and complete information
on time relating to financial
Michel Meeùs
Non-Independent Non-Executive
Chairman
5 May 2021
www.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 05
Core operations
Cadogan has continued to safely
produce from its Blazhiv field in the
West of Ukraine. Oil production has
increased by 1.5% over the previous
year.
Regarding the Bitlyanska 20-year
exploration and development license,
given the delay to award the license
by the State Geological Service
(SGS) beyond the regular timeline
provided by legislation and the
further rejection of the application
on the basis of the new regulatory
framework that took effect on
25 February 2020, Cadogan filed two
claims with the Administrative Court
to acknowledge inaction of SGS as
unlawful and to grant the right to
carry out commercial activities on
the Bitlyanska field.
The rental agreements with Ukrnafta
for the Blazhiv-3 and Blazhiv-
Monasterets-3 wells ended in
November 2019 and the operations
were stopped. Cadogan fulfilled
all its duties for the renewal of the
contracts but due to internal process
within Ukrnafta and the Covid-19
lock down, these contracts were only
signed in June 2020.
In the Pirke litigation introduced by
Astrogaz in 2019, the Court of First
Instance, in October 2020, partly
satisfied the claim and confirmed
inaction of the Licensing Authority.
In February 2021, the Court of Appeal
rejected the Company’s claim. In
March 2021, Astrogaz filed an appeal
with the Supreme Court.
The activity in Italy has been limited
to routine housekeeping as no
changes have yet occurred in the
government’s position regarding
the resumption of exploration and
production activities.
Non E&P operations
Trading had a complicated year due
to extreme price volatilities and
extraordinary drop in prices on the
EU and Ukrainian markets driven
by a mild winter, covid-19 pandemic,
subsequent low demand, and excess
of gas in storage. Cadogan was able
to catch the price peaks in 2020 and
sold 9.6 million m3 of stored gas.
Chief Executive’s Review
2020 was highly impacted by the
global Covid-19 pandemic, extreme
price volatility in oil and gas markets,
with a severe drop down of prices
in general. In this context, 2020 has
been a very challenging year.
Appeal, of the litigation against
the State fiscal authority
regarding additional tax
assessment and penalties. The
final issue remains subject to the
decision of the Supreme Court.
With the Covid-19 pandemic, Ukraine,
as with other countries, has been
facing a severe impact on its economy
as well as to the oil & gas markets.
To keep safe its personnel, the
Company has put in place special
measures such as administrative
personnel remote working, strict
sanitary and hygienic procedures and
personal protection, rotation of field
personnel by company cars, constant
medical supervision during the work
shift, regular sanitation of cars,
offices and facilities.
In March 2020, Cadogan has also
provided medical materials to the
District hospital of Blazhiv area to
support the local efforts to face
the Covid-19 pandemic. Up to now,
20 employees of the company have
been infected by Covid-19. All of them
have fully recovered.
This turmoil affected Cadogan’s
strategy in 2020 and constrained
the Group causing management to
review and postpone its investment
strategy.
Therefore, the Company had to
overcome the negative environment
to achieve the recorded results:
For Ukraine, 2020 was another
difficult year. The Country has
also been severely impacted by
the Covid-19 pandemic and further
sanitary and economic crisis.
Besides, after the last presidential
and parliament elections, the new
empowered officials have not yet
been successful in resolving the
military confrontation with Russia
in the East of Ukraine as well as in
improving the economic situation in
the Country. In March 2020, and just
after 6 months of work, the Cabinet
of Ministers headed by the Prime
Minister Oleksiy Goncharuk has
been replaced by the one of Denys
Shmygal.
The new government continued
making some progress towards
modernization of its oil & gas
legislative framework as well as
anti-corruption. However, this has
not yet been sufficient to create
a favourable environment for the
significant investments needed to
increase the Country’s domestic
production especially in the time of
instability all over the world. In this
uncertain context, Cadogan remained
one of the few truly foreign investors
operating in Ukraine’s E&P sector.
gas prices volatility and its
impact on Cadogan trading
business results;
Against this challenging background,
Cadogan’s operational activities
performed as following:
oil average realized price
decreasing by 30% in 2020, in
line with international markets
decrease;
Blazhiv-3 and Blazhiv-
Monastyrets-3 wells’ shut down
for 5.5 months due to the expiry
of the lease contracts.
2020 also witnessed two important
events for Cadogan, namely:
>
Extension of Blazhiv-3 and
Blazhiv-Monastyrets-3 wells lease
contracts for a new 3-year period;
> Winning, in the Court of First
Instance and in the Court of
>
>
>
>
>
a 1.5% increase in production,
from 104,816 boe in 2019 to
106,398 bbl in 2020;
a 33.3% decrease of overhead
(G&A), from $5.7 million in 2019
to $3.8 million in 2020;
a challenging year for trading
which generated a positive result;
a robust balance sheet, with
$13.3 million of net cash, kept
mostly in the UK banks;
another year without LTIs’ and
reduction of emissions level to
the atmosphere by 12%.
>
>
>
OVERVIEWSTRATEGIC REPORTCORPORATE GOVERNANCEREMUNERATION REPORTFINANCIAL STATEMENTSGLOSSARYSHAREHOLDER INFORMATIONwww.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 06
Strategic Report continued
Outlook
Looking forward, we still have a
lot of challenges ahead, but I am
confident Cadogan can meet them.
Due to the Covid-19 pandemic
and the difficult relationship with
Proger, the Company delayed its
development strategy but Cadogan
is determined to develop a more
value accretive and comprehensive
diversification of its activities. In
this respect, the Company intends
to invest in new activities with a
lower impact on environment, to
continue to monitor and contain the
environmental impact of its existing
oil and gas activities, and to diversify
geographically its presence.
The Company will continue to
carefully monitor the reimbursement
of the Proger (PMP) Loan amount
with the corresponding accrued
interest.
It will also continue to streamline
its complex corporate architecture
by liquidating companies which
represent a legacy of its past with no
benefit.
With the other Board directors, I
would like to thank all Cadogan’s
women and men for their efforts and
their continuous commitment to the
Company.
Fady Khallouf
Chief Executive Officer
5 May 2021
responses to the specific questions
we have raised for clarification on
different issues related to the Proger
accounts and balance sheet for 2019,
and more over a lack of information.
As at 25 February 2021, being the
Maturity Date, the Call Option was
not exercised and accordingly to
its previous notification Cadogan
demanded repayment of the Loan
together with the accumulated
interest which in total amounted
Euro 14,857,350 ($18,102,195). After
five business days, PMP was in
default and asked for an additional
term that ended on 19 March 2021.
The terms of the Loan Agreement
provide for an additional default
interest of 2%. End of March 2021,
PMP contested the default situation
and the obligation to reimburse and
asked for an Arbitration according
to the said Loan Agreement to get
the Loan Agreement recognised
as an equity investment contract.
Cadogan consider PMP’s arguments
as groundless and consider that
they are intended to delay PMP
reimbursement obligations.
These circumstances, together with
the Covid-19 pandemic impact on
the engineering business, have led
us to assess the fair value of the
instrument based on the terms
of the agreement, including the
pledge over shares, together with
financial information in respect
of prior periods and determined
that $16.8 million represented the
best estimate of fair value based
on estimates of future receipts
discounted at an estimated market
rate of interest of 7.8% with no
value attributed to the Call Option.
However, the absence of information
regarding Proger’s financial
performance in 2020 and prospects
represent a significant limitation on
the fair value exercise and, had such
information been available, the fair
value of the instrument as a whole
may be materially higher or lower at
31 December 2020.
The oil services activities were used
primarily to serve the Group’s wells’
operations.
Proger
In February 2019, Cadogan used part
of its cash (euros 13.385 million) to
enter into a 2-year Loan Agreement
with Proger Managers & Partners,
with a Call Option to convert it,
subject to shareholders’ approval
into a 33% equity interest in Proger
Ingegneria which in turn held, as at
31 December 2020, a 75.95% equity
interest in Proger. According to IFRS
standards, the instrument must be
represented in our accounts at fair
value.
The Group’s original investment
decision involved assessment of
Proger business plan and analysis
with professional advisers including
valuations performed using the
income method (discounted cash
flows of Proger) and market
approach using both the precedent
transactions and trading multiples
methods.
During the first half of 2020,
Cadogan monitored the protection
of its interests in Proger through
the Loan Agreement and the Call
Option. Proger has been refusing for
several months to give access to the
necessary information, to negate
and then delay the right to nominate
Group’s representatives. This led at
the end of July 2020 to the effective
nomination of a new representative
of the Group as Director of the
Boards of Proger Ingegneria and
Proger, and the effective nomination
of another Group’s representative
as member of the Statutory Board
of Proger Ingegneria. Prior to this
date, the Company has had no
representation on the Board of
Proger Ingegneria and Proger since
November 2019.
The legal and financial information
communicated by Proger in July
2020, related to 2019 and no
subsequent management information
on performance during 2020 or
sufficient information on effective
future business plans and prospects
have been obtained. Additionally,
there has been an absence of
www.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 07
Operations Review
Overview
At 31 December 2020, in the west of Ukraine, the Group held
working interests in one conventional gas, condensate and
oil exploration and production license and was expecting the
award through Court decision of the new license for another
one. All these assets are operated by the Group and are located
in the Carpathian basin in close proximity to the Ukrainian gas
distribution infrastructures.
Summary of the Group’s licences (as at 31 December 2019)
Working interest (%)
Licence
99.8
99.8
Blazhiv
Bitlyanska2
East Ukraine
The Pirkivska production license expired
in 2015. Astrogaz applied for a new
license. After several years and the
end of the 3-year period allowed for
conversion of the previous license, the
Company initiated court proceedings
to defend its rights and to challenge
the Licensing Authority’s actions. As
the result, the Court of First Instance
has partly satisfied the claim and
confirmed inaction of the Licensing
Authority and obliged it to review the
application. Astrogaz introduced a claim
with the Court of Appeal proposing
license award approval. In its decision
of February 2021, the Court of Appeal
rejected the Astrogaz claim. In March
2021, the Company filed an appeal with
the Supreme Court.
West Ukraine
The Bitlyanska license covers an area
of 390 square kilometers. Bitlyanska,
Borynya and Vovchenska are three
hydrocarbon discoveries in this
license area. The Borynya and Bitlya
fields hold 3P reserves, contingent
recoverable resources and prospective
resources. Vovchenska field holds
contingent recoverable resources.
Borynya 3 and Vovche-2 wells are
suspended and routinely monitored. All
activities in the area are temporarily
on hold until the license award is
granted. However, the State Geological
Service failed to meet the timeline for
responding to the application provided
for under legislation and, subsequently
rejected the application.
The company filed to the State
Geological Service an application for a
Expiry
November 2039
December 2019
Licence type1
Production
E&D
20-year production license 5 months
ahead the license expiry date of
23 December 2019. The Company
secured approval of the Environmental
Impact Assessment study by the
Ministry of Ecology, the approval of
the Reserves Report by the State
Commission of Reserves and the
approval of the license award by the
Lviv Regional Council. Given the delay
to award the new license beyond the
regular timeline provided by legislation,
Cadogan filed two claims with the
Administrative Court to challenge the
non-granting of the 20-year production
license by the Licensing Authority.
Cadogan expects decision on the claim
during 2021.
At Blazhiv license area the Company
has been working to safely produce
from four existing wells. The
production of the Blazhiv-3 and
Blazhiv- Monastyrets-3 wells was
suspended till 19 June 2020 due
to rental agreements expiry. New
lease agreements have been signed
with Ukrnafta for a 3-year term.
The average production rate of 291
bpd (2019: 284 bpd) was achieved
notwithstanding the 5.5 months shut
down of the rented wells.
The company has also commissioned
additional crude oil storage facilities
on the Blazhiv field by increasing the
cumulative volume up to 800m3. This
should allow to manage favourably the
short-term oil price volatility.
Gas trading
Cadogan thoroughly monitored EU
and Ukraine gas markets evolution to
define best momentum for trading in
the challenging environment of 2020.
In 2020, the Company sold 9.57 million
m3 at the most favorable market
conditions, notwithstanding extreme
market volatility. The remaining
7.5 million m3 of gas was kept in
storage and was sold in the beginning
of 2021.
Service
The Group continued to provide
services through its wholly owned
subsidiary Astroservice LLC. The
provided services were primarily
focused on serving intra-group
operational needs in wells’ work-over/
re-entry operations as well as field on-
site activities.
Other events
After an inspection conducted
by Ukraine’s tax authorities in
September 2019, Astroinvest
Energy LLC was notified of a
tax claim related to the historic
costs for the liquidation of wells
on the Zagoryanska license.
The tax authorities notified
Astroinvest Energy LLC that
they consider recoverable VAT
totalling $3.6 million, that has
subsequently been used to offset
output VAT, to be non-deductible.
They additionally consider that the
subsidiary’s tax losses carry forward
of $15.3 million should be reduced
(note 21). Astroinvest Energy LLC
has launched a claim against the tax
authority’s decision based on the
current tax legislation and related
court decisions. The Company has
won litigation in the Court of First
Instance and in the Court of Appeal.
The Court’s decision has come into
legal force. The tax authorities filed
an appeal with the Supreme Court.
1
2
E&D = Exploration and Development
The Bitlyanska license expired on December 23, 2019 and its renewal is in the process of litigation.
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Strategic Report continued
Financial Review
Overview
In 2020, the Group slightly increased
production despite the 5.5 months
shutdown of two wells due to the
negotiation process with UkrNafta
for the rental agreements’ extension.
The severe drop of the oil prices in
2020 led to a significant decrease
of the E&E revenue for the year. The
Group’s operating divisions delivered
a profit of $0.5 million (2019: loss of
$1.7 million) (note 5) and the Group
recorded a loss of $1 million (2019:
loss of $2.1 million).
The E&P business negatively
contributed to the financial results
of the Group, due to the decrease
in oil price. The average realized oil
price decreased by 30% from $47.2
to $32.9 per barrel. The services
business focused on providing
workover services to the subsidiaries
of the Group. The trading business
recovered its activities after the rapid
decline of gas prices in the first half
and made a positive contribution to
the Group’s performance.
Net cash increased to $13.3 million
as at 31 December 2020 compared to
$12.8 million as at 31 December 2019.
This was mostly due to the sales of
9.5 mcm of natural gas which was
held in inventory at the beginning of
the year and the significant reduction
of general and administrative
expenses.
Income statement
Revenues from production decreased
from $4.9 million in 2019 to
$3.5 million in 2020, reflecting a
combination of an increase of the
production volume from 104,816
boe in 2019 to 106,398 boe in 2020
offset by a decrease in average
realized prices by 30%. E&P costs
of sales decreased from $3.8 million
in 2019 to $3.0 million in 2020.
These include production royalties
and taxes, fees paid for the rented
wells, depreciations, depletion of
producing wells, direct staff costs
and other costs for exploration
and development. Overall, in 2020,
E&P made a positive contribution
of $0.4 million (2019: $1.1 million)
to gross profit, representing a
negative $0.1 million (2019: profit of
$0.4 million) business segment result.
The oil services business in 2020
focused on internal activities providing
its services, including drilling and
workover, to the Group’s subsidiaries.
The gas trading business revenues
increased from $0.9 million in 2019 to
$1.6 million in 2020, cost of sales also
increased, from $1.0 million in 2019
to $1.4 million in 2020, resulting in an
overall gross margin of $0.2 million
(2019: loss $0.1 million). Release
of VAT provision of $0.6 million
supported the gas trading business
in providing a positive result of
$0.6 million for the year 2020 (2019:
loss $2.0 million).
Administrative expenses (“G&A”)
were significantly decreased due to a
significant reduction in professional
costs. Ukrainian G&A remained flat and
the overall G&A decreased by 33.3%
from $5.7 million in 2019 to $3.8 million
in 2020 as shown in note 7.
The reversal of impairment of other
assets of $0.7 million primarily
includes offsets of VAT recoverable
against trading margin earned. In
2019, the reversal of impairment of
other assets of $0.3 million primarily
includes the reversal of impairment
of two gas treatment plants to the
level of consideration received on the
sale of these assets.
Impairment of other assets totalled
$53 thousand which primarily
includes impairment of other
inventories (2019: $2.1 million
includes $1.9 million of natural gas
impairment) and impairment of other
receivables.
The Group recorded a decrease in
the fair value of the Proger loan of
$0.3 million, which is held at fair value
through profit and loss under IFRS.
Refer to note 4(d) and 26 for details.
Other costs of $0.07 million
represent other operating costs.
In 2019, the other income included
$4.0 million realized from the exit of
the WGI joint venture.
Net finance income of $40 thousand
(2019: net finance income of
$25 thousand includes interest
income on receivables $45 thousand
and other finance cost $9 thousand)
1 Segment result being the gross profit net of administrative expenses of the segment
reflects interest income on cash
deposits used for trading of
$25 thousand (2019: $49 thousand);
ii) investment revenue of
$37 thousand (2019: $104 thousand);
less iii)) Unwinding of discount
on decommissioning provision of
$22 thousand (2019: $164 thousand).
Balance sheet
Intangible Exploration and Evaluation
(“E&E”) assets of $2.4 million (2019:
$2.9 million) represent the carrying
value of the Bitlyanska license.
The Property Plant & Equipment
(PP&E) balance was $9.9 million
at 31 December 2020 (2019:
$12.3 million). It primarily represents
the carrying value of the assets
invested and engaged in Blazhiv
license. The E&E and PP&E are held by
Ukrainian subsidiaries with functional
currency Ukrainian Hryvna. Ukrainian
Hryvna significantly depreciated
as at 31 December 2020 compared
to 31 December 2019 generating a
significant movement in the E&E and
PP&E value presented in the US Dollar.
Trade and other receivables of
$1.6 million (2019: $2.6 million)
include $1.5 million of recoverable
VAT (2019: $2.4 million), which is
expected to be recovered through
production, trading and services
activities, and $0.1 million (2019:
$0.2 million) of other receivables.
Inventories reduced from $4.5 million
to $2.2 million principally due to the
sale of gas volumes held in storage
at 2019 due to unfavourable pricing
conditions.
The Proger loan instrument is held
at fair value through profit and loss
at $16.8 million (2019: $15.7 million)
with the movements reflecting a
reduction in fair value of $0.3 million
and foreign exchange translation
differences. The loan has been
reclassified as current based on the
maturity in 2021 and anticipated
receipt. Refer to the Chief Executives
Report for further details together
with note 4(d) and 26.
www.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 09
Treasury
The Group continually monitors
its exposure to currency risk.
It maintains a portfolio of cash
mainly in US dollars (“USD”) and
Euro held primarily in the UK.
Production revenues from the sale
of hydrocarbons are received in the
local currency in Ukraine, however,
the hydrocarbon prices are linked
to the USD denominated gas and
oil prices. To date, funds from such
revenues have been used in Ukraine
in operations rather than being
remitted to the UK.
The $1.3 million of trade and other
payables as of 31 December 2020
(2019: $1.3 million) consist of
$0.5 million (2019: $0.6 million) of
accrued expenses and $0.8 million
(2019: $0.7 million) of other creditors.
Provisions include $0.2 million (2019:
$0.3 million) of long-term provision
for decommissioning costs which
represents the present value of costs
that are expected to be incurred in
2039 for producing assets, when the
licenses will expire.
Net cash increased to $13.3 million
at 31 December 2020 compared to
$12.8 million at 31 December 2019.
This was mostly due to the sale of
9.5 mcm of natural gas which has
been at stock at the beginning of the
year and a significant decrease of the
general and administrative expenses.
Cash flow statement
The Consolidated Cash Flow
Statement on page 56 shows
operating cash outflow before
movements in working capital of
$2.5 million (2019: outflow of $4.4
million), which represents mostly
cash used by the E&P and Trading
business segment net of corporate
expenses.
Positive operating cash flow from
movements in working capital is
represented mostly by movements
in inventory and VAT recoverable
positions due to natural gas sales
during 2020.
Cash outflows from investing
activities represents investments in
Blazhiv field during the year 2020.
Related party transactions
Related party transactions are set
out in note 28 to the Consolidated
Financial Statements.
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Strategic Report continued
Risks and Uncertainties
There are several potential risks
and uncertainties that could have
a material impact on the Group’s
long-term performance and could
cause the results to differ materially
from expected and historical results.
Executive management review the
potential risks and then classify
them as having a high impact, above
$5 million, medium impact, above
$1 million but below $5 million, and
low impact, below $1 million. They
also assess the likelihood of these
risks occurring. Risk mitigation
factors are reviewed and documented
based on the level and likelihood of
occurrence. The Audit Committee
reviews the risk register and
monitors the implementation of risk
mitigation procedures via Executive
management, who are carrying out
a robust assessment of the principal
risks facing the Group, including
those potentially threatening its
business model, future performance,
solvency and liquidity.
The Group has analysed the following
categories as key risks:
Operational risks
Risk
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.
Covid-19
The Group’s operations are in Ukraine with a
Parent Company located in the United Kingdom.
These locations are suffering from increasing
levels of Covid-19 infection and in due course
there may be increasing disruption. This may
include potential impacts through illness amongst
our workforce, supply chain and sales channel
disruption and the wider impact of economic
disruption on commodity prices. The national
and local governments in each of our operating
locations are recommending or implementing
increasingly severe restrictions in order to
manage the situation.
Climate change
After the Paris Agreement (COP 21) the
international community is committed to reduce
greenhouse gas emissions to slow down the
climate change and contain its effects. Countries
may impose moratorium on E&P activities or
enact tight limits to emissions level, which may
curtail production. Shareholders may also request
that the Company adopt stringent targets in
terms of emissions reduction.
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.
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 Ukrainian legislative
standards and for the CO2 emissions the British standards
and achieves international standards to the maximum extent
possible.
Management systems and processes have been certified as ISO
14001 and ISO 45001 compliant.
To manage and where possible mitigate the risk of personnel
infection with the virus for our employees, special measures
have been applied. These include administrative personnel
remote working, strict sanitary and hygienic procedures and
personal protection, rotation of field personnel by company
cars, constant medical supervision during the work shift, regular
sanitation of cars, offices and facilities. The covid-19 treatment
package has been included into the staff medical insurance
coverage. We continue to monitor the situation closely and will
respond accordingly as the position develops.
A moratorium on domestic production is deemed highly unlikely
in Ukraine given the country’s need for affordable energy. Such
risks exist in Italy, but the Company’s exposure there is limited.
Management strives to reduce emissions in everything the
Company does and has started implementing alternatives to
offset and/or mitigate emissions. In 2021, the Company will
review its administrative and operational process to identify
the areas of further improvement in the limitation of its
environmental impact. For the future, Cadogan is going to
diversify its activities by investing in new activities with a lower
impact on environment.
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. Only certified personnel are hired to
operate on the rig floor.
www.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 11
Production and maintenance
There is a risk that production or transportation
facilities could fail due to non-adequate
maintenance, control or poor performance of the
Group’s suppliers.
All plants are operated and maintained at standards above the
Ukrainian minimum legal requirements. Operative staff are
experienced and receive supplemental training to ensure that
facilities are properly operated and maintained. When not in use
the facilities are properly kept under conservation and routinely
monitored.
Service providers are rigorously reviewed at the tender stage
and are monitored during the contract period.
Sub-surface risks
Risk
Mitigation
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.
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 reprocessed to improve the
overall knowledge base. Agreements with qualified local and
international contractors have been entered into to supplement
and broaden the pool of expertise available to the Company.
Data can be misinterpreted leading to the
construction of inaccurate models and
subsequent plans.
All analytical outcomes are challenged internally and peer
reviewed. Analysis is performed using modern geological
software.
The area available for drilling operations is limited
due to logistics, infrastructures and moratorium.
This increases the risk for setting optimum well
coordinates.
Bottom hole locations are always checked for their operational
feasibility, well trajectory, rig type, and verified on updated sub-
surface models. They are rejected if deemed to be too risky.
The Group may not be successful in proving
commercial production from its Bitlyanska
licence and consequently the carrying values of
the Group’s oil and gas assets may have to be
impaired.
The Group performs, on an annual basis, a review of its oil
and gas assets, impairs if necessary, and considers whether to
commission a review from a third party or a Competent Person’s
Report (“CPR”) from an independent qualified contractor
depending on the circumstances.
Financial risks
Risk
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.
Cadogan entered into a 2-year loan agreement
(Euros 13.385 million) with Proger Management
& Partners with a call option to convert it into a
33% equity interest in Proger Ingegneria which
represented a key transaction and element of
the Group balance sheet. As at 25 February
2021, being the Maturity Date, Cadogan did not
exercise its Call Option and PMP must reimburse
EUR 14,857,350. End of March 2021, PMP did not
reimburse and asked for an arbitration to get
the Loan Agreement recognized as an equity
investment contract.
Mitigation
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 and Euro. Cash reserves are placed with
leading financial institutions, which are approved by the Audit
Committee. Foreign exchange risk is considered a normal and
acceptable business exposure and the Group does not hedge
against this risk for its E&P operations.
For trading operations, the Group matches the revenues and the
source of financing.
The terms of the agreement are clear and include the right to
repayment at maturity if the Call Option is not exercised. As
security for the reimbursement of the loan, Cadogan benefits
from a pledge over the shares held by Proger Managers &
Partners in Proger Ingegneria. In addition to that, Cadogan is
engaging all the necessary actions in the Arbitration process
and more generally the adequate legal actions to protect the
interests of the Company and all of its stakeholders.
Refer to note 26 to the Consolidated Financial Statements for
detail on financial risks.
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Strategic Report continued
The Group is at risk that counterparties will
default on their 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.
Procedures are in place to scrutinize new counterparties via
a Know Your Customer (“KYC”) process, which covers their
solvency. In addition, when trading gas, the Group seeks to
reduce the risk of customer non-performance by limiting the
title transfer to product until the payment is received, prepaying
only to known credible suppliers.
The Group mostly enters 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,
which is supported by analysis of the specific transactions,
market trends and models of the gas prices and foreign
exchange rate trends.
Country risks
Risk
Legislative changes may bring unexpected
risk and create delays in securing licenses or
ultimately prevent licenses and license renewals/
conversions from being secured.
Ukraine has not progressed as far as expected
towards integration with Europe, the economic
challenges in the country are not yet over and
the confrontation with Russia has remained open.
This can impact the political agenda, negatively
impacts the creation of a transparent market and
introduces an element of unpredictability in the
development of the legislative framework.
Other risks
Risk
The Group’s success depends upon 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.
The Group is at risk of underestimating the risk
and complexity associated with the entry into
new countries.
Local communities and stakeholders may cause
delays to the project execution and postpone
activities.
Mitigation
Compliance procedures, monitoring and appropriate dialogue
with the relevant authorities are maintained to minimize the
risk. In all cases, deployment of capital in Ukraine is limited
and investments are kept at the level required to fulfil license
obligations.
The Group minimizes this risk by maintaining funds in
international banks outside Ukraine, by limiting the deployment
of capital in the Country and by continuously maintaining a
working dialogue with the regulatory authorities.
Commitments are fulfilled and routinely verified by the relevant
Authorities, supported by competent and qualified legal
contractors.
The assets of the Group are located far from the area of
confrontation with Russia.
Mitigation
The Group periodically reviews the compensation and contract
terms of its staff in order to remain a competitive employer in
the markets where it operates.
The Group applies rigorous screening criteria in order to
evaluate potential investment opportunities. It also seeks
input from independent and qualified experts when deemed
necessary. Additionally, the required rate of return is adjusted to
the perceived level of risk.
The Group maintains a transparent and open dialogue with
authorities and stakeholders (i) to identify their needs and
propose solutions which address them as well as (ii) to illustrate
the activities which it intends to conduct and the measures
to mitigate their impact. Local needs and protection of the
environment are always taken into consideration when designing
mitigation measures, which may go beyond the legislative
minimum requirement.
The Group devotes the highest level of attention and engage
qualified consultants to prepare the Environmental Impact
Assessment studies and to attend public hearings, both
introduced in Ukraine in the course of 2019.
www.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 13
Summary of Reserves and Resources
In 2019, the company successfully drilled Blazhiv-10 well and conducted routine rig-less production support activities at
the Blazhiv-1, Blazhiv-3 and Blazhiv-Monastyrets-3 to maintain sustainable production.
Summary of Reserves1 at 31 December 2020
Proved, Probable and Possible Reserves at 1 January 2020
Production
Proved, Probable and Possible Reserves at 31 December 2020
Reserves are assigned to the Bitlyanska and Blazhiv fields as following:
>
>
Blazhiv: 4.18 Mmboe;
Bitlyanska: 3.2 Mmboe.
Mmboe
7.49
0.11
7.38
In addition to the tabled reserves, Cadogan has 15.4 million boe of contingent resources associated with the Bitlyanska
and Blazhiv licences.
1 The study was conducted in 2016 by Brend Vik.
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Strategic Report continued
Corporate Responsibility
Under Section 414C of the
Companies Act 2006 (the “Act”),
the Board is required to disclose
information about environmental
matters, employees, human rights
and community issues, including
information about any policies it has
in relation to these matters and the
effectiveness of these policies.
Being sustainable in our activities
means conducting our business with
respect for the environment and for
the communities hosting us, with
the aim of increasing the benefit
and value to our stakeholders. We
recognize that this is a key element
to be competitive and to maintain
our license to operate.
The Board recognizes that the
protection of the health and safety
of its employees, communities and
the environment in which it operates
is not just an obligation but is part
of the personal ethics and beliefs of
management and staff. These are
the key drivers for a sustainable
development of the Company’s
activity. Cadogan Petroleum, its
management and employees are
committed to continuously improve
Health, Safety and Environment (HSE)
performance; follow our Code of
Ethics and apply, in conducting our
operations, internationally recognized
best practices and standards.
Our activities are carried out in
accordance with a policy manual,
endorsed by the Board, which has
been disseminated to all staff. The
manual includes a Working with
Integrity policy and policies on
business conduct and ethics, anti-
bribery, the acceptance of gifts and
hospitality and whistleblowing. Such
policies are subject to regular review.
In August 2018, Cadogan Ukraine
LLC obtained ISO 14001 and ISO
45001 certifications for the following
scope: “Supervision, coordination,
management support, control in
the field of oil and gas on-shore
exploration and production.” This
provides formal recognition of the
process embedded in the Company
and demonstrates the commitment
and efforts delivered by our
employees and management. It is
considered a baseline to continue
with the efforts to improve the way
we conduct the business.
The Board believes that health and
safety procedures and training
across the Group should be in line
with best practice in the oil and gas
sector. Accordingly, it has set up a
Committee to review and agree on
the health and safety initiatives for
the Company and to report back to
the Board on the progress of these
initiatives. Management regularly
reports to the Board on HSE and key
safety and environmental issues,
which are discussed at the Executive
Management level. The report of
the Health, Safety and Environment
Committee can be found on pages 26
and 27.
The General Director of Cadogan
Ukraine is the acting Chairman of the
HSE Committee and is supported in
his role by Cadogan Ukraine’s HSE
Manager. In accordance with the ISO
14001 and ISO 45001, his role is to
ensure that the Group continuously
develops suitable procedures,
that operational management and
their teams incorporate them into
daily operations and that the HSE
management has the necessary
level of autonomy and authority to
discharge their duties effectively and
efficiently.
Health, safety and environment
2020 was challenging with COVID-19
pandemic. Cadogan applied special
measures to mitigate the risk of
personnel infection with the virus.
All personnel have been instructed
on the situation, remote access
to the working environment has
been settled for all office personnel
to restrict contacts to minimum,
field personnel are provided with
transfer to the oil field, all personnel
are provided with respirators and
antiseptics, temperature control is
performed before the start of each
working day for all personnel who
does not work remotely.
The HSE management monitors
health status of the personnel
daily. Up to now, 20 employees of
the company have been infected
by Covid-19. All of them have fully
recovered.
The Group has implemented an
integrated HSE management
system in accordance with the
ISO requirements. The system
aims to ensure that a safe
and environmentally friendly/
protection culture is embedded in
the organization with a focus on
the local community involvement.
The HSE management system
ensures that both Ukrainian and
international standards are met,
with the Ukrainian HSE legislation
requirements taken as an absolute
minimum. All the Group’s local
operating companies actively
participate in the process. ISO 14001
and ISO 45001 certification were re-
validated by the respective authority
in July 2020.
A proactive approach based on
a detailed induction process and
near miss reporting has been in
place throughout 2020 to prevent
incidents. Staff training on HSE
matters and discussions on near
miss reporting are recognized as the
key factors to continuously improve.
In-house training is provided to help
staff meet international standards
and follow best practice. The
process enacted by the certification,
enhances attention to training
on risk assessments, emergency
response, incident prevention,
reporting and investigation, as well
as emergency drills regularly run-on
operations’ sites and offices. This
process is essential to ensure that
international best practices and
standards are maintained to comply
with, or exceed, those required by
Ukrainian legislation, and to promote
continuous improvement.
The Board monitors the main Key
Performance Indicators (lost time
incidents, mileage driven, training
received, CO2 emissions) as
business parameters. The Board has
benchmarked safety performance
against the HSE performance index
measured and published annually
by the International Association
of Oil and Gas Producers. In 2020,
the Group recorded over 163,000
man-hours worked with no incidents
and around 1,260,000 hours have
been worked since the last injury in
February 2016.
During 2020 the Group continued
to monitor its greenhouse gas
emissions and collect statistical
data relating to the consumption
of electricity, industrial water and
fuel consumption by cars, plants
and other work sites, recording a
www.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 15
continuous improvement in the
efficient use of resources.
Employees
Wellness and professional
development are part of the
Company’s sustainable development
policy and wherever possible, local
staff are recruited. The Group’s
activity in Ukraine is entirely
managed by local staff. Qualified
local contractors are engaged to
supplement the required expertise
when and to the extent it is
necessary.
Procedures are in place to ensure
that recruitment is undertaken on an
open, transparent and fair basis with
no discrimination against applicants.
Each operating company has its
own Human Resources function to
ensure that the Group’s employment
policies are properly implemented
and followed. The Group’s Human
Resources policy covers key areas
such as equal opportunities, wages,
overtime and non-discrimination.
As required by Ukrainian legislation,
Collective Agreements are in place
with the Group’s Ukrainian subsidiary
companies, which outline agreed
level of staff benefits and other
safeguards for employees.
All staff are aware of the Group’s
grievance procedures. All employees
have access to health insurance
provided by the Group to ensure
that all employees have access to
adequate medical facilities.
Each employee’s training needs are
assessed on an individual basis to
ensure that their skills are adequate
to support the Group’s operations,
and to help them to develop.
Diversity
The Board recognizes the benefits
and importance of diversity
(gender, ethnic, age, sex, disability,
educational and professional
backgrounds, etc.) and strives to
apply diversity values across the
business. We endeavour to employ
a skilled workforce that reflects the
demographic of the jurisdictions in
which we operate. The board will
review the existing policies and
intends to develop a diversity policy.
Gender diversity
The Board of Directors of the
Company comprised of five Directors
as of 31 December 2020. The
appointment of any new Director
is made based on merit. See page
16 for more information on the
composition of the Board.
As at 31 December 2020, the
Company comprised a total of
80 persons, as follows:
Non-executive directors
Executive directors
Management, other than
Executive directors
Other employees
Total
Male Female
3
1
7
45
56
1
–
2
21
24
Human rights
Cadogan’s commitment to the
fundamental principles of human
rights is embedded in our HSE
policies and throughout our
business processes. We promote
the core principles of human rights
pronounced in the UN Universal
Declaration of Human Rights and
our support for these principles is
embedded throughout our Code of
Conduct, our employment practices
and our relationships with suppliers
and partners wherever we do
business.
The Group’s activities are carried
out in rural areas of Ukraine and the
Board is aware of its responsibilities
to the local communities in which
it operates and from which some
of the employees are recruited. In
our operational sites, management
work with the local councils to
ensure that the impact of operations
is as low as practicable by putting
in place measures to mitigate
their effect. Projects undertaken
include improvement of the road
infrastructure in the area, which
provides easier access to the
operational sites while at the same
time minimizing inconvenience for
the local population and allowing
improved road communications in
the local communities, especially
during winter season or harsh
weather conditions. Specific
community activities are undertaken
for the direct benefit of local
communities. All activities are
followed and supervised by managers
who are given specific responsibility
for such tasks.
The Group’s companies in the
Ukraine see themselves as part of
the community and are involved and
offer practical help and support.
All these activities are run in
accordance with our “Working with
Integrity” policy and procedures. The
recruitment of local staff generates
additional income for areas that
otherwise are predominantly
dependent on the agricultural sector.
The enactment in 2018 of new
legislation which introduces
Environmental Impact Assessment
studies and public hearings as
part of the license’s award/renewal
processes was anticipated effectively
by the Group. The Group is complying
with these requirements, building
on the recognized competence of its
people and advisors as well as on the
good communication and relations
established with local communities.
In 2020, the Group’s operating
locations were suffering from
levels of COVID-19 infection and
normal working patterns have been
disrupted. The national and local
governments in all regions are
recommending and implementing
restrictions to manage the situation.
The Group is following all the
recommendations and provides
comprehensive measures inside the
Group to restrict COVID-19 infection
and spread.
As part of its commitment to
the local communities in which
it operates, the Group provided
sanitary material to local medical
institution to sustain the efforts to
contain the Covid-19 pandemic on the
territory.
Approval
The Strategic Report was approved
by the Board of Directors on 4 May
2021 and signed by order of the
Board by:
Ben Harber
Company Secretary
5 May 2021
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Board of Directors
Current Directors
Michel Meeùs, 68, Belgian
Non-Independent Non-Executive
Chairman
Mr Meeùs was appointed as a Non-
executive Director on 23 June 2014.
Mr Meeùs was former Chairman of
the Board of Directors of Theolia,
an independent international
developer and operator of wind
energy projects. Since 2007, he has
been a director within the Alcogroup
SA Company (which gathers the
ethanol production units of the
Group), as well as within some
of its subsidiaries. Before joining
Alcogroup, Mr Meeùs carved out
a career in the financial sector, at
Chase Manhattan Bank in Brussels
and London, then at Security Pacific
Bank in London, then finally at
Electra Kingsway Private Equity in
London.
Mr Meeus is currently Chairman of
the Remuneration and Nomination
Committees.
Jacques Mahaux, 69, Belgian
Non-Executive Director
Jacques Mahaux was appointed
as Director on 15 November 2019.
He has held various executive and
directorship positions in Group
Crédit Agricole in Luxembourg, CA
Indosuez, Indosuez Bank and various
Luxembourg and Swiss Holding
companies active in industrial
sectors. Previously he acted as an
Attorney at Law at the Brussels Bar.
He is currently a Supervisory Board
member of ETAM SCA.
Mr Mahaux is currently a member
of the Audit, Remuneration and
Nomination Committees.
Fady Khallouf, 60, French
Chief Executive Officer
Fady Khallouf was appointed as
Director and CEO on 15 November
2019. He has a 35-year experience
in the energy, the environment, the
engineering and the infrastructure
sectors. He has previously held
the position of CEO and CFO of
FUTUREN (Renewable Energy,
listed on Euronext Paris) where he
achieved the restructuring and the
turnaround of the group. Prior to
that, he was the CEO of Tecnimont
group (Petrochemicals and Oil &
Gas), the Vice-President Strategy
and Development of EDISON group
(Electricity and Gas, E&P), the Head
of M&A of EDF group (Energy).
Fady Khallouf had beforehand held
various management positions at
ENGIE (Energy), Suez (Environmental
Services), and DUMEZ (Construction
and Infrastructures).
Lilia Jolibois, 56, American
Independent Non-Executive Director
Lilia Jolibois was appointed as
Director on 15 November 2019. She
is currently a member of three
Boards: Cadogan Petroleum Plc,
INSEAD Foundation, and CARA
(UK and Wales). She is also a
Venture and CEO Advisor at Loyal
Venture Capital, a global VC fund.
Her career spans Merrill Lynch
Investment Banking, Sara Lee, and
Lafarge in the USA and Europe. At
Lafarge Group, Ms. Jolibois served
in numerous positions in finance,
strategy, business development, CEO
and Chair of the Board for Lafarge
Cement and Gypsum in Ukraine,
and SVP and Chief Marketing-Sales-
Supply Chain Officer for Lafarge
Aggregates, Asphalt & Paving.
Lilia is currently Chairman of the
Company’s Audit Committee and a
member of the Remuneration and
Nomination Committees.
Gilbert Lehmann, 75, French
Senior Independent Non-Executive
Director
Mr Lehmann was appointed to the
Board on 18 November 2011. He was
an adviser to the Executive Board
of Areva, the French nuclear energy
business, having previously been
its Deputy Chief Executive Officer
responsible for finance. He is also
a former Chief Financial Officer
and deputy CEO of Framatone, the
predecessor to Areva, and was CFO
of Sogee, part of the Rothschild
Group. Mr Lehmann was also Deputy
Chairman and Chairman of the
Audit Committee of Eramet, the
French minerals and alloy business.
He is Deputy Chairman and Audit
Committee Chairman of Assystem
SA, the French engineering and
innovation consultancy. He was
Chairman of ST Microelectronics
NV, one of the world’s largest
semiconductor companies, from
2007 to 2009, and stepped down as
Vice Chairman in 2011.
Mr Lehmann is currently a member
of the Remuneration and Nomination
Committees.
www.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 17
Report of the Directors
Directors
The Directors in office during the year and to the date of this report are as shown below:
Non-Executive Directors
Michel Meeùs (Chairman)
Gilbert Lehmann
Lilia Jolibois
Jacques Mahaux
Executive Director
Fady Khallouf
Directors’ re-election
The Board has decided previously that all Directors are subject to annual election by shareholders, in accordance with
industry best practice and as such, all Directors will be seeking re-election at the Annual General Meeting to be held on
25 June 2021.
The biographies of the Directors in office at the date of this report are shown on page 16.
Appointment and replacement of Directors
The Company’s Articles of Association allow the Board to appoint any individual willing to act as a Director either to fill a
vacancy or act as an additional Director. The appointee may hold office only until the next annual general meeting of the
Company whereupon his or her election will be proposed to the shareholders.
The Company’s Articles of Association prescribe that there shall be no fewer than three Directors and no more than fifteen.
Directors’ interests in shares
The beneficial interests of the Directors in office at 31 December 2020 and their connected persons in the Ordinary
shares of the Company at 31 December 2020 are set out below.
Director
Michel Meeùs
Fady Khallouf
Gilbert Lehmann
Lilia Jolibois
Jacques Mahaux
Number of
Shares
26,000,000
8,337,031
–
–
–
Conflicts of Interest
The Company has procedures in place for managing conflicts of interest. Should a director become aware that they,
or any of their connected parties, have an interest in an existing or proposed transaction with the Company, its
subsidiaries or any matters to be discussed at meetings, they are required to formally notify the Board in writing or
at the next Board meeting. In accordance with the Companies Act 2006 and the Company’s Articles of Association,
the Board may authorize any potential or actual conflict of interest that may otherwise involve any of the directors
breaching his or her duty to avoid conflicts of interest. All potential and actual conflicts approved by the Board are
recorded in register of conflicts, which is reviewed by the Board at each Board meeting.
Directors’ indemnities and insurance
The Company’s Articles of Association provide that, subject to the provisions of the Companies Act 2006, all Directors
of the Company are indemnified by the Company in respect of any liability incurred in connection with their duties,
powers or office. Save for such indemnity provisions, there are no qualifying third-party indemnity provisions. In
addition, the Company continues to maintain Directors’ and Officers’ Liability Insurance for all Directors who served
during the year.
Powers of Directors
The Directors are responsible for the management of the business and may exercise all powers of the Company subject
to UK legislation and the Company’s Articles of Association, which includes powers to issue or buy back the Company’s
shares given by special resolution. The authorities to issue and buy back shares, granted at the 2020 Annual General
Meeting, remains unused.
Dividends
The Directors do not recommend payment of a dividend for the year ended 31 December 2020 (2019: nil).
Principal activity and status
The Company is registered as a public limited company (registration number 05718406) in England and Wales. The
principal activity and business of the Company is oil and gas exploration, development and production.
Subsequent events
Refer to note 29 in the financial statements.
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18
Report of the Directors continued
Structure of share capital
The authorized share capital of the Company is currently £30,000,000 divided into 1,000,000,000 Ordinary shares
of 3 pence each. The number of shares in issue as at 31 December 2020 was 244,128,487 Ordinary shares (each with
one vote) with a nominal value of £7,323,853. The total number of voting rights in the Company is 244,128,421. The
Companies (Acquisition of Own Shares) (Treasury Shares) Regulations 2003 allow companies to hold shares in treasury
rather than cancel them. Following the consolidation of the issued capital of the Company on 10 June 2008, there were
66 residual Ordinary shares, which were transferred to treasury. No dividends may be paid on shares whilst held in
treasury and no voting rights attached to shares held in treasury.
Rights and obligations of Ordinary shares
In accordance with applicable laws and the Company’s Articles of Association, holders of Ordinary shares are entitled to:
>
>
>
receive shareholder documentation including the notice of any general meeting;
attend, speak and exercise voting rights at general meetings, either in person or by proxy; and
a dividend where declared and paid out of profits available for such purposes. On a return of capital on a winding
up, holders of Ordinary shares are entitled to participate in such a return.
Exercise of rights of shares in employee share schemes
None of the share awards under the Company’s incentive arrangements are held in trust on behalf of the beneficiaries.
Agreements between shareholders
The Board is unaware of any agreements between shareholders, which may restrict the transfer of securities or voting rights.
Restrictions on voting deadlines
The notice of any general meeting of the Company shall specify the deadline for exercising voting rights and
appointing a proxy or proxies to vote at a general meeting. To accurately reflect the views of shareholders, where
applicable it is the Company’s policy at present to take all resolutions at any general meeting on a poll. Following
the meeting, the results of the poll are released to the market via a regulatory news service and published on the
Company’s website.
Substantial shareholdings
As at 31 December 2020 and 12 April 2021, being the last practicable date, 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 Michel Meeùs
Ms Veronique Salik
Ms Jessica Friedender
Kellet Overseas Inc.
CA Indosuez Wealth Management
Mr Fady Khallouf
Mr Pierre Salik
Cynderella International SA
Julius Baer
31 December 2020
12 April 2021
Number of
shares held
% of total
voting rights
Number of
shares held
% of total
voting rights
67,298,498
26,000,000
17,959,000
17,409,000
14,002,696
9,789,305
8,337,031
7,950,000
7,657,886
7,270,000
27.57
10.65
7.36
7.13
5.74
4.01
3.42
3.26
3.14
2.98
67,298,498
26,000,000
17,959,000
17,409,000
14,002,696
10,094,620
8,337,031
7,950,000
7,657,886
7,270,000
27.57
10.65
7.36
7.13
5.74
4.13
3.42
3.26
3.14
2.98
Amendment of the Company’s Articles of Association
The Company’s Articles of Association may only be amended by way of a special resolution of shareholders.
Disclosure of information to auditor
As required by section 418 of the Companies Act 2006, each of the Directors as at 4 May 2021 confirms that:
(a) so far as the Director is aware, there is no relevant audit information of which the Company’s auditor is unaware;
and
(b) the Director has taken all the steps that he ought to have taken as a Director in order to make himself aware of any
relevant audit information and to establish that the Company’s auditor is aware of that information.
Going concern
The Group’s business activities, together with the factors likely to affect its future development, performance and
position, are set out on pages 10 to 12.
www.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 19
Having considered the Company’s financial position and its principal risks and uncertainties, including the assessment
of potential risks associated with Covid-19 including a) restrictions applied by governments, illness amongst our
workforce and disruption to supply chain and sales channels; and b) market volatility in respect of commodity prices
associated with Covid-19 in addition to geopolitical factors, the Directors have a reasonable expectation that the
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 please refer to the detailed discussion of the assumptions outlined in note 3(b) to the
Consolidated Financial Statements.
Reporting year
The reporting year coincides with the Company’s fiscal year, which is 1 January 2020 to 31 December 2020.
Financial risk management objectives and policies
The Company’s financial risk management objectives and policies including its policy for managing its exposure of the
Company to price risk, credit risk, liquidity risk and cash flow risk are described on pages 77 to 79 in note 26 to the
Consolidated Financial Statements.
Outlook
Future developments in the business of the Company are presented on pages 5 to 7.
Change of control – significant agreements
The Company has no significant agreements containing provisions, which allow a counterparty to alter and amend the
terms of the agreement following a change of control of the Company.
Should a change in control occur then certain Executive directors are entitled to a payment of salary and benefits for a
period of six months.
Streamlined energy and carbon reporting
This section contains information on greenhouse gas (“GHG”) emissions required by the Companies Act 2006
(Strategic Report and Directors’ Report).
Methodology
The principal methodology used to calculate the emissions is drawn from the ‘Environmental Reporting Guidelines:
including mandatory greenhouse gas emissions reporting guidance (June 2013)’, issued by the Department for
Environment, Food and Rural Affairs (“DEFRA”) and DEFRA GHG conversion factors for company reporting were
utilised to calculate the CO2 equivalent of emissions from various sources (2018 update). Also, the used methodology
was also updated based on methods proposed by DNV GL and in of GHG emissions Inventory referring to the following
guidelines and international standards.
The Company has reported on all the emission sources required under the Regulations.
The Company does not have responsibility for any emission sources that are not included in its consolidated statement.
Consolidation approach and organisation boundary
An operational control approach was used to define the Company’s organisational boundary and responsibility for GHG
emissions. All material emission sources within this boundary have been reported upon, in line with the requirements
of the Regulations.
Scope of reported emissions
Emissions data from the sources within Scope 1 and Scope 2 of the Company’s operational boundaries is detailed
below. This includes direct emissions from assets that fall within the Company’s organisational boundaries (Scope 1
emissions), as well as indirect emissions from energy consumption, such as purchased electricity and heating (Scope 2
emissions).
Scope 1 emissions in 2020 decreased compared to the previous year (7,720 tons in 2020 vs 8,799 tons in 2019).
Conversely, Scope 2 emissions also decreased in 2020 (143t tons in 2020 vs 184 tons in 2019), as a result of the
processes started in 2016 to improve the efficiency of the structure, logistic and facilities. Total emissions in 2020 were
7,863 tons versus the 8,983 tons of 2019.
Intensity ratio
In order to express the GHG emissions in relation to a quantifiable factor associated with the Company’s activities,
wellhead production of crude oil and natural gas has been chosen as the normalisation factor for calculating the
intensity ratio. This will allow comparison of the Company’s performance over time, as well as with other companies in
the Company’s peer group.
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Report of the Directors continued
The intensity ratio for E&P operations (same reporting perimeter) decreased by 14%, from 85,7 tons CO2e/Kboe in 2019
to 73,9 tons CO2e/Kboe in 2020.
Total greenhouse gas emissions data for the year from 1 January to 31 December
Greenhouse gas emissions source
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, net
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, net
E&P
2020
2019
7,720
8,799
143
184
7,863
8,983
106,398
104,816
73.9
85.7
Energy consumption
The Company started in 2020 to monitor energy consumption in KwH. This is a new indicator which will be
continuously monitored in the future.
Ukraine
Energy consumption in the UK is immaterial.
2020
KwH
2019
KwH
% change
2020 – 2019
547,545
570,898
(4%)
2021 Annual General Meeting
The 2021 Annual General Meeting (“AGM”) of the Company provides an opportunity to communicate with shareholders
and the Board welcomes their participation. Board members constantly strive to engage with shareholders on strategy,
governance and a number of other issues.
The Board looks forward to welcoming shareholders to the AGM. The AGM notice will be issued to shareholders well
in advance of the meeting with notes to provide an explanation of all resolutions to be put to the AGM. In addition,
shareholder information will be enclosed as usual with the AGM notice to facilitate voting and feedback in the usual
way.
The Chairman of the Board and the members of its committees will be available to answer shareholder questions at the
AGM. All relevant shareholder information including the annual report for 2020 and any other announcements will be
published on our website – www.cadoganpetroleum.com.
This Report of Directors comprising pages 17 to 20 has been approved by the Board and signed by the order of the
Board by:
Ben Harber
Company Secretary
5 May 2021
www.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 21
Corporate Governance Statement
This Corporate Governance Statement forms part of the Directors’ Report
As a Company listed on the standard segment of the London Stock Exchange it is not required to apply a specific
corporate governance code and, given its size, has elected not to do so. However, the Board of the Company is
committed to the highest standards of corporate governance.
Board
The Board provides leadership and oversight. The Board comprises a Non-Independent non-executive Chairman, Chief
Executive Officer, two Independent Non-Executive Directors and a non-executive Director. The Board has appointed Mr
Lehmann as the Senior Independent Director.
The biographical details for each of the Directors and their membership of Committees are incorporated into this
report by reference and appear on page 16.
As at the date of this report, the Chairman had no significant commitments that would affect his ability to allocate
sufficient time to the Company to discharge his responsibilities effectively.
Board independence
The roles and responsibilities of the Chairman and Chief Executive Officer are separate with a clear and formal division
of each individual’s responsibilities, which has been agreed and documented by the Board.
The Non-Executive Directors bring an independent view to the Board’s discussions and the development of its
strategy. Their range of experience ensures that management’s performance in achieving the business goals are
challenged appropriately. Two Non-Executive Directors, Ms Lilia Jolibois, and Mr Gilbert Lehmann are considered
by the Board to be independent. Mr Michel Meeùs, who is a significant shareholder and Mr Jacques Mahaux are not
considered independent as defined within the UK Corporate Governance Code 2018, however the Board believes they
are independent in character and judgement and free from relationships or circumstances that could affect their
judgement. All Directors continue to be effective and have sufficient time available to perform their duties. The letters
of appointment for the Non-Executive Directors are available for review at the Registered Office and prior to the
Annual General Meeting. Each of the Non-Executive Directors independently ensures that they update their skills and
knowledge sufficiently to enable them to fulfil their duties appropriately.
As at the date of this report, the Chairman had no significant commitments that would 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 in line with
Corporate Governance best practice. Accordingly, all members of the Board will be standing for re-election at the 2021
Annual General Meeting due to be held on 25 June 2021.
The Board has a formal schedule of matters specifically reserved for its decision, including approval of acquisitions and
disposals, major capital projects, financial results, Board appointments, dividend recommendations, material contracts
and Group strategy. Other responsibilities are delegated to its Committees.
The Chairman, in conjunction with the Company Secretary, plans the programme for the Board during the year. While
no formal structured continuing professional development program has been established for the non-executive
Directors, every effort is made to ensure that they are fully briefed before Board meetings on the Company’s business.
The agenda for Board and Committee meetings are considered by the relevant Chairman and issued with supporting
papers during the week preceding the meeting. For each Board meeting, the Directors receive a Board pack including
management accounts, briefing papers on commercial and operational matters and major capital projects including
acquisitions. The Board also receives briefings from key management on specific issues.
Five Board meetings took place during 2020. The attendance of those Directors in place at the year end at Board and
Committee meetings during the year was as follows:
No. Held
No. Attended:
M Meeùs
F Khallouf
L Jolibois
G Lehmann
J Mahaux
Board
Audit
Committee
Nomination
Committee
Remuneration
Committee
5
5
5
5
5
5
2
N/A
N/A
2
N/A
2
–
–
–
–
–
–
1
1
1
1
1
1
Given the size and composition of the Board there was no requirement to hold a nomination committee during the year.
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.
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Corporate Governance Statement continued
This Corporate Governance Statement forms part of the Directors’ Report
Responsibilities and membership of Board Committees
The Board has agreed written terms of reference for the Nomination Committee, Remuneration Committee, Audit
Committee and HSE committee. The terms of reference for the Board Committees are published on the Company’s website,
www.cadoganpetroleum.com, and are also available from the Company Secretary at the Registered Office. A review of the
Committees including their membership and activities of all Board Committees is provided on pages 24 to 29.
Internal control
The Directors are responsible for the Group’s system of internal control and for maintaining and reviewing its
effectiveness. The Group’s systems and controls are designed to safeguard the Group’s assets and to ensure the
reliability of information used both within the business and for publication. The Board has delegated responsibility for
the monitoring and review of the Group’s internal controls to the Audit Committee.
Systems are designed to manage, rather than eliminate the risk of failure to achieve business objectives and can
provide only reasonable, and not absolute assurance against material misstatement or loss.
The key features of the Group’s internal control and risk management systems that ensure the accuracy and reliability
of financial reporting include clearly defined lines of accountability and delegation of authority, policies and procedures
that cover financial planning and reporting, preparing consolidated financial statements, capital expenditure, project
governance and information security.
The key features of the internal control systems, which operated during 2020 and up to the date of signing the
Financial Statements are documented in the Group’s Corporate Governance Policy Manual and Finance Manual. These
manuals and policies have been circulated and adopted throughout the Group throughout the period.
Day-to-day responsibility for the management and operations of the business has been delegated to the Chief
Executive Officer and senior management. Certain specific administrative functions are controlled centrally. Taxation
and treasury functions report to the Group Director of Finance who reports directly to the Chief Executive Officer.
The legal function for Ukraine’s related assets and activities is managed by the General Counsel, who reports to the
General Director of Cadogan Ukraine. The Health, Safety and Environment functions report to the Chairman of the HSE
Committee. The Group does not have an internal audit function. Due to the small scale of the Group’s operations at
present, the Board does not feel that it is appropriate or economically viable to have an internal audit function in place,
however this will be kept under review by the Audit Committee on an annual basis.
The Board has reviewed internal controls and risk management processes, in place from the start of the year to the
date of approval of this report. During the course of its review the Board did not identify nor were advised of any
failings or weaknesses which it has deemed to be significant.
Relations with shareholders
The Chairman and Executive Directors of the Company have a regular dialogue with analysts and substantial
shareholders. The outcome of these discussions is reported to the Board at quarterly meetings and discussed in detail.
Mr Lehmann, as the Senior Independent Director, is available to meet with shareholders who have questions that they
feel would be inappropriate to raise via the Chairman or Executive Directors.
The Annual General Meeting is used as an opportunity to communicate with all shareholders. In addition, financial
results are posted on the Company’s website, www.cadoganpetroleum.com, as soon as they are announced. The Notice
of the Annual General Meeting is also contained on the Company’s website, www.cadoganpetroleum.com. It is intended
that the Chairmen of the Nomination, Audit and Remuneration Committees will be present at the Annual General
Meeting. The results of all resolutions will be published on the Company’s website, www.cadoganpetroleum.com.
Directors’ section 172 statement
The disclosure describes how the Directors have regard to the matters set out in section 172(1)(a) to (f) and forms the
Directors’ statement required under section 414CZA of The Companies Act 2006. This new reporting requirement is
made in accordance with the new corporate governance requirements identified in The Companies (Miscellaneous
Reporting) Regulations 2018.
The matters set out in section 172(1) (a) to (f) are that a Director must act in the way they consider, in good faith, would
be most likely to promote the success of the Company for the benefit of its members as a whole, and in doing so have
regard (amongst other matters) to:
(a) the likely consequences of any decision in the long term;
(b) the interests of the Company’s employees;
(c) the need to foster the Company’s business relationships with suppliers, customers and others;
(d) the impact of the Company’s operations on the community and the environment;
(e) the desirability of the Company maintaining a reputation for high standards of business conduct; and
(f) the need to act fairly between members of the Company.
www.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 23
Being sustainable in our activities means conducting our business with respect for the environment and for the
communities hosting us, with the aim of increasing the benefit and value to our stakeholders. We recognize that this is
a key element to be competitive and to maintain our licence to operate.
Further details of how the Directors have regard to the issues, factors and stakeholders considered relevant in
complying with S 172 (1) (a)-(f), the methods used to engage with stakeholders and the effect on the Group’s decision
making can be found throughout the annual report and in particular page 22 (which outlines how the Company
engages with its stakeholders), pages 14 and 15 (which contains Cadogan’s corporate responsibility statement) page
19 (which contains the Company’s report on greenhouse gas emissions) and page 22 (which outlines the ways in which
the Company engages with its shareholders).
In particular, during 2020 the Directors reviewed the impact of Covid-19 pandemic on the processes of the Company
and specifically its employees and the communities in which it operates. Specific decisions and measures have been
taken to ensure the health and security and to provide assistance where needed (pages 14, 18 and 19).
Also, as a consequence of the continuous Covid-19 and the volatility of the oil and gas prices, and their potential
impact on the operational activities and financial situation of the Group, the Directors carefully analysed the going
concern and any consequence on the future activities (pages 8 to 12).
The Group has implemented an integrated HSE management system aiming to ensure a safe and environmentally
friendly culture in the organization (pages 14 and 15). However, regarding the environmental sustainability of the
Group’s activities, the Directors are fully aware of the need to direct future development in new activities with a lower
impact on environment (CEO outlook page 6, pages 19 and 20).
When assessing the Proger instrument (Loan and Call Option), the Directors carefully considered the issues and
decisions with their impact on the Group and all of its stakeholders (pages 6, 11, 65 and 66).
The Board has a formal schedule of matters specifically reserved for its decision, including approval of acquisitions and
disposals, major capital projects, financial results, Board appointments, dividend recommendations, material contracts
and Group strategy. For each Board meeting, the Directors receive a Board pack including management accounts,
briefing papers on commercial and operational matters and major capital projects including acquisitions. The Board
also receives briefings from key management on specific issues.
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Board Committee Reports
Audit Committee Report
The Audit Committee is appointed by the Board, on the recommendation of the Nomination Committee, from the
Non-Executive Directors of the Group. The Audit Committee’s terms of reference are reviewed annually by the Audit
Committee and any changes are then referred to the Board for approval. The terms of reference of the Committee are
published on the Company’s website, www.cadoganpetroleum.com, and are also available from the Company Secretary
at the Registered Office. Two members constitute a quorum.
Responsibilities
>
To monitor the integrity of the annual and interim financial statements, the accompanying reports to shareholders,
and announcements regarding the Group’s results;
>
>
>
>
>
To review and monitor the effectiveness and integrity of the Group’s financial reporting and internal financial
controls;
To review the effectiveness of the process for identifying, assessing and reporting all significant business risks and
the management of those risks by the Group;
To oversee the Group’s relations with the external auditor and to make recommendations to the Board, for approval
by shareholders, on the appointment and removal of the external auditor;
To consider whether an internal audit function is appropriate to enable the Audit Committee to meet its objectives;
and
To review the Group’s arrangements by which staff of the Group may, in confidence, raise concerns about possible
improprieties in matters of financial reporting or other matters.
Governance
Ms Jolibois and Mr Mahaux are both members of the Audit Committee. The Audit Committee is chaired by Ms Jolibois
who had relevant financial experience within a major European company as well as holding several non-executive roles
in major international entities.
At the invitation of the Audit Committee, the Group Director of Finance and external auditor regularly attend meetings.
The Company Secretary attends all meetings of the Audit Committee.
The Audit Committee also meets the external auditor without management being present.
Activities of the Audit Committee
During the year, the Audit Committee discharged its responsibilities as follows:
Assessment of the effectiveness of the external auditor
The Committee has assessed the effectiveness of the external audit process. They did this by:
> Reviewing the 2020 external audit plan;
> Discussing the results of the audit including the auditor’s views on material accounting issues and key judgements
and estimates, and their audit report;
>
Considering the robustness of the audit process;
> Reviewing the quality of the service and people provided to undertake the audit; and
>
Considering their independence and objectivity.
Financial statements
The Audit Committee examined the Group’s consolidated and Company’s financial statements and, prior to
recommending them to the Board, considered:
>
>
>
the appropriateness of the accounting policies adopted;
reviewed critical judgements, estimates and underlying assumptions; and
assessed whether the financial statements are fair, balanced and understandable.
Going concern
After making enquiries and considering the uncertainties described on pages 10 to 12, the Committee has a reasonable
expectation that the Company and the Group has adequate resources to continue in operational existence for the
foreseeable future and consider the going concern basis of accounting to be appropriate. For further detail including
the assessment of the impact of Covid-19 and the basis for the conclusion, please refer to the detailed discussion of
the assumptions outlined in note 3 (b) to the Consolidated Financial Statements.
www.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 25
Internal controls and risk management
The Audit Committee reviews and monitors financial and control issues throughout the Group including the Group’s
key risks and the approach for dealing with them. Further information on the risks and uncertainties facing the Group
are detailed on pages 77 to 79 and in note 26 to the financial statements.
External auditor
The Audit Committee is responsible for recommending to the Board, for approval by the shareholders, the appointment
of the external auditor.
The Audit Committee considers the scope and materiality for the audit work, approves the audit fee, and reviews the
results of the external auditor’s work. Following the conclusion of each year’s audit, it considers the effectiveness of
the external auditor during the process. An assessment of the effectiveness of the audit process was made, considering
reports from the auditor on its internal quality procedures. The Committee reviewed and approved the terms and scope
of the audit engagement, the audit plan and the results of the audit with the external auditor, including the scope of
services associated with audit-related regulatory reporting services. Additionally, auditor independence and objectivity
were assessed, considering the auditor’s confirmation that its independence is not impaired, the overall extent of non-
audit services provided by the external auditor and the past service of the auditor.
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. Audit related services 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 Audit
Committee has reviewed the nature, level and timing of these services in the course of the year and is confident that
the objectivity and independence of the auditor are not impaired by the reason of such non-audit work.
Internal audit
The Audit Committee considers annually the need for an internal audit function and believes that, due to the size of
the Group and its current stage of development, an internal audit function will be of little benefit to the Group.
Whistleblowing
The Group’s whistleblowing policy encourages employees to report suspected wrongdoing and sets out the procedures
employees must follow when raising concerns. The policy, which was implemented during 2008 is reviewed
periodically. The Group’s policies on anti-bribery, the acceptance of gifts and hospitality, and business conduct and
ethics are circulated to staff as part of a combined manual on induction with changes regularly communicated.
Overview
As a result of its work during the year, the Audit Committee has concluded that it has acted in accordance with its
terms of reference and has ensured the independence and objectivity of the external auditor.
The Chairman of the Audit Committee will be available at the Annual General Meeting to answer any questions about
the work of the Audit Committee.
Lilia Jolibois
Chairman of the Audit Committee
5 May 2021
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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
Committee and any changes are then referred to the Board for approval. The terms of reference of the Committee are
published on the Company’s website, www.cadoganpetroleum.com, and are also available from the Company Secretary
at the Registered Office. Two members constitute a quorum, one of whom must be a Director.
Governance
The Committee is chaired by Mr Andrey Bilyi (Cadogan Ukraine General Director) as acting Head of the HSE Committee and
its other member is Ms Snizhana Buryak (HSE Manager). The CEO attends meetings of the HSE Committee as necessary.
During 2020, the HSE Committee held six meetings to monitor the HSE risks and activities across the business, following
which actions were identified for the continuous improvement of the various processes and the mitigation of risk.
Responsibilities
>
To regularly maintain and implement the continuous improvement of the HSE Management System with the aim of
improving the Company’s performances;
> Assessments of the risks to employees, contractors, customers, partners, and any other people who could be
affected by the Company’s activities with the aim of reducing the global risk of the Company and increasing its
level of acceptability;
>
Evaluate the effectiveness of the Group’s policies and systems for identifying and managing health, safety and
environmental risks within the Group’s operation;
> Assess the policies and systems within the Group for ensuring compliance with health, safety and environmental
regulatory requirements;
> Assess the performance of the Group with regard to the impact of health, safety, environmental and community
relations decisions and actions upon employees, communities and other third parties and also assess the impact of
such decisions and actions on the reputation of the Group and make recommendations to the Board on areas for
improvement;
> On behalf of the Board, receive reports from management concerning any fatalities and serious accidents within
the Group and actions taken by management as a result of such fatalities or serious accidents;
>
Evaluate and oversee, on behalf of the Board, the quality and integrity of any reporting to external stakeholders
concerning health, safety, environmental and community relations issues; and
> Where it deems it appropriate to do so, appoint an independent auditor to review performance with regard
to health, safety, environmental and community relations matters and review any strategies and action plans
developed by management in response to issues raised and, where appropriate, make recommendations to the
Board concerning the same.
Activities of the Health, Safety and Environment Committee
The HSE Committee in discharging its duties reviewed and considered the following:
>
Company activities execution and control over contractors services execution in line with company policies and
HSE procedures;
> Monthly statistics and reports on the activity were regularly distributed to the CEO, Management and to the
members of the committee;
>
>
Ensured that the implementation of new legislation and requirements were punctually followed-up and promptly
updated;
Compliance with HSE regulatory requirements was ensured through discussion of the results of inspections,
both internal inspections and those carried out by the Authorities. The results of the inspections and drills were
analysed and commented to assess the need for corrective actions and/or training initiatives;
> A standing item was included on the agenda at every meeting to monitor monthly HSE performance, key indicators
and statistics allowing the HSE Committee to assess the Company’s performance by analysing any lost-time
incidents, near misses, HSE training and other indicators;
www.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 27
>
>
Interaction with contractors, Authorities, local communities and other stakeholders were discussed among other
HSE activities;
Compliance to ISO 14001 and ISO 45001 has been proved by the authorized third party auditor. Also the Company
had its entire data calculation process as well as emissions measurement system re-validated by a different
independent third party;
>
Ensuring all the Observation and Actions requested by the Certification Body have been implemented.
Overview
The Company’s HSE Management System and the Guidelines and Procedures have been updated to fit with the ISO
requirements and are adequate for the proper execution of the Company’s operations.
As a result of its work during the year, the HSE Committee has concluded that it has acted in accordance with its terms
of reference.
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Board Committee Reports continued
Nomination Committee Report
The Board delegates some of its duties to the Nomination Committee and appoints the members of the Nomination
Committee which are non-executive Directors of the Group. The membership of the Committee is reviewed annually
and any changes to its composition are referred to the Board for approval. The terms of reference of the Nomination
Committee are published on the Company’s website, www.cadoganpetroleum.com, and are available from the
Company Secretary at the Registered Office. Two members constitute a quorum.
Governance
Mr Michel Meeùs (Remuneration and Nomination Committee Chairman), Ms. Lilia Jolibois, Mr Jacques Mahaux and
Mr Gilbert Lehmann (Non-Executive Directors) are the members of the Nomination Committee. The Company
Secretary attends all meetings of the Nomination Committee.
Responsibilities
>
To regularly review the structure, size and composition (including the skills, knowledge and experience) required of
the Board compared to its current position and make recommendations to the Board with regard to any changes;
>
>
>
Be responsible for identifying and nominating candidates to fill Board vacancies as and when they arise, for the
Board’s approval;
Before appointments are made by the Board, evaluate the balance of skills, knowledge, experience and diversity
(gender, ethnic, age, sex, disability, educational and professional backgrounds, etc.) on the Board and, in the light of
this evaluation, prepare a description of the role and capabilities required for a particular appointment; and
In identifying suitable candidates, the Nomination Committee shall use open advertising or the services of external
advisers to facilitate the search and consider candidates from a wide range of backgrounds on merit, ensuring that
appointees have enough time available to devote to the position.
The Nomination Committee shall also make recommendations to the Board concerning:
>
Formulating plans for succession for both executive and non-executive Directors and in particular for the key roles
of Chairman and Chief Executive Officer;
> Membership of the Audit and Remuneration Committees, in consultation with the Chairmen of those committees;
>
>
The reappointment of any non-executive Director at the conclusion of their specified term of office, having given
due regard to their performance and ability to continue to contribute to the Board in the light of the knowledge,
skills and experience required; and
The re-election by shareholders of any Director having due regard to their performance and ability to continue to
contribute to the Board in the light of the knowledge, skills and experience required.
Any matters relating to the continuation in office of any Director at any time including the suspension or termination
of service of an executive Director as an employee of the Company subject to the provisions of the law and their
service contract.
Activities of the Nomination Committee
During the financial year under review, the Committee reviewed and considered the following:
>
The size, structure and composition of the Board in the light of the current business environment, the Company’s
anticipated future activities and particularly the independence of the Non-Executive Directors;
>
Its internal governance documents and the Policy;
The Committee recommends the re-election of the five incumbent Directors at the AGM.
Overview
As a result of its work during the year, the Committee has concluded that it has acted in accordance with its terms of
reference. The Chairman of the Nomination Committee will be available at the Annual General Meeting to answer any
questions about the work of the Committee.
Michel Meeùs
Nomination Committee Chairman
5 May 2021
www.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 29
Remuneration Committee
Statement from the Chairman
I am pleased to present the Annual Report on Remuneration for the year ended 31 December 2020.
Cadogan’s Remuneration Policy was approved as proposed by the shareholders at the Annual General Meeting of
June 19, 2018 and is attached at the end of the Annual Report on Remuneration. The Remuneration Committee is not
proposing to make any changes to the existing Policy however in line with industry best practice and the three-year
Policy cycle the Company will be seeking shareholder approval at this year’s AGM.
The key elements of the Remuneration Policy are:
> A better long-term alignment of the executives’ remuneration with the interests of the shareholders;
> A material reduction in the maximum remuneration level for the Executive Directors, both in terms of annual bonus
and of long-term incentive (performance share plan);
>
>
>
The payment of at least 50% of the Annual Bonus in shares with the remaining 50% to be paid in cash or shares at
the discretion of the Remuneration Committee. Shares will be priced for this award based on their market value at
closing on the Business Day prior to the Subscription Date;
The introduction of claw-back and malus provisions on both bonuses and share awards; and
The expectation that the Executive Directors build a substantial shareholding position in the company through
their mandate.
In 2020 the Remuneration Committee enrolled again the CEO in a performance-related, bonus scheme built around a
scorecard with a set of challenging KPI’s aligned with the company strategy. However, given the impact of Covid-19 and
the volatility in oil and gas prices the Remuneration Committee, along with agreement from the CEO, have decided to
postpone a variable performance related bonus for year-ended 2020.
Michel Meeùs
Chairman of the Remuneration Committee
5 May 2021
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Annual Report on Remuneration 2020
Remuneration Committee Report
The Remuneration Committee is committed to principles of accountability and transparency to ensure that
remuneration arrangements demonstrate a clear link between reward and performance.
Governance
The Remuneration Committee is appointed by the Board from the non-executive Directors of the Company. The
Remuneration Committee’s terms of reference are reviewed annually by the Remuneration Committee and any
changes are then referred to the Board for approval. The terms of reference of the Remuneration Committee are
published on the Company’s website, www.cadoganpetroleum.com, and are also available from the Company Secretary
at the Registered Office.
The Remuneration Committee consists of Mr Michel Meeùs, Ms. Lilia Jolibois, Mr Jacques Mahaux and Mr Gilbert
Lehmann. At the discretion of the Remuneration Committee, the Chief Executive Officer is invited to attend meetings
when appropriate but is not present when his own remuneration is being discussed. None of the directors are involved
in deciding their own remuneration. The Company Secretary attends the meetings of the Remuneration Committee.
Responsibilities
In summary, the Remuneration Committee’s responsibilities, as set out in its terms of reference, are as follows:
>
>
To determine and agree with the Board the policy for the remuneration of the executive Directors, the Company
Secretary and other members of executive management as appropriate;
To consider the design, award levels, performance measures and targets for any annual or long-term incentives and
approve any payments made and awards vesting under such schemes;
> Within the terms of the agreed remuneration policy, to determine the total individual remuneration package of
each executive Director and other senior executives including bonuses, incentive payments and share options or
other share awards; and
>
To ensure that contractual terms on termination, and any payments made, are fair to the individual and the
Company, that failure is not rewarded and that the duty to mitigate loss is fully recognised.
Overview
The Chairman and Executive Directors of the Company have a regular dialogue with analysts and substantial
shareholders, which includes the subject of Directors’ Remuneration. The outcome of these discussions is reported to the
Board and discussed in detail both there and during meetings of the Remuneration Committee.
As a result of its work during the year, the Remuneration Committee has concluded that it has acted in accordance with its
terms of reference. The chairman of the Remuneration Committee will be available at the Annual General Meeting to answer
any questions about the work of the Committee. Alternatively, 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.
Remuneration consultants
The Remuneration Committee did not take any advice from external remuneration consultants, with the exception of
the review undertaken of the Remuneration Report.
www.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 31
Single total figure of remuneration for executive and non-executive Directors (audited)
$
Salary and fees
2020
2019
$
Taxable benefit1
2020
2019
Contributions to
pension schemes
2020
2019
$
Annual bonus
2020
2019
$
Total
2020
2019
$
517,389
61,496 59,2942
–
– 431,0854
– 58,300
–
45,453
89,000 49,608
5,918
48,000
5,301
43,000
54,707
38,000
103,699
–
39,146
–
138,351
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 382,9693 634,983 444,465
– 588,678
–
112,140
–
–
–
–
–
–
–
– 89,000 49,608
5,918
– 48,000
5,301
– 43,000
54,707
– 38,000
103,699
–
–
39,146
–
–
138,351
–
–
$
$
Total Fixed Remuneration
Total Variable Remuneration
2020
2019
2020
2019
634,983
218,000
538,0345
396,730
–
–
495,1093
–
Executive Director
F Khallouf
G Michelotti
Non-executive Directors
M Meeùs
L Jolibois
J Mahaux
G Lehmann
Z Furst
E Testa
A Schenato
Executive Director
Non-executive Directors
Notes to the table
Mr Fady Khallouf
Mr Khallouf was appointed as Chief Executive Officer on 15 November 2019. Mr Khallouf’s salary is €440,000 per
annum. As part of Mr Khallouf’s employment agreement, a welcome bonus equivalent in value to 5,500,000 ordinary
shares (using the market value of the shares on the business day prior to the date of issue) is payable to Mr Khallouf
and a holding period of two years is applicable to the shares acquired. Pursuant to the terms of the bonus, the amount
must be subscribed for ordinary shares in the Company at such time as the executive agrees. The welcome bonus was
provided to Mr Khallouf in May 2020.
Mr Guido Michelotti
Mr Michelotti was Chief Executive Officer until his resignation on 15 November 2019. Mr Michelotti’s salary was
€440,000 per annum. In 2019, Mr Michelotti received the Performance Bonus of €100,000 awarded to him by
Remuneration Committee.
KPIs
In 2020 the CEO was subject to a performance-related, bonus scheme built around a scorecard with a set of
challenging KPI’s aligned with the company strategy. The Remuneration Committee, after consultation with the CEO,
have decided to postpone any variable performance related bonus for year ended 2020 given the impact of Covid-19
and volatility in oil and gas prices.
Benefits
Benefits may be provided to the executive directors, in the form of private medical insurance and life assurance.
The Chairman and Non-Executive Directors
As mentioned above, fees for non-Executive Directors were reduced by 20 percent on 15th January 2020 with effect
from 15th November 2019. The fees are as follows: the Chairman’s fee at $89,000 and the fee for acting as a non-
executive Director at $38,000 with an additional $10,000 for acting as Chairman of the Audit Committee and an
additional $5,000 for a committee membership.
Scheme interests awarded during the financial year (audited)
There were no scheme interests awarded during the year.
1 Taxable benefits include life and medical insurance provided to the executive and leased car.
2 Amount includes catchup payment for two months 2019.
3 2019 Annual bonus is a sum of Mr Michelotti’s bonus of $112,140 and welcome bonus for Mr Khallouf equivalent in value of 5,500,000
ordinary shares based on share’s price of £0.0525. Welcome bonus for Mr Khallouf was provided in May 2020 based on share’s price of £0.03.
Respective correction of the bonus reserve equivalent to $185 thousand was recognised through share premium account in 2020.
4 The salary for the period from 1 January 2019 till 15 November 2019.
5 Total amount of fixed remuneration for Mr Michelotti and Mr Khallouf for the year 2019.
OVERVIEWSTRATEGIC REPORTCORPORATE GOVERNANCEREMUNERATION REPORTFINANCIAL STATEMENTSGLOSSARYSHAREHOLDER INFORMATIONwww.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020
32
Annual Report on Remuneration 2020
continued
Payments to past directors (audited)
In 2020 there were no payments to past directors.
In 2020, the Company provided the previous CEO, Mr Guido Michelotti with newly issued 2,270,549 Ordinary shares of
£0.03 each in the capital of the Company. The payment for the issued shares in the Company was satisfied in full, by
using the entire amount of the 2018 and 2019 bonuses due to Mr Guido Michelotti totalling €75,900 ($83,125).
Payments for loss of office (audited)
No notice period was either worked or paid.
Directors’ interests in shares (audited)
The beneficial interests of the Directors in office as at 31 December 2020 and their connected persons in the Ordinary
shares of the Company at 31 December 2020 are set out below.
Shares as at 31 December
Michel Meeùs
Fady Khallouf
Gilbert Lehmann
Lilia Jolibois
Jacques Mahaux
2020
2019
26,000,000
8,337,031
–
–
–
26,000,000
–
–
–
–
There were changes in the Directors shareholding at 31 December 2020 compared to 31 December 2019 (Fady Khallouf).
The Company does not currently operate formal shareholding guidelines. Whilst there is no specified level, the
Company expects that under the new Remuneration Policy, the Executive Director will continue to build up a significant
shareholding position in the Company during his mandate.
The Company does not currently operate formal shareholding guidelines. Whilst there is no specified level, the
Company expects that under the new Remuneration Policy, the Executive Directors will build up a significant
shareholding position in the Company during their mandate.
The Company’s performance
The graph below highlights the Company’s total shareholder return (“TSR”) performance for the last twelve years
compared to the FTSE All Share Oil & Gas Producers index. This index has been selected on the basis that it represents
a sector specific group, which is an appropriate group for the Company to compare itself against, and has been
retained ever since, primarily for continuity purposes TSR is the return from a share or index based on share price
movements and notional reinvestment of declared dividends.
250
200
150
100
50
0
3 0/0 6/2 018
31/12/2 018
3 0/0 6/2 0 2 0
3 0/0 6/2 019
31/12/2 0 2 0
31/12/2 019
31/12/2 0 0 9
3 0/0 6/2 010
31/12/2 010
3 0/0 6/2 0 0 9
01/01/2 0 0 9
3 0/0 6/2 014
31/12/2 012
31/12/2 011
3 0/0 6/2 012
3 0/0 6/2 011
3 0/0 6/2 015
31/12/2 013
3 0/0 6/2 013
3 0/0 6/2 017
31/12/2 014
31/12/2 015
3 0/0 6/2 016
31/12/2 017
31/12/2 016
Cadogan Petroleum plc
FTSE All Share Oil & Gas
www.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 33
Historic Remuneration of Chief Executive
Salary
$
422,533
547,067
669,185
511,459
384,941
405,433
432,4091
487,080
497,288
521,664
492,581
517,389
Taxable
benefits
$
–
–
–
–
–
20,734
15,987
15,353
27,273
39,838
45,453
59,294
Annual
bonus
$
284,552
–
–
–
–
–
243,132
210,5042
126,992
201,872
495,1093
–
Long-term
incentives
$
–
–
–
–
–
–
–
–
–
–
–
–
Pension
$
–
–
–
31,966
–
–
–
–
–
–
–
58,300
Loss of
office
$
–
–
–
126,808
–
–
–
–
–
–
–
–
Total
$
707,085
547,067
669,185
670,233
384,941
426,167
691,528
712,937
651,553
763,374
1,033,143
634,983
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
In 2020, the Remuneration Committee, after consultation with the CEO, have decided to postpone any variable
performance related bonus for year ended 2020 given the impact of Covid-19 and volatility in oil and gas prices.
(2019: 10% of the maximum bonus as per the approved Remuneration Policy4).
The annual bonus received by the CEO as a percentage of the maximum opportunity is presented in the following table.
Year
2020
2019
2018
2017
2016
2015
2014
2013
2012
2011
2010
2009
CEO
Mr Khallouf
Mr Khallouf5
Mr Michelotti
Mr Michelotti
Mr Michelotti
Mr Michelotti
Mr Michelotti
Mr des Pallieres
Mr des Pallieres
Mr des Pallieres
Mr des Pallieres
Mr Barron
Mr des Pallieres9
Mr Barron
Mr Barron
Mr Barron10
CEO single
figure of total
remuneration $
Annual bonus
payout against
maximum
opportunity %
634,983
444,465
588,678
763,374
651,553
712,937
502,021
189,507
426,167
384,941
389,935
280,2988
273,201
395,984
547,067
707,085
–
–
10
32
12
226
273,7
–
–
–
–
–
–
–
–
67
1
2015 CEO’s salary is the sum of Mr des Pallieres’ salary for the period January to June and of Mr Michelotti’s salary for the period July to
December.
2 In relation to performance in 2016 and 2015, the CEO used the entire amount of the bonus to buy at market price newly issued company
shares on 22 September 2017.
3 2019 Annual bonus is a sum of Mr Michelotti’s bonus of $112,140 and welcome bonus for Mr Khallouf equivalent in value of 5,500,000
ordinary shares based on share’s price of £0.0525. Welcome bonus for Mr Khallouf was provided in May 2020 based on share’s price of £0.03.
Respective correction of the bonus reserve equivalent to $185 thousand was recognised through share premium account in 2020.
4 The new Remuneration Policy approved in June 2018, reduces the maximum allowable bonus from 200% to 125% of the base salary.
5 Includes a welcome bonus for Mr Khallouf equivalent in value of 5,500,000 ordinary shares based on share’s price of £0.0525.
6 Mr Michelotti undertook to use the entire bonus to buy company’s share at market price in order to leave the Company cash neutral.
7 Year-end performance-based bonus was an alternative to an up-front sign-on bonus. Mr Michelotti use the entire bonus to buy company’s
share at market price on 22 September 2017.
8 $280,298 paid as fees, pension and loss of office.
9 From 1 August, 2011.
10 From 19 March 2009.
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Annual Report on Remuneration 2020
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 2020 and 2019
compared to that of all employees within the Group.
Base salary
Taxable benefits
Annual Bonus
Total
CEO1
All employees2
CEO
All employees
CEO4
All employees
CEO
All employees
2020
$’000
517
1,906
1183
139
–
131
635
2,176
2019
$’000
493
2,237
45
60
495
495
1,033
2,797
Average
Change %
5%
-15%
162%
114%
-100%
-74%
-39%
-22%
Included salary of Mr Michelotti and Mr Khallouf.
1
2 All employees mean all employees of the Group, including CEO and other Directors (note 11, page 69).
3 Includes taxable benefits for 2019.
4 2019 Annual bonus is a sum of Mr Michelotti’s bonus of $112,140 and welcome bonus provision for Mr Khallouf of $382,969 to be granted in
shares during 2020.
In 2020 none of the directors participated in long-term incentives.
In 2020 there was no increase in executive and non-executive directors’ salary in base currency. The difference in pay
represents the change in exchange rate between the base currency and USD as a reporting currency.
Percentage change in Non-Executive director remuneration
Base salary/fees
Taxable benefits (including pensions)
Annual bonus
Total
Michel Meeùs
All employees
2020
$’000
2019
$’000
% change
2020 – 2019
% change
2020 – 2019
89,000
49,608
79%
–
–
–
–
–
–
89,000
49,608
79%
-15%
114%
-74%
-22%
The 79% increase is due to the fact that Michel Meeùs stepped-in into the position of Chairman in 15 November 2019.
Lilia Jolibois
All employees
Base salary/fees
Taxable benefits (including pensions)
Annual bonus
Total
Base salary/fees
Taxable benefits (including pensions)
Annual bonus
Total
2020
$’000
48,000
–
–
2019
$’000
5,918
–
–
2020
$’000
43,000
–
–
2019
$’000
5,301
–
–
% change
2020 – 2019
% change
2020 – 2019
711%
–
–
711%
–
–
-15%
114%
-74%
-22%
-15%
114%
-74%
-22%
48,000
5,918
711%
Jacques Mahaux
All employees
% change
2020 – 2019
% change
2020 – 2019
43,000
5,301
711%
Lilia Jolibois and Jacques Mahaux were appointed as non-executive directors in 15 November 2019.
Base salary/fees
Taxable benefits (including pensions)
Annual bonus
Total
Gilbert Lehmann
All employees
2020
$’000
38,000
–
–
2019
$’000
54,707
–
–
38,000
54,707
% change
2020 – 2019
% change
2020 – 2019
-31%
–
–
31%
-15%
114%
-74%
-22%
Remuneration of Gilbert Lehman has been revised starting from 15 November 2019.
www.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 35
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 2019 and 31 December 2020.
All-employee remuneration
Distributions to shareholders
2020
$’000
2,176
–
2019
$’000
2,797
–
Year-on-year
change, %
-22%
N/A
Shareholder voting at the Annual General Meeting
The Directors’ Remuneration Policy was approved by shareholders at the Annual General Meeting held on 20 June
2018 and remains unchanged. The Remuneration Policy can be found on the Group’s website and at pages 36 to 44 of
this Annual Report on Remuneration. The votes cast by proxy were as follows:
Directors’ Remuneration Policy
For
Against
Total votes cast
Number of votes withheld
Number of votes % of votes cast
62,011,302
164,370
62,175,672
17,071
99.74
0.26
100.00
The Directors’ Annual Report on Remuneration is approved by shareholders at each Annual General Meeting. A
summary of the votes cast by proxy in 2019 and 2020 were as follows:
Director’s Annual Report on Remuneration
Number of votes % of votes cast Number of votes % of votes cast
2020
2019
For
Against
Total votes cast
Number of votes withheld
92,185,286
202,370
92,387,656
80,071
99.78
0.22
100.00
61,111,463
14,370
61,125,833
0
99.99
0.01
100.00
Implementation of Remuneration Policy in 2020
The performance related elements of remuneration remain unchanged and will be built around a scorecard with a set
of KPI’s aligned with the Group strategy. The Remuneration Policy can be found on the Group’s website and at pages
36 to 44 of this Annual Report on Remuneration.
Approval
The Directors’ Annual Report on Remuneration was approved by the Board on 4 May 2021 and signed on its behalf by:
Michel Meeùs
Chairman
5 May 2021
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Annual Report on Remuneration 2020
continued
Directors’ Remuneration Policy
Introduction
This Directors’ Remuneration Policy (the “Policy”) contains the information required to be set out as the directors’
remuneration policy for the purposes of The Large and Medium-sized Companies and Groups (Accounts and Reports)
(Amendment) Regulations 2013.
The Policy was initially approved by shareholders at the 2018 AGM of the Company. The Remuneration Committee is
not proposing to make any changes to the existing Policy however in line with industry best practice and the three-year
Policy cycle the Company will be seeking shareholder approval at this year’s AGM. The effective date of this Policy is
the date on which the Policy is approved by shareholders.
The Policy applies in respect of all executive officers appointed to the Board of Directors (“executive directors”) and
non-executive directors. Other senior executives may be subject to the Policy, including in relation to annual bonus
and shares incentive arrangements in particular if and to the extent that the Remuneration Committee determines it is
appropriate.
The Remuneration Committee will keep the Policy under review to ensure that it continues to promote the long-term
success of the Company by giving the Company its best opportunity of delivering on the business strategy. It is the
Remuneration Committee’s intention that the Policy be put to shareholders for approval every three years unless there
is a need for the Policy to be approved at an earlier date.
The Company aims to provide sufficient flexibility in the Policy for unanticipated changes in compensation practices
and business conditions to ensure the Remuneration Committee has appropriate discretion to retain its top executives
who perform. The Remuneration Committee reserves the right to approve any payments that may be outside the
terms of this Policy, where the terms of that payment were agreed before the Policy came into effect, or before the
individual became a director of the Company.
Maximum caps are provided to comply with the required legislation and should not be taken to indicate an intent to
make payments at that level. The maximum caps are valid at the time that the relevant employment agreement or
appointment letter is entered into and the caps may be adjusted to take into account fluctuations in exchange rates.
Remuneration policy table: executive directors
Component
Purpose and
link to strategy
Maximum
opportunity
Salary and
Fees
To provide fixed
remuneration at
an appropriate
level, to attract
and retain
directors as part
of the overall
compensation
package.
The maximum
annual base
combined salary
and fees for
executive directors
is €440,0001.
The Remuneration
Committee will
consider the factors
set out under the
“Operation” column
when determining
the appropriate
level of base salary
within the formal
Policy maximum.
Operation and performance measures
Salary is paid on a monthly basis.
The Remuneration Committee takes into account a number of
factors when setting salaries including:
>
>
>
>
scope and difficulty of the role;
skills and experience of the individual;
salary levels for similar roles within the international
industry; and
pay and conditions elsewhere in the Group.Salaries are
reviewed on an annual basis, but are not necessarily
increased at each review.
No performance measures.
1 Please note that the salary of the CEO for 2020 remain at €440,000.
www.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 37
Component
Purpose and
link to strategy
Maximum
opportunity
Operation and performance measures
Annual Bonus
The maximum award
is 125% of combined
base salary and
fees.
To incentivise
and reward the
achievement
of individual
and business
objectives which
are key to the
delivery of the
Company’s
business
strategy.
The payment of any bonus is at the discretion of the Board
with reference to the performance year.
>
>
>
>
>
>
>
>
The Remuneration Committee sets, in advance, a scorecard
with a set of Key Performance Indicators (“KPIs”) aligned
with the Company’s strategy. The measures and the relative
weightings are substantiated by the Remuneration Committee
and aim to be stretching and to support the Company’s
business strategy. Measures are related to Company financial
performance, operational performance and the Company’s
health and safety record. In general relative weightings of
each KPI are expected not to exceed 50% and not to be less
than 10%.
The Remuneration Committee retains the flexibility to
determine and, if it considers appropriate, change the KPIs
and weightings of the KPIs based on the outcome of its
annual review. The Remuneration Committee may also adjust
KPIs during the year to take account of material events, such
as (without limitation) material corporate events, changes
in responsibilities of an individual and/or currency exchange
rates. Any such changes will be within the overall target and
maximum payouts approved in the policy.
The KPI targets and specific weightings in the scorecard
are defined annually early in the year, once the budget has
been approved. A summary of the KPI targets, weightings
for the KPIs and how far the KPIs are met will be included
retrospectively each year in the Implementation Report for
the year.
All bonuses that may become payable are subject to
malus and clawback provisions in the event of material
financial misstatement of the Company or fraud or material
misconduct on the part of the executive, as explained further
below.
50% of the bonuses that may become payable must be
applied to subscribe for or acquire shares in the Company
(after the deduction of any income tax and/or employee social
security contributions payable). The Company is proposing
to adopt and operate a Deferred Bonus Plan as a framework
plan for the delivery of shares to executives, which may be
satisfied by the issue of new shares or transfer of existing or
treasury shares.
The Remuneration Committee will determine whether
the remainder of the bonus shall be paid in cash or must
be applied to subscribe for or acquire shares (after the
deduction of any income tax and/or employee social security
contributions payable). In making its determination as to how
the remainder of the bonus shall be paid, the Remuneration
Committee may take into account: profitability of the
Company; the executive’s shareholding as measured against
any Company shareholding guidelines; potential liabilities of
the recipients to income tax and social security contributions,
among other things. Additional shares representing the value
of dividends payable on the deferred shares may be paid.
The Remuneration Committee may impose holding periods of
up to three years on any of the shares delivered pursuant to
the annual bonus plan.
There are no prescribed minimum levels of performance in
the annual bonus structure and so it is possible that no bonus
award would be made.
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Annual Report on Remuneration 2020
continued
Component
Purpose and
link to strategy
Maximum
opportunity
Operation and performance measures
Share Incentive
Arrangements
To incentivise,
retain and
reward eligible
employees
and align their
interests with
those of the
shareholders of
the Company.
Awards can be
made under the
PSP with a value of
up to a maximum
of 200% of base
salary and fees or
300% in exceptional
circumstances.
The Company has adopted and operates the 2018
Performance Share Plan (“PSP”) to replace the 2008
Performance Share Plan. The PSP offers the opportunity to
earn shares in the Company subject to the achievement of
stretching but realistic performance conditions. Performance
conditions will be a main feature of the PSP.
The PSP will be administered by the Remuneration
Committee.
>
>
>
>
>
>
>
>
>
>
Awards can be made under the PSP at the direction of the
Remuneration Committee within the policy maximum in the
form of contingent share awards.
PSP awards will have a minimum vesting period of 3 years
and, for directors, the PSP awards have a further holding
period of 2 years following the end of the vesting period
(subject to any number of shares that may need to be
sold to meet any income tax and employee social security
contributions due on vesting).
The Remuneration Committee will develop clear KPIs that
aim to align directors with Company strategy over time
periods in excess of one financial year. Any performance
measures and targets used for share incentive awards during
2019 will be relevant and stretching in line with the overall
strategy of the Company.
The Remuneration Committee may adjust or change the PSP
measures, targets and weightings for new awards under the
PSP to ensure continued alignment with Company strategy.
PSP awards are subject to malus and clawback in the event
of material financial misstatement of the Company or fraud
or material misconduct on the part of the executive.
Upon vesting of an award, the award holder must pay the
nominal value in respect of each share that vests.
PSP Awards will normally lapse where the award holder
ceases employment with the Company before vesting. PSP
Awards will not lapse and will vest immediately if the award
holder is considered to be a Good Leaver (leaves due to
death or disability) subject to the Remuneration Committee
being satisfied that performance conditions have been
satisfied or are likely to be satisfied as at the end of the
relevant performance period. In other circumstances, the
Remuneration Committee may determine that awards will
not lapse and will continue to vest at their normal vesting
date, subject to pro-ration to reflect the period of service
during the performance period and performance conditions.
The Remuneration Committee has residuary discretions to
disapply pro ration and bring forward the date of vesting.
In the event of a change of control of the Company, if the
acquiring company agrees, awards will be exchanged for
equivalent awards over shares in the acquiring company and
continue to vest according to the original vesting schedule.
If the acquiring company does not agree to exchange the
awards, the awards will vest at the Committee’s absolute
discretion. Awards that vest will be subject to time pro-ration
and performance conditions.
Benefits under the PSP will not be pensionable.
The PSP Plan Limits are set out at Note 2.4 below.
www.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 39
Component
Purpose and
link to strategy
Maximum
opportunity
Operation and performance measures
Pension
Benefits
To provide a
retirement
benefit that will
foster loyalty
and retain
experienced
executive
directors.
To provide
a market
competitive
level of benefits
to executive
directors.
Any pension
benefits will be set
at an appropriate
level in line with
market practice, and
in no event will the
contributions paid
by the Company
exceed 15% of
combined base
salary and fees.
Any benefits
will be set at an
appropriate level
in line with market
practice, and in no
event will the value
of the benefits
exceed 15% of
combined base
salary and fees.
No performance measures.
>
>
The executive directors are entitled to private medical
insurance and life assurance cover (of four times the
combined salary and fee) and directors’ and officers’ liability
insurance.
The Remuneration Committee may decide to provide other
benefits commensurate with the market. Such benefits may
include (for instance) company car or allowance, physical
examinations and medical support, professional advice,
assistance with filling out tax returns and occasional minor
benefits. A tax equalisation payment may be paid to an
executive director if any part of the remuneration of the
executive director becomes subject to double taxation. Tax
gross ups may be paid, where appropriate. The Company
does not, at present, provide other taxable benefits to the
executive directors.
>
Executive directors are reimbursed for reasonable business
expenses incurred in the course of carrying out their duties.
>
No performance measures.
Notes to the executive directors’ remuneration policy table
The Remuneration Committee’s philosophy is that remuneration arrangements should be appropriately positioned to
support the Group’s business strategy over the longer term and the creation of value for shareholders. In this context
the following key principles are considered to be important:
>
>
>
remuneration arrangements should align executive and employee interests with those of shareholders;
remuneration arrangements should help retain key executives and employees; and
remuneration arrangements should incentivise executives to achieve short, medium and long-term business
targets which represent value creation for shareholders. Targets should relate to the Group’s performance in terms
of overall revenue and profit and the executive’s own performance. Exceptional rewards should only be delivered if
there are exceptional returns.
The Remuneration Committee reserves the right to make any remuneration payments (including satisfying awards of
variable remuneration) and payments for loss of office notwithstanding that they are not in line with the Policy set
out above, where the terms of that payment were agreed before the Policy came into effect, or before the individual
became a director of the Company (provided the payment was not in consideration for the individual becoming a
director).
Performance measures and targets
(a) Annual Bonus
The performance measures for executive directors comprise of financial measures and business goals linked to the
Company’s strategy, which could include financial and non-financial measures. The business goals are tailored to
reflect each executive director’s role and responsibilities during the year. The performance measures are chosen to
enable the Remuneration Committee to review the Company’s and the individual’s performance against the Company’s
business strategy and appropriately incentivise and reward the executive directors.
Annual bonus targets are set by the Remuneration Committee each year. They are stretching but realistic targets
which reflect the most important areas of strategic focus for the Company. The factors taken into consideration
when setting targets include the Company’s Key Performance Indicators (which are determined annually by the
Remuneration Committee), and the extent to which they are under the control or influence of the executive whose
remuneration is being determined.
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Annual Report on Remuneration 2020
continued
Performance is measured over the financial year against the measures and targets set according to the scorecard. The
Remuneration Committee retains the right to exercise its judgement to adjust the bonus outcome for an individual
to ensure the outcome reflects any other aspects of the Company’s performance that become relevant during the
financial year.
The Remuneration Committee used Company operational and financial performances and safety as performance
measures for the 2020 scorecard. For years following 2020, the structure of the annual bonus scorecard will be
reviewed by the Remuneration Committee.
2020 Annual bonus scorecard measures for executive directors
40% weighting
50% weighting
Operational performance, such as production, sales,
geographical diversification, and starting new projects.
Company financial performance, including cash targets and
profit targets.
10% weighting
Indicators of health and safety to promote the effective risk
management of the Company.
(b) Share Plans
The Remuneration Committee will make the vesting of a Plan award conditional upon the satisfaction of stretching
but realistic performance conditions. These conditions are meant to achieve a long-term alignment of the executives’
remuneration with the interest of the shareholders.
EBITDA growth, increase of P1 reserves (in millions boe), and changes to the free cash-flow are the key KPIs to be used
by the Remuneration Committee and will be measured over time periods of three financial years. The performance
measures are chosen to align the performance of participants with the attainment of financial performance
targets over the vesting period of the award. The targets are set by the Remuneration Committee by reference to
the Company’s strategy and business plan and the results achieved at the time of the vest are determined by the
Remuneration Committee.
Under the PSP plan rules, the Board may vary a performance target where it considers that any performance target to
which an award is subject is no longer a true or fair measure of the participant’s performance, provided that the Board
must act fairly and reasonably and that the new performance target is materially no more difficult and no less difficult
to satisfy than the original performance target.
Malus and clawback (applicable to bonuses and share awards)
The Remuneration Committee has the discretion to reduce the bonus before payment or require the executive director
to pay back shares or a cash amount in the event of material financial misstatement of the Company or fraud or
material misconduct on the part of the executive. The amount that may be clawed back on any such event is limited
to the value of the bonus, taking into account the cash paid and the shares delivered to the executive, taking the value
of the shares at the time of the clawback, less any income tax or employee social security contributions paid on the
bonuses.
Share ownership guidelines for executives
The Remuneration Committee is planning to implement share ownership guidelines for executive directors to further
align the interests of the executive directors with those of shareholders. The share ownership guidelines will include
an expectation that executive directors build up their shareholding to 200% of base salary over a period of five years
from the later of: the date of adoption of this policy and the date of appointment. Once the shareholding guideline is
reached, executive directors would be expected to maintain it. The intention would be for the shareholding guideline
to be reached through the retention of vested shares from share plans (e.g. the deferred share element of the annual
bonus and shares vested under the PSP). As such, the Remuneration Committee’s discretion may be used to increase
the proportion of an annual bonus to be delivered in shares to assist the executive director in meeting this guideline.
The deferred share mechanism in the annual bonus and the design of the PSP will assist executive directors in
reaching the guidelines. Executive directors will not be expected to top up their shareholding with personal acquisitions
of Company shares outside the usual share plans described in the Policy. The Remuneration Committee will monitor
the executive directors’ shareholdings and may adjust the guideline in special individual and Company circumstances,
for example in the case of a share price fall.
www.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 41
PSP Plan Limits
The PSP may operate over new issue shares, treasury shares or shares purchased in the market. In any ten-calendar
year period, the Company may not issue (or grant rights to issue) more than:
(a) 10% of the issued ordinary share capital of the Company under the Plan and any other employee share plan
adopted by the Company; and
(b) 5% of the issued ordinary share capital of the Company under the Plan and any other executive share plan adopted
by the Company.
Treasury shares will count as new issue shares for the purposes of these limits unless institutional investors decide
that they need not count. These limits do not include rights to shares which have been renounced, released, lapsed
or otherwise become incapable of vesting, awards that the Remuneration Committee determines after grant to be
satisfied by the transfer of existing shares and shares allocated to satisfy bonuses (including pursuant to the Deferred
Bonus Plan).
Remuneration throughout the Group
Differences in the Company’s pay policy for executive directors from that applying to employees within the Group
generally reflect the appropriate market rate for the individual executive roles.
Remuneration policy table: non-executive directors
Component
Purpose and
link to strategy
Maximum
opportunity
Operation and performance measures
Fees
To provide an
appropriate
reward to attract
and retain
high-calibre
individuals with
the relevant
skills, knowledge
and experience
to progress
the Company
strategy.
The maximum
annual fees paid
to non-executive
directors is £50,000
for a non-executive
director role, and
£100,000 for the
role of Chairman. An
additional £10,000
will be paid to the
individual acting
as Chairman of the
Audit Committee.
Non-executive directors receive a standard annual fee, which is
paid on a quarterly basis in arrears.
Additional fees may also be paid to recognise the additional
work performed by members of any committees set up by the
Board, and for the role of chair of a committee.
Fees are reviewed on an annual basis, but are not necessarily
increased at each review. Fees are set at a rate that takes into
account:
> market practice for comparative roles;
>
>
>
the financial results of the Company;
the time commitment and duties involved; and
the requirement to attract and retain the quality of
individuals required by the Company.
The remuneration of the non-executive directors is a matter for
the Board to consider and decide upon.
There are no performance measures related to non-executive
directors’ fees.
Notes to the Policy Table
The payment policy for non-executive directors is to pay a rate which will secure persons of a suitable calibre. The
remuneration of the non-executive directors is determined by the Board. External benchmarking data and specialist
advisers are used when setting fees, which will be reviewed at appropriate intervals. The maximum caps are valid
at the time that the relevant appointment letter is entered into and the caps may be adjusted to take into account
fluctuations in exchange rates.
Expenses reasonably and wholly incurred in the performance of the role of non-executive director of the Company may
be reimbursed or paid for directly by the Company, as appropriate, and may include any tax due on the expense.
The non-executive directors’ fees are non-pensionable. The non-executive directors have not to date been eligible
to participate in any incentive plans (such as bonuses or share plans); however, the Board considers that it may be
appropriate in the future to enable such participation, subject to suitably stretching performance thresholds.
Non-executive directors may receive professional advice in respect of their duties with the Company which will be paid
for by the Company. They will be covered by the Company’s insurance policy for directors.
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42
Annual Report on Remuneration 2020
continued
Recruitment
The Company’s policy on the recruitment of directors is to pay a fair remuneration package for the role being
undertaken and the experience of the individual being recruited. The Remuneration Committee will consider all
relevant factors, which include the abilities of the individual, their existing remuneration package, market practice, and
the existing arrangements for the Company’s current directors.
The Remuneration Committee will determine that any arrangements offered are in the best interests of the Company
and shareholders and will endeavour to pay no more than is necessary.
The Remuneration Committee intends that the components of remuneration set out in the policy tables, and the
approach to the components as set out in the policy tables, will be equally applicable to new recruits, i.e. salary, annual
bonus, share plan awards, pension and benefits for executive directors, and fees for non-executive directors. However,
the Company acknowledges that additional flexibility may be required to ensure the Company is in the best position to
recruit the best candidate for any vacant roles and, as such, a buy-out arrangement may be required.
Flexibility
The salary and compensation package designed for a new recruit may be higher or lower than that applying for
existing directors. The Remuneration Committee may decide to appoint a new executive director to the Board at a
lower than typical salary, such that larger and more frequent salary increases may then be awarded over a period of
time to reflect the individual’s growth in experience within the role.
Remuneration will normally not exceed those set out in the policy table above. However, to ensure that the Company
can sufficiently compete with its competitors, the Remuneration Committee considers it important that the
recruitment policy has sufficient flexibility in order to attract and appropriately remunerate the high-performing
individuals that the Company requires to achieve its strategy. As such, the Remuneration Committee reserves
discretion to provide a buy-out arrangement and benefits (such as a sign-on bonus and additional share awards)
in addition to those set out in the policy table (or mentioned in this section) where the Remuneration Committee
considers it reasonable and necessary to do so in order to secure an external appointment (see below for more detail
in relation to buy-out arrangements).
Buy-out arrangements
The Remuneration Committee retains the discretion to enter into buy-out arrangements to compensate new hires for
incentive awards forfeited in joining the Company. The Remuneration Committee will use its discretion in awarding and
setting any such compensation, which will be decided on a case-by-case basis and likely on an estimated like-for-like
basis. In deciding the appropriate type and quantum of compensation to replace existing awards, the Remuneration
Committee will take into account all relevant factors, including the type of award being forfeited, the likelihood of any
performance measures attached to the forfeited award being met, and the proportion of the vesting period remaining.
The Remuneration Committee will appropriately discount the compensation payable to take account of any uncertainties
over the likely vesting of the forfeited award to ensure that the Company does not, in the view of the Remuneration
Committee, pay in excess of what is reasonable or necessary.
Compensation for awards forfeited may take the form of a bonus payment or a share award. For the avoidance of doubt,
the maximum amounts of compensation contained in the policy table will not apply to such buy-out arrangements. The
Company has not placed a maximum value on the compensation that can be paid under this section, as it does not believe
it would be in shareholders’ interests to set any expectations for prospective candidates regarding such awards.
Payments for loss of office
Any compensation payable in the event that the employment of an executive director is terminated will be determined
in accordance the terms of the employment contract between the Company and the executive, as well as the relevant
rules of any share plan and this Policy, and in accordance with the prevailing best practice.
The Remuneration Committee will consider a variety of factors when considering leaving arrangements for an
executive director and exercising any discretions it has in this regard, including (but not limited to) individual and
business performance during office, the reason for leaving, and any other relevant circumstances (for example, ill
health).
In addition to any payment that the Remuneration Committee may decide to make, the Remuneration Committee
reserves discretion as it considers appropriate to:
(a) pay an annual bonus for the year of departure;
(b) continue providing any benefits for a period of time; and
(c) provide outplacement services.
Non-executive directors are subject to one month notice periods prior to termination of service and are not entitled
to any compensation on termination save for accrued fees as at the date of termination and reimbursement of any
expenses properly incurred prior to that date.
www.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 43
Share plan awards
The treatment of any share award on termination will be governed by the PSP rules.
Under the PSP, outstanding share awards held by an individual who ceases to be a director or employee of the
Company will lapse, unless the cessation is due to death, illness, injury or disability, redundancy, retirement, the
Company ceasing to be a member of the Group or the transfer of an undertaking or part of an undertaking to a person
who is not a member of the Group, or the Board exercises its discretion otherwise.
Under the PSP, the Board has discretion to decide the period of time for which the award will continue, and whether
any unvested award shall be treated as vesting on the date of cessation of employment or in accordance with the
original vesting schedule, in both cases have regard to the extent to which the performance targets have been satisfied
prior to the date of cessation.
For executive directors, the vesting period will be set by the Remuneration Committee with a minimum three-year
period. The Remuneration Committee will (unless the vesting period is set as a period equal to or longer than five
years) impose a holding period on shares (or awards) so that the executive is not able to sell the shares that the
executive director acquires through the PSP until the fifth anniversary of the date of the award. The holding period
will not apply to the number of shares equivalent in value to the amount required by the Company or the executive
director to fund any income tax and employee social security contributions due on the vesting of the awards or
otherwise in connection with the awards.
Executive director employment agreements
This section contains the key employment terms and conditions of the executive directors that could impact on their
remuneration or loss of office payments.
The Company’s policy on employment agreements is that executive directors’ agreements should be terminable
by either the Company or the director on not more than six months’ notice. The employment agreements contain
provision for early termination, among other things, in the event of a breach by the executive but make no provision
for any termination benefits except in the event of a change of control of the Company, where the executive becomes
entitled to a lump sum equal to 24 months’ base salary plus benefits plus (if any), bonus received on termination by the
Company. The employment agreements contain restrictive covenants for a period of 12 months following termination
of the agreement. Details of employment agreements in place as at the date of this report are set out below:
Director
F Khallouf
Current agreement start date
Notice period
15 November 2019
Six months
Directors’ employment agreements are available for inspection at the Company’s registered office in London.
Non-executive directors’ letters of appointment
This section contains the key terms of the appointments of non-executive directors that could impact on their
remuneration.
Typically, the non-executive directors are appointed by letter of appointment for an initial term of three years which
may be extended. All non-executive directors are subject to annual re-election by the Company’s shareholders and
their appointments may be terminated earlier with one month’s prior written notice (or with immediate effect, in the
case of specific serious circumstances such as fraud or dishonesty). On termination of appointment, non-executive
directors are usually only entitled to accrued fees as at the date of termination together with reimbursement of
any expenses properly incurred prior to that date and the company has no obligation to pay further compensation
when the appointment terminates. Non-executive directors’ letters of appointment are available for inspection at the
Company’s registered office in London and at Zhylyanska street 48/50, 01033 Kyiv, Ukraine.
Director
Michel Meeùs
Lilia Jolibois
Jacques Mahaux
Gilbert Lehmann
Current agreement start date
Term
31 July 2018
15 November 2019
15 November 2019
31 July 2018
Three years
Three years
Three years
Three years
OVERVIEWSTRATEGIC REPORTCORPORATE GOVERNANCEREMUNERATION REPORTFINANCIAL STATEMENTSGLOSSARYSHAREHOLDER INFORMATIONwww.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 44
Annual Report on Remuneration 2020
continued
Illustration of the Remuneration Policy
The bar charts below show the levels of remuneration that the CEO could earn over the coming year under the Policy.
CEO: minimum and maximum remuneration
3,500
1,000 EUR
Current policy
New policy
3,000
2,500
2,000
1,500
1,000
500
0
Share
incentive
plan
Annual
bonus
Base
salary
Minimum
remuneration
“On-target”
remuneration
Maximum
remuneration
Notes:
I. The remuneration for an “on-target” scenario is purely illustrative as actual remuneration will depend on how challenging the target is for the
relevant year as well as on the financial conditions of the Company
II. The maximum award under the share incentive plan is 200% which can increase up to 300% (400% in the old policy) in exceptional
circumstances
The bar chart shows future possible maximum remuneration.
Pension entitlements were provided in 2020.
Consideration of shareholder views
The Chairman and executive directors of the Company have a regular dialogue with analysts and substantial
shareholders, which includes the subject of directors’ remuneration. The outcome of these discussions is reported to
the Board and discussed in detail both there and during meetings of the Remuneration Committee.
The Remuneration Committee will take into account the results of the shareholder vote on remuneration matters when
making future remuneration decisions. The Remuneration Committee remains mindful of shareholder views when
evaluating and setting ongoing remuneration strategy.
Consideration of employment conditions within the Group
When determining remuneration levels for its executive directors, the Board considers the pay and employment
conditions of employees across the Group. The Remuneration Committee will be mindful of average salary increases
awarded across the Group when reviewing the remuneration packages of the executive directors.
Minor changes
The Remuneration Committee may make, without the need for shareholder approval, minor amendments to the Policy
for regulatory, exchange control, tax or administrative purposes or to take account of changes in legislation.
www.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 45
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”) adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union and international accounting standards in conformity with the requirements of the Companies Act
2006 and Article 4 of the International Accounting Standards (“IAS”) regulation and have also elected to prepare the
Parent Company financial statements under IFRSs in conformity with the requirements of the Companies Act 2006
and as applied in accordance with the provisions of the Companies Act 2006. Under Company law, the Directors must
not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs
of the Company and Group and of the profit or loss for that period. In preparing the Company and Group’s financial
statements, IAS Regulation requires that Directors:
>
properly select and apply accounting policies;
> make judgements and accounting estimates that are reasonable and prudent;
>
>
>
present information, including accounting policies, in a manner that provides relevant, reliable, comparable and
understandable information;
state whether they have been prepared in accordance with IFRSs in conformity with the requirements of the
Companies Act 2006, subject to any material departures disclosed and explained in the financial statements;
provide additional disclosures when compliance with the specific requirements in 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, prepare the financial
statements on the going concern basis unless it is inappropriate to presume that the Company and Group will
continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the
Company and Group’s transactions and disclose with reasonable accuracy at any time the financial position of the
Company and Group and enable them to ensure that the financial statements comply with the Companies Act 2006
They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for
the prevention and detection of fraud and other irregularities. Under applicable law and regulations, the Directors
are also responsible for preparing a Strategic Report, Directors’ Report, Annual Report on Remuneration, Directors’
Remuneration Policy and Corporate Governance Statement that comply with that law and those regulations. The
Directors are responsible for the maintenance and integrity of the corporate and financial information and statements
included on the Company’s website, www.cadoganpetroleum.com. Legislation in the United Kingdom governing
the preparation and dissemination of the financial statements may differ from legislation in other jurisdictions. The
directors’ responsibility also extends to the ongoing integrity of the financial statements contained therein.
Responsibility Statement of the Directors in respect of the Annual Report
We confirm to the best of our knowledge:
i.
the financial statements, prepared in accordance with international accounting standards in conformity with the
requirements of the Companies Act 2006 and in accordance with international financial reporting standards
adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union, 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
ii. the Annual Report, includes a fair review of the development and performance of the business and the position of
the Company and the undertakings included in the consolidation taken as a whole, together with a description of
the principal risks and uncertainties that they face; and
iii. the annual report and the financial statements, taken as a whole, are fair, balanced and understandable, and
provide the information necessary for the shareholders to assess the Group’s position, performance, business
model and strategy.
On behalf of the Board
Michel Meeùs
Chairman
5 May 2021
OVERVIEWSTRATEGIC REPORTCORPORATE GOVERNANCEREMUNERATION REPORTFINANCIAL STATEMENTSGLOSSARYSHAREHOLDER INFORMATIONwww.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 46
Independent Auditor’s Report to the
Members of Cadogan Petroleum plc
Qualified Opinion on the financial statements
In our opinion, except for the effects of the matter described in the Basis for qualified opinion paragraph below:
>
>
>
>
>
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 2020 and of the Group’s loss for the year then ended;
the Group financial statements have been properly prepared in accordance with international accounting standards
in conformity with the requirements of the Companies Act 2006;
the Group financial statements have been properly prepared in accordance with international financial reporting
standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union;
the Parent Company financial statements have been properly prepared in accordance with international accounting
standards in conformity with the requirements of the Companies Act 2006 and as applied in accordance with the
provisions of the Companies Act 2006; 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.
We have audited the financial statements of Cadogan Petroleum Plc (the ‘Parent Company’) and its subsidiaries (the ‘Group’)
for the year ended 31 December 2020 which comprise the consolidated income statement, the consolidated statement of
comprehensive income, the consolidated balance sheet, the consolidated cash flow statement, the consolidated statement
of changes in equity, the company balance sheet, the company cash flow statement, the company statement of changes in
equity and notes to the financial statements, including a summary of significant accounting policies. The financial reporting
framework that has been applied in their preparation is applicable law and international accounting standards in conformity
with the requirements of the Companies Act 2006 and international financial reporting standards adopted pursuant to
Regulation (EC) No 1606/2002 as it applies in the European Union, and as regards the Parent Company financial statements,
as applied in accordance with the provisions of the Companies Act 2006.
Basis for qualified opinion
The Group advanced a loan through a subsidiary which is recorded at fair value through profit and loss in accordance
with the Group’s accounting policy set out in note 3(n), with the fair value at 31 December 2020 determined to be $16.8
million and a fair value loss recorded in the period of $0.3 million. As discussed in note 4(d) and note 26 to the financial
statements, management has been unable to obtain relevant information in respect of the investee which the Directors
consider is necessary to enable the fair value to be assessed applying recognised valuation methods for an instrument
of this nature. As discussed in note 4(d) and 26, if and when such information is made available the Directors consider
that the fair value may be materially higher or lower than these values. We were unable to satisfy ourselves by
alternative means concerning the fair value of this loan by using other audit procedures. Consequently we were unable
to determine whether any adjustment to this amount was necessary.
We considered the valuation of the loan note instrument to be a key audit matter, and in respect of this matter we:
> made inquiries of management and the Audit Committee regarding the structure of the transaction and reviewed
the accounting entries.
>
>
>
reviewed the valuation analysis performed on origination of the loan by third party advisors. We met with
management to obtain an understanding of the requests made to Proger for the provision of information to
support an assessment of fair value at 31 December 2020 and obtained confirmation from management that
relevant information was unavailable. We considered, in conjunction with our internal specialists, whether
recognised valuation methods could reasonably be applied by management that had not been considered. We
considered whether sufficient and appropriate audit evidence could be obtained in respect of the fair value of the
instrument given the information available.
considered the accounting treatment and valuation adopted by management, given the absence of information
considered necessary to perform a valuation using a recognised valuation method.
reviewed the disclosures in relation to financial instruments including the accounting policy, critical judgments and
estimates and financial instrument disclosures.
As noted above we have not been able to obtain sufficient, appropriate audit evidence, and accordingly are not able to
conclude whether the fair value of the loan note instrument is materially accurate.
In 2019 we were similarly not able to obtain sufficient, appropriate audit evidence to conclude whether the fair value of
the loan note instrument was materially accurate. As a result, our audit opinion for the year ended 31 December 2019
was also qualified in respect of this limitation on the scope of the audit.
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial
statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our qualified opinion. Our audit opinion is consistent with the additional report to the audit committee.
www.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 47
Independence
Following the recommendation of the audit committee, we were appointed by the Board of directors on 27 April 2017
to audit the financial statements for the year ending 31 December 2017 and subsequent financial periods. The period
of total uninterrupted engagement including retenders and reappointments is 4 years, covering the years ending
31 December 2017 to 31 December 2020. We remain independent of the Group and the Parent Company in accordance
with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s
Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in
accordance with these requirements. The non-audit services prohibited by that standard were not provided to the
Group or the Parent Company.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the Directors’ use of the going concern basis of
accounting in the preparation of the financial statements is appropriate. Our evaluation of the Directors’ assessment of
the Group and the Parent Company’s ability to continue to adopt the going concern basis of accounting included:
> Reviewing management’s cash flow forecasts for the period to June 2022 and evaluating the level of headroom available
and the assumptions including oil production, oil prices, operating expenditure and capital expenditure. In doing so we
compared production forecasts to historical trends and considered the oil price assumptions against consensus market
prices and historical discount levels between Brent oil prices and the local market. We compared forecast costs with
historical expenditure.
> Reviewing licences for commitments to check these have been reflected in the cash flow forecasts.
>
Considering the impact on liquidity should the outcome of contingent liabilities related to taxation disputes disclosed
in note 27 result in payments being required in the forecast period; and assessing management’s has conclusion that
such a scenario is less than probable by inspecting the favourable court rulings in the period and obtaining written
assessment of the claims from internal counsel, albeit the claim remains subject to ongoing appeal.
> Reviewing the disclosures in the financial statements in respect of going concern against the requirements of the
standards.
Based on the work we have performed, we have not identified any material uncertainties relating to events or
conditions that, individually or collectively, may cast significant doubt on the Group’s and Parent Company’s ability to
continue as a going concern for a period of at least twelve months from when the financial statements are authorised
for issue.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in the relevant
sections of this report.
Overview
Coverage
Key audit matters
Materiality
98% (2019: 92%) of Group loss before tax
100% (2019: 98%) of Group revenue
95% (2019: 95%) of Group total assets
Carrying value of oil and gas exploration and production assets
Valuation of Proger loan note instrument
Group financial statements as a whole
$0.7m (2019: $0.8m) based on 1.5% (2019: 1.5%) of total assets
2020
x
x
2019
x
x
OVERVIEWSTRATEGIC REPORTCORPORATE GOVERNANCEREMUNERATION REPORTFINANCIAL STATEMENTSGLOSSARYSHAREHOLDER INFORMATIONwww.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 48
Independent Auditor’s Report to the
Members of Cadogan Petroleum plc continued
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including the Group’s
system of internal control, and assessing the risks of material misstatement in the financial statements. We also
addressed the risk of management override of internal controls, including assessing whether there was evidence of
bias by the Directors that may have represented a risk of material misstatement.
Whilst Cadogan Petroleum Plc is a company listed on the Standard Segment of the London Stock Exchange, the
Group’s operations principally comprise an exploration & development of oil and gas assets located in Ukraine,
together with gas trading and oil services activities. We assessed there to be five significant components within the
Ukrainian sub-group, comprising components holding exploration & development assets and gas trading activities
which were subject to a full scope audit. Together with the Parent Company, Cadogan Petroleum Holdings Ltd, Cadogan
Petroleum Holdings B.V. and the Group consolidation, which was also subject to a full scope audit, these represent the
significant components of the Group. The audits of each of the Ukrainian components were principally performed in
the Ukraine by a BDO member firm under the supervision and direction of the Group audit team. The audits of the
parent company, Cadogan Petroleum Holdings Ltd, Cadogan Petroleum Holdings B.V. and the Group consolidation were
performed in the United Kingdom by the Group audit team. The remaining components of the Group were considered
non-significant and these components were principally subject to analytical review procedures by the Group audit team
or BDO member firm in Ukraine.
Our involvement with component auditors
For the work performed by component auditors, we determined the level of involvement needed in order to be able
to conclude whether sufficient appropriate audit evidence has been obtained as a basis for our opinion on the Group
financial statements as a whole. Our involvement with component auditors included the following:
> Detailed Group reporting instructions were sent to the component auditor, which included the significant areas to
be covered by the audit (including areas that were considered to be key audit matters as detailed below), and set
out the information required to be reported to the Group audit team.
> As a result of travel restrictions resulting from the Covid-19 pandemic, the Group audit partner and senior
members of the Group audit team were unable to visit the Ukraine to meet with component management and
the component auditors during the audit as we have done historically. Accordingly, we performed a remote
review of the component audit files in the Ukraine using our online audit software platform, held regular calls and
videoconferences with the component audit team during the audit.
>
The Group audit team was actively involved in the direction of the audits performed by the component auditors
for Group reporting purposes, along with the consideration of findings and determination of conclusions drawn.
We performed our own additional procedures in respect of the significant risk areas that represented Key Audit
Matters in addition to the procedures performed by the component auditor.
www.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 49
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the
financial statements of the current period and include the most significant assessed risks of material misstatement
(whether or not due to fraud) that we identified, including those which had the greatest effect on: the overall audit
strategy, the allocation of resources in the audit, and directing the efforts of the engagement team. These matters
were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters. In addition to the matter described in the basis
for qualified opinion section, we have determined the matters described below to be the key audit matters to be
communicated in our report:
Key Audit Matter
How the matter was addressed in our audit
Carrying value of oil and gas exploration and
production assets
At 31 December 2020 the Group held
exploration and evaluation assets of $2.4m
and $10.0m of development and production
assets as detailed in note 4(a), 4(b), 15 and 16.
Management is required to assess these
assets for indicators of impairment at each
reporting date and perform an impairment
test when indicators of impairment are
identified.
Management has performed an impairment
review which included assessment of
the Bitlyanska and Blazhivska licences’
recoverable value based on the underlying
discounted cash flow forecasts and concluded
that no impairment is necessary.
The impairment reviews require judgment and
estimate in determining whether indicators
of impairment exist and, in respect of the
discounted cash flow models significant
estimates in selecting inputs.
In addition, as detailed in note 4 and 15
significant judgment was required regarding
the likelihood of the Bitlyanska licence being
renewed/converted to a production licence
following its expiry in December 2019 and
delays in the licence being awarded and the
subsequent rejection of the application in
2020 which is being contested through the
courts. Management’s conclusion that no
impairment is applicable on the Bitlyanska
licence is critically dependent on the ultimate
renewal of the licence.
As a result of these factors this represented
a key focus area for our audit and a key audit
matter.
Key observations
We evaluated management’s impairment indicator review paper, together
with the underlying discounted cash flow forecasts which formed part of
their impairment review. We critically challenged the key judgments and
assumptions made by management, including forecast oil and gas prices,
production levels, royalties and costs. This included assessment compared
to empirical data, the independent Competent Person’s Report on the oil
and gas reserves and resources and external evidence where available.
We recalculated the discount rates in conjunction with our valuation
specialists and compared the rate to management’s discount rate.
We performed sensitivity analysis on the impairment models to establish
the impact of reasonably possible changes in key variables such as pricing,
production and the discount rates.
We met with operational management to evaluate the basis for forecast
increases in production associated with well stimulation activities,
considered the historical impact of such activities and evaluated the extent
to which appropriate costs were included in the forecasts.
We reviewed budgets, forecasts and strategic plans to consider the extent
to which management’s judgment regarding future planned exploration
activity is supported by those plans.
We reviewed the licence agreements and confirmed that the Group holds a
valid licence for Blazhivska which was renewed/converted to a production
licence in December 2019. We gained an understanding of the licence
conditions and remaining term. In respect of the rental well agreements,
we obtained and reviewed the renewed agreements for key terms and
conditions.
In respect of the Bitlyanska licence, we considered the appropriateness of
management’s judgment that the Bitlyanska licence would be extended
or converted to production licences following its expiry in December
2019, particularly noting the delays and the subsequent rejection of the
application in 2020. In doing so we obtained documents demonstrating the
submissions for the licence conversions, confirmations from the relevant
authorities that the Group is in compliance with licence obligations and
considered factors such as the exploration results to date. Additionally, we
inspected claims submitted to the Ukrainian Courts to challenge the delay
in granting a renewal and its further rejection, together with associated
legal advice regarding the Group’s right of renewal. We met with internal
and external counsel to discuss their assessment of the merits of the
Group’s legal position.
We consider the judgements made by management in respect of the carrying value of the exploration and
production assets at Bitlyanska and Blazhivska to be reasonable. The disclosures in the notes, including the critical
judgments regarding renewal of the Bitlyanska licence are in line with accounting standards.
Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of
misstatements. We consider materiality to be the magnitude by which misstatements, including omissions, could
influence the economic decisions of reasonable users that are taken on the basis of the financial statements.
OVERVIEWSTRATEGIC REPORTCORPORATE GOVERNANCEREMUNERATION REPORTFINANCIAL STATEMENTSGLOSSARYSHAREHOLDER INFORMATIONwww.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 50
Independent Auditor’s Report to the
Members of Cadogan Petroleum plc continued
In order to reduce to an appropriately low level the probability that any misstatements exceed materiality, we use a
lower materiality level, performance materiality, to determine the extent of testing needed. Importantly, misstatements
below these levels will not necessarily be evaluated as immaterial as we also take account of the nature of identified
misstatements, and the particular circumstances of their occurrence, when evaluating their effect on the financial
statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole and
performance materiality as follows:
Group
2020
Parent company
2019
2020
2019
Materiality
$700,000
$800,000
$500,000
$600,000
Basis for determining
materiality
Rationale for the
benchmark applied
1.5% of total assets
75% of Group materiality
Calculated as a percentage of group
materiality for group reporting purposes.
We determined that an asset based
measure is appropriate as the Group holds
significant cash and loan balances and
its principal activity is the exploration &
development of oil and gas assets, such
that the asset base is considered to be
a key financial metric for users of the
financial statements.
Performance materiality
$460,000
$520,000
$320,000
$390,000
Basis for determining
performance materiality
65% of materiality considering the nature of activities and historical audit adjustments
Component materiality
We set materiality for each component of the Group based on a percentage of between 25% and 75% of Group materiality
dependent on the size and our assessment of the risk of material misstatement of that component. Component materiality
ranged from $175,000 to $500,000 (2019: ranging from $160,000 to $600,000). In the audit of each component, we further
applied performance materiality levels of 65% of the component materiality to our testing to ensure that the risk of errors
exceeding component materiality was appropriately mitigated.
Reporting threshold
We agreed with the Audit Committee that we would report to them all individual audit differences in excess of $35,000 (2019:
$40,000). We also agreed to report differences below this threshold that, in our view, warranted reporting on qualitative
grounds.
Other information
The directors are responsible for the other information. The other information comprises the information included in
the annual financial report other than the financial statements and our auditor’s report thereon. Our opinion on the
financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our
report, we do not express any form of assurance conclusion thereon. Our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the financial statements or
our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we identify such
material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a
material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude
that there is a material misstatement of this other information, we are required to report that fact.
As described in the basis for qualified opinion section of our report, we were unable to satisfy ourselves concerning
the fair value of the loan receivable shown at $16.8 million as at 31 December 2020. We have concluded that where
the other information refers to the loan balance or related balances such as the fair value loss, it may be materially
misstated for the same reason.
Other Companies Act 2006 reporting
Based on the responsibilities described below and our work performed during the course of the audit, we are required
by the Companies Act 2006 and ISAs (UK) to report on certain opinions and matters as described below.
www.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 51
Strategic report and
Directors’ report
Except for the possible effect of the matter described in the basis for qualified opinion
section of our report, in our opinion, based on the work undertaken in the course of
the audit:
>
>
the information given in the Strategic report and the Directors’ report for the
financial year for which the financial statements are prepared is consistent with the
financial statements; and
the Strategic report and the Directors’ report have been prepared in accordance
with applicable legal requirements.
Except for any amendments that we may have considered necessary had we been
able to obtain sufficient appropriate audit evidence in relation to the fair value of the
loan receivable as described in the basis for qualified opinion section of our report, in
the light of the knowledge and understanding of the Group and Parent Company and
its environment obtained in the course of the audit, we have not identified material
misstatements in the strategic report or the Directors’ report.
Directors’ remuneration
In our opinion, the part of the Directors’ remuneration report to be audited has been
properly prepared in accordance with the Companies Act 2006.
Matters on which we are
required to report by
exception
Arising solely from the limitation on our work relating to the loan receivable described
above:
> We have not obtained all the information and explanations that we considered
necessary for the purpose of our audit.
We have nothing to report in respect of the following matters in relation to which the
Companies Act 2006 requires us to report to you if, in our opinion:
>
>
adequate accounting records have not been kept by the Parent Company, or
returns adequate for our audit have not been received from branches not visited by
us; or
the Parent Company financial statements and the part of the Directors’
remuneration report to be audited are not in agreement with the accounting
records and returns; or
>
certain disclosures of Directors’ remuneration specified by law are not made.
Responsibilities of Directors
As explained more fully in the Statement of directors’ responsibilities, the Directors are responsible for the preparation
of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as
the Directors determine is necessary to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Parent
Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless the Directors either intend to liquidate the Group or the Parent Company
or to cease operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with
ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error
and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial statements.
Extent to which the audit was capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line
with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud.
The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below:
> Holding discussions with management and the audit committee to consider any known or suspected instances of
non-compliance with laws and regulations or fraud identified by them;
>
Communicating any known or suspected instances of non-compliance with laws and regulations or fraud within the
Group audit team and the component audit team through the engagement team discussion and through the course
of the audit;
OVERVIEWSTRATEGIC REPORTCORPORATE GOVERNANCEREMUNERATION REPORTFINANCIAL STATEMENTSGLOSSARYSHAREHOLDER INFORMATIONwww.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 52
Independent Auditor’s Report to the
Members of Cadogan Petroleum plc continued
> Gaining an understanding of the legal and regulatory framework applicable to the Group and the industry in which
it operates, through discussion with management and the audit committee and our knowledge of the industry;
>
Considering the significant laws and regulations of Ukraine and the UK to be those relating to the industry, financial
reporting framework, tax legislation and the listing rules.
> Assessing the susceptibility of the Group’s financial statements to material misstatement, including how fraud
might occur;
>
Testing the appropriateness of journal entries made through the year by applying specific criteria to detect
possible irregularities and fraud;
> Obtaining an understanding of management’s procedures to evaluate the validity of supplier arrangements and
identify and assess any unusual items;
>
>
Performing a review of supplier contract arrangements across the Group, making inquiries regarding the nature
and purpose of the arrangement and reviewing contracts for certain supplier arrangements;
Performing a detailed review of the Group’s year-end adjusting entries and investigating any that appear unusual
as to nature or amount and agreeing to supporting documentation;
> Reviewing legal correspondence, obtaining confirmations from in house legal counsel and meeting with internal
and external counsel in respect of certain legal disputes;
> Assessing the judgements made by management when making key accounting estimates were indicative of a
potential bias (refer to key audit matter and basis for qualified audit opinion above);
>
Extending inquiries to individuals outside of management and the accounting department to corroborate
management’s ability and intent to carry out plans that are relevant to developing the estimates set out in the key
audit matters section above;
> Reviewing minutes from board meetings of those charges with governance to identify any instances of non-
compliance with laws and regulations;
>
Communicating relevant identified laws and regulations and potential fraud risks to all audit team members and
remained alert to any indications of fraud or non-compliance with laws and regulations throughout the audit; and
> Directing the auditors of the significant components to ensure an assessment is performed on the extent of
the components compliance with the relevant local and regulatory framework. Reviewing this work and holding
meetings with relevant internal management and external third parties to form our own opinion on the extent of
Group wide compliance.
Our audit procedures were designed to respond to risks of material misstatement in the financial statements,
recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting
one resulting from error, as fraud may involve deliberate concealment by, for example, forgery, misrepresentations or
through collusion. There are inherent limitations in the audit procedures performed and the further removed non-
compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less
likely we are to become aware of it.
A further description of our responsibilities is available on the Financial Reporting Council’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Use of our report
This report is made solely to the Parent 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 Parent Company’s members
those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent
permitted by law, we do not accept or assume responsibility to anyone other than the Parent Company and the Parent
Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Ryan Ferguson
(Senior Statutory Auditor)
For and on behalf of BDO LLP
Statutory Auditor
London, United Kingdom
5 May 2021
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
www.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 Consolidated Income Statement
For the year ended 31 December 2020
53
CONTINUING OPERATIONS
Revenue
Cost of sales
Provision against unsold gas inventory
Gross profit/(loss)
Administrative expenses
Reversal of impairment of other assets
Impairment of other assets
Fair value (loss)/gain on loan and call option
Other operating (loss)/income, net
Net foreign exchange gain/(losses)
Operating loss
Finance income, net
Loss before tax
Tax benefit
Loss for the year
Attributable to:
Owners of the Company
Non-controlling interest
Loss per Ordinary share
Basic and diluted
Notes
2020
$’000
2019
$’000
6
8
7
8
8
8, 26
9
12
13
14
5,105
(4,500)
–
605
(3,771)
644
(53)
(334)
(71)
1,938
(1,042)
40
(1,002)
–
(1,002)
(996)
(6)
(1,002)
cents
(0.4)
5,876
(4,872)
(1,946)
(942)
(5,652)
345
(162)
697
3,972
(385)
(2,127)
25
(2,102)
–
(2,102)
(2,103)
1
(2,102)
cents
(0.9)
The notes on pages 58 to 80 form an integral part of these financial statements.
OVERVIEWSTRATEGIC REPORTCORPORATE GOVERNANCEREMUNERATION REPORTFINANCIAL STATEMENTSGLOSSARYSHAREHOLDER INFORMATIONwww.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 54
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2020
Loss for the year
Other comprehensive profit
Items that may be reclassified subsequently to profit or loss:
Unrealised currency translation differences
Other comprehensive (loss)/profit
Total comprehensive (loss)/profit for the year
Attributable to:
Owners of the Company
Non-controlling interest
2020
$’000
2019
$’000
(1,002)
(2,102)
(3,880)
(3,880)
(4,882)
(4,876)
(6)
(4,882)
3,541
3,541
1,439
1,438
1
1,439
The notes on pages 58 to 80 form an integral part of these financial statements.
www.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 Consolidated Balance Sheet
As at 31 December 2020
55
ASSETS
Non-current assets
Intangible exploration and evaluation assets
Property, plant and equipment
Loan classified at fair value through profit and loss
Right-of-use assets
Deferred tax asset
Current assets
Inventories
Trade and other receivables
Loan classified at fair value through profit and loss
Cash
Total assets
LIABILITIES
Non-current liabilities
Long-term lease liability
Provisions
Current liabilities
Trade and other payables
Short-term lease liability
Total liabilities
NET ASSETS
EQUITY
Share capital
Share premium
Retained earnings
Cumulative translation reserves
Other reserves
Equity attributable to owners of the Company
Non-controlling interest
TOTAL EQUITY
Notes
2020
$’000
2019
$’000
15
16
26
22
21
18
19
26
20
22
24
23
22
25
2,381
9,963
–
292
419
13,055
2,156
1,632
16,812
13,253
33,853
46,908
(195)
(223)
(418)
(1,387)
(97)
(1,484)
(1,902)
2,971
12,338
15,707
–
501
31,517
4,453
2,639
–
12,834
19,926
51,443
–
(289)
(289)
(1,266)
–
(1,266)
(1,555)
45,006
49,888
13,832
514
190,963
(162,155)
1,589
44,743
263
13,525
329
191,959
(158,275)
2,081
49,619
269
45,006
49,888
The consolidated financial statements of Cadogan Petroleum plc, registered in England and Wales no. 05718406, were
approved by the Board of Directors and authorised for issue on 5 May 2021. They were signed on its behalf by:
Fady Khallouf
Chief Executive Officer
5 May 2021
The notes on pages 58 to 80 form an integral part of these financial statements.
OVERVIEWSTRATEGIC REPORTCORPORATE GOVERNANCEREMUNERATION REPORTFINANCIAL STATEMENTSGLOSSARYSHAREHOLDER INFORMATIONwww.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 56
Consolidated Cash Flow Statement
For the year ended 31 December 2020
Operating profit/(loss)
Adjustments for:
Depreciation of property, plant and equipment
Movement in fair value of loan and call option
Impairment of inventories
Impairment of receivables
Gain on disposal of subsidiaries
Interest received
Reversal of impairment of other assets
(Reversal of impairment)/Impairment of VAT recoverable
Effect of foreign exchange rate changes
Operating cash flows before movements in working capital
Decrease/(Increase) in inventories
Decrease in receivables
Decrease in payables and provisions
Cash generated by/(used in) operations
Income taxes paid
Net cash inflow/(outflow) from operating activities
Investing activities
Proceeds from disposal of subsidiaries
Purchases of property, plant and equipment
Purchases of intangible exploration and evaluation assets
Proceeds from sale of property, plant and equipment
Loan provided
Interest received
Net cash used in investing activities
Net decrease in cash
Effect of foreign exchange rate changes
Cash at beginning of year
Cash at end of year
Notes
16
26
8
8
17
8
17
2020
$’000
(1,042)
734
334
50
3
–
–
–
(644)
(1,938)
(2,503)
1,624
930
34
85
25
110
–
(279)
(32)
–
–
38
(273)
(163)
582
12,834
2019
$’000
(2,127)
653
(697)
1,946
–
(4,000)
(431)
(345)
162
385
(4,454)
(971)
664
78
(4,683)
480
(4,203)
4,000
(6,952)
(241)
345
(15,246)
140
(17,954)
(22,157)
(145)
35,136
13,253
12,834
The notes on pages 58 to 80 form an integral part of these financial statements.
www.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020
57
Consolidated Statement of Changes in Equity
For the year ended 31 December 2020
Share
premium
account
$’000
Retained
earnings
$’000
Cumulative
translation
reserves
$’000
Other
reserves
$’000
Equity
attributable to
owners of the
Company
$’000
Non-
controlling
interest
$’000
Total
$’000
329
–
–
–
–
329
–
–
194,062
(2,103)
–
(161,816)
–
3,541
(2,103)
–
3,541
–
191,959
(996)
–
(158,275)
–
(3,880)
1,668
–
–
–
413
2,081
–
–
47,768
(2,103)
3,541
1,438
413
49,619
(996)
(3,880)
268
1
–
48,036
(2,102)
3,541
1
–
1,439
413
269
(6)
–
49,888
(1,002)
(3,880)
Share
capital
$’000
13,525
–
–
–
–
13,525
–
–
–
–
(996)
(3,880)
–
(4,876)
(6)
(4,882)
As at 1 January 2019
Net (loss)/profit for the year
Other comprehensive profit
Total comprehensive profit
for the year
Director bonus share award
As at 1 January 2020
Net loss for the year
Other comprehensive loss
Total comprehensive loss for
the year
Issue of ordinary shares for
director bonus share awards
307
185
–
–
(492)
–
–
–
As at 31 December 2020
13,832
514
190,963
(162,155)
1,589
44,743
263
45,006
The notes on pages 58 to 80 form an integral part of these financial statements.
OVERVIEWSTRATEGIC REPORTCORPORATE GOVERNANCEREMUNERATION REPORTFINANCIAL STATEMENTSGLOSSARYSHAREHOLDER INFORMATIONwww.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 58
Notes to the Consolidated Financial Statements
For the year ended 31 December 2020
1. General information
Cadogan Petroleum plc (the “Company”, together with its subsidiaries the “Group”), is registered in England and
Wales under the Companies Act 2006. The address of the registered office is 6th Floor, 60 Gracechurch Street,
London EC3V 0HR. The nature of the Group’s operations and its principal activities are set out in the Operations
Review on page 7 and the Financial Review on pages 8 and 9.
2. Adoption of new and revised Standards
New IFRS accounting standards, amendments and interpretations effective from 1 January 2020
The disclosed policies have been applied consistently by the Group for both the current and previous financial year
with the exception of the new standards adopted.
The IFRS financial information has been drawn up on the basis of accounting policies consistent with those applied in
the financial statements for the year to 31 December 2019, except for the following:
(a) Definition of Material – Amendments to IAS 1 and IAS 8;
(b) Definition of a Business – Amendments to IFRS 3;
(c) Interest Rate Benchmark Reform – Amendments to IFRS 7, IFRS 9 and IAS 39;
(d) Revised Conceptual Framework for Financial Reporting;
(e) COVID-19-related Rent Concessions – Amendments to IFRS 16.
The application of the above standards has had no impact on the disclosures or the amounts recognised in the Group’s
consolidated financial statements.
New IFRS accounting standards, amendments and interpretations not yet effective
Below is a list of new and revised IFRSs that are not yet mandatorily effective (but allow early application) for the year
ending 31 December 2020 and have not been early adopted by the Group. These standards are not expected to have a
material impact on the Group in the future reporting periods and on foreseeable future transactions.
IFRS accounting standards
Effective periods
beginning on or after
Property, Plant and Equipment: Proceeds before intended use – Amendments to IAS 16
01 January 2022
Reference to the Conceptual Framework – Amendments to IFRS 3
Onerous Contracts – Cost of Fulfilling a Contract Amendments to IAS 37
Annual Improvements to IFRS Standards 2018-2020
Classification of Liabilities as Current or Non-current – Amendments to IAS 1
IFRS 17, 'Insurance contracts'
01 January 2022
01 January 2022
01 January 2022
01 January 2023
01 January 2023
3. Significant accounting policies
(a) Basis of accounting
The financial statements have been prepared in accordance with international accounting standards in conformity
with the requirements of the Companies Act 2006 and in accordance with international financial reporting standards
adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.
The financial statements have been prepared on the historical cost convention basis.
The principal accounting policies adopted are set out below:
(b) Going concern
The Group’s cash balance at 31 December 2020 was $13.3 million (2019: $12.8 million). The Directors believe that
the funds available at the date of the issue of these financial statements are sufficient for the Group to manage its
business risks and planned investments successfully.
The directors’ have carried out a robust assessment of the principal risks facing the Group, including those that could
potentially threaten its business model, future performance, solvency, or liquidity is on pages 10 to 12.
The Group’s forecasts and projections, taking into account reasonably possible changes in trading activities,
operational performance, flow rates for commercial production and the price of hydrocarbons sold to Ukrainian
customers, show that there are reasonable expectations that the Group will be able to operate on funds currently held
and those generated internally, for the foreseeable future.
www.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 59
3. Significant accounting policies continued
(b) Going concern continued
Notwithstanding the Group’s current financial performance and position, the Board are cognisant of the actual impacts
of COVID-19 on the Group. The Board has considered possible reverse stress case scenarios for the impact on the
Group’s operations, financial position and forecasts. Whilst the potential future impacts of Covid-19 are unknown the
Board has considered operational disruption that may be caused by the factors such as a) restrictions applied by
governments, illness amongst our workforce and disruption to supply chain and sales channels; b) market volatility in
respect of commodity prices associated with Covid-19 in addition to geopolitical factors.
In addition to sensitivities that reflect future expectations regarding country, commodity price and currency risks
that the Group may encounter reverse stress tests have been run to reflect possible negative effects of COVID-19.
The Group’s forecasts demonstrate that owing to its cash resources the Group is able to meet its operating cash flow
requirements and commitments whilst maintaining significant liquidity for a period of at least the next 12 months
allowing for sustained reductions in commodity prices and extended and severe disruption to operations should such a
scenario occur.
After making enquiries and considering the uncertainties described above, the Directors have a reasonable expectation
that the Company and the Group have adequate resources to continue in operational existence for the foreseeable
future and consider the going concern basis of accounting to be appropriate and, thus, they continue to adopt the
going concern basis of accounting in preparing the annual financial statements.
(c) Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by
the Company (its subsidiaries) made up to 31 December each year. IFRS 10 defines control to be investor control over
an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the
ability to control those returns through its power over the investee.
The results of subsidiaries 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.
(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 recognized 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, amortization 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.
OVERVIEWSTRATEGIC REPORTCORPORATE GOVERNANCEREMUNERATION REPORTFINANCIAL STATEMENTSGLOSSARYSHAREHOLDER INFORMATIONwww.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 60
Notes to the Consolidated
Financial Statements continued
For the year ended 31 December 2020
3. Significant accounting policies continued
(e) Investments in joint ventures continued
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. In doing so, the Group applies the criteria of IFRS 6 ‘Exploration for and
evaluation of mineral resources’ as the joint venture holds exploration phase assets. 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 from contracts with customers is recognized when or as the Group satisfies a performance obligation by
transferring a promised good or service to a customer. A good or service is transferred when the customer obtains
control of that good or service. Revenue is measured based on measurement principles of IFRS 15 and represents
amounts receivable for hydrocarbon products and services provided in the normal course of business, net of value
added tax (‘VAT’) and other sales-related taxes, excluding royalties on production. Royalties on production are recorded
within cost of sales.
E&P and Trading business segments
The transfer of control of hydrocarbons usually coincides with title passing to the customer and the customer taking
physical possession as the product passes a physical point such as a designated point in the pipeline for the sale of gas
or loading point in the case of oil. The Group principally satisfies its performance obligations at a point in time.
To the extent that revenue arises from test production during an evaluation programme, an amount is credited to
evaluation costs and charged to cost of sales, to reflect a zero-net margin.
Service business segment
Revenue from services is recognized in the accounting period in which services are rendered. The main types of
services provided by the Group are drilling and civil works services. Revenue is recorded as the service is provided over
time such as through day rates for supply of drill rigs, civil works and manpower.
Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate
applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the
financial asset to that asset’s net carrying amount on initial recognition.
(g) Foreign currencies
The functional currency of the Group’s Ukrainian operations is Ukrainian Hryvnia. The functional currency of the
Group’s UK subsidiaries and the parent company is US Dollar.
In preparing the financial statements of the individual companies, transactions in currencies other than the functional
currency of each Group company (‘foreign currencies’) are recorded in the functional currency at the rates of
exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that
are denominated in foreign currencies are retranslated into the functional currency at the rates prevailing on the
balance sheet date. Non-monetary assets and liabilities carried at fair value that are denominated in foreign currencies
are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are
measured in terms of historical cost in a foreign currency are not retranslated. Foreign exchange differences on cash
are recognized in operating profit or loss in the period in which they arise.
Exchange differences are recognized in the profit or loss in the period in which they arise except for exchange
differences on monetary items receivable from or payable to a foreign operation for which settlement is neither
planned nor likely to occur. This forms part of the net investment in a foreign operation, which is recognized in the
foreign currency translation reserve and in profit or loss on disposal of the net investment.
For the purpose of presenting consolidated financial statements, the results and financial position of each entity of the
Group, where the functional currency is not the US dollar, are translated into US dollars as follows:
i. assets and liabilities of the Group’s foreign operations are translated at the closing rate on the balance sheet date;
ii.
income and expenses are translated at the average exchange rates for the period, where it approximates to actual
rates. In other cases, if exchange rates fluctuate significantly during that period, the exchange rates at the date of
the transactions are used; and
iii. all resulting exchange differences arising, if any, are recognized in other comprehensive income and accumulated
equity (attributed to non-controlling interests as appropriate), transferred to the Group’s translation reserve. Such
translation differences are recognized as income or as expenses in the period in which the operation is disposed of.
www.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 61
3. Significant accounting policies continued
(g) Foreign currencies continued
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:
Year ended
31 December 2020
Year ended
31 December 2019
GBP/USD
EURO/USD
USD/UAH
GBP/USD
EURO/USD
USD/UAH
Closing rate
Average rate
1.3678
1.2843
1.2217
1.1420
28.3700
27.0034
1.3263
1.2773
1.1214
1.1197
23.7100
25.9003
(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 recognized for all taxable
temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be
available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognized
if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in
a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the
accounting profit. Deferred tax liabilities are recognized for taxable temporary differences arising on investments in
subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the
temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no
longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred
tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is
realized. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited
in other comprehensive income, in which case the deferred tax is also dealt with in other comprehensive income.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets
against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the
Group intends to settle its current tax assets and liabilities on a net basis.
In case of the uncertainty of the tax treatment, the Group assess, whether it is probable or not, that the tax treatment
will be accepted, and to determine the value, the Group use the most likely amount or the expected value in
determining taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates.
(i) Other property, plant and equipment
Property, plant and equipment (‘PP&E’) are carried at cost less accumulated depreciation and any recognized impairment
loss. Depreciation and amortization is charged so as to write-off the cost or valuation of assets, other than land, over
their estimated useful lives, using the straight-line method, on the following bases:
Other PP&E
10% to 30%
The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales
proceeds and the carrying amount of the asset and is recognized in income.
(j) Intangible exploration and evaluation assets
The Group applies the modified full cost method of accounting for intangible exploration and evaluation (‘E&E’)
expenditure, which complies with requirements set out in IFRS 6 Exploration for and Evaluation of Mineral Resources.
Under the modified full cost method of accounting, expenditure made on exploring for and evaluating oil and gas
properties is accumulated and initially capitalized as an intangible asset, by reference to appropriate cost centres being
the appropriate oil or gas property. E&E assets are then assessed for impairment on a geographical cost pool basis,
which are assessed at the level of individual licences.
E&E assets comprise costs of (i) E&E activities which are in progress at the balance sheet date, but where the existence
of commercial reserves has yet to be determined (ii) E&E expenditure which, whilst representing part of the E&E
activities associated with adding to the commercial reserves of an established cost pool, did not result in the discovery
of commercial reserves.
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Notes to the Consolidated
Financial Statements continued
For the year ended 31 December 2020
3. Significant accounting policies continued
(j) Intangible exploration and evaluation assets continued
Costs incurred prior to having obtained the legal rights to explore an area are expensed directly to the income
statement as incurred.
Exploration and Evaluation costs
E&E expenditure is initially capitalized as an E&E asset. Payments to acquire the legal right to explore, costs of
technical services and studies, seismic acquisition, exploratory drilling and testing are also capitalized as intangible
E&E assets.
Tangible assets used in E&E activities (such as the Group’s vehicles, drilling rigs, seismic equipment and other property,
plant and equipment) are normally classified as PP&E. However, to the extent that such assets are consumed in
developing an intangible E&E asset, the amount reflecting that consumption is recorded as part of the cost of the
intangible asset. Such intangible costs include directly attributable overheads, including the depreciation of PP&E
items utilised in E&E activities, together with the cost of other materials consumed during the exploration and
evaluation phases.
E&E assets are not amortized prior to the conclusion of appraisal activities.
Treatment of E&E assets at conclusion of appraisal activities
Intangible E&E assets related to each exploration property are carried forward, until the existence (or otherwise) of
commercial reserves has been determined. If commercial reserves have been discovered, the related E&E assets are
assessed for impairment on individual assets basis as set out below and any impairment loss is recognized in the
income statement. Upon approval of a development programme, the carrying value, after any impairment loss, of the
relevant E&E assets is reclassified to the development and production assets within PP&E.
Intangible E&E assets which relate to E&E activities that are determined not to have resulted in the discovery of commercial
reserves remain capitalized as intangible E&E assets at cost less accumulated amortization, subject to meeting a pool-wide
impairment test in accordance with the accounting policy for impairment of E&E assets set out below.
Impairment of E&E assets
E&E assets are assessed for impairment when facts and circumstances suggest that the carrying amount may exceed
its recoverable amount. Such indicators include, but are not limited to those situations outlined in paragraph 20 of IFRS
6 Exploration for and Evaluation of Mineral Resources such as, a) license expiry during year or in the near future and
will not likely to be renewed; b) expenditure on E&E activity neither budgeted nor planned; c) commercial quantities of
mineral resources have been discovered; and d) sufficient data exist to indicate that carrying amount of E&E asset is
unlikely to be recovered in full from successful development or sale.
Where there are indications of impairment, the E&E assets concerned are tested for impairment. Where the E&E assets
concerned fall within the scope of an established full cost pool, which are not larger than an operating segment, they
are tested for impairment together with all development and production assets associated with that cost pool, as a
single cash generating unit.
The aggregate carrying value of the relevant assets is compared against the expected recoverable amount of the
pool, generally by reference to the present value of the future net cash flows expected to be derived from production
of commercial reserves from that pool. Where the assets fall into an area that does not have an established pool or if
there are no producing assets to cover the unsuccessful exploration and evaluation costs, those assets would fail the
impairment test and be written off to the income statement in full.
Impairment losses are recognized in the income statement and are separately disclosed.
(k) Development and production assets
Development and production assets are accumulated on a field-by-field basis and represent the cost of developing
the commercial Reserves discovered and bringing them into production, together with E&E expenditures incurred in
finding commercial Reserves transferred from intangible E&E assets.
The cost of development and production assets comprises the cost of acquisitions and purchases of such assets,
directly attributable overheads, finance costs capitalized, and the cost of recognizing provisions for future restoration
and decommissioning.
Depreciation of producing assets
Depreciation is calculated on the net book values of producing assets on a field-by-field basis using the unit of
production method. The unit of production method refers to the ratio of production in the reporting year as a
proportion of the Proved and Probable Reserves of the relevant field based on assessments of internal geologists
utilising the most recent Competent Person Report and subsequent drilling and exploration, taking into account future
development expenditures necessary to bring those Reserves into production.
Producing assets are generally grouped with other assets that are dedicated to serving the same Reserves for
depreciation purposes, but are depreciated separately from producing assets that serve other Reserves.
www.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 63
3. Significant accounting policies continued
(l) Impairment of development and production assets and other property, plant and equipment
At each balance sheet date, the Group reviews the carrying amounts of its PP&E to determine whether there is any
indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount
of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not
generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the
cash-generating unit to which the asset belongs. The recoverable amount is the higher of fair value less costs to sell
and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using
a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to
the asset for which the estimates of future cash flows have not been adjusted. In determining fair value less cost to
sell, the estimated future cash flows are discounted to their present value using a post-tax discount rate that reflects
current market assessments of the time value of money and the risks specific to the asset for which the estimates of
future cash flows have not been adjusted. Such cash flows include relevant development expenditure that a market
participant would reasonably be expected to undertake.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount,
the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is
recognised as an expense immediately.
Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased
to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the
carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-
generating unit) in prior years. A reversal of an impairment loss is recognized as income immediately.
(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
Financial assets and financial liabilities are recognized in the consolidated statement of financial position when the
Group becomes party to the contractual provisions of the instrument.
Loan classified at fair value through profit and loss
Loan instruments which include options to convert the instrument into equity are classified as fair value through profit
and loss instruments because they do not meet the criteria for amortized cost measurement as they are not held for
the collection of contractual cash flows representing solely payments of principal and interest. Such loan instruments
are initially recorded at fair value which is typically the cash advanced under the instrument and subsequently
recorded at fair value with changes in fair value recorded in the income statement. Transaction costs for loans
classified at fair value through profit or loss are expensed in the income statement.
Trade and other payables
Payables are initially measured at fair value, net of transaction costs and are subsequently measured at amortized cost
using the effective interest method.
Trade and other receivables
Trade and other receivables are recognized initially at their transaction price in accordance with IFRS 9 and are
subsequently measured at amortised cost. The Group applies the simplified approach to providing for expected
credit losses (ECL) prescribed by IFRS 9, which permits the use of the lifetime expected loss provision for all trade
receivables. Expected credit losses are assessed on a forward-looking basis. The loss allowance is measured at initial
recognition and throughout its life at an amount equal to lifetime ECL. Any impairment is recognized in the income
statement.
Cash
Cash comprise cash on hand and on-demand deposits. Deposits are recorded as cash and cash equivalents when they
have a maturity of less than 90 days at inception.
(o) Provisions
Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event,
it is probable that the Group will be required to settle that obligation and a reliable estimate can be made of the
amount of the obligation. The amount recognized as a provision is the best estimate of the consideration required to
settle the present obligation at the balance sheet date, taking into account the risks and uncertainties surrounding the
obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying
amount is the present value of those cash flows.
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Notes to the Consolidated
Financial Statements continued
For the year ended 31 December 2020
3. Significant accounting policies continued
(p) Decommissioning
A provision for decommissioning is recognized in full when the related facilities are installed. The decommissioning
provision is calculated as the net present value of the Group’s share of the expenditure expected to be incurred
at the end of the producing life of each field in the removal and decommissioning of the production, storage and
transportation facilities currently in place. The cost of recognizing the decommissioning provision is included as part of
the cost of the relevant asset and is thus charged to the income statement on a unit of production basis in accordance
with the Group’s policy for depletion and depreciation of tangible non-current assets. Period charges for changes in the
net present value of the decommissioning provision arising from discounting are included within finance costs.
(q) Leases
At inception of a contract, the Group assesses whether a contract is, or contains, a lease based on whether the
contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
Service agreements for equipment on the working sites are not considered leases as, based upon an assessment of
the terms and nature of their contractual arrangements, the contracts do not convey the right to control the use of an
identified asset.
The right-of-use asset is initially measured based on the initial amount of the lease liability adjusted for any lease
payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to
dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any
lease incentives received.
The asset is depreciated to the earlier of the end of the useful life of the right-of-use asset or the lease term using the
straight-line method as this most closely reflects the expected pattern of consumption of the future economic benefits.
The lease term includes periods covered by an option to extend if the Group is reasonably certain to exercise that
option. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain
remeasurements of the lease liability.
The lease liability is initially measured at the present value of the lease payments that are not paid at the
commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily
determined, the incremental borrowing rate. The lease liability is measured at amortized cost using the effective
interest method. It is remeasured when there is a change in future lease payments arising from a change in an index
or rate, if there is a change in the Group’s estimate of the amount expected to be payable under a residual value
guarantee, or if the Group changes its assessment of whether it will exercise a purchase, extension or termination
option. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount
of the right-of-use asset, or the effect is recorded in profit or loss if the carrying amount of the right-of-use asset has
been reduced to zero.
The Group elected to apply the practical expedient not to recognise right-of-use assets and lease liabilities for short-
term leases that have a lease term of 12 months or less and leases of low-value assets. The Group also made use of
the practical expedient to not recognize a right-of-use asset or a lease liability for leases for which the lease term ends
within 12 months of the date of initial application.
The lease payments associated with these leases are recognized as an expense on a straight-line basis over the lease
term.
4. Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group’s accounting policies, which are described in note 3, the Directors are required to make
judgements, estimates and assumptions about the carrying amounts of the assets and liabilities that are not readily
apparent from other sources. The estimates and associated assumptions are based on historical experience and other
factors that are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the
revision and future periods if the revision affects both the current and future periods.
The following are the critical judgements and estimates that the Directors have made in the process of applying the
Group’s accounting policies and that have the most significant effect on the amounts recognized in the financial
statements.
www.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 65
4. Critical accounting judgements and key sources of estimation uncertainty continued
Critical judgements and estimates
(a) Impairment indicator assessment for E&E assets
The outcome of ongoing exploration, and therefore the recoverability of the carrying value of intangible exploration
and evaluation assets, is inherently uncertain. Management assesses its E&E assets for impairment indicators and if
indicators of impairment are identified performs an impairment test. In assessing potential indicators of impairment
judgment was required and management considered factors such as the anticipated conversion to a production licence,
reserves reports and the net present value of economic models, the results of drilling and exploration in the year and
the future plans including farm out proposals. In respect of the renewal and conversion of the license which remains
outstanding having been rejected by the licencing authority in 2020 management carefully considered the likelihood
of the licence being ultimately awarded once the current legal process to challenge the decision of the licencing
authorities is completed. In doing so, consideration was given to external legal advice regarding the validity of its
application, compliance with relevant license commitments, completeness of the application and political and judicial
environment of Ukraine (note 15).
(b) Impairment of PP&E
Management assesses its development and production assets for impairment indicators and if indicators of impairment
are identified performs an impairment test. Management performed an impairment assessment using a discounted
cash flow model which required estimates including forecast oil prices, reserves and production, costs and discount
rates (note 16).
(c) Recoverability and measurement of VAT
Judgment is required in assessing the recoverability of VAT assets and the extent to which historical impairment
provisions remain appropriate, particularly noting the recent recoveries against historically impaired VAT. In forming
this assessment, the Group considers the nature and age of the VAT, the likelihood of eligible future supplies to VAT,
the pattern of recoveries and risks and uncertainties associated with the operating environment.
(d) Loan classified at fair value through profit and loss
In February 2019, the Group advanced a Euro 13,385,000 loan to Proger Managers & Partners Srl (“PMP”), a privately
owned Italian company whose only interest is a 72.92% participation in Proger Ingegneria Srl (“Proger Ingegneria”), a
privately owned company which held a 75.95% participating interest in Proger Spa (“Proger”) at 31 December 2020.
The loan carries an entitlement to interest at a rate of 5.5% per year, payable at maturity (which is 24 months after
the execution date (February 2019) and assuming that the call option described below is not exercised). The principal
of the loan is secured by a pledge over PMP’s current participating interest in Proger Ingegneria Srl, up to a maximum
guaranteed amount of Euro 13,385,000.
As part of the instrument, the Group was granted a call option to acquire, at its sole discretion, 33% of participating
interest in Proger Ingegneria; the exercise of the option would give Cadogan, through CPHBV, an indirect 25% interest
in Proger at 31 December 2020. The call option was granted at no additional cost and could be exercised at any time
between the 6th (sixth) and 24th (twenty-fourth) months following the execution date of the loan agreement and
subject to Cadogan shareholders having approved the exercise of the call option as explained further below. Should
CPHBV exercise the call option, the price for the purchase of the 33% participating interest in Proger Ingegneria
shall be paid by setting off the corresponding amount due by PMP to CPHBV, by way of reimbursement of the
principal, pursuant to the loan agreement. If the call option is exercised, then the obligation on PMP to pay interest is
extinguished.
Management considered the extent to which the option and rights to representation on the Board of Proger Ingegneria
and Proger meant significant influence existed. The requirement to obtain shareholder approval for any exercise of the
option was considered to represent a substantive condition such that the option was not ‘currently exercisable’ under
IFRS at 31 December 2020. In consequence, the potential voting rights associated with any subsequent exercise of the
option were not considered to contribute to significant influence over the investee.
Under the Group’s accounting policies, the instrument is held at fair value through profit and loss and determination
of fair value requires assessment of both key investee specific information regarding financial performance and
prospects and market information. The determination of fair value is made at 31 December 2020 based on facts and
circumstances at that date, notwithstanding that the borrower failed to repay the loan at maturity in 2021.
The Group’s original investment decision involved assessment of Proger Spa business plans and analysis with
professional advisers including valuations performed using the income method (discounted cash flows) and market
approach using both the precedent transactions and trading multiples methods.
OVERVIEWSTRATEGIC REPORTCORPORATE GOVERNANCEREMUNERATION REPORTFINANCIAL STATEMENTSGLOSSARYSHAREHOLDER INFORMATIONwww.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 66
Notes to the Consolidated
Financial Statements continued
For the year ended 31 December 2020
4. Critical accounting judgements and key sources of estimation uncertainty continued
(d) Loan classified at fair value through profit and loss continued
Unfortunately, Proger has refused to provide Cadogan information regarding its 2020 financial performance or
updated forecasts to undertake a detailed fair value assessment using the income method or market approach at
31 December 2020. As a consequence, management assessed the fair value of the instrument based on the terms of
the agreement, including the pledge over shares, together with financial information in respect of prior periods and
determined that $16.8 million represented the best estimate of fair value, being equal to anticipated receipts and
timing thereof discounted at an estimated market rate of interest of 7.8%. In forming its assessment at 31 December
2020, management particularly considered the impact of any claim under the pledge and further litigation options on
the underlying investee business and shareholders and resulting incentive that created for the borrower to ultimately
meet the contractual payment obligation. Management further considered information relevant to Proger business and
PMP’s ability to pay, noting the absence of 2020 financial information. However, the absence of information regarding
Proger’s 2020 financial performance and prospects represents a significant limitation on the fair value exercise and, as
a result, if received, the fair value could be materially higher or lower than this value. (Note 26)
(e) Well services and rental agreements
The Group’s well rental arrangements in Ukraine for oil and gas extraction activities are outside of the scope of IFRS
16. Judgment was required in forming this assessment, based on analysis of the scope of IFRS 16 and the nature of
the well rental arrangements. This assessment focused on the extent to which the rental agreements provided access
to sub-surface well structures to extract hydrocarbons versus surface level infrastructure for the transport and
processing of extracted hydrocarbons.
(f) Contingent liabilities
Judgment has been applied in assessing the likelihood of financial loss in respect of the ongoing litigation in respect of
VAT and tax losses detailed in note 27. In forming the conclusion no provision is required management considered the
findings of the first and second instance courts, although the matter remains subject to appeal.
5. Segment information
Segment information is presented on the basis of management’s perspective and relates to the parts of the Group that
are defined as operating segments. Operating segments are identified on the basis of internal reports provided to the
Group’s chief operating decision maker (“CODM”). The Group has identified its senior management team as its CODM
and the internal reports used by the senior management team to oversee operations and make decisions on allocating
resources serve as the basis of information presented. These internal reports are prepared on the same basis as these
consolidated financial statements.
Segment information is analysed on the basis of the type of activity, products sold, or services provided. The majority
of the Group’s operations and all Group’s revenues are located within Ukraine. Segment information is analysed on the
basis of the types of goods supplied by the Group’s operating divisions. The Group’s reportable segments under IFRS 8
are therefore as follows:
Exploration and Production
>
E&P activities on the exploration and production licences for natural gas, oil and condensate.
Service
> Drilling services to exploration and production companies; and
>
Civil works services to exploration and production companies.
Trading
>
Import of natural gas from European countries; and
>
Local purchase and sales of natural gas operations with physical delivery of natural gas.
The accounting policies of the reportable segments are the same as the Group’s accounting policies described in note
3. Sales between segments are carried out at rates considered to approximate market prices. The segment result
represents operating profit under IFRS before unallocated corporate expenses. Unallocated corporate expenses
include management remuneration, representative expenses and expenses incurred in respect of the maintenance of
office premises. This is the measure reported to the CODM for the purposes of resource allocation and assessment of
segment performance. The Group does not present information on segment assets and liabilities as the CODM does not
review such information for decision-making purposes.
www.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 67
5. Segment information continued
As of 31 December 2020 and for the year then ended the Group’s segmental information was as follows:
Exploration and
Production
$’000
Service2
$’000
Trading
$’000
Consolidated
$’000
Sales of hydrocarbons
Other revenue
Sales between segments
Total revenue
Cost of sales
Administrative expenses
Other operating costs
(Impairment)/reverse of impairment
Reversal of impairment of VAT recoverable
Finance income1
Segment results
Unallocated administrative expenses
Other costs, net3
Net foreign exchange gain
Loss before tax
3,457
–
–
3,457
(3,033)
(509)
(55)
(53)
74
–
(119)
–
5
–
5
(7)
(53)
–
–
–
–
(55)
1,643
–
–
1,643
(1,460)
(135)
–
–
570
25
643
5,100
5
–
5,105
(4,500)
(697)
(55)
(53)
644
25
469
(3,074)
(335)
1,938
(1,002)
1 Net finance income includes $25 thousand of interest on cash deposits used for trading.
2 The services business segment in 2020 primarily provided well workovers and other works to other Group companies.
3 Includes decrease in FVPL of $334 thousand.
As of 31 December 2019 and for the year then ended the Group’s segmental information was as follows:
Sales of hydrocarbons
Other revenue
Sales between segments
Total revenue
Cost of sales
Administrative expenses
Impairment
Finance income, net4
Segment results
Unallocated administrative expenses
Other income, net
Impairment
Net foreign exchange loss
Profit before tax
Exploration and
Production
$’000
Service
$’000
Trading
$’000
Consolidated
$’000
4,861
–
–
4,861
(3,807)
(633)
(30)
–
391
–
59
–
59
(30)
(42)
–
–
(13)
956
–
–
956
(1,035)
(128)
(1,916)
85
5,817
59
–
5,876
(4,872)
(803)
(1,946)
85
(2,038)
(1,660)
(4,849)
4,954
(162)
(385)
(2,102)
4 Net finance income includes $49 thousand of interest on short-term borrowings and $36 thousand of interest on cash deposits used for
trading.
OVERVIEWSTRATEGIC REPORTCORPORATE GOVERNANCEREMUNERATION REPORTFINANCIAL STATEMENTSGLOSSARYSHAREHOLDER INFORMATIONwww.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 68
Notes to the Consolidated
Financial Statements continued
For the year ended 31 December 2020
6. Revenue
Sale of hydrocarbons (exploration and production) – point in time
Sale of hydrocarbons (trading) – point in time
Service revenues – over time
2020
$’000
3,457
1,643
5
5,105
2019
$’000
4,861
956
59
5,876
Revenue is generated in the Ukraine. Refer to note 3(f) for details of the performance obligations. Service revenue and
associated contract assets and liabilities are immaterial.
Information about major customers
Included in revenues arising from the Trading segment for the year ended 31 December 2020 are revenues of
$1.6 million, which arose from sales to the Group’s four customers.
65% of exploration and production business segment revenue arose from sales to four largest customers. Each of
them contributed for more than 10% of the total revenue of the exploration and production business segment revenue
for the year ended 31 December 2020.
In 2019, Trading segment revenue for the year ended 31 December 2019 of $0.9 million arose from sales to the Group’s
three customers. No other single customers contributed 10 per cent or more to the Group’s Exploration and Production
revenue in 2019.
7. Administrative expenses
Staff
Professional fees
Insurance
Office costs including utilities and maintenance
IT and communication
Bank charges
Travel
Other
8. Reversal of impairment/(impairment) of other assets
VAT recoverable
Other Property, Plant and Equipment
Reversal of impairment of other assets
2020
$’000
1,982
895
183
170
81
40
25
395
2019
$’000
2,797
1,776
103
204
134
81
144
413
3,771
5,652
2020
$’000
644
–
644
2019
$’000
–
345
345
In 2020, $0.6 million of provision against VAT has been released in respect of input VAT historically impaired that has
been offset against output VAT.
$1.5 million (2019: $2.4 million) of historical VAT receivables remain impaired. Refer to Note 4.
Inventories
Other receivables
VAT recoverable
Impairment of other assets
2020
$’000
(50)
(3)
–
(53)
2019
$’000
(1,946)
–
(162)
(2,108)
Impairment of other assets totalled $53 thousand (2019: $2.1 million) includes impairment of inventories and other
receivables. In 2019, impairment of inventories includes $1.9 million natural gas value impairment due to revaluation to
market price at the year end.
www.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 69
9. Other operating income, net
Profit on disposal of subsidiaries
Other expenses
For the details on disposal of subsidiaries please refer to Note 17.
10. Auditor’s remuneration
The analysis of auditor’s remuneration is as follows:
Audit fees
Fees payable to the Company’s auditor and their associates for the audit of the
Company’s annual accounts
Fees payable to the Company’s auditor and their associates for other services to the Group:
– The audit of the Company’s subsidiaries
Total audit fees
Non-audit fees
– Review of regulatory communications
Non-audit fees
2020
$’000
–
(71)
(71)
2019
$’000
4,000
(28)
3,972
2020
$’000
2019
$’000
157
8
165
5
5
143
13
156
–
–
Audit fees for 2020 refer to BDO LLP of $165 thousand for the audit of group accounts and subsidiaries as of and for
the year ended 31 December 2020.
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
Annual bonus
Charge for bonus granted in shares
2020
Number
2019
Number
1
79
80
80
1
79
80
80
$’000
$’000
1,689
356
131
–
1,901
401
82
413
2,176
2,797
OVERVIEWSTRATEGIC REPORTCORPORATE GOVERNANCEREMUNERATION REPORTFINANCIAL STATEMENTSGLOSSARYSHAREHOLDER INFORMATIONwww.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 70
Notes to the Consolidated
Financial Statements continued
For the year ended 31 December 2020
12. Finance income/(costs), net
Investment revenue
Interest income on cash deposits in Ukraine
Interest income on receivables
Total interest income on financial assets
Unwinding of discount on decommissioning provision (note 24)
13. Tax
Current tax
Deferred tax
2020
$’000
37
25
–
62
(22)
40
2019
$’000
104
49
36
189
(164)
25
2020
$’000
2019
$’000
–
–
–
–
–
–
The Group’s operations are conducted primarily outside the UK, namely in Ukraine. The most appropriate tax rate
for the Group is therefore considered to be 18% (2019: 18%), the rate of profit tax in Ukraine, which is the primary
source of revenue for the Group. Taxation for other jurisdictions is calculated at the rates prevailing in the respective
jurisdictions.
The taxation charge for the year can be reconciled to the profit/(loss) per the income statement as follows:
(Loss)/profit before tax
Tax credit at Ukraine corporation tax rate of 18% (2018: 18%)
Permanent differences
Unrecognized tax losses generated in the year
Effect of different tax rates
Adjustments recognized in the current year in relation
with the current tax of prior years
Income tax (benefit)/expense recognized in profit or loss
2020
$’000
(1,002)
(180)
(829)
1,125
(116)
–
–
–
2020
%
100
18
83
(112)
11
–
–
–
2019
$’000
2019
%
(2,102)
100
(378)
(944)
1,448
(126)
–
–
–
18
45
(69)
6
–
–
–
Permanent differences mostly represent items, including provisions, accruals and impairments related to taxation in
Ukraine, these are items not deductible in tax computations.
www.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 71
14. Loss per Ordinary share
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
2020
$’000
2019
$’000
Loss for the purposes of basic loss per share being net loss attributable to owners of the Company
(996)
(2,103)
Number of shares
Weighted average number of Ordinary shares used in calculation of earnings per share:
Basic
Diluted
Loss per Ordinary share
Basic and diluted
Number
‘000
Number
‘000
240,628
244,128
235,729
235,729
Cent
(0.4)
Cent
(0.9)
In 2020 and 2019 the Group generated a loss and therefore there is no difference between basic and diluted EPS.
15. Intangible exploration and evaluation assets
Cost
At 1 January 2019
Additions
Disposals
Change in estimate of decommissioning assets (note 24)
Exchange differences
At 1 January 2020
Additions
Disposals
Change in estimate of decommissioning assets (note 24)
Exchange differences
At 31 December 2020
Impairment
At 1 January 2019
Disposals
Exchange differences
At 1 January 2020
Disposals
Exchange differences
At 31 December 2020
Carrying amount
At 31 December 2020
At 31 December 2019
$’000
22,184
241
(6,062)
(63)
3,218
19,518
32
(127)
(12)
(3,200)
16,211
19,798
(6,062)
2,811
16,547
–
(2,717)
13,830
2,381
2,971
The carrying amount of E&E assets at 31 December 2020 of $2.4 million (2019: $2.9 million) relates to the Bitlyanska
license.
Management has performed an impairment indicator review. Refer to note 4 (a). As part of the impairment indicator
assessment management considered the Bitlyanska license’s economic model of underlying discounted cash flow
forecasts which demonstrated significant headroom over carrying value. Accordingly, disclosure of estimation
uncertainty for individual inputs is not included.
OVERVIEWSTRATEGIC REPORTCORPORATE GOVERNANCEREMUNERATION REPORTFINANCIAL STATEMENTSGLOSSARYSHAREHOLDER INFORMATIONwww.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 72
Notes to the Consolidated
Financial Statements continued
For the year ended 31 December 2020
15. Intangible exploration and evaluation assets continued
A critical judgment in the impairment indicator assessment was the likelihood of the Bitlyanska license being renewed
following the rejection of the application in 2020 and subsequent legal process that remains underway. Cadogan has
fully complied with legislative requirements and submitted its application for a 20-year exploration and production
license 5 months before its expiry on 23 December 2019. A decision on the award was expected to be provided by State
Geological Service of Ukraine before 19 January 2020, since all other intermediary approvals had been secured in line
with the applicable legislation requirements. Given the delay to granting of the new license beyond the regular timeline
provided by legislation in the Ukraine, Cadogan has launched a claim before the Administrative Court to challenge
the non-granting of the 20-year production license by the Licensing Authority. Given the compliance with license
commitments and renewal process and having considered legal advice received, management have a reasonable
expectation of the license being awarded. However, in the event the Group is ultimately unsuccessful the exploration
licence would hold no value and give rise to impairment.
16. Property, plant and equipment
Cost
At 1 January 2019
Additions
Change in estimate of decommissioning assets (note 24)
Disposals
Exchange differences
At 1 January 2020
Additions
Change in estimate of decommissioning assets (note 24)
Exchange differences
At 31 December 2020
Accumulated depreciation and impairment
At 1 January 2019
Charge for the year
Disposals
Exchange differences
At 1 January 2020
Charge for the year
Exchange differences
At 31 December 2020
Carrying amount
At 31 December 2020
At 31 December 2019
Development
and production
assets
$’000
8,532
8,213
135
(2,372)
2,004
16,512
259
(30)
(2,723)
14,018
5,772
495
(2,372)
810
4,705
595
(801)
Other
$’000
2,721
57
–
–
468
3,246
147
–
(540)
2,853
2,185
158
–
372
2,715
139
(445)
Total
$’000
11,253
8,270
135
(2,372)
2,472
19,758
406
(30)
(3,263)
16,871
7,957
653
(2,372)
1,182
7,420
734
(1,246)
4,499
2,409
6,908
9,519
11,807
444
531
9,963
12,338
Other property, plant and equipment include fixtures and fittings for the development and production activities.
The carrying amount of development and production assets at 31 December 2020 of $9,5 million relates to the Blazhiv
license. Depreciation includes $0.6 million for the Blazhiv license.
Management has performed an impairment review of Development and production assets. As part of the information
considered management carried out the assessment of the Blazhivska license’s recoverable amount based on the
underlying discounted cash flow forecasts. The impairment review supported the conclusion that no impairment
was applicable. Key assumptions used in the impairment assessment were: future oil prices which were assumed at
a constant $297 (2019: $308), real per tonne; a production forecast with a natural decline; estimated reserves and a
discount rate of 15%, nominal.
www.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 73
16. Property, plant and equipment continued
Sensitivity analysis for the Blazhiv license
Any impairment is dependent on judgement used in determining the most appropriate basis for the assumptions and
estimates made by management, particularly in relation to the key assumptions described above. Sensitivity analysis
to potential changes in key assumptions to reach break-even has been provided below:
Change in the assumptions to be break even
Oil price
Oil production volumes
Discount rate
(14%)
(20%)
22%
17. Subsidiaries
The Company had investments in the following subsidiary undertakings at 31 December 2020:
Name
Directly held
Cadogan Petroleum Holdings Ltd
Ramet Holdings Ltd
Indirectly held
Cadogan Petroleum Holdings BV
Cadogan Bitlyanske BV
Zagoryanska Petroleum BV
LLC Astro Gas
LLC Astroinvest-Energy
DP USENCO Ukraine
LLC USENCO Nadra
LLC Astro-Service
OJSC AgroNaftoGasTechService
Exploenergy s.r.l.
Country of
incorporation
and operation
UK
Cyprus
Proportion
of voting
interest % Activity
Registered office
100 Holding company
6th Floor 60 Gracechurch Street, London,
100 Holding company
EC3V 0HR, United Kingdom
48 Inomenon Ethnon, Guricon House,
Floor 2 & 3, 6042, Larnaca, Cyprus
Netherlands
Netherlands
Netherlands
Ukraine
100 Holding company
100 Holding company
100 Holding company
100 Exploration
100 Trading
100 Production
95 Production
Hoogoorddreef 15, 1101 BA Amsterdam
Hoogoorddreef 15, 1101 BA Amsterdam
Hoogoorddreef 15, 1101 BA Amsterdam
5a, Pogrebnyak Street, ap. 2, Zinkiv,
Poltava region, Ukraine, 38100
5a, Pogrebnyak Street, ap. 2, Zinkiv,
Poltava region, Ukraine, 38100
8, Mitskevycha sq.,Lviv, Ukraine,79000
9a, Karpenka-Karoho str., Sambir, Lviv
region, Ukraine
100 Service Company
79.9 Construction
3 Petro Kozlaniuk str, Kolomyia, Ukraine
Ivan Franko str, Hvizdets, Kolomyia district,
services
90 Exploration
Ivano-Frankivsk Region, Ukraine
Via Triulziana 16c, San Donato Milanese
Milano, CAP 20097, Italy
Ukraine
Ukraine
Ukraine
Ukraine
Ukraine
Italy
During the year ended 31 December 2020, the Group structure continued to be rationalised both to reduce the number
of legal entities and also to replace the structure of multiple jurisdictions with one based on a series of sub-holding
companies incorporated in the Netherlands for each licence area. In February 2020, the Group liquidated Rentoul Ltd.
In September 2020, the Group liquidated Momentum Enterprises (Europe) Ltd. In November 2020, the Group liquidated
Cadogan Ukraine Holdings Limited (Cyprus). In December 2020, Zagoryanska Petroleum BV merged Cadogan Astro
Enegy BV, Cadogan Pirkovskoe BV, Cadogan Pokrovska BV, Cadogan Zagoryanske Production BV and Cadogan Delta
BV.
In 2019, the Group disposed its subsidiaries LLC Astroinvest Ukraine and LLC Gazvydobuvannya for the consideration
of $4 million. At the date of disposal, the subsidiaries had $1.8 million of VAT recoverable balance which was previously
impaired in the Group’s accounts and $136 million accumulated tax losses which were not recognised historically due to
the lack of sufficient certainty regarding future profits to utilize the losses.
18. Inventories
Natural gas
Other inventories
Impairment provision
Carrying amount
2020
$’000
1,825
1,607
(1,276)
2019
$’000
4,949
1,984
(2,480)
2,156
4,453
The impairment provision at 31 December 2020 and 2019 is made so as to reduce the carrying value of the inventories
to the net realizable value. The reduction of the provision included c$1.0 million related to the sales of natural gas
during the year 2020.
OVERVIEWSTRATEGIC REPORTCORPORATE GOVERNANCEREMUNERATION REPORTFINANCIAL STATEMENTSGLOSSARYSHAREHOLDER INFORMATIONwww.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 74
Notes to the Consolidated
Financial Statements continued
For the year ended 31 December 2020
19. Trade and other receivables
VAT recoverable
Other receivables
2019
$’000
1,500
132
2018
$’000
2,402
237
1,632
2,639
The Group considers that the carrying amount of receivables approximates their fair value.
VAT recoverable is presented net of the cumulative provision of $1.5 million (2019: $2.4 million) against Ukrainian VAT
receivable that has been recognized as at 31 December 2020. VAT recoverable relates to the oil production and gas
trading operations and is expected to be recovered through the gas and oil sales VAT.
20. Notes supporting statement of cash flows
Cash at 31 December 2020 of $13.3 million (2019: $12.8 million) comprise cash held by the Group. The Directors
consider that the carrying amount of these assets approximates to their fair value. There were no cash transactions
from financing activities for the year 2020.
21. Deferred tax
The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during
the current and prior reporting period:
Asset as at 1 January 2019
Deferred tax benefit
Exchange differences
Asset as at 1 January 2020
Deferred tax benefit
Exchange differences
Asset as at 31 December 2020
Temporary
differences
$’000
501
–
–
501
–
(82)
419
At 31 December 2020, the Group had the following unused tax losses available for offset against future taxable profits:
UK
Ukraine
2020
$’000
56,437
49,364
105,801
2019
$’000
30,756
50,257
81,013
Deferred tax assets have been recognized in respect of those tax losses where there is sufficient certainty that profit
will be available in future periods against which they can be utilized. The Group’s unused tax losses of $56.4 million
(2019: $30.8 million) relating to losses incurred in the UK are available to shelter future non-trading profits arising
within the Company. These losses are not subject to a time restriction on expiry. No deferred tax asset is recorded.
Unused tax losses incurred by Ukraine subsidiaries amount to $49.4 million (2019: $50.3 million). Under general tax
law provisions, these losses may be carried forward indefinitely to be offset against any type of taxable income arising
from the same company. Tax losses may not be surrendered from one Ukraine subsidiary to another. The deferred
tax asset recorded is expected to be utilized based on forecasts and relates to oil production subsidiaries which are
generating taxable profits.
www.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 75
22. Lease liabilities
The Group recognized right-of-use assets and lease liabilities based on rental contract for a rent of Kyiv office with
maturity date end of February 2024 which was entered into in the period.
The following table sets out a maturity analysis of lease liability, showing the undiscounted lease payments to be paid
after the reporting date.
Year 1
Year 2
Year 3
Year 4
Less: unearned interest
Lease liabilities
Analysed as:
Current
Non-current
Lease liabilities
23. Trade and other payables
Accruals
Trade creditors
Other payables
2020
$’000
2019
$’000
106
110
118
20
(62)
292
2020
$’000
97
195
292
2020
$’000
213
605
569
1,387
–
–
–
–
–
–
2019
$’000
–
–
–
2019
$’000
604
253
409
1,266
Trade creditors and accruals principally comprise amounts outstanding for ongoing costs. The average credit period
taken for trade purchases is 30 days (2019: 29 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.
OVERVIEWSTRATEGIC REPORTCORPORATE GOVERNANCEREMUNERATION REPORTFINANCIAL STATEMENTSGLOSSARYSHAREHOLDER INFORMATIONwww.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 76
Notes to the Consolidated
Financial Statements continued
For the year ended 31 December 2020
24. Provisions
The provisions at 31 December 2020 comprise of $0.2 million (2019: $0.3 million) of decommissioning provision.
Decommissioning
At 1 January 2019
Change in estimate (note 15 and 16)
Additional provisions recognized in the period
Utilization of provision on impaired oil and gas assets
Unwinding of discount on decommissioning provision (note 12)
Exchange differences
At 1 January 2020
Change in estimate (note 15 and 16)
Additional provisions recognized in the period
Utilization of provision on impaired oil and gas assets
Unwinding of discount on decommissioning provision (note 12)
Exchange differences
At 31 December 2020
At 1 January 2019
Non-current
Current
At 1 January 2020
Non-current
Current
At 31 December 2020
$’000
315
(63)
135
(335)
164
73
289
(42)
–
–
22
(46)
223
315
289
–
289
223
–
223
In accordance with the Group’s environmental policy and applicable legal requirements as of 31st December 2020, the
Group intends to restore the sites it is working on after completing exploration or development activities.
A long-term provision of $0.2 million (2019: $0.3 million) has been made for decommissioning costs, which are
expected to be incurred at the end of the licenses period as a result of the demobilization of gas and oil facilities and
respective site restoration.
25. Share capital
Authorised and issued equity share capital
Authorised
Ordinary shares of £0.03 each
Issued
Ordinary shares of £0.03 each
2020
2019
Number
(’000)
$’000
Number
(‘000)
$’000
1,000,000
57,713
1,000,000
57,713
244,128
13,832
235,729
13,525
Authorized but unissued share capital of £30 million has been translated into US dollars at the historic exchange rate
of the issued share capital. The Company has one class of Ordinary shares, which carry no right to fixed income.
Issued equity share capital
At 31 December 2017
Issued during year
At 31 December 2018
Issued during year
At 31 December 2019
Issued during year
At 31 December 2020
Ordinary shares
of £0.03
Number
235,729,322
–
235,729,322
–
235,729,322
8,399,165
244,128,487
Mr Khallouf was appointed as Chief Executive Officer on 15 November 2019. As part of Mr Khallouf’s employment
agreement, a welcome bonus equivalent in value to 5,500,000 ordinary shares (using the market value of the shares
on the business day prior to the date of issue) is payable to Mr Khallouf and a holding period of two years is applicable
to the shares acquired. Pursuant to the terms of the bonus, the amount must be subscribed for ordinary shares in the
Company at such time as the executive agrees. The welcome bonus was provided to Mr Khallouf in May 2020.
www.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 77
25 Share capital continued
Following shareholders’ approval of the new Remuneration Policy, Mr Michelotti received in 2019 the Performance
Bonus of €100,000 awarded to him based on the achievement versus his 2019 scorecard and without a discretionary
element. The Remuneration Committee decided to award in shares 50% of the awarded bonus less taxes and
social contribution and therefore the €100,000 bonus was split in €72,500 cash (inclusive of income tax and social
contributions to be paid by Mr Michelotti on the entire awarded amount) and €27,500 in shares priced at their market
value at closing on the Business Day prior to the Subscription Date. The shares element was paid in May 2020.
26. Financial instruments
Capital risk management
The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern, while
maximising the return to shareholders.
The capital resources of the Group consist of cash arising from equity attributable to owners of the Company,
comprising issued capital, reserves and retained earnings as disclosed in the Consolidated Statement of Changes in
Equity.
Externally imposed capital requirement
The Group is not subject to externally imposed capital requirements.
Categories of financial instruments
Financial assets (includes cash)
Financial assets at fair value through profit and loss
Cash – amortised cost
Other receivables – amortised cost
Financial liabilities – measured at amortised cost
Trade creditors
Lease liabilities
Accruals
Other payables
2020
$’000
16,812
13,253
132
30,197
605
292
213
569
1,679
2019
$’000
15,707
12,834
237
28,778
253
–
604
409
1,266
Refer to note 4(d) for details of the terms of the Proger loan recorded as a financial asset at fair value through profit
and loss. The instrument is recorded at management’s best estimate of fair value as set out in note 4(d) although
management have not been able to undertake a valuation exercise under the income method based on Proger’s
underlying cash flows or market-based method which would incorporate relevant recent financial information on the
investee or its prospects.
Financial assets at fair value through profit and loss
As at 1 January 2019
Long-term loans provided
Movement in FVPL
Exchange differences
As at 1 January 2020
Movement in FVPL
Exchange differences
As at 31 December 2020
$’000
–
15,246
697
(236)
15,707
(334)
1,439
16,812
The Group has applied a level 3 valuation under IFRS as inputs to the valuation have included assessment of the cash
repayments anticipated under the loan terms at maturity, delayed by the arbitration process requested by PMP (the
Borrower), historical financial information for the periods prior to 2020 and assessment of the security provided by
the pledge over shares together with the impact of the Covid-19 on the activity of Proger. As a result, $16.8 million was
determined as the best estimate of fair value, being equal to anticipated receipts and timing thereof discounted at an
estimated market rate of interest of 7.8%. However, there is significant estimation uncertainty given the limitations
on information provided by Proger and the ongoing process to recover the loan principal and interest. The estimate of
fair value is based on key assumptions in respect of the period to receipt and market rate of interest for an equivalent
instrument at 31 December 2020. A 3 month change in the timing of receipt would increase/(decrease) the fair value
by $0.3 million/$0.3 million or a 1% change to the market rate of interest would increase/(decrease) the fair value by
$0.14 million/$0.14 million.
OVERVIEWSTRATEGIC REPORTCORPORATE GOVERNANCEREMUNERATION REPORTFINANCIAL STATEMENTSGLOSSARYSHAREHOLDER INFORMATIONwww.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 78
Notes to the Consolidated
Financial Statements continued
For the year ended 31 December 2020
26 Financial instruments continued
If the Group had been provided with information to complete a valuation under the income method or market method
the key assumptions would have included: a) In terms of the income method: forecast revenues, EBITDA and unlevered
free cash flows of the investee including assessment of performance against its original business plan at the time the
loan was advanced, growth rates and terminal values, determination of an appropriate discount rate, adjustments
to the enterprise value for debt and working capital adjustments; b) In terms of the market method: 2020 EBITDA
and information to assess the quality of such earnings, enterprise value multiples based on a basket of comparable
transactions and companies, adjustments to the enterprise value for debt and working capital adjustments and other
risk adjustment factors.
The Group considers that the carrying amount of financial instruments approximates their fair value.
Financial risk management objectives
Management co-ordinates access to domestic and international financial markets and monitors and manages the
financial risks relating to the operations of the Group in Ukraine through internal risks reports, which analyse
exposures by degree and magnitude of risks. These risks include commodity price risks, foreign currency risk, credit
risk, liquidity risk and cash flow interest rate risk. The Group does not enter into or trade financial instruments,
including derivative financial instruments, for speculative purposes.
The Audit Committee of the Board reviews and monitors risks faced by the Group at meetings held throughout the
year.
Interest rate risk
Interest rate risk arises from the possibility that changes in interest rates will affect the value of the financial
instruments. The Group is not exposed to interest rate risk because entities of the Group borrow funds at fixed interest
rates.
Commodity price risk
The commodity price risk related to Ukrainian gas and condensate prices and prices for crude oil are the Group’s most
significant market risk exposures. World prices for gas and crude oil are characterised by significant fluctuations that
are determined by the global balance of supply and demand and worldwide political developments, including actions
taken by the Organization of Petroleum Exporting Countries.
These fluctuations may have a significant effect on the Group’s revenues and operating profits going forward. In 2020
the price for Ukrainian gas significantly decreased and was mainly based on the current price of the European gas
imports. Management continues to expect that the Group’s principal market for gas will be the Ukrainian domestic
market.
The Group does not hedge market risk resulting from fluctuations in gas, condensate and oil prices, and holds no
financial instruments, which are sensitive to commodity price risk.
Foreign exchange risk and foreign currency risk management
The Company holds a large portion of its monetary assets in the US Dollars and Euro, mitigating the exchange risk
between the US Dollars and Euro and monetary liability in the US Dollars.
Inflation risk management
Inflation in Ukraine and in the international market for oil and gas may affect the Group’s cost for equipment and
supplies. The Directors will proceed with the Group’s practices of keeping deposits in US dollar accounts until funds are
needed and selling its production in the spot market to enable the Group to manage the risk of inflation.
Credit risk management
Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the
Group. The Group’s credit management process includes the assessment, monitoring and reporting of counterparty
exposure on a regular basis. Credit risk with respect to receivables and advances is mitigated by active and continuous
monitoring the credit quality of its counterparties through internal reviews and assessment. There was no material
past due receivables as at year end.
The Group makes allowances for expected credit losses on receivables in accordance with its accounting policy.
The credit risk on liquid funds (cash) is considered to be limited because the counterparties are financial institutions
with high and good credit ratings, assigned by international credit-rating agencies in the UK and Ukraine respectively.
The carrying amount of financial assets recorded in the financial statements represents the Group’s maximum
exposure to credit risk.
www.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 79
26 Financial instruments continued
Liquidity risk management
Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has built an appropriate
liquidity risk management framework for the management of the Group’s short, medium and long-term funding and
liquidity management requirements. The Group manages liquidity risk by maintaining adequate cash reserves and by
continuously monitoring forecast and actual cash flows.
The following tables sets out details of the expected contractual maturity of financial liabilities.
At 31 December 2019
Trade and other payables
At 31 December 2020
Trade and other payables
Lease liability
Within
3 months
$’000
3 months to
1 year
$’000
More than
1 year
$’000
Total
$’000
1,266
1,387
–
–
–
106
–
1,266
–
248
1,387
354
27. Commitments and contingencies
The Group has working interests in four licences to conduct its exploration and development activities in Ukraine. Each
license 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 license obligations are as
follows:
Within one year
Between two and five years
2020
$’000
–
2,058
2,058
2019
$’000
–
2,573
2,573
Tax contingent liabilities
The Group assesses its liabilities and contingencies for all tax years open for audit by UK, Netherlands and Ukraine tax
authorities based upon the latest information available. Where management concludes that it is not probable that a
particular tax treatment is accepted, a provision is recorded based on the most likely amount or the expected value of
the tax treatment when determining taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax
rates. The decision should be based on which method provides better predictions of the resolution of the uncertainty.
Inherent uncertainties exist in estimates of tax contingencies due to complexities of interpretation and changes in tax
laws.
Whilst the Group believes it has adequately provided for the outcome of these matters, certain periods are under
audit by the UK, Netherlands and Ukraine tax authorities, and therefore future results may include favourable or
unfavourable adjustments to these estimated tax liabilities in the period the assessments are made or resolved. The
final outcome of tax examinations may result in a materially different outcome than assumed in the tax liabilities.
After an inspection conducted by Ukraine’s tax authorities in September 2019, Astroinvest Energy LLC was notified
of a tax claim related to the historic costs for the liquidation of wells on the Zagoryanska license. The tax authorities
notified Astroinvest Energy LLC that they consider recoverable VAT ($3.6 million) that has subsequently been used
to offset output VAT to be non-deductible and additionally that the subsidiary’s tax losses carry forward should be
reduced by $15.3 million (Note 21). Astroinvest Energy LLC has launched a claim against the tax authority’s decision on
the basis of the current tax legislation and related court decisions and considers the potential for a liability to be less
than probable.
If unsuccessful Astroinvest Energy LLC would offset the amount of notified tax losses with part of the historical
accumulated tax losses. The disputed amount of VAT would be partially covered with recoverable VAT not recognized
as of 31 December 2020 (note 19) such that the eventual impact would be $2.1 million.
OVERVIEWSTRATEGIC REPORTCORPORATE GOVERNANCEREMUNERATION REPORTFINANCIAL STATEMENTSGLOSSARYSHAREHOLDER INFORMATIONwww.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 80
Notes to the Consolidated
Financial Statements continued
For the year ended 31 December 2020
28. Related party transactions
All transactions between the Company and its subsidiaries, which are related parties, have been eliminated
on consolidation and are not disclosed in this note. The application of IFRS 11 resulted in the joint venture LLC
Westgasinvest being accounted for under the equity method and disclosed as a related party.
In February 2019, the Group entered in a 2-year loan agreement with Proger Management & Partners Srl with
an option to convert it into a direct 33% equity interest in Proger Ingegneria. At that time, Mr Michelotti was a
non-executive Director of Proger Ingegneria Srl and Proger Spa, and CEO of Cadogan Petroleum PLC. Mr Michelotti
did not participate to the voting for the approval of the loan agreement at the Board of Cadogan.
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
Amounts owed by related parties
2020
$’000
–
–
2019
$’000
–
–
Directors’ remuneration
The remuneration of the Directors, who are the key management personnel of the Group, is set out below in
aggregate for each of the categories specified in IAS 24 Related Party Disclosures. Further information about the
remuneration of individual Directors is provided in the audited part of the Annual Report on Remuneration 2020 on
page 31.
Directors’ remuneration
Social contribution on Directors’ remuneration
Purchase of services
2019
$’000
2020
$’000
853
81
1,454
76
Amounts owing
2020
$’000
–
–
2019
$’000
594
–
The total remuneration of the highest paid Director was $0.6 million in the year (2019: $0.6 million).
No guarantees have been given or received and no provisions have been made for doubtful debts in respect of the
amounts owed by related parties.
29. Events after the balance sheet date
In February 2019, the Group entered in a 2-year loan agreement with Proger Management & Partners Srl with an option
to convert it into a 33% equity interest in Proger Ingegneria Srl which in turn held at 31 December 2020 a 75.95%
equity interest in Proger Spa.
The Borrower subsequently defaulted in payment. The Call Option was not exercised and the Company notified PMP for
the Loan reimbursement at the Maturity Date, 25 February 2021. According to the Loan Agreement, PMP is in default
for the non-reimbursement of EUR 14,857,350 being the principal and the accumulated interest.
End of March 2021, PMP contested the default situation and the obligation to reimburse and asked for an Arbitration
according to the said Loan Agreement to get the Loan Agreement recognised as an investment contract. Cadogan
consider PMP’s arguments as groundless and consider that they are intended to delay PMP reimbursement obligations.
The Group determined $16.8 million as the best estimate of fair value, being equal to anticipated receipts and timing
thereof discounted at an estimated market rate of interest of 7.8%.
www.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 Company Balance Sheet
As at 31 December 2020
81
ASSETS
Non-current assets
Receivables from subsidiaries
Current assets
Trade and other receivables
Cash
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Total liabilities
Net assets
EQUITY
Share capital
Share premium
Retained earnings1
Other reserve
Cumulative translation reserves
Total equity
Notes
2020
$’000
2019
$’000
33
33
33
34
35
36
38,598
38,598
3
5,759
5,762
37,324
37,324
–
6,971
6,971
44,360
44,295
(240)
(240)
(240)
(350)
(350)
(350)
44,120
43,945
13,832
514
138,493
–
(108,719)
13,525
329
138,318
492
(108,719)
44,120
43,945
The financial statements of Cadogan Petroleum plc, registered in England and Wales no. 05718406, were approved by
the Board of Directors and authorized for issue on 5 May 2021.
They were signed on its behalf by:
Fady Khallouf
Chief Executive Officer
5 May 2021
1
Included in retained earnings, profit for the financial year ended 31 December 2020 was $0.2 million (2019: loss $1.8 million).
The notes on pages 84 to 86 form part of these financial statements.
OVERVIEWSTRATEGIC REPORTCORPORATE GOVERNANCEREMUNERATION REPORTFINANCIAL STATEMENTSGLOSSARYSHAREHOLDER INFORMATIONwww.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 82
Company Cash Flow Statement
For the year ended 31 December 2020
Operating activities
Profit/(loss) for the year
Adjustments for:
Interest received
Effect of foreign exchange rate changes
Other payables to subsidiaries written off
Movement in provisions
Operating cash flows before movements in working capital
Increase in receivables
(Decrease)/Increase in payables
Cash used in operations
Income taxes paid
Net cash outflow from operating activities
Investing activities
Interest received
Loans to subsidiary companies
Net cash used in investing activities
Net decrease in cash
Effect of foreign exchange rate changes
Cash at beginning of year
Cash at end of year
2020
$’000
2019
$’000
175
(1,788)
(24)
(1,617)
–
(32)
(1,498)
(77)
(80)
(1,655)
–
(1,655)
24
–
24
(1,631)
419
6,971
5,759
(50)
143
(382)
–
(2,077)
(2,699)
530
(4,246)
–
(4,246)
50
(6,237)
(6,187)
(10,433)
(73)
17,477
6,971
The notes on pages 84 to 86 form part of these financial statements.
www.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 Company Statement of Changes in Equity
For the year ended 31 December 2020
83
As at 1 January 2019
Net loss for the year
Total comprehensive loss for
the year
Share based award
Share
capital
$’000
13,525
–
–
–
Share
premium
account
$’000
329
–
–
–
Retained
earnings
$’000
140,106
(1,788)
(1,788)
–
As at 1 January 2020
13,525
329
138,318
Net income for the year
Total comprehensive income for
the year
Issue of ordinary shares
As at 31 December 2020
–
–
307
13,832
–
–
185
514
175
175
–
Other
Reserve
$’000
79
–
–
413
492
–
–
(492)
Cumulative
translation
reserves
$’000
(108,719)
–
–
–
Total
$’000
45,320
(1,788)
(1,788)
413
(108,719)
43,945
–
–
–
175
175
–
138,493
–
(108,719)
44,120
The notes on pages 84 to 86 form part of these financial statements.
OVERVIEWSTRATEGIC REPORTCORPORATE GOVERNANCEREMUNERATION REPORTFINANCIAL STATEMENTSGLOSSARYSHAREHOLDER INFORMATIONwww.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 84
Notes to the Company Financial Statements
For the year ended 31 December 2020
30. Significant accounting policies
The separate financial statements of the Company are presented as required by the Companies Act 2006 (the “Act”).
As permitted by the Act, the separate financial statements have been prepared in accordance with International
Accounting 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 profit for the financial year ended 31 December 2020 of $0.2 million (2019: Loss
$1.8 million).
Investments
Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment.
Receivables from subsidiaries
Loans to subsidiary undertakings are subject to IFRS 9’s new expected credit loss model. As all intercompany loans
are repayable on demand, the loan is considered to be in stage 3 of the IFRS 9 ECL model on the basis the subsidiary
does not have enough liquid assets in order to repay the loans if demanded. Lifetime ECLs are determined using all
relevant, reasonable and supportable historical, current and forward-looking information that provides evidence about
the risk that the subsidiaries will default on the loan and the amount of losses that would arise as a result of that
default. Analysis indicated that the Company will fully recover the carrying value of the loans (net of historic credit loss
provisions) so no additional ECL has been recognised in the current period.
Critical accounting judgements and key sources of estimation uncertainty
The Company’s financial statements, and in particular its investments in and receivables from subsidiaries, are affected
by certain of the critical accounting judgements and key sources of estimation uncertainty.
The critical estimates and judgments referred to application of the expected credit loss model to intercompany
receivables (note 33). Management determined that the interest free on demand loans were required to be assessed
on the lifetime expected credit loss approach and assessed scenarios considering risks of loss events and the
amounts which could be realised on the loans. In doing so, consideration was given to factors such as the cash held
by subsidiaries and the underlying forecasts of the Group’s divisions and their incorporation of prospective risks and
uncertainties.
31. Auditor’s remuneration
The auditor’s remuneration for audit and other services is disclosed in note 10 to the Consolidated Financial Statements.
32. Investments
The Company’s subsidiaries are disclosed in note 17 to the Consolidated Financial Statements. The investments in
subsidiaries are all stated at cost less any provision for impairment.
33. Financial assets
The Company’s principal financial assets are bank balances and cash and receivables from related parties none of
which are past due. The Directors consider that the carrying amount of receivables from related parties approximates
to their fair value.
Receivables from subsidiaries
At the balance sheet date gross amounts receivable from the fellow Group companies were $351 million (2019:
$349.9 million). The Company recognized no additional expected credit loss provisions in relation to receivables from
subsidiaries in 2020 (2019: nil). The accumulated provision on receivables at 31 December 2020 was $312.4 million
(2019: $312.6 million). Changes in accumulated provision on receivables of $0.2 million occurred due to the liquidation
of the subsidiary during 2020 (Note 17). The carrying value of the receivables from the fellow Group companies at
31 December 2020 was $38.6 million (2019: $37.3 million). Receivables from subsidiaries are interest free and repayable
on demand. There are no past due receivables. The receivables are classified as non-current based on the expected
timing of receipt notwithstanding their terms.
Cash
Cash comprises cash held by the Company and short-term bank deposits with an original maturity of three months or
less. The carrying value of these assets approximates to their fair value.
www.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 85
34. Financial liabilities
Trade and other payables
Accruals
Other creditors and payables
2020
$’000
139
101
240
2019
$’000
211
139
350
Trade payables principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit
period taken for trade purchases is 30 days (2019: 34 days).
The Directors consider that the carrying amount of trade and other payables approximates to their fair value. No
interest is charged on balances outstanding.
35. Share capital
The Company’s share capital is disclosed in note 25 to the Consolidated Financial Statements.
36. Cumulative translation reserve
The directors decided to change the functional currency of the Company from sterling to US dollars with effect from
1 January 2016. The effect of a change in functional currency is accounted for prospectively. In other words, the Company
translates all items into the US dollar using the exchange rate at the date of the change. The resulting translated amounts
for non-monetary items are treated as their historical cost. Exchange differences arising from the translation of an
operation previously recognised in other comprehensive income in accordance with paragraphs 32 and 39(c) IAS 21
“Foreign Currency” are not reclassified from equity to profit or loss until the disposal of the operation.
37. Financial instruments
The Company manages its capital to ensure that it is able to continue as a going concern while maximising the return
to shareholders. Refer to note 26 for the Group’s overall strategy and financial risk management objectives.
The capital resources of the Company consist of cash arising from equity, comprising issued capital, reserves and
retained earnings.
Categories of financial instruments
Financial assets – loans and receivables (includes cash)
Cash
Amounts due from subsidiaries
Financial liabilities – measured at amortized cost
Trade creditors
2020
$’000
5,759
38,598
2019
$’000
6,971
37,324
44,357
44,295
(101)
(101)
(139)
(139)
Interest rate risk
All financial liabilities held by the Company are non-interest bearing. As the Company has no committed borrowings,
the Company is not exposed to any significant risks associated with fluctuations in interest rates.
Credit risk
Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the
Company. For cash, the Company only transacts with entities that are rated equivalent to investment grade and above.
Other financial assets consist of amounts receivable from related parties.
The Company’s credit risk on liquid funds is limited because the counterparties are banks with high credit ratings
assigned by international credit-rating agencies.
The carrying amount of financial assets recorded in the Company financial statements, which is net of any impairment
losses, represents the Company’s maximum exposure to credit risk.
OVERVIEWSTRATEGIC REPORTCORPORATE GOVERNANCEREMUNERATION REPORTFINANCIAL STATEMENTSGLOSSARYSHAREHOLDER INFORMATIONwww.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 86
Notes to the Company
Financial Statements continued
For the year ended 31 December 2020
37. Financial instruments continued
Liquidity risk management
Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has built an appropriate
liquidity risk management framework for the management of the Company’s short, medium and long-term funding and
liquidity management requirements. The Company maintains adequate reserves, by continuously monitoring forecast
and actual cash flows.
The Company’s financial liabilities are not significant and therefore no maturity analysis has been presented.
Foreign exchange risk and foreign currency risk management
The Company holds a large portion of its monetary assets in the US Dollars and Euro, mitigating the exchange risk
between the US Dollars and Euro and monetary liability in the US Dollars. More information on the foreign exchange
risk and foreign currency risk management is disclosed in note 26 to the Consolidated Financial Statements.
38. Related parties
Amounts due from subsidiaries
The Company has entered into a number of unsecured related party transactions with its subsidiary undertakings. The
most significant transactions carried out between the Company and its subsidiary undertakings are mainly for short
and long-term financing. Amounts owed from these entities are detailed below:
Cadogan Petroleum Holdings Limited
2020
$’000
38,598
38,598
2019
$’000
37,324
37,324
Refer to note 32 for details on the Company’s receivables due from subsidiaries.
The remuneration of the Directors, who are the key management personnel of the Group, is set out below in
aggregate for each of the categories specified in IAS 24 Related Party Disclosures. In 2020 there were no other
employees in the Company. Further information about the remuneration of individual Directors is provided in the
audited part of the Annual Report on Remuneration 2020 on pages 30 to 35.
Directors’ remuneration
Social contribution on Directors’ remuneration
Remuneration
Amounts owing
2020
$’000
853
81
2019
$’000
1,454
76
2020
$’000
–
–
2019
$’000
594
–
The total remuneration of the highest paid Director was $0.6 million in the year (2019: $0.6 million).
39. Events after the balance sheet date
Events after the balance sheet date are disclosed in note 29 to the Consolidated Financial Statements.
www.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 87
Glossary
IFRSs
JAA
UAH
GBP
$
bbl
boe
mmboe
mboe
mboepd
boepd
bcf
mmcm
mcm
Reserves
Proved Reserves
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.
Probable Reserves
Those additional Reserves which analysis of geoscience and engineering data indicate
are less likely to be recovered than proved Resources but more certain to be recovered
than possible Reserves.
Possible Reserves
Those additional Reserves which analysis of geoscience and engineering data indicate
are less likely to be recoverable than probable Reserves.
Contingent Resources
Those quantities of petroleum estimated, as of a given date, to be potentially recoverable
from known accumulations by application of development projects, but which are not
currently considered to be commercially recoverable due to one or more contingencies.
Prospective Resources
Those quantities of petroleum which are estimated as of a given date to be potentially
recoverable from undiscovered accumulations.
P1
P2
P3
1P
2P
3P
Workover
E&E/E&P
LTI
Proved Reserves
Probable Reserves
Possible Reserves
Proved Reserves
Proved plus Probable Reserves
Proved plus Probable plus Possible Reserves
The process of performing major maintenance or remedial treatment of an existing oil or
gas well
Exploration and Evaluation/Exploration and Production
Lost time incidents
OVERVIEWSTRATEGIC REPORTCORPORATE GOVERNANCEREMUNERATION REPORTFINANCIAL STATEMENTSGLOSSARYSHAREHOLDER INFORMATIONwww.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020 88
Shareholder Information
Enquiries relating to the following administrative matters should be addressed to the Company’s registrars: Link Group,
10th Floor, Central Square, 29 Wellington Street, Leeds LS1 4DL.
Telephone: 0371 664 0300. Calls are charged at the standard geographic rate and will vary by provider. Calls outside
the United Kingdom will be charged at the applicable international rate. Lines are open between 09:00 – 17:30, Monday
to Friday excluding public holidays in England and Wales.
>
Loss of share certificates.
> Notification of change of address.
>
Transfers of shares to another person.
> Amalgamation of accounts: if you receive more than one copy of the Annual Financial Report, you may wish to
amalgamate your accounts on the share register.
You can access your shareholding details and a range of other services at the Shareholder Portal www.signalshares.com.
Information concerning the day-to-day movement of the share price of the Company can be found on the Group’s website
www.cadoganpetroleum.com or that of the London Stock exchange www.prices.londonstockexchange.com.
Unsolicited mail
As the Company’s share register is, by law, open to public inspection, shareholders may receive unsolicited mail from
organisations that use it as a mailing list. To reduce the amount of unsolicited mail you receive, contact: The Mailing
Preference Service, FREEPOST 22, London W1E 7EZ. Telephone: 0845 703 4599. Website: www.mpsonline.org.uk.
Financial calendar 2020/2021
Annual General Meeting
Half Yearly results announced
Annual results announced
June 2021
August 2020
May 2021
Investor relations
Enquiries to: info@cadoganpetroleum.com
Registered office
Shakespeare Martineau LLP,
6th Floor, 60 Gracechurch Street, London EC3V 0HR
Registered in England and Wales no. 05718406
Ukraine
48/50A Zhylyanska Street
Business center “Prime”, 8th floor
01033 Kyiv
Ukraine
Email: info@cadoganpetroleum.com
Tel:
Fax:
+38 044 594 58 70
+38 044 594 58 71
www.cadoganpetroleum.com
www.cadoganpetroleum.comCadogan Petroleum plc Annual financial report 2020
Investor relations
Enquiries to: info@cadoganpetroleum.com
Registered office
Shakespeare Martineau LLP
6th Floor, 60 Gracechurch Street, London EC3V 0HR
Company number
Registered in England and Wales no. 5718406
Ukraine
48/50A Zhylyanska Street
Business Center “Prime”, 8th floor
01033 Kyiv
Ukraine
Email: info@cadoganpetroleum.com
+38 044 594 58 70
Tel:
+38 044 594 58 71
Fax:
www.cadoganpetroleum.com