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Relentless
Focus
underway.
At the VAS field, planning for a
proposed new well to explore the
VED prospect within the VAS licence
area has continued, and upgrades to
the gas processing facilities, flow-line
network and other infrastructure are
Overall production continued its
upward trend during the year, achieving
record levels for the Group and being
approximately 6.5% higher than in
2019, with a substantial boost in May
2020, when the SV-54 well came on
production.
Production
The average daily production of gas,
condensate and
6.5% higher
GOL
Enwell Energy plc Annual Report and Financial Statements for the year ended 31 December 2020
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We are an oil and gas
business focused on
careful, disciplined
growth in our operations
in Ukraine. Our success
is founded on rigorous
planning, careful use of
cutting-edge technology,
responsible resource
stewardship, and a highly
experienced team. Meet
an energy business
that’s listening to its
stakeholders.
Contents
Strategic report
Highlights
Where We Operate
Our Marketplace – Ukraine
Chairman’s Statement
Chief Executive’s Statement
Focus for Growth
Business Model
Our Strategic Priorities
Statement Under S172(1)
Companies Act 2006
Overview of Assets
Overview of Reserves
Finance Review
COVID-19 Pandemic
02
04
05
06
08
11
12
13
14
16
19
20
22
Corporate Social Responsibility Overview 23
Principal Risks and Uncertainties
Governance
Board of Directors
Corporate Governance Statement
Directors’ Report
Independent Auditors’ Report
Financials
Consolidated Income Statement
Consolidated Statement of
Comprehensive Income
Company Statement of
Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of
Changes in Equity
Consolidated Cash Flow Statement
Company Balance Sheet
Company Statement of
Changes in Equity
Company Cash Flow Statement
Notes forming part of the financial
statements
Advisers
Glossary
24
32
34
37
39
45
46
46
47
48
49
50
51
52
53
83
84
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Rigorous control
of our production
processes and costs
Operating
expenditure
per boe
$9.50
Capital structure
to implement our
near-term strategy
Reserves growth
increase since 2013
by a factor of four
2P reserves
49
MMboe
Cash year-end
$61
million
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STRATEGIC REPORT Highlights
Production
Revenue
Up 6.5%
4,541boepd
(2019: 4,263 boepd)
Down 15%
$47.3m
(2019: $55.9 million)
Cash generated from
operations
Down 4%
$23.8m
(2019: $24.7 million)
Operational
■ Aggregate average daily production of 4,541 boepd (2019: 4,263 boepd), an increase of
approximately 6.5%
■ SV-54 development well successfully completed and brought on production in May 2020
■ Drilling of SV-25 appraisal well successfully completed and hooked up for production in Q1 2021
■ MEX-GOL and SV production licences each extended to 2040, enabling full economic development
of remaining reserves
■ No operational disruption to the Group’s operations linked to the COVID-19 pandemic
Financial
■ Revenue of $47.3 million (2019: $55.9 million), down 15% as a function of weakened gas prices in
the year
■ Gross profit of $15.7 million (2019: $23.5 million), down 33%
■ Cash generated from operations of $23.8 million (2019: $24.7 million), remained steady, predominantly
due to record production increasing non-cash DD&A
■ Net profit of $3.2 million (2019: $12.2 million)
■ Cash and cash equivalents were steady at $61.0 million at 31 December 2020 (2019: $62.5 million)
■ Average realised gas, condensate and LPG prices in Ukraine were lower, particularly gas prices, at
$136/Mm3 (UAH3,618/Mm3), $46/bbl and $46/bbl respectively (2019: $219/Mm3 (UAH5,729/Mm3)
gas, $58/bbl condensate and $55/bbl LPG)
02
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Enwell Energy plc // Annual Report and Financial Statements 2020 Outlook
■ Development work planned for 2021 at the MEX-GOL and SV fields includes: completing drilling
operations of the SV-29 well; planning for a further new well or sidetracking of an existing well in the
SV field; and upgrading of the gas processing facilities
■ Development work planned for 2021 at the VAS field includes: planning for a new well to explore the
VED prospect within the VAS licence area; and upgrading of the gas processing facilities
■ Development work planned for 2021 at the SC field includes: planning for the drilling of the SVIST-4
well; and acquisition of 150 km2 of 3D seismic
■ 2021 development programme expected to be funded from existing cash resources and operational
cash flow
Why we have a strong future:
■ We see a growth market ahead in Ukraine as domestic demand expands
■ We have a significant reserves base
■ We aim for a production to reserves ratio of 7% (currently at 3%)
■ We apply our skills and technology to enable us to produce at low cost
■ We place great emphasis on safety and environmental awareness, and we design
our processes to achieve accident-free operations
■ We have no debt and sufficient funding resources and contingency plans to deliver
our near-term plans
■ We apply rigorous selection criteria when investigating new business opportunities
Read more about
our markets on pages •• and ••
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STRATEGIC REPORT Where We Operate
MEX-GOL & SV Fields
VAS Field
SC Field
Our licences for the MEX-GOL and SV
fields cover an area of 253 km².
The remaining 2P reserves are
46.3 MMboe, with 3C contingent
resources of 25.3 MMboe.
The VAS licence covers an area of
33.2 km² and has remaining 2P
reserves of 2.7 MMboe and 3C
contingent resources of 0.6 MMboe,
while prospective resources in
the VED block are estimated at
7.7 MMboe.
The SC licence covers an area of
97 km², and while 2P reserves are yet
to be assessed, C1 and C2 reserves
of 38 MMboe under Ukrainian
classification (DKZ) are attributable to
the licence.
Working
Interest %
100
2P Reserves
MMboe
46.3
Working
Interest %
100
2P Reserves
MMboe
2.7
Working
Interest %
100
2P Reserves
MMboe
0
04 Enwell Energy plc // Annual Report and Financial Statements 2020
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Our Marketplace – Ukraine
Why we operate exclusively in Ukraine:
■ Improved fiscal and economic conditions
in Ukraine
■ Reasonable stability in the Ukrainian
currency, reasonably stable rate of
inflation, international market-based
hydrocarbon prices and subsoil taxes
trending lower
■ Improvements in the Ukrainian
regulatory procedures in the oil and
gas sector
■ Encouraging recent legislation for the oil
and gas sector in Ukraine, demonstrating
the Ukrainian Government’s stated
intention to promote and support the
domestic oil and gas production industry
Resource size
Ukraine has a significant available gas
resource, particularly in the Dnieper Donets
basin where our licences are located, with
a national total of in excess of 35 Tscf.
Domestic market dynamics
Ukraine remains a net importer of gas, with
consumption of approximately 30 Bm3 per
year, of which only around two thirds is met
by domestic production.
The offtake of our gas production has
previously been by industrial consumers
within the industrial segment of the market,
but completion of the liberalisation of the
gas market in Ukraine is opening up to us the
Household and Heat and Electricity market
segments. This liberalisation will also drive
convergence of prices for industrial and
household consumers.
Regulatory environment
The regulatory environment in Ukraine
has steadily improved in recent years,
and has importantly included reductions
in production-related taxes, which were
introduced from 2018, as detailed further in
the Finance Review.
Licensing regime
Electronic auctions of oil and gas licences
were introduced by the Ukrainian
Government and State Geological Survey
of Ukraine in 2018, increasing transparency
in licence competition and awards.
Domestic production and consumption, Bm3
32.5
29.8
30.0
21.0
20.7
20.2
3
m
B
e
m
u
o
V
l
2018
2019
Year
2020
Domestic production
Domestic consumption
Supply of Ukrainian gas market
31%
69%
Domestic production
European imports
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STRATEGIC REPORT
Chairman’s Statement
Chris Hopkinson
Chairman
“The Group delivered a solid
financial performance for
the year, despite the higher
production levels being
offset by a lower average
gas price during the year,
as a result of weakened
European gas prices”
I am delighted to present the 2020 Annual Report and Financial
Statements. While 2020 was an unprecedented year globally as a
result of the COVID-19 pandemic, I am pleased to report that the
Group has not been significantly affected on an operational level, and
has achieved a robust performance despite the backdrop.
The Group has continued to make good
progress in the development of the MEX-
GOL, SV and VAS gas and condensate fields
in north-eastern Ukraine, and has delivered
a solid financial performance during the
year. Drilling of the SV-54 development well
was successfully completed and brought
on production in May 2020, while the SV-25
appraisal well was spudded in July 2020 and
completed and brought on production in
Q1 2021.
At the MEX-GOL and SV fields, production
was stable during 2020, with higher
production volumes compared with 2019. At
the VAS field, production was also steady,
but lower than during 2019 after a decline in
production from the VAS-10 well in
late 2019.
Aggregate average daily production from
the MEX-GOL, SV and VAS fields during
2020 was 4,541 boepd, which compares
favourably with an aggregate daily
production rate of 4,263 boepd during 2019,
an increase of approximately 6.5%.
The Group delivered a solid financial
performance for the year, despite the higher
production levels being offset by a lower
average gas price during the year, as a result
of weakened European gas prices. During
2020, the Group achieved a net profit of
$3.2 million (2019: $12.2 million) despite
the weak gas prices, while cash generated
from operations during the year was steady
at $23.8 million (2019: $24.7 million),
predominantly due to the higher production
rates increasing non-cash depreciation,
depletion and amortisation (DD&A).
The fiscal and economic environment in
Ukraine remains stable, despite the effects
of the COVID-19 pandemic resulting in a
contraction in GDP and an increase in the
rate of inflation, and recently Ukrainian
Hryvnia exchange rates have been steady.
Nevertheless, future fiscal and economic
uncertainties remain in the Ukrainian market
and we continue to be vigilant.
The Ukrainian Government has implemented
a number of reforms in the oil and gas
sector in recent years, which include the
deregulation of the gas supply market in
late 2015, and, more recently, reductions
in the subsoil tax rates relating to oil and
gas production and a simplification of the
regulatory procedures applicable to oil and
gas exploration and production activities
in Ukraine.
The deregulation of the gas supply market,
supported by electronic gas trading platforms
and improved pricing transparency, has
meant that the market gas prices in Ukraine
now broadly correlate with the imported gas
prices. During 2020, gas prices trended lower,
reflecting a similar trend in European gas
prices, and were lower than in 2019. Similarly,
condensate and LPG prices were also lower
by comparison with last year. However, prices
have improved in 2021 to date.
Arkona Acquisition
As announced on 24 March 2020, the Group
acquired the entire issued share capital of
LLC Arkona Gas-Energy (“Arkona”) for a total
consideration of up to $8.63 million, subject
to satisfaction of certain conditions. Arkona
06
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Enwell Energy plc // Annual Report and Financial Statements 2020 Outlook
While there are still challenges in the
business environment in Ukraine, the
situation is relatively stable despite the
COVID-19 outbreak. Following the steady
operational performance during 2020, and
the increased production output during the
year, we are looking forward to the results
of the SV-29 development well, which are
expected in the fourth quarter of 2021. We
are also looking forward to achieving further
successes in the development activities
planned for 2021 and delivering a steadily
increasing production and revenue stream
in the future.
In conclusion, on behalf of the Board, I
would like to thank all of our staff for the
continued dedication and support they have
shown during the year and especially in the
midst of the COVID-19 pandemic.
Chris Hopkinson
Chairman
holds a 100% interest in the Svystunivsko-
Chervonolutskyi (“SC”) exploration licence
in north-eastern Ukraine, some 15 km east
of the SV field. The SC licence was granted
in May 2017, with a duration of 20 years, and
is prospective for gas and condensate. As
with the productive reservoirs in the SV field,
the prospective reservoirs in this licence
are Visean, at depths between 4,600 and
6,000 metres. However, NJSC Ukrnafta, the
majority state-owned oil and gas producer,
issued legal proceedings against Arkona,
in which NJSC Ukrnafta made claims of
irregularities in the procedures involved in
the grant of the SC licence to Arkona in May
2017. In early July 2020, the First Instance
Court in Ukraine made a ruling in favour
of NJSC Ukrnafta, which found that the
grant of the SC licence was irregular, but
this ruling was overturned by the Appellate
Administrative Court in September 2020,
and a final appeal to the Supreme Court of
Ukraine was determined in favour of Arkona
in February 2021. Further information can
be found in the Company’s announcements
dated 3 July 2020, 31 July 2020, 30
September 2020, 23 November 2020 and
11 February 2021.
With these legal issues now resolved, the
Group has recommenced planning for the
development of this licence, and a new well
is planned for later this year.
COVID-19 Pandemic
We continue to closely monitor the
volatility in global financial markets, and the
implications on the operational, economic and
social environment caused by the COVID-19
pandemic, coupled with the weakened
hydrocarbon prices. As of the date hereof,
there has been no operational disruption
linked to the COVID-19 pandemic, and no
material impact is currently envisaged on
the Group’s prospects. However, the Board
and management remain acutely aware of
the risks and are taking action to mitigate
them, where possible, not only to protect
our staff and other stakeholders, but also
to minimise any potential disruption to our
business. We have taken steps to continually
monitor the health of our operational staff,
including temperature checks for such staff
at the commencement of each shift, as
well as investing in technology to enable
many staff to work from remote locations.
We continue to reassess our medium-term
forecasts based on current pricing and are
highly confident we have the resources to
deliver on our plans. Of course, we cannot
be certain of the duration of the pandemic’s
impact but will remain focused on monitoring
and protecting our business through the
period of uncertainty. In protecting our
stakeholders’ interests, we are conscious of
our wider obligations to the communities, and
country, in which we operate. Accordingly,
as previously announced, in 2020 we acted,
alongside other corporate entities in Ukraine,
to directly acquire critical equipment and
supplies from Chinese suppliers to donate
to the Ukrainian state to assist its efforts
to manage the pandemic in Ukraine. Our
monetary contribution of $2 million to this
initiative is reflected in the results for the year.
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STRATEGIC REPORT Chief Executive’s Statement
Sergii Glazunov
Chief Executive Officer
“Overall production continued
its upward trend during the
year, achieving record levels
for the Group and being
approximately 6.5%
higher than in 2019”
The Group continued to make good progress at its Ukrainian fields
during 2020, with development activity at the MEX-GOL and SV
fields including successes with the drilling of the SV-54 development
well, which came on production in May 2020, and the SV-25
appraisal well, which came on production in February 2021.
Work continued on the planning of an
upgrade to the gas processing facilities,
as well as work on upgrades to the
flow-line network and remedial activity
on existing wells.
At the VAS field, planning for a proposed
new well to explore the VED prospect within
the VAS licence area has continued, and
upgrades to the gas processing facilities,
flow-line network and other infrastructure
are underway.
Overall production continued its upward
trend during the year, achieving record levels
for the Group and being approximately 6.5%
higher than in 2019, with a substantial boost
in May 2020, when the SV-54 well came on
production.
Production
The average daily production of gas,
condensate and LPG from the MEX-GOL,
SV and VAS fields for the year ended 31
December 2020 are shown below.
Production rates were higher in 2020 when
compared with 2019, predominantly due to
the contributions of the MEX-119 well, which
commenced production in October 2019,
and the SV-54 well, which commenced
production in May 2020.
The Group’s average daily production for
the period from 1 January 2021 to 26
March 2021 from the MEX-GOL and SV
field was 18.1 MMscf/d of gas, 634 bbl/d
of condensate and 239 bbl/d of LPG (4,072
boepd in aggregate) and from the VAS field
was 2.5 MMscf/d of gas and 28 bbl/d of
condensate (499 boepd in aggregate).
Quality, Health, Safety and Environment
(“QHSE”)
The Group is committed to maintaining the
highest QHSE standards and the effective
management of these areas is an intrinsic
element of the overall business ethos. The
Group’s QHSE policies and performance
are overseen by the Health, Safety and
Environment Committee. Through strict
enforcement of the Group’s QHSE policies,
together with regular management
meetings, training and the appointment of
dedicated safety professionals, the Group
strives to ensure that the impact of its
business activities on its staff, contractors
and the environment is as low as is
reasonably practicable. The Group reports
safety and environmental performance
in accordance with industry practice and
guidelines.
I am pleased to report that during 2020,
a total of 461,321 man-hours of staff and
contractor time were recorded without
a Lost Time Incident occurring. The total
number of safe man-hours now stands at
over 3,451,816 without a Lost Time Incident.
No environmental incidents were recorded
during the year
Operations
Notwithstanding the impact of the COVID-19
pandemic during 2020, over recent periods,
there have been relatively stable fiscal and
economic conditions in Ukraine, as well
as reductions in the subsoil tax rates and
improvements in the regulatory procedures
in the oil and gas sector in Ukraine, and this
has given the Board confidence to continue
Gas
(MMscf/d)
Condensate
(bbl/d)
LPG
(bbl/d)
Aggregate
boepd
Field production
MEX-GOL & SV
VAS
Total
2020
17.6
2.9
20.5
2020
2019
14.8 640.6
32.2
19.2 672.8
4.4
2020
2019
577.8 295.3
61.9
-
639.7 295.3
2019
2020
274.4 3,960
581
274.4 4,541
-
2019
3,391
872
4,263
08
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Enwell Energy plc // Annual Report and Financial Statements 2020 the Group’s development programme at
its Ukrainian fields during 2020. However,
lower realised gas prices impacted revenues,
following a general decline in gas prices
in Europe.
The Group continued to refine its geological
subsurface models of the MEX-GOL, SV and
VAS fields, in order to enhance its strategy
for the further development of the fields,
including the timing and level of future
capital investment required to exploit the
hydrocarbon resources.
At the MEX-GOL and SV fields, the drilling of
the SV-54 development well was completed
to a final depth of 5,322 metres. One
interval, at a drilled depth of 5,303 – 5,308
metres in the B-23 Visean formation, was
perforated, and after successful testing the
well was hooked up to the gas processing
facilities in May 2020. In January 2021,
additional intervals at drilled depths of
5,143 – 5,146, 5,125 – 5,155 and 5,180 – 5,186
within the B-22 Visean formation were
perforated. The well is currently producing
at approximately 1.1 MMscf/d of gas and
25 bbl/d of condensate (212 boepd in
aggregate).
In February 2021, the SV-25 appraisal well
was completed, having been drilled to a
final depth of 5,320 metres. One interval,
at a drilled depth of 5,184 – 5,190 metres,
within the B-22 Visean formation was
perforated, and after successful testing, the
well was hooked up to the gas processing
facilities. The well is currently producing at
approximately 1.9 MMscf/d of gas and 80
bbl/d of condensate (423 boepd in aggregate).
The Group continues to operate each of the
SV-2 and SV-12 wells under joint venture
agreements with NJSC Ukrnafta, the
majority state-owned oil and gas producer.
Under the agreements, the gas and
condensate produced from the respective
wells is sold under an equal net profit
sharing arrangement between the Group and
NJSC Ukrnafta, with the Group accounting
for the hydrocarbons produced and sold from
the wells as revenue, and the net profit share
due to NJSC Ukrnafta being treated as a
lease expense in cost of sales. Both of these
wells have proven to be strong producers
since being brought back on production.
At the VAS field, planning has continued for a
new well to explore the VED prospect within
the VAS licence area. However, a decline
in production rates from the VAS-10 well
impacted overall production at the VAS field
during the fourth quarter of 2019, and, as a
result, compression equipment was installed
to increase production from this well, with
a longer-term plan to undertake a workover
of the well to access an alternative reservoir
horizon.
In March 2019 (as set out in the
announcement made on 12 March 2019),
a regulatory issue arose when the State
Service of Geology and Subsoil of Ukraine
issued an order for suspension (the “Order”)
of the production licence for the VAS field.
Under the applicable legislation, the Order
would lead to a shut-down of production
operations at the VAS field, but the Group
has issued legal proceedings to challenge
the Order, and has obtained a ruling
suspending operation of the Order pending a
hearing of the substantive issues. The Group
does not believe that there are any grounds
for the Order, and intends to pursue its
challenge to the Order through the Ukrainian
Courts.
Arkona Acquisition
As announced on 24 March 2020, the Group
acquired the entire issued share capital of
LLC Arkona Gas-Energy (“Arkona”) for a
total consideration of up to $8.63 million,
of which $4.32 million was subject to the
satisfaction of certain conditions. Following
satisfaction of the initial conditions, a second
payment of $2.1 million (net of an indemnity
liability) has been paid, and the balance of
the consideration is subject to the remaining
conditions. Arkona holds a 100% interest in
the Svystunivsko-Chervonolutskyi (“SC”)
exploration licence, which is located in the
Poltava region in north-eastern Ukraine.
The SC licence covers an area of 97 km2,
and is approximately 15 km east of the SV
field. The licence was granted in May 2017
with a duration of 20 years. The licence is
prospective for gas and condensate, and has
been the subject of exploration since the
1980s, with five wells having been drilled
on the licence since then, although none of
these wells are currently on production. As
with the productive reservoirs in the SV field,
the prospective reservoirs in the licence are
Visean, at depths between 4,600 and 6,000
metres.
According to the recorded information
on the Ukrainian State Balance of Natural
Resources as at 1 January 2020, the licence
has hydrocarbon reserves in the category of
C1 and C2 under the Ukrainian
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STRATEGIC REPORT Looking forward over the next three to five years, we are optimistic about our growth
prospects. Here are the key reasons why.
Between 2016 and 2019:
■ Total production increased from 0.58 MMboe to 1.56 MMboe
■ Revenue grew from $25.7 million to $55.9 million
■ Operating margin increased from 9% to 21%
■ Cash reserves more than tripled from $20 million to $62.5 million
6. Take nothing for granted
Rigid financial and risk planning reduces
our exposure to external factors. We always
ensure capital is available for our planning
horizon. We maintain a discerning eye
for potential new business opportunities
and acquisitions, although we ensure that
our selection criteria are stringent and
challenging. We manage production levels to
preserve reservoir performance.
Our growth strategy is measured, disciplined
and designed for challenging but opportunity-
rich times.
Chief Executive’s Statement CONTINUED
classification, DKZ, of approximately
38.0 MMboe (4.9 Bm3 of gas and 0.86
Mtonnes of condensate). It should be noted,
however, that while the Group’s review of
existing technical data for the licence is
considered supportive of such assessment
of hydrocarbon resources, such hydrocarbon
resources have not been verified by an
independent reserves assessor and do not
correspond to the SPE/WPC/AAPG/SPEE
Petroleum Resources Management System
(“PRMS”) standard for classification and
reporting.
However, NJSC Ukrnafta, as claimant,
issued legal proceedings against Arkona, as
defendant, in which NJSC Ukrnafta claimed
that irregular procedures were adopted in
the grant of the SC licence to Arkona in
May 2017. NJSC Ukrnafta was the holder
of a previous licence over this area which
expired prior to the grant of the SC licence.
In early July 2020, the First Instance Court
in Ukraine announced a ruling in favour of
NJSC Ukrnafta, which found that the grant
of the SC licence was irregular, which would
mean the licence is invalid. Arkona filed
an appeal in the Appellate Administrative
Court in Kyiv, which was determined in
favour of Arkona in September 2020, as
was a final appeal to the Supreme Court
of Ukraine determined in February 2021.
Further information can be found in the
announcements dated 3 July 2020, 31 July
2020, 30 September 2020, 23 November
2020 and 11 February 2021.
With the resolution of these legal issues, the
Group has re-commenced planning for the
development of this licence, which includes
the acquisition of 150 km2 of 3D seismic
and drilling of a new well, SVYST-4, both of
which are planned to start later this year.
Outlook
During 2021, the Group will continue to
develop the MEX-GOL, SV and VAS fields,
as well as progressing the development
planning for the SC licence. At the MEX-GOL
and SV fields, the development programme
includes continuing the drilling operations
on the SV-29 development well, planning
for a further well or sidetracking of an
existing well in the SV field, investigating
workover opportunities for other existing
wells, installation of further compression
equipment, further upgrading of the gas
processing facilities and flow-line network,
and remedial and upgrade work on existing
wells, pipelines and other infrastructure.
At the VAS field, a workover of the VAS-10
well has recently been completed to access
an alternative production horizon, planning
for the proposed new well to explore the
VED prospect within the VAS licence area
is continuing, and upgrades to the gas
processing facilities, pipeline network and
other infrastructure are planned.
Ongoing legislative reforms and the
general stability in the business climate in
Ukraine are encouraging and supportive of
the independent oil and gas producers in
Ukraine.
Finally, I would like to add my thanks to all
of our staff for the continued hard work and
dedication they have shown over the course
of the year, and to especially recognise
their continuing efforts and professionalism
during the COVID-19 pandemic.
Sergii Glazunov
Chief Executive Officer
Read more about
our strategy on pages •• and ••
10
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Enwell Energy plc // Annual Report and Financial Statements 2020 Focus for Growth
We believe there is great potential in Ukraine’s market, and we intend
to grow. Steadily and strongly. Looking forward over the next three to
five years, we are optimistic about our growth prospects. Here are the
key reasons why.
1. Demand for gas forecast to grow
globally and in Ukraine
Natural gas emits less pollution than
other fossil fuels. In a future of tougher
environmental regulation, it is the only
fossil fuel whose share in global energy
consumption is forecast to grow.
By 2025, gas is expected to become the
world’s second largest source of energy,
converging with oil by 2040. The average
annual growth rate is forecast to be
around 2%.
Only approximately two thirds of Ukraine’s
gas demand is domestically produced with
prices therefore tending to follow the prices
in Europe.
The gas market in Ukraine is currently being
liberalised, which will allow local oil and gas
producers greater access to, and effectively
increase, our market.
2. A steadily improving situation
in Ukraine
Notwithstanding the recent impact of the
COVID-19 pandemic, the fiscal and economic
situation in Ukraine has been improving for
a number of years, with modest rates of
inflation, lower exchange rate volatility, and
growing GDP.
3. Investing in the future
Having successfully grown our resource
base, the Group has extensive and capital-
intensive development plans in place and
in progress, including drilling new wells,
upgrading infrastructure and equipment,
and introducing innovative new technology
in our operational activities. Given that we
have 100% operatorship of our assets, we
have the ability to maintain rigidly monitored
contingency planning and can promptly
modify schedules and plans should future
economic and operational realities dictate.
At the same time, we take a highly
discerning approach to selecting new
business opportunities.
We are also investing in our people, building
a strong performance-oriented culture, with
high productivity.
4. Large and growing reserves
Through careful and incremental
development of our fields, our proved plus
probable (2P) reserves have grown to nearly
50 MMboe, and with our recent acquisition
of the SC field, we aim to prove up additional
reserves.
5. A disciplined operator
We work in a carefully structured way. We
are focused on implementing projects on
time and on budget, through the use of
optimal technological solutions and rigorous
risk management. A disciplined and detailed
budgeting process is essential to the cost
forecasting and performance discipline we
pursue. We have a very strong QHSE record.
Our Continuous Improvement System
(targeting employee initiative feedback and
refinement) means we are focused on getting
better at what we do, day by day, and year
by year.
As a result, we have the ability to produce
economically in lower oil or gas price
environments.
6. Take nothing for granted
Rigorous financial and risk planning reduces
our exposure to external factors. We always
ensure capital is available for our planning
horizon. We maintain a discerning eye
for potential new business opportunities
and acquisitions, although we ensure that
our selection criteria are stringent and
challenging. We manage production levels to
preserve reservoir performance.
Our growth strategy is measured, disciplined
and designed for challenging but opportunity-
rich times.
Between 2016 and 2020:
Shares of primary energy
■ Total production increased from
0.58 MMboe to 1.66 MMboe
■ Revenue grew from $25.7 million to
$47.3 million
■ Operating margin increased from
9% to 21%
■ Cash reserves more than tripled from
$20 million to $61 million
Oil
Coal
Gas
Hydro
Nuclear
50%
40%
30%
20%
10%
Renewables
0%
1970
1980
1990
2000
2010
2020
2030
2040
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STRATEGIC REPORT
Business Model
R A T
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E G I C PRIO
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GOVER N A N C
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Develo
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Key activities
Generating Cash
E
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p
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ation
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P r
p
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d uctio
C
A
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O S
TA
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EHOLDER
S
STAKEHOLDERS
Local Community, Suppliers,
Employees, Government, and Investors
Local community
We embed corporate and social responsibility
throughout our business activities, and
contribute to and participate in local
community and countrywide social and
welfare programmes
Suppliers
We maintain a clear and consistent approach
to dealing with suppliers, ensuring adherence
to contractual obligations and maintaining
safe working practices
Stakeholders
Employees
We aim to be a model employer, with high
reputational and behavioural standards,
safe operational working conditions and
clearly structured career opportunities and
progression for employees
Government
We adopt and maintain best industry
standards to fully exploit hydrocarbon
resources for consumption within Ukraine,
and support the development of the oil and
gas industry in Ukraine
Investors
We maintain disciplined operational and
financial management to deliver strong
growth, successful development of reserves
and profitable results
12
Employees, Government, Investors, Local community and Suppliers
Activities
Exploration
We aim to identify new opportunities
within our fields by accurate geological
and geophysical analysis and modelling to
achieve a high probability of success
Appraisal
We pursue methodical analysis and review
of drilling results to refine our subsurface
models and ensure that discoveries are
adequately appraised prior to development
Development
We carefully plan our development activities
using tailored drilling techniques and
extraction processes so as to fully exploit
our reserve base, safely and economically
Production
We continually monitor production results
to manage reservoir performance and
maximise extraction rates, as well as
reviewing processing facilities to optimise
recoveries
Resources
Large and growing reserves
Our proved and probable (2P) reserves are
approximately 50 MMboe through careful and
incremental development
Cutting-edge technology
We use modern, innovative technology and
processes in our development activities, and
encourage the investigation and adoption of
new methods by our staff
Detailed budgeting process
A detailed budgeting process is essential to
cost forecasting and performance discipline
and to enable fiscal control of our business
Highly experienced team
We have well qualified and experienced
technical management to plan and supervise
operational activities. Additionally, we engage
with suitably qualified local and international
geological, geophysical and engineering
experts and contractors to supplement and
broaden the pool of expertise available to us
100% operatorship of our assets
Through our 100% operatorship of our
fields, we have the ability to maintain rigidly
monitored planning and operational discipline,
and can promptly modify plans and schedules
should adverse economic or operational
issues arise
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Enwell Energy plc // Annual Report and Financial Statements 2020
Our Strategic Priorities
1
2
Deliver profitable production
and reserves growth in
Ukraine, with continued
capital-efficient operational
excellence
Be a responsible steward of
the resources we manage,
produce, and deliver to
market
3
Recruit and retain a
management team capable
of delivering consistent top
quartile performance across
recognised industry and
market metrics
Key targets:
Key targets:
Key targets:
Organic growth
■ Expedite development of our assets,
accelerate production growth, exploit
resource base
■ Careful field and reserves development
planning
■ Geological modelling to achieve high
probability of success
Growth of reserves and resources
■ Additional exploration, life cycle mix, new
business opportunities and screening
process
Improving performance
■ Adopt oil and gas industry best practice
■ Reduce costs of operations
■ Application of drilling model
Operating safely and responsibly
■ Adopt and exceed industry standards
■ Embed corporate and social responsibility
process throughout business organisation
■ Operating a Near Miss system of
reporting
Strong and stable governance
■ Adhere to QCA Code and institutional
shareholder body guidance
Rigid operating financial and risk planning
■ Ensure that future operations and sales
reflect the market and forecasts
■ Be cognisant of necessity of good
reservoir and corporate resource
management
Stakeholder buy-in
■
Team clear on behaviours, roles and
responsibilities
Retention
■ Keeping great people on the team
Correct skills for the objective/role
■ Clarity of skills required for each position
Attracting new talent
■ Strong reputation as a model employer
■
Transparent and clearly structured career
opportunities, progression and talent
nurturing
Key risks:
Key risks:
Key risks:
■ Reservoir and operational performance
■ Regional stability
■ Commodity price shifts
■
Implementation and adherence to QHSE
policies
■ Maintenance of independence of Board
of Directors
■ Maintenance of controls and processes
for financial and risk management
■
Failure to challenge and motivate existing
employees
■ Compensation
■ Competitiveness
Exploration
We aim to identify new opportunities
within our fields by accurate geological
and geophysical analysis and modelling
to achieve a high probability of success
Appraisal
We pursue methodical analysis and
review of drilling results to refine our
subsurface models and ensure that
discoveries are adequately appraised
prior to development
Development
We carefully plan our development
activities using tailored drilling
techniques and extraction processes so
as to fully exploit our reserve base, safely
and economically
Production
We continually monitor production
results to manage reservoir performance
and maximise extraction rates, as well
as reviewing processing facilities to
optimise recoveries
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STRATEGIC REPORT Statement by the Directors
in performance of their statutory duties in accordance with Section 172(1) of the Companies Act 2006
Introduction
The Directors of the Company must act in
accordance with a set of general duties,
which are detailed in Section 172(1) of the
Companies Act 2006, as follows:
“A director of a company must act in the way
he considers, 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:
■
■
■
■
■
■
the likely consequences of any decision
in the long term;
the interests of the company’s
employees;
the need to foster the company’s
business relationships with suppliers,
customers and others;
the impact of the company’s operations
on the community and environment;
the desirability of the company
maintaining a reputation for high
standards of business conduct; and
the need to act fairly as between
members of the company.”
The Directors are mindful of their duty to
promote the success of the Company as
described above. Details of how the Directors
have had regard to these matters can be
found throughout this Annual Report and
Financial Statements, where we provide
examples of how we: take into account the
likely consequences of long-term decisions;
understand the importance of engaging
with our employees; build relationships
with stakeholders; understand the impact
of our operations on the communities in
our region and the environment we depend
upon; attribute importance to behaving as a
responsible business; and ensure that we act
fairly between shareholders.
Statement
The Directors of the Company consider,
both individually and collectively, that they
have acted in the way they consider, in good
faith, would be most likely to promote the
success of the Company for the benefit of its
shareholders as a whole (having regard to the
stakeholders and matters set out in Section
172(1)(a-f) of the Companies Act 2006) in the
decisions taken during the year ended 31
December 2020. Examples of this include:
Long-term decision-making
We have a strategy for the development of
our business and our oil and gas assets in
Ukraine, and retain, monitor and adjust a
corporate financial model for the economic
life of our assets. Our plan is designed to
have a long-term beneficial impact on the
Company and to contribute to its success
in safely producing gas, condensate and
LPG from our fields in Ukraine. We will
continue to operate our business with robust
and documented financial and operational
controls and in line with safety and
environmental regulations and requirements.
Employees’ interests
Our employees are fundamental to the
delivery of our business plan. We aim to
be a responsible employer in our approach
to the remuneration and benefits that our
employees receive. The health, safety and
well-being of our employees is one of our
primary considerations in the way we do
business, and the training and development
of our employees to develop their skills
and expertise is fundamental in the highly
technical and specialised oil and gas industry.
Relationships with stakeholders
We aim to operate our gas and condensate
fields in Ukraine safely and efficiently for the
benefit of all of our stakeholders, including
employees, Government, investors, local
community and suppliers. In the operational
extraction and production of gas, condensate
and LPG, there are many risks, including to
health, safety and the environment. In our
operational activities, we rigorously apply
our quality, health, safety and environmental
(“QHSE”) policies to protect the safety
of our employees and contractors, and to
protect the environment from pollution. In
the delivery of our hydrocarbon products,
we aim to ensure that our products meet all
applicable regulatory requirements and to
be a reliable and consistent supplier to our
customers. We also aim to act responsibly
and fairly in how we engage with our
contractors, suppliers and customers, and to
cooperate with our industry regulators, all of
which are integral to the successful delivery
of our business plan and the stewardship of
the resources we manage.
Impact on community and environment
Our business plan takes into account
the impact of the Company’s operations
on the community and environment in
which we operate, and our wider societal
responsibilities, particularly in Ukraine at
our operational sites. We have a number
of corporate social responsibility (“CSR”)
initiatives in Ukraine, and have supported a
number of community projects, including
support of local schools (materials for
repair works, funding of school meals) and
youth sports, as well as the repair of roads
and local infrastructure. More recently, we
contributed $2 million to fund procurement
of medical equipment and supplies for
donation to the Ukrainian state and charitable
foundations to aid its initiatives to protect
the population from the health impact of the
COVID-19 pandemic. We also strictly adhere
to our QHSE policies in our approach to the
environment and ensure compliance with
applicable health, safety and environmental
regulatory requirements.
Streamlined Energy and Carbon Reporting
(“SECR”)
We are very aware of the current drive
globally to monitor, reduce and report
levels of energy use in delivering Group
performance, and note that SECR reporting
requirements apply to the Group. However,
as our United Kingdom emissions are
de minimis, with only two full-time
employees in the United Kingdom and
no operational presence, we fall below
the minimum threshold and are currently
exempt from reporting such information.
Notwithstanding that exemption, we are
actively reviewing our Ukrainian operations
to determine the processes and form of
“self-reporting” for our global operations
This initiative is intended to:
■
■
■
■
disclose the environmental-related data
currently collected, including: energy
consumed, water consumed, emissions
and waste generated (in natural units and
relative to volumes of extracted gas);
determine any additional applicable
indicators to be added during 2021,
for example: natural gas and solid fuel
consumed for heating, compressors
and other equipment; diesel fuel used
in diesel generators; consumption of
gasoline and diesel in vehicles, etc.;
determine potential benchmarks; and
determine the reporting frequency.
We will keep shareholders updated on this
initiative of recognised significance.
14
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Enwell Energy plc // Annual Report and Financial Statements 2020 Business conduct
We aim to ensure that the Company behaves
responsibly in the wider community, and that
our business is operated in a responsible
manner, operating within the high standards
of business conduct and good governance
expected for a business such as ours. We
have in place, and monitor adherence to,
our Anti-Bribery and Corruption Policy and a
range of QHSE -related policies. This approach
contributes to the delivery of our business
plan by ensuring we work in an honest and
ethical way, and we require the same from
our employees, contractors and others
connected with the business.
Fair engagement with shareholders
Our intention is always to behave responsibly
toward our shareholders and treat them fairly
and equally, so they, too, may benefit from
the successful delivery of our business plan.
In light of our significant majority shareholder,
we have in place a Relationship Agreement to
ensure that the management and governance
of the Company is and remains independent.
We have adopted and adhere to the Quoted
Companies Alliance Corporate Governance
Code 2018 (“QCA Code”) to ensure clearly
defined governance procedures within our
business.
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STRATEGIC REPORT Overview of Assets
We operate four fields in the Dnieper-Donets basin in north-eastern Ukraine. Our fields have high potential
for growth and longevity for future production – a strong foundation for success.
MEX-GOL and
SV fields
The MEX-GOL and SV fields
are held under two adjacent
production licences, but are
operated as one integrated asset,
and have significant gas and
condensate reserves and potential
resources of unconventional gas.
100%
WORKING INTEREST
253 km2
COMBINED LICENCES AREA
50 MMboe
2P RESERVES
Production Licences
We hold a 100% working interest in, and
are the operator of, the MEX-GOL and SV
fields. The production licences for the fields
were granted to the Group in July 2004
with an initial duration of 20 years, and the
duration of these licences have recently been
extended to 2040 in order to fully develop
the remaining reserves. The economic life
of these fields extend to 2038 and 2042
respectively, pursuant to the most recent
reserves and resources assessment by
DeGolyer and MacNaughton (“D&M”) as at
31 December 2017.
The two licences, located in Ukraine’s
Poltava region, are adjacent and extend over
a combined area of 253 km², approximately
200 km east of Kyiv.
Geology
Geologically, the fields are located
towards the middle of the Dnieper-Donets
sedimentary basin which extends across the
major part of north-eastern Ukraine. The vast
majority of Ukrainian gas and condensate
production comes from this basin. The
reservoirs comprise a series of gently dipping
Carboniferous sandstones of Visean age inter-
bedded with shales at around 4,700 metres
below the surface, with a gross thickness of
between 800 and 1,000 metres.
Analysis suggests that the origin of these
deposits ranges from fluvial to deltaic,
and much of the trapping at these fields
is stratigraphic. Below these reservoirs is
a thick sequence of shale above deeper,
similar, sandstones at a depth of around
5,800 metres. These sands are of Tournasian
age and offer additional gas potential. Deeper
sandstones of Devonian age have also been
penetrated in the fields.
Reserves
The development of the fields began in
1995 by the Ukrainian state company
Chernihivnaftogasgeologiya (“CNGG”), and
shortly after this time, the Group entered a
joint venture with CNGG in respect of the
exploration and development of these fields.
The fields have been mapped with 3D
seismic, and a geological subsurface model
has been developed and refined using data
derived from high-level reprocessing of such
3D seismic and new wells drilled on the
fields.
The assessment undertaken by D&M as at
31 December 2017 estimated proved plus
probable (2P) reserves attributable to the
fields of 50.0 MMboe, with 3C contingent
resources of 25.3 MMboe.
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Enwell Energy plc // Annual Report and Financial Statements 2020 VAS field
The VAS field is a smaller field
with interesting potential. The
field has assessed proved plus
probable reserves in excess
of 3 MMboe and substantial
contingent and prospective
resources, as well as potential
resources of unconventional gas.
Production Licence
We hold a 100% working interest in, and
are the operator of, the VAS field. The
production licence for the field was granted
in August 2012 with a duration of 20 years.
The economic life of the field extends to
2032 pursuant to the most recent reserves
and resources assessment by D&M as at 31
December 2018.
The licence extends over an area of 33.2 km²
and is located 17 km south-east of Kharkiv, in
the Kharkiv region of Ukraine. The field was
discovered in 1981, and the first well on the
licence area was drilled in 2004.
The Group acquired this project in July 2016.
Geology
Geologically, the field is located towards the
middle of the Dnieper-Donets sedimentary
basin in north-east Ukraine. The field is
trapped in an anticlinal structure broken
into several faulted blocks, which are
gently dipping to the north, stretching
from the north-east to south-west along a
main bounding fault. The gas is located in
Carboniferous sandstones of Bashkirian,
Serpukhovian and Visean age.
The productive reservoirs are at depths
between 3,370 and 3,700 metres.
Reserves
The fields have been mapped with 3D
seismic, and a geological subsurface model
has been developed and refined using data
derived from such 3D seismic and new wells
drilled on the field.
The assessment undertaken by D&M as at
31 December 2018 estimated proved plus
probable (2P) reserves of 3.1 MMboe, with
contingent resources of 0.6 MMboe, and
prospective resources of 7.7 MMboe in the
VED area of the field. The next well planned
on the field is designed to explore the VED
area of the field.
100%
WORKING INTEREST
33.2 km2
COMBINED LICENCES AREA
3.1 MMboe
2P RESERVES
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STRATEGIC REPORT Overview of Assets CONTINUED
IMAGE
SC field
The SC field is located near to
and has similar characteristics to
the SV field, and is prospective
for gas and condensate.
100%
WORKING INTEREST
97 km2
LICENCE AREA
Production Licence
We hold a 100% working interest in, and are
the operator of, the SC field. The production
licence for the field was granted in May 2017
with a duration of 20 years.
The licence extends over an area of 97 km2,
and is located in the Poltava region in north-
eastern Ukraine, approximately 15 km east of
the SV field.
Geology
Geologically, the field is located towards the
middle of the Dnieper-Donets sedimentary
basin which extends across the major
part of north-eastern Ukraine. The vast
majority of Ukrainian gas and condensate
production comes from this basin. The
reservoirs comprise a series of gently dipping
Carboniferous sandstones of Visean age inter-
bedded with shales at depth between 4,600
and 6,000 metres.
Resources
The licence is prospective for gas and
condensate, and has been the subject of
exploration since the 1980s, with five wells
having been drilled on the licence area since
then, although none of these wells are
currently on production.
According to the recorded information
on the Ukrainian State Balance of Natural
Resources as at 1 January 2020, the licence
has hydrocarbon reserves, in the category of
C1 and C2 under the Ukrainian classification,
DKZ, of approximately 38.0 MMboe (4.9 Bm3
of gas and 0.86 Mtonnes of condensate).
It should be noted, however, that while the
Group’s review of existing technical data for
the licence is considered supportive of such
assessment of hydrocarbon resources, such
hydrocarbon resources have not been verified
by an independent reserves assessor and
do not correspond to the SPE/WPC/AAPG/
SPEE Petroleum Resources Management
System (“PRMS”) standard for classification
and reporting.
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Enwell Energy plc // Annual Report and Financial Statements 2020 Overview of Reserves
1. MEX-GOL and SV fields
The Group’s estimates of the remaining Reserves and Resources at the MEX-GOL and SV fields
are derived from an assessment undertaken by D&M, as at 31 December 2017 (the “MEX-GOL-
SV Report”), which was announced on 31 July 2018. During the period from 1 January 2018 to
31 December 2020, the Group has produced 3.7 MMboe from these fields.
The MEX-GOL-SV Report estimated the remaining Reserves as at 31 December 2017 in the
MEX-GOL and SV fields as follows:
Proved
(1P)
Proved + Probable
(2P)
Proved + Probable +
Possible (3P)
Gas
121.9 Bscf / 3.5 Bm3
218.3 Bscf / 6.2 Bm3
256.5 Bscf / 7.3 Bm3
Condensate
4.3 MMbbl / 514 Mtonne
7.9 MMbbl / 943 Mtonne 9.2 MMbbl / 1,098 Mtonne
LPG
Total
2.8 MMbbl / 233 Mtonne
5.0 MMbbl / 418 Mtonne
5.8 MMbbl / 491 Mtonne
27.8 MMboe
50.0 MMboe
58.6 MMboe
The MEX-GOL-SV Report estimated the Contingent Resources as at 31 December 2017 in the
MEX-GOL and SV fields as follows:
Contingent Resources (1C) Contingent Resources (2C) Contingent Resources (3C)
Gas
14.7 Bscf / 0.42 Bm3
38.3 Bscf / 1.08 Bm3
105.9 Bscf / 3.00 Bm3
Condensate 1.17 MMbbl / 144 Mtonne
2.8 MMbbl / 343 Mtonne
6.6 MMbbl / 812 Mtonne
Total
3.8 MMboe
9.6 MMboe
25.3 MMboe
2. VAS field
The Group’s estimates of the remaining Reserves and Resources at the VAS field and the
Prospective Resources at the VED prospect are derived from an assessment undertaken by
D&M as at 31 December 2018 (the “VAS Report”), which was announced on 21 August 2019.
During the period from 1 January 2019 to 31 December 2020, 0.5 MMboe were produced from
the field.
The VAS Report estimates the remaining Reserves as at 31 December 2018 in the VAS field as
follows:
Proved
(1P)
Proved + Probable
(2P)
Proved + Probable +
Possible (3P)
Gas
9,114 MMscf /
258 MMm3
15,098 MMscf /
427 MMm3
18,816 MMscf /
533 MMm3
Condensate
205 Mbbl / 25 Mtonne
346 Mbbl / 42 Mtonne
401 Mbbl / 48 Mtonne
Total
1.895 MMboe
3.145 MMboe
3.890 MMboe
The VAS Report estimates the Contingent Resources as at 31 December 2018 in the VAS field
as follows:
Contingent Resources (1C) Contingent Resources (2C) Contingent Resources (3C)
Gas
Condensate
0
0
0
0
2,912 MMscf / 83 MMm3
74 Mbbl / 9 Mtonne
The VAS Report estimates the Prospective Resources as at 31 December 2018 in the VED
prospect as follows:
Low (1U)
Best (2U)
High (3U)
Mean
Gas
23,721 MMscf /
672 MMm3
38,079 MMscf /
1,078 MMm3
62,293 MMscf /
1,764 MMm3
41,291 MMscf /
1,169 MMm3
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STRATEGIC REPORT Finance Review
Bruce Burrows
Finance Director
“Cash and cash equivalents
held at 31 December
2020 were $61.0 million
(2019: $62.5 million)”
Despite the challenges during the year, the
Group made a net profit of $3.2 million (2019:
$12.2 million).
Gross profit for the year was $15.7 million
(2019: $23.5 million). The 33% decrease in
gross profit year-on-year is almost entirely a
result of significantly weakened gas prices in
the year. Average gas realisations in the period
were down 38% at $136/Mm3 (UAH3,618/
Mm3), with condensate and LPG sales also
down by 21% and 16% at $46/bbl and $46/
bbl respectively (2019: $219/Mm3 (UAH5,729/
Mm3), $58/bbl and $55/bbl respectively).
Revenue for the year, derived from the sale
of the Group’s Ukrainian gas, condensate
and LPG production, was $47.3 million (2019:
$55.9 million). Despite the gas price-driven
fall in revenue, the cash generated from
operations was only down 3.8% at $23.8
million (2019: $24.7 million), predominantly
as a result of higher non-cash DD&A of $12.7
million compared to $10.2 million in 2019, less
interest income recorded in the operating
profit ($1.5 million compared to $4.8 million in
2019), and a $2.6 million draw of 24 MMm3 of
gas from inventory in the period compared to
a $3.2 million build to inventory in 2019.
20
The Group’s financial performance in 2020 was shaped largely by
two factors: the significant drop in average gas realisations (which had
started in 2019) materially affecting revenue but partly mitigated by
the record level of gas production, and the sale of gas from storage.
During the period from 1 January 2021 to
26 March 2021, the average realised gas,
condensate and LPG prices were $232/
Mm3 (UAH6,489/Mm3), $66/bbl and $64/bbl
respectively.
The significantly lower average realised gas
price had the greatest impact on the Group’s
2020 performance. Since the deregulation of
the gas supply market in Ukraine in October
2015, the market price for gas has broadly
correlated to the price of imported gas,
which generally reflects trends in European
gas prices. Gas prices are also subject to
seasonal variation. During the 2020 year, gas
prices were depressed, as a combined result
of lower international prices reducing the
price of imported gas, and the unseasonally
warm 2019/20 winter. Condensate and LPG
prices were also lower than in 2019. During
2021 to date, however, there has been a
sustained recovery in prices (a function
of a more general recovery in European
commodity prices, as well as Ukraine
experiencing one of the coldest winters
in a decade).
Cost of sales for the 2020 year was
marginally lower at $31.5 million (2019: $32.4
million). While broadly consistent with last
year, there were some significant movements
within this total: depreciation of property
plant and equipment was 26% higher at
$11.5 million (2019: $9.1 million) as a result of
higher levels of production; production taxes
declined by 19% as a result of reduced gas
revenues, in turn a function of the reduced
gas prices as noted above; a 42% decrease
in rent expense, a function of lower well
profitability in the period despite increased
production; and staff costs increased by 31%
as a function of a 2% increase in the number
of staff, in combination with salary inflation.
The subsoil tax rates applicable to gas
production were stable during the period
at 29% for gas produced from deposits at
depths shallower than 5,000 metres and
14% for gas produced from deposits deeper
than 5,000 metres, but reductions in the
subsoil rates applicable to new wells and
to condensate production were applicable,
under which (i) for new wells drilled after
1 January 2018, the subsoil tax rates were
reduced from 29% to 12% for gas produced
from deposits at depths shallower than
5,000 metres and from 14% to 6% for gas
produced from deposits deeper than 5,000
metres for the period between 2018 and
2022, and (ii) with effect from 1 January
2019 and applicable to all wells, the subsoil
tax rates for condensate were reduced from
45% to 31% for condensate produced from
deposits shallower than 5,000 metres and
from 21% to 16% for condensate produced
from deposits deeper than 5,000 metres.
Administrative expenses for the year were
marginally higher at $7.8 million (2019: $7.4
million), primarily as a result of: a 46%
increase in consultancy fees mainly due to
legal and advisory costs associated with the
acquisition activity in the year; a 6% increase
in payroll and related taxes, consistent with
the increased staff level and salary inflation
noted above; all partially mitigated by a 30%
decrease in other expenses primarily in
relation to decreased costs for managing gas
transportation and storage, and marketing.
Other losses in the year reduced by 22% in
the period, a net effect of: a foreign exchange
gain in the period of $0.3 million compared
to a loss of $1.5 million in 2019; no VAT credit
in the period compared to the $0.5 million
charge in 2019; and the charitable donations
of $2.1 million (2019: nil) for the supply
of COVID-19-related medical equipment
for Ukrainian authorities and charitable
foundations.
The tax charge for the year reduced by 65%
to $3.3 million (2019: $9.6 million charge)
mainly due to the decrease in profit before
tax, and comprises a current tax charge of
$3.0 million (2019: $4.8 million charge) and a
deferred tax charge of $0.3 million (2019: $4.8
million charge).
A deferred tax asset relating to the Group’s
provision for decommissioning at 31
December 2020 of $0.2 million (2019: $0.3
million) was recognised on the tax effect of
the temporary differences of the Group’s
provision for decommissioning at the
MEX-GOL and SV fields, and its tax base. A
deferred tax liability relating to the Group’s
development and production assets at the
MEX-GOL and SV fields at 31 December
2020 of $2.9 million (2019: $2.5 million) was
recognised on the tax effect of the temporary
differences between the carrying value of the
Group’s development and production asset at
the MEX-GOL and SV fields, and its tax base.
A deferred tax asset relating to the Group’s
provision for decommissioning at 31
December 2020 of $0.3 million (2019: $0.3
million) was recognised on the tax effect of
the temporary differences on the Group’s
provision on decommissioning at the VAS
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Enwell Energy plc // Annual Report and Financial Statements 2020 field, and its tax base. A deferred tax liability
relating to the Group’s development and
production assets at the VAS field at 31
December 2020 of $0.2 million (2019: $0.5
million) was recognised on the tax effect
of the temporary differences between the
carrying value of the Group’s development
and production asset at the VAS field, and its
tax base.
Capital investment of $18.2 million reflects
the investment in the Group’s oil and gas
development and production assets during
the year (2019: $17.7 million), primarily relating
to the drilling of the SV-54 and SV-25 wells.
The carrying value of the Group’s assets was
reviewed at the year end as a result of the
significant drop in gas prices during the year,
which did not result in any impairment of
assets.
Cash and cash equivalents held at 31
December 2020 were $61.0 million (2019:
$62.5 million). The Group’s cash and
cash equivalents balance at 29 March
2021 was $60.9 million, held as to $22.8
million equivalent in Ukrainian Hryvnia and
the balance of $38.1 million equivalent
predominantly in US Dollars, Euros and
British Pounds.
Between early 2014 and 2019, the Ukrainian
Hryvnia devalued significantly against the
US Dollar, falling from UAH8.3/$1.00 on
1 January 2014 to UAH23.7/$1.00 on 31
December 2019, which resulted in substantial
foreign exchange translation losses for the
Group over that period, and in turn adversely
impacted the carrying value of the MEX-
GOL and SV asset due to the translation of
two of the Group’s subsidiaries from their
functional currency of Ukrainian Hryvnia
to the Group’s presentation currency of
US Dollars. During 2020, global financial
markets became extremely volatile due to
a combination of a significant fall, and then
gradual recovery, in oil prices and the effects
of the COVID-19 pandemic, and the Ukrainian
Hryvnia weakened against the US Dollar
with the exchange rate at 31 December
2020 being UAH28.3/$1.00. The impact of
this devaluation was $15 million of foreign
exchange losses (2019: $12 million of foreign
exchange gain). Further devaluation of the
Ukrainian Hryvnia against the US Dollar may
affect the carrying value of the Group’s assets
in the future.
Cash from operations has funded the capital
investment during the year, and the Group’s
current cash position and positive operating
cash flow are the sources from which
the Group plans to fund the development
programmes for its assets in 2021 and
beyond. This is coupled with the fact that the
Group is currently debt-free, and therefore
has no debt covenants that may otherwise
impede the ability to implement contingency
plans if domestic and/or global circumstances
dictate. This flexibility and ability to monitor
and manage development plans and liquidity
is a cornerstone of our planning, and
underpins our assessments of the future.
With cash resources at the end of the period
of $61 million, and annual running costs of
less than $8 million, the Group remains in
a very strong position should any local or
global shocks occur to the industry and/or the
Group. In making this assessment, the Group
has forecast future cash flows under severe
but reasonably plausible downside scenarios.
The Company has recorded a credit of $87.3
million, being the net change in credit loss
allowance for loans issued to subsidiaries
in its statement of profit or loss for the
year ended 31 December 2020 (see Note 3
below). This credit was calculated following a
review of the underlying cash flow forecasts
of the subsidiaries and is due to an increase
in gas prices forecast and the termination of
the proposed acquisition of PJSC Science
and Production Concern Ukrnaftinvest. The
Company has also recorded a loss of $30.1
million, being the net change in credit loss
allowance for shares in subsidiaries.
In 2020, after a Group restructuring, the
Company transferred $40 million from loans
to subsidiaries to investments in subsidiaries
as a result of the offsetting of payables for
corporate rights, which did not impact the
consolidated financial statements. Further
information can be found in Note 19.
On 25 February 2021, the Company
completed a reduction of its share capital
through the cancellation of its entire share
premium account. This reduction of capital
creates distributable reserves of the
Company, which enable the Company to
make distributions to its shareholders in the
future, subject to the Company’s financial
performance. However, the Company is
not indicating any commitment, and does
not have any current intention, to make any
distributions to shareholders.
Bruce Burrows
Finance Director
Key Performance Indicators
The Group uses key performance indicators (KPIs) to measure its performance and achievements in its business activities. The KPIs are
reviewed annually to ensure that the KPIs are relevant. The Group’s targeted and achieved results of its KPIs for 2020 are set out below.
The Level One KPI is an overriding KPI for performance -related remuneration, and must be achieved to invoke the Level Two KPIs.
Level One KPI
Level Two KPIs
1. Fatalities
of zero
1. Total volumes of gas
and condensate
produced
2. Lost Time
Incidents
TARGET
0
ACTUAL
0
TARGET
1,622,000 boe
ACTUAL
1,639,604 boe
TARGET
0
ACTUAL
0
3. Operating
expenditure per barrel
of oil equivalent
TARGET
UAH 256 ($9.50)
ACTUAL
UAH 256 ($9.50)
4. Cashflow from
operating activities
TARGET
UAH 533 million
($19.8 million)
ACTUAL
UAH 642 million
($23.8 million)
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STRATEGIC REPORT
COVID-19 Pandemic
■ nominated employees have been
■ protective measures have been taken,
assigned to monitor colleagues’ health
and provide any aid needed to those who
fall ill;
■ a network of both regular and
extraordinary information platforms has
been created to keep staff updated
on the COVID-19 situation and the
prevention measures being taken (such
as Viber-groups, regular mailings and
status meetings);
including:
− installation of automatic hand
sterilisers;
− disinfecting and sanitising of carpets;
− installation of a decontamination
frame at site;
− provision of epidemiological
protection overalls;
− provision of oxygen concentrators for
■ the conditions of support for the Group’s
work sites;
medical insurance provider were
reviewed and communicated in order to
provide necessary medical support for
COVID-19 cases for all staff;
■ additional personal protection devices for
all employees have been purchased, such
as masks, respirators and sanitisers;
■ temperature checks are performed for all
operational staff at the commencement
of each shift;
− provision of thermometers,
oxymeters and ultraviolet lamps;
■ preparation of two isolation boxes for
infected workers at production facilities;
■ undertaking regular and thorough
cleaning and disinfecting of all premises
and corporate transport;
■ undertaking in excess of 1,000 rapid
COVID-19 tests on staff to screen for
infection.
The COVID-19 pandemic has had an
enormously detrimental effect on the lives
of the world’s population, disrupting every
aspect of people’s lives and livelihoods.
The Group and its staff have, of course,
been affected like much of the population,
but to date, the Group has not suffered
any operational disruption as a result of the
COVID-19 pandemic. However, the risks
associated with the pandemic remain high,
and, to the extent possible, the Group has
taken action to mitigate those risks, not only
to protect staff and stakeholders, but also to
minimise potential disruption to its business.
The Group is continually monitoring the
health and well-being of its staff, and is
committed to maintaining as safe a working
environment as is possible during the
pandemic. Since the commencement of the
pandemic, the Group has implemented a
number of significant measures to safeguard
its staff, including:
■ reorganising the working practices of
offices and production facilities: office
staff work from home, while production
teams operate in the mode of three-
week rotations. In order to facilitate
these work modes, office staff have
been supplied with all necessary devices
and software to work remotely, while
all necessary living conditions, including
three meals daily, have been provided at
the production facilities;
22
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Enwell Energy plc // Annual Report and Financial Statements 2020 Corporate Social Responsibility Overview
We believe in operating to top
quartile ethical, safety and
environmental standards, and we
intend to make a positive impact
wherever we work. Our quality,
health, safety and environmental
(“QHSE”) policies and
performance are overseen by our
Health, Safety and Environment
Committee.
Transparency and fairness
We succeed in business by working
in an honest and ethical way, and
we will not countenance bribery
and corruption. Our Anti-Bribery
and Corruption Policy explains our
approach to these issues. It is also
important that all our stakeholders
are well informed about our work,
and that we carry out tenders for
operational services and equipment in
a fair and transparent way.
Our people
Our people are our most valuable
asset. We work hard to develop the
talents and skills of our team, and
we endeavour to recruit outstanding
new employees to enrich our
capabilities. At the same time, we
place paramount emphasis on safety
at work, and have and continue to
implement rigorous new processes
and training across the business.
Environmental protection
We regularly update and modernise
our infrastructure and ways of
working to improve efficiency and
reduce our impact on the natural
world. Independent environmental
research companies monitor the
environment in the areas in which we
operate to ensure that we meet the
relevant standards and regulations.
Local communities
We work hard to give back to the
communities where we work, not just
by creating jobs and paying taxes, but
by maintaining and contributing to
local organisations and infrastructure.
Among other things, we support local
schools (materials for repair works,
funding of school meals) and youth
sports, as well as the repair of roads
and local infrastructure.
Health and Safety
Safety at work is fundamental and underpins
all our success. We continue to improve
our safety standards by introducing new
processes and systems, including our Near
Miss reporting system. We have introduced
new production processes which are
intended to meet or exceed all applicable
health and safety standards in Ukraine, as
well as aiming to be more efficient than
previously. In 2018, our operations were
re-certified as complying with international
standards of occupational safety and health
management systems, in particular, the State
Standard of Ukraine ISO 9001:2015, State
Standard of Ukraine OHSAS 18001:2010, and
ISO 14001:2015.
In 2019, we launched our Near Miss reporting
system, designed to increase occupational
health and safety by detecting and eliminating
dangerous incidents, situations, and practices
(“Near Misses”). We now centrally record
all Near Misses in our workplaces and seek
to establish ways to reduce or eliminate the
chances of dangerous incidents occurring
in the future. We undertake practical
training sessions and generate a register of
reported Near Misses, ranked by risk level
(identification, recognition and mitigation as a
key to safe working).
In 2020, we advanced our Near Miss
reporting system by introducing a fully
electronic process, carrying out Near Miss
training for internal auditors and coaches,
rolling out new ways to detect and eliminate
Near Misses, and introducing Near Miss KPIs
for our team.
The preservation of human life and health is
our highest value, and we will continue to
work hard to further raise occupational health
and safety standards.
Environmental Management
Protecting the natural environment has
always been a key focus for us but arguably
has never been more important than now.
We carefully monitor the effects of our
operations, regularly upgrade equipment to
minimise our impact, and have implemented
strict quality, health, safety and environmental
(“QHSE”) policies.
We work to mitigate our environmental
impact in many ways, including taking
a responsible attitude to methods of
production, carefully coordinating our
activities, using only high-quality materials
certified to international standards, and
frequently updating our technology and
processes.
We have been accredited to environmental
standard DSTU ISO 14001:2006
Environmental Management Systems, and
our QHSE policies are designed to raise
standards in these areas.
Regular monitoring of environmental
indicators for ongoing projects ensures we
can continually assess our impact on the
environment.
Modernised infrastructure
We continue to modernise our production
infrastructure in order to improve both
operational and environmental performance.
Over recent years we have progressively
upgraded infrastructure, including the
metering and separation station (“MSS”) at
the gas processing facility at the MEX-GOL
and SV fields. This involved replacement
of equipment and automation of various
processes, allowing us to solve a number of
issues and reduce our environmental impact
through, in particular:
■
■
■
■
significant reduction of gas flaring, gas
losses and air emissions
expansion of pollution controls in and
around the area
development of an enclosed gas
measuring system on a well
stricter observance of environmental laws
and safety regulations
We also installed a new condensate
stabilisation unit (“CSU”) at the MSS,
enabling us to use raw materials more
efficiently and greatly improve the MSS’s
environmental performance. We also installed
facilities to produce LPG at the MEX-GOL
and SV fields. The LPG produced is not
only a very marketable product (liquefied
propane-butane) but is also a relatively
environmentally friendly hydrocarbon fuel.
Our QHSE policies
Our policies for quality, health, safety
and environment protection focus on the
following:
■
■
■
■
using our capabilities in the most efficient
ways possible
protecting and improving environmental
conditions where we work
improving occupational health and safety
developing and expanding employees’
skills
Environmental monitoring
From time to time, we commission
independent environmental research
companies to monitor the state of soil,
underground and open water, and plant and
animal life throughout the entire area of our
activities. These studies have never detected
any violation of relevant environmental
standards.
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STRATEGIC REPORT Principal Risks and Uncertainties
Risks Overview
Managing risks effectively is fundamental to
the success of our business and we apply
rigorous criteria across our operations and
functions. We also operate to top quartile
quality, health, safety and environmental
(“QHSE”) standards, and we monitor and
manage each of these areas.
We evaluate the risks according to a common
set of assessment criteria deployed across
business units, corporate functions and
capital investment projects, and then rank
and prioritise risks by importance and by
comparing their level against predetermined
target risk levels and tolerance thresholds.
For all major risks we have developed a
strategy for how we respond and mitigation
plans, with deadlines and responsibilities – so
if a serious risk ever materialises, we know
how we will react and will react quickly.
The key team responsible for managing
QHSE risks is our Risk Committee. This
Committee monitors our business operations,
identifies and records important risks, and
formally reviews and updates our Risk
Register and Mitigation Plan each quarter.
The Group’s QHSE policies are robustly
enforced via management meetings, training
and the work of our safety experts. The
overall aim is always to ensure that the
impact of our work on our staff, contractors
and the environment is as low as is practically
possible.
We also operate a Near Miss reporting
system, collecting and addressing reports on
near miss incidents to monitor and improve
occupational health and safety.
Principal Risks and How
We Manage Them
The Group has a risk evaluation methodology
in place to assist in the review of the risks
across all material aspects of its business.
This methodology highlights external,
operational and technical, financial and
corporate risks and assesses the level of risk
and potential consequences. It is periodically
presented to the Audit Committee and the
Board for review, to bring to their attention
potential risks and, where possible, propose
mitigating actions. Key risks recognised
and mitigation factors are detailed in the
following pages.
24
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Enwell Energy plc // Annual Report and Financial Statements 2020 Risk
External risks
Risk relating to Ukraine
Mitigation
Ukraine is an emerging market and, as such, the Group is exposed
to greater regulatory, economic and political risks than it would be
in other jurisdictions. Emerging economies are generally subject to
a volatile political and economic environment, which makes them
vulnerable to market downturns elsewhere in the world and could
adversely impact the Group’s ability to operate in the market.
The Group minimises this risk by continuously monitoring the
market in Ukraine and by maintaining a strong working relationship
with the Ukrainian regulatory authorities. The Group also maintains
a significant proportion of its cash holdings in international banks
outside Ukraine.
Regional conflict
Ukraine continues to have a strained relationship with Russia,
following Ukraine’s agreement to join a free trade area with the
European Union, which resulted in the implementation of mutual
trade restrictions between Russia and Ukraine on many key
products. Further, the conflict in parts of eastern Ukraine has not
been resolved to date, and Russia continues to occupy Crimea. This
conflict has put further pressure on relations between Ukraine and
Russia, and the political tensions have had an adverse effect on
the Ukrainian financial markets, hampering the ability of Ukrainian
companies and banks to obtain funding from the international capital
and debt markets. This strained relationship between Russia and
Ukraine has also resulted in disputes and interruptions in the supply
and transit of gas from Russia.
Banking system in Ukraine
The banking system in Ukraine has been under great strain in recent
years due to the weak level of capital, low asset quality caused by
the economic situation, currency depreciation, changing regulations
and other economic pressures generally, and so the risks associated
with the banks in Ukraine have been significant, including in relation
to the banks with which the Group has operated bank accounts.
However, following remedial action imposed by the National Bank
of Ukraine, Ukraine’s banking system has improved moderately.
Nevertheless, Ukraine continues to be supported by funding from
the International Monetary Fund.
As the Group has no assets in Crimea or the areas of conflict in
the east of Ukraine, nor do its operations rely on sales or costs
incurred there, the Group has not been directly affected by the
conflict. However, the Group continues to monitor the situation and
endeavours to procure its equipment from sources in other markets.
The disputes and interruption to the supply and transit of gas from
Russia has indirectly encouraged Ukrainian Government support
for the development of the domestic production of hydrocarbons
since Ukraine imports a significant proportion of its gas, which
has resulted in legislative measures to improve the regulatory
requirements for hydrocarbon extraction in Ukraine.
The creditworthiness and potential risks relating to the banks in
Ukraine are regularly reviewed by the Group, but the geopolitical and
economic events since 2013 in Ukraine have significantly weakened
the Ukrainian banking sector. In light of this, the Group has taken
and continues to take steps to diversify its banking arrangements
between a number of banks in Ukraine. These measures are
designed to spread the risks associated with each bank’s
creditworthiness, and the Group endeavours to use banks that have
the best available creditworthiness. Nevertheless, and despite the
recent improvements, the Ukrainian banking sector remains weakly
capitalised and so the risks associated with the banks in Ukraine
remain significant, including in relation to the banks with which the
Group operates bank accounts. As a consequence, the Group also
maintains a significant proportion of its cash holdings in international
banks outside Ukraine.
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STRATEGIC REPORT Principal Risks and Uncertainties CONTINUED
Risk
External risks
Geopolitical environment in Ukraine
Mitigation
Although there have been some improvements in recent years,
there has not been a final resolution of the political, fiscal and
economic situation in Ukraine and its ongoing effects are difficult
to predict and likely to continue to affect the Ukrainian economy
and potentially the Group’s business. While not materially affecting
the Group’s production operations, the instability has disrupted the
Group’s development and operational planning for its assets.
The Group continually monitors the market and business
environment in Ukraine and endeavours to recognise approaching
risks and factors that may affect its business. In addition, the
involvement of Smart Holding (Cyprus) Limited, as an indirect major
shareholder with extensive experience in Ukraine, is considered
helpful to mitigate such risks.
Climate change
Any near and medium-term continued warming of the planet
can have potentially increasing negative social, economic and
environmental consequences, generally globally and regionally, and
specifically in relation to the Group. The potential impacts include:
loss of market; and increased costs of operation through increasing
regulatory oversight and controls, including potential effective or
actual loss of licence to operate. As a diligent operator aware and
responsive to its good stewardship responsibilities, the Group not
only needs to monitor and modify its business plans and operations
to react to changes, but also to ensure its environmental footprint
is as minimal as it can practicably be in managing the hydrocarbon
resources the Group produces.
Operational and technical risks
Quality, Health, Safety and Environment (“QHSE”)
The oil and gas industry, by its nature, conducts activities which can
cause health, safety, environmental and security incidents. Serious
incidents can not only have a financial impact but can also damage
the Group’s reputation and the opportunity to undertake further
projects. As evidenced by events in 2020, pandemics also pose a
risk to operations, by potential illness and threat to life of employees
and contractors, and the associated disruptions in staffing levels,
operations and supply chain.
The Group’s plans include: assessing, reducing and/or mitigating
its emissions in its operations; and identifying climate change-
related risks and assessing the degree to which they can affect
its business, including financial implications. The HSE Committee,
which was established in 2020, is specifically tasked with
overseeing measuring, benchmarking and mitigating the Group’s
environmental and climate impact, which will be reported on in
future periods. At this stage, the Group does not consider climate
change to have any material implications on the Group’s financial
statements, including the accounting estimates.
The Group maintains QHSE policies and requires that management,
staff and contractors adhere to these policies. The policies ensure
that the Group meets Ukrainian legislative standards in full and
achieves international standards to the maximum extent possible.
As a consequence of the COVID-19 pandemic, the Group is re-
visiting processes and controls intended to ensure protection of
all our stakeholders and minimise any disruption to our business.
While possible to only a limited extent in field operations, we have
invested in technology that will allow many staff to work just as
effectively from remote locations.
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Enwell Energy plc // Annual Report and Financial Statements 2020 Risk
Industry risks
Mitigation
The Group is exposed to risks which are generally associated with
the oil and gas industry. For example, the Group’s ability to pursue
and develop its projects and development programmes depends
on a number of uncertainties, including the availability of capital,
seasonal conditions, regulatory approvals, gas, oil, condensate and
LPG prices, development costs and drilling success. As a result
of these uncertainties, it is unknown whether potential drilling
locations identified on proposed projects will ever be drilled or
whether these or any other potential drilling locations will be able
to produce gas, oil or condensate. In addition, drilling activities
are subject to many risks, including the risk that commercially
productive reservoirs will not be discovered. Drilling for
hydrocarbons can be unprofitable, not only due to dry holes, but also
as a result of productive wells that do not produce sufficiently to be
economic. In addition, drilling and production operations are highly
technical and complex activities and may be curtailed, delayed or
cancelled as a result of a variety of factors.
Production of hydrocarbons
Producing gas and condensate reservoirs are generally
characterised by declining production rates which vary depending
upon reservoir characteristics and other factors. Future production
of the Group’s gas and condensate reserves, and therefore the
Group’s cash flow and income, are highly dependent on the
Group’s success in operating existing producing wells, drilling
new production wells and efficiently developing and exploiting
any reserves, and finding or acquiring additional reserves. The
Group may not be able to develop, find or acquire reserves at
acceptable costs. The experience gained from drilling undertaken
to date highlights such risks as the Group targets the appraisal and
production of these hydrocarbons.
Risks relating to further development and operation
of the Group’s gas and condensate fields in Ukraine
The planned development and operation of the Group’s gas
and condensate fields in Ukraine is susceptible to appraisal,
development and operational risk. This could include, but is not
restricted to, delays in delivery of equipment in Ukraine, failure
of key equipment, lower than expected production from wells
that are currently producing, or new wells that are brought on-
stream, problematic wells and complex geology which is difficult
to drill or interpret. The generation of significant operational cash
is dependent on the successful delivery and completion of the
development and operation of the fields.
The Group has well qualified and experienced technical
management staff to plan and supervise operational activities.
In addition, the Group engages with suitably qualified local and
international geological, geophysical and engineering experts
and contractors to supplement and broaden the pool of expertise
available to the Group. Detailed planning of development activities is
undertaken with the aim of managing the inherent risks associated
with oil and gas exploration and production, as well as ensuring
that appropriate equipment and personnel are available for the
operations, and that local contractors are appropriately supervised.
In 2016, the Group engaged external technical consultants to
undertake a comprehensive review and re-evaluation study of the
MEX-GOL and SV fields in order to gain an improved understanding
of the geological aspects of the fields and reservoir engineering,
drilling and completion techniques, and the results of this study
and further planned technical work is being used by the Group in
the future development of these fields. The Group has established
an ongoing relationship with such external technical consultants to
ensure that technical management and planning is of a high quality
in respect of all development activities on the Group’s fields.
The Group’s technical management staff, in consultation with
its external technical consultants, carefully plan and supervise
development and operational activities with the aim of managing
the risks associated with the further development of the Group’s
fields in Ukraine. This includes detailed review and consideration of
available subsurface data, utilisation of modern geological software,
and utilisation of engineering and completion techniques developed
for the fields. With operational activities, the Group ensures that
appropriate equipment and personnel is available for the operations,
and that operational contractors are appropriately supervised. In
addition, the Group performs a review of its oil and gas assets
for impairment on an annual basis, and considers whether an
assessment of its oil and gas assets by a suitably qualified
independent assessor is appropriate or required.
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STRATEGIC REPORT Principal Risks and Uncertainties CONTINUED
Risk
Mitigation
Drilling and workover operations
Due to the depth and nature of the reservoirs in the Group’s fields,
the technical difficulty of drilling or re-entering wells in the Group’s
fields is high, and this and the equipment limitations within Ukraine,
can result in unsuccessful or lower than expected outcomes
for wells.
The utilisation of detailed sub-surface analysis, careful well planning
and engineering design in designing work programmes, along
with appropriate procurement procedures and competent on-site
management, aims to minimise these risks.
Maintenance of facilities
There is a risk that production or transportation facilities can fail
due to inadequate maintenance, control or poor performance of the
Group’s suppliers.
Financial risks
Exposure to cash flow and liquidity risk
There is a risk that insufficient funds are available to meet the
Group’s development obligations to commercialise the Group’s
oil and gas assets. Since a significant proportion of the future
capital requirements of the Group is expected to be derived from
operational cash generated from production, including from wells
yet to be drilled, there is a risk that, in the longer term, insufficient
operational cash is generated, or that additional funding, should the
need arise, cannot be secured.
Ensuring appropriate business practices
The Group operates in Ukraine, an emerging market, where certain
inappropriate business practices may, from time to time occur, such
as corrupt business practices, bribery, appropriation of property and
fraud, all of which can lead to financial loss.
The Group’s facilities are operated and maintained at standards
above the Ukrainian minimum legal requirements. Operations staff
are experienced and receive supplemental training to ensure that
facilities are properly operated and maintained. Service providers are
rigorously reviewed at the tender stage and are monitored during
the contract period.
The Group maintains adequate cash reserves and closely monitors
forecasted and actual cash flow, as well as short and longer-term
funding requirements. The Group does not currently have any loans
outstanding, internal financial projections are regularly made based
on the latest estimates available, and various scenarios are run to
assess the robustness of the liquidity of the Group. However, as the
risk to future capital funding is inherent in the oil and gas exploration
and development industry and reliant in part on future development
success, it is difficult for the Group to take any other measures
to further mitigate this risk, other than tailoring its development
activities to its available capital funding from time to time.
The Group maintains anti-bribery and corruption policies in relation
to all aspects of its business, and ensures that clear authority
levels and robust approval processes are in place, with stringent
controls over cash management and the tendering and procurement
processes. In addition, office and site protection is maintained to
protect the Group’s assets.
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Enwell Energy plc // Annual Report and Financial Statements 2020 Risk
Mitigation
The Group sells a proportion of its hydrocarbon production through
long-term offtake arrangements, which include pricing formulae so
as to ensure that it achieves market prices for its products, as well
as utilising the electronic market platforms in Ukraine to achieve
market prices for its remaining products. However, hydrocarbon
prices in Ukraine are implicitly linked to world hydrocarbon prices
and so the Group is subject to external price trends.
Hydrocarbon price risk
The Group derives its revenue principally from the sale of its
Ukrainian gas, condensate and LPG production. These revenues
are subject to commodity price volatility and political influence.
A prolonged period of low gas, condensate and LPG prices may
impact the Group’s ability to maintain its long-term investment
programme with a consequent effect on its growth rate, which
in turn may impact the share price or any shareholder returns.
Lower gas, condensate and LPG prices may not only decrease the
Group’s revenues per unit, but may also reduce the amount of gas,
condensate and LPG which the Group can produce economically, as
would increases in costs associated with hydrocarbon production,
such as subsoil taxes and royalties. The overall economics of the
Group’s key assets (being the net present value of the future cash
flows from its Ukrainian projects) are far more sensitive to long-term
gas, condensate and LPG prices than short-term price volatility.
However, short-term volatility does affect liquidity risk, as, in the
early stage of the projects, income from production revenues is
offset by capital investment.
Currency risk
Since the beginning of 2014, the Ukrainian Hryvnia significantly
devalued against major world currencies, including the US Dollar,
where it has fallen from UAH8.3/$1.00 on 1 January 2014 to
UAH28.3/$1.00 on 31 December 2020. This devaluation through to
2020 was a significant contributor to the imposition of the banking
restrictions by the National Bank of Ukraine over recent years. In
addition, the geopolitical events in Ukraine over recent years are
likely to continue to impact the valuation of the Ukrainian Hryvnia
against major world currencies. Further devaluation of the Ukrainian
Hryvnia against the US Dollar will affect the carrying value of the
Group’s assets.
The Group’s sales proceeds are received in Ukrainian Hryvnia,
and the majority of the capital expenditure costs for the current
investment programme will be incurred in Ukrainian Hryvnia, thus
the currency of revenue and costs are largely matched. In light
of the previous devaluation and volatility of the Ukrainian Hryvnia
against major world currencies, and since the Ukrainian Hryvnia
does not benefit from the range of currency hedging instruments
which are available in more developed economies, the Group has
adopted a policy that, where possible, funds not required for use in
Ukraine be retained on deposit in the United Kingdom and Europe,
principally in US Dollars.
Counterparty and credit risk
The challenging political and economic environment in Ukraine
means that businesses can be subject to significant financial
strain, which can mean that the Group is exposed to increased
counterparty risk if counterparties fail or default in their contractual
obligations to the Group, including in relation to the sale of its
hydrocarbon production, resulting in financial loss to the Group.
The Group monitors the financial position and credit quality of its
contractual counterparties and seeks to manage the risk associated
with counterparties by contracting with creditworthy contractors
and customers. Hydrocarbon production is sold on terms that limit
supply credit and/or title transfer until payment is received.
Financial markets and economic outlook
The performance of the Group is influenced by global economic
conditions and, in particular, the conditions prevailing in the United
Kingdom and Ukraine. The economies in these regions have been
subject to volatile pressures in recent periods, with the global
economy having experienced a long period of difficulties, and more
particularly the events that have occurred in Ukraine over recent
years. This has led to extreme foreign exchange movements in the
Ukrainian Hryvnia, high inflation and interest rates, and increased
credit risk relating to the Group’s key counterparties.
The Group’s sales proceeds are received in Ukrainian Hryvnia
and a significant proportion of investment expenditure is made
in Ukrainian Hryvnia, which minimises risks related to foreign
exchange volatility. However, hydrocarbon prices in Ukraine are
implicitly linked to world hydrocarbon prices and so the Group is
subject to external price movements. The Group holds a significant
proportion of its cash reserves in the United Kingdom and Europe,
mostly in US Dollars, with reputable financial institutions. The
financial status of counterparties is carefully monitored to manage
counterparty risks. Nevertheless, the risks that the Group faces as
a result of these risks cannot be predicted and many of these are
outside of the Group’s control.
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STRATEGIC REPORT Principal Risks and Uncertainties CONTINUED
Risk
Corporate risks
Ukrainian production licences
Mitigation
The Group ensures compliance with commitments and regulations
relating to its production licences through Group procedures and
controls or, where this is not immediately feasible for practical
or logistical considerations, seeks to enter into dialogue with the
relevant Government bodies with a view to agreeing a reasonable
time frame for achieving compliance or an alternative, mutually
agreeable course of action. Work programmes are designed to
ensure that all licence obligations are met and continual interaction
with Government bodies is maintained in relation to licence
obligations and commitments.
The Group operates in a region where the right to production can
be challenged by state and non-state parties. During 2010, this
manifested itself in the form of a Ministry Order instructing the
Group to suspend all operations and production from its MEX-
GOL and SV production licences, which was not resolved until
mid-2011. In 2013, new rules relating to the updating of production
licences led to further challenges being raised by the Ukrainian
authorities to the production licences held by independent oil and
gas producers in Ukraine, including the Group. In March 2019, a
Ministry Order was issued instructing the Group to suspend all
operations and production from its VAS production licence. The
Group is challenging this Order through legal proceedings, during
which production from the licence is continuing, but this matter
remains unresolved. In 2020, LLC Arkona Gas-Energy (“Arkona”)
faced a challenge from NJSC Ukrnafta concerning the validity
of its SC production licence, which was ultimately resolved in
Arkona’s favour by a decision of the Supreme Court of Ukraine
in February 2021. All such challenges affecting the Group have
thus far been successfully defended through the Ukrainian legal
system. However, the business environment is such that these
types of challenges may arise at any time in relation to the Group’s
operations, licence history, compliance with licence commitments
and/or local regulations. In addition, production licences in Ukraine
are issued with and/or carry ongoing compliance obligations, which
if not met, may lead to the loss of a licence.
Risks relating to key personnel
The Group’s success depends upon skilled management as well
as technical expertise and administrative staff. The loss of service
of critical members from the Group’s team could have an adverse
effect on the business.
The Group periodically reviews the compensation and contractual
terms of its staff. In addition, the Group has developed relationships
with a number of technical and other professional experts and
advisers, who are used to provide specialist services as required.
Strategic Report Approval
The Strategic Report, which incorporates Highlights, Where We Operate,
Our Marketplace – Ukraine, Chairman’s Statement, Chief Executive’s
Statement, Focus for Growth, Business Model, Our Strategic Priorities,
Statement under s172(1) Companies Act 2006, Overview of Assets,
Overview of Reserves, Finance Review, COVID-19 Pandemic, Corporate
Social Responsibility Overview and Principal Risks and Uncertainties,
was approved by the Board on 30 March 2021 and signed on its behalf
by:
Chris Hopkinson
Chairman
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Enwell Energy plc // Annual Report and Financial Statements 2020 Governance
Board of Directors
Corporate Governance Statement
Directors’ Report
Independent Auditors’ Report
32
34
37
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Board of Directors
Chris Hopkinson
Non-Executive Chairman
Sergii Glazunov
Chief Executive Officer
A R
H
H
Bruce Burrows
Finance Director
A R
Chris Hopkinson was appointed as
Non-Executive Director in September
2017, and became Non-Executive
Chairman in October 2017. Mr
Hopkinson has extensive experience
in the oil and gas industry, having
worked in senior management roles
in Kazakhstan, Africa, the Russian
Federation and the Middle East.
He began his career with Shell
International, followed by technical
and management roles with Yukos
and Lukoil Overseas, before becoming
Chief Executive Officer of Imperial
Energy Group up until its acquisition
by ONGC in 2009. He was then Vice-
President Western Siberia for TNK-BP,
Senior Vice-President North Africa
for BG Group, Chief Executive Officer
of International Petroleum Limited,
and Chief Operating Officer for JSC
National Company KazMunayGas. Mr
Hopkinson is a member of the Society
of Petroleum Engineers, and holds a
BSc (Hons) in Applied Physics from St
Andrews University.
Sergii Glazunov was appointed as
Chief Executive Officer in August
2017, having previously been Finance
Director since November 2014, and a
Non-Executive Director since February
2012 as a nominee of the Company’s
indirect majority shareholder, Smart
Holding (Cyprus) Limited. He is also
the Chief Executive Officer of LLC
Smart Energy. Prior to joining the
Smart Holding Group, Mr Glazunov
held positions as Deputy Chief
Executive Officer at JSC Concern
AVEC & Co and Vice-President at
JP Morgan Chase and Bank One
Investment Management Group.
He also has extensive teaching
and academic research experience
working at Wayne State and Michigan
State Universities. Mr Glazunov is a
Chartered Financial Analyst and holds
an MSc in Mathematics from Kyiv
State University, an MSc in Statistics
from Michigan State University and an
MBA from Wayne State University.
Bruce Burrows was appointed as
Finance Director in June 2019, having
previously been a Non-Executive
Director since August 2017. Mr
Burrows has extensive experience
in the oil and gas industry, and, in
particular, Ukraine and Eastern Europe,
having been Finance Director of JKX
Oil & Gas for 14 years until 2011. Since
then, he has been Chief Financial
Officer of Seven Energy International,
Lekoil, and AITEO Group, and has
served as a non-executive Director
of Azonto Petroleum and European
Goldfields. He is a member of the
Institute of Chartered Accountants of
Australia & New Zealand, and holds
a BSc Honours from Canterbury
University (New Zealand) and a
Diploma in Accounting from Victoria
University (New Zealand).
KEY
A
Audit
Committee
R
Remuneration
Committee
H
Health, Safety and
Environment Committee
Chairman of the
Committee
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Enwell Energy plc // Annual Report and Financial Statements 2020 Bruce Burrows
Finance Director
A R
Dmitry Sazoneko
Non-Executive Director
A R H
Dmitry Sazonenko was appointed as
Non-Executive Director in September
2018. Mr Sazonenko is a geologist and
petroleum engineer with extensive
experience in the oil and gas industry
in the Russian Federation and
former CIS countries. He began his
career with the Russian Academy
of Science, before moving to the
private sector with technical and
management roles with Yukos, Lukoil
Overseas, Imperial Energy, Total,
International Petroleum and Eurotek-
Yugra, the Repsol-Gazpromneft joint
venture in the Russian Federation.
Mr Sazonenko is a member of the
Society of Petroleum Engineers, the
American Association of Petroleum
Geologists and the European
Association of Geoscientists and
Engineers, and has an MSc in Geology
from Novosibirsk State University, an
MSc in Petroleum Engineering from
Heriot-Watt University, a Diploma
in Oil and Gas Economics and
Management from Gubkin University,
Moscow, and is a Certified Project
Management Specialist accredited by
the International Project Management
Association.
Alexey Pertin
Non-Executive Director
Yuliia Kirianova
Non-Executive Director
Yuliia Kirianova was appointed as
Non-Executive Director in May 2016
and is a nominee of the Company’s
indirect majority shareholder, Smart
Holding (Cyprus) Limited. Ms Kirianova
is currently the First Deputy Chief
Executive Officer and Chief Financial
Officer of PJSC Smart-Holding.
Prior to joining the Smart Holding
Group, Ms Kirianova held positions
at ING Bank Ukraine, JSC System
Capital Management and LLC DCH
Investment Management. Ms
Kirianova holds a degree in Finance
from the National Academy of
Management, Kyiv and an MBA from
The Open University.
Alexey Pertin was appointed as Non-
Executive Director in April 2011 and is
a nominee of the Company’s indirect
majority shareholder, Smart Holding
(Cyprus) Limited. He is currently
Chief Executive Officer of PJSC
Smart-Holding, Deputy Chairman of
the Supervisory Board of Metinvest
B.V., and Chairman of the Strategic
& Investment Committee of the
Supervisory Board of Metinvest B.V..
He also holds Director positions with
Adeona Holdings Limited, Smart
Holding (Cyprus) Limited and Smart
Holding N.V.. Mr Pertin previously
held positions as Strategy and
Corporate Development Director and
Chairman of the Supervisory Board of
PJSC Smart-Holding. Prior to joining
the Smart Holding Group, he held
various management positions at JSC
Severstal-Group, including the positions
of Deputy Chief Executive Officer
for Business Development at JSC
Severstal-Group and Chief Executive
Officer of CJSC Izhora Pipe Plant. Mr
Pertin graduated from Cherepovets
State University and Saint Petersburg
State Technical University with
qualifications in financial management,
and he also holds an MBA from
Newcastle Business School, England.
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GOVERNANCE Corporate Governance Statement
The Company has adopted the Quoted Companies Alliance Corporate Governance Code 2018
(“QCA Code”). This statement sets out how the Company complies with, or departs from, the
10 principles of the QCA Code.
1. Strategy and business model
The Group is engaged in exploration and
development of oil and gas projects, with
assets in Ukraine.
The Directors of the Company set the
Company’s strategy and monitor its
implementation through management
and financial performance reviews. The
Board also works to ensure that adequate
resources are available to implement the
Company’s strategy in a timely manner. The
Company has set out a strategy and business
model (including the key challenges to its
implementation) to promote long-term value
creation for shareholders and will update all
shareholders on this in its Annual Report
each year.
The Board meets on a regular basis to
discuss the strategic direction of the
Company and any significant deviation or
change will be highlighted promptly, should
this occur.
2. Understanding and meeting
shareholders’ needs and
expectations
The Company is committed to listening
to, and communicating openly with, its
shareholders to ensure that its strategy,
business model and performance are clearly
understood. The Annual General Meeting
is a forum for shareholders to engage in
dialogue with the Board. The results of the
Annual General Meeting are published
via a regulatory information service and
can be found in the Regulatory News
section of the Company’s website at
www.enwell-energy.com.
Chris Hopkinson, Chairman, Sergii Glazunov,
Chief Executive Officer, and Bruce Burrows,
Finance Director, are the principal contacts
between the Company and its shareholders,
with whom they each maintain a regular
dialogue. The views of shareholders are
communicated to the whole Board.
The Company’s progress on achieving its
key targets is regularly communicated
to investors through its announcements
to the market. The Company also utilises
other professional advisers, such as the
Company’s Nominated Adviser, Broker and
the Company Secretary, who provide advice
and recommendations on shareholder
communication.
3. Taking into account
wider stakeholder and social
responsibilities and their
implications for long-term success
The Board members recognise their
responsibilities to stakeholders, including
staff, suppliers, customers, regulators and
within the communities in which it operates.
The Company has senior managers of its
operating divisions who provide regular
feedback to the Chief Executive Officer, who
then ensures that the Board as a whole is
informed of any major developments. In turn,
the Board communicates with management
and staff on key issues which may affect
them in connection with the Group’s
business.
The Company is involved in the local
communities close to its operations through
sponsorship and community projects and
activities. Careful attention is given to ensure
that all operational activities are performed
in an environmentally responsible manner
and in accordance with applicable laws
and regulations. Both the involvement in
local communities and the performance of
operational activities in an environmentally
responsible manner are monitored by the
Board to ensure that ethical values and
behaviours are recognised.
4. Embedding effective
risk management
The Board regularly reviews the risks facing
the business and the internal controls
which are in place to address these risks.
The Company has a Risk Committee that
monitors the Group’s business operations
and identifies key risks that are faced. The
Risk Committee maintains a Risk Register
and Mitigation Plan that is formally reviewed
and updated quarterly. The Risk Committee
regularly reports to the Board on risk
management and mitigation.
The Company is committed to maintaining
the highest quality, health, safety and
environmental (“QHSE”) standards and the
effective management of these areas is
an intrinsic element of the overall business
ethos. The Company has a Health, Safety and
Environment Committee that oversees and
monitors the Group’s activities and adherence
to its QHSE policies, as well as supervising
the updating and implementation of such
policies. The Health, Safety and Environment
Committee meets regularly and reports to
the Board on all QHSE matters. Through strict
enforcement of the Group’s QHSE policies,
together with regular management meetings,
training and the appointment of dedicated
safety professionals, the Company strives
to ensure that the impact of its business
activities on its staff, contractors and the
environment is as low as is reasonably
practicable. The Company reports safety and
environmental performance in accordance
with oil industry practice and guidelines.
The Board is responsible for the Group’s
system of internal control and reviewing its
effectiveness. Any such system is designed
to manage rather than eliminate the risk of
failure to achieve business objectives and
can only provide reasonable and not absolute
assurance against material misstatement or
loss. However, the Company believes that
its internal control systems are appropriate
to the Company’s business. Internal controls
are assessed for effectiveness and risks are
monitored and reviewed through regular
Board and management meetings.
5. Maintaining a balanced and well-
functioning Board
In the spirit of the QCA Code, it is the
Board’s function to ensure that the Company
is managed for the long-term benefit of all
shareholders and other stakeholders, with
effective and efficient decision-making.
Corporate governance is an important part of
that function, reducing risk and adding value
to the Company. The Chairman oversees
corporate governance compliance for the
Company and the Board monitors the
governance framework of the Company on an
ongoing basis.
As an AIM-quoted company, the Company
is required to apply a recognised corporate
governance code, demonstrating how it
complies with such corporate governance
code and where it departs from it.
The Board has formally adopted the
QCA Code as the basis for its corporate
governance framework. The Board recognises
the principles of the QCA Code, which focus
on the creation of medium to long-term value
for shareholders. The Company will provide
annual updates on its compliance with the
QCA Code in its Annual Reports.
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Enwell Energy plc // Annual Report and Financial Statements 2020 The composition of the Board is as follows:-
Board Member
Chris Hopkinson
(Chairman)
Sergii Glazunov
Alexey Pertin
Yuliia Kirianova
Bruce Burrows
Dmitry Sazonenko
Meetings Attended
(out of a total possible)
14/16
16/16
0/16
8/16
16/16
16/16
The Board comprises six Directors, being the
Non-Executive Chairman, the Chief Executive
Officer, the Finance Director and three Non-
Executive Directors, reflecting a blend of
different experience and backgrounds. The
Non-Executive Chairman is Chris Hopkinson.
The Chief Executive Officer, Sergii Glazunov,
and two of the Non-Executive Directors
are nominees of Smart Holding (Cyprus)
Limited, the indirect majority shareholder
of the Company. The Company has entered
into a Relationship Agreement with Smart
Holding (Cyprus) Limited, which regulates
the relationship between them to ensure
that the business and affairs of the Company
are managed by the Board, independently
of Smart Holding (Cyprus) Limited and its
associated entities. The Board also has
procedures in place to monitor and deal with
Directors’ conflicts of interest. The Directors
are expected to devote such time as is
necessary for the proper performance of their
respective duties. The Executive Directors
are employees of the Group, and the Non-
Executive Directors are expected to spend
a minimum number of days on the Group’s
business each year. The Board considers
Chris Hopkinson and Dmitry Sazonenko to be
independent Non-Executives in terms of the
QCA guidelines, although given the size of
the Company, the Board has not appointed a
senior independent Director.
The Board is responsible for setting the
direction of the Company through the
establishment of strategic objectives and key
policies. The Board has a schedule of matters
reserved for its review and approval, and
such items include Group strategy, approval
of major capital expenditure projects,
approval of the annual and interim results,
annual budgets, dividend policy, Board
composition and structure, and appointment
and assessment of senior management. The
Board monitors the exposure to key business
risks and reviews the strategic direction of all
operating subsidiaries, their annual budgets,
their performance in relation to those
budgets and their capital expenditure. The
Board maintains its independence from the
day-to-day responsibility for managing
the business which it delegates to the
Chief Executive Officer and the senior
management team. The Chief Executive
Officer, being the senior Executive Director,
has a particular role and area of responsibility
and continually engages with the Company’s
shareholders and stakeholders.
Regular Board meetings are held (a minimum
of four per year) and ad hoc meetings are
scheduled as required. The attendance at
Board and Committee meetings during the
year will be reported in the Annual Report.
All Directors have access to management,
including the Company Secretary, and to
such information as is needed to carry out
their duties and responsibilities fully and
effectively. Furthermore, all Directors are
entitled to seek independent professional
advice concerning the affairs of the Company,
at its expense.
All Directors are subject to election by
shareholders at the first opportunity following
their appointment by the Board. In addition,
Directors will retire by rotation and stand
for re-election by shareholders at least once
every three years in accordance with the
Company’s Articles of Association.
Further details of the Board of Directors, and
their roles and background, are set out in the
preceding pages of this Report.
6. Having appropriate experience,
skills and capabilities on the Board
The Board has a mix of experience, skills,
gender, linguistic and personal qualities that
help deliver the strategy of the Company,
including managerial, technical and financial
expertise in the oil and gas industry. The
composition of the Board ensures that no one
individual or group dominates the decision-
making process. The Company will ensure
that, between them, the Directors have
the necessary up-to-date experience, skills
and capabilities to deliver the Company’s
strategy and targets. The Directors keep
their respective skills up to date through
a combination of attendance at relevant
industry events and conferences, continued
professional development and experience
gained from other board and management
roles.
7. Evaluating Board performance
Given the Company’s current size, the Board
has not considered it necessary to undertake
an external assessment of the Board
performance and effectiveness during the
period, but monitors for any such need.
8. Ethical values and behaviours
The Company operates a corporate
culture that is based on ethical values and
behaviours. It maintains a quality system
appropriate to the standards required
for a Company of its size. The Board
communicates regularly with management
through meetings and messages, and
information is cascaded to staff at operating
subsidiaries via management meetings with
operational personnel.
The Company maintains appropriate policies
which reflect these values, including an Anti-
Bribery and Corruption Policy in relation to its
compliance with the Bribery Act 2010, and
Policies on Disclosure of Inside Information
and Share Dealing. These policies set out
the high ethical standards required of the
Group’s staff in the course of carrying out
its business activities regarding dealing with
gifts, hospitality, corruption, fraud, the use of
inside information and whistle-blowing.
9. Maintaining governance
structures and processes
The Board
In addition to the Chairman’s statement
and explanation provided under principle 5
above, the Chairman is responsible for the
leadership of the Board and is pivotal to
fostering a culture that adopts good corporate
governance.
The Chairman, together with the rest of the
Board, sets the direction for the Company
through a formal schedule of matters
reserved for its decision. The Chief Executive
Officer, as senior Executive Director, has a
particular role and area of responsibility and
continually engages with the Company’s
shareholders and stakeholders. The Board
has a schedule of matters reserved for its
review and approval, and such items include
Group strategy, approval of major capital
expenditure projects, approval of the annual
and interim results, annual budgets, dividend
policy, Board composition and structure,
and the appointment and assessment of
senior management. The Board monitors
the exposure to key business risks and
reviews the strategic direction of all operating
subsidiaries, their annual budgets, their
performance in relation to those budgets and
their capital expenditure. The Board delegates
day-to-day responsibility for managing the
business to the Chief Executive Officer and
the senior management team.
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GOVERNANCE Corporate Governance Statement CONTINUED
As required by Rule 26 of the AIM Rules for
Companies, the Company publishes historical
Annual Reports, Interim Reports, Notices of
General Meetings and all announcements
since the Company’s admission to the
AIM Market, which are available in the
Investors and Regulatory News section of its
website at www.enwell-energy.com.
The Board does not publish an Audit
Committee or Remuneration Committee
report in its Annual Report as the Board
considers this is not appropriate given
the size and stage of development of the
Company. The Board will consider annually
whether it considers it appropriate for these
reports to be included in future Annual
Reports.
Committees
The Board has established three
committees, being the Audit Committee,
Remuneration Committee and Health, Safety
and Environment Committee. The Audit
Committee and Remuneration Committee
are composed of independent Non-Executive
Directors (Chris Hopkinson and Dmitry
Sazonenko) and an Executive Director
(Bruce Burrows), and the Health, Safety
and Environment Committee is composed
of independent Non-Executive Directors
(Chris Hopkinson and Dmitry Sazonenko),
an Executive Director (Sergii Glazunov) and
the Chief Technical Officer (Viktor Dudzych).
The QCA Code recommends that the
membership of these committees is made
up of only non-executive directors, but
given the size of the Company and the fact
that three of the Directors are nominees of
Smart Holding (Cyprus) Limited, the indirect
majority shareholder of the Company, the
Board considers that the composition of
these Committees is appropriate in the
circumstances.
Audit Committee
The Audit Committee meets not less than
twice a year to review the published financial
information, and the effectiveness of external
audit and internal financial controls. It deals
with the appointment, terms of engagement
and fees of the external Auditors, the
scope of the audit, review of the financial
statements and reports, including any
changes to accounting policies or practices,
and the review of the Group’s system of
risk management and internal controls
and compliance with applicable laws and
regulations. Meetings are normally attended,
by invitation, by a representative of the
Auditors.
The composition of the Audit Committee is
as follows:
Committee Member
Chris Hopkinson
(Chairman)
Dmitry Sazonenko
Bruce Burrows
Meetings Attended
(out of a total possible)
2/2
2/2
2/2
Remuneration Committee
The Remuneration Committee is responsible
for establishing and developing the
Company’s general policy on executive and
senior management remuneration, having
regard to the need to attract and retain
individuals of the highest calibre and with the
appropriate experience to make a significant
contribution to the Group, and determining
specific remuneration packages for Executive
Directors and senior management.
The composition of the Remuneration
Committees is as follows:
Committee Member
Chris Hopkinson
(Chairman)
Dmitry Sazonenko
Bruce Burrows
Meetings Attended
(out of a total possible)
1/1
1/1
1/1
Health, Safety and Environment Committee
The Health, Safety and Environment
Committee meets not less than once a
year to oversee and monitor QHSE matters
affecting the Company and its business
activities. It is responsible for the supervision
of QHSE matters, including evaluation of the
effectiveness of QHSE policies, assessment
of Group performance regarding the impact
of decisions relating to QHSE issues,
oversight of compliance of QHSE policies
with applicable international and oil industry
practice and guidelines, and development
and maintenance of the framework of QHSE
policies for the management and reporting of
QHSE issues affecting the Group.
The composition of the Health, Safety and
Environment Committees is as follows:
Committee Member
Dmitry Sazonenko
(Chairman)
Chris Hopkinson
Sergii Glazunov
Viktor Dudzych
Meetings Attended
(out of a total possible)
1/1
1/1
1/1
1/1
Nomination Committee
The Directors do not consider that, given
the size of the Company, it is appropriate to
have a Nomination Committee. Any matters
which would normally be dealt with by such a
committee are considered by the Board. The
appropriateness of such a committee will,
however, be kept under regular review by the
Company.
10. Communicating with
shareholders and other relevant
stakeholders
The Board recognises that it is accountable
to shareholders for the performance
and activities of the Company and the
Group. The Board engages in discussions
with shareholders as appropriate from
time to time through formal meetings
or correspondence and audiovisual and
telephone discussions. The Annual General
Meeting of the Company provides an
opportunity for the Directors to present
to the shareholders a report on current
operations and developments and enables
the shareholders to express their views about
the Company’s business.
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Enwell Energy plc // Annual Report and Financial Statements 2020 Directors’ Report
The Directors present their
Annual Report and the
audited consolidated financial
statements for the year ended
31 December 2020.
Statement under Section 172(1) of the
Companies Act 2006
The Statement by the Directors in the
performance of their statutory duties in
accordance with Section 172(1) of the
Companies Act 2006 is set out in the
Strategic Report.
Future Developments
The future developments relating to the
Group are described in the Strategic Report,
and are therefore not repeated in the
Directors’ Report in accordance with Section
414C(11) of the Companies Act 2006 and
related statutory requirements.
Proposed Dividend
The Directors do not recommend the
payment of a dividend (2019: $nil).
Capital Structure
Details of the issued share capital, together
with details of the movements in the
Company’s issued share capital during the
year, are shown in Note 26. The Company has
one class of ordinary shares which carry no
right to fixed income. Each share carries the
right to one vote at general meetings of the
Company.
There are no specific restrictions on the size
of a holding nor on the transfer of shares,
which are both governed by the general
provisions of the Articles of Association of
the Company and prevailing legislation. The
Directors are not aware of any agreements
between holders of the Company’s shares
that may result in restrictions on the transfer
of securities or on voting rights.
No person has any special rights of control
over the Company’s share capital and all
issued shares are fully paid.
With regard to the appointment and
replacement of Directors, the Company is
governed by its Articles of Association, the
Companies Act 2006 and related legislation.
The Articles of Association themselves may
be amended by special resolution of the
shareholders. The powers of the Directors
are described in the Corporate Governance
Statement.
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GOVERNANCE The Directors are responsible for keeping
adequate accounting records that are
sufficient to show and explain the Group’s
and the Company’s transactions and disclose
with reasonable accuracy at any time the
financial position of the Group and the
Company and enable them to ensure that
the financial statements comply with the
Companies Act 2006.
The Directors are responsible for the
maintenance and integrity of the Company’s
website. Legislation in the United Kingdom
governing the preparation and dissemination
of financial statements may differ from
legislation in other jurisdictions.
Directors’ Confirmations
In the case of each Director in office at the
date the Directors’ Report is approved:
■ so far as the Director is aware, there is
no relevant audit information of which
the Group’s and Company’s Auditors are
unaware; and
■ the Director has taken all the steps that
he/she ought to have taken as a Director
in order to make himself/herself aware
of any relevant audit information and to
establish that the Group’s and Company’s
Auditors are aware of that information.
This confirmation is given and should be
interpreted in accordance with the provisions
of section 418 of the Companies Act 2006.
Independent Auditors
A resolution to reappoint
PricewaterhouseCoopers LLP as Independent
Auditors will be proposed at the next Annual
General Meeting.
On behalf of the Board
Chris Hopkinson
Chairman
30 March 2021
Directors’ Report CONTINUED
Directors and Directors’ Interests
The Directors who held office during the year
and up to the date hereof were as follows:
Chris Hopkinson
Sergii Glazunov
Alexey Pertin
Yuliia Kirianova
Bruce Burrows
Dmitry Sazonenko
None of the Directors who held office at the
end of the financial year had any disclosable
interest in the shares of the Company or any
other Group companies.
According to the register of Directors’
interests, no rights to subscribe for shares
in or debentures of Group companies were
granted to any of the Directors or their
immediate families, or exercised by them,
during the financial year.
Directors’ Indemnities
The Company has made qualifying third party
indemnity provisions for the benefit of its
Directors in accordance with Section 234 of
the Companies Act 2006, which were made
during the year and remain in force at the
date of this report.
Political Contributions
During the year the Group did not make any
political contributions (2019: $nil).
Financial Risk Management
The Group’s financial risk management is
disclosed in the Strategic Report, and is
therefore not repeated in the Directors’
Report in accordance with Section 414C(11)
of the Companies Act 2006 and related
statutory requirements.
Post Balance Sheet Events
Details of significant events since the Balance
Sheet date are contained in Note 32.
Substantial Shareholders
At 30 March 2021, the Company had been
notified of the following interests of 3% or
more in its issued share capital:
Substantial
Shareholder
Smart
Energy (CY)
Limited*
Pope Asset
Management
Number of
shares
% of issued
ordinary share
capital
264,996,769
82.65%
22,273,339
6.95%
* Smart Energy (CY) Limited, is 100% owned by
Smart Holding (Cyprus) Limited (incorporated in
the Republic of Cyprus), which is 100% owned by
Mr V Novynskyi.
Going Concern Assessment
The Directors carefully monitor the situation
with respect to the COVID-19 pandemic and
maintain a significant level of flexibility to
modify the Group’s development plans as
may be required to preserve cash resources,
using base, low and high cases for liquidity
management. Following a going concern
review conducted in mid-March 2021, the
Company has re-visited the cash forecast to
consider a possible (but in the Company’s
view it constitutes a remote possibility) worst
case scenario, being: a low case production
profile; forward curve commodity prices
being reduced by 20%; and all other costs
being maintained at current levels with no
reduction as would otherwise be possible.
For these reasons, the Company continues to
adopt the Going Concern Basis for preparing
the consolidated financial statements.
Directors’ Responsibilities Statement
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. Under that law, the Directors
have prepared the Group financial
statements in accordance with international
accounting standards in conformity with the
requirements 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 Group
and the Company and of the profit or loss
of the Group for that period. In preparing
the financial statements, the Directors are
required to:
■ select suitable accounting policies and
then apply them consistently;
■ state whether applicable international
accounting standards in conformity with
the requirements of the Companies Act
2006 have been followed, subject to
any material departures disclosed and
explained in the financial statements;
■ make judgements and accounting
estimates that are reasonable and
prudent; and
■ prepare the financial statements on
the going concern basis unless it is
inappropriate to presume that the
Group and the Company will continue in
business.
The Directors are also responsible for
safeguarding the assets of the Group and the
Company and hence for taking reasonable
steps for the prevention and detection of
fraud and other irregularities.
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Enwell Energy plc // Annual Report and Financial Statements 2020 Independent Auditors’ Report to the
members of Enwell Energy plc
Report on the audit of the financial statements
Opinion
In our opinion, Enwell Energy plc’s Group
financial statements and Company financial
statements (the “financial statements”):
■ give a true and fair view of the state
of the Group’s and of the Company’s
affairs as at 31 December 2020 and of
the Group’s profit and the Group’s and
Company’s cash flows for the year then
ended;
■ have been properly prepared in
accordance with international accounting
standards in conformity with the
requirements of the Companies Act
2006; and
■ have been prepared in accordance with
the requirements of the Companies Act
2006.
We have audited the financial statements,
included within the Annual Report, which
comprise: the consolidated and Company
balance sheets as at 31 December 2020;
the consolidated income statement, the
consolidated and Company statements of
comprehensive income, the consolidated
and Company cash flow statements, and the
consolidated and Company statements of
changes in equity for the year then ended;
and the notes to the financial statements,
which include a description of the significant
accounting policies.
Basis for opinion
We conducted our audit in accordance
with International Standards on Auditing
(UK) (“ISAs (UK)”) and applicable law. Our
responsibilities under ISAs (UK) are further
described in the Auditors’ 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 opinion.
Independence
We remained independent of the Group in
accordance with the ethical requirements
that are relevant to our audit of the financial
statements in the UK, which includes the
FRC’s Ethical Standard, as applicable to
listed entities, and we have fulfilled our other
ethical responsibilities in accordance with
these requirements.
Our audit approach
Overview
Audit scope
■ We conducted a full scope audit of the financial statements of the Group and the Company.
Our audit work enabled us to obtain coverage of 100% of consolidated revenue and 100%
of total assets for the Group.
Key audit matters
■ Carrying value of investments in, and loans to, subsidiary undertakings (parent).
■ Impact of COVID-19 (Group and parent).
Materiality
■ Overall Group materiality: US$759,000 (2019: US$1,088,000) based on 5% of two-year
average profit before tax adjusted for non-recurring items.
■ Overall Company materiality: US$1,372,000 (2019: US$748,000) based on 1% of
total assets.
■ Performance materiality: US$569,250 (Group) and US$1,029,000 (Company).
The scope of our audit
As part of designing our audit, we determined
materiality and assessed the risks of material
misstatement in the financial statements.
Capability of the audit in 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 in
the Auditors’ responsibilities for the audit
of the financial statements section, 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.
Based on our understanding of the Group
and industry, we identified that the
principal risks of non-compliance with
laws and regulations related to the failure
to comply with environmental regulations,
health and safety regulations, and the
relevant tax compliance regulations in the
jurisdictions in which the Group operates,
and we considered the extent to which non-
compliance might have a material effect on
the financial statements. We also considered
those laws and regulations that have a
direct impact on the preparation of the
financial statements such as the Companies
Act 2006. We evaluated management’s
incentives and opportunities for fraudulent
manipulation of the financial statements
(including the risk of override of controls),
and determined that the principal risks were
related to posting inappropriate journal
entries and management bias in accounting
estimates. Audit procedures performed by
the engagement team included:
■ Discussions with management, including
consideration of known or suspected
instances of non-compliance with laws
and regulation and fraud.
■ Understanding and evaluating controls
designed to prevent and detect
irregularities and fraud.
■ Assessing significant judgements and
estimates in particular those relating to
carrying value of investments in, and
loans to, subsidiary undertakings, and the
disclosure of these items (and as outlined
further in the ‘Key audit matters’ section
of this report).
■ Identifying and testing journal entries,
using the specific risk criterias,
including journals with unusual account
combinations, journals posted by
unexpected users and journals reversed
in the subsequent period.
There are inherent limitations in the audit
procedures described above. We are less
likely to become aware of instances of
non-compliance with laws and regulations
that are not closely related to events and
transactions reflected in the financial
statements. Also, 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 or
intentional misrepresentations, or through
collusion.
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GOVERNANCE Independent Auditors’ Report to the
members of Enwell Energy plc CONTINUED
Report on the audit of the financial statements
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the 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)
identified by the auditors, 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, and any comments we make on the results of our procedures thereon,
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.
This is not a complete list of all risks identified by our audit.
Carrying value of oil and gas assets, which was a key audit matter last year, is no longer included because of absence of impairment indicators
as at 31 December 2020. Otherwise, the key audit matters below are consistent with last year.
Key audit matter
How our audit addressed the key audit matter
Carrying value of investments in, and loans to, subsidiary
undertakings (parent)
As disclosed in Notes 3 and 19 to the Annual Report and Financial
Statements for the year ended 31 December 2020, the Company
has a total investment in subsidiaries of US$98 million comprising
investment in shares and loans.
The determination of whether an impairment or impairment reversal
trigger exists can be judgemental. Management has identified
indicators of a potential change in the carrying values of investments
in subsidiaries and loans to subsidiary undertakings. Management
considered the forecasted plans and expectations, and prepared
discounted cash flows (“DCF”) models.
As at 31 December 2020, management estimated the recoverable
amount of the investments in subsidiary undertakings to be
US$35.3 million, considering the recoverable amount of oil and gas
assets in the Company’s subsidiaries, while the net carrying amount
of the loans to subsidiary undertakings increased to the recoverable
amount of US$62.8 million.
As a result, the Company has recorded US$57.1 million of reversal
of impairment, being the net change in the impairment allowance
for the investments in subsidiaries and loans issued to subsidiary
undertakings in the Company’s statement of profit or loss for the
year ended 31 December 2020.
We designated this matter as a key audit matter due to significant
judgement involved in the process of estimation of the future
discounted net cash flows generated by the subsidiaries operating
in Ukraine, which are considered the primary sources of repayment
on the loans and their impact on the above-mentioned balances.
To address the risk that carrying amount of investments in, and
loans to, subsidiary undertakings as at 31 December 2020, may be
misstated, we performed the following procedures:
1. Discussed with management the key assumptions used;
2. Reviewed the overall methodology for reasonableness applied
in management’s assessment of the recoverable amounts and
verified the mathematical accuracy of the related DCF models;
3. Assessed the assumptions used by management for
reasonableness by agreeing or comparing them to external
independent sources of reference, where it is possible and
practical. We also recalculated the weighted average cost of
capital using the inputs from the external sources;
4. For the internally generated assumptions, we agreed the inputs
used in the models to the approved budgets and management
plans;
5. Reviewed and agreed the terms of the restructured loan balances
and investments to the respective agreements and other
supporting documents;
6. Tested the sensitivity analyses of key assumptions prepared by
management.
We concur with management’s conclusion in respect of the carrying
amount of investments in, and loans to, subsidiary undertakings
as at 31 December 2020 and the net change in the impairment
allowance recorded in the Company’s statement of profit or loss for
the year then ended.
We verified that the Company’s assessment was appropriately
accounted for and disclosed in the Company financial statements
for the year ended 31 December 2020, including the disclosure of
applicable estimates and judgements.
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Enwell Energy plc // Annual Report and Financial Statements 2020 Key audit matter
How our audit addressed the key audit matter
Impact of COVID-19 (Group and parent)
As disclosed in the Strategic Report and the Annual Report and
Financial Statements for the year ended 31 December 2020, the
management continues to closely monitor the volatility in global
financial markets, and the implications on the operational, economic
and social environment caused by the COVID-19 pandemic, coupled
with the weakened hydrocarbon prices.
The COVID-19 pandemic and its impact on the business, economic
and social environment around the world, are still unfolding. Given
the state of disruption and uncertainty in both the UK and Ukraine,
it is difficult to predict the further impact of the pandemic on the
Group and its operations.
The Group has made an assessment of the impact of these factors
on its operations. Based on management’s review of operations,
contingency planning and working capital projections, management
believe the Group and Company are adequately positioned to
maintain the continuity of operations and have sufficient financial
resources to withstand any potential implication of the pandemic
including downturn in revenues.
Given the uncertainties and potential implications on the global
economy, and hence the Group and Company, resulting from the
COVID-19 outbreak we have assessed this as a key audit matter.
To assess the risk of uncertainty as a result of the COVID-19
pandemic and its potential impact on the Group and Company’s
financial position and operations, we performed the following:
1. Discussed with management the impact of the pandemic on the
Group and Company’s operations;
2. Considered the potential implication of the pandemic on our
audit procedures in respect of accounting estimates (where
applicable);
3. Considered whether changes to working practices brought about
by COVID-19 had an adverse impact on the effectiveness of
management’s business process and IT controls;
4. Assessed management analysis against our accumulated
knowledge and understanding of business operations, including:
− impact on the demand and natural gas price in Ukraine;
− consequences for the Group’s supply chain and ability to
procure required goods and services;
− ability of workforce to undertake duties, including potential
restrictions on movements;
− available financial resources and ability to withstand a
significant downturn in revenues; and
− management control environment.
5. We evaluated the accuracy and completeness of management’s
disclosures in the Annual Report and Financial Statements.
We concur with management’s conclusion in respect of the impact
of the pandemic on the Group and Company’s operations and
financial position.
Our conclusions in respect of going concern are set out separately
within the “Conclusions relating to going concern” section of this
report.
Also, we did not identify any changes which had a significant impact
on our audit approach other than needing to perform most of our
work remotely.
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GOVERNANCE Independent Auditors’ Report to the
members of Enwell Energy plc CONTINUED
Report on the audit of the financial statements
How we tailored the audit scope
We tailored the scope of our audit to
ensure that we performed enough work to
be able to give an opinion on the financial
statements as a whole, taking into account
the structure of the Group and the Company,
the accounting processes and controls, and
the industry in which they operate.
The Group is structured as one operating
segment, being oil and gas exploration,
development and production in Ukraine.
The consolidated financial statements
are a consolidation of eight legal entities,
comprising the Group’s operating businesses
and centralised functions; however, our
audit of the Group was scoped as a single
component.
Day-to-day management of the operations of
the Group, including accounting and financial
reporting, is undertaken in Kiev, Ukraine.
Accordingly, a significant portion of our audit
work was undertaken in Kiev.
Our audit gave us coverage of 100%
of consolidated revenue and 100% of
consolidated total assets. This, together
with additional procedures performed at
the Group level, gave us the evidence we
needed for our opinion on the Group financial
statements as a whole.
Materiality
The scope of our audit was influenced by
our application of materiality. We set certain
quantitative thresholds for materiality. These,
together with qualitative considerations,
helped us to determine the scope of our
audit and the nature, timing and extent of our
audit procedures on the individual financial
statement line items and disclosures and in
evaluating the effect of misstatements, both
individually and in aggregate on the financial
statements as a whole.
Based on our professional judgement, we
determined materiality for the financial
statements as a whole as follows:
Financial statements – Group
Financial statements – Company
Overall materiality
US$759,000 (2019: US$1,088,000).
US$1,372,000 (2019: US$748,000).
How we determined it
5% of two-year average profit before tax adjusted for
non-recurring items
1% of total assets
(2019: total assets)
(2019: profit before tax)
Rationale for benchmark applied
Based on the benchmarks used in the Annual Report,
profit before tax is the primary measure used by the
shareholders in assessing the performance of the Group
and is a generally accepted auditing benchmark.
We believe that total assets is the primary
measure used by the shareholders in
assessing the performance of the entity, and
is a generally accepted auditing benchmark.
The Group’s earnings are heavily influenced by the
realised selling price of gas and, despite the relatively
stable level of production in the last two years, profit for
the current year is significantly lower. Therefore, it was
considered to be appropriate to use an average of profit
before tax and the two-year average profit before tax
was considered to be the most appropriate benchmark.
We use performance materiality to reduce
to an appropriately low level the probability
that the aggregate of uncorrected and
undetected misstatements exceeds overall
materiality. Specifically, we use performance
materiality in determining the scope of our
audit and the nature and extent of our testing
of account balances, classes of transactions
and disclosures, for example in determining
sample sizes. Our performance materiality
was 75% of overall materiality, amounting
to US$569,250 for the Group financial
statements and US$1,029,000 for the
Company financial statements.
In determining the performance materiality,
we considered a number of factors – the
history of misstatements, risk assessment
and aggregation risk and the effectiveness
of controls – and concluded that an amount
at the lower end of our normal range was
appropriate.
We agreed with those charged with
governance that we would report to them
misstatements identified during our audit
above US$37,950 (Group audit) (2019:
US$54,420) and US$69,000 (Company
audit) (2019: US$37,000) as well as
misstatements below those amounts that, in
our view, warranted reporting for qualitative
reasons.
Conclusions relating to going concern
Our evaluation of the directors’ assessment
of the Group’s and the Company’s ability to
continue to adopt the going concern basis of
accounting included:
■ Discussions with management on future
events and conditions;
■ Testing of the cash flow model prepared
by management, including a severe but
plausible downside scenario, and the
significant assumptions;
■ Evaluation of the accuracy and
completeness of management’s
disclosures in the Annual Report and
Financial Statements.
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Enwell Energy plc // Annual Report and Financial Statements 2020 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 the
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.
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.
However, because not all future events or
conditions can be predicted, this conclusion
is not a guarantee as to the Group’s and
the Company’s ability to continue as a
going concern.
Our responsibilities and the responsibilities
of the directors with respect to going
concern are described in the relevant
sections of this report.
Reporting on other information
The other information comprises all of the
information in the Annual Report other than
the financial statements and our auditors’
report thereon. The directors are responsible
for the other information. Our opinion on
the financial statements does not cover the
other information and, accordingly, we do
not express an audit opinion or, except to
the extent otherwise explicitly stated in this
report, any form of assurance thereon.
In connection with our audit of the financial
statements, our responsibility is to read
the other information and, in doing so,
consider whether the other information is
materially inconsistent with the financial
statements or our knowledge obtained
in the audit, or otherwise appears to be
materially misstated. If we identify an
apparent material inconsistency or material
misstatement, we are required to perform
procedures to conclude whether there is
a material misstatement of the financial
statements or a material misstatement of
the other information. If, based on the work
we have performed, we conclude that there
is a material misstatement of this other
information, we are required to report that
fact. We have nothing to report based on
these responsibilities.
With respect to the Strategic Report and
Directors’ Report, we also considered
whether the disclosures required by the UK
Companies Act 2006 have been included.
Based on our work undertaken in the course
of the audit, the Companies Act 2006
requires us also to report certain opinions
and matters as described below.
Strategic Report and Directors’ Report
In our opinion, based on the work
undertaken in the course of the audit, the
information given in the Strategic Report
and Directors’ Report for the year ended
31 December 2020 is consistent with
the financial statements and has been
prepared in accordance with applicable legal
requirements.
In light of the knowledge and understanding
of the Group and Company and their
environment obtained in the course of
the audit, we did not identify any material
misstatements in the Strategic Report and
Directors’ Report.
Responsibilities for the financial
statements and the audit
Responsibilities of the directors for the
financial statements
As explained more fully in the Directors’
Responsibilities Statement set out on page
38, the directors are responsible for the
preparation of the financial statements in
accordance with the applicable framework
and for being satisfied that they give a
true and fair view. The directors are also
responsible for such internal control as
they 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 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 Company
or to cease operations, or have no realistic
alternative but to do so.
Auditors’ 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 auditors’ 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.
Our audit testing might include testing
complete populations of certain transactions
and balances, possibly using data auditing
techniques. However, it typically involves
selecting a limited number of items for
testing, rather than testing complete
populations. We will often seek to target
particular items for testing based on their
size or risk characteristics. In other cases,
we will use audit sampling to enable us to
draw a conclusion about the population from
which the sample is selected.
A further description of our responsibilities
for the audit of the financial statements
is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This
description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been
prepared for and only for the Company’s
members as a body in accordance with
Chapter 3 of Part 16 of the Companies Act
2006 and for no other purpose. We do not,
in giving these opinions, accept or assume
responsibility for any other purpose or to any
other person to whom this report is shown
or into whose hands it may come save
where expressly agreed by our prior consent
in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are
required to report to you if, in our opinion:
■ we have not obtained all the information
and explanations we require for our audit;
or
■ adequate accounting records have not
been kept by the Company, or returns
adequate for our audit have not been
received from branches not visited by
us; or
■ certain disclosures of directors’
remuneration specified by law are not
made; or
■ the Company financial statements are not
in agreement with the accounting records
and returns.
We have no exceptions to report arising from
this responsibility.
Kevin Reynard
(Senior Statutory Auditor)
for and on behalf of
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory
Auditors
London
30 March 2021
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GOVERNANCE Financials
Consolidated Income Statement
Consolidated Statement of
Comprehensive Income
Company Statement of
Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of
Changes in Equity
Consolidated Cash Flow Statement
Company Balance Sheet
Company Statement of
Changes in Equity
Company Cash Flow Statement
Notes
Advisers
Glossary
45
46
46
47
48
49
50
51
52
53
83
84
44 Enwell Energy plc // Annual Report and Financial Statements 2020
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Consolidated Income Statement
for the year ended 31 December 2020
Revenue
Cost of sales
Gross profit
Administrative expenses
Other operating gains, (net)
Operating profit
Finance income
Finance costs
Net impairment gains on financial assets
Other losses (net)
Profit before taxation
Income tax expense
Profit for the year
Earnings per share (cents)
Basic and diluted
Note
4
5
6
9
10
11
12
13
2020
$000
47,251
(31,511)
15,740
(7,791)
1,821
9,770
–
(1,418)
24
(1,856)
6,520
(3,332)
2019
$000
55,931
(32,415)
23,516
(7,396)
4,973
21,093
3,487
(450)
32
(2,394)
21,768
(9,569)
3,188
12,199
15
1.0c
3.8c
The Notes set out below on pages 53 to 82 are an integral part of these consolidated financial statements.
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FINANCIALS Consolidated Statement
of Comprehensive Income
for the year ended 31 December 2020
Profit for the year
Other comprehensive (expense)/income:
Items that may be subsequently reclassified to profit or loss:
Equity – foreign currency translation
Items that will not be subsequently reclassified to profit or loss:
Re-measurements of post-employment benefit obligations
Total other comprehensive (expense)/income
Total comprehensive (expense)/income for the year
2020
$000
3,188
2019
$000
12,199
(15,050)
12,089
(73)
(15,123)
(11,935)
165
12,254
24,453
Company Statement
of Comprehensive Income
for the year ended 31 December 2020
Profit/(loss) for the year
Total comprehensive income/(expense) for the year
Note
14
2020
$000
59,454
59,454
2019
$000
(17,507)
(17,507)
The Notes set out below on pages 53 to 82 are an integral part of these consolidated financial statements.
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Enwell Energy plc // Annual Report and Financial Statements 2020 Consolidated Balance Sheet
at 31 December 2020
Assets
Non-current assets
Property, plant and equipment
Intangible assets
Right-of-use assets
Prepayment for shares
Corporation tax receivable
Deferred tax asset
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Liabilities
Current liabilities
Trade and other payables
Lease liabilities
Corporation tax payable
Net current assets
Non-current liabilities
Provision for decommissioning
Lease liabilities
Defined benefit liability
Deferred tax liability
Other non-current liabilities
Total liabilities
Net assets
Equity
Called up share capital
Share premium account
Foreign exchange reserve
Other reserves
Accumulated losses
Total equity
Note
2020
$000
2019
$000
16
17
18
25
20
21
22
23
18
24
18
25
3
26
27
27
65,662
12,232
512
–
9
167
78,582
1,541
4,847
60,993
67,381
145,963
(6,641)
(245)
(1,062)
(7,948)
59,433
(6,819)
(371)
(530)
(2,705)
(1,975)
(12,400)
(20,348)
125,615
28,115
555,090
(105,222)
4,273
(356,641)
125,615
70,052
5,197
940
500
10
–
76,699
4,813
10,937
62,474
78,224
154,923
(3,968)
(454)
(2,221)
(6,643)
71,581
(7,447)
(515)
(480)
(2,288)
–
(10,730)
(17,373)
137,550
28,115
555,090
(90,172)
4,273
(359,756)
137,550
The Notes set out below on pages 53 to 82 are an integral part of these consolidated financial statements.
The financial statements of Enwell Energy plc, company number 4462555, on pages 45 to 82 were approved by the Board of Directors on
30 March 2021 and signed on its behalf by:
Bruce Burrows
Director
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FINANCIALS Consolidated Statement of Changes in Equity
at 31 December 2020
As at 1 January 2019
Profit for the year
Other comprehensive income
– exchange differences
– re-measurements of post-
Called
up share
capital
$000
28,115
–
Share
premium
account
$000
555,090
–
Merger
reserve
$000
(3,204)
–
Capital
contributions
reserve
$000
7,477
–
Foreign
exchange
reserve*
$000
(102,261)
–
Accumulated
losses
$000
(372,120)
12,199
Total
equity
$000
113,097
12,199
–
–
–
–
12,089
–
12,089
employment benefit obligations
Total comprehensive income
As at 31 December 2019
–
–
28,115
–
–
555,090
–
–
(3,204)
–
–
7,477
–
12,089
(90,172)
165
12,364
(359,756)
165
24,453
137,550
As at 1 January 2020
Profit for the year
Other comprehensive expense
– exchange differences
– re-measurements of post-
employment benefit obligations
Total comprehensive income
As at 31 December 2020
Called
up share
capital
$000
Share
premium
account
$000
Merger
reserve
$000
Capital
contributions
reserve
$000
Foreign
exchange
reserve*
$000
Accumulated
losses
$000
Total
equity
$000
28,115
555,090
(3,204)
7,477
(90,172)
(359,756)
137,550
–
–
–
–
–
–
–
–
–
–
–
–
–
3,188
3,188
(15,050)
–
(15,050)
–
(73)
(73)
–
28,115
–
555,090
–
(3,204)
–
7,477
(15,050)
(105,222)
3,115
(356,641)
(11,935)
125,615
* Predominantly as a result of exchange differences on non-monetary assets and liabilities where the subsidiaries’ functional currency is not the US Dollar.
The Notes set out below on pages 53 to 82 are an integral part of these consolidated financial statements.
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Enwell Energy plc // Annual Report and Financial Statements 2020 Consolidated Cash Flow Statement
for the year ended 31 December 2020
Operating activities
Cash generated from operations
Charitable donations
Income tax paid
Interest received
Net cash inflow from operating activities
Investing activities
Disposal of subsidiary
Purchase of property, plant and equipment
Purchase of intangible assets
Proceeds from return of prepayments for shares
Prepayment for shares
Proceeds from sale of property, plant and equipment
Net cash (outflow)/inflow from investing activities
Financing activities
Payment of principal portion of lease liabilities
Net cash outflow from financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
ECL of cash and cash equivalents
Effect of foreign exchange rate changes
Cash and cash equivalents at end of year
ECL – Expected credit losses
Note
28
12
22
2020
$000
23,764
(2,077)
(3,850)
1,487
19,324
–
(12,749)
(4,348)
250
–
4
(16,843)
(543)
(543)
1,938
62,474
(6)
(3,413)
60,993
2019
$000
24,708
(107)
(3,963)
4,809
25,447
(7)
(19,050)
(124)
–
(500)
16
(19,665)
(488)
(488)
5,294
53,222
(7)
3,965
62,474
The Notes set out below on pages 53 to 82 are an integral part of these consolidated financial statements.
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FINANCIALS Company Balance Sheet
at 31 December 2020
Assets
Non-current assets
Property, plant and equipment
Intangible assets
Investments
Loans to subsidiary undertakings
Prepayment for shares
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Liabilities
Non-current liabilities
Other non-current liabilities
Current liabilities
Trade and other payables
Net current assets
Total liabilities
Net assets
Equity
Called up share capital
Share premium account
Accumulated losses
Total equity
Note
2020
$000
2019
$000
16
17
19
19
21
22
3
26
–
52
35,287
62,828
–
98,167
435
38,619
39,054
137,221
13
–
17,279
14,181
500
31,973
101
41,671
41,772
73,745
(1,852)
(1,852)
–
–
(2,426)
(256)
36,628
(4,278)
132,943
28,115
555,090
(450,262)
132,943
41,516
(256)
73,489
28,115
555,090
(509,716)
73,489
The Notes set out below on pages 53 to 82 are an integral part of these consolidated financial statements.
The financial statements of Enwell Energy plc, company number 4462555, on pages 45 to 82 were approved by the Board of Directors on
30 March 2021 and signed on its behalf by:
Bruce Burrows
Director
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Enwell Energy plc // Annual Report and Financial Statements 2020 Company Statement of Changes in Equity
at 31 December 2020
As at 1 January 2019
Loss for the year and total comprehensive income
As at 31 December 2019
As at 1 January 2020
Profit for the year and total comprehensive expense
As at 31 December 2020
Called up
share
capital
$000
28,115
–
28,115
Share
premium
account
$000
555,090
–
555,090
Accumulated
losses
$000
(492,209)
(17,507)
(509,716)
Total
equity
$000
90,996
(17,507)
73,489
Called up
share
capital
$000
28,115
–
28,115
Share
premium
account
$000
555,090
–
555,090
Retained
deficit
$000
(509,716)
59,454
(450,262)
Total
equity
$000
73,489
59,454
132,943
The Notes set out below on pages 53 to 82 are an integral part of these consolidated financial statements.
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FINANCIALS Company Cash Flow Statement
for the year ended 31 December 2020
Operating activities
Cash used in operations
Taxation paid
Interest received
Net cash used in operating activities
Investing activities
Proceeds from return of prepayments for shares
Prepayment for shares
Purchase of subsidiaries
Purchase of property, plant and equipment
Repayment of loans to Group companies
Repayment of interest on loans to Group companies
Net cash provided by investing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effect of foreign exchange rate changes
Cash and cash equivalents at end of year
Note
2020
$000
28
(3,512)
(61)
152
(3,421)
250
–
(4,154)
(52)
–
4,318
363
(3,059)
41,671
7
22
38,619
2019
$000
(3,022)
–
582
(2,440)
–
(500)
–
–
13,401
7,215
20,116
17,676
23,990
5
41,671
The Notes set out below on pages 53 to 82 are an integral part of these consolidated financial statements.
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Enwell Energy plc // Annual Report and Financial Statements 2020 Notes
forming part of the financial statements
1. General Information and Operational
Environment
Enwell Energy plc (formerly named Regal
Petroleum plc) (the “Company”) and
its subsidiaries (the “Group”) is a gas,
condensate and LPG production group.
The Company is a public limited company
quoted on the AIM Market operated by
London Stock Exchange plc and incorporated
in England and Wales under the Companies
Act 2006. The Company’s registered office is
at 16 Old Queen Street, London, SW1H 9HP,
United Kingdom and its registered number is
4462555. The principal activities of the Group
and the nature of the Group’s operations are
set out above.
As of 31 December 2020 and 2019, the
Company’s immediate parent company was
Smart Energy (CY) Ltd (formerly named
Pelidona Services Ltd), which is 100% owned
by Smart Holding (Cyprus) Ltd (formerly
named Lovitia Investments Ltd) which is
100% owned by Mr Vadym Novynskyi.
Accordingly, the Company was ultimately
controlled by Mr Vadym Novynskyi.
The Group’s gas, condensate and LPG
extraction and production facilities are
located in Ukraine. The ongoing political
and economic instability in Ukraine, which
commenced in late 2013, has led to a
deterioration of Ukrainian State finances,
volatility of financial markets, illiquidity
on capital markets, higher inflation and a
depreciation of the national currency against
major foreign currencies, although there have
been some gradual improvements recently.
The macroeconomic situation in Ukraine
during the first months of 2020 was
reasonably stable, and this facilitated
stability of the financial system. During
2020, consumer inflation in Ukraine
was 5% (compared to 4.1% in 2019).
However, internal and external factors that
began to impact the Ukrainian economy
in the second half of 2019, and which
significantly strengthened in 2020, resulted
in devaluation of the Ukrainian Hryvnia. As
at 31 December 2020, the official National
Bank of Ukraine (“NBU”) exchange rate
of the Ukrainian Hryvnia against the US
Dollar was UAH28.27/$1.00, compared with
UAH23.69/$1.00 as at 31 December 2019.
The repayment period of the sovereign
debt owed by Ukraine to maintain the
liquidity position during the crisis periods
is being continually extended. The foreign
currency sovereign debt repayments remain
concentrated. In 2020-2022, the foreign
currency repayments of the Ukrainian
Government and the NBU, including interest
payments, will cumulatively exceed $24
billion. The major portion of this amount is
expected to be refinanced in external markets.
In the subsequent periods, the key
macroeconomic risk is represented by
significant sovereign debt repayments.
Accordingly, implementation of the new
International Monetary Fund programme and
terms of cooperation with other international
financial organisations remain critically
important.
As of the end of 2019, the NBU set its
discount rate at 13.5%. During 2020, the
monetary policy was further eased and
the NBU’s discount rate was decreased to
6% as at the end of the year. On 4 March
2021, the NBU increased the discount rate
to 6.5%. Rapid developments driven by the
coronavirus spread resulted in liquidity gaps
of certain banks and a growth in demand for
interbank credit facilities. To support financial
stability, the NBU changed the operational
design of its monetary policy, implemented
long-term refinancing of banks, supported
banks with foreign currency, postponed
formation of the capital buffer by banks,
and proposed that banks implement a
special grace period of loan servicing over
the coronavirus quarantine period for both
consumers and businesses.
A significant number of companies in Ukraine
had to terminate or limit their operations for
the coronavirus quarantine restriction period.
Measures taken to constrain the spread
of the coronavirus, including quarantine,
social distancing and suspension of social
infrastructure activities, have impacted
economic activities of companies in Ukraine,
including the Group.
The Ukrainian Government formed after
parliamentary elections in July 2019 was
dissolved on 4 March 2020 and a new
Government was appointed. Amid political
changes, the degree of uncertainty, including
in respect of the future direction of the
reforms in Ukraine, remains very high. In
addition, negative trends in global markets
due to the coronavirus pandemic may further
affect the Ukrainian economy. The final
resolution and the ongoing effects of the
political and economic situation are difficult
to predict but they may have further severe
effects on the Ukrainian economy and the
Group’s business.
As at 30 March 2021, the official NBU
exchange rate of the Ukrainian Hryvnia
against the US Dollar was UAH27.97/$1.00,
compared with UAH28.27/$1.00 as at 31
December 2020.
Further details of risks relating to Ukraine
can be found within the Principal Risks
section above.
2. Accounting Policies
The principal accounting policies applied
in the preparation of these consolidated
financial statements are set out below. These
policies have been consistently applied to all
the years presented, unless otherwise stated.
Basis of Preparation
The Group has prepared its consolidated
financial statements and the Company’s
financial statements in accordance with
international accounting standards in
conformity with the requirements of the
Companies Act 2006 (the ”framework”)
and the applicable legal requirements of the
Companies Act 2006. These consolidated
financial statements are prepared under
the historical cost convention as modified
by certain financial instruments measured
in accordance with the requirements of
IFRS 9 Financial Instruments. The principal
accounting policies applied in the preparation
of the consolidated financial statements are
set out below.
The preparation of financial statements in
conformity with the framework requires the
use of certain critical accounting estimates.
It also requires management to exercise
its judgement in the process of applying
the Group’s accounting policies. The areas
involving a higher degree of judgement or
complexity, or areas where assumptions and
estimates are significant to the consolidated
financial statements are disclosed in Note 3.
Going Concern
The Group’s business activities, together
with the factors likely to affect its future
operations, performance and position are
set out in the Chairman’s Statement, Chief
Executive’s Statement and Finance Review.
The financial position of the Group, its cash
flows and liquidity position are set out in
these consolidated financial statements.
The Directors are carefully monitoring
the evolving situation with respect to
the coronavirus pandemic and maintain
a significant level of financial flexibility to
modify the Group’s development plans as
may be required in order to preserve cash
resources, using base, low and high cases for
liquidity management.
As part of their Going Concern review
conducted in mid-March 2021, the Directors
have analysed the Group’s cash flow
forecasts and considered a severe but
possible downside case scenario, being: a
low case production profile; forward curve
commodity prices being reduced by 20%;
and all non-production costs being maintained
at current levels with no reduction as would
otherwise be possible.
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forming part of the financial statements
In the Directors’ view, while this scenario
constitutes a remote possibility, it
demonstrates that the Group would be able
to operate well within its current financing
arrangements.
New and amended standards adopted
by the Group
A number of new or amended standards
became applicable for the current reporting
period. The following amendments to
standards, which are relevant to the Group’s
consolidated financial statements, have been
issued:
Definition of a business – Amendments
to IFRS 3 (issued on 22 October 2018 and
effective for acquisitions from the beginning
of annual reporting periods that start on
or after 1 January 2020).The amendments
revise the definition of a business. A business
must have inputs and a substantive process
that together significantly contribute to the
ability to create outputs. The new guidance
provides a framework to evaluate when
an input and a substantive process are
present, including for early stage companies
that have not generated outputs. An
organised workforce should be present as
a condition for classification as a business
if there are no outputs. The definition of
the term ‘outputs’ is narrowed to focus on
goods and services provided to customers,
generating investment income and other
income, and it excludes returns in the form
of lower costs and other economic benefits.
It is also no longer necessary to assess
whether market participants are capable of
replacing missing elements or integrating
the acquired activities and assets. An entity
can apply a “concentration test”. The assets
acquired would not represent a business if
substantially all of the fair value of the gross
assets acquired is concentrated in a single
asset (or a group of similar assets).
COVID-19-Related Rent Concessions
Amendment to IFRS 16 issued on 28 May
2020 and effective for annual periods
beginning on or after 1 June 2020. The
amendment provides lessees with relief
in the form of an optional exemption from
assessing whether a rent concession related
to COVID-19 is a lease modification. Lessees
can elect to account for rent concessions
in the same way as if they were not lease
modifications. The practical expedient only
applies to rent concessions occurring as
a direct consequence of the COVID-19
pandemic and only if all of the following
conditions are met: the change in lease
payments results in revised consideration
for the lease that is substantially the same
as, or less than, the consideration for the
lease immediately preceding the change;
any reduction in lease payments affects only
payments due on or before 30 June 2021;
and there is no substantive change to the
other terms and conditions of the lease.
The Group had to change its accounting
policies as a result of the adoption of
amendments to IFRS 3, however, this change
had no impact on the reporting period.
The following amended standards became
effective from 1 January 2020, but did
not have a material impact on the Group
consolidated or Company’s financial
statements:
■ Amendments to the Conceptual
Framework for Financial Reporting
(issued on 29 March 2018 and effective
for annual periods beginning on or after 1
January 2020).
■ Definition of materiality – Amendments
to IAS 1 and IAS 8 (issued on 31 October
2018 and effective for annual periods
beginning on or after 1 January 2020).
■ Interest rate benchmark reform –
Amendments to IFRS 9, IAS 39 and IFRS
7 (issued on 26 September 2019 and
effective for annual periods beginning on
or after 1 January 2020).
Impact of standards issued but not yet
applied by the Group
Certain new standards and interpretations
have been issued that are mandatory for
annual periods beginning on or after 1
January 2021, and which the Group has not
early adopted.
i. Sale or Contribution of Assets
between an Investor and its Associate
or Joint Venture – Amendments to
IFRS 10 and IAS 28 (issued on 11
September 2014 and effective for
annual periods beginning on or after a
date to be determined by the IASB)
These amendments address an inconsistency
between the requirements in IFRS 10 and
those in IAS 28 in dealing with the sale or
contribution of assets between an investor
and its associate or joint venture. The main
consequence of the amendments is that
a full gain or loss is recognised when a
transaction involves a business. A partial
gain or loss is recognised when a transaction
involves assets that do not constitute a
business, even if these assets are held by a
subsidiary.
ii.
IFRS 17 “Insurance Contracts” (issued
on 18 May 2017 and effective for
annual periods beginning on or after
1 January 2021)
IFRS 17 replaces IFRS 4, which has given
companies dispensation to carry on
accounting for insurance contracts using
existing practices. As a consequence,
it was difficult for investors to compare
and contrast the financial performance of
otherwise similar insurance companies.
IFRS 17 is a single principle-based standard
to account for all types of insurance
contracts, including reinsurance contracts
that an insurer holds. The standard requires
recognition and measurement of groups
of insurance contracts at: (i) a risk-adjusted
present value of the future cash flows (the
fulfilment cash flows) that incorporates all of
the available information about the fulfilment
cash flows in a way that is consistent with
observable market information; plus (if this
value is a liability) or minus (if this value is
an asset); and (ii) an amount representing
the unearned profit in the group of contracts
(the contractual service margin). Insurers
will be recognising the profit from a group
of insurance contracts over the period they
provide insurance coverage, and as they are
released from risk. If a group of contracts is
or becomes loss-making, an entity will be
recognising the loss immediately.
iii. Amendments to IFRS 17 and an
amendment to IFRS 4 (issued on
25 June 2020 and effective for annual
periods beginning on or after
1 January 2023)
The amendments include a number
of clarifications intended to ease
implementation of IFRS 17, simplify some
requirements of the standard and transition.
The amendments relate to eight areas of
IFRS 17, and they are not intended to change
the fundamental principles of the standard.
The following amendments to IFRS 17
were made:
■ Effective date: The effective date of IFRS
17 (incorporating the amendments) has
been deferred by two years to annual
reporting periods beginning on or after 1
January 2023; and the fixed expiry date of
the temporary exemption from applying
IFRS 9 in IFRS 4 has also been deferred
to annual reporting periods beginning on
or after 1 January 2023.
■ Expected recovery of insurance
acquisition cash flows: An entity is
required to allocate part of the acquisition
costs to related expected contract
renewals, and to recognise those costs
as an asset until the entity recognises the
contract renewals. Entities are required
to assess the recoverability of the asset
at each reporting date, and to provide
specific information about the asset in
the notes to the financial statements.
■ Contractual service margin attributable
to investment services: Coverage
units should be identified, considering
the quantity of benefits and expected
period of both insurance coverage and
investment services, for contracts under
the variable fee approach and for other
contracts with an ‘investment-return
service’ under the general model. Costs
54
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Enwell Energy plc // Annual Report and Financial Statements 2020 related to investment activities should
be included as cash flows within the
boundary of an insurance contract, to
the extent that the entity performs such
activities to enhance benefits from
insurance coverage for the policyholder.
Reinsurance contracts held – recovery of
losses: When an entity recognises a loss
on initial recognition of an onerous group of
underlying insurance contracts, or on addition
of onerous underlying contracts to a group,
an entity should adjust the contractual service
margin of a related group of reinsurance
contracts held and recognise a gain on the
reinsurance contracts held. The amount
of the loss recovered from a reinsurance
contract held is determined by multiplying
the loss recognised on underlying insurance
contracts and the percentage of claims on
underlying insurance contracts that the entity
expects to recover from the reinsurance
contract held. This requirement would apply
only when the reinsurance contract held
is recognised before or at the same time
as the loss is recognised on the underlying
insurance contracts.
Other amendments: Other amendments
include scope exclusions for some credit
card (or similar) contracts, and some loan
contracts; presentation of insurance contract
assets and liabilities in the statement of
financial position in portfolios instead of
groups; applicability of the risk mitigation
option when mitigating financial risks using
reinsurance contracts held and non-derivative
financial instruments at fair value through
profit or loss; an accounting policy choice
to change the estimates made in previous
interim financial statements when applying
IFRS 17; inclusion of income tax payments
and receipts that are specifically chargeable
to the policyholder under the terms of an
insurance contract in the fulfilment cash
flows; and selected transition reliefs and
other minor amendments.
iv. Classification of liabilities as current
or non-current – Amendments to IAS
1 (issued on 23 January 2020 and
effective for annual periods beginning
on or after 1 January 2022)
These narrow scope amendments clarify
that liabilities are classified as either current
or non-current, depending on the rights
that exist at the end of the reporting period.
Liabilities are non-current if the entity
has a substantive right, at the end of the
reporting period, to defer settlement for at
least 12 months. The guidance no longer
requires such a right to be unconditional.
Management’s expectations whether they
will subsequently exercise the right to defer
settlement do not affect classification of
liabilities. The right to defer only exists if the
entity complies with any relevant conditions
as of the end of the reporting period. A
liability is classified as current if a condition
is breached at or before the reporting
date even if a waiver of that condition is
obtained from the lender after the end of
the reporting period. Conversely, a loan is
classified as non-current if a loan covenant
is breached only after the reporting date. In
addition, the amendments include clarifying
the classification requirements for debt
a company might settle by converting it
into equity. “Settlement” is defined as the
extinguishment of a liability with cash, other
resources embodying economic benefits or
an entity’s own equity instruments. There
is an exception for convertible instruments
that might be converted into equity, but only
for those instruments where the conversion
option is classified as an equity instrument
as a separate component of a compound
financial instrument.
v. Classification of liabilities as current or
non-current, deferral of effective date
– Amendments to IAS 1 (issued on
15 July 2020 and effective for annual
periods beginning on or after
1 January 2023)
The amendment to IAS 1 on classification of
liabilities as current or non-current was issued
in January 2020 with an original effective date
of 1 January 2022. However, in response
to the COVID-19 pandemic, the effective
date was deferred by one year to provide
companies with more time to implement
classification changes resulting from the
amended guidance.
vi. Proceeds before intended use,
Onerous contracts – cost of fulfilling
a contract, Reference to the
Conceptual Framework – narrow scope
amendments to IAS 16, IAS 37 and
IFRS 3, and Annual Improvements
to IFRSs 2018-2020 – amendments
to IFRS 1, IFRS 9, IFRS 16 and IAS 41
(issued on 14 May 2020 and effective
for annual periods beginning on or
after 1 January 2022)
The amendment to IAS 16 prohibits an entity
from deducting from the cost of an item
of PPE any proceeds received from selling
items produced while the entity is preparing
the asset for its intended use. The proceeds
from selling such items, together with the
costs of producing them, are now recognised
in profit or loss. An entity will use IAS 2 to
measure the cost of those items. Cost will
not include depreciation of the asset being
tested because it is not ready for its intended
use. The amendment to IAS 16 also clarifies
that an entity is “testing whether the asset
is functioning properly” when it assesses
the technical and physical performance of
the asset.
The financial performance of the asset is not
relevant to this assessment. An asset might
therefore be capable of operating as intended
by management and subject to depreciation
before it has achieved the level of operating
performance expected by management.
The amendment to IAS 37 clarifies the
meaning of “costs to fulfil a contract”.
The amendment explains that the direct
cost of fulfilling a contract comprises the
incremental costs of fulfilling that contract;
and an allocation of other costs that relate
directly to fulfilling. The amendment also
clarifies that, before a separate provision
for an onerous contract is established, an
entity recognises any impairment loss that
has occurred on assets used in fulfilling the
contract, rather than on assets dedicated to
that contract. IFRS 3 was amended to refer to
the 2018 Conceptual Framework for Financial
Reporting, in order to determine what
constitutes an asset or a liability in a business
combination. Prior to the amendment, IFRS 3
referred to the 2001 Conceptual Framework
for Financial Reporting. In addition, a new
exception in IFRS 3 was added for liabilities
and contingent liabilities. The exception
specifies that, for some types of liabilities
and contingent liabilities, an entity applying
IFRS 3 should instead refer to IAS 37 or
IFRIC 21, rather than the 2018 Conceptual
Framework. Without this new exception,
an entity would have recognised some
liabilities in a business combination that it
would not recognise under IAS 37. Therefore,
immediately after the acquisition, the entity
would have had to derecognise such liabilities
and recognise a gain that did not depict an
economic gain. It was also clarified that the
acquirer should not recognise contingent
assets, as defined in IAS 37, at the acquisition
date. The amendment to IFRS 9 addresses
which fees should be included in the 10%
test for derecognition of financial liabilities.
Costs or fees could be paid to either third
parties or the lender. Under the amendment,
costs or fees paid to third parties will not
be included in the 10% test. Illustrative
Example 13 that accompanies IFRS 16
was amended to remove the illustration
of payments from the lessor relating to
leasehold improvements. The reason for
the amendment is to remove any potential
confusion about the treatment of lease
incentives. IFRS 1 allows an exemption if a
subsidiary adopts IFRS at a later date than its
parent. The subsidiary can measure its assets
and liabilities at the carrying amounts that
would be included in its parent’s consolidated
financial statements, based on the parent’s
date of transition to IFRS, if no adjustments
were made for consolidation procedures and
for the effects of the business combination
in which the parent acquired the subsidiary.
IFRS 1 was amended to allow entities that
have taken this IFRS 1 exemption to also
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FINANCIALS Notes CONTINUED
forming part of the financial statements
measure cumulative translation differences
using the amounts reported by the parent,
based on the parent’s date of transition to
IFRS. The amendment to IFRS 1 extends the
above exemption to cumulative translation
differences, in order to reduce costs for
first-time adopters. This amendment will also
apply to associates and joint ventures that
have taken the same IFRS 1 exemption. The
requirement for entities to exclude cash flows
for taxation when measuring fair value under
IAS 41 was removed. This amendment is
intended to align with the requirement in the
standard to discount cash flows on a post-tax
basis.
vii. Interest rate benchmark (IBOR) reform
– Phase 2 amendments to IFRS 9, IAS
39, IFRS 7, IFRS 4 and IFRS 16 (issued
on 27 August 2020 and effective for
annual periods beginning on or after 1
January 2021)
The Phase 2 amendments address issues
that arise from the implementation of the
reforms, including the replacement of one
benchmark with an alternative one. The
amendments cover the following areas:
■ Accounting for changes in the basis for
determining contractual cash flows as a
result of IBOR reform: For instruments to
which the amortised cost measurement
applies, the amendments require
entities, as a practical expedient, to
account for a change in the basis for
determining the contractual cash flows
as a result of IBOR reform by updating
the effective interest rate using the
guidance in paragraph B5.4.5 of IFRS 9.
As a result, no immediate gain or loss
is recognised. This practical expedient
applies only to such a change and only
to the extent it is necessary as a direct
consequence of IBOR reform, and the
new basis is economically equivalent to
the previous basis. Insurers applying the
temporary exemption from IFRS 9 are
also required to apply the same practical
expedient. IFRS 16 was also amended to
require lessees to use a similar practical
expedient when accounting for lease
modifications that change the basis for
determining future lease payments as a
result of IBOR reform.
■ End date for Phase 1 relief for non-
contractually specified risk components
in hedging relationships: The Phase
2 amendments require an entity to
prospectively cease to apply the
Phase 1 reliefs to a non-contractually
specified risk component at the earlier
of when changes are made to the non-
contractually specified risk component,
or when the hedging relationship is
discontinued. No end date was provided
in the Phase 1 amendments for risk
components.
56
■ Additional temporary exceptions from
applying specific hedge accounting
requirements: The Phase 2 amendments
provide some additional temporary reliefs
from applying specific IAS 39 and IFRS
9 hedge accounting requirements to
hedging relationships directly affected by
IBOR reform.
Additional IFRS 7 disclosures related to
IBOR reform: The amendments require
disclosure of: (i) how the entity is managing
the transition to alternative benchmark rates,
its progress and the risks arising from the
transition; (ii) quantitative information about
derivatives and non-derivatives that have yet
to transition, disaggregated by significant
interest rate benchmark; and (iii) a description
of any changes to the risk management
strategy as a result of IBOR reform.
Unless otherwise described above, the
new standards and interpretations are not
expected to affect significantly the Group’s
consolidated financial statements.
Exchange differences on intra-group
balances with foreign operation
The Group has certain inter-company
monetary balances of which the Company
is the beneficial owner. These monetary
balances are payable by a subsidiary that is
a foreign operation and are eliminated on
consolidation.
In the consolidated financial statements,
exchange differences arising on such
payables because the transaction currency
differs from the subsidiary’s functional
currency are recognised initially in other
comprehensive income if the settlement of
such payables is continuously deferred and
is neither planned nor likely to occur in the
foreseeable future.
In such cases, the respective receivables of
the Company are regarded as an extension of
the Company’s net investment in that foreign
operation, and the cumulative amount of
the abovementioned exchange differences
recognised in other comprehensive income is
carried forward within the foreign exchange
reserve in equity and is reclassified to profit
or loss only upon disposal of the foreign
operation.
When the subsidiary that is a foreign
operation settles its quasi-equity liability due
to the Company, but the Company continues
to possess the same percentage of the
subsidiary, i.e. there has been no change in
its proportionate ownership interest, such
settlement is not regarded as a disposal or
a partial disposal, and therefore cumulative
exchange differences are not reclassified.
The designation of inter-company monetary
balances as part of the net investment in
a foreign operation is re-assessed when
management’s expectations and intentions
on settlement change due to a change in
circumstances.
Where, because of a change in
circumstances, a receivable balance, or
part thereof, previously designated as a
net investment into a foreign operation is
intended to be settled, the receivable is de-
designated and is no longer regarded as part
of the net investment.
In such cases, the exchange differences
arising on the subsidiary’s payable following
de-designation are recognised within finance
costs / income in profit or loss, similar to
foreign exchange differences arising from
financing.
Foreign exchange gains and losses not
related to intra-group balances are recognised
on a net basis as other gains or losses.
Basis of Consolidation
The consolidated financial statements
incorporate the financial information of the
Company and entities controlled by the
Company (and its subsidiaries) made up to 31
December each year.
Subsidiaries
Subsidiaries are all entities (including
structured entities) over which the Group
has control. The Group controls an entity
when the Group is exposed to, or has rights
to variable returns from its involvement with
the entity and has the ability to affect those
returns through its power over the entity.
Subsidiaries are fully consolidated from the
date on which control is transferred to the
Group. They are de-consolidated from the
date that control ceases.
The Group applies the acquisition method
to account for business combinations. The
consideration transferred for the acquisition
of a subsidiary is the fair value of the assets
transferred, the liabilities incurred to the
former owners of the acquiree and the
equity interests issued by the Group. The
consideration transferred includes the fair
value of any asset or liability resulting from
a contingent consideration arrangement.
Identifiable assets acquired and liabilities and
contingent liabilities assumed in a business
combination are measured initially at their
fair values at the acquisition date. The Group
recognises any non-controlling interest in the
acquiree on an acquisition-by-acquisition basis
at the non-controlling interest’s proportionate
share of the recognised amounts of the
acquiree’s identifiable net assets.
Acquisition-related costs are expensed as
incurred.
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Enwell Energy plc // Annual Report and Financial Statements 2020 If the business combination is achieved in
stages, the acquisition date carrying value of
the acquirer’s previously held equity interest
in the acquiree is re-measured to fair value
at the acquisition date; any gains or losses
arising from such re-measurement are
recognised in profit or loss.
Any contingent consideration to be
transferred by the Group is recognised at fair
value at the acquisition date. Subsequent
changes to the fair value of the contingent
consideration that is deemed to be an asset
or liability is recognised in accordance with
IFRS 9 in profit or loss.
Inter-company transactions, balances and
unrealised gains on transactions between
Group companies are eliminated. Unrealised
losses are also eliminated. When necessary,
amounts reported by subsidiaries have
been adjusted to conform with the Group’s
accounting policies.
Segment reporting
The Group’s only class of business activity
is oil and gas exploration, development and
production. The Group’s primary operations
are located in Ukraine, with its head office
in the United Kingdom. The geographical
segments are the basis on which the
Group reports its segment information to
management. Operating segments are
reported in a manner consistent with the
internal reporting provided to the Board of
Directors.
Commercial Reserves
Proved and probable oil and gas reserves
are estimated quantities of commercially
producible hydrocarbons which the existing
geological, geophysical and engineering data
show to be recoverable in future years from
known reservoirs. Proved reserves are those
quantities of petroleum that, by analysis
of geoscience and engineering data, can
be estimated with reasonable certainty to
be commercially recoverable from known
reservoirs and under defined technical and
commercial conditions. Probable reserves
are those additional reserves which analysis
of geoscience and engineering data indicate
are less likely to be recovered than proved
reserves but more certain to be recovered
than possible reserves. The proved and
probable reserves conform to the definition
approved by the Petroleum Resources
Management System.
Oil and Gas Exploration/Evaluation and
Development/Production Assets
The Group applies the successful efforts
method of accounting for oil and gas assets,
having regard to the requirements of IFRS
6 Exploration for and Evaluation of Mineral
Resources.
Exploration costs are incurred to discover
hydrocarbon resources. Evaluation costs are
incurred to assess the technical feasibility and
commercial viability of the resources found.
Exploration, as defined in IFRS 6 Exploration
for and Evaluation of Mineral Resources,
starts when the legal rights to explore have
been obtained. Expenditure incurred before
obtaining the legal right to explore is generally
expensed; an exception to this would be
separately acquired intangible assets such as
payment for an option to obtain legal rights.
Expenditures incurred in exploration activities
should be expensed unless they meet the
definition of an asset. An entity recognises
an asset when it is probable that economic
benefits will flow to the entity as a result
of the expenditure. The economic benefits
might be available through commercial
exploitation of hydrocarbon reserves or sales
of exploration findings or further development
rights. Exploration and evaluation (“E&E”)
assets are recognised within property, plant
and equipment in single field cost centres.
The capitalisation point is the earlier of:
(a) the point at which the fair value less costs
to sell of the property can be reliably
determined as higher than the total of
the expenses incurred and costs already
capitalised (such as licence acquisition
costs); and
(b) an assessment of the property
demonstrates that commercially viable
reserves are present and hence there
are probable future economic benefits
from the continued development and
production of the resource.
E&E assets are reclassified from Exploration
and Evaluation when evaluation procedures
have been completed. E&E assets that are
not commercially viable are written down.
E&E assets for which commercially viable
reserves have been identified are reclassified
to Development and Production assets. E&E
assets are tested for impairment immediately
prior to reclassification out of E&E.
Once an E&E asset has been reclassified
from E&E, it is subject to the normal IFRS
requirements. This includes impairment
testing at the cash-generating unit (“CGU”)
level and depreciation.
Abandonment and Retirement of Individual
Items of Property, Plant and Equipment
Normally, no gains or losses shall be
recognised if only an individual item of
equipment is abandoned or retired or if only a
single lease or other part of a group of proved
properties constituting the amortisation
base is abandoned or retired as long as
the remainder of the property or group of
properties constituting the amortisation base
continues to produce oil or gas. Instead,
the asset being abandoned or retired shall
be deemed to be fully amortised, and its
costs shall be charged to accumulated
depreciation, depletion or amortisation.
When the last well on an individual property
(if that is the amortisation base) or group
of properties (if amortisation is determined
on the basis of an aggregation of properties
with a common geological structure) ceases
to produce and the entire property or group
of properties is abandoned, a gain or loss
shall be recognised. Occasionally, the partial
abandonment or retirement of a proved
property or group of proved properties or
the abandonment or retirement of wells or
related equipment or facilities may result
from a catastrophic event or other major
abnormality. In those cases, a loss shall be
recognised at the time of abandonment or
retirement.
Intangible Assets other than Oil
and Gas Assets
Intangible assets other than oil and gas
assets are stated at cost less accumulated
amortisation and any provision for
impairment. These assets represent
exploration licences. Amortisation is charged
so as to write off the cost, less estimated
residual value, on a straight-line basis of
20-25% per annum.
Depreciation, Depletion and Amortisation
All expenditure carried within each field
is amortised from the commencement
of commercial production on a unit of
production basis, which is the ratio of gas
production in the period to the estimated
quantities of commercial reserves at the
end of the period plus the production in the
period, generally on a field-by-field basis. In
certain circumstances, fields within a single
development area may be combined for
depletion purposes. Costs used in the unit of
production calculation comprise the net book
value of capitalised costs plus the estimated
future field development costs necessary to
bring the reserves into production.
Impairment
At each balance sheet date, the Group
reviews the carrying amount of oil and gas
development and production assets to
determine whether there is any indication
that those assets have suffered an
impairment loss. This includes exploration
and appraisal costs capitalised which are
assessed for impairment in accordance with
IFRS 6. If any such indication exists, the
recoverable amount of the asset is estimated
in order to determine the extent of the
impairment loss.
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forming part of the financial statements
For oil and gas development and production
assets, the recoverable amount is the
greater of fair value less costs to dispose and
value in use. In assessing value in use, the
estimated future cash flows are discounted
to their present value using an expected
weighted average cost of capital. If the
recoverable amount of an asset is estimated
to be less than its carrying amount, the
carrying amount of the asset is reduced to
its recoverable amount. Impairment losses
are recognised as an expense immediately.
The valuation method used for determination
of fair value less cost of disposal is based on
unobservable market data, which is within
Level 3 of the fair value hierarchy.
Should an impairment loss subsequently
reverse, the carrying amount of the asset
is increased to the revised estimate of
its recoverable amount, but so that the
increased carrying amount does not exceed
the carrying amount that would have been
determined had no impairment loss been
recognised for the asset in prior years. A
reversal of an impairment loss is recognised
as income immediately.
Decommissioning Provision
Where a material liability for the removal
of existing production facilities and site
restoration at the end of the productive
life of a field exists, a provision for
decommissioning is recognised. The amount
recognised is the present value of estimated
future expenditure determined in accordance
with local conditions and requirements.
The cost of the relevant property, plant and
equipment is increased with an amount
equivalent to the provision and depreciated
on a unit of production basis. Changes in
estimates are recognised prospectively,
with corresponding adjustments to the
provision and the associated fixed asset.
The unwinding of the discount on the
decommissioning provision is included within
finance costs.
Property, Plant and Equipment other
than Oil and Gas Assets
Property, plant and equipment other than
oil and gas assets (included in Other fixed
assets in Note 16) are stated at cost less
accumulated depreciation and any provision
for impairment. Depreciation is charged so as
to write off the cost of assets on a straight-
line basis over their useful lives as follows:
Useful lives in years
Buildings and constructions 10 to 20 years
2 to 5 years
Machinery and equipment
Vehicles
5 years
Office and other equipment 4 to 12 years
Spare parts and equipment purchased with
the intention to be used in future capital
investment projects are recognised as oil
and gas development and production assets
within property, plant and equipment.
Right-of-use assets
The Group leases various offices, equipment,
wells and land. Contracts may contain both
lease and non-lease components. The Group
allocates the consideration in the contract to
the lease and non-lease components based
on their relative stand-alone prices.
Assets arising from a lease are initially
measured on a present value basis.
Right-of-use assets are measured at cost
comprising the following:
■ the amount of the initial measurement of
lease liability;
■ any lease payments made at or before
the commencement date less any lease
incentives received;
■ any initial direct costs; and
■ costs to restore the asset to the
conditions required by lease agreements.
Right-of-use assets are generally depreciated
over the shorter of the asset’s useful life
and the lease term on a straight-line basis. If
the Group is reasonably certain to exercise
a purchase option, the right-of-use asset
is depreciated over the underlying assets’
useful lives. Depreciation on the items of
the right-of-use assets is calculated using
the straight-line method over their estimated
useful lives as follows:
Useful lives in years
40 to 50 years
10 to 20 years
Land
Wells
Properties:
Buildings and constructions 10 to 20 years
2 to 5 years
Machinery and equipment
Vehicles
5 years
Office and other equipment 4 to 12 years
Inventories
Inventories typically consist of materials,
spare parts and hydrocarbons, and are stated
at the lower of cost and net realisable value.
Cost of finished goods is determined on
the weighted average bases. Cost of other
than finished goods inventory is determined
on the first in, first out basis. Net realisable
value represents the estimated selling price
less all estimated costs of completion and
costs to be incurred in marketing, selling and
distribution.
Revenue Recognition
Revenue is income arising in the course of
the Group’s ordinary activities. Revenue is
recognised by the amount of the transaction
price. Transaction price is the amount of
consideration to which the Group expects
to be entitled in exchange for transferring
control over promised goods or services to a
customer, excluding the amounts collected
on behalf of third parties.
Revenue is recognised net of indirect taxes
and excise duties.
Sales of gas, condensate and LPG are
recognised when control of the good has
transferred, being when the goods are
delivered to the customer, the customer
has full discretion over the goods, and there
is no unfulfilled obligation that could affect
the customer’s acceptance of the goods.
Delivery occurs when the goods have been
shipped to the specific location, the risks of
obsolescence and loss have been transferred
to the customer, and either the customer
has accepted the goods in accordance with
the contract, the acceptance provisions have
lapsed, or the Group has objective evidence
that all criteria for acceptance have been
satisfied.
A receivable is recognised when the goods
are delivered as this is the point in time that
the consideration is unconditional because
only the passage of time is required before
the payment is due.
The Group normally uses standardised
contracts for the sale of gas, condensate
and LPG, which define the point of control
transfer. The price and quantity of each sale
transaction are indicated in the specifications
to the sales contracts.
The control over gas is transferred to a
customer when the respective act of
acceptance is signed by the parties to a
contract upon delivery of gas to the point
of sale specified in the contract, normally
being a certain point in the Ukrainian gas
transportation system. Acts of acceptance of
gas are signed and the respective revenues
are recognised on a monthly basis.
The control over condensate and LPG
is transferred to a customer when the
respective waybill is signed by the parties
to a contract upon shipment of goods at the
point of sale specified in the contract, which
is normally the Group’s production site.
Foreign Currencies
The Group’s consolidated financial
statements and those of the Company are
presented in US Dollars. The functional
currency of the subsidiaries which operate in
Ukraine is Ukrainian Hryvnia. The remaining
entities have US Dollars as their functional
currency.
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Enwell Energy plc // Annual Report and Financial Statements 2020 The functional currency of individual
companies is determined by the primary
economic environment in which the entity
operates, normally the one in which it
primarily generates and expends cash.
In preparing the financial statements of
the individual companies, transactions in
currencies other than the entity’s functional
currency (“foreign currencies”) are recorded
at the rates of exchange prevailing on the
dates of the transactions. At each balance
sheet date, monetary assets and liabilities
that are denominated in foreign currencies
are retranslated at the rates prevailing on
the balance sheet date. Foreign exchange
gains and losses resulting from the
settlement of such transactions and from
the translation at year-end exchange rates of
monetary assets and liabilities denominated
in foreign currencies are recognised in the
Income Statement. Non-monetary assets
and liabilities carried at fair value that are
denominated in foreign currencies are
translated at the rates prevailing at the
date when the fair value was determined.
Non-monetary items which are measured in
terms of historical cost in a foreign currency
are not retranslated. Gains and losses arising
on retranslation are included in net profit
or loss for the period, except for exchange
differences arising on balances which are
considered long-term investments where the
changes in fair value are recognised directly
in other comprehensive income.
On consolidation, the assets and liabilities of
the Group’s subsidiaries which do not use
US Dollars as their functional currency are
translated into US Dollars as follows:
(a) assets and liabilities for each Balance
Sheet presented are translated at the
closing rate at the date of that Balance
Sheet;
(b) income and expenses for each Income
Statement are translated at average
monthly exchange rates (unless this
average is not a reasonable approximation
of the cumulative effect of the rates
prevailing on the transaction dates, in
which case income and expenses are
translated at the rate on the dates of the
transactions); and
(c) all resulting exchange differences are
recognised in other comprehensive
income.
The principal rates of exchange used for
translating foreign currency balances at 31
December 2020 were $1:UAH28.3 (2019:
$1:UAH23.7), $1:£0.8 (2019: $1:£0.8),
$1:€0.81 (2019: $1:€0.9).
None of the Group’s operations are
considered to use the currency of a
hyperinflationary economy, however, this is
kept under review.
Pensions
The Group contributes to a local government
pension scheme in Ukraine and defined
benefit plans. The Group has no further
payment obligations towards the local
government pension scheme once the
contributions have been paid.
Defined benefit plans define an amount of
pension benefit that an employee will receive
on retirement, usually dependent on one or
more factors such as age, years of service
and compensation.
The Group companies participate in a
mandatory Ukrainian state-defined retirement
benefit plan, which provides for early pension
benefits for employees working in certain
workplaces with hazardous and unhealthy
working conditions. The Group also provides
lump sum benefits upon retirement, subject
to certain conditions. The early pension
benefit (in the form of a monthly annuity) is
payable by employers only until the employee
has reached the statutory retirement age.
The pension scheme is based on a benefit
formula which depends on each individual
member’s average salary, his/her total length
of past service and total length of past
service at specific types of workplaces (“list
II” category).
The liability recognised in the Balance Sheet
in respect of defined benefit pension plans
is the present value of the defined benefit
obligation at the end of the reporting period
less the fair value of plan assets. The defined
benefit obligation is calculated annually by
independent actuaries using the projected
unit credit method. The present value of
the defined benefit obligation is determined
by discounting the estimated future cash
outflows using interest rates of high-quality
corporate bonds that are denominated
in the currency in which the benefits will
be paid, and that have terms to maturity
approximating to the terms of the related
pension obligation. Since Ukraine has no
deep market in such bonds, the market rates
on government bonds are used.
The current service cost of the defined
benefit plan, recognised in the Income
Statement in employee benefit expense,
except where included in the cost of an
asset, reflects the increase in the defined
benefit obligation resulting from employee
service in the current year, benefit changes
curtailments and settlements. Past-service
costs are recognised immediately in the
Income Statement.
The net interest cost is calculated by applying
the discount rate to the net balance of the
defined benefit obligation and the fair value of
plan assets. This cost is included in employee
benefit expense in the Income Statement.
Actuarial gains and losses arising from
experience adjustments and changes in
actuarial assumptions are charged or credited
to equity in other comprehensive income in
the period in which they arise.
Taxation
The tax expense represents the sum of the
current tax and deferred tax.
Current tax, including UK corporation
and overseas tax, is provided at amounts
expected to be paid (or recovered) using the
tax rates and laws 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, and is
accounted for using the balance sheet
liability method. Deferred tax liabilities are
generally recognised for all taxable temporary
differences and deferred tax assets are
recognised to the extent that it is probable
that taxable profits will be available against
which deductible temporary differences can
be utilised. Such assets and liabilities are not
recognised if the temporary difference arises
from goodwill or from the initial recognition
(other than in a business combination) of
other assets and liabilities in a transaction
that affects neither the tax profit nor the
accounting profit.
Deferred tax liabilities are recognised for
taxable temporary differences arising on
investments in subsidiaries and associates,
and interests in joint ventures, except where
the Group is able to control the reversal of
the temporary difference and it is probable
that the temporary difference will not reverse
in the foreseeable future.
Deferred tax is calculated at the tax rates
which are expected to apply in the period
when the liability is settled or the asset is
realised. Deferred tax is charged or credited
in the Income Statement, except when it
relates to items charged or credited directly
to equity, in which case the deferred tax is
also dealt with in equity.
Other taxes which include recoverable value
added tax, excise tax and custom duties
represent the amounts receivable or payable
to local tax authorities in the countries where
the Group operates.
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FINANCIALS Notes CONTINUED
forming part of the financial statements
Value added tax
Output value added tax (“VAT”) related
to sales is payable to tax authorities on
the earlier of (a) collection of receivables
from customers or (b) delivery of goods or
services to customers. Input VAT is generally
recoverable against output VAT upon receipt
of the VAT invoice. The tax authorities permit
the settlement of VAT on a net basis. VAT
related to sales and purchases is recognised
in the consolidated statement of financial
position on a gross basis and disclosed
separately as an asset and a liability. Where
provision has been made for expected credit
losses (“ECL”) of receivables, the impairment
loss is recorded for the gross amount of the
debtor, including VAT.
Financial Instruments
Financial instruments – key measurement
terms. Fair value is the price that would be
received to sell an asset or paid to transfer
a liability in an orderly transaction between
market participants at the measurement date.
The best evidence of fair value is the price
in an active market. An active market is one
in which transactions for the asset or liability
take place with sufficient frequency and
volume to provide pricing information on an
ongoing basis.
Fair value of financial instruments traded in
an active market is measured as the product
of the quoted price for the individual asset
or liability and the number of instruments
held by the entity. This is the case even if a
market’s normal daily trading volume is not
sufficient to absorb the quantity held and
placing orders to sell the position in a single
transaction might affect the quoted price.
A portfolio of financial derivatives or other
financial assets and liabilities that are not
traded in an active market is measured at
the fair value of a group of financial assets
and financial liabilities on the basis of the
price that would be received to sell a net
long position (i.e. an asset) for a particular
risk exposure or paid to transfer a net short
position (i.e. a liability) for a particular risk
exposure in an orderly transaction between
market participants at the measurement
date. This is applicable for assets carried at
fair value on a recurring basis if the Group:
(a) manages the group of financial assets and
financial liabilities on the basis of the Group’s
net exposure to a particular market risk
(or risks) or to the credit risk of a particular
counterparty in accordance with the Group’s
documented risk management or investment
strategy; (b) it provides information on that
basis about the group of assets and liabilities
to the Group’s key management personnel;
and (c) the market risks, including duration of
the Group’s exposure to a particular market
risk (or risks) arising from the financial assets
and financial liabilities are substantially
the same.
60
Valuation techniques such as discounted
cash flow models or models based on recent
arm’s length transactions or consideration
of financial data of the investees are used
to measure fair value of certain financial
instruments for which external market
pricing information is not available. Fair value
measurements are analysed by level in the
fair value hierarchy as follows: (i) level one are
measurements at quoted prices (unadjusted)
in active markets for identical assets or
liabilities, (ii) level two measurements are
valuations techniques with all material inputs
observable for the asset or liability, either
directly (that is, as prices) or indirectly (that
is, derived from prices), and (iii) level three
measurements are valuations not based
on solely observable market data (that
is, the measurement requires significant
unobservable inputs).
Transaction costs are incremental costs that
are directly attributable to the acquisition,
issue or disposal of a financial instrument.
An incremental cost is one that would not
have been incurred if the transaction had not
taken place. Transaction costs include fees
and commissions paid to agents (including
employees acting as selling agents), advisers,
brokers and dealers, levies by regulatory
agencies and securities exchanges, and
transfer taxes and duties. Transaction costs
do not include debt premiums or discounts,
financing costs or internal administrative or
holding costs.
Amortised cost (“AC”) is the amount
at which the financial instrument was
recognised at initial recognition less
any principal repayments, plus accrued
interest, and for financial assets less any
allowance for ECL. Accrued interest includes
amortisation of transaction costs deferred
at initial recognition and of any premium
or discount to the maturity amount using
the effective interest method. Accrued
interest income and accrued interest
expense, including both accrued coupon and
amortised discount or premium (including
fees deferred at origination, if any), are not
presented separately and are included in the
carrying values of the related items in the
consolidated statement of financial position.
The effective interest method is a method
of allocating interest income or interest
expense over the relevant period, so as to
achieve a constant periodic rate of interest
(effective interest rate) on the carrying
amount. The effective interest rate is the
rate that exactly discounts estimated future
cash payments or receipts (excluding future
credit losses) through the expected life of
the financial instrument or a shorter period, if
appropriate, to the gross carrying amount of
the financial instrument. The effective interest
rate discounts cash flows of variable interest
instruments to the next interest repricing
date, except for the premium or discount
which reflects the credit spread over the
floating rate specified in the instrument, or
other variables that are not reset to market
rates. Such premiums or discounts are
amortised over the whole expected life of
the instrument. The present value calculation
includes all fees paid or received between
parties to the contract that are an integral part
of the effective interest rate. For assets that
are purchased or originated credit impaired
(“POCI”) at initial recognition, the effective
interest rate is adjusted for credit risk, i.e. it is
calculated based on the expected cash flows
on initial recognition instead of contractual
payments.
Financial instruments – initial recognition.
Financial instruments at fair value through
profit or loss (“FVTPL”) are initially recorded
at fair value. All other financial instruments
are initially recorded at fair value adjusted
for transaction costs. Fair value at initial
recognition is best evidenced by the
transaction price. A gain or loss on initial
recognition is only recorded if there is a
difference between fair value and transaction
price which can be evidenced by other
observable current market transactions
in the same instrument or by a valuation
technique whose inputs include only data
from observable markets. After the initial
recognition, an ECL allowance is recognised
for financial assets measured at AC and
investments in debt instruments measured
at fair value through other comprehensive
income (“FVOCI”), resulting in an immediate
accounting loss.
All purchases and sales of financial assets
that require delivery within the time
frame established by regulation or market
convention (“regular way” purchases and
sales) are recorded at trade date, which is
the date on which the Group commits to
deliver a financial asset. All other purchases
are recognised when the entity becomes
a party to the contractual provisions of the
instrument.
Financial assets – classification and
subsequent measurement – measurement
categories. The Group classifies financial
assets in the following measurement
categories: FVTPL, FVOCI and AC. The
classification and subsequent measurement
of debt financial assets depends on: (i) the
Group’s business model for managing the
related assets portfolio and (ii) the cash flow
characteristics of the asset. The Group’s
financial assets include cash and cash
equivalents, trade and other receivables,
loans to subsidiary undertakings, all of
which are classified as AC in accordance
with IFRS 9.
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Enwell Energy plc // Annual Report and Financial Statements 2020 the cash flows from the financial assets
or entered into a qualifying pass-through
arrangement while (i) also transferring
substantially all the risks and rewards
of ownership of the assets or (ii) neither
transferring nor retaining substantially all
the risks and rewards of ownership but not
retaining control.
Financial assets – modification. If the
modified terms are substantially different,
the rights to cash flows from the original
asset expire and the Company derecognises
the original financial asset and recognises
a new asset at its fair value. The date
of renegotiation is considered to be the
date of initial recognition for subsequent
impairment calculation purposes, including
determining whether a SICR has occurred.
Any difference between the carrying amount
of the original asset derecognised and fair
value of the new substantially modified
asset is recognised in profit or loss, unless
the substance of the difference is attributed
to a capital transaction with owners. If the
modified asset is not substantially different
from the original asset and the modification
does not result in derecognition. The Group
recalculates the gross carrying amount by
discounting the modified contractual cash
flows by the original effective interest rate
(or credit-adjusted effective interest rate
for POCI financial assets), and recognises a
modification gain or loss in profit or loss.
Financial liabilities – measurement categories.
Financial liabilities are classified as
subsequently measured at AC, except for (i)
financial liabilities at FVTPL: this classification
is applied to derivatives, financial liabilities
held for trading (e.g. short positions in
securities), contingent consideration
recognised by an acquirer in a business
combination and other financial liabilities
designated as such at initial recognition, and
(ii) financial guarantee contracts and loan
commitments. The Group’s financial liabilities
include trade and other payables, all of which
are classified as AC in accordance with
IFRS 9.
Financial liabilities – derecognition. Financial
liabilities are derecognised when they
are extinguished (i.e. when the obligation
specified in the contract is discharged,
cancelled or expires).
Financial assets – classification and
subsequent measurement – business model.
The business model reflects how the Group
manages the assets in order to generate
cash flows – whether the Group’s objective
is: (i) solely to collect the contractual cash
flows from the assets (“hold to collect
contractual cash flows”,) or (ii) to collect both
the contractual cash flows and the cash
flows arising from the sale of assets (“hold to
collect contractual cash flows and sell”) or, if
neither of (i) and (ii) is applicable, the financial
assets are classified as part of “other”
business model and measured at FVTPL.
Business model is determined for a group
of assets (on a portfolio level) based on all
relevant evidence about the activities that the
Group undertakes to achieve the objective
set out for the portfolio available at the date
of the assessment. Factors considered
by the Group in determining the business
model include past experience on how the
cash flows for the respective assets were
collected.
The Group’s business model for financial
assets is to collect the contractual cash flows
from the assets (“hold to collect contractual
cash flows”).
Financial assets – classification and
subsequent measurement – cash flow
characteristics. Where the business model
is to hold assets to collect contractual cash
flows or to hold contractual cash flows and
sell, the Group assesses whether the cash
flows represent solely payments of principal
and interest (“SPPI”). Financial assets with
embedded derivatives are considered in
their entirety when determining whether
their cash flows are consistent with the
SPPI feature. In making this assessment,
the Group considers whether the contractual
cash flows are consistent with a basic
lending arrangement, i.e. interest includes
only consideration for credit risk, time value
of money, other basic lending risks and
profit margin.
Where the contractual terms introduce
exposure to risk or volatility that is
inconsistent with a basic lending
arrangement, the financial asset is
classified and measured at FVTPL. The
SPPI assessment is performed on initial
recognition of an asset and it is not
subsequently reassessed.
Financial assets – reclassification. Financial
instruments are reclassified only when the
business model for managing the portfolio
as a whole changes. The reclassification has
a prospective effect and takes place from
the beginning of the first reporting period
that follows after the change in the business
model. The Group did not change its business
model during the current and comparative
period and did not make any reclassifications.
Financial assets impairment – credit loss
allowance for ECL. The Group assesses, on
a forward-looking basis, the ECL for debt
instruments measured at AC and FVOCI and
for the exposures arising for contract assets.
The Group measures ECL and recognises
Net impairment losses on financial and
contract assets at each reporting date. The
measurement of ECL reflects: (i) an unbiased
and probability weighted amount that is
determined by evaluating a range of possible
outcomes, (ii) time value of money and (iii) all
reasonable and supportable information that
is available without undue cost and effort at
the end of each reporting period about past
events, current conditions and forecasts of
future conditions.
Debt instruments measured at AC and
contract assets are presented in the
consolidated statement of financial position
net of the allowance for ECL. For loan
commitments and financial guarantees, a
separate provision for ECL is recognised as
a liability in the consolidated statement of
financial position.
The Group applies a three-stage model for
impairment, based on changes in credit
quality since initial recognition. A financial
instrument that is not credit-impaired on initial
recognition is classified in Stage 1. Financial
assets in Stage 1 have their ECL measured
at an amount equal to the portion of lifetime
ECL that results from default events possible
within the next 12 months or until contractual
maturity, if shorter (“12 Months ECL”). If
the Group identifies a significant increase in
credit risk (“SICR”) since initial recognition,
the asset is transferred to Stage 2 and its
ECL is measured based on ECL on a lifetime
basis, that is, up until contractual maturity
but considering expected prepayments, if
any (“Lifetime ECL”). If the Group determines
that a financial asset is credit-impaired, the
asset is transferred to Stage 3 and its ECL
is measured as a Lifetime ECL. For financial
assets that are purchased or originated credit-
impaired (“POCI Assets”), the ECL is always
measured as a Lifetime ECL.
Financial assets – write-off. Financial assets
are written off, in whole or in part, when the
Group has exhausted all practical recovery
efforts and has concluded that there is no
reasonable expectation of recovery. The
write-off represents a derecognition event.
The Group may write off financial assets that
are still subject to enforcement activity when
the Group seeks to recover amounts that
are contractually due, however, there is no
reasonable expectation of recovery.
Financial assets – derecognition. The Group
derecognises financial assets when (a) the
assets are redeemed or the rights to cash
flows from the assets otherwise expire or
(b) the Group has transferred the rights to
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FINANCIALS Notes CONTINUED
forming part of the financial statements
Trade Receivables
Trade receivables are amounts due from
customers for goods sold in the ordinary
course of business. If collection is expected
in one year or less, they are classified as
current assets. If not, they are presented as
non-current assets.
Trade receivables are recognised initially at
fair value and subsequently measured at
amortised cost using the effective interest
method.
Prepayments
Prepayments are carried at cost less provision
for impairment. A prepayment is classified
as non-current when the goods or services
relating to the prepayment are expected
to be obtained after one year, or when the
prepayment relates to an asset which will
itself be classified as non-current upon initial
recognition. Prepayments to acquire assets
are transferred to the carrying amount of the
asset once the Group has obtained control
of the asset and it is probable that future
economic benefits associated with the asset
will flow to the Group. Other prepayments
are written off to profit or loss when the
services relating to the prepayments are
received. If there is an indication that the
assets, goods or services relating to a
prepayment will not be received, the carrying
value of the prepayment is written down
accordingly and a corresponding impairment
loss is recognised in profit or loss for the year.
Investments in subsidiaries
Investments made by the Company in
its subsidiaries are stated at cost in the
Company’s financial statements and reviewed
for impairment if there are indications that
the carrying value may not be recoverable.
Loans issued to subsidiaries
Loans issued by the Company to its
subsidiaries are initially recognised in the
Company’s financial statements at fair value
and are subsequently carried at amortised
cost using the effective interest method, less
credit loss allowance. Net change in credit
losses and foreign exchange differences on
loans issued are recognised in the Company’s
statement of profit or loss in the period when
incurred.
Trade Payables
Trade payables are obligations to pay for
goods or services that have been acquired
in the ordinary course of business from
suppliers. Accounts payable are classified
as current liabilities if payment is due within
one year or less. If not, they are presented as
non-current liabilities.
Trade payables are recognised initially at
fair value and subsequently measured at
amortised cost using the effective interest
method.
Lease liabilities
Liabilities arising from a lease are initially
measured on a present value basis. Lease
liabilities include the net present value of the
following lease payments:
■ fixed payments (including in-substance
fixed payments), less any lease
incentives receivable;
■ variable lease payments that are based
on an index or a rate, initially measured
using the index or rate as at the
commencement date;
■ the exercise price of a purchase option
if the Group is reasonably certain to
exercise that option; and
■ payments of penalties for terminating the
lease, if the lease term reflects the Group
exercising that option.
Extension and termination options are
included in a number of property and
equipment leases across the Group. These
terms are used to maximise operational
flexibility in terms of managing contracts.
Extension options (or period after termination
options) are only included in the lease term if
the lease is reasonably certain to be extended
(or not terminated). Lease payments to be
made under reasonably certain extension
options are also included in the measurement
of the liability.
The lease payments are discounted using
the interest rate implicit in the lease. If that
rate cannot be readily determined, which is
generally the case for leases of the Group,
the Group’s incremental borrowing rate is
used, being the rate that the Group would
have to pay to borrow the funds necessary
to obtain an asset of similar value in a similar
economic environment with similar terms
and conditions.
To determine the incremental borrowing rate,
the Group:
■ where possible, uses recent third-party
financing received by the individual
lessee as a starting point, adjusted to
reflect changes in financing conditions
since third party financing was received;
■ uses a build-up approach that starts with
a risk-free interest rate adjusted for credit
risk; and
■ makes adjustments specific to the
lease, e.g. term, country, currency and
collateral.
The Group is exposed to potential future
increases in variable lease payments based
on an index or rate, which are not included in
the lease liability until they take effect. When
adjustments to lease payments based on an
index or rate take effect, the lease liability is
reassessed and adjusted against the right-of-
use asset.
Lease payments are allocated between
principal and finance costs. The finance costs
are charged to profit or loss over the lease
period so as to produce a constant periodic
rate of interest on the remaining balance of
the liability for each period.
Payments associated with short-term
leases and all leases of low-value assets
are recognised on a straight-line basis as an
expense in profit or loss. Short-term leases
are leases with a lease term of 12 months or
less.
Operating lease
Where the Group is a lessor in a lease which
does not transfer substantially all the risks
and rewards incidental to ownership to the
lessee (i.e. operating lease), lease payments
from operating leases are recognised as
other income on a straight-line basis.
Equity Instruments
Ordinary shares are classified as equity.
Equity instruments issued by the Company
and the Group are recorded at the proceeds
received, net of direct issue costs. Any
excess of the fair value of consideration
received over the par value of shares issued
is recorded as share premium in equity.
Cash and Cash Equivalents
Cash and cash equivalents comprise cash on
hand and deposits held at call with banks and
other short-term highly liquid investments
which are readily convertible to a known
amount of cash with no significant loss of
interest. Cash and cash equivalents are
carried at amortised cost. Interest income
that relates to cash and cash equivalents on
current and deposit accounts is disclosed
within operating cash flow.
Other short-term investments
Other short-term investments include current
accounts and deposits held at banks, which
do not meet the cash and cash equivalents
definition. Current accounts and deposits
held at banks, which do not meet the cash
and cash equivalents definition are measured
initially at fair value and subsequently
carried at amortised cost using the effective
interest method. Interest received on other
short-term investments is disclosed within
operating cash flow.
The Group classifies its financial assets as at
amortised cost only if both of the following
criteria are met:
■ the asset is held within a business
model whose objective is to collect the
contractual cash flows; and
■ the contractual terms give rise to cash
flows that are solely payments of
principal and interest.
62
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Enwell Energy plc // Annual Report and Financial Statements 2020 Interest income
Interest income is recognised as it accrues, taking into account the effective yield on the
asset. Interest income on current bank accounts and on demand deposits or term deposits
with a maturity of less than three months recognised as part of cash and cash equivalents
is recognised as other operating income. Interest income on term deposits other than those
classified as cash and cash equivalents is recognised as finance income.
3. Significant Accounting Judgements and Estimates
The Group makes estimates and judgements concerning the future. The resulting accounting
estimates will, by definition, seldom equal the related actual results. The estimates and
judgements which have a risk of causing material adjustment to the carrying amounts of assets
and liabilities within the next financial year are discussed below.
Significant judgement
Acquisition of LLC Arkona Gas-Energy
The Group acquired control of LLC Arkona Gas-Energy (“Arkona”) on 24 March 2020. This
acquisition required a determination to be made as to whether the acquisition should be
treated as a business or asset acquisition. Following such determination, the transaction has
been treated as an asset acquisition as there were no employees or production operations
acquired. In applying the concentration test under amended IFRS 3 Business Combinations,
the fair value of the acquired Svystunivsko-Chervonolutske licence (“SC Licence”) comprises
the majority amount (more than 90%) of the consideration. The SC Licence is classified as
an exploration and evaluation intangible asset at the acquisition date. The Group believes no
impairment indicators exist at the reporting date, and note the following:
■ the SC Licence is valid until 18 May 2037; and
■ further exploration and evaluation plans are included in the Group’s budgets.
The following table provides the allocation of the fair value of the consideration to Arkona’s
assets and liabilities at their relative fair values at the date of acquisition:
Property, plant and equipment
Trade and other receivables
Trade and other payables
Net liabilities – at the acquisition date, excluding licence
Gross value of consideration (1st, 2nd and 3rd tranches)
Discounting effect
Fair value of consideration (1st, 2nd and 3rd tranches)
Fair value of licence at the acquisition date
$000
88
35
(291)
(168)
8,469
(306)
8,163
8,331
Under the terms of the sale and purchase agreement for Arkona, the total consideration
payable is $8,630,000, with payment divided into three tranches. The first tranche of
$4,315,000 was paid on 24 March 2020 upon completion of the acquisition of 100% of the
issued share capital of Arkona.
The second and third tranches of $2,157,500 respectively were contingent on satisfaction of
certain conditions, including the favourable resolution of the legal proceedings brought by
NJSC Ukrnafta against Arkona relating to the SC Licence (the “Licence Case”), the absence
of any contractual, warranty or indemnity claims, and the delivery of certain documentation by
the sellers of Arkona, with provision that if such conditions are not satisfied, then neither the
second tranche nor the third tranche would become payable.
The second tranche is stated at its fair value at the date of acquisition and the estimated date
of the relevant Court’s decision in the Licence Case was assumed to be before 31 December
2020. The Group assumes that the financing effect between the estimated date and the actual
adjudication described in Note 30 is immaterial.
The third tranche is payable in 12 months from the date of payment of the second tranche.
At the date of acquisition, the fair value of the third tranche amounts to the discounted value
at the effective interest rate, being the Company’s effective borrowing rate of 9%. The Group
recognised $306,000 of discounting effect calculated against the value of the acquired assets.
The total consideration comprising the three tranches estimated at the date of acquisition
amounts to $8,163,000. Other non-current liabilities as at 31 December 2020 of $1,975,000
comprise the non-current portion of the Arkona consideration, being $1,852,000, and $123,000
of other liabilities of Arkona for infrastructure development. The current portion of the Arkona
consideration of $2,157,500 is reflected in trade and other payables, giving the total outstanding
balance related to the acquisition of $4,009,500.
Estimates
Recoverability of Oil and Gas Development
and Production Assets in Ukraine
According to the Group’s accounting policies,
costs capitalised as assets are assessed
for impairment at each balance sheet date
if impairment indicators exist. In assessing
whether an impairment loss has occurred,
the carrying value of the asset or cash-
generating unit (“CGU”) is compared to its
recoverable amount. The recoverable amount
is the greater of fair value less costs to
dispose and value in use and is determined
for an individual asset, unless the asset does
not generate cash inflows that are largely
independent of those from other assets or
groups of assets. If the recoverable amount
of an asset is estimated to be less than
its carrying amount, the carrying amount
of the asset is reduced to its recoverable
amount and the respective impairment loss
is recognised as an expense immediately.
A previously recognised impairment loss is
reversed only if there has been a change
in the estimates used to determine the
asset’s recoverable amount since the last
impairment loss was recognised. If that is
the case, the carrying amount of the asset
is increased to its recoverable amount
(assessed using estimates for oil and gas
prices, production and reserves), but so
that the increased carrying amount does
not exceed the carrying amount that would
have been determined, net of depreciation,
had no impairment loss been recognised for
the asset in prior years. Such reversals are
recognised as income immediately.
Depreciation of Oil and Gas Development and
Production Assets
Development and production assets
held in property, plant and equipment are
depreciated on a unit of production basis
at a rate calculated by reference to proved
and probable reserves at the end of the
period plus the production in the period, and
incorporating the estimated future cost of
developing and extracting those reserves.
Future development costs are estimated
using estimates about the number of wells
required to produce those reserves, the cost
of the wells, future production facilities and
operating costs, together with assumptions
on oil and gas realisations, and are revised
annually. The reserves estimates used are
determined using estimates of gas in place,
recovery factors, future hydrocarbon prices
and also take into consideration the Group’s
latest development plan for the associated
development and production asset. The latest
development plan and therefore the inputs
used to determine the depreciation charge
for the MEX-GOL and SV fields continue
until the end of the economic life of the
fields, which is assessed to be 2038 and
2042 respectively, based on the assessment
contained in the DeGolyer & MacNaughton
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FINANCIALS Notes CONTINUED
forming part of the financial statements
reserves report for these fields. The licences
for each of these fields have recently been
extended until 2040, and therefore the inputs
used to determine the depreciation charge
for the SV field assume that the SV licence
can be further extended until the end of its
economic life in 2042.
Provision for Decommissioning
The Group has decommissioning obligations
in respect of its Ukrainian assets. The full
extent to which the provision is required
depends on the legal requirements at the
time of decommissioning, the costs and
timing of any decommissioning works and
the discount rate applied to such costs.
A detailed assessment of gross
decommissioning cost was undertaken on
a well-by-well basis using local data on day
rates and equipment costs. The discount
rate applied on the decommissioning cost
provision at 31 December 2020 was 3.70%
(31 December 2019: 3.68%). The discount
rate is calculated in real terms based on the
yield to maturity of Ukrainian Government
bonds denominated in the currency in which
the liability is expected to be settled and with
the settlement date that approximates the
timing of settlement of decommissioning
obligations.
The change in estimate applied to calculate
the provision as at 31 December 2020
resulted from the revision of the estimated
costs of decommissioning (increase of
$248,000 in provision) and an increase in the
discount rate applied (decrease of $22,000
in provision). The costs are expected to be
incurred by 2038 on the MEX-GOL field, by
2042 on the SV field, and by 2028 on the VAS
field (31 December 2019: by 2038 on the
MEX-GOL field, by 2042 on the SV field and
2028 on the VAS field respectively), which is
the end of the estimated economic life of the
respective fields.
Net Carrying Amount of Inter-Company Loans
Receivable and Investments by the Company
into a Subsidiary
The Company has certain inter-company
loans receivable from a subsidiary, which are
eliminated on consolidation. For the purpose
of the Company’s financial statements, these
receivable balances are carried at amortised
cost using the effective interest method,
less credit loss allowance. Measurement
of lifetime expected credit losses on inter-
company loans is a significant judgement
that involves models and data inputs
including forward-looking information, current
conditions and forecasts of future conditions
impacting the estimated future cash flows
that are expected to be recovered, time value
of money, etc. In previous years, significant
impairment charges were recorded against
the carrying amount of the loans issued to
subsidiaries as the present value of estimated
future cash flows discounted at the original
effective interest rate was less than the
carrying amount of the loans, and the
resulting impairment losses were recognised
in profit or loss in the Company’s financial
statements.
For the purpose of assessment of the credit
loss allowance as at 31 December 2020,
the Company considered all reasonable and
supportable forward-looking information
available as of that date without undue cost
and effort, which includes a range of factors,
such as estimated future net cash flows to
be generated by the subsidiary operating
in Ukraine and cash flow management.
All these factors have a significant impact
on the amounts subject to repayment on
the loans and investments. The estimated
future discounted cash flows generated
by the subsidiaries operating in Ukraine
are considered as a primary source of
repayment on the loans and investments.
For the purpose of the assessment of loans,
these cash flows were taken for a period of
five years, as management believes there
is no reasonably available information to
build reliable expectations and demonstrate
the ability to settle the loans in a longer
perspective. As of 31 December 2020, the
present value of future net cash flows to
be generated by the subsidiary operating
in Ukraine during 2021 – 2025, adjusted for
the subsidiaries’ working capital as at 31
December 2020 and estimated amounts
reserved by the Group for investment
projects in the time horizon was calculated.
The increase in the net present value of
future net cash flows as at 31 December
2020 in comparison with 31 December 2019
was affected by the increase in gas prices
forecast and termination of the proposed
acquisition of PJSC Science and Production
Concern Ukrnaftinvest. For the purpose of
the assessment of investments, these cash
flows were taken for a period of the full
economic life of the respective CGUs. The
resulting amount, net of the carrying value of
the Company’s investments in subsidiaries,
was compared to the discounted cash flows
and net financial assets of the subsidiaries as
at 31 December 2020. As such, the Company
has recorded $57,122,000 of income, being
the net change in credit loss allowance
for loans issued to and investments in
subsidiaries in the Company’s statement of
profit or loss for the year ended 31 December
2020.
As with any economic forecast, the
projections and likelihoods of occurrence
are subject to a high degree of inherent
uncertainty, and therefore the actual
outcomes may be significantly different to
those projected. The Company considers
these forecasts to represent its best estimate
of the possible outcomes.
64
Exchange Differences on Intra-group
Balances with Foreign Operations
As at 31 December 2019, a Group subsidiary,
Regal Petroleum Corporation (Ukraine)
Limited, planned to settle $4,500,000 of
intra-group liability by the end of 2020 and
$4,317,000 was settled in the period. A
further amount of $3,102,000 is planned
to be settled by the end of 2021. As
such, a foreign exchange difference of
$1,031,000 accumulated on the intra-
group balance of $165,906,000 since the
date of de-designation of this balance as
part of the Company’s net investment in
the foreign operation up to 31 December
2020 was recognised in profit or loss in
these consolidated financial statements.
No reclassification of the foreign exchange
difference accumulated in equity prior to
de-designation was made as there has been
no change in the Company’s proportionate
ownership interest in the foreign operation
and therefore no disposal or partial disposal
of the foreign operation. There were no
changes in management’s plans or intentions
regarding the payment of intra-group
balances not settled as at 31 December
2020, other than the abovementioned
amount of $4,500,000, and, as such, a
foreign exchange difference related to the
balance designated as net investment in a
foreign operation was recognised in other
comprehensive income in the Company
Statement of Comprehensive Income for the
year ended 31 December 2020.
4. Segmental Information
In line with the Group’s internal reporting
framework and management structure,
the key strategic and operating decisions
are made by the Board of Directors, who
review internal monthly management
reports, budget and forecast information as
part of this process. Accordingly, the Board
of Directors is deemed to be the Chief
Operating Decision Maker within the Group.
The Group’s only class of business activity
is oil and gas exploration, development
and production. The Group’s operations are
located in Ukraine, with its head office in the
United Kingdom. These geographical regions
are the basis on which the Group reports its
segment information. The segment results as
presented represent operating profit before
depreciation, amortisation and impairment of
non-current assets.
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Enwell Energy plc // Annual Report and Financial Statements 2020 Revenue
Gas sales
Condensate sales
Liquefied Petroleum Gas sales
Total revenue
Segment result
Depreciation and amortisation of non-current assets
Operating profit
Segment assets
Capital additions*
*Comprises additions to property, plant and equipment (Note 16)
Ukraine
2020
$000
32,309
11,418
3,524
47,251
United
Kingdom
2020
$000
–
–
–
–
25,473
(12,650)
(3,053)
–
Total
2020
$000
32,309
11,418
3,524
47,251
22,420
(12,650)
9,770
106,587
39,376
145,963
18,167
–
18,167
There are no inter-segment sales within
the Group and all products are sold in
the geographical region in which they are
produced. The Group is not significantly
impacted by seasonality. Revenue is
recognised at a point in time.
During 2020, the Group was selling all of its
gas production to its related party, LLC Smart
Energy (“Smart Energy”). Smart Energy has
oil and gas operations in Ukraine and is part
of the PJSC Smart-Holding Group, which is
ultimately controlled by Mr Vadym Novynskyi,
who, through an indirect 82.65% majority
shareholding, ultimately controls the Group.
This arrangement came about in 2017 as a
consequence of the Ukrainian Government
introducing a number of new provisions into
the Ukrainian Tax Code over the previous two
years, including transfer pricing regulations
for companies operating in Ukraine. The
introduction of the new regulations has
meant that there is an increased regulatory
burden on affected companies in Ukraine
who must prepare and submit reporting
information to the Ukrainian Tax Authorities.
Due to the corporate structure of the Group,
a substantial proportion of its gas production
is produced by a non-Ukrainian subsidiary
of the Group, which operates in Ukraine as
a branch, or representative office as it is
classified in Ukraine. Under the current tax
regulations, this places additional regulatory
obligations on each of the Group’s potential
customers who may be less inclined to
purchase the Group’s gas and/or may seek
discounts on sales prices. As a result of
discussions between the Company and Smart
Energy, Smart Energy agreed to purchase all
of the Group’s gas production and to assume
responsibility for the regulatory obligations
under the Ukrainian tax regulations.
Furthermore, Smart Energy has agreed to
combine the Group’s gas production with
its own gas production, and to sell such gas
as combined volumes, which is intended to
result in higher sales prices due to the larger
sales volumes. At the commencement of
this sales arrangement, in order to cover
Smart Energy’s sales, administration and
regulatory compliance costs, the Group sold
its gas to Smart Energy at a discount of 0.5%
to the gas sales prices achieved by Smart
Energy, who sold the combined volumes in
line with market prices. Due to changes in
the regulatory regime in Ukraine, which has
increased the burden of administration and
regulatory compliance obligations involved in
the sale of gas, and in order to ensure that
the Group is compliant with current transfer
pricing regulations in Ukraine, the Group and
Smart Energy agreed in 2019 to increase the
discount on the price at which the Group
sells its gas to Smart Energy from 0.5% to
2%. The terms of sale for the Group’s gas to
Smart Energy are (i) payment for one third
of the estimated monthly volume of gas by
the 20th of the month of delivery, and (ii)
payment of the remaining balance by the 10th
of the month following the month of delivery.
Revenue
Gas sales
Condensate sales
Liquefied Petroleum Gas sales
Total revenue
Segment result
Depreciation and amortisation of non-current assets
Operating profit
Segment assets
Capital additions*
*Comprises additions to property, plant and equipment (Note 16)
Ukraine
2019
$000
38,345
13,724
3,862
55,931
United
Kingdom
2019
$000
–
–
–
–
33,218
(10,190)
(1,935)
–
Total
2019
$000
38,345
13,724
3,862
55,931
31,283
(10,190)
21,093
114,722
42,408
157,130
17,672
–
17,672
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FINANCIALS Notes CONTINUED
forming part of the financial statements
5. Cost of Sales
Depreciation of property, plant and equipment
Production taxes
Staff costs (Note 8)
Rent expenses
Cost of inventories recognised as an expense
Transmission tariff for Ukrainian gas system
Amortisation of mineral reserves
Other expenses
2020
$000
11,546
9,361
3,202
3,151
1,227
824
488
1,712
31,511
2019
$000
9,102
11,636
2,450
5,317
1,158
673
510
1,569
32,415
The main reason for the increase in depreciation in 2020 was the growth of production in the period. A transmission tariff for use of the Ukrainian
gas transit system of UAH101.93/Mm3 of gas was applicable to the Group (2019: UAH91.87/Mm3). The reduction in production taxes and rent
expenses is a function of those charges being price-linked, with hydrocarbon prices having fallen significantly in the period.
6. Administrative Expenses
Staff costs (Note 8)
Consultancy fees
Depreciation of other fixed assets
Auditors’ remuneration
Rent expenses
Amortisation of other intangible assets
Other expenses
Audit of the Company and subsidiaries
Audit of subsidiaries in Ukraine
Audit-related assurances services – interim review
Total assurance services
Tax compliance services
Legal services
Tax advisory services
Total non-audit services
2020
$000
4,521
1,271
456
394
154
160
835
7,791
2020
$000
176
123
47
346
3
–
45
48
2019
$000
4,282
869
449
327
138
129
1,202
7,396
2019
$000
119
108
28
255
24
12
36
72
Total audit and other services
394
327
All amounts shown as Auditors’ remuneration in 2020 and 2019 were payable to the Group Auditors, PricewaterhouseCoopers LLP and other
member firms of PricewaterhouseCoopers LLP.
66
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Enwell Energy plc // Annual Report and Financial Statements 2020
7. Remuneration of Directors
Directors’ emoluments
The emoluments of the individual Directors were as follows:
Executive Directors:
Sergii Glazunov
Bruce Burrows
Non-Executive Directors:
Chris Hopkinson
Alexey Pertin
Yuliia Kirianova
Dmitry Sazonenko
Bruce Burrows
2020
$000
1,026
2019
$000
977
Total
Emoluments
2020
$000
Total
Emoluments
2019
$000
370
354
128
58
58
58
–
1,026
448
206
128
57
57
57
24
977
The emoluments include base salary, bonuses and fees. According to the Register of Directors’ Interests, no rights to subscribe for shares in or
debentures of any Group companies were granted to any of the Directors or their immediate families during the financial year, and there were no
outstanding options to Directors.
8. Staff Numbers and Costs
The average monthly number of employees on a full-time equivalent basis during the year (including Executive Directors) and the aggregate staff
costs of such employees were as follows:
Number of employees
Group
Management / operational
Administrative support
Wages and salaries
Pension costs
Social security costs
9. Other Operating Gains, net
Interest income on cash and cash equivalents
Contractor penalties applied
Reversal of impairment of property, plant and equipment
Gain on sales of current assets
Other operating income, net
10. Finance Income
During 2020, the Group recognised foreign exchange gains less losses of $nil (2019: $3,487,000).
2020
147
78
225
2020
$000
6,664
953
106
7,723
2020
$000
1,421
–
81
26
293
1,821
2019
144
69
213
2019
$000
5,874
772
86
6,732
2019
$000
4,751
15
–
–
207
4,973
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FINANCIALS Notes CONTINUED
forming part of the financial statements
11. Finance Costs
Foreign exchange losses less gains
Unwinding of a discount on provision for decommissioning (Note 24)
Unwinding of discount on lease liabilities
12. Other Losses, net
Charitable donations
Foreign exchange (gains)/losses
Unconfirmed tax credit on VAT
Other losses, net
2020
$000
1,058
234
126
1,418
2020
$000
2,077
(340)
–
119
1,856
2019
$000
–
273
177
450
2019
$000
107
1,508
473
306
2,394
Charitable donations for the year ended 31 December 2020 comprise the supply of medical equipment and COVID-19 testing equipment to
Ukrainian authorities and charitable foundations.
13. Income Tax Expense
a)
Income tax expense and (benefit):
Current tax
UK – prior year
Overseas – current year
Overseas – prior year
Deferred tax (Note 25)
UK – current year
UK – prior year
Overseas – current year
Income tax expense
2020
$000
555
2,770
(329)
640
–
(304)
3,332
b) Factors affecting tax charge for the year:
The tax assessed for the year is different from the blended rate of corporation tax in the UK of 19.00%. The expense for the year can be
reconciled to the profit as per the Income Statement as follows:
Profit before taxation
Tax charge at UK tax rate of 19.00% (2019: 19.00%)
Tax effects of:
Lower foreign corporate tax rates in Ukraine (18.00%) (2019: 18.00%)
Disallowed expenses and non-taxable income
Changes in tax losses previously not recognised as deferred tax asset
Adjustments in respect of prior periods
Total tax expense for the year
2020
$000
6,520
1,239
(95)
22,648
(21,015)
555
3,332
2019
$000
–
4,768
–
3,211
1,996
(406)
9,569
2019
$000
21,768
4,136
(242)
3,598
81
1,996
9,569
The tax effect of disallowed expenses and non-taxable income are mainly represented by foreign exchange differences of Regal Petroleum
Corporation (Ukraine) Limited and the net change in credit loss allowance for loans issued to subsidiaries and shares in subsidiary undertakings.
The tax effect losses not recognised as deferred tax assets are mainly represented by accumulated losses of Regal Petroleum Corporation
(Ukraine) Limited.
14. Profit for the Year
The Company has taken advantage of the exemption allowed under section 408 of the Companies Act 2006 and has not presented its own
Income Statement in these financial statements. The Parent Company profit after tax was $59,454,000 for the year ended 31 December 2020
(2019: loss $17,507,000).
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Enwell Energy plc // Annual Report and Financial Statements 2020 15. Earnings per Share
The calculation of basic earnings per ordinary share has been based on the profit for the year and 320,637,836 (2019: 320,637,836) ordinary
shares, being the weighted average number of shares in issue for the year. There are no dilutive instruments.
16. Property, Plant and Equipment
Oil and Gas
Development
and
Production
Assets
$000
2020
Oil and Gas
Exploration
and
Evaluation
Assets
$000
Oil and Gas
Development
and
Production
Assets
$000
2019
Oil and Gas
Exploration
and
Evaluation
Assets
$000
Other
Fixed
Assets
$000
Total
$000
143,127
17,241
372
(443)
(24,331)
135,966
76,802
10,450
(327)
(13,109)
73,816
2,571
213
2,103
147,801
713
18,167
–
–
–
(73)
372
(516)
(422)
2,362
(526)
(25,279)
2,217
140,545
–
–
–
–
–
947
319
(30)
77,749
10,769
(357)
(169)
(13,278)
1,067
74,883
104,809
16,132
3,207
(130)
19,109
143,127
56,567
9,983
(85)
10,337
76,802
1,259
962
–
–
350
2,571
–
–
–
–
–
Other
Fixed
Assets
$000
Total
$000
1,293
578
107,361
17,672
–
(17)
249
2,103
3,207
(147)
19,708
147,801
602
237
(15)
123
947
57,169
10,220
(100)
10,460
77,749
66,325
2,571
1,156
70,052
48,242
1,259
691
50,192
62,150
2,362
1,150
65,662
66,325
2,571
1,156
70,052
Group
Cost
At beginning of year
Additions
Change in
decommissioning provision
Disposals
Exchange differences
At end of year
Accumulated depreciation
and impairment
At beginning of year
Charge for year
Disposals
Exchange differences
At end of year
Net book value at
beginning of year
Net book value at end
of year
In accordance with the Group’s accounting policies, the oil and gas development and producing assets are tested for impairment at each balance
sheet date if impairment indicators exist. As at 31 December 2020, no impairment indicators were identified.
17. Intangible Assets
Group
Cost
At beginning of year
Additions
Disposals
Exchange differences
At end of year
Accumulated amortisation and impairment
At beginning of year
Charge for year
Disposals
Exchange differences
At end of year
Net book value at beginning of year
Net book value at end of year
7,843
–
–
(1,273)
6,570
2,851
488
–
(484)
2,855
4,992
3,715
2020
Exploration
and
evaluation
intangible
assets
$000
Mineral
reserve
rights
$000
Other
intangible
assets
$000
Total
$000
8,415
8,555
(85)
(1,413)
572
224
(85)
(95)
616
15,472
367
166
(85)
(63)
385
205
3,218
654
(85)
(547)
3,240
5,197
–
8,331
–
(45)
8,286
–
–
–
–
–
–
8,286
231
12,232
2019
Other
intangible
assets
$000
330
137
–
105
572
194
130
–
43
367
136
205
Mineral
reserve
rights
$000
6,709
–
–
1,134
7,843
1,965
509
–
377
2,851
4,744
4,992
Total
$000
7,039
137
–
1,239
8,415
2,159
639
–
420
3,218
4,880
5,197
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FINANCIALS Notes CONTINUED
forming part of the financial statements
Intangible assets consist mainly of the hydrocarbon production licence relating to the VAS field which is held by one of the Group’s subsidiaries,
LLC Prom-Enerho Produkt, and a new hydrocarbon production licence relating to the Svystunivsko-Chervonolutske (“SC”) field, which is held by
LLC Arkona Gas-Energy. The Group amortises the hydrocarbon production licence relating to the VAS field using the straight-line method over the
term of the economic life of the VAS field until 2028. The hydrocarbon production licence relating to the SC field is not amortised due to it being in
an exploration and evaluation stage.
In accordance with the Group’s accounting policies, intangible assets are tested for impairment at each balance sheet date as part of the
impairment testing of the Group’s oil and gas development and production assets to determine if impairment indicators exist. As at 31 December
2020, no impairment indicators were identified.
18. Leases
This note provides information for leases where the Group is a lessee.
Amount recognised in the balance sheet:
Right-of-use assets
Properties
Land
Wells
Lease liabilities
Current
Non-current
Additions to the right-of-use assets during the 2020 financial year were $56,000 (2019: $170,000).
Amounts recognised in the statement of profit or loss:
Depreciation charge
Properties
Land
Wells
Interest expense (included in finance cost)
Expense relating to short-term leases (included in cost of sales and administrative expenses)
Expense relating to variable lease payments not included in lease liabilities (included in cost of sales and
administrative expenses)
Expense relating to lease payments for land under wells not included in lease liabilities (included in cost
of sales)
The total cash outflow for leases in 2020 was $3,456,000 (2019: $7,934,000).
2020
$000
108
236
168
512
2020
$000
245
371
616
2020
$000
(308)
(15)
(35)
(358)
(126)
(139)
2019
$000
423
299
218
940
2019
$000
454
515
969
2019
$000
(297)
(16)
(39)
(352)
(177)
(123)
(3,101)
(5,283)
(65)
(49)
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Enwell Energy plc // Annual Report and Financial Statements 2020 19. Investments and Loans to Subsidiary Undertakings
Company
At 1 January 2019
Additions including accrued interest
Repayment of interests and loans
Impairment of loans to subsidiary
Exchange differences
At 31 December 2019
At 1 January 2020
Additions including accrued interest
Transfers
Repayment of interest and loans
(Impairment)/reversal of impairment
Exchange differences
At 31 December 2020
Shares in
subsidiary
undertakings
$000
Loans to
subsidiary
undertakings
$000
17,279
–
–
–
–
17,279
17,279
8,163
39,987
–
(30,142)
–
35,287
47,552
3,162
(20,616)
(15,450)
(467)
14,181
14,181
4,336
(39,987)
(4,318)
87,264
1,352
62,828
Total
$000
64,831
3,162
(20,616)
(15,450)
(467)
31,460
31,460
12,499
–
(4,318)
57,122
1,352
98,115
The Company has recorded a credit of $87,264,000, being the net change in credit loss allowance for loans issued to subsidiaries in the
Company’s statement of profit or loss for the year ended 31 December 2020 (Note 3). This credit was calculated following a review of the
underlying cash flow forecasts of the subsidiaries and is due to an increase in gas prices forecast and the termination of the proposed acquisition
of PJSC Science and Production Concern Ukrnaftinvest. The Company also recorded a loss of $30,142,000, being the net change in credit loss
allowance for shares in subsidiary undertakings.
The Company’s discounted cash flow model used for the assessment of the investments recoverability, flexed for sensitivities, produced the
following results:
31 December 2020
Sensitivities:
1. 10% reduction in gas price
2. 10% increase in gas price
3. 1% reduction in discount rate
4. 1% increase in discount rate
Recoverable
amount
$000
35,287
Gross balance
of investment
$000
65,429
Impairment
$000
(30,142)
32,407
38,166
36,154
34,477
65,429
65,429
65,429
65,429
(33,022)
(27,263)
(29,275)
(30,952)
In 2020, after a Group restructuring, the Company transferred $39,987,000 from loans to subsidiary undertakings to shares in subsidiary
undertakings as a result of the offsetting of payables for corporate rights.
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FINANCIALS Notes CONTINUED
forming part of the financial statements
The table presented below discloses the changes in the gross carrying amount and credit loss allowance between the beginning and the end
of the reporting period for loans to subsidiary undertakings carried at amortised cost and classified within a three-stage model for impairment
assessment as at 31 December 2020:
Credit loss allowance
Gross carrying amount
Stage 1
(12-months
ECL)
$000
Stage 2
(lifetime
ECL for
SICR)
$000
Stage 3
(lifetime
ECL for
credit
impaired)
$000
Stage 1
(12-months
ECL)
$000
Total
$000
Stage 2
(lifetime
ECL for
SICR)
$000
Stage 3
(lifetime
ECL for
credit
impaired)
$000
Total
$000
At 1 January 2020
Movements with
impact on credit loss
allowance charge for
the period:
Modification of loans
Additions including
accrued interest
Transfers
Payment of interest
Repayment of loans
Exchange difference
Changes to ECL
measurement model
assumptions
Total movements with
impact on credit loss
allowance charge for
the period
At 31 December 2020
ECL – Expected credit losses
SICR – Significant increase in credit risk
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(167,072)
(167,072)
72,412
72,412
–
–
–
–
(12,979)
–
–
–
–
(12,979)
87,264
87,264
146,697
(20,375)
146,697
(20,375)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
181,253
181,253
(72,412)
(72,412)
4,336
(39,987)
(4,318)
–
14,331
4,336
(39,987)
(4,318)
–
14,331
–
–
(98,050)
83,203
(98,050)
83,203
The table presented below discloses the changes in the gross carrying amount and credit loss allowance between the beginning and the end
of the reporting period for loans to subsidiary undertakings carried at amortised cost and classified within a three-stage model for impairment
assessment as at 31 December 2019:
Credit loss allowance
Gross carrying amount
Stage 1
(12-months
ECL)
$000
Stage 2
(lifetime ECL
for SICR)
$000
Stage 3
(lifetime ECL
for credit
impaired)
$000
Stage 1
(12-months
ECL)
$000
Stage 2
(lifetime ECL
for SICR)
$000
Total
$000
Stage 3
(lifetime ECL
for credit
impaired)
$000
Total
$000
–
–
(193,386)
(193,386)
–
–
240,938
240,938
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
42,733
42,733
(3,572)
(3,572)
–
–
2,603
–
–
2,603
(15,450)
(15,450)
26,314
(167,072)
26,314
(167,072)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(42,733)
(42,733)
6,734
(7,221)
(13,395)
(3,070)
6,734
(7,221)
(13,395)
(3,070)
–
–
(59,685)
181,253
(59,685)
181,253
At 1 January 2019
Movements with
impact on credit loss
allowance charge for
the period:
Modification of loans
Additions including
accrued interest
Payment of interest
Repayment of loans
Exchange difference
Changes to ECL
measurement model
assumptions
Total movements with
impact on credit loss
allowance charge for
the period
At 31 December 2019
ECL – Expected credit losses
SICR – Significant increase in credit risk
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Enwell Energy plc // Annual Report and Financial Statements 2020 Subsidiary undertakings
At 31 December 2020, the Company’s subsidiary undertakings, all of which are included in the consolidated financial statements, were:
Regal Petroleum
Corporation Limited
Registered address
3rd Floor, Charter Place,
23-27 Seaton Place, St Helier,
Jersey, JE4 0WH
Regal Group Services
Limited
16 Old Queen Street, London,
SW1H 9HP
Regal Petroleum (Jersey)
Limited
3rd Floor, Charter Place,
23-27 Seaton Place, St Helier,
Jersey, JE4 0WH
Regal Petroleum
Corporation (Ukraine)
Limited
162 Shevchenko Str., Yakhnyky
Village, Lokhvytsya District,
Poltava Region, 37212
Country of
incorporation
Jersey
Country of
operation
Ukraine
Principal activity
Oil & Natural Gas
Extraction
% of shares
held
100%
United Kingdom United Kingdom Service Company
100%
Jersey
United Kingdom Holding Company 100%
Ukraine
Ukraine
Service Company
100%
LLC Prom-Enerho Produkt
3 Klemanska Str., Kiev, 02081
Ukraine
Ukraine
LLC Arkona Gas-Energy
162 Shevchenko Str., Yakhnyky
Village, Lokhvytsya District,
Poltava Region, 37212
Ukraine
Ukraine
Oil & Natural Gas
Extraction
Exploration and
Evaluation for Oil
and Natural Gas
100%
100%
The Parent Company, Enwell Energy plc, holds direct interests in 100% of the share capital of Regal Petroleum Corporation Limited, Regal Group
Services Limited, Regal Petroleum (Jersey) Limited, Regal Petroleum Corporation (Ukraine) Limited and LLC Arkona Gas-Energy, and a 100%
indirect interest in LLC Prom-Enerho Produkt through its 100% shareholding in Regal Petroleum Corporation (Ukraine) Limited, which owns all of
the share capital of LLC Prom-Enerho Produkt.
The Group acquired 100% of the share capital of LLC Arkona Gas-Energy on 24 March 2020 (Note 3).
Regal Group Services Limited, company number 5252958, has taken advantage of the subsidiary audit exemption allowed under section 479A of
the Companies Act 2006 for the year ended 31 December 2020.
20. Inventories
Current
Materials and spare parts
Finished goods
Group
2020
$000
1,445
96
1,541
2019
$000
1,791
3,022
4,813
Inventories consist of materials, spare parts and finished goods. Materials and spare parts are represented by spare parts that were not assigned
to any new wells as at 31 December 2020, production raw materials and fuel at the storage facility. Finished goods as at 31 December 2020
consist of produced gas held in underground gas storage facilities and condensate and LPG held at the processing facility prior to sale.
All inventories are measured at the lower of cost or net realisable value. There was no write-down of inventory as at 31 December 2020 or 2019.
21. Trade and Other Receivables
Trade receivables
Other financial receivables
Less credit loss allowance
Total financial receivables
Prepayments and accrued income
Other receivables
Total trade and other receivables
Group
Company
2020
$000
1,936
1,053
(133)
2,856
1,387
604
4,847
2019
$000
2,881
1,718
(155)
4,444
5,959
534
10,937
2020
$000
–
304
–
304
55
76
435
2019
$000
–
–
–
–
8
93
101
Due to the short-term nature of the trade and other receivables, their carrying amount is assumed to be the same as their fair value. All trade and
other financial receivables, except those provided for, are considered to be of high credit quality.
At 31 December 2020, the Group’s total trade receivables amounted to $1,806,000 and 100% were denominated in Ukrainian Hryvnia (31 December
2019: $2,726,000 and 100% were denominated in Ukrainian Hryvnia). Further description of financial receivables is disclosed in Note 29.
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FINANCIALS Notes CONTINUED
forming part of the financial statements
The majority of the trade receivables are from a related party, LLC Smart Energy, that purchases all of the Group’s gas production (see Note
3). The applicable payment terms are payment for one third of the estimated monthly volume of gas by the 20th of the month of delivery, and
payment of the remaining balance by the 10th of the month following the month of delivery. The trade receivables were paid in full after the end
of the period.
Prepayments and accrued income mainly consist of prepayments of $926,000 relating to the development of the SV field (31 December 2019:
$3,987,000 relating to the development of the SV field and $1,094,000 relating to the development of the VAS field).
Analysis by credit quality of financial trade and other receivables and expected credit loss allowance as at 31 December 2020 is as follows:
Trade receivables from related parties
Trade receivables – credit impaired
Trade receivables – other
Other financial receivables
Total trade and other receivables for
which individual approach for ECL
is used
ECL – Expected credit losses
Gross
carrying
amount
$000
1,804
127
5
1,053
Lifetime
ECL
$000
(3)
(127)
–
(3)
Loss rate
5%
100%
0.21%
0.42%
Carrying
amount
$000
1,801
Basis
financial position of related party
number of days the asset past due
–
5 historical credit losses experienced
individual default rates
1,050
2,989
(133)
2,856
Analysis by credit quality of financial trade and other receivables and expected credit loss allowance as at 31 December 2019 is as follows:
Gross
carrying
amount
$000
2,644
152
85
1,718
Lifetime
ECL
$000
(3)
(152)
–
–
Loss rate
5%
100%
0.36%
0.92%–2.05%
Carrying
amount
$000
2,641
–
Basis
financial position of related party
number of days the asset past due
85 historical credit losses experienced
individual default rates
1,718
4,599
(155)
4,444
Trade receivables from related parties
Trade receivables – credit impaired
Trade receivables – other
Other financial receivables
Total trade and other receivables for
which individual approach for ECL
is used
ECL – Expected credit losses
The following table explains the changes in the credit loss allowance for trade and other receivables under the simplified ECL model between the
beginning and the end of the annual period:
Trade receivables
Balance at 1 January
New originated or purchased
Financial assets derecognised during the period
Changes in estimates and assumptions
Foreign exchange movements
Balance at 31 December
22. Cash and Cash Equivalents
2020
$000
155
–
–
3
(25)
133
2019
$000
99
3
–
30
23
155
Cash and cash equivalents
Cash at bank
Demand deposits and term deposits with maturity less than 3 months
Group
2020
$000
53,710
7,283
60,993
2019
$000
28,089
34,385
62,474
Company
2020
$000
38,619
–
38,619
2019
$000
23,656
18,015
41,671
Cash at bank earns interest at fluctuating rates based on daily bank deposit rates. Demand deposits are made for varying periods depending on
the immediate cash requirements of the Group and earn interest at the respective short-term deposit rates. The terms and conditions upon which
the Group’s demand deposits are made allow immediate access to all cash deposits, with no significant loss of interest.
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Enwell Energy plc // Annual Report and Financial Statements 2020 The credit quality of cash and cash equivalents balances and other short-term investments may be summarised based on Moody’s ratings as
follows at 31 December:
A- to A+ rated
B- to B+ rated
Unrated
A- to A+ rated
B- to B+ rated
Unrated
Cash at bank
and on hand
2020
$000
Demand deposits and
term deposits with
maturity less than 3 months
2020
$000
Total cash
and cash
equivalents
2020
$000
38,615
1
15,094
53,710
Cash at bank
and on hand
2019
$000
23,655
2
4,432
28,089
–
5,477
1,806
7,283
38,615
5,478
16,900
60,993
Demand deposits and
term deposits with
maturity less than 3 months
2019
$000
Total cash and
cash equivalents
2019
$000
18,015
8,048
8,322
34,385
41,670
8,050
12,754
62,474
For cash and cash equivalents, the Group assessed ECL based on the Moody’s rating for rated banks and based on the sovereign rating of
Ukraine defined by Fitch as “B” as of 31 December 2020 for non-rated banks. Based on this assessment, the Group concluded that the identified
impairment loss was immaterial.
23. Trade and Other Payables
Accruals and other payables
Taxation and social security
Trade payables
Advances received
2020
$000
4,037
1,396
843
365
6,641
2019
$000
2,418
1,092
277
181
3,968
The carrying amounts of trade and other payables are assumed to be the same as their fair values, due to their short-term nature. Financial
payables are disclosed in Note 29.
24. Provision for Decommissioning
Group
At beginning of the year
Amounts provided
Unwinding of discount
Change in estimate
Effect of exchange difference
At end of the year
2020
$000
7,447
146
234
226
(1,234)
6,819
2019
$000
3,137
355
273
2,852
830
7,447
The provision for decommissioning is based on the net present value of the Group’s estimated liability for the removal of the Ukrainian production
facilities and well site restoration at the end of production life.
The non-current provision of $6,819,000 (31 December 2019: $7,447,000) represents a provision for the decommissioning of the Group’s MEX-
GOL, SV and VAS production facilities, including site restoration.
The change in estimates applied to calculate the provision as at 31 December 2020 is explained in Note 3.
The principal assumptions used are as follows:
Discount rate
Average cost of restoration per well $000
31 December
2020
3.70%
342
31 December
2019
3.68%
406
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FINANCIALS Notes CONTINUED
forming part of the financial statements
The sensitivity of the restoration provision to changes in the principal assumptions to the provision balance and related asset is presented below:
Discount rate (increase)/decrease by 1%
Change in average cost of restoration increase/(decrease) by 10%
25. Deferred Tax
Deferred tax asset recognised on tax losses
At beginning of year
Charged to Income Statement – current year
At end of year
Deferred tax (liability)/asset recognised relating to oil and gas development and production
assets at MEX-GOL-SV fields and provision for decommissioning
At beginning of year
Charged to Income Statement – current year
Charged to Income Statement – prior year
Effect of exchange difference
At end of year
Deferred tax asset/(liability) recognised relating to development and production assets at VAS
field and provision for decommissioning
At beginning of year
Credited to Income Statement – current year
Effect of exchange difference
At end of year
31 December
2020
$000
(948)/1,143
469/(469)
31 December
2019
$000
(1,086)/1,319
523/(523)
2020
$000
–
–
–
2020
$000
(2,141)
(640)
–
76
(2,705)
2020
$000
(147)
304
10
167
2019
$000
2,134
(2,134)
–
2019
$000
1,149
(1,077)
(1,996)
(217)
(2,141)
2019
$000
(504)
406
(49)
(147)
There was a further $73,661,000 (31 December 2019: $85,000,000) of unrecognised UK tax losses carried forward for which no deferred tax
asset has been recognised. These losses can be carried forward indefinitely, subject to certain rules regarding capital transactions and changes in
the trade of the Company.
The deferred tax asset relating to the Group’s provision for decommissioning at 31 December 2020 of $170,000 (31 December 2019: $326,000)
was recognised on the tax effect of the temporary differences of the Group’s provision for decommissioning at the MEX-GOL and SV fields, and
its tax base. The deferred tax liability relating to the Group’s development and production assets at the MEX-GOL and SV fields at 31 December
2020 of $2,875,000 (31 December 2019: $2,467,000) was recognised on the tax effect of the temporary differences between the carrying value
of the Group’s development and production asset at the MEX-GOL and SV fields, and its tax base.
The deferred tax asset relating to the Group’s provision for decommissioning at 31 December 2020 of $323,000 (31 December 2019: $329,000)
was recognised on the tax effect of the temporary differences on the Group’s provision on decommissioning at the VAS field, and its tax
base. The deferred tax liability relating to the Group’s development and production assets at the VAS field at 31 December 2020 of $156,000
(31 December 2019: $476,000) was recognised on the tax effect of the temporary differences between the carrying value of the Group’s
development and production asset at the VAS field, and its tax base. The deferred tax assets are expected to be recovered more than 12 months
after the reporting period.
Losses accumulated in a Ukrainian subsidiary service company of UAH1,763,494,270 ($116,622,885) at 31 December 2020 and
UAH2,762,352,984 ($62,370,264) at 31 December 2019 mainly originated as foreign exchange differences on inter-company loans and for which
no deferred tax asset was recognised as this subsidiary is not expected to have taxable profits to utilise these losses in the future.
As at 31 December 2020 and 2019, the Group has not recorded a deferred tax liability in respect of taxable temporary differences associated
with investments in subsidiaries as the Group is able to control the timing of the reversal of those temporary differences and does not intend to
reverse them in the foreseeable future.
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Enwell Energy plc // Annual Report and Financial Statements 2020 UK Corporation tax change
In the Spring Budget 2020, the UK Government announced that from 1 April 2020 the corporation tax rate would remain at 19% (rather than
reducing to 17% as previously enacted) and the effect of this change is included in these consolidated financial statements.
Double tax treaty
On 30 October 2019, the Parliament of Ukraine voted for ratification of a Protocol changing the Double Tax Treaties between Ukraine and the
United Kingdom. The Protocol and the new Treaty will enter into force upon completion of ratification formalities, and for the purposes of
withholding tax, commence applying from 1 January 2020. The Group accrues and pays withholding tax on current amounts of interest at the
moment when such interest accrues and is paid.
26. Called Up Share Capital
Allotted, called up and fully paid
Opening balance at 1 January
Issued during the year
Closing balance at 31 December
2020
2019
Number
$000
Number
$000
320,637,836
28,115
–
–
320,637,836
28,115
320,637,836
–
320,637,836
28,115
–
28,115
There are no restrictions over ordinary shares issued. The Company is a public company limited by shares.
27. Other Reserves
The holders of ordinary shares are entitled to receive dividends as declared and are entitled to one vote per share at any general meeting of
shareholders. The share premium reserves are not available for distribution by way of dividends.
Other reserves, the movements in which are shown in the statements of changes in equity, comprise the following:
Capital contributions reserve
The capital contributions reserve is non-distributable and represents the value of equity invested in subsidiary entities prior to the Company
listing.
Merger reserve
The merger reserve represents the difference between the nominal value of shares acquired by the Company and those issued to acquire
subsidiary undertakings. This balance relates wholly to the acquisition of Regal Petroleum (Jersey) Limited and that company’s acquisition of
Regal Petroleum Corporation Limited during 2002.
Foreign exchange reserve
Exchange reserve movement for the year attributable to currency fluctuations. This balance predominantly represents the result of exchange
differences on non-monetary assets and liabilities where the subsidiaries’ functional currency is not the US Dollar.
28. Reconciliation of Operating Profit to Operating Cash Flow
Group
Operating profit
Depreciation and amortisation
Less interest income recorded within operating profit
Fines and penalties received
Gain on sales of current assets, net
Reversal of loss allowance on other financial assets
Loss from write-off of non-current assets
Change in working capital:
Increase in provisions
Decrease/(increase) in inventory
Decrease in receivables
Decrease in payables
Cash generated from operations
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2020
$000
9,770
12,679
(1,421)
(18)
(31)
–
159
(55)
2,499
359
(177)
23,764
2019
$000
21,093
10,190
(4,751)
(236)
(27)
(46)
47
67
(3,208)
2,447
(868)
24,708
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FINANCIALS Notes CONTINUED
forming part of the financial statements
Company
Operating profit/(loss)
Interest received
Change in working capital:
Movement in provisions (including impairment of subsidiary loans)
Increase in receivables
Increase in payables
Cash used in operations
2020
$000
58,034
(4,336)
(57,122)
(101)
13
(3,512)
2019
$000
(15,016)
(3,162)
15,450
(453)
159
(3,022)
29. Financial Instruments
Capital Risk Management
The Group defines its capital as equity. The primary source of the Group’s liquidity has been cash generated from operations. As at 31 December
2020, primary capital was $60,993,000 (31 December 2019: $62,474,000). The Group’s objectives when managing capital are to safeguard the
Group’s and the Company’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders
and to maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to
shareholders, issue new shares or sell assets.
The capital structure of the Group consists of equity attributable to the equity holders of the parent, comprising issued share capital, share
premium, reserves and retained deficit.
There are no capital requirements imposed on the Group.
The Group’s financial instruments comprise cash and cash equivalents and various items such as debtors and creditors that arise directly from its
operations. The Group has bank accounts denominated in British Pounds, US Dollars, Euros and Ukrainian Hryvnia. The Group does not have any
external borrowings. The main future risks arising from the Group’s financial instruments are currently currency risk, interest rate risk, liquidity risk
and credit risk.
The Group’s financial assets and financial liabilities, measured at amortised cost, which approximates their fair value comprise the following:
Financial Assets
Group
Cash and cash equivalents
Trade and other receivables
Prepayment for shares
Company
Cash and cash equivalents
Loans to subsidiary undertakings
Prepayment for shares
Financial Liabilities
Group
Lease liabilities
Trade payables
Other financial liabilities
Company
Other financial liabilities
78
2020
$000
60,993
2,856
–
63,849
2020
$000
38,619
62,828
–
101,447
2020
$000
616
843
4,336
5,795
2020
$000
4,247
4,247
2019
$000
62,474
4,444
500
67,418
2019
$000
41,671
14,181
500
56,352
2019
$000
969
277
1,018
2,264
2019
$000
256
256
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Enwell Energy plc // Annual Report and Financial Statements 2020 All assets and liabilities of the Group where fair value is disclosed are level two in the fair value hierarchy and valued using the current cost
accounting technique.
Financial instruments that potentially subject the Group to concentrations of credit risk consist primarily of cash and cash equivalents and
accounts receivable, and financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and
cash equivalents and loans to subsidiary undertakings.
Currency Risk
The functional currencies of the Group’s entities are US Dollars and Ukrainian Hryvnia. The following analysis of net monetary assets and liabilities
shows the Group’s currency exposures. Exposures comprise the monetary assets and liabilities of the Group that are not denominated in the
functional currency of the relevant entity.
Currency
British Pounds
Euros
Net monetary assets less liabilities
2020
$000
232
5
237
2019
$000
301
33
334
The Group’s exposure to currency risk at the end of the reporting period is not significant due to immaterial balances of monetary assets and
liabilities denominated in foreign currencies.
Interest Rate Risk Management
The Group is not exposed to interest rate risk on financial liabilities as none of the entities in the Group have any external borrowings. The Group
does not use interest rate forward contracts or interest rate swap contracts as part of its strategy.
The Group is exposed to interest rate risk on financial assets as entities in the Group hold money market deposits at floating interest rates. The
risk is managed by fixing interest rates for a period of time when indications exist that interest rates may move adversely.
The Group’s exposure to interest rates on financial assets and financial liabilities are detailed in the liquidity risk section below.
Interest Rate Sensitivity Analysis
The sensitivity analysis below has been determined based on exposure to interest rates for non-derivative instruments at the balance sheet date.
A 0.5% increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s
assessment of a reasonably possible change in interest rates.
If interest rates earned on money market deposits had been 0.5% higher / lower and all other variables were held constant, the Group’s:
■ profit for the year ended 31 December 2020 would increase by $97,000 in the event of 0.5% higher interest rates and decrease by $97,000 in
the event of 0.5% lower interest rates (profit for the year ended 31 December 2019 would increase by $159,000 in the event of 0.5% higher
interest rates and decrease by $159,000 in the event of 0.5% lower interest rates). This is mainly attributable to the Group’s exposure to
interest rates on its money market deposits; and
■ other equity reserves would not be affected (2019: not affected).
Interest payable on the Group’s liabilities would have an immaterial effect on the profit or loss for the year.
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FINANCIALS Notes CONTINUED
forming part of the financial statements
Liquidity Risk
The Group’s objective throughout the year has been to ensure continuity of funding. Operations have primarily been financed through revenue
from Ukrainian operations.
The table below shows liabilities by their remaining contractual maturity. The amounts disclosed in the maturity table are the contractual
undiscounted cash flows including future interest. Such undiscounted cash flows differ from the amount included in the statement of financial
position because the statement of financial position amount is based on discounted cash flows and does not include the interest that will be
accrued in future periods.
When the amount payable is not fixed, the amount disclosed is determined by reference to the conditions existing at the reporting date. Foreign
currency payments are translated using the spot exchange rate at the end of the reporting period. The maturity analysis of financial liabilities at 31
December 2020 is as follows:
As at 31 December 2020
Liabilities
Trade and other payables
Lease liabilities
Other non-current liabilities
Total future payments, including future
principal and interest payments
On demand
and less than
1 month
From 1 to
3 months
From 3 to
12 months
From
12 months to
5 years
More than
5 years
1,137
2,158
40
–
80
27
1,177
2,265
33
101
–
134
–
291
2,569
2,860
–
539
–
539
The maturity analysis of financial liabilities at 31 December 2019 is as follows:
As at 31 December 2019
Liabilities
Trade and other payables
Lease liabilities
Total future payments, including future
principal and interest payments
On demand
and less than
1 month
From 1 to
3 months
From 3 to
12 months
From
12 months to
5 years
More than
5 years
1,295
42
1,337
–
83
83
–
375
375
–
511
511
–
563
563
Details of the Group’s cash management policy are explained in Note 22.
Liquidity risk for the Group is further detailed under the Principal Risks section above.
Total
3,328
1,051
2,596
6,975
Total
1 295
1,574
2,869
Credit Risk
Credit risk principally arises in respect of the Group’s cash balance. For balances held outside Ukraine, where $38.6 million of the overall cash
and cash equivalents is held (31 December 2019: $41.7 million), the Group only deposits cash surpluses with major banks of high quality credit
standing (Note 22). As at 31 December 2020, the remaining balance of $22.4 million of cash and cash equivalents was held in Ukraine (31
December 2019: $20.8 million). In September 2020, Standard & Poor’s affirmed Ukraine’s sovereign credit rating of ‘B’, Outlook Stable. There is
no international credit rating information available for the specific banks in Ukraine where the Group currently holds its cash and cash equivalents.
The Group has taken steps to diversify its banking arrangements between a number of banks in Ukraine, and increased the quality of cash placed
with UK and European banking institutions. These measures are designed to spread the risks associated with each bank’s creditworthiness.
Interest Rate Risk Profile of Financial Assets
The Group had the following cash and cash equivalent and other short-term investments balances which are included in financial assets as at
31 December with an exposure to interest rate risk:
Currency
Euros
British Pounds
Ukrainian Hryvnia
US Dollars
Floating rate
financial
assets
2020
$000
Fixed rate
financial
assets
2020
$000
5
232
–
40,187
40,424
–
–
20,569
–
20,569
Total
2020
$000
5
232
20,569
40,187
60,993
Floating rate
financial
assets
2019
$000
30
257
–
44,306
44,593
Total
2019
$000
30
257
17,881
44,306
62,474
Fixed rate
financial
assets
2019
$000
–
–
17,881
–
17,881
Cash deposits included in the above balances comprise short-term deposits.
As at 31 December 2020, cash and cash equivalents of the Company of $39 million were held in US Dollars at a floating rate (2019: $42 million).
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Enwell Energy plc // Annual Report and Financial Statements 2020 Interest Rate Risk Profile of Financial Liabilities
As at 31 December 2020 and 2019, the Group had no interest-bearing financial liabilities at the year end.
Maturity of Financial Liabilities
The maturity profile of financial liabilities, on an undiscounted basis, is as follows:
Group
In one year or less
Company
In one year or less
2020
$000
3,576
3,576
2020
$000
2,395
2,395
2019
$000
1,795
1,795
2019
$000
256
256
Borrowing Facilities
As at 31 December 2020 and 2019, the Group did not have any borrowing facilities available to it.
Fair Value of Financial Assets and Liabilities
The fair value of all financial instruments is not materially different from the book value.
30. Contingencies and Commitments
Amounts contracted in relation to the Group’s 2020 investment programme in the MEX-GOL, SV and VAS fields in Ukraine, but not provided for in
the financial statements at 31 December 2020, were $9,052,165 (2019: $2,306,000).
Since 2010, the Group has been in dispute with the Ukrainian tax authorities in respect of VAT receivables on imported leased equipment,
with a disputed liability of up to UAH8,487,000 ($302,000) inclusive of penalties and other associated costs. There is a level of ambiguity in the
interpretation of the relevant tax legislation, and the position adopted by the Group has been challenged by the Ukrainian tax authorities, which
has led to legal proceedings to resolve the issue. The Group had been successful in three court cases in respect of this dispute in courts of
different levels. On 20 September 2016, a hearing was held in the Supreme Court of Ukraine of an appeal of the Ukrainian tax authorities against
the decision of the Higher Administrative Court of Ukraine, in which the appeal of the Ukrainian tax authorities was upheld. As a result of this
appeal decision, all decisions of the lower courts were cancelled, and the case was remitted to the first instance court for a new trial. On 1
December 2016 and 7 March 2017 respectively, the Group received positive decisions in the first and second instance courts, but further legal
proceedings may arise. Since, at the end of the year, the Group had been successful in previous court cases in respect of this dispute in courts of
different levels, the date of the next legal proceedings has not been set and as management believes that adequate defences exist to the claim,
no liability has been recognised in these consolidated financial statements for the year ended 31 December 2020 (31 December 2019: nil).
On 12 March 2019 the Group announced the publication of an Order for suspension (the “Order”) by the State Service of Geology and Subsoil of
Ukraine affecting the production licence for its VAS gas and condensate field. The Group is confident there are no violations of the terms of the
licence or in relation to the operational activities of the Group that would justify the Order or the suspension of the licence. The Group has issued
legal proceedings in the Ukrainian Courts to challenge the validity of the Order, and in these proceedings, on 18 March 2019, the Court made a
ruling on interim measures to suspend the Order pending hearings of the substantive issues of the case to be held subsequently. The effect of
this ruling is that the suspension of operational activities at the VAS licence is deferred until the result of the legal proceedings is determined.
These legal proceedings are continuing through the Ukrainian Court system and the ultimate outcome is not yet known. However, the Group
considers that the Order is groundless and that the outcome of the legal proceedings challenging the Order will ultimately be in favour of the
Group, and, consequently, the Group does not expect any negative effect on its operations in respect of this matter.
On 24 March 2020, the Company completed the acquisition of the entire share capital of LLC Arkona Gas-Energy. In July 2020, legal proceedings
issued by NJSC Ukrnafta (“Ukrnafta”), as claimant, against Arkona, as defendant, relating to a claim by Ukrnafta that irregular procedures were
followed in the grant of the Svystunivsko-Chervonolutskyi exploration licence (the “Licence”) to Arkona in May 2017, were considered by the
First Instance Court in Ukraine. Ukrnafta also brought these proceedings against the State Service of Geology and Subsoil of Ukraine (“SGS”).
Ukrnafta was the holder of a previous licence over a part of this area which expired prior to the grant of the Licence. Both Arkona and SGS
disputed these claims. In the legal proceedings, the First Instance Court made a ruling in favour of Ukrnafta which determined that the grant of
the Licence was irregular, and, accordingly, the Licence would be invalid. In August 2020, Arkona filed an appeal of this decision in the Appellate
Administrative Court in Kyiv, and on 29 September 2020, the Appellate Administrative Court ruled in favour of Arkona, overturning the earlier
decision of the First Instance Court. In November 2020, Ukrnafta filed a further appeal in the Supreme Court in Kyiv, appealing the ruling made
by the Appellate Administrative Court on 29 September 2020. In February 2021, the Supreme Court delivered its decision and written judgement
on this appeal, in which the Supreme Court ruled that the arguments raised by Ukrnafta in the appeal were not substantiated, and that the
proceedings against Arkona should be dismissed. The decision of the Supreme Court represents the final appeal procedure in the Ukrainian
Courts, and, accordingly, these legal proceedings against Arkona have now been exhausted. As a consequence, the Licence remains valid.
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FINANCIALS Notes CONTINUED
forming part of the financial statements
31. Related Party Disclosures
Key management personnel of the Group are considered to comprise only the Directors. Details of Directors’ remuneration are disclosed in
Note 7.
During the year, Group companies entered into the following transactions with related parties who are not members of the Group:
Sale of goods/services
Purchase of goods/services
Amounts owed by related parties
Amounts owed to related parties
2020
$000
32,074
890
1,805
202
2019
$000
38,417
963
2,649
137
All related party transactions were with subsidiaries of the ultimate Parent Company, and primarily relate to the sale of gas (see Note 3 for more
details), the rental of office facilities and a vehicle and the sale of equipment. The amounts outstanding were unsecured and will be settled in
cash.
The Group operates bank accounts in Ukraine with a related party bank, Unex Bank, which is ultimately controlled by Mr Vadym Novynskyi. There
were the following transactions and balances with Unex Bank during the year:
Bank charges
Closing cash balance (as at 31 December)
The bank charges represent cash transit fees.
2020
$000
3
1
2019
$000
1
1
At the date of this report, none of the Company’s controlling parties prepares consolidated financial statements available for public use.
32. Post Balance Sheet Events
With effect from 25 February 2021, the Company completed a reduction of capital through the cancellation of its entire share premium account,
thereby creating distributable reserves, which enable the Company to make distributions to its shareholders in the future, subject to the
Company’s financial performance. However, the Company is not indicating any commitment, and does not have any current intention, to make
any distributions to shareholders.
From 1 January 2021, after changes to Ukrainian tax legislation, the Company’s subsidiary, Regal Petroleum Corporation Limited, is obliged to
register as an income tax payer in Ukraine and to pay income tax instead of its branch (Representative Office) in Ukraine.
In March 2021, following the satisfaction of conditions relating to the payment of the second tranche of the consideration for the acquisition of
LLC Arkona Gas-Energy, this tranche has been paid (net of an indemnity liability).
No subsequent events have arisen as a result of the COVID-19 pandemic that have had a material impact on the consolidated and the Company’s
financial statements for the period ended 31 December 2020.
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Enwell Energy plc // Annual Report and Financial Statements 2020 Advisers
Company Secretary and Registered
Office
Chris Phillips
16 Old Queen Street
London SW1H 9HP
United Kingdom
Independent Auditors
PricewaterhouseCoopers LLP
1 Embankment Place
London WC2N 6RH
United Kingdom
Nominated Adviser
Strand Hanson Limited
26 Mount Row
London W1K 3SQ
United Kingdom
Broker
Arden Partners plc
125 Old Broad Street
London EC2N 1AR
United Kingdom
PR Advisers
Citigate Dewe Rogerson
8th Floor
Holborn Gate
26 Southampton Buildings
London WC2A 1AN
United Kingdom
Bankers
LGT Bank AG
Zweigniederlassung Österreich
Bankgasse 9
A-1010 Vienna
Austria
Solicitors
Squire Patton Boggs (UK) LLP
Premier Place
2 & A Half Devonshire Square
London EC2M 4UJ
United Kingdom
Share Registry
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol BS99 6ZY
United Kingdom
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FINANCIALS Glossary
AAPG
Arkona
bbl
bbl/d
Bm3
boe
boepd
£
Bscf
C1
C2
American Association of Petroleum Geologists
LLC Arkona Gas-Energy
barrel
barrels per day
thousands of millions of cubic metres
barrels of oil equivalent
barrels of oil equivalent per day
British Pound
thousands of millions of scf
reserves in deposits that were not put into commercial development and that may be the subject matter of production
testing or individual well production testing
reserves in deposits that were not put into commercial development and that are developed based on a production
testing plan or individual well production testing plan, matured with seismic exploration or other methods, and the
availability of which is supported by geological and geophysical study data as well as testing data obtained from
individual wells while drilling
Company
Enwell Energy plc
DeGolyer and MacNaughton
Euro
Enwell Energy plc and its subsidiaries
kilometre
square kilometre
liquefied petroleum gas
Mekhediviska-Golotvshinska
cubic metre
cubic metres per day
thousand barrels of oil equivalent
thousand cubic metres
million barrels
million barrels of oil equivalent
million cubic metres
million scf
million scf per day
thousand tonnes
per cent
Quoted Companies Alliance Corporate Governance Code 2018
quality, health, safety and environment
Svystunivsko-Chervonolutskyi
standard cubic feet measured at 20 degrees Celsius and one atmosphere
Society of Petroleum Engineers
Society of Petroleum Evaluation Engineers
Svyrydivske
trillion scf
Ukrainian Hryvnia
United States Dollar
Vasyschevskoye
Vvdenska
World Petroleum Council
D&M
€
Group
km
km2
LPG
MEX-GOL
m3
m³/d
Mboe
Mm³
MMbbl
MMboe
MMm3
MMscf
MMscf/d
Mtonnes
%
QCA Code
QHSE
SC
scf
SPE
SPEE
SV
Tscf
UAH
$
VAS
VED
WPC
84
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Enwell Energy plc // Annual Report and Financial Statements 2020 30409 Enwell AR2020.indd 3
30409 Enwell AR2020.indd 3
30409
14 May 2021 9:49 am
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14-May-21 9:50:36 AM
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Enwell Energy plc
16 Old Queen Street
London
SW1H 9HP
+44 (0)20 3427 3550
www.enwell-energy.com
Stock code: ENW
30409 Enwell AR2020.indd 3
30409 Enwell AR2020.indd 3
30409
14 May 2021 9:49 am
V7
14-May-21 9:49:47 AM
14-May-21 9:49:47 AM