Enwell Energy plc
Registered number 4462555
Annual Report and Financial Statements
for the year ended 31 December 2022
Contents
Strategic Report
- Highlights
- Chairman’s Statement
- Chief Executive’s Statement
-
Business Model
- Our Strategic Priorities
- Overview of Assets
- Overview of Reserves
-
-
-
-
-
Finance Review
Key Performance Indicators
Sustainability
Principal Risks and Uncertainties
Statement Under S172(1) of the Companies Act 2006
Corporate 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
Corporate Information
Glossary
2
4
7
11
13
15
18
21
25
26
29
37
40
42
47
50
57
58
58
59
60
61
62
63
64
65
112
113
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
1
Strategic Report
Highlights
Operational
• Aggregate average daily production of 2,956 boepd (calculated on the days when the Group’s fields
were actually in production) (2021: 4,730 boepd)
• SV-31 development well successfully completed and brought on production in Q2 2022
• SC-4 appraisal well tested and produced hydrocarbons from its primary target reservoir in Q4 2022
• GOL-107 development well successfully completed in Q4 2023 and is undergoing long-term test
production
Financial
• Revenue of $133.4 million (2021: $121.4 million), up 10%, primarily as a result of significantly
higher gas prices
• Gross profit of $85.9 million (2021: $73.9 million), up 16%
• Operating profit of $75.8 million (2021: $66.2 million), up 15%, predominantly as a result of
significantly higher gas prices
• Net profit of $60.2 million (2021: $51.1 million), up 18%
• Cash, cash equivalents and short-term investments of $88.7 million as at 31 December 2022 (2021:
$92.5 million), and of $79.1 million as at 14 December 2023
• Average realised gas, condensate and LPG prices in Ukraine were significantly higher, particularly
gas and LPG prices, at $960/Mm3 (UAH30,341/Mm3), $73/bbl and $143/bbl respectively (2021:
$432/Mm3 (UAH11,677/Mm3) gas, $69/bbl condensate and $80/bbl LPG)
•
Interim dividend of 15 pence per ordinary share, £48.1 million in aggregate, paid in June 2023
(2021: nil)
Outlook
• The Russian invasion of Ukraine in February 2022 has had a significant impact on all aspects of
life in Ukraine, including the Group’s business and operations, with all field operations being
suspended for safety reasons from 24 February to 15 March 2022, after which production
operations and some field activities resumed at the MEX-GOL and SV fields, and subsequently at
the VAS field and SC licence area. The scale and duration of disruption to the Group’s business is
currently unknown, and there remains significant uncertainty about the outcome of the war in
Ukraine
•
In April and May 2023, the Ukrainian authorities took a number of regulatory actions against the
Group, which included the suspension of the VAS production licence and SC exploration licence,
and consequently all work at these licences has been suspended
• Subject to the resolution of the regulatory issues and the Group’s ability to operate safely,
development work planned for the remainder of 2023 and 2024 at the MEX-GOL and SV fields
includes planning the deepening of the MEX-109 well to explore a deeper horizon, investigating
the hydraulic fracturing of the SV-29 well, planning a workover of the MEX-102 well to access a
shallower horizon, investigating the possible sidetracking of the MEX-119 well to access additional
2
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
reserves, installing additional compression equipment and upgrading the flow-line network and
other field infrastructure
• Further work on the VAS field and SC licence area will remain suspended until there is a resolution
of the regulatory issues, including the lifting of the suspension orders
• Currently, the Group retains approximately a quarter of its cash outside Ukraine, which enhances
the Group’s ability to navigate the current risk environment for the foreseeable future, and provides
a material buffer to any further disruptions to the Group’s operations
• Development programme for the remainder of 2023 and 2024 expected to be funded from existing
cash resources and operational cash flow
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
3
Chairman’s Statement
I present the 2022 Annual Report and Financial Statements in circumstances that I wish were different. The
invasion of Ukraine by Russia in February 2022 and the ongoing conflict has created a very challenging
and worrying outlook for both the current and future situation in Ukraine, and I am greatly saddened by the
terrible events occurring there.
The invasion has had a significant impact on all aspects of life in Ukraine, including the Group’s business
and operations, with all field operations being suspended for safety reasons from 24 February to 15 March
2022, after which production operations and some limited field activities resumed at the MEX-GOL and SV
fields. Subsequently, in July 2022, drilling operations on the SC-4 well resumed on the SC licence area to
complete the well, and in October 2022, production operations resumed at the VAS field. The overall scale
and duration of disruption to the Group’s business is currently unknown, and there remains significant
uncertainty about the outcome of the ongoing war in Ukraine.
Notwithstanding the disruption caused by the war, during 2022, the Group continued with some
development activities at the MEX-GOL, SV and VAS gas and condensate fields and SC licence in north-
eastern Ukraine. At the SV field, the SV-31 development well was completed and brought on production in
May 2022. At the MEX-GOL field, the GOL-107 development well was completed in late October 2023, and
after initial testing demonstrated gas flows from the well, albeit at lower than expected rates, the well has
now been hooked up to the gas processing facilities for longer-term testing to establish its optimal operating
parameters and to assess whether stimulation may improve production rates. Additionally, at the MEX-
GOL field, planning has continued for the deepening of the MEX-109 well to explore a deeper horizon, a
workover of the MEX-102 well to access a shallower horizon and investigating the possible sidetracking of
the MEX-119 well to access additional reserves. At the SV-29 development well, additional horizons were
perforated and tested but stabilised production was not established and, consequently, the possible
hydraulic fracturing of the well is under consideration. Drilling of the SC-4 appraisal well on the SC licence
area was completed and testing of this well demonstrated strong flow rates of gas and condensate, and
planning for the installation of surface facilities and pipelines has been undertaken. At the VAS field,
planning for the further development of the field continued.
Aggregate average daily production (calculated on the days when the fields were actually in production)
from the MEX-GOL, SV and VAS fields during the year was 2,956 boepd, which is lower than the aggregate
daily production rate of 4,730 boepd achieved during 2021 due to the disruption caused by the war and
natural field decline.
Although production volumes were lower, the dramatic rise in gas prices during the year has meant that
revenues were still strong at $133.4 million (2021: $121.4 million). The Group’s net profit was also higher
at $60.2 million (2021: $51.1 million), operating profit was $75.8 million (2021: $66.2 million), but cash
generated from operations declined to $47.5 million (2021: $77.6 million), predominantly due to a build-up
of receivables.
There is significant disruption to the fiscal and economic environment in Ukraine due to the ongoing conflict
resulting in a contraction in the economy, an increase in the rate of inflation and a weakening of the
Ukrainian Hryvnia against other currencies. Furthermore, it is likely that fiscal and economic uncertainties
will continue in the future until an acceptable resolution of the war occurs.
The Ukrainian Government has implemented a number of reforms in the oil and gas sector in recent years,
which include the deregulation of the gas supply market in late 2015, and subsequently, simplification of
the regulatory procedures applicable to oil and gas exploration and production activities in Ukraine.
The deregulation of the gas supply market, supported by electronic gas trading platforms and improved
pricing transparency, has meant that Ukrainian market prices for gas broadly correlated with imported gas
prices. During 2022, gas prices increased significantly, reflecting a similar trend in European gas prices,
substantially as a result of the disruption to worldwide oil and gas supplies caused by the conflict.
Condensate and LPG prices were also higher by comparison to the previous year for the same reason.
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
4
Restructuring of Smart Holding Group
In January 2023, the Company was notified that there had been a restructuring of the ownership of the
PJSC Smart-Holding Group, a member of which held a major shareholding in the Company, and which
was ultimately controlled by Mr Vadym Novynskyi (“Mr Novynskyi”). Under this restructuring, which
occurred with effect from 1 December 2022, Mr Novynskyi disposed of his major indirect shareholding
interest in the Company to two trusts registered in Cyprus named the SMART Trust and the STEP Trust.
Further information is contained in the Company’s announcement dated 17 January 2023, and the TR-1
Forms published on 26 January 2023.
Regulatory Actions by Ukrainian Authorities and Suspension of VAS and SC Licences
In early December 2022, the Ukrainian Government imposed sanctions on Mr Novynskyi, as set out in the
Company’s announcement dated 9 December 2022.
As announced on 4 January 2023, new legislation, Law No. 2805-IX, relating to the natural resources sector
was enacted in Ukraine, which came into force on 28 March 2023. This legislation is a substantial package
of new procedures and reforms designed to improve the regulatory process relating to the exploration and
development of natural resources in Ukraine. However, the legislation includes provisions that if the ultimate
beneficial owner of a mineral or hydrocarbon licence becomes the subject of sanctions in Ukraine, then the
State Geologic and Subsoil Survey of Ukraine (the “SGSS”) may suspend or revoke that licence.
Following Law No. 2805-IX coming into force on 28 March 2023, the Ukrainian authorities have taken a
number of regulatory actions against certain of the Group’s subsidiary companies in Ukraine.
As announced on 12 April 2023, such regulatory actions included conducting a search at the Group’s
Yakhnyky office, from where the MEX-GOL and SV fields are operated, and placing certain physical assets
of the Ukrainian branch (representative) office of Regal Petroleum Corporation Limited (“RPC”) and LLC
Arkona Gas-Energy (“Arkona”) (which respectively hold the MEX-GOL and SV fields and the SC exploration
licence) under seizure, thereby restricting any actions that would change registration of the property rights
relating to such assets, although the use of such assets was not restricted and therefore the Company has
been able to continue to operate and produce gas and condensate from the MEX-GOL and SV fields. In
addition, the Ministry of Justice of Ukraine (the “MoJ”) made an Order cancelling the registration entry made
on behalf of a subsidiary of the Company named LLC Regal Petroleum Corporation (Ukraine) Limited in
the Unified State Register of Legal Entities, Individuals–entrepreneurs and Civil Institutions of Ukraine (the
“State Register”) relating to the ultimate beneficial owners of such company, which were stated as being
the trustees of the SMART Trust and STEP Trust as previously notified to the Company, thereby restoring
the previous entry in the State Register, Mr Novynskyi. Furthermore, the SGSS issued an Order to RPC
requiring that additional information be provided and/or violations be eliminated in the disclosures relating
to the ultimate beneficial owners of the MEX-GOL and SV licences respectively.
On 2 May 2023, the MoJ made further Orders cancelling the registration entry made on behalf of three
further Ukrainian subsidiaries of the Company named LLC Prom-Enerho Produkt (“PEP”), Arkona and LLC
Well Investum (“Well Investum”) respectively in the State Register relating to the ultimate beneficial owners
of such companies, which again were stated as being the trustees of the SMART Trust and STEP Trust,
thereby restoring the previous entry, Mr Novynskyi. PEP holds the VAS production licence, Arkona holds
the SC exploration licence and Well Investum is a dormant company.
Following the issuance of the abovementioned Orders by the MoJ, Mr Novynskyi is registered in the State
Register as the ultimate beneficial owner of each of PEP and Arkona, and is consequently recognised by
the SGSS as the ultimate beneficial owner of each of the VAS production licence and SC exploration
licence. As a result, on 4 May 2023, the SGSS issued orders suspending the VAS production licence and
SC exploration licence for a period of 5 years effective from that date. Accordingly, the Company ceased
all field and production operations on the VAS and SC licence areas.
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
5
New Auditor and Temporary Suspension from trading on AIM
In December 2022, as a result of the sanctions imposed on Mr Novynskyi, the Company’s previous auditor
resigned, but I am now pleased to welcome Zenith Audit Ltd as the Company’s new auditor, with such
appointment being finalised in September 2023. As the Company did not have an auditor prior to the
appointment of Zenth Audit Ltd, it was not able to publish and post its audited 2022 Annual Report and
Financial Statements to shareholders by the requisite deadline of 30 June 2023 as required by Rule 19 of
the AIM Rules for Companies. As a result, trading in the Company’s ordinary shares on AIM was suspended
with effect from 3 July 2023 pending the Company’s compliance with such requirements. However, with
the publication and posting to shareholders of this 2022 Annual Report and Financial Statements, and upon
the forthcoming publication of the Company’s unaudited interim results for the six month period ended 30
June 2023, which is anticipated to occur shortly, it is currently expected that the suspension from trading
will be lifted.
Board Changes
In August 2022, Dmitry Sazonenko stepped down from the Board, and Dr Gehrig Schultz joined the Board
as a Non-Executive Director. Gehrig is a very experienced geoscientist, and provides valuable technical
input in the oversight of the Company’s operations.
On behalf of the Board, I would like to thank Dmitry for his valued contribution during his tenure with the
Company, and to welcome Gehrig to the Board.
Interim Dividend
On 15 June 2023, the Company paid an interim dividend of 15 pence per ordinary share, aggregating to
approximately £48.1 million, which was the Company’s maiden dividend payment to its shareholders.
Outlook
The ongoing war in Ukraine means that there is a devastating humanitarian situation in Ukraine, as well as
extreme challenges to the fiscal, economic and business environment. This has been exacerbated in
respect of the Group by the regulatory actions of the Ukrainian authorities, culminating in the suspension
of the VAS and SC licences.
These circumstances mean that it is extremely difficult to plan future investment and operational activities
at the Group’s fields but, subject to resolution of the current regulatory issues with the Ukrainian authorities,
and subject to it being safe to do so, the Group is planning to undertake further limited development
activities during the remainder of 2023 and beyond in order to continue the development of its fields.
However, in doing so, the Group is taking and will take all measures available to protect and safeguard its
personnel and business, with the safety and wellbeing of its personnel and contractors being paramount.
The Group retains approximately a quarter of its cash reserves outside Ukraine, and this provides a material
buffer to any further disruptions to the Group’s operations. This has enabled the Board to reach the opinion
that the Group has sufficient resources to navigate the current risk environment for the foreseeable future.
In conclusion, on behalf of the Board, I would like to thank all of our staff for the continued dedication and
support they showed during the 2022 year, especially their remarkable fortitude since the invasion of
Ukraine in February 2022.
Chris Hopkinson
Chairman
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
6
Chief Executive’s Statement
Introduction
The war in Ukraine has materially disrupted the Group’s development activity at its Ukrainian fields during
2022, with operations suspended for safety reasons at all fields immediately after the Russian invasion in
February 2022. However, production operations and some field activities resumed at the MEX-GOL and
SV fields in mid-March 2022, and this enabled the completion of the SV-31 development well, which came
on production in May 2022. At the SV-29 development well, further intervals were perforated, but it was not
possible to establish a stabilised flow rate, and the potential hydraulic fracturing of this well is now under
consideration. In addition, upgrades to the gas processing facilities were completed. The GOL-107
development well was completed in late October 2023 and, after initial testing of the well demonstrated gas
flows, albeit at lower than expected rates, the well has now been hooked up to the gas processing facilities
to undergo longer-term testing to establish its optimal operating parameters and assess whether stimulation
of the well may improve flow rates.
On the SC licence area, drilling of the SC-4 appraisal well was suspended for a period, but drilling resumed
in July 2022, and the well was completed and successfully tested in October 2022. In addition, the
interpretation of the 150 km2 of 3D seismic, which was acquired over the 2021-2022 winter period, was
completed.
At the VAS field, all operations were suspended until October 2022, when production operations resumed.
In addition, planning for the further development of the field, as well as for a proposed new well to explore
the VED prospect within the VAS licence area continued.
Overall production in 2022 was lower than the 2021 year due to the disruption to production operations
caused by the war in Ukraine and natural field decline.
Quality, Health, Safety and Environment (“QHSE”)
The Group is committed to maintaining the highest QHSE standards and the effective management of
these areas is an intrinsic element of its overall business ethos. The Group’s QHSE policies and
performance are overseen by the Health, Safety and Environment Committee. Through strict enforcement
of the Group’s QHSE policies, together with regular management meetings, training and the appointment
of dedicated safety professionals, the Group strives to ensure that the impact of its business activities on
its staff, contractors and the environment is as low as is reasonably practicable. The Group reports safety
and environmental performance in accordance with industry practice and guidelines.
I am pleased to report that during 2022, a total of 704,773 man-hours of staff and contractor time were
recorded without a Lost Time Incident occurring. The total number of safe man-hours now stands at over
4,997,406 man-hours without a Lost Time Incident. No environmental incidents were recorded during the
year.
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
7
Production
The average daily production of gas, condensate and LPG for the 351 days that the MEX-GOL and SV
fields were producing and for the 147 days that the VAS field was producing, in each case, during the year
ended 31 December 2022 is shown below:
Field
Gas
(MMscf/d)
Condensate
(bbl/d)
LPG
(bbl/d)
Aggregate
boepd
2022
2021
2022
2021
2022
2021
2022
2021
MEX-
GOL &
SV
11.0
18.9
445
681
318
308
2,604
4,237
VAS
1.8
2.6
18
26
-
-
352
493
Total
12.8
21.5
463
707
318
308
2,956
4,730
The Russian invasion of Ukraine in February 2022 meant that for safety reasons, the Group suspended all
field operations for the period from 24 February to 15 March 2022, after which production operations and
some field activities resumed at the MEX-GOL and SV fields, while all operations remained suspended at
the VAS field and SC licence area. Subsequently, in July 2022, drilling resumed at the SC-4 well on the SC
licence area and this well was completed and successfully tested in October 2022. Production operations
remained suspended at the VAS field since it is located near Kharkiv in north-eastern Ukraine, which has
experienced significant military activity, but in October 2022, production operations finally resumed at this
field. As a result of the disruptions to operations caused by the war, the Group’s average daily production
for the 2022 year has been materially adversely affected.
In addition, as announced on 4 May 2023, as a result of regulatory actions by the Ukrainian authorities, the
VAS production licence and the SC exploration licence have been suspended for a period of five years.
Nevertheless, production is currently continuing at the MEX-GOL and SV fields at a rate of approximately
2,200 boepd.
Operations
In the period leading up to the Russian invasion of Ukraine in February 2022, there was relative fiscal and
economic stability 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. However, the war has caused significant
disruption to the fiscal and economic conditions in Ukraine since then. During 2022, the material increase
in gas prices in Europe did, however, feed through to the Group’s realised prices in Ukraine, and provided
a significant boost to the Group’s revenues and profitability during the period.
During 2022, the Group continued to refine its geological subsurface models of the MEX-GOL, SV and VAS
fields, as well as the SC licence area, in order to enhance its strategy for the further development of such
fields and licence area, including the timing and level of future capital investment required to exploit the
hydrocarbon resources.
At the MEX-GOL and SV fields, the SV-31 development well was completed in May 2022, having been
drilled to a final depth of 5,240 metres. At that time, one interval, at a drilled depth of 5,210 - 5,219 metres,
within the V-22 Visean formation was perforated, and, following initial testing, the well was hooked up to
8
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
the gas processing facilities. The well has produced strongly since then, and pursuant to the plans for this
well, two additional intervals, at drilled depths of 5,187 - 5,189 and 5,120 - 5,123 metres, respectively within
the V-22 and V-21 Visean formations, have also been perforated to access additional reserves. These
additional intervals have also proved productive and materially boosted production rates from this well.
At the SV-29 development well, additional intervals, at drilled depths of 4,955 - 4,960 and 5,037 - 5,046
metres, within the V-19 and V-20 Visean formation respectively were perforated, but such intervals were
not productive. This well was completed in August 2021, having been drilled to a final depth of 5,450 metres.
Previously, two intervals, at drilled depths of 5,246 - 5,249 metres and 5,228 - 5,232 metres respectively,
within the V-22 Visean formation, were perforated, and although some gas flows were achieved, a stabilised
flow from these intervals was not established. In light of the intermittent gas flows in these intervals, the
possible hydraulic fracturing of the well is now under consideration.
Drilling of the GOL-107 development well, targeting production from the V-20 and V-23 Visean formations,
commenced in December 2022 and was completed in late October 2023, with the well having been drilled
to a final depth of 5,190 metres. One interval, at a drilled depth of 5,140 - 5,143 metres, within the V-23
formation, was perforated and demonstrated gas flows, but at lower than anticipated rates. The well has
now been hooked up to the gas processing facilities to undergo longer-term testing to establish its optimal
operating parameters and assess whether stimulation of the well may improve flow rates. The well is
currently producing at a flow rate of approximately 353 MMscf/d of gas and 11 bbl/d of condensate (73
boepd in aggregate).
The Group continued to operate each of the SV-2 and SV-12 wells under joint venture agreements with
NJSC Ukrnafta, the majority State-owned oil and gas producer. Under the agreements, the gas and
condensate produced from the respective wells is sold under an equal net profit sharing arrangement
between the Group and NJSC Ukrnafta, with the Group accounting for the hydrocarbons produced and
sold from the wells as revenue, and the net profit share due to NJSC Ukrnafta being treated as a lease
expense in cost of sales. However, during Q4 2021, the SV-2 well experienced water ingress and
consequently had to be taken off production. A workover of this well was undertaken to replace the
production string and remove obstructions in the well, but this work was unsuccessful and further remedial
work is now being considered.
In addition, in Q4 2021, the MEX-109 well also experienced water ingress and as a result was taken off
production. A workover of the well was commenced, and steps were taken to seal the source of the water
ingress, but the work was suspended as a result of the Russian invasion. However, the workover operations
have now been completed, and the previously producing horizon has now been sealed to prevent water
ingress into that horizon, so as to avoid possible disruption to another well which is producing from the
same horizon. As a result, further production from such horizon in this well will not be possible, and the
possible deepening of this well to explore deeper horizons is now being considered.
Finally, at the MEX-GOL and SV fields, the upgrades to the gas processing facilities have been completed.
These works involved an upgrade of the LPG extraction circuit, an increase to the flow capacity of the
facilities, and a significant increase to the liquids tank storage capacity, which are designed to improve
overall plant efficiencies, improve the quality of liquids produced and boost recoveries of LPG, while
reducing environmental emissions.
On the SC licence area, after a period of suspension, drilling operations resumed at the SC-4 well in July
2022 and the well was drilled to its final depth of 5,585 metres. The well is primarily an appraisal well,
targeting production from the V-22 horizon, as well as exploring the V-16 and V-21 horizons, in the Visean
formation. The well was successfully tested, demonstrating stabilised flow rates of 3 MMscf/d of gas and 3
bbl/d of condensate (535 boepd in aggregate), and planning for the installation of gas processing and other
surface facilities has been undertaken. In addition, the interpretation of the 150 km2 of 3D seismic, that was
acquired over the 2021 - 22 winter, was completed.
At the VAS field, production operations resumed in October 2022, and planning for the further development
of the field, as well as for a proposed new well to explore the VED prospect within the VAS licence area,
has continued.
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
9
Outlook
The ongoing war in Ukraine has caused significant disruption to the country as a whole and to the Group’s
business activities, and until there is a satisfactory resolution to the conflict, the disruption and uncertainty
are likely to continue. However, subject to resolution of the current regulatory issues with the Ukrainian
authorities and it being safe to do so, during the remainder of 2023 and 2024, the Group plans to continue
the development of its fields to the extent it is possible to do so.
At the MEX-GOL and SV fields, the development programme includes planning the deepening of the MEX-
109 well to explore a deeper horizon in the Visean formation, investigating the hydraulic fracturing of the
SV-29 well, planning a workover of the MEX-102 well to access a shallower horizon, investigating the
possible sidetracking of the MEX-119 well to access additional reserves, installing additional compression
equipment and upgrading and maintaining the flow-line network and pipelines and other field infrastructure,
as well as planning for the further development of the fields.
Further work on the VAS and SC licence areas will remain suspended until there is a resolution of the
regulatory issues, including the lifting of the suspension orders made in respect of those licences.
Finally, I would like to add my thanks to all of our staff for the continued hard work and dedication they have
shown over the course of 2022, and to especially recognise their continuing efforts and professionalism in
the face of the extremely challenging current situation in Ukraine.
Sergii Glazunov
Chief Executive Officer
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
10
Business Model
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 58 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 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, operational
or other issues arise
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
11
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 hydrocarbons 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
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, including material
humanitarian aid to provide support during the ongoing war in Ukraine
Suppliers
We maintain a clear and consistent approach to dealing with suppliers, ensuring adherence to contractual
obligations and maintaining safe working practices
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
12
Our Strategic Priorities
Our three strategic priorities
1
Deliver profitable production and reserves growth in Ukraine, with continued capital
efficient operational excellence
Key targets:
Organic Growth
•
•
•
Expedite development of our assets, accelerate production growth, and exploit our 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
Key risks:
•
•
•
Reservoir and operational performance
Regional stability and conflict
Commodity price shifts
2
Be a responsible steward of the resources we manage, produce and deliver to market
Key targets:
Operating safely and responsibly
•
Continual assessment and monitoring of a safe operating environment during the ongoing war in
Ukraine
Adopt and exceed industry standards
Embed corporate and social responsibility process throughout business organisation
•
•
Strong and stable governance
•
Adhere to the QCA Code and institutional shareholder body guidance
Rigid operational financial and risk planning
•
•
Ensure that future operations and sales reflect the market and forecasts
Be cognisant of the necessity for good reservoir and corporate resource management
Key risks:
•
•
•
Implementation and adherence to QHSE policies
Maintenance of independence of Board of Directors
Maintenance of controls and processes for financial and risk management
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
13
3
Recruit and retain a management team capable of delivering consistent top quartile
performance across recognised industry and market metrics
Key targets:
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:
•
•
•
Failure to challenge and motivate existing employees
Compensation
Competitiveness
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
14
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.
Production Licences
We hold a 100% working interest in, and are the operator of, the MEX-GOL and SV fields. The production
licences for the fields were granted to the Group in July 2004 with an initial duration of 20 years, and the
duration of these licences have recently been extended to 2044 in order to fully develop the remaining
reserves. The economic life of these fields extend to 2038 and 2042 respectively pursuant to the most
recent reserves and resources assessment by DeGolyer and MacNaughton (“D&M”) as at 31 December
2017.
The two licences, located in 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.
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
15
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.
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 field has been mapped with 3D seismic, and a geological subsurface model has been developed and
refined using data derived from such 3D seismic and new wells drilled on the field.
The assessment undertaken by D&M as at 31 December 2018 estimated proved plus probable (2P)
reserves of 3.1 MMboe, with 3C contingent resources of 0.6 MMboe, and prospective resources of 7.7
MMboe in the VED area of the field. The next well planned on the field is designed to explore the VED area
of the field.
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
16
SC Licence
The SC licence area is located near to and has similar characteristics to the SV field, and is prospective for
gas and condensate.
Exploration Licence
We hold a 100% working interest in, and are the operator of, the SC licence. The licence was granted in
May 2017 with a duration of 20 years.
The licence extends over an area of 97 km2, and is located in the Poltava region in north-eastern 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 since then, although none of these wells are currently on
production.
The assessment undertaken by D&M as at 1 January 2021 estimated proved plus probable (2P) reserves
of 12.1 MMboe, with 3C contingent resources of 15.0 MMboe.
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
17
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 2022, the
Group has produced 6.14 MMboe from these fields.
The MEX-GOL-SV Report estimated the remaining Reserves as at 31 December 2017 in the MEX-GOL
and SV fields as follows:
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
2.8 MMbbl / 233 Mtonne
5.0 MMbbl / 418 Mtonne
5.8 MMbbl / 491 Mtonne
Total
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
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
18
2.
VAS field
The Group’s estimates of the remaining Reserves and Resources at the VAS field and the Prospective
Resources at the VED prospect are derived from an assessment undertaken by D&M as at 31 December
2018 (the “VAS Report”), which was announced on 21 August 2019. During the period from 1 January 2019
to 31 December 2022, 0.76 MMboe were produced from the field.
The VAS Report estimated the remaining Reserves as at 31 December 2018 in the VAS field as follows:
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 estimated 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
-
-
-
-
2,912 MMscf / 83 MMm3
74 Mbbl / 9 Mtonne
The VAS Report estimated 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
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
19
3.
SC Licence
The Group’s estimates of the remaining Reserves and Contingent Resources at the SC Licence are derived
from an assessment undertaken by D&M as at 1 January 2021 (the “SC Report”), which was announced
on 2 June 2021.
The SC Report estimated the remaining Reserves as at 1 January 2021 in the SC licence area as follows:
Proved
(1P)
Proved + Probable
(2P)
Proved + Probable +
Possible (3P)
Gas
17.20 Bscf / 0.49 Bm3
65.16 Bscf / 1.85 Bm3
85.03 Bscf / 2.41 Bm3
Condensate
145 Mbbl / 16 Mtonne
548 Mbbl / 61 Mtonne
716 Mbbl / 80 Mtonne
Total
3.2 MMboe
12.1 MMboe
15.7 MMboe
The SC Report estimated the Contingent Resources as at 1 January 2021 in the SC licence area as follows:
Contingent Resources
(1C)
Contingent Resources
(2C)
Contingent Resources
(3C)
Gas
8.56 Bscf / 0.24 Bm3
14.18 Bscf / 0.40 Bm3
81.16 Bscf / 2.30 Bm3
Condensate
72 Mbbl / 8 Mtonne
119 Mbbl / 13 Mtonne
682 Mbbl / 75 Mtonne
Total
1.6 MMboe
2.6 MMboe
15.0 MMboe
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
20
Finance Review
Despite the significant disruption caused by the Russian invasion of Ukraine early in the year, and almost
entirely as a result of the significant increase in global gas prices, the Group’s financial performance in the
2022 year showed an improvement on 2021, with a net profit for the period of $60.2 million being an
approximate 18% increase on the 2021 year (2021: $51.1 million).
Revenue for the year, derived from the sale of the Group’s Ukrainian gas, condensate and LPG production,
was up at $133.4 million (2021: $121.4 million). Most notably, within this total, the revenue from gas sales
alone was up approximately 14% at $109.5 million (2021: $95.8 million).
Aggregate production for the year (calculated on the days when the Group’s fields were actually in
production) was down approximately 37.5% at 2,956 boepd (2021: 4,730 boepd) due to the disruption to
operations as a result of the Russian invasion of Ukraine.
During 2022, global, and particularly European, commodity prices increased, and these increases also
occurred in Ukraine, and underpinned the 122% rise in average gas price realisations in the period at
$960/Mm3 (UAH30,341/Mm3), with condensate and LPG average sales prices also up by 6% and 79% at
$73/bbl and $143/bbl respectively (2021: $432/Mm3 (UAH11,677/Mm3), $69/bbl and $80/bbl respectively).
During the period from 1 January 2023 to 14 December 2023, the average realised gas, condensate and
LPG prices were $395/Mm3 (UAH14,426/Mm3), $71/bbl and $100/bbl respectively.
Gross profit for the year was higher at $85.9 million (2021: $73.9 million).
Cost of sales for the year was unchanged at $47.5 million (2021: $47.4 million). The decline in production
drove a decline in depreciation, but such decline was offset by increased commodity prices which drove up
the revenue-related costs of taxes and well rental.
Cash generated from operations fell 39% to $47.5 million (2021: $77.7 million), most significantly as a
consequence of the increase in trade and other receivables to $65.8 million (2021: $13.1 million).
The subsoil tax rates applicable to gas production were stable during the first two months of 2022 at 29%
for gas produced from deposits at depths shallower than 5,000 metres and 14% for gas produced from
deposits deeper than 5,000 metres, except in respect of gas produced from new wells drilled after 1 January
2018, where the subsoil tax rates were reduced from 29% to 12% for gas produced from deposits at depths
shallower than 5,000 metres and from 14% to 6% for gas produced from deposits deeper than 5,000 metres
for the period between 2018 and 2022. The subsoil tax rates for condensate were 31% for condensate
produced from deposits shallower than 5,000 metres and 16% for condensate produced from deposits
deeper than 5,000 metres.
However, with effect from 1 March 2022, changes to the subsoil production tax rates applicable to gas
production were introduced. These changes modified the applicable tax rates based on gas prices,
extended the incentive rates for new wells for a further 10 years and made improvements to the regulatory
environment. The legislation which introduced these changes also included provisions that these rates will
not be increased for 10 years.
The new subsoil production tax rates applicable to gas production are as follows:
(i)
when gas prices are up to $150/Mm3, the rate for wells drilled prior to 1 January 2018 (“old wells”)
is 14.5% for gas produced from deposits at depths shallower than 5,000 metres and 7% for gas
produced from deposits deeper than 5,000 metres, and for wells drilled after 1 January 2018 (“new
wells”) is 6% for gas produced from deposits at depths shallower than 5,000 metres and 3% for
gas produced from deposits deeper than 5,000 metres;
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
21
(ii)
(iii)
when gas prices are between $150/Mm3 and $400/Mm3, the rate for old wells is 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, and for new wells is 12% for gas produced from deposits at
depths shallower than 5,000 metres and 6% for gas produced from deposits deeper than 5,000
metres;
when gas prices are more than $400/Mm3, for the first $400/Mm3, the rate for old wells is 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, and for new wells is 12% for gas produced from deposits at
depths shallower than 5,000 metres and 6% for gas produced from deposits deeper than 5,000
metres, and for the difference between $400/Mm3 and the actual price, the rate for old wells is 65%
for gas produced from deposits at depths shallower than 5,000 metres and 31% for gas produced
from deposits deeper than 5,000 metres, and for new wells is 36% for gas produced from deposits
at depths shallower than 5,000 metres and 18% for gas produced from deposits deeper than 5,000
metres.
The tax rates applicable to condensate production were unchanged and so remain at 31% for condensate
produced from deposits shallower than 5,000 metres and 16% for condensate produced from deposits
deeper than 5,000 metres, for both old and new wells.
As a direct result of the war in Ukraine, including the significant decline in domestic consumption disrupting
the previous supply, demand and pricing dynamics, there has been a divergence between domestic and
European gas pricing, and accordingly, the methodology (linked to European prices) used to determine the
reference gas price for the subsoil tax rates has had a significantly detrimental effect for domestic gas
producers. In order to address this issue, the Ukrainian Parliament, in September 2022, passed legislation
which modified such methodology to ensure that it operates as originally intended (with such reference
price being aligned with domestic prices). This methodology had an implementation date of 1 August 2022.
In addition, the excise tax on LPG sales was suspended between 24 February 2022 and 30 September
2022, but was then reinstated, and the VAT rate applicable to condensate and LPG sales was reduced to
7% (from 20%) with effect from 18 March 2022.
Finally, in early 2022, the Ukrainian Government imposed temporary and partial gas price regulation to
support the production of certain food products through the supply of gas at regulated prices to the
producers of such products. Under this scheme, all independent gas producers in Ukraine were required
to sell up to 20% of their natural gas production for the period until 30 April 2022 at a price set as the cost
of sales of the relevant gas producer (based on established accounting rules) for such gas, plus a margin
of 24%, plus existing subsoil production taxes (the “Regulated Price”). This gas was then sold to specified
producers of designated socially important food products at the Regulated Price, so as to reduce the energy
costs of such producers during the period through to 30 April 2022. The designated products were certain
types of flour, milk (with up to 2.5% fat), bread, eggs, chicken and sunflower oil, for sale in the Ukrainian
domestic market. This temporary scheme has now concluded. Further details are set out in the Company’s
announcement dated 17 January 2022.
Administrative expenses for the year were 19% lower at $6.8 million (2021: $8.4 million), primarily as a
result of: a 18% decrease in payroll and related taxes, and no performance related payments being made
in 2022.
Other expenses in the year increased as a result of the charitable donation of $6.5 million (2021: $0.1
million) for financial support to the Ukrainian humanitarian relief effort.
The tax charge for the year was steady at $13.1 million (2021: $15.5 million charge), and comprised a
current tax charge of $14.3 million (2021: $13.3 million charge) and a deferred tax credit of $1.2 million
(2021: charge $2.2 million charge).
A deferred tax asset relating to the Group’s provision for decommissioning as at 31 December 2022 of $0.5
million (2021: $0.5 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 as at
22
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
31 December 2022 of $3.7 million (2021: $5.7 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 as at 31 December 2022 of $0.3
million (2021: $0.3 million) 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. A deferred tax liability relating to the
Group’s development and production assets at the VAS field as at 31 December 2022 of $0.02 million
(2021: deferred tax asset of $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 $12.9 million reflects the investment in the Group’s oil and gas development and
production assets during the year (2021: $24.3 million), primarily relating to the drilling of the SV-31 and
GOL-107 wells. This significant $11.4 million reduction in capital investment is a function of the deferral of
certain aspect of the Group’s development plans necessitated by the ongoing war in Ukraine.
A review of any indicators of impairment of the carrying value of the Group’s assets was undertaken at the
year end and this review did conclude that the Russian invasion of Ukraine and the suspension of the VAS
production licence had resulted in such an indicator. Impairment reviews were therefore conducted on the
carrying value of the Group’s assets and resulted in a recognition of an impairment loss of $4.3 million
(2021: nil).
With the material increase in commodity prices during the year, and necessary payment term
accommodations that needed to be agreed with the Group’s largest indirect off-taker pursuant to a contract
facilitated by the Group’s related party, LLC Smart Energy, trade receivables were up materially at $44.0
million (2021: $5.0 million). The year-end trade receivables were all paid post period end.
Cash, cash equivalents and short-term investments held as at 31 December 2022 were slightly lower at
$88.7 million (2021: $92.5 million), the decrease being predominantly a result of the $52.8 million increase
in trade and other receivables. Cash, cash equivalents, short-term investments and trade and other
receivables combined totalled $154.5 million (2021: $105.6 million), a 46% increase. The Group’s cash and
cash equivalents balance as at 14 December 2023 was $79.1 million, held as to $58.5 million equivalent in
Ukrainian Hryvnia and the balance of $20.6 million equivalent predominantly in US Dollars, Euros and
Pounds Sterling.
During 2022, the Ukrainian Hryvnia was relatively stable against the US Dollar, weakening from
UAH27.3/$1.00 on 31 December 2021 to UAH36.6/$1.00 on 31 December 2022. The impact of this was
$38.1 million of foreign exchange loss (2021: $1.6 million of foreign exchange gain). Increases and
decreases in the value of the Ukrainian Hryvnia against the US Dollar affect the carrying value of the
Group’s assets. However, in July 2022, the National Bank of Ukraine devalued the Ukrainian Hryvnia by
25% against the US Dollar in order to protect its foreign exchange reserves as the ongoing war continues
to materially affect the Ukrainian economy. The official exchange rate of the Ukrainian Hryvnia to the US
Dollar on 14 December 2023 is UAH37.0/$1.00. This devaluation is not expected to have a material net
impact on the Group, as its production and sales are dictated by (but not directly linked to) international
commodity prices, which are expected to materially offset general cost increases that will result from such
devaluation.
Cash from operations has funded the capital investment during the year, and the Group’s current cash
position and positive operating cash flow are the sources from which the Group plans to fund the
development programmes for its assets over the remainder of 2022 and beyond. This is coupled with the
fact that the Group is currently debt-free, and therefore has no debt covenants that may otherwise impede
its ability to implement contingency plans if domestic and/or global circumstances dictate. This flexibility
and ability to monitor and manage development plans and liquidity is a cornerstone of our planning, and
underpins our assessments of the future. With monetary resources at the end of the year of $88.7 million
($81.5 million of which was held outside Ukraine), and annual running costs of less than $8 million, the
Group remains in a very strong position, notwithstanding the impact of the current conflict in Ukraine, as
well as any local or global shocks that may occur to the industry and/or the Group.
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
23
On 15 June 2023, the Company paid an interim dividend of 15 pence per ordinary share, approximately
£48.1 million in aggregate, which was the Company’s maiden dividend payment to its shareholders.
Bruce Burrows
Finance Director
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
24
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 2022 are set out below. The Russian invasion of Ukraine in
February 2022 had a material and ongoing impact on all operational and financial targets, and had a
significant impact on the actual outcome for the year and therefore performance against target. 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
1.
Fatalities of zero
•
•
Target -
Actual -
zero
zero
Level Two KPIs
1.
Total volumes of gas and condensate produced
•
•
Target -
1,362,934 boe
Actual -
939,230 boe
2.
Lost Time Incidents
•
•
Target -
zero
Actual -
zero
3.
Operating expenditure per barrel of oil equivalent
•
•
Target -
UAH 694 ($24.79)
Actual -
UAH 1,745 ($53,96)
4.
Cashflow from operating activities
•
•
Target -
UAH 1,722 million ($61.5 million)
Actual -
UAH 874 million ($27.0 million)
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
25
Sustainability
We strive to operate and develop our business in a sustainable way and believe in operating to top quartile
ethical, safety and environmental standards. We intend to make a positive impact wherever we work.
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, as well as the broader health and safety of our employees, 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 have
supported local schools (e.g. materials for repair works and funding of school meals) and youth sports, as
well as the repair of roads and local infrastructure, although the war has curtailed many of these initiatives
in recent times.
Humanitarian aid
Since the commencement of the war, we have contributed to humanitarian aid initiatives in Ukraine,
including contributing to the provision of medical equipment and supplies and other humanitarian aid.
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 policies. Our
QHSE policies and performance are overseen by our Health, Safety and Environment Committee.
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 ISO 14001:2015 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.
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
26
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 the 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.
We have undertaken work on the gas processing facilities at the MEX-GOL and SV fields to upgrade the
LPG extraction circuit, increase the flow capacity of the facilities, and significantly increase the liquids tank
storage capacity, all of which are designed to improve overall plant efficiencies, improve the quality of
liquids produced and boost recoveries of LPG, while reducing environmental emissions.
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.
Streamlined Energy and Carbon Reporting (“SECR”)
We remain 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, but subject to the restrictions caused by the war in
Ukraine, we are endeavouring to review our Ukrainian operations to determine the processes of self-
reporting for our global operations, and formulating the content of our intended self-reporting.
This initiative is intended to:
•
•
•
•
disclose the environmental-related data currently collected, including: energy consumed, water
consumed, greenhouse gas emissions and waste generated (in natural units and relative to
volumes of extracted gas);
determine any additional applicable indicators to be added, for example: natural gas and solid
fuel consumed for heating, compressors and other equipment; diesel fuel used in diesel generators;
consumption of petrol and diesel in vehicles, etc.;
determine potential benchmarks; and
determine the reporting frequency.
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. 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.
27
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
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). Since then, we have 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.
In 2020, we launched our TOP 10 safety standards for high risk operations, with leadership and training
programmes for each of these standards.
In 2021, we continued to develop our health and safety regime, with the implementation of a number of
improvement measures, digitisation of health and safety procedures, the adoption of specific measures for
the protection of employees against COVID-19, and an extensive occupational health and safety training
programme for all employees. In addition, our operations were re-certified as complying with international
standards of quality, occupational safety and health management systems, according to ISO 14001:2015
and ISO 45001:2018.
In early 2022, in anticipation of possible military conflict between Russia and Ukraine, a crisis management
committee was established to prepare for such a conflict, including developing emergency and contingency
plans in case of war and undertaking safety and evacuation drills at operational sites. This proved crucial
immediately following the invasion of Ukraine by Russia, facilitating the prompt and safe evacuation of
personnel, who were then able to work remotely, as well as the evacuation of their families to the west of
Ukraine. Surface and underground bomb shelters were constructed at all operational sites during 2022.
Information and instruction materials have been developed and training has been conducted for all
personnel, including safety actions in case of shelling or chemical or radiation contamination; mental health
aid; and enhanced practical training on first aid and medical assistance. The safe implementation and
undertaking of technical work also remains a priority, and all scheduled training was conducted as planned
during 2022, including safe lifting operations, gas work safety, fire safety and safe driving. All operational
sites maintain incident reporting transparency, and if incidents occurred, or were identified, appropriate
corrective actions were undertaken. Despite the war, the Group operated within applicable legal, health,
safety and environmental frameworks and, despite the imposition of martial law, successfully obtained all
necessary approvals from environmental and labour inspection authorities.
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.
War in Ukraine
The invasion of Ukraine by Russia which commenced on 24 February 2022 has caused a catastrophic
humanitarian situation in Ukraine, as well as extreme challenges to the fiscal, economic and business
environment. At the present time, the scope and duration of the war is unknown and there is a great deal
of uncertainty about the ultimate impact that such war will have on Ukraine and its population.
These circumstances mean that it is extremely difficult to plan future investment and operational activities
at the Group’s fields. The Group is taking all possible measures to safeguard its staff, especially those who
are located at the Group’s fields. Where possible, staff work remotely and have been supplied with all
necessary devices and software to facilitate remote working, and only necessary field staff attend field
operational facilities and locations, where all possible measures are maintained to minimise risk, such as
ensuring that hydrocarbon inventories are kept at minimum levels. Currently, production and limited field
operations are being undertaken at the MEX-GOL and SV fields. However, in undertaking such operations,
the Group is taking, and will take, all measures available to protect and safeguard its personnel and
business, with the safety and wellbeing of its staff and contractors being paramount.
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
28
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 risks is our Management 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.
In addition, oversight and responsibility of all QHSE matters falls to the HSE Committee composed of Board
members and senior management.
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.
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
29
Principal Risks and How We Manage Them
The Group has a risk evaluation methodology in place to assist in the review of the risks across all material
aspects of its business. This methodology highlights external, operational and technical, financial and
corporate risks and assesses the level of risk and potential consequences. It is periodically presented to
the Audit Committee and the Board for review, to bring to their attention potential risks and, where possible,
propose mitigating actions. Key risks recognised and mitigation factors are detailed below:-
Risk
External risks
War in Ukraine
On 24 February 2022, Russia invaded Ukraine and
there is currently a serious and ongoing war within
Ukraine. This war is having a huge impact on Ukraine
and its population, with significant destruction of
infrastructure and buildings in the areas of conflict, as
well as damage in other areas of Ukraine. The war is
resulting in significant casualties and has caused a
huge humanitarian catastrophe and refugee influx into
neighbouring countries. The war is also impacting the
fiscal and economic environment in Ukraine, as well
as the financial stability and banking system in
Ukraine, including restrictions on the transfer of funds
outside Ukraine. The war is an escalation of the
previous regional conflict risk faced by the business, a
dispute that has been going on since 2014 in parts of
eastern Ukraine, and since that time Russia has
continued to occupy Crimea. The current war is also
having a significant 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. The war has
disrupted the Group’s business and operations,
causing the suspension of field operations, albeit
recommenced in March 2022 at the MEX-GOL and SV
fields, in July 2022 at the SC licence area and in
October 2022 at the VAS field, and has also impacted
the supply of materials and equipment and the
availability of contractors
field
operations. At present, the war is ongoing and the
scope and duration of the war is uncertain.
Risk relating to Ukraine
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
to market downturns
elsewhere in the world and could adversely impact the
Group’s ability to operate in the market. Furthermore,
the war in Ukraine is impacting the fiscal and
economic environment, the financial and banking
system, and the economic stability of Ukraine. As a
result, Ukraine will require financial assistance and/or
aid from international financial agencies to provide
economic support and assist with the reconstruction of
infrastructure and buildings damaged in the war.
Banking system in Ukraine
The banking system in Ukraine has been under great
strain in recent years due to the weak level of capital,
them vulnerable
to undertake
Mitigation
The Group has assets in the areas of conflict in the east
of Ukraine, and the war has disrupted its operations in
those areas. The Group has been only undertaking
limited field and production operations at the MEX-GOL,
SV and VAS fields and SC licence area. At the fields,
inventories of hydrocarbons are being maintained at
minimum levels. At the sites where operations are
suspended, there are no staff permanently on site,
except for necessary security staff. Where possible, all
other staff work remotely and have been supplied with
all necessary devices and software to facilitate remote
working. Additionally, the Group aims to maintain a
significant proportion of its cash resources outside
Ukraine. The Group continues to monitor the situation
and endeavours to protect its assets and safeguard its
staff and contractors.
The Group minimises
risk by continuously
this
monitoring the market in Ukraine and by maintaining as
strong a working relationship as possible with the
Ukrainian regulatory authorities. The Group also
maintains a significant proportion of its cash holdings in
international banks outside Ukraine.
The creditworthiness and potential risks relating to the
banks in Ukraine are regularly reviewed by the Group,
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
30
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. This situation
was improving moderately following remedial action
by the National Bank of Ukraine, but the current war
has significantly affected such improvements, and the
National Bank of Ukraine has imposed a number of
restrictive measures designed to protect the banking
system, including restrictions on the transfer of funds
outside Ukraine (albeit that the Group aims to maintain
a significant proportion of its cash resources outside
to be
In addition, Ukraine continues
Ukraine.
supported by funding from the International Monetary
Fund, and has requested further funding support from
the International Monetary Fund.
Geopolitical environment in Ukraine
Although there were some improvements in recent
years, there has not been a final resolution of the
political, fiscal and economic situation in Ukraine, and
the current war has had a severe detrimental effect on
the economic situation in Ukraine. The ongoing effects
of this are difficult to predict and likely to continue to
affect the Ukrainian economy and potentially the
Group’s business. This situation is currently affecting
the Group’s production and field operations, and the
ongoing
the Group’s
development and operational planning for its assets.
Climate change
Any near and medium-term continued warming of the
planet can have potentially increasing negative social,
economic
consequences,
environmental
generally, globally and regionally, and specifically in
relation to the Group. The potential impacts include:
loss of market; and increased costs of operations
through increasing regulatory oversight and controls,
including potential effective or actual loss of licences
to operate. As a diligent operator aware of and
responsive to its good stewardship responsibilities,
the Group not only needs to monitor and modify its
business plans and operations to react to changes, but
also to ensure its environmental footprint is as minimal
as it can practicably be in managing the hydrocarbon
resources the Group produces.
Operational and technical risks
Quality, Health, Safety and Environment (“QHSE”)
The oil and gas industry, by its nature, conducts
activities which
safety,
environmental and security
incidents. Serious
incidents can not only have a financial impact but can
also damage
the
opportunity to undertake further projects. The war in
Ukraine poses significant risks to field operations, by
way of potential threat to the lives of employees and
contractors, and damage
to equipment and
infrastructure.
reputation and
is disrupting
the Group’s
instability
health,
cause
and
can
but the geopolitical and economic events in Ukraine
over recent years have significantly weakened the
Ukrainian banking sector. This has been exacerbated by
the current war in Ukraine. 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.
The Group continually monitors
the market and
business environment in Ukraine and endeavours to
recognise approaching risks and factors that may affect
its business. However, the war in Ukraine creates
material challenges in planning future investment and
operations. The Group
its operational
is
activities to minimise risk to its staff and contractors, and
to limit its financial exposure.
limiting
The Group’s plans include: assessing, reducing and/or
mitigating its emissions in its operations; and identifying
climate change-related risks and assessing the degree
to which they can affect its business, including financial
implications. The HSE Committee is specifically tasked
with overseeing, measuring, benchmarking and
mitigating
the Group’s environmental and climate
impact, which will be reported on in future periods. At
this stage, the Group does not consider climate change
to have any material implications on the Group’s
financial statements, including accounting estimates.
The Group maintains QHSE policies and requires that
management, staff and contractors adhere to these
policies. The policies ensure that the Group meets
Ukrainian legislative standards in full and achieves
international standards to the maximum extent possible.
As a result of the COVID-19 pandemic the Group has
implemented processes and controls intended to ensure
protection of all our stakeholders and minimise any
disruption to our business. As a consequence of the
current war in Ukraine, operations at the MEX-GOL, SV
and VAS fields and SC licence area have been
suspended for periods, and currently only limited field
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
31
Industry risks
The Group is exposed to risks which are generally
associated with the oil and gas industry. For example,
the Group’s ability to pursue and develop its projects
and undertake development programmes depends on
a number of uncertainties, including the availability of
capital, seasonal conditions, regulatory approvals,
gas, oil, condensate and LPG prices, development
costs and drilling success. As a result of these
uncertainties, it is unknown whether potential drilling
locations identified on proposed projects will ever be
drilled or whether these or any other potential drilling
to produce gas, oil or
locations will be able
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
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.
further development and
Risks relating
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 the 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
impacting planning and
war
the Group’s success
in Ukraine
the
to
is
and production operations are continuing at the MEX-
GOL and SV fields. Only essential staff are located at
site, and all other staff are working remotely, either from
areas away from the conflict areas or outside Ukraine.
The Group has invested in technology that allows many
staff to work just as effectively from remote locations.
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 recent years, the Group has engaged external
technical consultants to undertake a comprehensive
review and re-evaluation study of the MEX-GOL and SV
fields in order to gain an improved understanding of the
geological aspects of
reservoir
the
engineering, drilling and completion techniques, and the
results of this study and further planned technical work
are being used by the Group in the future development
of these fields. The Group has established an ongoing
relationship with such external technical consultants to
ensure that technical management and planning is of a
high quality in respect of all development activities on
the Group’s fields.
fields and
staff,
technical management
The Group’s
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 regards to operational activities, the
that appropriate equipment and
Group ensures
personnel are available for the operations, and that
operational contractors are appropriately supervised. In
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
32
implementation of development and operations at the
Group’s fields.
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
than expected
result
outcomes for wells.
Maintenance of facilities
There is a risk that production or transportation
facilities can fail due to non-adequate maintenance,
control or poor performance of the Group’s suppliers.
in unsuccessful or
lower
addition, the Group performs a review of indicators of
impairment of its oil and gas assets 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.
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.
the Ukrainian minimum
The Group’s facilities are operated and maintained at
legal
standards above
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
the Group’s development obligations
Financial risks
Exposure to cash flow and liquidity risk
There is a risk that insufficient funds are available to
meet
to
commercialise the Group’s oil and gas assets. Since
a significant proportion of
future capital
requirements of the Group is expected to be derived
from operational cash generated from production,
including from wells yet to be drilled, there is a risk that
in the longer term insufficient operational cash is
generated, or that additional funding, should the need
arise, cannot be secured. The war in Ukraine has
disrupted production operations at the Group’s fields,
and consequently reduced anticipated cash flows from
those fields, and this has increased the risk regarding
sufficiency of capital for development. In addition, the
conflict may disrupt the sales market for hydrocarbons
that are produced. Currently, however, hydrocarbon
prices are very high, which is ameliorating the
potential reduction in cash flows, and the Group’s
financial
sales counterparties are meeting
obligations. In addition to the risk of operational cash
shortfalls, there is a risk that even with robust cash
flows and cash balances, the Group, from time to time,
can suffer from non-Ukrainian operational banking
appetite for businesses such as the Group’s business,
which can ultimately manifest itself in having a
restricted access to banking services.
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.
their
The Group maintains adequate cash reserves and
closely monitors forecasted and actual cash flow, as
well as short and longer-term funding requirements. The
Group aims to maintain a significant proportion of its
cash resources outside Ukraine. 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 Group’s liquidity. 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
its
this risk, other
further mitigate
development activities to its available capital funding
from time to time. The Group aims to maintain as
diverse a range of banking relationships as possible to
reduce the risks associated with limited accessibility to
banking services which may exist from time to time.
tailoring
than
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.
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
The Group sells a proportion of Its hydrocarbon
production through offtake arrangements, which include
pricing formulae so as to ensure that it achieves market
33
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
volatility and political influence. A prolonged period of
low gas, condensate and LPG prices may impact the
Group’s ability to maintain its long-term investment
programme with a consequent effect on its growth
rate, which in turn may impact the Company’s share
returns. Lower gas,
price or any shareholder
condensate and LPG prices may not only decrease
the Group’s revenues per unit, but may also reduce
the amount of gas, condensate and LPG which the
Group can produce economically, as would increases
in costs associated with hydrocarbon production, such
as subsoil taxes and royalties. The overall economics
of the Group’s key assets (being the net present value
of the future cash flows from its Ukrainian projects) are
far more sensitive to long term gas, condensate and
LPG prices than short-term price volatility. However,
short-term volatility does affect liquidity risk, as, in the
early stage of the projects, income from production
revenues is offset by capital investment. In addition,
the war in Ukraine may disrupt the sales market for
hydrocarbons, although, currently, hydrocarbon prices
are very high, and the Group’s sales counterparties
are meeting their financial obligations.
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 UAH36.6/$1.00
on 31 December 2022, and UAH37.0/$1.00 on 14
December 2023. This devaluation has been a
significant contributor to the imposition of banking
restrictions by the National Bank of Ukraine over
recent years. In addition, the geopolitical events in
Ukraine over recent years and the current war in
Ukraine 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.
Counterparty and credit risk
The challenging political and economic environment in
Ukraine and current war 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.
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
difficulty, the COVID pandemic, and more particularly
the current war in Ukraine. This has led to extreme
the Ukrainian
foreign exchange movements
interest rates, and
Hryvnia, high
inflation and
in
prices for its products, as well 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. In
January 2022, the Ukrainian Government imposed
temporary partial gas price regulations until 30 April
2022, designed to support the production of certain
designated
food products. Whilst an unhelpful
interference in the functioning of the deregulated gas
supply market in Ukraine, in its stated form and duration,
this temporary scheme is not a material risk to the
Company and its cash generation, and has now expired.
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.
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
and
creditworthy
customers. Hydrocarbon production is sold on terms
that limit supply credit and/or title transfer until payment
is received.
contractors
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
to manage
is carefully monitored
counterparties
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
34
increased credit risk relating to the Group’s key
counterparties.
counterparty risks. Nevertheless, the overall exposure
that the Group faces as a result of these risks cannot be
predicted and many of these are outside of the Group’s
control.
Corporate risks
Ukrainian production licences
The Group operates in a region where the right to
production can be challenged by State and non-State
parties. During 2010, this manifested itself in the form
of a Ministry Order instructing the Group to suspend
all operations and production from its MEX-GOL and
SV production licences, which was not resolved until
mid-2011. In 2013, new rules relating to the updating
of production licences led to further challenges being
raised by the Ukrainian authorities to the production
licences held by independent oil and gas producers in
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, which was not resolved until March
2023. In 2020, LLC Arkona Gas-Energy (“Arkona”)
faced a challenge from PJSC 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.
During 2023, the Ukrainian authorities have taken a
number of regulatory actions against the Group, which
have culminated in Ministry Orders being made in May
2023 to suspend all operations and production at the
VAS production licence and SC exploration licence.
Excepting the current suspension Orders made in
respect of the VAS production licence and SC
exploration licence, all such challenges affecting the
Group have been successfully defended through the
Ukrainian legal system. In July 2023, new legislation
was introduced in Ukraine, which will come into force
in September 2024, and which requires that branches
(or representative offices) of
foreign companies
operating in Ukraine register their ultimate beneficial
owners in Ukrainian Registries. Regal Petroleum
Corporation Ltd ("RPC"), which holds the MEX-GOL
and SV licences, operates such a branch and will
therefore be required to register its ultimate beneficial
owners from the implementation of this law, which
raises a potential risk that such registration will not be
accepted by the Ukrainian authorities, and possibly
result in regulatory action against RPC and/or its
licences and assets, including suspension of the MEX-
GOL and SV licences. 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
issued with and/or carry ongoing
Ukraine are
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
35
feasible
for practical or
The Group ensures compliance with commitments and
regulations relating to its production licences through
Group procedures and controls or, where this is not
logistical
immediately
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 periodically reviews the compensation and
contractual terms of its staff. In addition, the Group has
developed relationships with a number of technical and
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
members from the Group’s team could have an
adverse effect on the business. The current war in
Ukraine has meant that, as far as possible, the
Group’s staff have needed to move away from areas
of conflict and work remotely.
other professional experts and advisers, who are used
to provide specialist services as required. As a result of
the war, only essential staff are located at site, and all
other staff are working remotely, either from areas away
from the conflict areas or outside Ukraine. The Group
has invested in technology that allows many staff to
work just as effectively from remote locations.
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
36
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 2022. 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.
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
37
•
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 co-operate 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. Prior to the outbreak of the war, we had a broad range of corporate social
responsibility (“CSR”) initiatives in Ukraine, supporting a number of community projects, including
support of local schools (e.g. materials for repair works and funding of school meals) and youth
sports, as well as the repair of roads and local infrastructure. Since the outbreak of the war, our
initiatives have focussed on humanitarian aid, in particular the procurement of medical equipment
and supplies. 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 remain 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, but subject to the
restrictions caused by the war in Ukraine, we are endeavouring to review our Ukrainian operations
to determine the processes of self-reporting for our global operations and formulating the content of
our intended self-reporting.
This initiative is intended to:
•
•
•
•
disclose the environment-related data currently collected, including: energy consumed, water
consumed, greenhouse gas emissions and waste generated (in natural units and relative to
volumes of extracted gas);
determine any additional applicable indicators to be added, for example: natural gas and
solid fuel consumed for heating, compressors and other equipment; diesel fuel used in diesel
generators; consumption of petrol and diesel in vehicles, etc.;
determine potential benchmarks; and
determine the reporting frequency.
We will keep shareholders updated on this initiative of recognised significance.
•
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.
38
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
•
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,
subject to limited exceptions, adhere to the Quoted Companies Alliance Corporate Governance
Code 2018 (“QCA Code”) to ensure clearly defined governance procedures within our business.
Strategic Report Approval
The Strategic Report, which incorporates Highlights, Chairman’s Statement, Chief Executive’s Statement,
Business Model, Our Strategic Priorities, Overview of Assets, Overview of Reserves, Finance Review, Key
Performance Indicators, Sustainability, Principal Risks and Uncertainties and Statement under s172(1) of
the Companies Act 2006, was approved by the Board on 20 December 2023 and signed on its behalf by:
Chris Hopkinson
Chairman
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
39
Corporate Governance
Board of Directors
Chris Hopkinson
Non-Executive Chairman
Chris Hopkinson was appointed as a 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.
Audit Committee Chairman
Remuneration Committee Chairman
HSE Committee Member
Sergii Glazunov
Chief Executive Officer
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. 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 a MSc in Mathematics from Kyiv State University, a
MSc in Statistics from Michigan State University and an MBA from Wayne State University.
HSE Committee Member
Bruce Burrows
Finance Director
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).
Audit Committee Member
Remuneration Committee Member
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
40
Dr Gehrig Schultz
Non-Executive Director
Gehrig Schultz became a Non-Executive Director in August 2022. He is a geophysicist with extensive
experience in the global oil and gas industry. He commenced his career in South America, with
management roles with Western Geophysical Inc. and Grant Geophysical Inc., before joining PGS Onshore
Inc. to assist with the development of its geophysical business worldwide. He was then Chairman and Chief
Executive Officer of Prospectiuni S.A. and Chairman of Tender Oil & Gas Limited, before founding Surus
Geophysical B.V. to provide geophysical consulting services. He joined EPI Limited in 2018 as Chief
Operating Officer of Geoscience, and currently leads the geoscience division. He has a BSc in Geophysical
Engineering from the Colorado School of Mines, and a PhD in Geophysics from the University of Bucharest.
Audit Committee Member
Remuneration Committee Member
HSE Committee Chairman
Alexey Pertin
Non-Executive Director
Alexey Pertin was appointed as a Non-Executive Director in April 2011 and is a nominee of the Company's
indirect majority shareholder, Smart Holding (Cyprus) Limited. He is currently Chairman of the Supervisory
Board of PJSC Smart-Holding, having previously been Chief Executive Officer of PJSC Smart-Holding. He
is also 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 the position of Strategy and Corporate Development Director 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.
Yuliia Kirianova
Non-Executive Director
Yuliia Kirianova was appointed as a 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
Chief Executive Officer of PJSC Smart-Holding, having previously been Chief Financial Officer and First
Deputy Chief Executive 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.
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
41
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 the 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 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 the Company 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 Management Risk Committee that monitors the Group’s business
operations and identifies key risks that are faced. The Management Risk Committee maintains a Risk
Register and Mitigation Plan that is formally reviewed and updated quarterly. The Management Risk
Committee regularly reports to the Board on risk management and mitigation.
42
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
The Company is committed to maintaining the highest quality, health, safety and environment (“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.
The composition of the Board is as follows:
Board Member
Chris Hopkinson (Chairman)
Sergii Glazunov
Alexey Pertin
Yuliia Kirianova
Bruce Burrows
Gehrig Schultz *
*appointed 24 August 2022
Meetings Attended
(out of a total possible)
8/10
10/10
0/10
3/10
10/10
6/7
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 Gehrig Schultz to be independent Non-Executives in terms of
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
43
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.
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
44
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.
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 Gehrig Schultz) and an
Executive Director (Bruce Burrows), and the Health, Safety and Environment Committee is composed of
independent Non-Executive Directors (Chris Hopkinson and Gehrig Schultz) and an Executive Director
(Sergii Glazunov). 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)
Gehrig Schultz *
Bruce Burrows
*appointed 24 August 2022
Meetings Attended
(out of a total possible)
2/2
1/1
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.
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
45
The composition of the Remuneration Committee is as follows:
Committee Member
Chris Hopkinson (Chairman)
Gehrig Schultz *
Bruce Burrows
*appointed 24 August 2022
Meetings Attended
(out of a total possible)
1/1
0/0
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. During the period, there was frequent communication between the HSE Committee
members in relation to their remit, despite no formal meetings being convened, this being dictated by the
disruption and adjustment to work locations and practices caused by the war in Ukraine.
The composition of the Health, Safety and Environment Committee is as follows:
Committee Member
Gehrig Schultz * (Chairman)
Chris Hopkinson
Sergii Glazunov
*appointed 24 August 2022
Meetings Attended
(out of a total possible)
0/0
0/0
0/0
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 audio-visual and telephone discussions. The
Annual General Meeting of the Company provides an opportunity for the Directors to present to
shareholders a report on current operations and developments and enables shareholders to express their
views about the Company’s business.
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 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.
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
46
Directors’ Report
The Directors present their Annual Report and the audited consolidated financial statements for the year
ended 31 December 2022.
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.
Dividends
An interim dividend of 15 pence per ordinary share, totalling £48.1 million, was paid for the period on 15
June 2023 (2021: nil). No final dividend for the period is proposed (2021: 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.
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 (resigned 24 August 2022)
Gehrig Schultz (appointed 24 August 2022)
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.
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
47
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 (2021: 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
As at 20 December 2023, 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
264,996,769
22,273,339
% of issued
ordinary
share capital
82.65%
6.95%
* Smart Energy (CY) Limited is 100% owned by Smart Holding (Cyprus) Limited, which is 100% owned by
Proteas Trustees Ltd as trustee of the STEP Trust, and Proteas Trustee Services Ltd, Afroditi Loukaidou,
Elena Iona and Maria Sokratous as trustees of the SMART Trust.
Going Concern Assessment
The Directors have assessed the ability of the Group and the Company to continue as a going concern,
including considering the impact of the recent and ongoing war in Ukraine, and the results of this
assessment are set out in Note 2.
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 and Company financial statements in accordance with UK-adopted
international accounting standards.
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 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 UK-adopted international accounting standards 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
48
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
•
prepare the financial statements on a going concern basis unless it is inappropriate to presume that
the Group and Company will continue in business.
The Directors are responsible for safeguarding the assets of the Group and Company and hence for taking
reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are also responsible for keeping adequate accounting records that are sufficient to show and
explain the Group’s and Company’s transactions and disclose with reasonable accuracy at any time the
financial position of the Group and 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 Zenth Audit Ltd as Independent Auditors will be proposed at the next Annual
General Meeting.
On behalf of the Board
Chris Hopkinson
Chairman
20 December 2023
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
49
Independent Auditors’ Report to the members of Enwell Energy plc
Report on the audit of the financial statements
Opinion
We have audited the financial statements of Enwell Energy plc (the “Company”) and together with its
subsidiaries (the ”Group”). These financial statements are included within the Annual Report and Financial
Statements (the "Annual Report"), which comprise: the consolidated and company balance sheets as at 31
December 2022; 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.
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
2022 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 UK-adopted international accounting standards;
and
have been prepared in accordance with the requirements of the Companies Act 2006.
•
•
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and
applicable law. Our responsibilities under those standards are further described in the Auditors'
responsibilities for the audit of the financial statements section of our report. We are independent of the
Company in accordance with the ethical requirements that are relevant to our audit of the financial
statements in the UK, including the FRC's Ethical Standard as applicable to listed entities, and we have
fulfilled our other ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Conclusions relating to going concern assumption on the Company financial statements
In auditing the Company financial statements, we have concluded that the Directors' use of the going
concern basis of accounting in the preparation of the Company financial statements is appropriate.
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 Company's ability to continue
as a going concern for a period of at least twelve months from when the financial statements are authorised
for issue.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in
the relevant sections of this report. However, because not all future events or conditions can be predicted,
this statement is not a guarantee as to the Company’s ability as a going concern.
Material uncertainty related to going concern on the Group financial statements
In forming our opinion on the Group financial statements, which is not modified, we have considered the
adequacy of the disclosure made in Note 2 to the financial statements concerning the Group's ability to
continue as a going concern. The Group's operations are entirely based in Ukraine. On 24 February 2022,
the Russian Federation commenced a military invasion of Ukraine which disrupted the operations at the
Group’s field locations. As described in Note 32 “Post balance sheet events” to the financial statements,
following the adoption of new legislation the Ukrainian authorities suspended in May 2023 the VAS
production licence and the SC exploration licence for a period of 5 years. The future development of this
conflict and the future actions of the Ukrainian state authorities are inherently uncertain and might have
potential short and long-term impact on the Group's operations, staff and assets in Ukraine. These
conditions, along with the other matters explained in Note 2 to the financial statements, indicate the
existence of a material uncertainty which may cast significant doubt about the Group's ability to continue
as a going concern and realise its assets in the normal course of business. The Group financial statements
do not include the adjustments that would result if the Group were unable to continue as a going concern.
50
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
In auditing the Group financial statements, we have concluded that the Directors' use of the going concern
basis of accounting in the preparation of the Group financial statements is appropriate.
Our evaluation of the Directors' assessment of the Group's ability to continue to adopt the going concern
basis of accounting included:
•
•
•
•
•
•
We obtained the Directors' assessment and conclusions with respect to going concern.
We discussed the going concern assessment with management and those charged with governance
and challenged the key assumptions, estimates and judgements made in the assessment.
We tested the cash flow model used in the going concern assessment.
We assessed the likelihood of the different scenarios and sensitivities considered by the Directors,
with specific consideration of the potential impact of the Russian military invasion of Ukraine and the
suspension of other MEX-GOL and SV licences by the state authorities in Ukraine.
We discussed with the Group legal advisors the measures taken by the Group to defend its business
and assets in Ukraine
We considered the appropriateness of the disclosures made in respect of going concern in the Group
financial statements.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described in
the relevant sections of this report.
Our audit approach
Overview
Audit scope
•
•
•
•
•
In addition to the statutory audit of the parent company, we conducted full scope audits of two
significant components out of the Group's five components which were selected due to their size and
risk characteristics. An audit of one or more account balances, classes of transactions or disclosures
was performed at a further three components.
This enabled us to obtain coverage of 100% of consolidated revenue, 100% coverage of consolidated
profit before tax and 100% coverage of consolidated total assets of the group.
Key audit matters
•
Material uncertainty related to going concern (refer to 'Material uncertainty related to going concern
assumption on the Group financial statements' above)
Carrying value of investments in, and loans to, subsidiary undertakings (parent)
Materiality (2021 numbers are determined by the predecessor auditor)
•
Overall Group materiality: US$2,521,000 (2021: US$1,600,000) based on 5% of three-year average
(2021: three-year average) profit before tax adjusted for non-recurring items.
Overall Company materiality: US$1,690,000 (2021: US$1,511,000) based on 1% of total assets.
Performance materiality: US$1,260,000 (2021: US$1,200,000) (Group) and US$845,000 (2021:
US$1,133,000) (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.
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.
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
51
In addition to going concern, described in the 'Material uncertainty related to going concern assumption on
the Group financial statements’ section above, we determined the matters described below to be the key
audit matters to be communicated in our report. This is not a complete list of all risks identified by our audit.
Key audit matter
How our audit addressed the key audit matter
Carrying value of investments in, and loans to,
subsidiary undertakings (parent)
and
Loans
to Note 3
Refer
‘Significant Accounting
Judgements and Estimates’ and Note 19
‘Investments
to Subsidiary
Undertakings’. As at 31 December 2022, the
Company has a total investment in subsidiaries
of US$80.7 million (2021: US$ 87.4 million)
comprising investment in shares of US$30.7
million (2021: US$ 38.5 million) and long-term
investment loans of US$50.0 million (2021:
US$ 48.9 million).
As the balance sheet date management updated
its assessment of the expected credit loss on the
Company's intercompany loan receivable and
determined that the provision against the loan
receivable should be increased by US$2.1
million. In addition, management updated its
assessment of the recoverable amount of the
Company's investments in its subsidiaries and
determined that an impairment loss of US$7.8
million should be recognised.
The assessment of the recoverability of the
investments' carrying value involves subjective
judgements about future business performance,
with key assumptions including cash flows and
discount rates. The assessment of expected
credit loss requires subjective judgements and
estimates of the timing of future cash flows.
Accordingly, this was an area of focus for our
audit as there is a risk that the carrying value of
the Company's investments in subsidiaries and
receivables could be
the
materially misstated.
intercompany
to,
for
the
key
loans
in, and
reasonableness
To address the risk that the carrying amount of
subsidiary
investments
undertakings as at 31 December 2022, may be
misstated, we performed the following procedures:
- Discussed with management
assumptions used;
- Evaluated the overall methodology applied in
management's assessment of the expected credit
losses on loans to subsidiaries and determination
of the recoverable amounts of investments in
subsidiaries
and
appropriateness, and verified the mathematical
accuracy of the related cash flow models;
- Validated the assumptions used by management
by agreeing or comparing them to external and
internal sources, where appropriate; recalculated
the weighted average cost of capital using inputs
from external sources;
- Agreed internally generated assumptions to
the approved budgets and management plans;
- Performed sensitivity analysis to understand if
reasonably possible changes in management's
assumptions would result in a material change in
the balances;
We concur with management's conclusions in
respect of the carrying amount of investments in,
and loans to, subsidiary undertakings as at 31
December 2022 and the resulting impact on profit
or loss.
We verified that the Company's assessment was
appropriately accounted for and disclosed in the
Company financial statements for the year ended
31 December 2022, including the disclosure of
applicable estimates and judgements.
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
52
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 two operating segments on a geographical basis: the UK head office and
Ukrainian oil and gas exploration, development and production. The consolidated financial statements
are a consolidation of seven legal entities, comprising the Group's operating businesses and centralised
functions.
Day-to-day management of the operations of the Group and the Company, including accounting and.
financial reporting, is undertaken in Kyiv, Ukraine. Accordingly, a significant portion of our audit work was
undertaken in Kyiv on our behalf by Ukrainian component auditors, part of an reputable international
accounting network. In establishing the overall approach to the Group audit, we determined the type of work
that needed to be performed by us, as the group audit team, or by the local firm in Ukraine, as a component
audit team.
We conducted full scope audits of the parent company and of two components out of the Group's five
components which were selected due to their size and risk characteristics. We audited the parent
company financial statements and the component auditors audited the two local significant components
(one of which was a representative office whereas we performed specific scope procedures for the
holding company). An audit of one or more account balances, classes of transactions or disclosures was
performed at a further three insignificant components. We carried two of these specific scope procedures
and the component team carried out one specific scope engagement.
Further specific audit procedures relating to the consolidation, compliance with laws and regulations
outside of Ukraine including the audit of UK tax, and procedures relating to the appropriate presentation
and disclosure of the Annual Report and Financial Statements were performed directly by us as the group
audit team.
This enabled us to obtain coverage of 100% of consolidated revenue, 10% coverage of consolidated profit
before tax and 100% coverage of consolidated total assets of the Group.
Where work was performed by our component team in Ukraine, we determined the level of involvement
we needed to have in their work to ensure sufficient appropriate audit evidence had been obtained as a
basis for our opinion on the financial statements. We conducted our oversight through regular dialogue
via video conferencing, calls and other forms of communication as considered necessary and appropriate
in the circumstances throughout the planning, execution, and completion phases of the audit. In addition,
we performed a review of component auditor working papers to satisfy ourselves that the appropriate
audit work had been performed. We also attended key meetings virtually with management in Ukraine
and our component team.
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.
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
53
Based on our professional judgement, we determined materiality for the financial statements as a whole
as follows (prior year numbers determined by the predecessor auditor):
Financial statements - Group
Overall
materiality
US$2,521,000 (2021: US$1,600,000).
How
determined it
we
5% of three-year average (2021: three-year average)
profit before tax adjusted for non-recurring ·items
for
Rationale
benchmark
applied
Profit before tax is the primary measure used by the
shareholders in assessing the performance of the
is a generally accepted auditing
Group and
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 three years, profit for the current year is
showing an increasing trend. Therefore, it was
considered to be appropriate to use an average of
profit before tax and the three-year average profit
before
three-year average) was
considered to be the most appropriate benchmark.
(2021:
tax
Financial
Company
statements
-
US$1,690,000
US$1,511,000).
1% of total assets
(2021:
We believe that total assets
is the primary measure used
in
the shareholders
by
assessing the performance
of the Company, and is a
generally accepted auditing
benchmark.
For each component in the scope of our Group audit, we allocated a materiality that is less than our overall
Group materiality. The range of materiality allocated across components was between US$1,008,000 and
US$1,765,000. Certain components were audited to a local statutory audit materiality that was also less
than our overall Group materiality.
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. Due
to this being our first year audit, our performance materiality was 50% (2021: 75%) of overall materiality,
amounting to US$1,260,000 (2021: US$1,200,000) for the Group financial statements and US$845,000
(20201 US$1,133,000) 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 in the middle 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$126,000 (2021: US$80,000) for the Group audit and above $84,500 (2021:
$75,550) for the Company audit, as well as misstatements below those amounts that, in our view,
warranted reporting for qualitative reasons.
Other matter
The financial statements of the Company for the year ended 31 December 2021 were audited by another
auditor who expressed an unmodified opinion on those statements on 28 June 2022.
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.
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
54
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 2022 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, 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.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design
procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of
irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities,
including fraud, is detailed below.
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
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
55
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
controls), and determined that the principal risks were related to posting inappropriate journal entries and
management bias in accounting estimates. The group engagement team shared this risk assessment with
the component auditors so that they could include appropriate audit procedures in response to such risks
in their work. Audit procedures performed by the group engagement team and/or component auditors
included:
•
•
•
•
Inquiries of management and those charged with governance, 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 the 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 specific risk criteria, including journals with unusual
account combinations, journals posted by unexpected users, journals with no description or specific
words included in the description and year end and consolidation journals.
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.
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.
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.
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.
Filip Lyapov (Senior Statutory Auditor)
for and on behalf of Zenith Audit Ltd
Statutory Auditors
1st Floor, 18 Devonshire Row, London EC2M 4RH
20 December 2023
56
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
Consolidated Income Statement
for the year ended 31 December 2022
Revenue
Cost of sales
Gross profit
Administrative expenses
Other operating (losses)/gains, (net)
Operating profit
Finance income
Finance costs
Net impairment (losses)/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
2022
$000
2021
$000
4
5
6
9
10
11
12
13
133,380
(47,457)
85,923
(6,830)
(3,320)
75,773
1,126
(1,410)
(444)
(1,738)
73,307
(13,124)
60,183
121,353
(47,422)
73,931
(8,350)
654
66,235
1,394
(752)
(177)
(108)
66,592
(15,473)
51,119
15
18,8c
15.9c
The Notes set out below on pages 65 to 111 are an integral part of these consolidated financial
statements.
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
57
Consolidated Statement of Comprehensive Income
for the year ended 31 December 2022
Profit for the year
Other comprehensive income/(expense):
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
2022
$000
2021
$000
60,183
51,119
(38,094)
53
(38,041)
1,611
172
1,783
Total comprehensive income for the year
22,142
52,902
Company Statement of Comprehensive Income
for the year ended 31 December 2022
(Loss)/profit for the year
14
(6,358)
16,330
Total comprehensive (loss)/income for the year
(6,358)
16,330
Note
2022
$000
2021
$000
The Notes set out below on pages 65 to 111 are an integral part of these consolidated financial
statements.
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
58
Consolidated Balance Sheet
as at 31 December 2022
Assets
Non-current assets
Property, plant and equipment
Intangible assets
Right-of-use assets
Deferred tax asset
Prepayments for fixed assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Other short-term investments
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
Foreign exchange reserve
Merger reserve
Capital contributions reserve
Retained earnings
Total equity
Note
16
17
18
25
20
21
22
22
23
18
24
18
25
26
27
27
27
2022
$000
74,256
8,994
364
287
5,385
89,286
3,358
60,438
88,652
-
152,448
2021
$000
87,418
12,340
1,008
361
4,933
106,060
1,862
8,126
87,780
4,762
102,530
241,734
208,590
(27,529)
(229)
(2,447)
(30,205)
(12,306)
(455)
(5,445)
(18,206)
127,628
89,257
(6,964)
(258)
(323)
(3,232)
(93)
(10,870)
(5,467)
(648)
(427)
(5,197)
(128)
(11,867)
(41,075)
(30,073)
200,659
178,517
28,115
(141,705)
(3,204)
7,477
309,976
200,659
28,115
(103,611)
(3,204)
7,477
249,740
178,517
The Notes set out below on pages 65 to 111 are an integral part of these consolidated financial statements.
The financial statements of Enwell Energy plc, company number 04462555, on pages 65 to 111 were approved by the
Board of Directors on 20 December 2023 and signed on its behalf by:
Bruce Burrows
Finance Director
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
59
Consolidated Statement of Changes in Equity
for the year ended 31 December 2022
Called
up share
capital
$000
28,115
-
-
-
-
-
Share
premium
account
$000
555,090
-
-
-
-
(555,090)
Merger
reserve
$000
(3,204)
-
-
-
-
-
Called
up share
capital
$000
28,115
-
-
-
-
28,115
Share
premium
account
$000
-
-
-
-
-
-
Merger
reserve
$000
(3,204)
-
-
-
-
As at 1 January 2021
Profit for the year
Other comprehensive expense
- exchange differences
- re-measurements of post-
employment benefit obligations
Total comprehensive
income/(expense)
Cancellation of share
premium account
As at 31 December 2021
As at 1 January 2022
Profit for the year
Other comprehensive income
- exchange differences
- re-measurements of post-
employment benefit obligations
Total comprehensive
income/(expense)
As at 31 December 2022
Capital
contributions
reserve
$000
Foreign
exchange
reserve*
$000
Retained
earnings/(Accumu
lated losses)
$000
7,477
-
(105,222)
-
(356,641)
51,119
Total equity
$000
125,615
51,119
1,611
172
-
-
-
-
1,611
-
-
172
1,611
51,291
52,902
-
555,090
-
Capital
contributions
reserve
$000
Foreign
exchange
reserve*
$000
Retained
earnings/(Accum
ulated losses)
$000
Total equity
$000
7,477
-
-
-
-
(103,611)
-
(38,094)
-
(38,094)
(141,705)
249,740
60,183
-
53
60,236
309,976
178,517
60,183
(38,094)
53
22,142
200,659
(3,204)
7,477
28,115
-
(3,204)
7,477
(103,611)
249,740
178,517
* 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 65 to 111 are an integral part of these consolidated financial statements.
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
60
Consolidated Cash Flow Statement
for the year ended 31 December 2022
Operating activities
Cash generated from operations
Charitable donations
Income tax paid
Interest received
Net cash inflow from operating activities
Investing activities
Purchase of oil and gas development, production and other property,
plant and equipment
Purchase of oil and gas exploration and evaluation assets
Sale/(Purchase) of financial instruments
Purchase of oil and gas development, production and other
intangible assets
Proceeds from return of prepayments for shares
Proceeds from sale of property, plant and equipment
Net cash outflow 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 the beginning of the year
ECL* of cash and cash equivalents
Effect of foreign exchange rate changes
Cash and cash equivalents at the end of the year
*ECL – Expected credit losses
Note
28
12
2022
$000
2021
$000
47,541
(6,534)
(15,863)
1,888
27,032
77,646
(76)
(8,959)
763
69,374
(19,829)
(26,292)
(4,092)
4,762
(1,482)
-
4
(20,637)
(11,387)
(4,762)
(539)
250
10
(42,720)
(398)
(398)
5,997
87,780
(14)
(5,111)
88,652
(555)
(555)
26,099
60,993
(6)
694
87,780
22
22
The Notes set out below on pages 65 to 111 are an integral part of these consolidated financial statements.
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
61
Company Balance Sheet
as at 31 December 2022
Assets
Non-current assets
Intangible assets
Investments
Loans to subsidiary undertakings
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
Note
2022
$000
2021
$000
19
19
21
22
41
30,704
49,974
80,719
615
81,541
82,156
47
38,527
48,899
87,473
299
63,299
63,598
162,875
151,071
-
-
-
-
(19,960)
(19,960)
(1,798)
(1,798)
62,196
61,800
(19,960)
(1,798)
142,915
149,273
28,115
121,158
(6,358)
-
114,800
142,915
28,115
(450,262)
16,330
555,090
121,158
149,273
Equity
Called up share capital
Retained earnings/(Accumulated losses) as at 1 January
-
-
(loss)/profit for the year and total comprehensive income
cancellation of share premium account
Retained earnings/(Accumulated losses) as at 31 December
Total equity
26
14
The Notes set out below on pages 65 to 111 are an integral part of these consolidated financial statements.
The financial statements of Enwell Energy plc, company number 04462555, on pages 65 to 111 were
approved by the Board of Directors on 20 December 2023 and signed on its behalf by:
Bruce Burrows
Finance Director
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
62
Company Statement of Changes in Equity
for the year ended 31 December 2022
Called up
share
capital
$000
Share
premium
account
$000
Retained
earnings/
(Accumulated
losses)
$000
Total equity
$000
28,115
555,090
(450,262)
132,943
-
-
16,330
16,330
-
(555,090)
28,115
-
555,090
121,158
-
149,273
Called up
share
capital
$000
28,115
-
28,115
Share
premium
account
$000
Retained
earnings/
(Accumulated
losses)
$000
-
-
-
121,158
(6,358)
114,800
Total equity
$000
149,273
(6,358)
142,915
As at 1 January 2021
Profit for the year and total
comprehensive income
Cancellation
premium account
As at 31 December 2021
share
of
As at 1 January 2022
Profit for the year and total
comprehensive income
As at 31 December 2022
The Notes set out below on pages 65 to 111 are an integral part of these consolidated financial statements.
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
63
Note
28
Company Cash Flow Statement
for the year ended 31 December 2022
Operating activities
Cash used in operations
Taxation paid
Interest received
Net cash from/(used in) operating activities
Investing activities
Dividends received from Group companies
Proceeds from return of prepayments for shares
Purchase of subsidiaries
Purchase of property, plant and equipment
Repayment of principal and interest on loans to Group
companies
Issue of loans to Group companies
Net cash from/(used in) investing activities
Net 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
22
2022
$000
21,691
(10)
677
22,358
-
-
(1,211)
-
1,077
(4,000)
(4,134)
18,224
63,299
18
81,541
2021
$000
(2,820)
(276)
1
(3,095)
10,017
250
(2,617)
-
32,132
(12,000)
27,782
24,687
38,619
(7)
63,299
The Notes set out below on pages 65 to 111 are an integral part of these consolidated financial statements.
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
64
Notes forming part of the financial statements
1. General Information and Operational Environment
Enwell Energy plc (the “Company”) and its subsidiaries (the “Group”) is a gas, condensate and LPG
production group.
The Company is a public limited company quoted on the AIM Market operated by London Stock Exchange
plc and incorporated in 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 at 31 December 2022, the Company’s immediate parent company was Smart Energy (CY) Limited,
which was 100% owned by Smart Holding (Cyprus) Limited, which was 100% owned by Proteas Trustees
Ltd as trustee of the STEP Trust, and Proteas Trustee Services Ltd, Afroditi Loukaidou, Elena Iona and
Charoula Sofokleous as trustees of the SMART Trust. Accordingly, the Company was ultimately controlled
by Proteas Trustees Ltd as trustee of the STEP Trust, and Proteas Trustee Services Ltd, Afroditi Loukaidou,
Elena Iona and Charoula Sofokleous as trustees of the SMART Trust. As at 31 December 2021, the
Company’s immediate parent company was Smart Energy (CY) Limited, which was 100% owned by Smart
Holding (Cyprus) Limited, which was 100% owned by Mr Vadym Novynskyi.
The Group’s gas, condensate and LPG extraction and production facilities are located in Ukraine.
Impact of the ongoing war in Ukraine
On 24 February 2022, Russia commenced a military invasion of Ukraine, and since then there has been
an ongoing war in Ukraine. Shortly after the invasion, the Ukrainian Government imposed martial law, and
the corresponding introduction of related temporary restrictions that impact, amongst other areas, the
economic environment and business operations in Ukraine. The war has caused significant economic
challenges in Ukraine, which 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.
The war is continuing, causing very significant numbers of military and civilian casualties and significant
dislocation of the Ukrainian population. The Russian army has occupied territories in the east and south of
Ukraine, including the majority of the Kherson, Zaporizhzhia, Luhansk and Donetsk regions. Russian
attacks have targeted and destroyed civilian infrastructure over wide areas of Ukraine, including hospitals
and residential complexes.
On 3 June 2022, the National Bank of Ukraine (“NBU”) increased the key policy interest rate to 25%, which
was aimed at suspending price increases and strengthening the Ukrainian Hryvnia exchange rate. The
NBU has also introduced temporary restrictions on foreign currency trades and limited the ability to perform
cross-border payments for non-critical imports and repayment of debt to foreign creditors, apart from
international institutions. The Ukrainian Hryvnia exchange rate with the US Dollar was effectively fixed at
UAH29.25:$1.00 in February 2022 and then at UAH36.57:$1.00 in July 2022 on the foreign exchange
market to ensure the stable operation of Ukraine’s financial system. As a result, commercial interbank
quotes remain close to the officially imposed NBU exchange rate. Despite the uncertainty and instability in
the general situation within Ukraine, the banking system remains relatively stable, with sufficient liquidity
even as martial law continues, and banking services are available to both legal entities and individual bank
customers.
The Ukrainian Government has taken action to limit the negative effects of the war on the Ukrainian
economic environment during the period of martial law and beyond, including but not limited to:
•
the temporary easing of the tax regime until the end of martial law, including the suspension of tax
audits and the cancellation of some penalties for violating the tax law;
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
65
•
•
•
gasoline, heavy distillates, liquefied gas, oil and petroleum are subject to VAT at a reduced rate of
7%, and the excise tax rate for the imported fuel group of products’ is set at zero;
a number of measures were taken to limit prices for energy resources, including prohibiting export of
gas, setting a level of electricity price on transactions a day ahead and intraday markets; and
the increase in the subsoil tax rate on natural gas production during martial law, which action
introduced a differentiated subsoil tax rate on the production of natural gas depending on sale prices
for natural gas.
Additional financial support was received from a number of international institutions, including from the IMF
and European Bank for Reconstruction and Development (“EBRD”), to support the economy and the
population. Such financial support is critical for Ukraine to continue to service its debts in the foreseeable
future.
Given the fast-moving nature of the situation in Ukraine and the unpredictability of the outcome, it is
impracticable to assess the full impact of the war on the economic environment.
Overall, the final resolution and the ongoing effects of the war and political and economic situation in
Ukraine are difficult to predict, but they may have further severe effects on the Ukrainian economy and the
Group’s business.
As at 14 December 2023, the official NBU exchange rate of the Ukrainian Hryvnia against the US Dollar
was UAH37.0/$1.00, compared with UAH36.57/$1.00 as at 31 December 2022.
Further details of risks relating to Ukraine can be found within the Principal Risks section of the Strategic
Report.
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
On 31 December 2020, IFRS as adopted by the European Union at that date was brought into UK law and
became UK-adopted International Accounting Standards, with future changes being subject to
endorsement by the UK Endorsement Board. The Group and Company transitioned to UK-adopted
International Accounting Standards on 1 January 2021. This change constitutes a change in accounting
framework. However, there is no impact on recognition, measurement or disclosure in the period reported
as a result of the change in framework. The consolidated financial statements of the Group and the financial
statements of the Company have been prepared in accordance with UK-adopted International Accounting
Standards and with the requirements of the Companies Act 2006 as applicable to companies reporting
under those standards.
These consolidated financial statements have been prepared in accordance with UK-adopted International
Accounting Standards under the historical cost convention, as modified by the initial recognition of financial
instruments based on fair value, and by the revaluation of financial instruments categorised at fair value
through profit or loss (“FVTPL”) and at fair value through other comprehensive income (“FVOCI”). The
principal accounting policies applied in the preparation of these consolidated financial statements are set
out below. Apart from the accounting policy changes effective from 1 January 2022 these policies have
been consistently applied to all the periods presented, unless otherwise stated.
The preparation of financial statements in conformity with UK-adopted International Accounting Standards
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
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
66
financial statements are disclosed in Note 3. The consolidated financial statements are presented in
thousands of US Dollars.
Going Concern
The Group’s business activities, together with the factors likely to affect its future operations, performance
and position are set out in the Chairman’s Statement, Chief Executive’s Statement and Finance Review.
The financial position of the Group, its cash flows and liquidity position are set out in these consolidated
financial statements.
On 24 February 2022, Russia commenced a military invasion of Ukraine. This was quickly followed by the
enactment of martial law by the Ukrainian President’s Decree, approved by the Parliament of Ukraine, and
the corresponding introduction of related temporary restrictions that impact the economic environment and
business operations in Ukraine.
The production assets of the Group are located in the central and eastern part of the country (Poltava and
Kharkiv regions) which are controlled by the Ukrainian Government. Following a brief period of suspension,
production and field operations, as well as construction work on upgrades to the gas processing facilities,
at the MEX-GOL and SV fields recommenced. As of the date of approval of these financial statements, no
assets of the Group have been damaged, and the Group continues to operate its MEX-GOL and SV assets
in the Poltava region, while its SC asset in the Poltava region and all production and field operations at the
VAS asset located in the Kharkiv region are suspended. No military activities have occurred at the Group’s
field locations. The Gas Transmission System Operator of Ukraine has maintained complete operational
and technological control over the operations of the Ukrainian Gas Transmission System. However, as of
the date of approval of these financial statements, the war has had, and continues to have, a material
impact on the production and sales levels of the business and execution of the Group’s 2022 budget.
The Group has no debt and funds its operations from its own cash resources. Cash and cash equivalents
were $79.1 million as at 14 December 2023. The Directors maintain a significant level of flexibility to modify
the Group’s development plans as may be required to preserve cash resources for liquidity management.
Absent the potential impact of the war in Ukraine, the Directors are satisfied that the Group and the
Company are a going concern and will continue their operations for the foreseeable future.
In assessing the impact of the war on the ability of the Group and the Company to continue as a going
concern, the Directors have analysed a number of possible scenarios of economic and military
developments and the impact on the expected cash flows of the Group and Company for 2023 and 2024.
This includes considering a possible (but in the view of the Directors, highly unlikely) worst case scenario
in which the Group has zero production as a result of possible future military conflict dictating field
operations being completely shut-in, and all other non-production related costs being maintained at current
levels with no reduction or mitigating actions as would otherwise be possible. Even in this worst-case
scenario, the Directors are satisfied that the Group and the Company have sufficient liquid resources to be
able to meet their liabilities as they fall due and to be able to continue as a going concern for the foreseeable
future.
The corporate strategy for the near term is to:
•
•
•
continue production from MEX-GOL and SV licences, generating cash to cover Group costs and add
to existing cash resources, whilst moderating development plans to reduce cash spend exposure
whilst the war and operational/political continue;
vigorously pursue legal initiatives to protect the Group’s assets, restore all licences and production,
and seek compensation for losses incurred to date and as may be incurred in the future; and
tightly manage costs to ensure cash resources are maintained at levels capable of sustaining the
business through the uncertainty that lies ahead.
In respect of the Group’s operations, staff and assets in Ukraine, the potential short and long-term impact
of the future development of the war is inherently uncertain. Accordingly, this creates a material uncertainty
related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going
67
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
concern because of the potential impact on its ability to continue its operations for the foreseeable future
and realise its assets in the normal course of business. The financial statements do not include the
adjustments that would result if the Group were unable to continue as a going concern.
The Company is a UK-based investment holding company. The Company had cash and cash equivalents
of $20.6 million as at 14 December 2023, all of which are held outside of Ukraine, in US Dollars, Pounds
Sterling and Euros. The Directors are satisfied that the Company is a going concern and will be able to
continue its operations for the foreseeable future, and there is no material uncertainty in respect of its ability
to do so.
New and amended standards adopted by the Group
The following amended standards became effective from 1 January 2022, but did not have a material impact
on the Group’s consolidated or Company’s financial statements:
•
•
Amendments to IAS 16 Property, Plant and Equipment prohibit the deduction from the cost of an
item of property, plant and equipment of any proceeds from selling items produced while bringing
that asset into operation and clarify that these proceeds (and the corresponding costs of production)
are recognised in profit or loss
Amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets clarify that the cost
of fulfilling a contract comprises the costs that relate directly to the contract. These can either be
incremental costs of fulfilling that contract or the allocation of other costs that relate directly to fulfilling
contracts
Impact of standards issued but not yet applied by the Group
Certain new standards and interpretations have been issued that are mandatory for the annual periods
beginning on or after 1 January 2023 or later, and which the Group has not early adopted.
(a)
IFRS 17 Insurance Contracts
(b)
Amendments to IFRS 1 Presentation of Financial Statements: Classification of Liabilities as Current
or Non-current
(c)
Amendments to IAS 1 and IFRS Practice Statement 2: Disclosure of Accounting Policies
(d)
Amendments to IAS 8: Definition of Accounting Estimates
(e)
Amendments to IAS 12: Deferred Tax related to Assets and Liabilities arising from a Single
Transaction
These new standards and interpretations are not expected to affect significantly the Group’s consolidated
financial statements.
Exchange differences on intra-group balances with foreign operation
The Group has certain inter-company monetary balances of which the Company is the beneficial owner.
These monetary balances are payable by a subsidiary that is a foreign operation and are eliminated on
consolidation.
In the consolidated financial statements, exchange differences arising on such payables because the
transaction currency differs from the subsidiary’s functional currency are recognised initially in other
comprehensive income if the settlement of such payables is continuously deferred and is neither planned
nor likely to occur in the foreseeable future.
In such cases, the respective receivables of the Company are regarded as an extension of the Company’s
net investment in that foreign operation, and the cumulative amount of the abovementioned exchange
differences recognised in other comprehensive income is carried forward within the foreign exchange
reserve in equity and is reclassified to profit or loss only upon disposal of the foreign operation.
68
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
When the subsidiary that is a foreign operation settles its quasi-equity liability due to the Company, but the
Company continues to possess the same percentage of the subsidiary, i.e. there has been no change in
its proportionate ownership interest, such settlement is not regarded as a disposal or a partial disposal, and
therefore cumulative exchange differences are not reclassified.
The designation of inter-company monetary balances as part of the net investment in a foreign operation
is re-assessed when management’s expectations and intentions on settlement change due to a change in
circumstances.
Where, because of a change in circumstances, a receivable balance, or part thereof, previously designated
as a net investment into a foreign operation is intended to be settled, the receivable is de-designated and
is no longer regarded as part of the net investment.
In such cases, the exchange differences arising on the subsidiary’s payable following de-designation are
recognised within finance costs / income in profit or loss, similar to foreign exchange differences arising
from financing.
Foreign exchange gains and losses not related to intra-group balances are recognised on a net basis as
other gains or losses.
Basis of Consolidation
The consolidated financial statements incorporate the financial information of the Company and entities
controlled by the Company (and its subsidiaries) made up to 31 December each year.
Subsidiaries
Subsidiaries are all entities (including structured entities) over which the Group has control. The Group
controls an entity when the Group is exposed to, or has rights to variable returns from its involvement with
the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully
consolidated from the date on which control is transferred to the Group. They are deconsolidated from the
date that control ceases.
The Group applies the acquisition method to account for business combinations. The consideration
transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred
to the former owners of the acquiree and the equity interests issued by the Group. The consideration
transferred includes the fair value of any asset or liability resulting from a contingent consideration
arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business
combination are measured initially at their fair values at the acquisition date. The Group recognises any
non-controlling interest in the acquiree on an acquisition-by-acquisition basis at the non-controlling
interest’s proportionate share of the recognised amounts of the acquiree’s identifiable net assets.
Acquisition-related costs are expensed as incurred.
If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s
previously held equity interest in the acquiree is re-measured to fair value at the acquisition date; any gains
or losses arising from such re-measurement are recognised in profit or loss.
Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition
date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset
or liability is recognised in accordance with IFRS 9 in profit or loss.
Inter-company transactions, balances and unrealised gains on transactions between Group companies are
eliminated. Unrealised losses are also eliminated. When necessary, amounts reported by subsidiaries have
been adjusted to conform with the Group’s accounting policies.
Segment reporting
The Group’s only class of business activity is oil and gas exploration, development and production. The
Group’s primary operations are located in Ukraine, with its head office in the United Kingdom.
69
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
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 and evaluation of mineral resources, starts when the legal rights to explore have been obtained.
Expenditure incurred before obtaining the legal right to explore is generally expensed; an exception to this
would be separately acquired intangible assets such as payment for an option to obtain legal rights.
Expenditures incurred in the exploration activities are expensed unless they meet the definition of an asset.
The Group recognises an asset when it is probable that economic benefits will flow to the Group as a result
of the expenditure. The economic benefits might be available through commercial exploitation of
hydrocarbon reserves or sales of exploration findings or further development rights. Exploration and
evaluation (“E&E”) assets are recognised as either property, plant and equipment or intangible assets,
according to their nature, in single field cost centres.
The capitalisation point is the earlier of:
(a)
(b)
the point at which the fair value less costs to sell the property can be reliably determined as being
higher than the total of the expenses incurred and costs already capitalised (such as licence
acquisition costs); and
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
70
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
properties (if amortisation is determined on the basis of an aggregation of properties with a common
geological structure) ceases to produce and the entire property or group of properties is abandoned, a gain
or loss shall be recognised. Occasionally, the partial abandonment or retirement of a proved property or
group of proved properties or the abandonment or retirement of wells or related equipment or facilities may
result from a catastrophic event or other major abnormality. In those cases, a loss shall be recognised at
the time of abandonment or retirement.
Intangible Assets other than Oil and Gas Assets
Intangible assets other than oil and gas assets are stated at cost less accumulated amortisation and any
provision for impairment. These assets represent exploration licences. Amortisation is charged so as to
write off the cost, less estimated residual value on a straight-line basis of 20-25% per annum.
Depreciation, Depletion and Amortisation
All expenditure carried within each field is amortised from the commencement of commercial production on
a unit of production basis, which is the ratio of gas production in the period to the estimated quantities of
commercial reserves at the end of the period plus the production in the period, generally on a field by field
basis. In certain circumstances, fields within a single development area may be combined for depletion
purposes. Costs used in the unit of production calculation comprise the net book value of capitalised costs
plus the estimated future field development costs necessary to bring the reserves into production.
Impairment
At each balance sheet date, the Group reviews the carrying amount of oil and gas development and
production assets to determine whether there is any indication that those assets have suffered an
impairment loss. This includes exploration and appraisal costs capitalised which are assessed for
impairment in accordance with IFRS 6. If any such indication exists, the recoverable amount of the asset
is estimated in order to determine the extent of the impairment loss.
For oil and gas development and production assets, the recoverable amount is the greater of fair value less
costs to dispose and value in use. In assessing value in use, the estimated future cash flows are discounted
to their present value using an expected weighted average cost of capital. If the recoverable amount of an
asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its
recoverable amount. Impairment losses are recognised as an expense immediately. The valuation method
used for determination of fair value less cost of disposal is based on unobservable market data, which is
within Level 3 of the fair value hierarchy.
Should an impairment loss subsequently reverse, the carrying amount of the asset is increased to the
revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the
carrying amount that would have been determined had no impairment loss been recognised for the asset
in prior years. A reversal of an impairment loss is recognised as income immediately.
Decommissioning Provision
Where a material liability for the removal of existing production facilities and site restoration at the end of
the productive life of a field exists, a provision for decommissioning is recognised. The amount recognised
is the present value of estimated future expenditure determined in accordance with local conditions and
requirements. The cost of the relevant property, plant and equipment is increased with an amount
equivalent to the provision and depreciated on a unit of production basis. Changes in estimates are
recognised prospectively, with corresponding adjustments to the provision and the associated fixed asset.
The unwinding of the discount on the decommissioning provision is included within finance costs.
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
71
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:
Buildings and constructions
Machinery and equipment
Vehicles
Office and other equipment
Useful lives in years
10 to 20 years
2 to 5 years
5 years
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:
Land
Wells
Properties:
Buildings and constructions
Machinery and equipment
Vehicles
Office and other equipment
Inventories
Useful lives in years
40 to 50 years
10 to 20 years
10 to 20 years
2 to 5 years
5 years
4 to 12 years
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
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
72
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.
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)
(b)
assets and liabilities for each Balance Sheet presented are translated at the closing rate at the date
of that Balance Sheet;
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
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
73
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 as at 31 December 2022
were $1:UAH36.57 (2021: $1: UAH27.28), $1:£0.827 (2021: $1:£ 0.741), $1:€0.934 (2021: $1:€0.883), and
the average rates for the year were $1:UAH32.37 (2021: $1:UAH27.3), $1:£0.811 (2021: $1:£ 0.727),
$1:€0.951 (2021: $1:€0.845)
None of the Group’s operations are considered to use the currency of a hyperinflationary economy, however
this is kept under review.
Pensions
The Group contributes to a local government pension scheme in 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 within the Cost of
Sales in employee benefit expense, except where included in the cost of an asset, reflects the increase in
the defined benefit obligation resulting from employee service in the current year, benefit changes
curtailments and settlements. Past-service costs are recognised immediately in the Income Statement.
The net interest cost is calculated by applying the discount rate to the net balance of the defined benefit
obligation and the fair value of plan assets. This cost is included in employee benefit expense in the Income
Statement within the Cost of Sales.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are
charged or credited to equity in other comprehensive income in the period in which they arise.
Taxation
The tax expense represents the sum of the current tax and deferred tax.
Current tax, including 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.
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
74
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts
of assets and liabilities in the financial statements and the corresponding tax bases used in the computation
of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are
generally recognised for all taxable temporary differences and deferred tax assets are recognised to the
extent that it is probable that taxable profits will be available against which deductible temporary differences
can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from
goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities
in a transaction that affects neither the tax profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in
subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the
reversal of the temporary difference and it is probable that the temporary difference will not reverse in the
foreseeable future.
Deferred tax is calculated at the tax rates which are expected to apply in the period when the liability is
settled or the asset is realised. Deferred tax is charged or credited in the Income Statement, except when
it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in
equity.
Other taxes which include recoverable value added tax, excise tax and custom duties represent the
amounts receivable or payable to local tax authorities in the countries where the Group operates.
Value added tax
Output value added tax related to sales is payable to tax authorities on the earlier of (a) collection of
receivables from customers or (b) delivery of goods or services to customers. Input VAT is generally
recoverable against output VAT upon receipt of the VAT invoice. The tax authorities permit the settlement
of VAT on a net basis. VAT related to sales and purchases is recognised in the consolidated statement of
financial position on a gross basis for different entities of the Group and disclosed separately as an asset
and a liability. Where provision has been made for expected credit losses (“ECL”) of receivables, the
impairment loss is recorded for the gross amount of the debtor, including VAT.
Financial Instruments
Financial instruments - key measurement terms. Fair value is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between market participants at the measurement
date. The best evidence of fair value is the price in an active market. An active market is one in which
transactions for the asset or liability take place with sufficient frequency and volume to provide pricing
information on an ongoing basis.
Fair value of financial instruments traded in an active market is measured as the product of the quoted price
for the individual asset or liability and the number of instruments held by the entity. This is the case even if
a market’s normal daily trading volume is not sufficient to absorb the quantity held and placing orders to
sell the position in a single transaction might affect the quoted price.
A portfolio of financial derivatives or other financial assets and liabilities that are not traded in an active
market is measured at the fair value of a group of financial assets and financial liabilities on the basis of the
price that would be received to sell a net long position (i.e. an asset) for a particular risk exposure or paid
to transfer a net short position (i.e. a liability) for a particular risk exposure in an orderly transaction between
market participants at the measurement date. This is applicable for assets carried at fair value on a recurring
basis if the Group: (a) manages the group of financial assets and financial liabilities on the basis of the
Group’s net exposure to a particular market risk (or risks) or to the credit risk of a particular counterparty in
accordance with the Group’s documented risk management or investment strategy; (b) it provides
information on that basis about the group of assets and liabilities to the Group’s key management
personnel; and (c) the market risks, including duration of the Group’s exposure to a particular market risk
(or risks) arising from the financial assets and financial liabilities are substantially the same.
Valuation techniques such as discounted cash flow models or models based on recent arm’s length
transactions or consideration of financial data of the investees are used to measure fair value of certain
75
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
financial instruments for which external market pricing information is not available. Fair value
measurements are analysed by level in the fair value hierarchy as follows: (i) level one are measurements
at quoted prices (unadjusted) in active markets for identical assets or liabilities, (ii) level two measurements
are valuations techniques with all material inputs observable for the asset or liability, either directly (that is,
as prices) or indirectly (that is, derived from prices), and (iii) level three measurements are valuations not
based on solely observable market data (that is, the measurement requires significant unobservable
inputs).
Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of
a financial instrument. An incremental cost is one that would not have been incurred if the transaction had
not taken place. Transaction costs include fees and commissions paid to agents (including employees
acting as selling agents), advisers, brokers and dealers, levies by regulatory agencies and securities
exchanges, and transfer taxes and duties. Transaction costs do not include debt premiums or discounts,
financing costs or internal administrative or holding costs.
Fair value is the amount at which the financial instrument was recognised at initial recognition, while
amortised cost (“AC”) is the amount at which the financial instrument was subsequently measured after the
initial recognition less any principal repayments, plus accrued interest, and for financial assets less any
allowance for ECL. Accrued interest includes amortisation of transaction costs deferred at initial recognition
and of any premium or discount to the maturity amount using the effective interest method. Accrued interest
income and accrued interest expense, including both accrued coupon and amortised discount or premium
(including fees deferred at origination, if any), are not presented separately and are included in the carrying
values of the related items in the consolidated statement of financial position.
The effective interest method is a method of allocating interest income or interest expense over the relevant
period, so as to achieve a constant periodic rate of interest (effective interest rate) on the carrying amount.
The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts
(excluding future credit losses) through the expected life of the financial instrument or a shorter period, if
appropriate, to the gross carrying amount of the financial instrument. The effective interest rate discounts
cash flows of variable interest instruments to the next interest repricing date, except for the premium or
discount which reflects the credit spread over the floating rate specified in the instrument, or other variables
that are not reset to market rates. Such premiums or discounts are amortised over the whole expected life
of the instrument. The present value calculation includes all fees paid or received between parties to the
contract that are an integral part of the effective interest rate. For assets that are purchased or originated
credit impaired (“POCI”) at initial recognition, the effective interest rate is adjusted for credit risk, i.e. it is
calculated based on the expected cash flows on initial recognition instead of contractual payments.
Financial instruments – initial recognition. Financial instruments at fair value through profit or loss (“FVTPL”)
are initially recorded at fair value. All other financial instruments are initially recorded at fair value adjusted
for transaction costs. Fair value at initial recognition is best evidenced by the transaction price. A gain or
loss on initial recognition is only recorded if there is a difference between fair value and transaction price
which can be evidenced by other observable current market transactions in the same instrument or by a
valuation technique whose inputs include only data from observable markets. After the initial recognition,
an ECL allowance is recognised for financial assets measured at AC and investments in debt instruments
measured at fair value through other comprehensive income (“FVOCI”), resulting in an immediate
accounting loss.
All purchases and sales of financial assets that require delivery within the time frame established by
regulation or market convention (“regular way” purchases and sales) are recorded at trade date, which is
the date on which the Group commits to deliver a financial asset. All other purchases are recognised when
the entity becomes a party to the contractual provisions of the instrument.
Financial assets – classification and subsequent measurement – measurement categories. The Group
classifies financial assets in the following measurement categories: FVTPL, FVOCI and AC. The
classification and subsequent measurement of debt financial assets depends on: (i) the Group’s business
model for managing the related assets portfolio and (ii) the cash flow characteristics of the asset. The
Group’s financial assets include cash and cash equivalents, trade and other receivables, loans to subsidiary
undertakings, all of which are classified as AC in accordance with IFRS 9.
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
76
Financial assets - classification and subsequent measurement – business model. The business model
reflects how the Group manages the assets in order to generate cash flows – whether the Group’s objective
is: (i) solely to collect the contractual cash flows from the assets (“hold to collect contractual cash flows”),
or (ii) to collect both the contractual cash flows and the cash flows arising from the sale of assets (“hold to
collect contractual cash flows and sell”) or, if neither of (i) and (ii) is applicable, the financial assets are
classified as part of “other” business model and measured at FVTPL.
Business model is determined for a group of assets (on a portfolio level) based on all relevant evidence
about the activities that the Group undertakes to achieve the objective set out for the portfolio available at
the date of the assessment. Factors considered by the Group in determining the business model include
past experience on how the cash flows for the respective assets were collected.
The Group’s business model for financial assets is to collect the contractual cash flows from the assets
(“hold to collect contractual cash flows”).
Financial assets - classification and subsequent measurement - cash flow characteristics. Where the
business model is to hold assets to collect contractual cash flows or to hold contractual cash flows and sell,
the Group assesses whether the cash flows represent solely payments of principal and interest (“SPPI”).
Financial assets with embedded derivatives are considered in their entirety when determining whether their
cash flows are consistent with the SPPI feature. In making this assessment, the Group considers whether
the contractual cash flows are consistent with a basic lending arrangement, i.e. interest includes only
consideration for credit risk, time value of money, other basic lending risks and profit margin.
Where the contractual terms introduce exposure to risk or volatility that is inconsistent with a basic lending
arrangement, the financial asset is classified and measured at FVTPL. The SPPI assessment is performed
on initial recognition of an asset and it is not subsequently reassessed.
Financial assets - reclassification. Financial instruments are reclassified only when the business model for
managing the portfolio as a whole changes. The reclassification has a prospective effect and takes place
from the beginning of the first reporting period that follows after the change in the business model. The
Group did not change its business model during the current and comparative period and did not make any
reclassifications.
Financial assets impairment - credit loss allowance for ECL. The Group assesses, on a forward-looking
basis, the ECL for debt instruments measured at AC and FVOCI and for the exposures arising for
contractual assets. The Group measures ECL and recognises Net impairment losses on financial and
contractual assets at each reporting date. The measurement of ECL reflects: (i) an unbiased and probability
weighted amount that is determined by evaluating a range of possible outcomes, (ii) time value of money
and (iii) all reasonable and supportable information that is available without undue cost and effort at the
end of each reporting period about past events, current conditions and forecasts of future conditions.
Debt instruments measured at AC and contractual assets are presented in the consolidated statement of
financial position net of the allowance for ECL. For loan commitments and financial guarantees, a separate
provision for ECL is recognised as a liability in the consolidated statement of financial position.
The Group applies a simplified approach for impairment of cash and cash equivalents, other short-term
investments and trade and other receivables, by recognising lifetime expected credit losses based on past
default experience and credit profiles, adjusted as appropriate for current observable data. For other
financial assets the Group applies a three stage model for impairment, based on changes in credit quality
since initial recognition. A financial instrument that is not credit-impaired on initial recognition is classified
in Stage 1. Financial assets in Stage 1 have their ECL measured at an amount equal to the portion of
lifetime ECL that results from default events possible within the next 12 months or until contractual maturity,
if shorter (“12 Months ECL”). If the Group identifies a significant increase in credit risk (“SICR”) since initial
recognition, the asset is transferred to Stage 2 and its ECL is measured based on ECL on a lifetime basis,
that is, up until contractual maturity but considering expected prepayments, if any (“Lifetime ECL”). If the
Group determines that a financial asset is credit-impaired, the asset is transferred to Stage 3 and its ECL
is measured as a Lifetime ECL. For financial assets that are purchased or originated credit-impaired (“POCI
Assets”), the ECL is always measured as a Lifetime ECL.
Financial assets - write-off. Financial assets are written-off, in whole or in part, when the Group has
exhausted all practical recovery efforts and has concluded that there is no reasonable expectation of
77
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
recovery. The write-off represents a derecognition event. The Group may write-off financial assets that are
still subject to enforcement activity when the Group seeks to recover amounts that are contractually due,
however, there is no reasonable expectation of recovery.
Financial assets - derecognition. The Group derecognises financial assets when (a) the assets are
redeemed or the rights to cash flows from the assets otherwise expire or (b) the Group has transferred the
rights to the cash flows from the financial assets or entered into a qualifying pass-through arrangement
whilst (i) also transferring substantially all the risks and rewards of ownership of the assets or (ii) neither
transferring nor retaining substantially all the risks and rewards of ownership but not retaining control.
Financial assets - modification. If the modified terms are substantially different, the rights to cash flows from
the original asset expire and the Company derecognises the original financial asset and recognises a new
asset at its fair value. The date of renegotiation is considered to be the date of initial recognition for
subsequent impairment calculation purposes, including determining whether a SICR has occurred. Any
difference between the carrying amount of the original asset derecognised and fair value of the new
substantially modified asset is recognised in profit or loss, unless the substance of the difference is
attributed to a capital transaction with owners. If the modified asset is not substantially different from the
original asset and the modification does not result in derecognition. The Group recalculates the gross
carrying amount by discounting the modified contractual cash flows by the original effective interest rate (or
credit-adjusted effective interest rate for POCI financial assets), and recognises a modification gain or loss
in profit or loss.
Financial liabilities - measurement categories. Financial liabilities are classified as subsequently measured
at AC, except for (i) financial liabilities at FVTPL: this classification is applied to derivatives, financial
liabilities held for trading (e.g. short positions in securities), contingent consideration recognised by an
acquirer in a business combination and other financial liabilities designated as such at initial recognition
and (ii) financial guarantee contracts and loan commitments. The Group’s financial liabilities include trade
and other payables, lease liabilities, all of which are classified as AC in accordance with IFRS 9.
Financial liabilities - derecognition. Financial liabilities are derecognised when they are extinguished (i.e.
when the obligation specified in the contract is discharged, cancelled or expires).
Trade Receivables
Trade receivables are amounts due from customers for goods sold in the ordinary course of business. If
collection is expected in one year or less, they are classified as current assets. If not, they are presented
as non-current assets.
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using
the effective interest method, less expected credit losses.
Prepayments
Prepayments are carried at cost less provision for impairment. A prepayment is classified as non-current
when the goods or services relating to the prepayment are expected to be obtained after one year, or when
the prepayment relates to an asset which will itself be classified as non-current upon initial recognition.
Prepayments to acquire assets are transferred to the carrying amount of the asset once the Group has
obtained control of the asset and it is probable that future economic benefits associated with the asset will
flow to the Group. Other prepayments are written off to profit or loss when the services relating to the
prepayments are received. If there is an indication that the assets, goods or services relating to a
prepayment will not be received, the carrying value of the prepayment is written down accordingly and a
corresponding impairment loss is recognised in profit or loss for the year.
Investments in subsidiaries
Investments made by the Company in its subsidiaries are stated at cost in the Company’s financial
statements and reviewed for impairment if there are indications that the carrying value may not be
recoverable.
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
78
Loans issued to subsidiaries
Loans issued by the Company to its subsidiaries are initially recognised in the Company’s financial
statements at fair value and are subsequently carried at amortised cost using the effective interest method,
less credit loss allowance. Net change in credit losses and foreign exchange differences on loans issued
are recognised in the Company’s statement of profit or loss in the period when incurred.
Trade and Other Payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course
of business from suppliers. Accounts payable are classified as current liabilities if payment is due within
one year or less. If not, they are presented as non-current liabilities.
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using
the effective interest method.
Lease liabilities
Liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the
net present value of the following lease payments:
●
●
●
●
fixed payments (including in-substance fixed payments), less any lease incentives receivable,
variable lease payments that are based on an index or a rate, initially measured using the index or
rate as at the commencement date,
the exercise price of a purchase option if the Group is reasonably certain to exercise that option, and
payments of penalties for terminating the lease, if the lease term reflects the Group exercising that
option.
Extension and termination options are included in a number of property and equipment leases across the
Group. These terms are used to maximise operational flexibility in terms of managing contracts. Extension
options (or period after termination options) are only included in the lease term if the lease is reasonably
certain to be extended (or not terminated). Lease payments to be made under reasonably certain extension
options are also included in the measurement of the liability.
The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily
determined, which is generally the case for leases of the Group, the Group’s incremental borrowing rate is
used, being the rate that the Group would have to pay to borrow the funds necessary to obtain an asset of
similar value in a similar economic environment with similar terms and conditions.
To determine the incremental borrowing rate, the Group:
●
●
●
where possible, uses recent third-party financing received by the individual lessee as a starting point,
adjusted to reflect changes in financing conditions since third party financing was received,
uses a build-up approach that starts with a risk-free interest rate adjusted for credit risk, and
makes adjustments specific to the lease, e.g. term, country, currency and collateral.
The Group is exposed to potential future increases in variable lease payments based on an index or rate,
which are not included in the lease liability until they take effect. When adjustments to lease payments
based on an index or rate take effect, the lease liability is reassessed and adjusted against the right-of-use
asset.
Lease payments are allocated between principal and finance costs. The finance costs are charged to profit
or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance
of the liability for each period.
Payments associated with short-term leases and all leases of low-value assets under $5,000 are
recognised on a straight-line basis as an expense in profit or loss. Short-term leases are leases with a lease
term of 12 months or less.
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
79
Equity Instruments
Ordinary shares are classified as equity. Equity instruments issued by the Company and the Group are
recorded at the proceeds received, net of direct issue costs. Any excess of the fair value of consideration
received over the par value of shares issued is recorded as share premium in equity.
Cash and Cash Equivalents
Cash and cash equivalents comprise cash on hand and deposits held at call with banks and other short-
term highly liquid investments which are readily convertible to a known amount of cash with insignificant
risk of change in value. Cash and cash equivalents are carried at amortised cost. Interest income that
relates to cash and cash equivalents on current and deposit accounts is disclosed within operating cash
flow.
Other short-term investments
Other short-term investments include current accounts and deposits held at banks, which do not meet the
cash and cash equivalents definition. Current accounts and deposits held at banks, which do not meet the
cash and cash equivalents definition are measured initially at fair value and subsequently carried at
amortised cost using the effective interest method. Interest received on other short-term investments is
disclosed within operating cash flow.
Interest income
Interest income is recognised as it accrues, taking into account the effective yield on the asset. Interest
income on current bank accounts and on demand deposits or term deposits with the maturity less than
three months recognised as part of cash and cash equivalents is recognised as other operating income.
Interest income on term deposits other than those classified as cash and cash equivalents is recognised
as finance income.
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.
Depreciation of Oil and Gas Development and Production Assets
Development and production assets held in property, plant and equipment are depreciated on a unit of
production basis at a rate calculated by reference to proved and probable reserves at the end of the period
plus the production in the period, and incorporating the estimated future cost of developing and extracting
those reserves. Future development costs are estimated using estimates about the number of wells
required to produce those reserves, the cost of the wells, future production facilities and operating costs,
together with assumptions on oil and gas realisations, and are revised annually. The reserves estimates
used are determined using estimates of gas in place, recovery factors, future hydrocarbon prices and also
take into consideration the Group’s latest development plan for the associated development and production
asset. The latest development plan and therefore the inputs used to determine the depreciation charge for
the MEX-GOL, SV and VAS fields continue until the end of the economic life of the fields, which is assessed
to be 2038, 2042 and 2028 respectively, based on the assessment contained in the DeGolyer &
MacNaughton reserves report for these fields. The licences for the MEX-GOL and SV fields have recently
been extended until 2044. Were the estimated reserves at the beginning of the year to differ by 10% from
previous assumptions, the impact on depreciation for the year ended 31 December 2022 would be to
increase it by $1,394,000 or decrease it by $626,000 (2021: increase by $1,195,000 or decrease by
$975,000).
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
80
Provision for Decommissioning
The Group has decommissioning obligations in respect of its Ukrainian assets. The full extent to which the
provision is required depends on the legal requirements at the time of decommissioning, the costs and
timing of any decommissioning works and the discount rate applied to such costs.
A detailed assessment of gross decommissioning cost was undertaken on a well-by-well basis using local
data on day rates and equipment costs. The discount rate applied on the decommissioning cost provision
as at 31 December 2022 was 4.76% (31 December 2021: 6.29%). The discount rate is calculated in real
terms based on the yield to maturity of Ukrainian Government bonds denominated in the currency in which
the liability is expected to be settled and with the settlement date that approximates the timing of settlement
of decommissioning obligations. Increase of the discount rate applied is caused by the growth of the
Ukrainian risk-free rate.
The change in estimate applied to calculate the provision as at 31 December 2022 resulted from the revision
of the estimated costs of decommissioning (increase of $1,477,000 in provision), an increase in the discount
rate applied (increase of $1,020,000 in provision). The costs are expected to be incurred by 2038 on the
MEX-GOL field, by 2042 on the SV field, and by 2028 on the VAS field, which is the end of the estimated
economic life of the respective fields (Note 24).
Net Carrying Amount of Inter-Company Loans Receivable and Investments by the Company into a
Subsidiary
The Company has certain inter-company loans receivable from a subsidiary, which are eliminated on
consolidation. For the purpose of the Company’s financial statements, these receivable balances are
carried at amortised cost using the effective interest method, less credit loss allowance. Measurement of
lifetime expected credit losses on inter-company loans is a significant judgment that involves models and
data inputs including forward-looking information, current conditions and forecasts of future conditions
impacting the estimated future cash flows that are expected to be recovered, time value of money, etc. In
previous years, significant impairment charges were recorded against the carrying amount of the loans
issued to subsidiaries as the present value of estimated future cash flows discounted at the original effective
interest rate was less than the carrying amount of the loans, and the resulting impairment losses were
recognised in profit or loss in the Company’s financial statements.
For the purpose of assessment of the credit loss allowance as at 31 December 2022, the Company
considered all reasonable and supportable forward-looking information available as at that date without
undue cost and effort, which includes a range of factors, such as estimated future net cash flows to be
generated by the subsidiaries operating in 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. As at 31 December 2022, the present value of future
net cash flows to be generated by the subsidiaries operating in Ukraine during 2023 – 2027, adjusted for
the subsidiaries’ working capital as at 31 December 2022 and estimated amounts reserved by the Group
for investment projects in the time horizon was calculated.
The key assumptions used in the discounted cash flow model are:
•
•
•
•
production levels for a period of five years assumed to be: at the level of 6.9 MMboe for the MEX-
GOL and SV fields and zero for the period of suspension of the VAS field and SC licence area;
reserves at the beginning of 2023 at the MEX-GOL and SV fields of 31.9 MMboe, at the VAS field of
1.2 MMboe and at the SC licence area of 10.8 MMboe;
commodity prices – the model assumes gas prices of $464/Mm3 in 2023, $581/Mm3 in 2024,
decreasing to $509/Mm3 in 2025, $450/Mm3 in 2026 and $300/Mm3 in subsequent years;
discount rate applied is 11.66%, determined in real terms;
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
81
•
•
•
•
•
production taxes applicable to gas production at variable rates under relevant legislation;
capital expenditure allowance for maintenance and development of: MEX-GOL and SV fields at the
level of $750,000 per year, VAS field at the level of $250,000 per year and SC licence area at the
level of $100,000 per year;
future capital expenditures for a period of five years assumed to be: for the MEX-GOL and SV fields
at the level of $170,500,000, VAS field at the level of $200,000 and SC licence area at the level of
$0;
life of field for the purpose of the assessment of loans – cash flows were taken for a period of five
years as management believes there is no reasonably available information to build reliable
expectations and demonstrate the ability to settle the loans over a longer perspective;
life of field for the purpose of the assessment of investments – cash flows were taken for a period of
the full economic life of the respective CGUs.
The resulting amount, net of the carrying value of the Company’s investments in subsidiaries and loans,
was compared to the discounted cash flows and net financial assets of the subsidiaries as at
31 December 2022. As such, the Company has recorded $9,942,000 of loss, being the net change in the
expected credit losses for loans issued to and investments in subsidiaries in the Company’s statement of
profit or loss for the year ended 31 December 2022.
As with any economic forecast, the projections and likelihoods of occurrence are subject to a high degree
of inherent uncertainty, and therefore the actual outcomes may be significantly different to those projected.
The Company considers these forecasts to represent its best estimate of the possible outcomes.
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.
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
82
Revenue
Gas sales
Condensate sales
Liquefied Petroleum Gas sales
Total revenue
Segment result
Depreciation and amortisation of non-current
assets
Operating profit
Ukraine
2022
$000
109,461
12,744
11,175
133,380
84,750
(7,837)
United
Kingdom
2022
$000
-
-
-
-
(1,140)
-
Total
2022
$000
109,461
12,744
11,175
133,380
83,610
(7,837)
75,773
Segment assets
Capital additions*
158,982
82,752
241,734
19,807
-
19,807
*Comprises additions to property, plant and equipment (Note 16)
There are no inter-segment sales within the Group and all products are sold in the geographical region in
which they are produced. The Group is not significantly impacted by seasonality. Revenue is recognised at
a point in time.
During 2022, the Group was selling all of its gas production to its related party, LLC Smart Energy (“Smart
Energy”). Smart Energy has oil and gas operations in Ukraine and is part of the PJSC Smart-Holding Group,
which was ultimately controlled by Mr Vadym Novynskyi, who until 1 December 2022, through an indirect
82.65% majority shareholding, ultimately controlled 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 Ukrainian 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 agreed to combine
the Group’s gas production with its own gas production, and to sell such gas as combined volumes, which
was intended to result in higher sales prices due to the larger sales volumes. 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 2.0% to the gas sales prices achieved by Smart Energy, who sold the combined volumes in
line with market prices. The terms of sale for the Group’s gas to Smart Energy were (i) for 35% of the
monthly volume of gas by the 15th of the month following the month of delivery, and (ii) payment of the
remaining balance by the end of that month. This arrangement was terminated subsequent to the year end.
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
83
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)
5. Cost of Sales
Production taxes
Depreciation of property, plant and equipment
Rent expenses (Note 18)
Staff costs (Note 8)
Cost of inventories recognised as an expense
Transmission tariff for Ukrainian gas system
Amortisation of mineral reserves (Note 17)
Other expenses
Ukraine
2021
$000
95,813
19,260
6,280
121,353
United
Kingdom
2021
$000
Total
2021
$000
-
-
-
-
95,813
19,260
6,280
121,353
81,025
(2,832)
78,193
(11,958)
-
(11,958)
66,235
144,941
63,649
208,590
32,577
-
32,577
2022
$000
25,271
6,684
8,468
2,149
1,510
493
411
2,471
47,457
2021
$000
19,926
10,669
8,811
2,886
1,708
880
482
2,060
47,422
A transmission tariff for use of the Ukrainian gas transit system of UAH101.93/Mm3 of gas was applicable
to the Group (2021: UAH101.93/Mm3).
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
84
6. Administrative Expenses
Staff costs (Note 8)
Consultancy fees
Depreciation of other fixed assets
Auditors’ remuneration
Amortisation of other intangible assets
Rent expenses
Other expenses
Auditors Remuneration
PricewaterhouseCoopers LLP
Audit of the Company and subsidiaries
Audit of subsidiaries in Ukraine
Audit related assurances services - interim review
Total assurance services
Tax compliance services
Tax advisory services
Total non-audit services
Total audit and other services
Zenith Audit Ltd
Audit of the Company and subsidiaries
Audit of subsidiaries in Ukraine
Audit related assurances services - interim review
Total assurance services
Tax compliance services
Tax advisory services
Total non-audit services
Total audit and other services
2022
$000
4,105
906
297
326
169
248
779
6,830
2022
$000
37
10
-
47
-
3
3
50
2022
$000
139
-
-
-
-
-
-
139
2021
$000
5,019
923
572
352
235
160
1,089
8,350
2021
$000
141
124
48
313
26
13
39
352
2021
$000
-
-
-
-
-
-
-
-
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
85
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
Dr Gehrig Schultz*
*appointed 24 August 2022
2022
$000
1,325
2021
$000
1,115
Total
Emoluments
2022
$000
Total
emoluments
2021
$000
473
546
124
56
56
50
20
1,325
307
484
138
62
62
62
-
1,115
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 during the year (including Executive Directors) and the
aggregate staff costs of such employees were as follows:
Group
Management / operational
Administrative support
Number of employees
2022
2021
166
81
247
171
92
263
The prior year comparative numbers of employees were amended to conform to the current year
presentation. The number of employees includes full-time and part-time employees.
Wages and salaries
Other pension costs
Social security costs
2022
$000
5,729
816
90
6,635
2021
$000
6,785
1,007
113
7,905
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
86
9. Other Operating (Losses)/Gains, (net)
Interest income on cash and cash equivalents
Contractor penalties applied
Gain on sales of current assets
Impairment of property, plant and equipment (Note 16)
Other operating (loss)/income, net
10. Finance Income
Financial instrument: unwinding of discount
Foreign exchange gains less losses
11. Finance Costs
Unwinding of discount on financial liabilities
Unwinding of discount on provision for decommissioning (Note 24)
Interest expense on lease liabilities
12. Other Losses, (net)
Charitable donations
Foreign exchange (gains)/losses
Other losses/(gains), net
2022
$000
1,888
114
20
(4,257)
(1,085)
(3,320)
2022
$000
1,126
-
1,126
2022
$000
996
293
121
1,410
2022
$000
6,534
(4,843)
47
1,738
2021
$000
763
81
16
-
(206)
654
2021
$000
-
1,394
1,394
2021
$000
333
250
169
752
2021
$000
76
53
(21)
108
Charitable donations for the year ended 31 December 2022 comprise humanitarian aid in for population
and armed forces of Ukraine (2021: contributions to the development of social infrastructure of local
communities).
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
87
13. Income Tax Expense
a)
Income tax expense and (benefit):
Current tax
UK - current year
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
2022
$000
54
-
14,263
-
1,852
(3,021)
(24)
13,124
2021
$000
165
10
13,130
-
2,367
-
(199)
15,473
b)
Factors affecting tax charge for the year:
The tax assessed for the year is different from the 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% (2021: 19.00%)
2022
$000
2021
$000
73,307
13,928
66,592
12,652
Tax effects of:
Lower foreign corporate tax rates in Ukraine (18.00%) (2021: 18.00%)
Change in UK tax rate from 19% to 25% starting from 1 April 2023
Disallowed expenses and non-taxable income
Previously unrecognised tax losses used to reduce income tax expense
Adjustments in respect of prior periods
Total tax expense for the year
(699)
-
6,708
(3,792)
(3,021)
13,124
(685)
1,168
12,038
(9,875)
175
15,473
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 of losses not recognised as deferred tax assets are mainly represented by accumulated
losses of Regal Petroleum Corporation (Ukraine) Limited.
14. Loss/Profit for the Year
The Company has taken advantage of the exemption allowed under section 408 of the Companies Act
2006 and has not presented its own Income Statement in these financial statements. The Parent Company
loss after tax was $6,358,000 for the year ended 31 December 2022 (2021: profit after tax $16,330,000).
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 (2021: 320,637,836) ordinary shares, being the weighted average number of shares in issue
for the year. There are no dilutive instruments.
88
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
16. Property, Plant and Equipment
Oil and Gas
Development
and
Production
assets
Ukraine
$000
2022
Oil and Gas
Exploration
and
Evaluation
Assets
$000
Group
Cost
At the beginning of the year
Additions
Change in decommissioning provision
Disposals
Exchange differences
At the end of the year
163,170
12,872
2,596
(200)
(43,183)
135,255
Accumulated depreciation and impairment
At the beginning of the year
Charge for year
Disposals
Impairment charged
Exchange differences
At the end of the year
Net book value at the beginning of
the year
Net book value at the end of the year
87,070
6,906
(75)
2,361
(23,154)
73,108
76,100
62,147
MEX-GOL, SV, SC and VAS gas and condensate fields
10,110
6,549
38
(18)
(3,586)
13,093
-
-
-
1,896
(219)
1,677
10,110
11,416
Other
fixed
assets
$000
2,631
386
-
(356)
(693)
1,968
1,423
301
(57)
(392)
1,275
1,208
693
Total
$000
175,911
19,807
2,634
(574)
(47,462)
150,316
88,493
7,207
(132)
4,257
(23,765)
76,060
87,418
74,256
Oil and Gas
Development
and
Production
assets
Ukraine
$000
Oil and Gas
Exploration
and
Evaluation
Assets
$000
2021
Other
fixed
assets
$000
2,217
524
-
(187)
77
2,631
1,067
343
(28)
41
1,423
Total
$000
140,545
32,576
(1,851)
(249)
4,890
175,911
74,883
10,887
(53)
2,776
88,493
2,362
7,763
70
-
(85)
10,110
-
-
-
-
-
2,362
1,150
65,662
10,110
1,208
87,418
135,966
24,289
(1,921)
(62)
4,898
163,170
73,816
10,544
(25)
2,735
87,070
62,150
76,100
In accordance with the Group’s accounting policies, oil and gas development and producing assets are tested for an impairment loss at each balance sheet
date. In assessing whether an impairment loss has occurred, the carrying amount of the asset is compared to its recoverable amount, which IAS 36 defines
as the higher of fair value less cost to sell and value in use. Management does not believe it possible to measure fair value reliably, due to both the absence
of an active market in which to sell the asset and the current political and economic climate in Ukraine. Therefore, as in previous years, management has used
value in use, using a discounted cash flow (‘DCF’) model, to measure its recoverable amount.
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
89
Due to the suspension of the VAS and SC licences for five years, zero production was attributed for this period in the DCF models.
This resulted in the recognition of an impairment loss for the VAS assets of $4,256,000 (2012: $nil), to match the carrying value of the asset to its recoverable
value, based on the revised estimate of value in use.
The calculation of value in use is most sensitive to the following assumptions:
•
•
•
•
•
•
•
production levels and reserves at the beginning of 2023 at the MEX-GOL and SV fields of 31.9 MMboe, at the VAS field of 1.2 MMboe and at the SC
licence area of 10.8 MMboe with zero production for the period of suspension of the VAS and SC licences;
commodity prices - the model assumes gas prices of $464/Mm3 in 2023, $581/Mm3 in 2024, decreasing to $509/Mm3 in 2025, $450/Mm3 in 2026 and
$300/Mm3 in subsequent years;
discount rate applied is 11.66%, determined in real terms;
production taxes applicable to gas production at variable rates under relevant legislation;
capital expenditure allowance for maintenance and development of: MEX-GOL and SV fields at the level of $750,000 per year, VAS field at the level of
$250,000 per year and SC licence area at the level of $100,000 per year;
future capital expenditures for a period of five years assumed to be: for the MEX-GOL and SV fields at the level of $245,700,000, VAS field at the level
of $14,800,000 and SC licence area at the level of $116,700,000;
life of field for the purpose of the assessment of investments - cash flows were taken for a period of the full economic life of the respective CGUs (Note
3).
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
90
17.
Intangible Assets
2022
Exploration
and
evaluation
intangible
assets
$000
Mineral
reserve rights
$000
Exploration
and
evaluation
intangible
assets
$000
2021
Other
intangible
assets
$000
Total
$000
Mineral
reserve rights
$000
Group
Cost
At the beginning of the year
Additions
Disposals
Exchange differences
At the end of the year
Accumulated amortisation
At the beginning of the year
Charge for year
Disposals
Exchange differences
At the end of the year
Net book value at the beginning of the
year
Net book value at the end of the year
6,810
-
-
(1,730)
5,080
3,439
411
-
(925)
2,925
3,371
2,155
Other
intangible
assets
$000
752
322
(27)
(187)
860
16,213
322
(27)
(4,135)
12,373
434
182
(27)
(135)
454
318
3,873
593
(27)
(1,060)
3,379
12,340
8,651
-
-
(2,218)
6,433
-
-
-
-
-
8,651
6,570
-
-
240
6,810
2,855
482
-
102
3,439
3,715
8,286
143
(80)
302
8,651
-
-
-
-
-
8,286
616
324
(212)
24
752
385
239
(212)
22
434
231
Total
$000
15,472
467
(292)
566
16,213
3,240
721
(212)
124
3,873
12,232
6,433
406
8,994
3,371
8,651
318
12,340
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
91
Intangible assets consist mainly of the hydrocarbon production licence relating to the VAS field which is
held by one of the Group's subsidiaries, LLC Prom-Enerho Produkt, and a hydrocarbon exploration licence
relating to the Svystunivsko-Chervonolutskyi (“SC”) area which is held by LLC Arkona Gas-Energy. The
Group amortises the hydrocarbon production licence relating to the VAS field using the straight-line method
over the term of the economic life of the VAS field until 2028. The hydrocarbon exploration licence relating
to the SC area is not amortised due to it being in an exploration and evaluation stage.
In accordance with the Group’s accounting policies, intangible assets are tested for impairment at each
balance sheet date as part of the impairment testing of the Group’s oil and gas development and production
assets if impairment indicators exist. As at 31 December 2022, intangible assets were tested for an
impairment loss, however no loss was recognised in the period.
18. Right-of-use Assets
This note provides information for right-of-use assets and leases obligations where the Group is a lessee.
Amount recognised in the balance sheet:
Right-of-use assets
Properties
Land
Wells
Lease liabilities
Current
Non-current
2022
$000
150
170
44
364
2022
$000
229
258
487
2021
$000
627
242
139
1,008
2021
$000
455
648
1,103
After modification and due to termination of contracts disposals to the right-of-use assets during the 2022
financial year were $271,000 (2021: additions to the right-of-use assets after modification were $820,000).
Amounts recognised in the statement of profit or loss:
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)
Expense relating to lease payments for land under wells not included in
lease liabilities (included in cost of sales)
2022
$000
(237)
(14)
(5)
(256)
(121)
(228)
2021
$000
(311)
(15)
(34)
(360)
(169)
(142)
(8,430)
(8,765)
(38)
(64)
The total cash outflow for leases in 2022 was $12,464,000 (2021: $10,217,000).
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
92
19.
Investments and Loans to Subsidiary Undertakings
Company
As at 1 January 2021
Additions including accrued interest
Disposal of shares in subsidiary
Accumulated impairment on disposal of shares in
subsidiary
Repayment of interest and loans
Reversal of impairment
Exchange differences
As at 31 December 2021
Additions including accrued interest
Repayment of interest and loans
Impairment
Exchange differences
As at 31 December 2022
Shares in
subsidiary
undertakings
$000
Loans to
subsidiary
undertakings
$000
35,287
-
(3,322)
3,322
-
3,240
-
38,527
3
-
(7,826)
-
30,704
62,828
15,447
-
-
(32,132)
7,672
(4,916)
48,899
6,740
(1,077)
(2,116)
(2,472)
49,974
Total
$000
98,115
15,447
(3,322)
3,322
(32,132)
10,912
(4,916)
87,426
6,743
(1,077)
(9,942)
(2,472)
80,678
The Company has recorded a loss of $2,116,000, being the net change in expected credit losses for loans
issued to subsidiaries in the Company’s statement of profit or loss for the year ended 31 December 2022
(Note 3). The Company also recorded a loss of $7,826,000, being the net change in credit loss allowance
for shares in subsidiary undertakings.
The Company’s discounted cash flow model used for the assessment of the investments recoverability,
flexed for sensitivities, produced the following results:
Discount rate (increase)/decrease by 1%
Change in gas price increase/(decrease) by 10%
(247)/220
1,664/(1,647)
(641)/676
3,388/(3,411)
31 December 2022
$000
31 December 2021
$000
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
93
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
impairment assessment as at
31 December 2022:
three-stage model
for
Stage 1 Stage 2
Credit loss allowance
Stage 3
(lifetime
ECL for
credit
impaired)
(lifetime
ECL for
SICR)
Gross carrying amount
Stage 1 Stage 2
Total
(12-
months
ECL)
(lifetime
ECL for
SICR)
Stage 3
(lifetime
ECL for
credit
impaired)
Total
(12-
months
ECL)
$000
$000
$000
$000
$000
$000
$000
$000
As at 1 January 2022
(637)
-
(16,044)
(16,681)
12,276
-
53,304
65,580
Movements with impact
on credit loss allowance
charge for the year:
Modification of loans
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 year
As at 31 December
2022
-
-
-
-
-
(1,085)
-
-
-
-
-
-
(876)
-
(876)
-
-
4,958
-
-
120
(1,031)
-
-
120
(2,116)
-
-
-
-
-
-
-
-
-
-
876
1,782
876
6,740
(1,077)
-
(2,592)
-
(1,077)
-
(2,592)
-
(1,085)
-
(1,787)
(2,872)
4,958
-
(1,011)
3,947
(1,722)
-
(17,831)
(19,553)
17,234
-
52,293
69,527
ECL - Expected credit losses
SICR - Significant increase in credit risk
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
94
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
impairment assessment as at
amortised cost and classified within a
31 December 2021:
three-stage model
for
Stage 1 Stage 2
Stage 1 Stage 2
Credit loss allowance
Stage 3
(lifetime
ECL for
credit
impaired)
(lifetime
ECL for
SICR)
(12-
months
ECL)
Total
(12-
months
ECL)
Gross carrying amount
Stage 3
(lifetime
ECL for
credit
impaired)
(lifetime
ECL for
SICR)
Total
$000
$000
$000
$000
$000
$000
$000
$000
-
-
-
-
-
-
(637)
As at 1 January 2021
Movements with impact
on credit loss allowance
charge for the year:
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
year
As at 31 December
2021
-
(20,375)
(20,375)
-
12,276
-
-
-
-
-
-
(5,378)
(5,378)
-
-
-
1,400
-
-
1,400
8,309
7,672
-
-
-
-
-
-
-
83,203
83,203
-
-
-
-
-
-
5,378
3,171
(3,134)
(28,998)
(6,316)
5,378
15,447
(3,134)
(28,998)
(6,316)
-
-
(637)
-
4,331
3,694
12,276
-
(29,899)
(17,623)
(637)
-
(16,044)
(16,681)
12,276
-
53,304
65,580
ECL – Expected credit losses
SICR – Significant increase in credit risk
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
95
Subsidiary undertakings
As at 31 December 2022 and 2021, the Company’s subsidiary undertakings, all of which are included in
the consolidated financial statements, were:
Registered address
Country of
incorporation
Country of
operation
Principal
activity
% of shares held
31 December
2022
31 December
2021
Regal Petroleum
Corporation
Limited
3rd Floor, Charter Place,
23-27 Seaton Place, St
Helier, Jersey, JE4 0WH
Regal Petroleum
Corporation
Limited (Branch
Office)
162 Shevchenko Str.,
Yakhnyky Village,
Lokhvytsya District,
Poltava Region, 37212
LLC Arkona
Gas-Energy
LLC Regal
Petroleum
Corporation
(Ukraine)
Limited
162 Shevchenko Str.,
Yakhnyky Village,
Lokhvytsya District,
Poltava Region, 37212
162 Shevchenko Str.,
Yakhnyky Village,
Lokhvytsya District,
Poltava Region, 37212
Jersey
Ukraine
Oil & Natural
Gas Extraction
100%
100%
Ukraine
Oil & Natural
Gas Extraction
Ukraine
Ukraine
Ukraine
Ukraine
Exploration
and Evaluation
for Oil and
Natural Gas
Holding
Company
100%
100%
100%
100%
LLC Prom-
Enerho Produkt
3 Klemanska Str., Kiev,
02081
Ukraine
Ukraine
Oil & Natural
Gas Extraction
100%
100%
Well Investum
LLC
58 Yaroslavska str.,
Kyiv, 04071
Ukraine
Ukraine
Dormant
Company
100%
-
*Regal Group
Services Limited
16 Old Queen Street,
London, SW1H 9HP
United
Kingdom
United
Kingdom
Service
Company
100%
100%
*Regal
Petroleum
(Jersey) Limited
3rd Floor, Charter Place,
23-27 Seaton Place, St
Helier, Jersey, JE4 0WH
Jersey
United
Kingdom
Holding
Company
-
100%
*Regal Petroleum (Jersey) Limited was dissolved on 11 November 2022, and Regal Group Services Limited was
dissolved on 21 February 2023.
The Parent Company, Enwell Energy plc, holds direct interests in 100% of the share capital of Regal
Petroleum Corporation Limited, Regal Petroleum Corporation (Ukraine) Limited, LLC Arkona Gas-Energy
and Well Investum LLC, 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 Parent Company, Enwell Energy plc, held a direct interest in 100% of the share
capital of Regal Group Services Limited until it was dissolved on 21 February 2023.
20.
Inventories
Current
Materials and spare parts
Finished goods
Group
2022
$000
2021
$000
1,914
1,444
3,358
1,705
157
1,862
Inventories consist of materials, spare parts and finished goods. Materials and spare parts are represented
by spare parts that were not assigned to any new wells, production raw materials and fuel at the storage
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
96
facility. Finished goods consist of produced gas held in underground gas storage facilities and condensate
and LPG held at the processing facility prior to sale.
As at 31 December 2022 allowances for impairment of materials and spare parts amounted to $705,000
(31 December 2021: $965,000).
All inventories are measured at the lower of cost or net realisable value. There was no write down of
inventory as at 31 December 2022 or 2021.
21. Trade and Other Receivables
Trade receivables
Other financial receivables
Financial aids
Less credit loss allowance
Total financial receivables
Prepayments and accrued income
Other receivables
Total trade and other receivables
Group
Company
2022
$000
46,188
284
11,316
(433)
57,355
4,509
2,574
60,438
2021
$000
5,308
200
-
(140)
5,368
298
2,460
8,126
2022
$000
-
285
-
-
285
249
81
615
2021
$000
-
196
-
-
196
28
75
299
Due to the short-term nature of the trade and other receivables, their carrying amount is assumed to be the
same as their fair value. All trade and other financial receivables, except those provided for, are considered
to be of high credit quality.
As at 31 December 2022, the Group’s total trade receivables, net of expected credit losses amounted to
$46,033,000 and 100% were denominated in Ukrainian Hryvnia (31 December 2021: $5,169,000 and 100%
were denominated in Ukrainian Hryvnia). Further description of financial receivables is disclosed in Note 29.
The majority of the trade receivables were from a related party, LLC Smart Energy, that purchased all of
the Group’s gas production (see Note 4). The applicable payment terms, which were revised in the period,
are payment for 35% of the monthly volume of gas by the 15th of the month following the month of delivery,
and payment of the remaining balance by the end of that month. This arrangement was terminated
subsequent to the year end.
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
97
Analysis by credit quality of financial trade and other receivables and expected credit loss allowance as at
31 December 2022 is as follows:
Loss rate Gross carrying
amount
$000
Life-
time ECL
$000
Carrying
amount
$000
Basis
9,99%
46,003
(126)
45,877
financial position of
related party
100%
9.99%
9.99%
98
87
(98)
(1)
-
number of days the
asset past due
86
historical credit
losses experienced
284
(25)
259
individual default
rates
11,316
(183)
11,133
57, 788
(433)
57,355
Trade receivables from
related parties
Trade receivables - -
credit impaired
Trade receivables -
other
Other financial
receivables
Financial aids
Total trade and other
receivables for which
individual approach
for ECL is used
Analysis by credit quality of financial trade and other receivables and expected credit loss allowance as at
31 December 2021 is as follows:
Loss rate Gross carrying
amount
$000
Life-
time ECL
$000
Carrying
amount
$000
Basis
5%
5,015
(7)
5,008
financial position of
related party
100%
0.21%
0.48%
132
(132)
161
-
200
(1)
-
number of days the
asset past due
161
199
historical credit
losses experienced
individual default
rates
5,508
(140)
5,368
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
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
98
The following table explains the changes in the credit loss allowance for trade and other receivables under
the simplified ECL model between the beginning and the end of the year:
Trade and other receivables
Balance as at 1 January
New originated or purchased
Financial assets derecognised during the year
Changes in estimates and assumptions
Foreign exchange movements
Balance as at 31 December
22. Cash and Cash Equivalents and Other short-term investments
2022
$000
140
441
(172)
61
(37)
433
2021
$000
133
24
(19)
(3)
5
140
Cash and Cash Equivalents
Cash at bank
Demand deposits and term deposits with
maturity of less than 3 months
Other short-term investments
Demand deposits and term deposits with
maturity of more than 3 months but less than a
year
Group
Company
2022
$000
2021
$000
2022
$000
2021
$000
33,243
55,409
88,652
75,457
12,323
87,780
26,541
55,000
81,541
63,299
-
63,299
-
-
4,762
4,762
-
-
-
-
Cash at bank earns interest at fluctuating rates based on daily bank deposit rates. Demand deposits are
made for varying periods depending on the immediate cash requirements of the Group and earn interest at
the respective short-term deposit rates. The terms and conditions upon which the Group’s demand deposits
are made allow immediate access to all cash deposits, with no significant loss of interest.
Cash and Cash Equivalents
Ukrainian Hryvnia
US Dollars
British Pounds
Euros
Other short-term investments
Ukrainian Hryvnia
Group
Company
2022
$000
2021
$000
2022
$000
2021
$000
6,874
81,282
223
273
88,652
24,249
63,247
275
9
87,780
-
81,046
223
272
81,541
-
63,015
275
9
63,299
-
-
4,762
4,762
-
-
-
-
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
99
The credit quality of cash and cash equivalents balances and other short-term investments may be
summarised based on Moody’s ratings as follows as at 31 December:
Cash at bank
and on hand
2022
$000
Demand deposits
and term deposits
with maturity less
than 3 months
2022
$000
Demand deposits
and term deposits
with maturity more
than 3 months
2022
Total cash and
cash equivalents
and other short-
term investments
2022
$000
A- to A+ rated
B- to B+ rated
C- to C+ rated
Unrated
26,537
-
3,209
3,497
33,243
55,000
-
409
-
55,409
-
-
-
-
-
81,537
-
3,618
3,497
88,652
Cash at bank
and on hand
2021
$000
63,290
900
11,267
75,457
Demand deposits
and term deposits
with maturity less
than 3 months
2021
$000
Demand deposits
and term deposits
with maturity more
than 3 months
2021
Total cash and
cash equivalents
and other short-
term investments
2021
$000
-
8,660
3,663
12,323
-
4,762
-
4,762
63,290
14,322
14,930
92,542
A- to A+ rated
B- to B+ rated
Unrated
For cash and cash equivalents and other short-term investments, the Group assessed ECL based on the
Moody’s rating for rated banks and based on the sovereign rating of Ukraine defined by Fitch as “RD” as
at 31 December 2022 for non-rated banks. Based on this assessment, the Group concluded that the
identified impairment loss was immaterial.
23. Trade and Other Payables
Taxation and social security
Trade payables
Accruals and other payables
Advances received
Group
2022
$000
3,347
1,079
21,810
1,293
27,529
2021
$000
5,031
3,404
3,354
517
12,306
Company
2022
$000
51
-
19,909
-
19,960
2021
$000
41
-
1,757
-
1,798
The carrying amounts of trade and other payables are assumed to be the same as their fair values, due to
their short-term nature. Financial payables are disclosed in Note 29.
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
100
24. Provision for Decommissioning
Group
At the beginning of the year
Amounts provided
Unwinding of discount
Change in estimate
Effect of exchange difference
At the end of the year
2022
$000
5,467
137
293
2,497
(1,430)
6,964
2021
$000
6,819
198
250
(2,049)
249
5,467
The provision for decommissioning is based on the net present value of the Group’s estimated liability for
the removal of the Ukrainian production facilities and well site restoration at the end of production life.
The non-current provision of $6,964,000 (31 December 2021: $5,467,000) represents a provision for the
decommissioning of the Group’s MEX-GOL, SV, VAS and SC production and exploration facilities, including
site restoration.
The change in estimates applied to calculate the provision as at 31 December 2022 is explained in Note 3.
The principal assumptions used are as follows:
31 December 2022
31 December 2021
Discount rate
Average cost of restoration per well ($000)
4,76%
326
6.29%
348
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 well restoration increase/
(decrease) by 10%
(561)/665
451/(451)
(723)/860
353/(353)
31 December 2022
$000
31 December 2021
$000
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
101
25. Deferred Tax
Deferred tax (liability)/asset recognised relating to oil and
gas development and production assets at the MEX-GOL-
SV fields and provision for decommissioning
At the beginning of the year
Charged to Income Statement - UK current year
Charged to Income Statement - UK prior year
Effect of exchange difference
At the end of the year
Deferred tax asset/(liability) recognised relating to
development and production assets at the VAS field and
provision for decommissioning
At the beginning of the year
Credited to Income Statement - overseas current year
Effect of exchange difference
At the end of the year
2022
$000
(5,197)
(1,852)
3,021
796
(3,232)
2022
$000
361
24
(98)
287
2021
$000
(2,705)
(2,367)
-
(125)
(5,197)
2021
$000
167
199
(5)
361
There was a further $77,072,000 (31 December 2021: $76,443,000) of unrecognised UK tax losses carried
forward. These losses can be carried forward indefinitely, subject to certain rules regarding capital
transactions and changes in the trade of the Company. No deferred tax asset in the amount of $14,643,680
has been recognised as insufficient future taxable profits are forecast against which these UK tax losses
could be offset.
The deferred tax asset relating to the Group’s provision for decommissioning as at 31 December 2022 of
$449,000 (31 December 2021: $457,000) was recognised on the tax effect of the temporary differences of
the Group’s provision for decommissioning at the MEX-GOL and SV fields, and its tax base. The deferred
tax liability relating to the Group’s development and production assets at the MEX-GOL and SV fields as at
31 December 2022 of $3,681,000 (31 December 2021: $5,654,000) was recognised on the tax effect of the
temporary differences between the carrying value of the Group’s development and production asset at the
MEX-GOL and SV fields, and its tax base. The deferred tax liability will be settled more than twelve months
after the reporting period.
The deferred tax asset relating to the Group’s provision for decommissioning as at 31 December 2022 of
$310,000 (31 December 2021: $315,000) was recognised on the tax effect of the temporary differences on
the Group’s provision on decommissioning at the VAS field, and its tax base. The deferred tax liability
relating to the Group’s development and production assets at the VAS field as at 31 December 2022 of
$23,000 (31 December 2021: deferred tax asset of $46,000) was recognised on the tax effect of the
temporary differences between the carrying value of the Group’s development and production asset at the
VAS field, and its tax base. The deferred tax assets are expected to be recovered more than twelve months
after the reporting period.
Losses accumulated in a Ukrainian subsidiary service company of UAH 877,268,000 ($23,990,000) as at
31 December 2022 and UAH 835,298,000 ($30,621,000) as at 31 December 2021 mainly originated as
foreign exchange differences on inter-company loans and for which no deferred tax asset was recognised
as this subsidiary is not expected to have taxable profits to utilise these losses in the future.
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
102
As at 31 December 2022 and 2021, the Group has not recorded a deferred tax liability in respect of taxable
temporary differences associated with investments in subsidiaries as the Group is able to control the timing
of the reversal of those temporary differences and does not intend to reverse them in the foreseeable future.
UK Corporation tax change
The current Corporation tax rate of 19% generally applies to all companies whatever their size. From 1 April
2023, this rate will cease to apply and will be replaced by variable rates ranging from 19% to 25%. A small
profits rate of 19% will apply to companies whose profits are equal to or less than £50,000. The main
Corporation Tax rate is increased to 25% and will apply to companies with profits in excess of £250,000.
Double tax treaty
On 30 October 2019, the Parliament of 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
Number
2022
$000
Number
2021
$000
Allotted, called up and fully paid
Opening balance as at 1 January
Issued during the year
Closing balance as at 31 December
320,637,836
-
320,637,836
28,115
-
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.
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.
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
103
28. Reconciliation of Operating Profit to Operating Cash Flow
Group
Operating profit
Depreciation and amortisation
Less interest income recorded within operating profit
Impairment of property, plant and equipment
Fines and penalties received
Gain on sales of current assets, net
Net (gain)/loss on sale of non-current assets
Change in working capital:
Increase in provisions
(Increase)/decrease in inventory
(Increase)/decrease in receivables
Increase/(decrease) in payables
Cash generated from operations
Company
Operating profit
Interest received
Change in working capital:
Movement in provisions (including impairment of subsidiary loans)
Decrease/(increase) in receivables
(Decrease)/increase in payables
Cash used in operations
29. Financial Instruments
Capital Risk Management
2022
$000
75,773
7,837
(1,888)
4,256
(114)
(20)
(44)
-
117
(1,480)
(56,849)
19,953
47,541
2022
$000
(8,112)
(2,740)
9,942
(316)
22,917
21,691
2021
$000
66,235
11,958
(763)
(81)
(16)
(16)
(6)
(104)
(4,463)
4,902
77,646
2021
$000
11,591
(3,447)
(10,912)
136
(188)
(2,820)
The Group defines its capital as equity. As at 31 December 2022, net assets were $200,659,000
(31 December 2021: $178,517,000). The primary source of the Group’s liquidity has been cash generated
from operations. The Group’s objectives when managing capital are to safeguard the Group’s and the
Company's ability to continue as a going concern in order to provide returns for shareholders and benefits
for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to
shareholders, return capital to shareholders, issue new shares or sell assets.
The capital structure of the Group consists of equity attributable to the equity holders of the parent,
comprising issued share capital, share premium, reserves and retained earnings.
There are no capital requirements imposed on the Group.
Financial Risk Management
The Group’s financial instruments comprise cash and cash equivalents and various items such as debtors
and creditors that arise directly from its operations. The Group has bank accounts denominated in British
Pounds, US Dollars, Euros and Ukrainian Hryvnia. The Group does not have any external borrowings. The
main future risks arising from the Group’s financial instruments are currently currency risk, interest rate risk,
liquidity risk and credit risk.
104
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
The Group’s financial assets and financial liabilities comprise the following:
Financial Assets
Group
Cash and cash equivalents
Other short-term investments
Trade and other financial receivables
Company
Cash and cash equivalents
Loans to subsidiary undertakings
Financial Liabilities
Group
Lease liabilities
Trade and other payables
Other financial liabilities
Company
Trade and other payables
2022
$000
88,652
-
46,039
134,691
2022
$000
81,541
49,974
131,515
2022
$000
487
1,079
20,422
21,988
2022
$000
19,923
19,923
2021
$000
87,780
4,762
5,368
97,910
2021
$000
63,299
48,899
112,198
2021
$000
1,103
3,404
2,244
6,751
2021
$000
1,767
1,767
Financial assets and financial liabilities are measured at amortised cost, which approximates their fair value
as the instruments are mostly short-term. Assets and liabilities of the Group where fair value is disclosed
are level 2 in the fair value hierarchy and valued using the current cost accounting technique.
Financial instruments that potentially subject the Group to concentrations of credit risk consist primarily of
cash and cash equivalents and accounts receivable, and financial instruments that potentially subject the
Company to concentrations of credit risk consist primarily of cash and cash equivalents and loans to
subsidiary undertakings.
Currency Risk
The functional currencies of the Group’s entities are US Dollars and Ukrainian Hryvnia. The following
analysis of net monetary assets and liabilities shows the Group’s currency exposures. Exposures comprise
the monetary assets and liabilities of the Group that are not denominated in the functional currency of the
relevant entity.
Currency
British Pounds
US Dollars
Euros
Net monetary assets less liabilities
105
2022
$000
223
235
273
731
2021
$000
275
234
9
518
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
The Group’s exposure to currency risk at the end of the reporting period is not significant due to immaterial
balances of monetary assets and liabilities denominated in foreign currencies.
The sensitivity of the exchange rate of US Dollars is presented below:
31 December 2022
$000
31 December 2021
$000
Increase/(decrease) by 10%
23/(23)
23/(23)
The prior year comparative figures were amended to conform to the current year presentation.
Interest Rate Risk Management
The Group is not exposed to interest rate risk on financial liabilities as none of the entities in the Group
have any external borrowings. The Group does not use interest rate forward contracts and interest rate
swap contracts as part of its strategy.
The Group is exposed to interest rate risk on financial assets as entities in the Group hold money market
deposits at floating interest rates. The risk is managed by fixing interest rates for a period of time when
indications exist that interest rates may move adversely.
The Group’s exposure to interest rates on financial assets and financial liabilities are detailed in the liquidity
risk section below.
Interest Rate Sensitivity Analysis
The sensitivity analysis below has been determined based on exposure to interest rates for non-derivative
instruments at the balance sheet date. A 0.5% increase or decrease is used when reporting interest rate
risk internally to key management personnel and represents management’s assessment of a reasonably
possible change in interest rates.
If interest rates earned on money market deposits had been 0.5% higher / lower and all other variables
were held constant, the Group’s:
•
•
profit for the year ended 31 December 2022 would increase by $97,000 in the event of 0.5% higher
interest rates and decrease by $97,000 in the event of 0.5% lower interest rates (profit for the year
ended 31 December 2021 would increase by $136,000 in the event of 0.5% higher interest rates and
decrease by $136,000 in the event of 0.5% lower interest rates). This is mainly attributable to the
Group’s exposure to interest rates on its money market deposits; and
other equity reserves would not be affected (2021: not affected)
Interest payable on the Group’s liabilities would have an immaterial effect on the profit or loss for the year.
Liquidity Risk
The Group’s objective throughout the year has been to ensure continuity of funding. Operations have
primarily been financed through revenue from Ukrainian operations.
The table below shows liabilities by their remaining contractual maturity. The amounts disclosed in the
maturity table are the contractual undiscounted cash flows including future interest. Such undiscounted
cash flows differ from the amount included in the statement of financial position because the statement of
financial position amount is based on discounted cash flows and does not include the interest that will be
accrued in future periods.
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
106
When the amount payable is not fixed, the amount disclosed is determined by reference to the conditions
existing at the reporting date. Foreign currency payments are translated using the spot exchange rate at
the end of the reporting period. The maturity analysis of financial liabilities as at 31 December 2022 is as
follows:
As at 31 December
2022
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
$000
From 1
to
3 months
$000
From 3 to
12 months
$000
From
12 months
to 5 years
$000
More
than 5
years
$000
Total
$000
21,194
29
-
21,223
-
60
-
60
307
284
-
-
492
106
- 21,501
367
1,232
170
276
591
598
537 23,009
The maturity analysis of financial liabilities as at 31 December 2021 is as follows:
As at 31 December
2021
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
$000
From 1 to
3 months
From 3 to
12 months
$000
$000
From
12 months
to 5 years
$000
More than
5 years
Total
$000
$000
4,030
1,618
39
-
80
-
-
381
-
-
661
142
-
5,648
492
1,653
256
398
4,069
1,698
381
803
748
7,699
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.
Credit Risk
Credit risk principally arises in respect of the Group’s cash balance. For balances held outside Ukraine,
where $81,537,000 of the overall cash and cash equivalents is held (31 December 2021: $63,299,000), the
Group only deposits cash surpluses with major banks of high quality credit standing (Note 22). As at
31 December 2022, the remaining balance of $7,115,000 of cash and cash equivalents and other short-
term investments was held in Ukraine (31 December 2021: $29,243,000). As at 31 December 2022,
Standard & Poor’s affirmed Ukraine’s sovereign credit rating of ‘CCC+’, 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. Management considers the
credit risk to be immaterial.
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
107
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
Total
2022
$000
273
223
6,874
81,282
88,652
Floating
rate
financial
assets
2022
$000
Fixed
rate
financial
assets
2022
$000
Floating
rate
financial
assets
2021
$000
Fixed
rate
financial
assets
2021
$000
Total
2021
$000
273
223
-
81,282
81,778
-
-
6,874
-
6,874
9
275
9
275
- 29,011
29,011
63,247 63,247
-
92,542 63,531 29,011
-
-
Cash deposits included in the above balances comprise term deposits with maturity less than 3 months of
$55,409,000 and no term deposits with maturity more than 3 months but less than a year (2021: term
deposits with maturity less than 3 months of $12,323,000 and term deposits with maturity more than 3
months but less than a year of $4,762,000).
As at 31 December 2022, cash and cash equivalents of the Company of $81,046,000 were held in
US Dollars at a floating rate (2021: $63,015,000).
Interest Rate Risk Profile of Financial Liabilities
As at 31 December 2022 and 2021, the Group had no interest bearing financial liabilities at the year end.
Maturity of Financial Liabilities
The maturity profile of financial liabilities, on an undiscounted basis, is as follows:
Group
In one year or less
Company
In one year or less
Borrowing Facilities
2022
$000
21,988
21,988
2022
$000
19,923
19,923
2021
$000
6,148
6,148
2021
$000
1,767
1,767
As at 31 December 2022 and 2021, the Group did not have any borrowing facilities available to it.
Fair Value of Financial Assets and Liabilities
The fair value of all financial instruments is not materially different from the book value.
30. Contingencies and Commitments
Amounts contracted in relation to the Group’s 2022 investment programme in the MEX-GOL, SV, VAS and
SC fields in Ukraine, but not provided for in the financial statements at 31 December 2022, were $156,000
108
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
related to Oil and Gas Exploration and Evaluation assets and $8,607,000 related to Oil and Gas
Development and Production assets (2021: $3,101,000 related to Oil and Gas Exploration and Evaluation
assets and $2,674,000 related to Oil and Gas Development and Production assets).
Since 2010, the Group has been in dispute with the Ukrainian tax authorities in respect of VAT receivables
on imported leased equipment, with a disputed liability of up to UAH 8,487,000 ($302,000) inclusive of
penalties and other associated costs. There is a level of ambiguity in the interpretation of the relevant tax
legislation, and the position adopted by the Group has been challenged by the Ukrainian tax authorities,
which has led to legal proceedings to resolve the issue. The Group had been successful in three court
cases in respect of this dispute in courts of different levels. On 20 September 2016, a hearing was held in
the Supreme Court of 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 no appointment of hearings has
been settled yet. No liability has been recognised in these consolidated financial statements for the year
ended 31 December 2022 (31 December 2021: nil), as the Group has 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.
In March 2019, the State Geologic and Subsoil Survey of Ukraine published an Order for suspension dated
11 March 2019 (the “VAS Order”) in respect of the VAS production licence held by LLC Prom-Enerho
Produkt (“PEP”). PEP disputed the VAS Order and issued legal proceedings in the Ukrainian Courts to
challenge the VAS Order, and these legal proceedings progressed through the various levels of the
Ukrainian Court system, with PEP being successful at each level. The proceedings ultimately reached the
Supreme Court of Ukraine, which, by a decision dated 23 February 2023 upheld PEP’s appeal and
cancelled the VAS Order. The Supreme Court is the final appellate court in the legal proceedings and
therefore this decision is final.
In September 2021, an entity named JV Boryslav Oil Company (“Boryslav”), which is 25.0999% owned by
PJSC Ukrnafta (“Ukrnafta”), issued legal proceedings, claiming that irregular procedures were followed in
the grant of the SC exploration licence, against the State Geologic and Subsoil Survey of Ukraine, the State
Commission of Ukraine for Mineral Resources and LLC Arkona Gas-Energy (“Arkona”), as defendants, with
Ukrnafta named as a third party. In this claim, the First Instance Court in Ukraine made a ruling in January
2022 in favour of Boryslav, and on 2 November 2022, the Appellate Administrative Court also made a ruling
in favour of Boryslav to uphold the decision of the First Instance Court. Arkona appealed the decision of
the Appellate Administrative Court to the Supreme Court, and on 3 May 2023, the Supreme Court published
its decision to allow Arkona’s appeal and overturn the ruling made by the Appellate Administrative Court.
The Supreme Court represents the final appellate court in these legal proceedings, and accordingly, the
decision of the Supreme Court is final.
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:
Total
2022
$000
LLC
Smart
Energy
2022
$000
Other
Total
2022
$000
2021
$000
LLC
Smart
Energy
2021
$000
Sale of goods/services
Purchase of goods/services
Amounts owed by related parties
Amounts owed to related parties
113,787
1,061
56,230
20,603
113,741
571
56,227
20,576
46
490
3
27
95,342
1,099
5,008
95,340
-
5,008
912
901
109
Other
2021
$000
2
1,099
-
11
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
All related party transactions were with subsidiaries of the ultimate Parent Company, and primarily relate
to the sale of gas (see Note 4 for more details), the rental of office facilities and a vehicle and the sale of
equipment. The amounts outstanding were unsecured and will be settled in cash.
As at the date of this report, none of the Company’s controlling parties prepares consolidated financial
statements available for public use.
32. Post Balance Sheet Events
The ongoing war in Ukraine means that the fiscal, economic and humanitarian situation in Ukraine is
unstable and extremely challenging and the final resolution and consequences of the ongoing war are hard
to predict, but they may have a further serious impact on the Ukrainian economy and business of the Group.
Management continues to identify and mitigate, where possible, the impact on the Group, but the majority
of these factors are beyond their control, including the duration and severity of war, as well as the further
actions of various governments and diplomacy.
In January 2023, the Company was notified that there had been a restructuring of the ownership of the
PJSC Smart-Holding Group, a member of which held a major shareholding in the Company, and which was
ultimately controlled by Mr Vadym Novynskyi (“Mr Novynskyi”). Under this restructuring, which occurred
with effect from 1 December 2022, Mr Novynskyi disposed of his major indirect shareholding interest in the
Company to two trusts registered in Cyprus named the SMART Trust and the STEP Trust. In early
December 2022, the Ukrainian Government imposed sanctions on Mr Novynskyi.
In December 2022, new legislation, Law No. 2805-IX, relating to the natural resources sector was enacted
in Ukraine, which came into force on 28 March 2023. This legislation includes provisions that if the ultimate
beneficial owner of a mineral or hydrocarbon licence becomes the subject of sanctions in Ukraine, then the
State Geologic and Subsoil Survey of Ukraine (the “SGSS”) may suspend or revoke that licence. Following
Law No. 2805-IX coming into force on 28 March 2023, the Ukrainian authorities have taken a number of
regulatory actions against certain of the Group’s subsidiary companies in Ukraine.
These regulatory actions included conducting a search at the Group’s Yakhnyky office, from where the
MEX-GOL and SV fields are operated, and placing certain physical assets of the Ukrainian branch
(representative) office of Regal Petroleum Corporation Limited (“RPC”) and LLC Arkona Gas-Energy
(“Arkona”) (which respectively hold the MEX-GOL and SV fields and the SC exploration licence) under
seizure, thereby restricting any actions that would change registration of the property rights relating to such
assets, although the use of such assets was not restricted and therefore the Group has been able to
continue to operate and produce gas and condensate from the MEX-GOL and SV fields. In addition, the
regulatory actions included the freezing of gas volumes held in gas storage on behalf of RPC (to a value of
$0.27 million) and LLC Prom-Enerho Produkt (“PEP”) (to a value of $0.31 million). Furthermore, the Ministry
of Justice of Ukraine (the “MoJ”) made an Order cancelling the registration entry made on behalf of a
subsidiary of the Company named LLC Regal Petroleum Corporation (Ukraine) Limited in the Unified State
Register of Legal Entities, Individuals–entrepreneurs and Civil Institutions of Ukraine (the “State Register”)
relating to the ultimate beneficial owners of such company, which were stated as the trustees of the SMART
Trust and STEP Trust as previously notified to the Company, thereby restoring the previous entry in the
State Register, Mr Novynskyi. Furthermore, the SGSS issued an Order to RPC requiring that additional
information be provided and/or violations be eliminated in the disclosures relating to the ultimate beneficial
owners of the MEX-GOL and SV licences respectively.
On 2 May 2023, the MoJ made further Orders cancelling the registration entry made on behalf of three
further Ukrainian subsidiaries of the Company, being PEP, Arkona and LLC Well Investum (“Well
Investum”) respectively in the State Register relating to the ultimate beneficial owners of such companies,
which again were stated as the trustees of the SMART Trust and STEP Trust, thereby restoring the previous
entry, Mr Novynskyi. PEP holds the VAS production licence, Arkona holds the SC exploration licence and
Well Investum is a dormant company.
Following the issuance of the abovementioned Orders by the MoJ, Mr Novynskyi is registered in the State
Register as the ultimate beneficial owner of each of PEP and Arkona, and is consequently recognised by
the SGSS as the ultimate beneficial owner of each of the VAS production licence and SC exploration
licence. As a result, on 4 May 2023, the SGSS issued orders suspending the VAS production licence and
110
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
SC exploration licence for a period of 5 years effective from that date. Accordingly, the Company ceased
all field and production operations on the VAS and SC licence areas.
The Group is consulting with its legal advisers in order to determine appropriate actions to protect its legal
rights in relation to the above regulatory actions by the Ukrainian authorities.
On 15 June 2023, the Company paid an interim dividend of 15 pence per ordinary share, aggregating
approximately £48.1 million in total, which was the Company’s first ever dividend payment to its
shareholders.
In July 2023, new legislation was introduced in Ukraine, which will come into force in September 2024, and
which requires that branches (or representative offices) of foreign companies operating in Ukraine register
their ultimate beneficial owners in Ukrainian Registries. Regal Petroleum Corporation Ltd ("RPC"), which
holds the MEX-GOL and SV licences, operates such a branch and will therefore be required to register its
ultimate beneficial owners from the implementation of this law, which raises a potential risk that such
registration will not be accepted by the Ukrainian authorities, and possibly result in regulatory action against
RPC and/or its licences and assets, including suspension of the MEX-GOL and SV licences.
33. Auditor’s Limitation Liability Agreement
An Auditor’s Limitation of Liability Agreement has been entered into, subject to shareholders approval, for
the financial period ended 31 December 2022. The principal terms and conditions are below:
- The Agreement limits the amount of any liability owed to the Company by the Auditor in respect of any
negligence, default, breach of duty or breach of trust, occurring in the course of the audit of the Company's
financial statements for the year ended 31 December 2022, for which the Auditor may otherwise be liable
to the Company.
- The Agreement also stipulates the maximum aggregated amount payable in event of any of the
circumstances stated above.
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
111
Corporate Information
Company Secretary and Registered Office
Chris Phillips
16 Old Queen Street
London SW1H 9HP
United Kingdom
Independent Auditors
Zenith Audit Ltd
1st Floor
18 Devonshire Row
London EC2M 4RH
United Kingdom
Nominated Adviser
Strand Hanson Limited
26 Mount Row
London W1K 3SQ
United Kingdom
Broker
Zeus Capital Limited
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
Solicitors
Squire Patton Boggs (UK) LLP
60 London Wall
London EC2M 5TQ
United Kingdom
Share Registry
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol BS99 6ZY
United Kingdom
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
112
Glossary
AAPG
Arkona
bbl
bbl/d
Bm3
boe
boepd
Bscf
Company
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
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
thousands of millions of scf
Enwell Energy plc
DeGolyer and MacNaughton
Euro
Enwell Energy plc and its subsidiaries
kilometre
square kilometre
liquefied petroleum gas
Mekhediviska-Golotvshinska
cubic metres
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
United States Dollar
Ukrainian Hryvnia
Vasyschevskoye
Vvdenska
World Petroleum Council
Enwell Energy plc - Annual Report and Financial Statements for the year ended 31 December 2022
113