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PetroNeft Resources plc
Dublin Offi ce
20 Holles Street
Dublin 2
Ireland
PetroNeft
Resources plc
Annual Report
Годовой Отчет
2020
Producing oil from
a solid asset base
Our Assets
The main assets of the Company are a
50% operating interest in a 4,991 km² oil
and gas licence (Licence 61) in the Tomsk
Oblast in Russia and a 90% operating
interest in a 2,447 km² oil and gas licence
(Licence 67) also located in the Tomsk
Oblast. Both licences are located in the
prolifi c Western Siberian Oil and Gas Basin.
RUSSIATomsk OblastMoscow01,000 KM0100 KMKEY:PetroNeft LicencesOther Held LicencesOil FieldOil and Gas FieldGas Condensate FieldOil PipelineGas Pipeline PetroNeft Resources plc
Annual Report and
Financial Statements
for the year ended 31 December 2020
PetroNeft Resources plc
Table of Contents
Group Information .................................................................................................................................. 2
Board of Directors ................................................................................................................................... 4
Chairman’s Statement ............................................................................................................................ 5
Chief Executive Officer’s Report ............................................................................................................. 8
Financial Review .................................................................................................................................... 15
Directors’ Report ................................................................................................................................... 24
Independent Auditor’s Report to the Members of PetroNeft Resources plc ...................................... 31
Consolidated Income Statement .......................................................................................................... 38
Consolidated Statement of Comprehensive Income ............................................................................ 38
Consolidated Statement of Financial Position ...................................................................................... 39
Consolidated Statement of Changes in Equity ..................................................................................... 40
Consolidated Cash Flow Statement ...................................................................................................... 41
Company Statement of Financial Position ............................................................................................ 42
Company Statement of Changes in Equity ........................................................................................... 43
Company Cash Flow Statement ............................................................................................................ 44
Notes to the Financial Statements........................................................................................................ 45
Corporate Governance Code ................................................................................................................ 93
Section 172(1) Statement ................................................................................................................... 103
Glossary ............................................................................................................................................... 106
Annual Report and Financial Statements
Forward Looking Statements
This report contains forward-looking statements. These statements relate to the Group's prospects, developments, and business strategies. Forward-
looking statements are identified by their use of terms and phrases such as 'believe', 'could', 'envisage', 'potential', 'estimate', 'expect', 'may', 'will' or the
negative of those, variations, or comparable expressions, including references to assumptions.
The forward-looking statements in this report are based on current expectations and are subject to risks and uncertainties that could cause actual results
to differ materially from those expressed or implied by those statements. These forward-looking statements speak only as at the date of these financial
statements.
PetroNeft Resources plc
Group Information
Directors
Alastair McBain (British citizen- appointed 29 January 2021)
(Non- Executive Chairman)
David Golder (U.S. citizen- resigned 19 February 2021)
(Non-Executive Chairman)
David Sturt (British citizen) (Chief Executive Officer)
Pavel Tetyakov (Russian citizen- appointed 17 January 2020)
(Vice President Business Development)
Thomas Hickey (Irish citizen- resigned 18 December 2020)
(Independent Non-Executive Director)
Maxim Korobov (Russian citizen- resigned 17 January 2020)
(Non-Executive Director)
Anthony Sacca (Australian citizen)
(Independent Non-Executive Director)
Daria Shaftelskaya (Russian citizen- appointed 17 January
2020) (Non-Executive Director)
Registered Office and Business Address
20 Holles Street
Dublin 2
Ireland
Secretary
Auditor
Nominated Adviser and
Euronext Growth Market Adviser
Michael Power appointed 3 May 2020
Karl Johnson resigned 3 May 2020
BDO
Beaux Lane House
Mercer Street Lower
Dublin 2
Ireland
Davy
49 Dawson Street
Dublin 2
Ireland
[2]
PetroNeft Resources plc
Group Information (continued)
Broker
Principal Bankers
Solicitors
AIB Bank
1 Lower Baggot Street
Dublin 2
Ireland
Davy
49 Dawson Street
Dublin 2
Ireland
KBC Bank Ireland
Sandwith Street
Dublin 2
Ireland
Promsvyazbank
Sibirsky branch
Tomsk
Russia
Byrne Wallace
88 Harcourt Street
Dublin 2
Ireland
Registered Number
408101
Registrar
Computershare
3100 Lake Drive,
Citywest Business Campus,
Dublin 24, D24 AK82,
Ireland
[3]
PetroNeft Resources plc
Board of Directors
Alastair McBain – (Non-Executive Chairman) (Age 64)
Mr. McBain was appointed a Non-Executive Director of the Company in January 2021 and became Non-Executive Chairman on
19 February 2021. He has had a highly successful 37 years career in the international oil and gas industry. Initially working for 17
years at Royal Dutch Shell in numerous senior international commercial positions. He joined the Vitol group in 1995 to head up
the growth of the group’s portfolio of upstream assets and became CEO of Arawak Energy in 2002. He grew the Company from
an initial $20M valuation with zero production to a $0.5Bn Company producing 12,000 boepd from assets in Kazakhstan, Russia,
and Azerbaijan. He also oversaw the migration of the Company from a junior listing on the Toronto exchange to a full listing on
the London Stock Exchange. Following Arawak’s acquisition by Vitol, he worked with Vitol in a variety of senior positions
including board Chairman of GeoAlliance, one of Ukraine’s leading independent producers of natural gas and gas liquids. He left
Vitol in early 2020 to form Sarum Energy, a Company which, having acquired a 50% interest in Licence 67, of which 80% of that
holding was subsequently sold to PetroNeft in March of 2021. He holds an MA in Oriental Studies from the University of Oxford
and in addition to his native English, is also a fluent Mandarin speaker.
David Sturt – (Chief Executive Officer and Executive Director) (Age 58)
Mr. Sturt was appointed a Non-Executive Director of the Company in April 2016 and became Chief Executive Officer on 25 March
2019. He was a member of the Remuneration Committee up until his appointment as CEO. David has over 35 years international
experience in the oil and gas industry gained working on projects in Europe, CIS, Africa, and SE Asia in a variety of senior technical
and managerial positions at Conoco-Philips, Hess, PetroKazakhstan, Exillon Energy, Ukrnafta and Azimuth Energy. In 2010 he was
a founding partner in VistaTex Energy which built a portfolio of producing assets across the onshore US, the Company was later
successfully sold to Dome Energy in 2014. He is currently also non-Executive director of Petrosibir AB, a Swedish Company with
oil and gas interests in the Bashkiria and Komi regions of Russia. David holds a BSc honours degree in Earth Sciences from Kingston
University, an MSc degree in Exploration Geophysics from Leeds University, and a postgraduate diploma in business
administration from Heriot Watt University.
Pavel Tetyakov – (Vice President Business Development and Executive Director) (Age 40)
Mr. Tetyakov has 20 years of experience in senior and top management positions working for a variety of E&P companies including
PetroKazakhstan, Exillon Energy, Ukrnafta, Sibgasoil and Petrosibir. His main areas of expertise are M&A and operations
management. He negotiated the acquisition of several licences in PetroKazakhstan, was responsible for building the asset
portfolio of Exillon Energy, managed divestment of Sibgasoil oil fields in several regions of Russia and led the transformation of
Petrosibir that resulted in improved operational performance and new oil field discoveries. He joined the Company in May 2016
as Vice-President Business Development. In July 2018 Mr Tetyakov took over the management of the Russian subsidiaries of
PetroNeft as General Director. In January 2020 he was appointed to the Board as an Executive Director. Pavel holds a Bachelor of
Arts degree in Business Administration from Budapest University of Economic Sciences and Public Administration
Anthony Sacca – (Independent Non-Executive Director) (Age 48)
Mr. Sacca was appointed an Independent Non-Executive Director of the Company in April 2016. He is chairman of the Audit
Committee. He is principal of Karri Tree executive coaching. Anthony was previously the Chief Financial Officer of Rolf Group of
Companies, one of Russia’s largest independent automotive distributor/retailers. Prior to that he was a Partner with PwC in
Moscow. Anthony is a Fellow of the Institute of Chartered Accountants in Australia and New Zealand. He holds a Bachelor of
Business and Administration (Distinction) from Curtin University of Technology Perth, Australia. He is a member of the Russian
Independent Directors Association and is a Fellow Chartered Director with the Institute of Directors in the United Kingdom.
Daria Shaftelskaya – (Non-Executive Director) (Age 41)
Ms. Shaftelskaya has 20 years of experience in the oil & gas exploration and production business within the West-Siberian basin
(Tomsk region). Daria was appointed a Non-Executive Director in January 2020. More recently she has been working as chief
financial officer in several Russian companies including: "Finco", "Hermes - Moscow" and "Sever" where she was primarily focused
on oil & gas trading and operational facilities construction in the West Siberian region. She holds a degree in economics and
engineering from Tomsk Technical University (1999) and a Master’s Degree in Economics also from Tomsk Technical University
(2001).
[4]
PetroNeft Resources plc
Chairman’s Statement
Dear Shareholders,
The world today is rightly increasingly focus on a future with cleaner air, water, and a fairer planet, and while your Company can
make no apologies over having the extraction of fossil fuels as its core business, we are determined to do what we can within the
constraints of our business model to work towards that future. We accept that within the medium-term fossil fuels are destined
to be only a peripheral part of the energy future. However, today, and in the immediate future, a stable and secure supply of oil
is still needed, perhaps more than ever.
We are doing what we can to ensure that our operations are carried out safely, reliably, and efficiently as well as with minimal
disruption to the natural environment. Our production of associated natural gas is largely used for on-site electricity generation
and heating, dramatically reducing emissions by eliminating the need for diesel fuel and its transportation by truck. We have
constructed a mini oil processing unit, reducing the need for imported diesel for field operations. In total, we have eliminated
almost 25,000km/yr. of trucking requirements. We are currently working on a pipeline project to link our newly commissioned
Cheremshanskoye field to local infrastructure, further reducing trucking and associated emissions. We play our part in the local
community, supporting local schools and re-foresting areas no longer required for operations. And finally, we are proud to have
passed 2020 with zero lost time accidents. Your board is acutely aware of its responsibilities in respect of minimising the ecological
impact in its operations, and continually upgrading environmental and safety performance while cultivating a meritocratic, open,
and fair management style.
The energy sector is experiencing a considerable rebound from the unprecedented, combined challenges of the dramatic fall in
the price of oil caused initially by the OPEC +++ divorce and the demand collapse caused by Coronavirus lockdowns. We deeply
regret the suffering, deprivation, and tragedy that the pandemic has brought to all of us but feel it is reasonable to view the worst
as being behind us now. In terms of our business, this has been reflected in significant increases in demand starting from 3rd
quarter 2020, which have been translated through to increases in prices, which we see as a continuing trend in a more disease-
free world.
As a Company we remain focused on improvements in operational performance aimed at efficiently lifting production, increasing
revenue, and adding to reserves. Despite the challenging environment through 2020, because of the increased technical focus
initiated in 2019, the emphasis on rigorous cost control and judicious allocation of capital, we feel the executive team can look
back on the Company’s recent performance with pride. Real benefits are beginning to emerge for all the Company’s stakeholders.
The successful acquisition of an additional 40% of Licence 67 which closed Q1 2021, which has seen a commencement of
production and a key addition to the Company’s cash flow on a 90% basis is a good example of this trend. As a board, we are
determined to continue to prove up the value proposition that is PetroNeft Resources PLC.
Corporate Development
2020 saw considerable Board changes for the Company with the appointment of Daria Shaftelskaya, who is a major shareholder,
holding 9.64% of the equity in our Company, to join the Board as a Non-Executive Director. Pavel Tetyakov, who has been Vice
President of Business Development since 2016, was also appointed as an Executive Director. After a considerable time with the
Company as Non-Executive Director Thomas Hickey chose to not run for re-election, we wish him well with his future endeavours
and thank him for his support and considerable contribution over many years.
Change continued as we entered 2021. David Golder retired from the Board as our Non-Executive Chairman. I would like to thank
David who has provided excellent service to the Company, driving through the initial development, and more recently guiding it
through very challenging times. I wish him well in his retirement.
I was elected to the Board on the 29 January as Non-Executive Director and on David Golder’s retirement was elected to the
position of Non-Executive Chairman. As a new member Company, I look forward to working with the Board.
Strategy evolution and transformation
In 2019 our strategy evolved in twin tracks, so while we continued to entertain partnership interest from a range of industry
participants, we also focussed on adding value to our ongoing business albeit with a strictly limited budget. We succeeded in
[5]
PetroNeft Resources plc
Chairman’s Statement (continued)
furthering our understanding of the subsurface while achieving operational efficiency improvements combined with rigorous cost
control and capital allocation to re-position ourselves as a growing business. Despite the challenges of 2020, we are starting to
see the benefits of this re-focused strategy with improved operational and financial results. On top of this, we have a considerable
stable of valuable organic growth opportunities and will primarily be focused on delivering value through development of this
portfolio, which we believe to be substantial. In addition, we will also look at growth through new acquisitions but only where
we judge them to be overwhelmingly accretive to shareholder value. We believe that the opportunities in our sector are better
currently than any other in recent history.
Capital Structure
Despite the challenging market conditions, the Company has been able to improve its financial position through successful capital
structuring:
•
•
•
•
•
At the beginning of 2020, the Company successfully raised capital, with monies received in January 2020. Overall, we
were pleased to be able to raise capital in the amount of US$2.1 million, by the issuance 107,755,037 Ordinary Shares
at £0.015 which represented a 58% premium to the previous closing price. The placement had strong support from
institutional and other investors with strong Board participation representing approximately 44% of the placement. The
Company received US$1.57 million by way of cash proceeds and the balance of US$0.53 million related to salaries and
Directors fees owing which was settled by the issuance of shares.
Following the successful completion of the C4 extended well test at the Cheremshanskoye field on Licence 67 in spring
of 2020, a Financing Agreement has been executed between the owner and operator of Licence 67, LLC Lineynoye
(90% owned by PetroNeft Resources) and AOR (Alexandrovskoye Refinery) to finance the cost of constructing an all-
season road to connect the C4 well with the local year-round road network up to a maximum expenditure of $1
million. The financing facility covered the entire cost of road construction with completion occurring in April 2021. This
now enables year-round production, a considerable improvement over past performance where the well could only
produce for three to four months each winter. This all-season new road will reduce operational expenses and
complexity. It may also be able to service future producing wells in the license area in the event of successful drilling.
In addition, the strong operational performance, combined with the improving oil price, has significantly improved the
finances of the Company which has enabled us to fund construction of the road and re-entry of the Ledovoye L-2a well
without the need to call down agreed financing arrangements which now remain in place should we need the capital in
the future.
The Petrogrand AB loan redemption date was extended from 15th December 2020 to 15th December 2021. The
redemption date can also now be extended at our option, provided we make a repayment of 20% of the loan on or
before 15th December 2021. In such circumstances the final redemption date would be the earliest of (a) 15th December
2022 or (b) the date of completion of the License 61 sale or (c) the date of completion of License 67 sale.
Successfully raised U$2.9m in February 2021 through a convertible loan from a group of 13 lenders including new and
existing investors, Directors, and senior management
As part of the acquisition of an additional 40% interest in Licence 67, which concluded in March 2021, issued a US$1.7
million convertible loan to the seller Sarum Energy.
The Company has been very pleased by the support and confidence shown by the participants in these fund raisings, especially
as the embedded share placings were all at a premium to the prevailing share price when the agreements were signed. This
confidence was further endorsed when we were then able to retire US$ 2.864 million of debt through conversion.
Business Development
At the end of 2020 we entered negotiations with Sarum Energy Limited, the ultimate beneficial holder of 50% holding in Licence
67, through its subsidiary Belgrave Naftogas B.V. to acquire an additional 40% interest in Licence 67. The acquisition was closed
early 2021. I am particularly pleased with this acquisition which we see as being highly accretive to our value while at the same
[6]
PetroNeft Resources plc
Chairman’s Statement (continued)
time aligning Sarum’s interest with the Company as a significant part of the deal consideration was paid in shares and convertible
debt (since converted). The Licence is at an important stage in its development transforming from an exploration to a producing
asset. The progress made on this licence to date supports our view of the potential to grow production, reserves, and revenue in
the near term.
On a personal note, I have long believed in the intrinsic value of the PetroNeft assets and as a major shareholder in both Sarum
and PetroNeft I am delighted to have this opportunity to build Company value.
Outlook
During the early stages of the Covid pandemic, we set about upgrading and revising our HSE protocols to meet the challenges
faced by the pandemic so that when production restarted, our staff and suppliers/contractors could operate in a safer
environment. Through this period, we minimized cash outgoings by working with our contractors and service providers to
reschedule key payments, our staff took voluntary salary reductions in some cases with 50% reduction of the Tomsk office
salary overhead. With our oil offtakers, we worked on a prepayment basis. We kept a minimum crew in the fields to ensure
ongoing operations could be continued. I am very pleased to have been able to watch such support and belief in our future by
all our stakeholders during the challenging times in 2020. Now that our operations are back to normal, we are seeing
production volumes increasing year on year through 2021.
On License 67 I am particularly looking forward to the development of this asset. Operational results in both assets through the
start of 2021 have been very encouraging and provide further confidence in the potential of our assets to drive forward
shareholder value. It is also pleasing to see that this improvement in our operational performance is reflected in an improving
share price. Whilst this movement is very positive, I believe there is significant further scope, and we are committed to narrowing
the gap between the share price and the long-term value of the Company’s assets and reserves.
Operations and Reserves
The Chief Executive Officer’s report contains the details of the operations and oil reserves of the Company and highlights the
large potential of the Northern Hub area in Licence 61 which includes the Sibkrayevskoye and West Lineynoye fields and
Emtorskaya prospect. In Licence 67 the Cheremshanskoye and Ledovoye oil fields are exciting development opportunities which
are already producing and generating revenue and further growth opportunities through near field exploration and appraisal.
Summary
Despite the considerable challenges through 2020, through the support of all our stakeholders we have not only survived but are
now able to look forward to the future with renewed optimism. This renewed optimism is already being realised through early
successes during the early months of 2021 on both our licences.
As well as the improvements within the Company, we are seeing within our industry an improvement in the market through the
end of 2020 and into 2021. This combination enables me to look forward to the future with renewed confidence and belief in the
ability to grow the value of the Company.
Finally, I know that I speak for all the Directors, management, and staff of the Group in giving sincere thanks to our shareholders
for your continued support throughout the past extraordinary year.
Alastair McBain
Non-Executive Chairman
[7]
PetroNeft Resources plc
Chief Executive Officer’s Report
Dear fellow shareholders, as reported by our Chairman Alastair McBain, 2020 was a very challenging year, we have however been
able to achieve some noticeable successes which have continued and gained momentum in 2021.
I am pleased to see that the oil price has regained some of the ground lost during 2020 and see continued strengthening of oil
prices through the first months of 2021 as demand has started to rebound.
Although we faced many challenges in 2020, we were able to achieve the following results:
• Financials:
Reduced OPEX/bbl by 10.3%, $12.39/bbl (2020) vs $13.82/bbl (2019) at
Licence 61
Corporate administration costs remain low, $1.03M (2020) vs $0.8M (2019) after a
47% drop in 2019 from $1.51M in 2018.
Loss after taxation reduced, US$4.54m (2020) vs US$6.04M (2019) despite a
significant 32.7% fall in the realised price per barrel ~ $28.15/bbl (2020) vs
$41.15/bbl (2019).
Strengthened balance sheet through successful renegotiation of existing loans on the
same terms and raised additional capital at premium to the share price.
Reduced WorldAce administration costs (holding Company for Licence 61) $2.52M
(2019: $2.62)
• Production (100% basis):
Down just 2.96% 571,710 (2020) vs 589,165 (2019) despite production curtailed in
April due to economics and September/October due to essential pipeline
maintenance (estimated loss 37,100 bbls),
First commercial production on licence 67, produced and sold 1,200 barrels from
Cheremshanskoye field under extended production test.
• Operations:
Completed connecting Sibkrayevskoye to Central Processing Unit.
Successful testing of mini refinery on Licence 61, which shall reduce the OPEX by ca.
$1/bbl.
• HSE:
The Company had zero lost time accidents throughout 2020.
2020 Review
Management has worked hard to continually focus on cost reduction and optimisation across all levels of the Group. Our
Corporate costs at the PetroNeft level were in line with expectations after a significant 47% reduction from 2018 to 2019, and
WorldAce, which is the holding Company for Licence 61, reported a reduction in administrative expenses. The focus on sustaining
cost reductions was achieved by closing and downsizing offices, reducing, and optimising personnel, and working closely with
contractors and suppliers to improve contractual arrangements.
The loss for the year was $4.54 M compared to a loss of $6.04 M (2019) despite a 32.7% drop in realised oil price.
[8]
PetroNeft Resources plc
Chief Executive Officer’s Report (continued)
Gross production in 2020 was 571,710 barrels of oil or an average of 1,562 bopd. No new production wells were drilled during
the year, and this represents a decline of 2.96% from 2019 production of 589,165 barrels (1,614 bopd average). The production
in 2020 was affected by two external events, firstly in April, due to the significant oil price reduction, we shut in most of our
wells reducing production by an estimated 15,600 bbls. Also, in September/October, the third-party pipeline connecting from
the edge of licence 61 to the Transneft entry point had to be shut down due to necessary maintenance. This resulted in an
estimated 21,500 barrels being lost. In total it is estimated that 37,100 bbls was lost.
In 2020, we continued to benefit from the successful reorganisation of the Company. The reorganisation has provided a valuable
fresh set of eyes to review our fields and operations and enabled us to arrest the natural decline in some of our core fields, with
further opportunities also identified. At the same time as strengthening the technical team, we also continue to increase the
amount of data gathering and well monitoring across our well inventory which has been combined with a re-interpretation of our
seismic and well data. We have gained valuable insights from these studies, which is being integrated into an updated plan for
our assets which is described in more detail in the individual field and prospect sections.
Licence
Field
61
Lineynoye
West Lineynoye
Arbuzovskoye
Sibkrayevskoye†
Tungolskoye††
Kondrashevskoye
Sub Total =
67
Cheremshanskoye
Total =
2020 Gross
production
202,239
64,424
222,203
78,231
2,905
508
570,510
1,200
571,710
2019 Gross
production
194,429
65,357
282,238
36,583
10,558
0
589,165
Percentage
change
4.0%
-1.4%
-21.3%
113.8%
-72.5%
-3.2%
589,165
-3.0%
†Note: Sibkrayevskoye historically only produced during the winter periods, started producing year-round in 2020.
††Note: Tungolskoye field only produced for part of the year due to operational reasons.
Licence 61
The Company holds a 50% operated interest in this licence with our partner Oil India Limited (“OIL”) holding the remaining 50%.
The licence contains five producing fields: Lineynoye, West Lineynoye, Arbuzovskoye, Tungolskoye and Sibkrayevskoye (which
historically produced only during the winter months but is now producing year-round). In addition to these fields the licence also
contains several attractive low risk exploration prospects.
We are particularly excited by the potential of the Emtorskaya prospect due to its significant low risk potential combined with
being located only 16 kilometres from the Central Processing Facility and structurally up dip from the Lineynoye field. The
prospect has already been previously tested by two Soviet Era wells which indicate potential missed oil zones. We now recognise
significant development potential within this northern hub area which includes the Sibkrayevskoye and West Lineynoye
developments and the Emtorskaya prospect. All three structures exhibit similar geology and characteristics as the successful
Lineynoye field.
In addition to Emtorskaya, there are a further two high graded prospects located in the southern half of the licence, Traverskaya
and Tunganskaya, both have also previously been tested by Soviet Era wells. The well data has been re-interpreted and indicate
potential missed oil zones.
The strategy for the development of this licence is therefore to:
• Continue to optimise existing production through enhancements of field water flood programs and application of other
low risk production enhancements such as fracking.
[9]
PetroNeft Resources plc
Chief Executive Officer’s Report (continued)
• Develop the low-risk development, exploration, and appraisal opportunities in the Northern Hub. These comprising the
Sibkrayevskoye and West Lineynoye developments and Emtorskaya appraisal (Gross 150 mmbbls 3P ~ Ryder Scott 2016).
This area lies close to the Central Processing facility with Sibkrayevskoye and West Lineynoye already connected. On
success these opportunities will add significant near-term growth in reserves and production.
• Capture the value of the additional exploration prospects in the southern half of the licence, particularly Traverskaya
and Tuganskaya. These represent low risk targets which we regard as appraisal led exploration due to previous Soviet
era wells partially de-risking the presence of oil.
Arbuzovskoye field
Production in 2020 continued to decline with average gross daily production of 607 bopd (773 bopd 2019). Much of this decline
was in the A-214 Hz well which also declined by 25% between 2018 and 2019.
The focus has therefore been to try to arrest this rapid decline which is due to the lack of pressure support at this part of the field.
A water injector well was proposed in 2016 but could not gain partner support so was cancelled.
During Q1 2020 we started injecting additional water into the A-216 well on the southern part of the field close to the A-214 Hz
well. During the second half of 2020 and into 2021 we started to see the benefits of the new injection with a reduction in the
decline at the A-214Hz well
Whilst production from the other producing wells remains stable, we are looking at ways to further enhance production through
optimisation of the water flood program across the field and are targeting a program to try and increase the water injection into
the upper J1-1 reservoir.
Lineynoye field
The wells at Lineynoye continue to perform well, with production increasing by 4% in 2020 (553 bopd 2020 vs 533 bopd 2019)
despite the two production interventions caused by external circumstances (oil price decline and pipeline repair). The continued
improvement in the field performance is the result of the work started in 2019 and carried on in 2020. This included; improving
the sweep efficiency of the water flood, combined with our team in Tomsk, including our in-house workover crew, working
efficiently to keep wells online and to intervene where necessary to optimise well performance. We continue to look at all
methods to increase production further and were very pleased with the results of the re-frack of well L-115 which increased the
production from an average of 20 bopd to over 80 bopd post frack. This operation was carried out during Q1 2021 and has been
highly successful. We are currently reviewing all wells to see if this technology can be used more widely across the field.
The geology of the Lineynoye field is very similar to the Sibkrayevskoye field to the east and the Emtorskaya prospect to the north.
We believe that we can translate the success achieved at the Lineynoye Pad 1 development to the Sibkrayevskoye field and
Emtorskaya prospect. We have termed this area the Northern Hub due to similarities in geology and proximity to the Lineynoye
field where the Central Processing Facility is located.
West Lineynoye
We have been producing from two vertical wells and one horizontal well since 2015 with minimal decline in production and
almost no water cut. Production in 2020 was 176 bopd vs 179 bopd in 2019, this represented only a 1.4% decline despite the two
external effects on production in April and September/October periods.
Based on the successful L-10 horizontal well, which has had zero decline during the past four years, combined with the experience
gained drilling horizontal wells at Tungolskoye and Arbuzovskoye Pad 2, we believe we can attain higher production rates at West
Lineynoye by drilling 500-to-1,000-meter horizontal wells. The development of the L-8 Lobe of the Lineynoye field known as West
Lineynoye, is a prime candidate for future investment utilising horizontal wells. We have the existing infrastructure already in
place tying the L-8 Lobe to the Central Processing Facilities and the economics of the development are robust. This development
will target an additional 10 million barrels of potential 2P reserves.
[10]
PetroNeft Resources plc
Chief Executive Officer’s Report (continued)
Sibkrayevskoye
The field has performed very well since building the connection to the Central Processing Facility during Q1 2020. The 26-
kilometre connection was constructed within budget and on schedule. The average gross daily production was 214 bopd (2020)
vs 100 bopd (2019). This new connection enables year-round production with resultant increased cash flow. It also has provided
critically valuable reservoir performance data which was used to design a fracture program which was successfully carried out
during Q1 2021. As reported during Q1, the well has been producing at rates up to 520 barrels of oil per day since the frack
program, double the pre-frack rate.
We have continued to review the geology of this field and recognise that it is very similar to that at Lineynoye where the Pad 1
wells have been outstanding producers. The main reservoir in this field comprises a channelised reservoir system which is laterally
variable and explains the past well history. These channels systems can be visualised using 3D seismic data. We are therefore
looking at the potential to acquire 3D seismic ahead of any further development drilling to ensure we target reservoir sweet spots
which will significantly de-risk further capital allocation.
Tungolskoye
Production from the field reduced further in 2020 to 2,905 bbls from 10,558 bbls in 2019. As part of our continual financial review
of our operations we took the difficult decision in 2019 to divert resource and capital away from the field as production levels
could not justify costs of production due to the lower oil price and lower production levels.
Whilst it is disappointing that we had to suspend production, especially after so much capital has been used to develop the field,
we do believe there is potential to economically develop this field. Currently we are looking at options to restore economic
production, such options currently include but not limited to sourcing a coiled tubing unit which can be used to clean the wells
possibly in combination with other technologies such as radial drilling. We hope to be able to update shareholders as these plans
are further developed.
Exploration and Appraisal
The license contains 25 prospects with 288 mmbbls of prospective resource (Ryder Scott). One of the largest and lowest risk is
the Emtorskaya prospect. It is aerially extensive (146 km2) and structurally 65 m higher and up-dip from the Lineynoye field with
similar geological characteristics. Two wells (E-300 and E-303) were drilled on the structure during Soviet times and have been
re-interpreted with potential missed oil zones being identified within the Upper Jurassic in both wells. We believe that the
Emtorskaya structure could be a significant up-dip extension of the Lineynoye field. The Pad 1 drilling campaign at the Lineynoye
field has been a great success which we believe could be replicated at Emtorskaya. Ryder Scott audited potential P3 reserves of
64 million barrels (gross) at Emtorskaya. Economically proving up this prospect would add material value due to its scale and
proximity to existing production facilities where there is abundant spare capacity. The geology of the reservoir horizons is believed
to be like the main target at the Emtorskaya prospect, the encouraging results at Sibkrayevskoye field where we have stable
production which has been further enhanced by recent fracking of the S-373 well provide further encouragement of the potential
value of this prospect.
In addition to Emtorskaya, we also believe in the potential of the Traverskaya and Tuganskaya prospects in the south, where re-
processing of the old well data has identified potential missed pay at various intervals in the Jurassic and Cretaceous.
Licence 67
The Company held a 50% operational interest in this licence with our partner Belgrave NaftoGaz (formerly Arawak Energy) which
held the remaining 50%. The ownership of Belgrave NaftoGaz changed at the beginning of 2020 due to a buyout by a group of
investors led by the former CEO of Arawak Energy and now Non-Executive Chairman of PetroNeft (Alastair McBain). At the end
of 2020 we signed a Heads of Agreement with Belgrave Naftogas to acquire an additional 40% interest in the licence taking our
position to 90%. The acquisition of this additional interest was closed during Q1 2021.
The licence is surrounded by producing fields and all-weather roads which run through the licence and past both the
to both fields enabling an easy transportation route makes
Cheremshanskoye and Ledovoye fields. The proximity of roads
[11]
PetroNeft Resources plc
Chief Executive Officer’s Report (continued)
development of these fields highly attractive due to reduced CAPEX and OPEX costs combined with multiple export routes. Both
these fields are covered by modern 3D seismic data which was re-interpreted in 2019 and geological models for the fields were
updated.
In 2018 the Company successfully drilled the C-4 well on the Cheremshanskoye field, this was the first well to be drilled after the
acquisition of 3D seismic data over the field. Following completion of this well we successfully booked 19.26 mmbbls of C1+C2
reserves (equivalent to International standard 2P) approved by GKZ (Russian State Reserves Auditor) in January 2019
2020 was a very important year for this licence as we carried out an extended well test on the C-4 well at the Cheremshanskoye
field which resulted in producing and selling 1,200 bbls of good quality oil at competitive market rates. In addition to the
incremental revenue this extended test provided valuable reservoir performance data.
The C-3 well, located on the southern part of the Cheremshanskoye field was also re-entered and the Lower Jurassic J14 reservoir
was successfully tested but recovered gas and non-commercial quantities of high paraffin condensate/light oil. Operations were
suspended before moving up the well to the Upper Jurassic reservoirs due to the economic crisis and the COVID-19 virus. Further
work is ongoing to understand the implications of the result for the potential of the Lower Jurassic J-14 reservoir.
Following our technical review combined with the significant economic advantages of developing assets near infrastructure, we
see this licence as having the potential to add significant value for the Company through the following focused strategy:
•
Increase reserves, production, and cash flow initially through development of the Cheremshanskoye field and later
success the Ledovoye field.
• Capture the value of near field exploration opportunities around the Cheremshanskoye and Ledovoye field.
Cheremshanskoye field
The field covers an area of 46 km² with three previous wells (C-1, C-2 & C-3) drilled within the southern half of the field
encountering oil within the Upper and Lower Jurassic intervals. They were however drilled without the benefit of 3D seismic data
which was acquired during 2014. Interpretation of this seismic data has shown that these wells were all located down dip on the
flanks of the field
Immediately adjacent to this field along the Northeast margin lies the Lomovoye field which is operated by Tomskneft (subsidiary
of Rosneft) and reportedly already has over two hundred producing wells. We see the geology as being very similar and so a good
analogue for our field.
In 2018 PetroNeft successfully drilled the C-4 well which was a significant step out well proving up the northern half of the
Cheremshanskoye field. This well tested oil on a short period test from the Upper Jurassic J1-1 and J1-3 intervals at a combined
open hole prorated test of 399 bopd.
Following completion of the C-4 well, the Company, during the first quarter of 2019, had reserves of 2.5 mmtons of C1 + C2 (19.26
mmbbls) approved by the Russian State Reserves Committee (approximately equivalent to International 2P category).
The well was however not tested for a sufficient length of time which meant gaps in our understanding of the reservoir
performance and fluid type remained unresolved. During Q1 2020 we re-entered the well and performed a rigorous testing
program of the Upper Jurassic reservoirs (J1-1 & J1-3) with the well flowing up to 476 bopd (instantaneous flow) on a 10mm
choke. The oil produced was good quality 35degree API. In total 1,200 barrels of oil were produced and sold at competitive market
rates at the well head, thereby removing potentially costly pipeline tariffs.
Crucially the field reserve level qualifies for an approximate 15-20% reduction in the rate of Mineral Extraction Tax which is
generally set at 60% of the gross revenue, so a 15-20% reduction equates to a considerable value over the life of the field. The
level of this reduction varies from month to month according to changes in the oil price.
[12]
PetroNeft Resources plc
Chief Executive Officer’s Report (continued)
The customer that purchased the test oil later agreed to provide a $1M loan facility to enable construction of an all-season road
across the field. This road was started at end of 2020 and completed ahead of schedule and on budget in Q1 2021. At the same
time, the C-4 well was brought into production during Q1 2021 and is currently flowing oil naturally at approximately 324 bopd
on an 10mm choke size. The strong operational performance, combined with the improving oil price, has significantly improved
the finances of the Company which has enabled us to fund construction of the road and re-entry of the Ledovoye L-2a well
without the need to call down agreed financing arrangements which now remain in place should we need the capital in the
future.
Ledovoye Field
The field lies along the northern margin of Licence 67 and is believed to be an extension of the producing North Ledovoye field in
the adjacent licence 55 to the north. Three previous wells have been drilled in the field with oil recovered from the Upper Jurassic
through open hole tests and indications of oil in the overlying Cretaceous intervals. Such open hole tests are not recognised by
the State Reserves Committee (GKZ) so development during 2019 we reviewed available well data and identified the potential to
re-enter both the L-2a and L-2 wells to test the Upper Jurassic and overlying Cretaceous intervals, previously missed. These wells
lie less than 200 meters from a good quality all season road, so well re-entry operations can occur year-round. This re-entry
program was initially scheduled to be completed during the first half of 2020 but, like the Cheremshanskoye program, was
postponed due to a combination of the economic crisis and the COVID outbreak. The re-entry program has just been restarted
with the planned re-entry of the L-2a well to test the Upper Jurassic reservoirs.
Licence 61 and 67 Reserves
Independent reserve consultants Ryder Scott completed an assessment of petroleum reserves on Licence 61 and 67 as at 1
January 2016. As we initiate production from Licence 67, combined with improved knowledge of our assets in Licence 61, we are
aiming to generate an updated third-party assessment of the Company’s reserves in 2021.
The Ryder Scott reserves report estimated total Proved and Probable (“2P”) reserves for Licence 61 at that time at 102.92 mmbbls.
PetroNeft’s net interest in these reserves is 50%. As shown in the table below, PetroNeft’s share of the combined Licence 61 and
Licence 67 reserves is 104.4 mmbbls 3P, 63.5 mmbbls 2P and 15.9 mmbbls P1 as at 31 December 2020 following adjustment of
the Ryder Scott numbers for production. Note that during Q1 2021 our interest in Licence 67 increased to 90%, the numbers
shown in this report are correct as of 1st January 2021, and do not reflect this equity increase.
While we have not yet asked Ryder Scott to prepare an updated report for Licence 67 following the C-4 result we have had
reserves approved by the State Reserves Committee (GKZ) for C1 + C2 reserves of 2.5 mmtons (this is approximately equal to 2P
reserves of 19.26 mmbbls). The reserves approved are in the Upper Jurassic (J1) and Lower Jurassic (J14) intervals.
We have had good exploration success in the past and feel we can add further reserves with additional appraisal at Emtorskaya
in the near term and Traverskaya and Tuganskaya in the medium term. In the longer term we expect to grow our reserves further
with continued exploration and appraisal on our two Licence areas. Numerous prospects have been seismically defined but not
yet drilled, particularly in the southern half of Licence 61 and surrounding the Cheremshanskoye and Ledovoye fields in Licence
67.
[13]
PetroNeft Resources plc
Chief Executive Officer’s Report (continued)
Ryder Scott Estimated Reserves in Oil Fields (net to PetroNeft)
Oil Field Name
Licence 61
Lineynoye + West Lineynoye
Arbuzovskoye
Tungolskoye
Sibkrayevskoye
Kondrashevskoye
North Varyakhskoye
Emtorskaya
Licence 67
Ledovoye
Total net to PetroNeft
Proved
Proved &
Probable
1P mmbo
6.4
2P mmbo
12.2
Proved,
Probable
& Possible
3P mmbo
15.3
1.0
0.3
5.8
0.7
0.2
0
14.4
1.5
15.9
3.5
2.8
29.3
1.3
0.4
0
49.5
14.0
63.5
4.7
3.6
29.3
1.6
0.5
32.00
87.00
17.4
104.4
Licence 61 as at 31 December 2020 (Ryder Scott report as at 1 January 2016, adjusted for 2016-2020 production).
•
• Reserves reflect just PetroNeft’s 50% share of reserves for each licence.
• All oil in discovered fields is in the Upper Jurassic section.
• Reserves were determined in accordance with the Society of Petroleum Engineers (“SPE”) Petroleum Resources Management
System (“PRMS”) rules.
• Note equity change licence 67 effective Q1 2021.
These numbers do not include 19.26 mmbbls (gross) C1+C2 reserves which were audited by GKZ (Russian State Reserves
Committee) for the Cheremshanskoye field in Licence 67. Russian State C1+C2 is approximately equivalent to 2P under the PRMS
classification system.
Conclusion
Despite the considerable challenges the Company experienced in 2020, I believe the work carried out in 2019, which has
continued through 2020, has provided solid foundation for the future development of the Company and I am increasingly excited
by the opportunities that we are working on to deliver improved shareholder value in the future. It is particularly encouraging to
see the Company achieving operational successes through the early months of 2021 which provides further confirmation of our
understanding of our assets.
I would like to take this opportunity to thank our shareholders for their patience and support. I would also like to thank all our
staff for their professionalism, commitment, and dedication through last year’s challenging times. Their hard work and
commitment combined with the continued support from our shareholders has enabled the Company to survive and positioned
it to look forward to the future with increasing confidence.
David Sturt
Chief Executive
[14]
PetroNeft Resources plc
Financial Review (continued)
Financial Review
Review of PetroNeft loss for the year
The loss after taxation for the year was US$4,541,861 (2019: US$6,042,454).
The loss included the Company’s share of joint venture's net loss in WorldAce Investments of US$5,737,042 (2019: US$7,510,318)
which arose mainly due to the loss in margins as Revenues declined from US$24,852,620 to US$16,719,562 in 2020. This decline
was due to the significant fall in the global price of oil, with the realised price falling by 32.7% from an average realised price per
barrel of $41.8/bbl (2019) to $28.15/bbl (2020).
In addition, the share of joint venture’s net loss in Russian BD Holdings B.V. increased to US$705,249 (2019: US$664,455)
Revenue
Cost of sales
Gross profit
Administrative expenses
Operating loss
2020
US$
1,695,524
(1,440,560)
254,964
(1,035,040)
(780,076)
2019
US$
1,443,568
(1,333,339)
110,229
(807,507)
(697,278)
Share of joint venture's net loss - WorldAce Investments
Limited
(5,737,042)
(7,510,318)
Share of joint venture's net loss - Russian BD Holdings B.V.
Finance income
Finance costs
Profit on equity settlement of financial liabilities
Profit on modification of financial liabilities
(705,249)
3,583,166
(432,362)
206,044
218,898
(664,455)
4,275,181
(369,950)
-
-
Loss for the year for continuing operations before taxation
(3,646,621)
(4,966,820)
Income tax expense
(895,240)
(1,075,634)
Loss for the year attributable to equity holders of the
Parent
(4,541,861)
(6,042,454)
Revenue
Revenue in 2020 and 2019 includes income as operator of both licences, and the revenue of PetroNeft’s wholly owned subsidiary,
Granite Construction, in respect of construction services provided in relation to both joint ventures.
Income of PetroNeft Group as Operator of Licence 61 and Licence 67
PetroNeft performs the role of operator for both the licence 61 and 67 joint ventures. This means that PetroNeft employees and
management are responsible for the day to day running of both Licences. Major strategic and financial decisions relating to the
Licences require unanimous approval by both shareholders in
the respective joint venture agreements.
[15]
PetroNeft Resources plc
Financial Review (continued)
As operator, PetroNeft is entitled to charge certain administrative, management and technical costs to the joint ventures. The
costs associated with this revenue are included in cost of sales. In 2020 PetroNeft Group charged a total of US$895,590 (2019:
US$678,161) to the joint ventures in respect of management services. PetroNeft also owns a construction Company, Granite
Construction, which carries out ad hoc construction projects such as well pads and on-site accommodation on both licences as
well as maintaining the winter road network each year. In 2020 Granite Construction charged the WorldAce Group US$799,934
(2019: US$765,407) in respect of these services.
Administrative expenditure showed an increase year on year of 28%, following a notable reduction year over year of 47% in 2019.
In 2017 the Company implemented a cost cutting program across the Group and the Directors and management agreed to reduce
and defer significant portions of their remuneration; as at 31 December 2020 a total of US$1,049,092 (2019: US$1,278,068) had
been deferred by the Directors and senior management - see Note 26 for details (of this, a total of $576,000 was settled through
director participation in the Convertible debt raise of March 2021, part of which in the amount of US$301,278 was subsequently
converted into equity in April 2021).
Most of the Finance income relates to interest receivable on loans to the joint ventures. During 2020 PetroNeft recognised
interest income of US$3,142,150 (2019: US$3,802,594) on its loans to WorldAce Group and US$440,822 (2019: US$469,974) on
its loans to Russian BD Holdings B.V. The Company considers no impairment should be provided in 2020 (2019: Nil). For more
details see Note 16.
Finance Costs
Finance costs relate to interest payable on loans from Petrogrand AB and on a separate convertible loan of US$1.3million
concluded on the 24 June 2019. The convertible loan is unsecured, with a maturity date of 31st December 2021. Interest charges
on the loan are LIBOR plus 8%. The loan from Petrogrand AB has a revised maturity date of 15th December 2021. The redemption
date can also now be extended at PetroNeft’s option provided the Company makes a repayment of 20% of the loan on or before
15th December 2021. In such circumstances the final redemption date would be the earliest of (a) 15th December 2022 or (b) the
date of completion of the License 61 sale or (c) the date of completion of License 67 sale. Petrogrand AB is also entitled to a share
in the proceeds of any sale of assets.
The obligation and liability shall survive the repayment or mandatory repayment of the Petrogrand AB loan and shall continue to
be secured by the floating charge over the assets of PetroNeft. The fees will be paid upon the completion of the sale of License
61 and or License 67, on or before 31st December 2023. For more details see Note 30
Profit on equity settlement of Financial Liabilities
Relates to the implied profit occurring of US$0.206 million in accordance with IFRS 2 Share based payments, where the agreed
exercise price of the shares transferred was higher than the market price at time of exercise. In total during 2020, 37,456,431
shares were issued in satisfaction of USS0.73 million in fees owing to Directors and Senior Management.
Profit on modification of Financial Liabilities
The Company performed an assessment under its accounting policies and the requirements of IAS 39 as to whether the
restructuring of the terms of the Petrogrand loan facility was a deemed substantial modification. As the net present value of the
cashflows under the original terms and the modified terms was greater than 10%, the modification was accounted for as
substantial. As a result, on completion of the restructuring the carrying value of the Petrogrand loan facility with a note value of
US$2.89 million was derecognised by an amount of US$0.219 million and the fair value of the loan notes of US$2.676 million was
recognised at the date of the Statement of Financial Position. The gain arising on substantial modification of the loan notes has
been recognised in the Income Statement as a profit on modification of financial liabilities.
Review of Statement of Financial Position as at 31st December 2020.
Financial Assets- loans to joint ventures.
The Statement of Financial Position reports a reduction in Financial Assets, loans to joint ventures of US$10,250,945. During the
year PetroNeft advanced loans totalling US$ 152,900 to WorldAce Investments Limited and US$124,195 to Russian BD Holdings
B.V. Group, to support the continued development of the capex program and the operations. Interest Income from WorldAce
Investment Limited of US$3,142,150 and US$440,882 from Russian Holdings B.V. Group was accrued but not paid. The total
[16]
PetroNeft Resources plc
Financial Review (continued)
advances and fee income were offset by the share of losses of PetroNeft’s joint venture operations WorldAce Investment Limited
of US$ 12,472,779 and Russian BD Holdings B.V. Group of US$ 1,548,866. For more details see Notes 13,14, 16 and 26.
Trade and Other Receivables.
There was a significant increase in Trade and Other Receivables. As at 31st December 2020, US$ 2,528,931 (2019: US$1,136,940).
The primary reason for the growth in receivables was the increase in the receivable amounts owning from PetroNeft’s joint
venture businesses, which increased to US$2,329,529 (2019: US$1,005,991). Of the Joint venture trade receivable outstanding,
WorldAce Investments Limited owed US$1,879,475 (2019: US$818,010) and Russian BD Holdings B.V. Group owed US$450,054
(2019: US$187,981). For more details see notes 18 and 26.
Called Up Share Capital and Share Premium Account.
During 2020 a total of 118,226,241 Ordinary Shares was issued. As part of a funding program, authorised by the Company in
January 2020, a total of 107,755,037 Ordinary Shares were issued for a total of issued value of US$2,104,936, which represented
a premium over nominal value of 76%. Cash receipts of US$1,573,668 was used to fund ongoing capex requirements and
operational cost. The balance of the funds raised, include the issuance of shares, totalling 26,985,227 in satisfaction of Salaries
and Fees owing of US$531,268 to Directors and Senior Management. The debts owing and share issuance in satisfaction of same,
are analysed as follows.
Pavel Tetyakov received 11,428,650 Ordinary Shares in satisfaction of US$225,000 fees owing.
• David Sturt received 8,399,956 Ordinary Shares in satisfaction of US$165,373 fees owing.
•
• Maxim Korobov received 4,179,280 Ordinary Shares in satisfaction of US$82,279 fees owing.
•
Thomas Hickey received 2,977,341 Ordinary Shares in satisfaction of US$58,616 fees owing.
In May 2020, a further 10,471,204 Ordinary Shares were issued in satisfaction of Directors fees owing of US$200,000 to Dennis
Francis, who had resigned as a Director in December 2018. The Shares issued were issued at a 77% premium to the nominal value
of the Share Capital.
For more details see Note 20.
Interest Bearing Loans and Borrowings:
Movement in Interest Bearing Loans and Borrowings can be accounted for as follows. An agreement was concluded to extend
the Petrogrand AB Loan redemption date from 16th December 2019 to 15th December 2020 on the proviso that interest accrued
and not yet paid up to the time of the revised agreement on the extension, would be rolled up into a revised principal sum due
of US$2,872,148. Thereafter monthly interest accruing as and from 16th December 2019 would be paid within 7 calendar days of
month end for the prior month. The Company has made the interest payments as they fell due. In December 2020, a further
extension of the Loan facility was granted for a period of 12 months ending 15 December 2021, the loan can be further extended
to 15 December 2022 at the option of the Company if certain conditions are met. As the net present value of the cashflows under
the original terms and the modified terms was greater than 10%, the modification was accounted for as substantial. As a result,
on completion of the restructuring the carrying value of the Petrogrand loan facility was derecognised by an amount of
US$218,898 and the fair value of the loan notes of US$2,675,774 was recognised at the date of the Statement of Financial Position
In June 2019, PetroNeft secured loans from a group of 5 lenders, 3 of which are related parties. See note 26 for more details. The
total of the loans provided was US$1.3 million. A condition of the loans was that the lenders at any time may convert up to 65%
of their loan advance into ordinary equity shares of PetroNeft. The date of maturity of the loans was 31st December 2020, which
was subsequently revised to 31st December 2021. Interest on the loans is LIBOR plus 8%. In April 2021, four of the lenders elected
to convert US$812,500 of the principal amount into Ordinary Shares of the Company. For more details see Note 21.
[17]
PetroNeft Resources plc
Financial Review (continued)
Key Financial Metrics – WorldAce Group
Because of the equity method of accounting for joint ventures that applies to PetroNeft’s interest in WorldAce, listed below are
the metrics which are an extraction from the audited financial statements of the WorldAce Group and give an indication as to the
performance of Licence 61:
WorldAce Group
WorldAce Group
2020
US$
2019
US$
Revenue
Cost of sales
Gross profit
Administrative expenses
Impairment of exploration and evaluation assets
Operating profit/(loss)
Write-off of oil and gas properties
Write-off of exploration and evaluation assets
Finance income
Finance costs
Loss for the year for continuing operations before taxation
Income tax expense
Loss for the year
16,719,562
(17,465,593)
(746,032)
(2,515,578)
-
(3,261,610)
-
-
35,745
(7,985,620)
(11,211,485)
(262,599)
(11,474,084)
24,852,620
(25,100,495)
(247,875)
(2,624,057)
(1,382,769)
(4,254,701)
-
(1,299,887)
57,906
(9,523,954)
(15,020,636)
-
(15,020,636)
Loss for the year
Other comprehensive income to be reclassified to profit or loss in
subsequent years:
Currency translation adjustments
Total comprehensive loss for the year
(11,474,084)
(15,020,636)
(13,471,473)
(24,945,557)
9,026,423
(5,994,213)
PetroNeft’s Share 50%
(12,472,779)
(2,997,107)
[18]
PetroNeft Resources plc
Financial Review (continued)
Net Loss – WorldAce Group
PetroNeft’s share of the net loss of WorldAce Group for the full year declined from US$7,510,318 to US$5,737,042 in 2020.
Production volumes year over year were broadly similar, the gross margin loss was due to a significant deterioration in the average
price per barrel of oil sold, primarily due to the Covid pandemic. The gross margin loss was mitigated by improved control over
Administrative expenses, combined with no charges in 2020 for impairment or write off of Exploration and Evaluation Assets and
reduced Financing costs, due to a lower average LIBOR rate in 2020 versus 2019. Those factors resulted in PetroNeft’s share of
the net loss of WorldAce Group declining year over year.
Of the US$7,985,620 in interest payable by WorldAce, US$3,142,149 is payable to PetroNeft. (2019 US$9,523,954/US$3,802,595)
Revenue, Cost of Sales and Gross Margin – WorldAce Group
Gross Revenue from oil sales was US$16,719,562 for the year (2019: US$24,852,620). Cost of sales includes depreciation of
US$1,256,822 (2019: US$1,936,923), which was lower mainly due to due temporary suspension of most of our wells in April/ May
following a collapse in the oil price due to the Covid pandemic and secondly in September / October period necessary third-party
pipeline maintenance.
The gross margin declined during the year to US$746,032 (2019: US$247,875) due to significant erosion in the average price per
barrel, a decline of 32.7% year on year, primarily due to Covid pandemic. Operating costs per barrel (cost of sales excluding
depreciation and Mineral Extraction Tax) at US$12.39 (2019: US$13.82 per barrel) was lower as most overhead lines showed
declines year on year. We would expect the gross margin to improve in future periods as our facilities and field operations are
fully staffed and can handle additional production from the Sibkrayevskoye oil field. We produced 570,510 barrels of oil (2019:
589,165 barrels) in the year and sold 593,840 barrels of oil (2019: 594,057 barrels) achieving an average oil price of US$28.15 per
barrel (2019: US$41.84 per barrel). All oil was sold on the domestic market in Russia.
Finance Costs – WorldAce Group
Gross Finance costs of US$7,985,620 (2019: US$9,523,954 ) mainly relates to interest on loans from PetroNeft and Oil India.
Taxation – WorldAce Group
The tax charge accrued in the year amounted to US$262,599 (2019:US$ Nil).
Current and Future Funding of PetroNeft Group
While there were consolidated net current liabilities at the year-end of US$3,416,497 (2019: US$4,633,370), the Company has
consistently demonstrated its ability to secure Shareholder funding and proactively works with its lenders in obtaining loan
maturity extensions and securing new funding. In particular, the last Convertible debt funding in February 2021, which secured
US$2,903,802 demonstrated the continued support of institutional investors, the largest shareholders, the Directors and Senior
Management. The Company continues to drive its cost cutting program across the Group and the Directors and management have
agreed to reduce and defer significant portions of their remuneration. Note 26 outlines the amounts owed to the Board and
management in this regard.
The loan facility from Swedish Company Petrogrand AB was due to mature on 15 December 2020, however by mutual consent, a
revised maturity date of 15 December 2021 was set, which may be extended if certain milestones are met by a further 12 months.
The borrower can exercise the option to extend if the borrower pays 20% of the loan balance outstanding on or before the
redemption date of 15th December 2021. The revised terms include an extension to the entitlement of the lender to a bonus on
the sale of either or both Licence 61 and Licence 67 if they are sold by 31 December 2022 of $2,500,000 per licence. When this
loan was extended this bonus entitlement period was also extended by one year to 31 December 2023.
In June 2019, the Company agreed a convertible loan for US$1,300,000 with a group of five investors which was to mature on 31
December 2020 and subsequently extended under mutual agreement, without any revision to loan terms to 31 December 2021.
This loan is partially convertible into Ordinary shares of PetroNeft (up to 65% of the principal) at a price per Ordinary Share of
[19]
PetroNeft Resources plc
Financial Review (continued)
US$0.01547. In April 2021, four of the five lenders exercised their options to convert, accordingly a sum of US$812,500 of the loan
facility was converted into Ordinary Shares of the Company.
As previously announced the Company has engaged a financial advisor with the aim to test the market for both of its licences. This
process is ongoing and the level of interest and the calibre of companies in the process to date is encouraging. Over the past 2
years the asset acquisition market in Russia has seen increased activity, especially for the larger domestic companies, albeit that
activity has diminished due to the onset of the Covid 19 pandemic. In the event of a possible sale, it is expected that both loan
facilities would be repaid from the proceeds of sale of one of the Licences.
Going Concern
Cash on hand
As at 31st December 2020, PetroNeft Group had on hand cash and cash equivalents of US$101,028 (2019: US$345,532). A
comprehensive review of all cash inflows and outflows is contained in the Consolidated Statement of Cash Flows on page 42 of
the Annual Accounts.
Improving Liquidity in the near term,
In the short term, PetroNeft can bolster its cash holding by increasing production and benefitting from the upsurge in the average
price per barrel of oil, as the end of the Covid pandemic comes into sight. Deliveries are paid for in advance and ownership transfers
when the oil enters the pipeline. PetroNeft continues to enjoy the support of its principal shareholders and lenders, as evidenced
by the recent $2,903,802 Convertible debt fund raise in February 2021. In addition, existing loan facility maturity dates are
extended by mutual agreement. As reported in April 2021, of total debt in issue of US$5,903,000 with a convertible debt option,
a sum of US$2,849,356 was converted by the lenders into Ordinary Shares of the Company.
Controlling expenditure.
Since the announcement of the Cost saving program in 2017, PetroNeft has announced continuous improvement in its
management of administrative expenses, at the corporate level there was an increase, but this followed from a 47% decrease
between 2018 to 2019. PetroNeft manages expenditures on an entity level basis and within each entity, by nature of expense and
by need. There is active engagement with all stakeholders and continuous cost improvements are sought. During the Covid
pandemic payments of key payables was extended, staff took voluntarily pay cuts, in some cases up to 50%. Capex is allocated to
projects which generate the quickest payback. Where possible the build out of key projects such as the mini refinery is done in
house and accordingly minimize third party fees and overhead.
Proactive Liquidity Management and cost control.
Include the following:
• Ongoing improvements in local technical talent across geology, engineering, and accounting functions which enabled
•
•
•
PetroNeft to arrest the natural decline in some of the core fields, with further opportunities also identified.
A Financing Agreement has been executed between the owner and operator of Licence 67, LLC Lineynoye (90% owned
by PetroNeft Resources) and AOR (Alexandrovskoye Refinery) to finance the cost of constructing an all-season road to
connect the C4 well with the local year-round road network up to a maximum capex spend of $1 million. Completion
occurred in the first part of 2021. Given the strong rebound in oil prices, the Company was able to fund this from own
resources. The facility remains open and potentially could be used to develop further value accretive projects.
In 2020 PetroNeft significantly increased the amount of data gathering and well monitoring across the well inventory
which has been combined with a re-interpretation of the seismic and well data. PetroNeft has gained valuable insights
from these studies, which is being integrated into an updated plan for the assets which is described in more detail in the
individual field and prospect sections in the Chief Executive’s Officer Report.
PetroNeft invested in infrastructure to support the expected development of its reserve inventory. The infrastructure has
capacity for 14,700 barrels per day. Production in 2020 was 1,563 barrels per day.
• A mini refinery construction completed in Q4 2020, enabling significant savings and efficiencies on diesel overhead.
• An active sale process commenced in 2018, with considerable interest shown in key assets. The process and engagement
level slowed in 2020 due to the Covid pandemic. PetroNeft still gets expression of interest and when appropriate provides
[20]
PetroNeft Resources plc
Financial Review (continued)
•
•
•
interested parties with access to the Data room. It is expected that interest in the Company’s assets will improve as our
production grows combined with the continued strengthening of the oil price.
PetroNeft prepares Monthly projected Cashflow statements and monitors actual performance monthly back against
forecast. Monthly Cashflow forecasts are prepared to 30 June 2022.
PetroNeft secures prepayment for its oil deliveries.
PetroNeft through its subsidiaries and joint venture companies has successful worked with the local tax authorities in
designating its operations as small to medium sized enterprises, thereby minimizing expenditure on both corporate and
employment taxes.
Going Concern Conclusion.
The ability to re-finance the Petrogrand loans and other loans represents a material uncertainty that may cast significant doubt
upon the Group’s and the Company’s ability to continue as a going concern as described in Note 2 to the Consolidated Financial
Statements. The Company has solid business relationships with all its loan providers and is confident, based on a history of prior
extensions, that a positive outcome for the Company is possible.
Focussed Asset Management and Capital Allocation
PetroNeft updated its operational plan, and supported with a detailed capex plan, such that the large potential can be realised in
the following:
•
Sibkrayevskoye and West Lineynoye fields in Licence 61
• Cheremshanskoye and Ledovoye oil fields in Licence 67
•
Prospects such as Emtorskaya, which lies north of the Lineynoye field in Licence 61.
PetroNeft manages its workover program to reverse declining production and identify sweet spots in its drilling program.
Principal risks and uncertainties
The principal risks and uncertainties affecting the Group and the actions taken by the Group to mitigate these risks and
uncertainties are shown on the next page
Risk Issue
Country Risks
Geopolitical
Political - federal risks
Mitigation
Sanctions to date are directed at a very high-level Government officials
and very high net worth individuals. It is not expected that
international sanctions will affect Group operations.
Fields/acquisitions below 500 million boe are not considered strategic
by the government
The federal government has a policy of encouraging small operators.
Political - local risks
Tomsk Oblast administration is very supportive of development.
Ownership of assets
Changes in tax structure
Local management are well respected in region.
Licences were acquired at government auctions. Work programme for
Licence 61 is complete. Work programme for Licence 67 is not
onerous.
25-year licence term can be automatically extended based on
approved production plan.
Fiscal system is stable - recent and proposed changes largely benefit
upstream oil and gas companies.
Proactive lobbying effort made in area of tax legislation.
Technical Risks
Exploration risk
Proven oil and gas basin with multiple plays.
Focused on lower risk production and development assets.
Good quality 2D & 3D seismic.
Knowledgeable technical and operational team with proven track
record in region.
[21]
PetroNeft Resources plc
Financial Review (continued)
Technical Risks
Cont’d
Risk Issue
Drilling risk
Financial Risks
Production/Completion risk
Reserve risk
Availability of finance
Oil price
Industry cost inflation
Uninsured events
Covid 19
Business interruption
Other Risks
HSE incidents
Export quota
Third party pipeline access
Transneft pipeline access
Mitigation
Relatively shallow wells with proven technology.
Good rig availability.
Experienced operations team.
Avoid drilling wells low on structure that risk poor results.
Routine completion practices including fracture stimulation.
Reserves high graded; extensive reservoir simulation and reservoir
management undertaken.
Performance of similar adjacent fields in region.
SPE and Russian reserves updated and in substantive alignment
Strong reserve base and key infrastructure in place to support
production up to 14,700 barrels per day, supports Investment Case
Robust project sanction economics - conservative base case
assumptions. Russian tax system means economics are less sensitive to
changes in oil price.
Rigorous contracting procedures with competitive tendering. Also, the
relationship of the US Dollar: Russian Rouble exchange rate to the oil
price provides a natural balance between costs and income.
Comprehensive insurance programme in place.
At the start of the pandemic, production was supported by a skeleton
crew and crew changes were lengthened. PetroNeft actively worked to
manage its cashflow. This included working with its suppliers and key
third-party payables in rescheduling payments, staff in Tomsk
voluntarily took salary cuts up to 50%. Inventories on hand supported
revenues during this time, and prices achieved in a very weak market
were at the higher end of the average rates per barrel. All shipments
were prepaid in advance. The Company enforced strict protocols
around HSE, no incidents of Covid 19, to date have been reported at
any of its facilities.
HSE standards set and monitored regularly across the Group.
Equal access to export quotas available for all oil producers using
Transneft.
Conservative assumption in economics - domestic net back price now
largely in alignment with export net back.
25-year transportation agreement in place for Licence 61, several
options available for ultimate development of Licence 67.
Available capacity and access confirmed.
East Siberia-Pacific Ocean (“ESPO”) pipeline allows export of oil to
Pacific market.
[22]
PetroNeft Resources plc
Financial Review (continued)
Significant Shareholders
The Company’s share register was migrated because of Brexit to Euroclear Nominees Limited (Belgium) from CREST U.K. as and
from March 15 2021.
So far as the Directors are aware, the names of the persons other than the Directors who, directly or indirectly, are interested in
3% or more of the Issued Share Capital as at 4 June 2021 as per the share register is as follows:
Name of shareholder
Euroclear Nominees Limited
Natlata Partners Limited*
Ordinary Shares
601,157,683
Percentage
57.51%
170,726,670
16.33%
* Shares held by Natlata Partners Limited are beneficially owned by Maxim Korobov and the Directors are aware a further holding
of 108,956,061 are held by Euroclear Nominees Limited for Maxim Korobov, bringing his total shareholding to 27%.
[23]
PetroNeft Resources plc
Directors’ Report
for the year ended 31 December 2020
The Directors present herewith their Annual Report and the audited financial statements of PetroNeft (“PetroNeft”, “the
Company”, or together with its subsidiaries and joint ventures, “the Group”) for the year ended 31 December 2020
Principal Activity
The principal activities of the Group are that of oil and gas exploration, development, and production through its holdings in two
joint venture undertakings. The Group was established to acquire and develop oil and gas exploration, development and
production interests in Russia and other countries of the former Soviet Union. A detailed business review is included in the
Chairman’s Statement, Chief Executive Officer’s Report, and the Financial Review.
Results and Dividends
The loss for the year before tax amounted to US$3,646,621 (2019: US$4,966,820). After a tax charge of US$895,240 (2019:
US$1,075,634) the loss for the year amounted to US4,541,861 (2019: US$6,042,454). The Directors do not recommend payment
of a final dividend and no interim dividend was paid.
Review of the Development and Performance of the Business
In compliance with the requirements of the Companies Act 2014, a fair review of the performance and development of the Group’s
business during the year, its position at the year-end and its prospects is contained in the Chairman’s Statement on pages 5 to 7,
the Chief Executive Officer’s Report on pages 8 to 14, the Financial Review on pages 15 to 23. The key financial metrics used by
management are set out in the Financial Review on page 15.
Corporate Governance
The Company is not subject to the UK Corporate Governance Code applicable to companies with full listings on the Dublin and London
Stock Exchanges. The Company has adopted and intends, in so far as is practicable and desirable, given the size and nature of the
business and the constitution of the Board, to comply with the 2018 QCA Corporate Governance Code (the “QCA Code”) as
published by the Quoted Companies Alliance (the “QCA”). PetroNeft is a member of the Quoted Companies Alliance.
The QCA Code was devised, in consultation with several significant institutional small Company investors, as an alternative
corporate governance code applicable to Small and Mid-Size Quoted Companies. An alternative code was proposed because the
QCA considered the UK Corporate Governance Code to be inappropriate to many Small and Mid-Size Quoted Companies.
The QCA Code states that “Good corporate governance inspires trust between a public Company and its shareholders; it creates
value by reducing the risks that a Company faces as it seeks to create growth in long term shareholder value. Without trust, there
will be no appetite from shareholders to invest further or remain shareholders. In reducing the risks, so the cost of capital is
reduced.” The guidelines set out a code of best practice for Small and Mid-Size Quoted Companies. Those guidelines require, among
other things, that:
a) certain matters be specifically reserved for the Board's decision.
b)
c)
d)
the Board should be supplied in a timely manner with information (including regular management financial
information) in a form and of a quality appropriate to enable it to discharge its duties.
the Board should, at least annually, conduct a review of the effectiveness of the Company's system of internal controls
and should report to shareholders that they have done so.
the roles of Chairman and Chief Executive should not be exercised by the same individual or there should be a clear
explanation of how other Board procedures provide protection against the risks of concentration of power within the
Company.
e) the Company should have at least two independent Non-Executive Directors on the Board and the Board should not
be dominated by one person or group of people. Following the resignation of Tom Hickey, the board only has one
independent Non-Executive Director, Anthony Sacca but is in the process of looking to appoint a new Non-Executive
Director when the appropriate candidate can be identified.
f) all Directors should be submitted for re-election at regular intervals subject to continued satisfactory performance.
g)
the Board should establish audit, remuneration and nomination committees; and
[24]
PetroNeft Resources plc
Directors’ Report
for the year ended 31 December 2020 (continued)
Corporate Governance (continued)
h)
there should be a dialogue with shareholders based on a mutual understanding of objectives.
PetroNeft where practicable adheres to these requirements. Major corporate decisions of the Group are subject to Board
approval. The Board is supplied in a timely manner with information in a form and of a quality appropriate to enable it to discharge
its duties. These matters include approval of the Group's general commercial strategy, financial statements, Board membership,
significant acquisitions and disposals, major capital expenditures, overall corporate governance and risk management and treasury
policies. The Company holds regular Board meetings throughout the year.
In accordance with the QCA Code and, in respect of the Audit Committee, in accordance with Section 167 of the Companies Act
2014, the Board has established Audit, Remuneration and Nomination Committees, as described below, and utilises other
committees as necessary to ensure effective governance.
In addition to the above mentioned for a more comprehensive review of how PetroNeft conforms with the 10 Quality Code
Assurance principles please refer to pages 93-102 of this Annual accounts pack. Alternatively, the principles and how PetroNeft
implements them, can be
link:
http://PetroNeft.com/investor-relations/rule26/.
logging on to the PetroNeft website by clicking on the
found by
following
Financial Risk Management
The Board sets the treasury policies and objectives of the Group, which include controls over the procedures used to manage
financial risk. The Group's activities expose the Group to a variety of financial risks including foreign currency, commodity price,
credit, liquidity, and interest rate risks. These financial risks are managed by the Group under policies approved by the Board.
Details of the Group's financial risk management policies are set out in detail in Note 23 to the financial statements
Audit Committee
The members of the Audit Committee are non-executive directors, Anthony Sacca (Chairman), and Alastair McBain. The Audit
Committee is responsible for ensuring that the financial activities of the Group are properly monitored, controlled, and reported on
complying with relevant legal requirements. The committee receives and reviews reports from management and the Group’s
auditors relating to the Group’s report and accounts, the interim results and review of the accounting policies. Meetings are held at
least two times a year with the auditors, once at the audit planning stage to consider the scope of the audit and thereafter at the
reporting stage, to receive post-audit findings. The ultimate responsibility for reviewing and approving the Annual Report remains
with the Board of Directors. The committee is also responsible for reviewing the relationship with the external auditors, making
recommendations to the Board on their appointment and remuneration, monitoring their independence, as well as assessing scope
and results of their work, including any non-audit work. The committee authorises any non-audit work to be carried out by the
external auditors. The external auditors did not undertake any non-audit work during the current year and the committee is satisfied
that the objectivity and independence of the external auditor has not been impaired in anyway by any other factors.
The committee, with management, reviews the effectiveness of internal controls.
Remuneration Committee
The members of the Remuneration Committee are Alastair McBain (Chairman), and Anthony Sacca. The Remuneration Committee's
responsibilities include, among other things, determining the policy and elements of remuneration for Executive Directors, provided
however, that no Director shall be directly involved in any decisions as to their own remuneration.
Nomination Committee
The members of the Nomination Committee comprise Alastair McBain (Chairman), and Anthony Sacca.
The percentage of Non-Executive Directors on the Board is above the recommended 50%. The Group has adopted a model code for
Directors' dealings that is appropriate for an AIM Company. The Group complies with Rule 21 of the AIM Rules relating to Directors'
dealings and will take all reasonable steps to ensure compliance by the Directors and the Group's applicable employees and their
relative associates.
[25]
PetroNeft Resources plc
Directors’ Report
for the year ended 31 December 2020 (continued)
Governance of Joint Ventures
Under the joint venture agreements in respect of Licence 61 and Licence 67 both partners are entitled to appoint board
representatives to the joint venture companies, WorldAce Investments Limited and Russian BD Holdings B.V. PetroNeft has
appointed Karl Johnson to the Board of WorldAce Investments Limited and David Sturt to Russian BD Holding B.V., positions for
which they receive no additional remuneration, along with local independent directors in Cyprus and Netherlands, respectively.
These companies are managed and controlled in Cyprus and the Netherlands through regular Board meetings.
Shareholder Communication
Shareholder communication is given high priority by the Group and there are regular meetings between senior executives,
institutional shareholders, analysts, and brokers. These meetings, which are governed by procedures designed to ensure that price
sensitive information is not divulged, are designed to facilitate a two-way dialogue based upon the mutual understanding of
objectives. The Annual General Meeting (“AGM”) affords individual shareholders the opportunity to question the Chairman and
the Board, and their participation is welcomed. Shareholders are also welcome to telephone or email the Company at any time.
The Chairmen of the Audit Committee, Remuneration Committee and Nomination Committee are available at the AGM to answer
questions. In addition, major shareholders can meet with the Chairman of the Board or any Executive and Non-Executive Directors
on request.
The Board is kept appraised of the views of shareholders, and the market in general, through feedback from the meetings
programme. Analysts’ reports on the Company are also circulated to the Board on a regular basis. The Group's website,
www.PetroNeft.com, is also a key communication tool with all shareholders. News releases are made available on the website
immediately after release to the Stock Exchange. Investor presentations, reserve reports and other materials are also available on
the website.
Internal Control
The Directors have overall responsibility for the Group's system of internal control and have delegated responsibility for the
implementation of this system to executive management. This system is reviewed annually and includes financial controls that
enable the Board to meet its responsibilities for the integrity and accuracy of the Group's accounting records.
The Group's system of internal financial control provides reasonable, though not absolute, assurance that assets are safeguarded,
transactions authorised and recorded properly, and that material errors or irregularities are either prevented or detected within
a timely period.
Directors
The Directors who served during the year are listed on page 2
In accordance with Article 89 of the Articles of Association of the Company, Anthony Sacca is due to retire by rotation at the
next AGM and is eligible to offer himself for re-election. Alastair McBain, who retires in accordance with Article 92 of the Articles
of Association will also be eligible to offer himself for election.
[26]
PetroNeft Resources plc
Directors’ Report
for the year ended 31 December 2020 (continued)
Directors, Company Secretary, and their Interests
The Directors and Company Secretaries who held office during 2020 and in the period up to 8 April 2021 had no interest, other
than those shown below, in the Ordinary Shares of the Company. All interests shown below are beneficial interests.
Directors
David Golder (resigned 22 February 2021)
David Sturt
Daria Shaftelskaya*(appointed 17 January 2020)
Alastair McBain** (appointed 29 January 2021)
Maxim Korobov***(resigned 17 January 2020)
Thomas Hickey (resigned 18 December 2020)
Pavel Tetyakov (appointed 17 January 2020)
Anthony Sacca
Company Secretary
Michael Power (appointed 3 May 2020)
Karl Johnson (resigned 3 May 2020)
Ordinary Shares Ordinary Shares Ordinary Shares
As at
As at
8 April 2021
3,165,458
26,094,132
100,754,589
154,974,339
275,503,451
5,203,624
15,637,515
-
As at
31 December
2020
3,165,458
15,876,866
90,670,555
12,698,500
240,648,214
5,203,624
12,444,530
-
1 January 2020
3,165,458
4,048,005
90,670,555
12,698,500
208,429,458
2,226,283
-
-
-
932,349
-
932,349
-
932,349
*Shares held by Daria Shaftelskaya in her own capacity and on her behalf by Euroclear Nominees Limited.
**Shares held by Alastair McBain via Euroclear Nominees Limited, ADM Consulting FZE, and Belgrave Naftogas BV.
*** Shares held by Maxim Korobov via Natlata Partners, Euroclear Nominees Limited and in his own capacity personally.
In addition to the above, none of the Directors who held office at 31 December 2020 had share options:
Principal Risks and Uncertainties
The Group has a risk management structure in place which is designed to identify, manage, and mitigate business risks. Risk
assessment and evaluation is an essential part of the Group’s internal control system.
Details of the principal risks and uncertainties affecting the Group, as required to be disclosed in accordance with the Companies
Act 2014, are listed on pages 21-22
Going Concern
The appropriateness of continuing to prepare the financial statements on a going concern basis is discussed in detail in the Finance
Review on pages 19-20 in the paragraphs related to the “Current and future funding of PetroNeft” and 20-21 “Going Concern”
and in Note 2 to the financial statements on pages 45-46.
The circumstances outlined in the Finance Review and Note 2 represent material uncertainties that may cast significant doubt
upon the Group and the Company’s ability to continue as a going concern. Nevertheless, after making enquiries, and considering
the uncertainties described in the Finance Review and Note 2, the Directors are confident that the Group and the Company will
have adequate resources to continue in operational existence for at least 12 months after the signing date of the annual report.
For these reasons, they continue to adopt the going concern basis in preparing the annual report and accounts.
Accordingly, the financial statements do not include any adjustments to the carrying amount or classification of assets and
liabilities that would result if the Group or Company were unable to continue as a going concern.
Remuneration Committee Report
The Group’s policy on senior executive remuneration is designed to attract and retain people of the highest calibre who can bring
their experience and independent views to the policy, strategic decisions, and governance of the Group.
[27]
PetroNeft Resources plc
Directors’ Report
for the year ended 31 December 2020 (continued)
In setting remuneration levels, the Remuneration Committee takes into consideration the remuneration practices of other
companies of similar size and scope. A key philosophy is that staff must be properly rewarded and motivated to perform in the
best interests of the shareholders. Bonuses for Executive Directors are based on performance targets which include elements
relating to operational outcomes and individual performance.
The Company does not have a share option scheme in place during the 2020 financial year. The last share options expired in 2019
financial year and more details are disclosed in the notes section to this Annual Report at note 27.
Directors’ Remuneration (US$)
2020
2019
Director
Executive directors
Basic
Pension
Total
Basic
Pension
Total
David Sturt
428,817*
30,000
458,817
307,090
22,836
329,926
Pavel Tetyakov
200,000
15,000
215,000
-
-
-
628,817
45,000
673,817
307,090
22,836
32,9926
Non-executive directors
David Golder
Thomas Hickey
Anthony Sacca
Daria Shaftelskaya
David Sturt
Maxim Korobov
Total Directors
remuneration
15,224
11,132
11,533
11,020
-
913
49,822
-
-
-
-
-
-
-
15,224
17,821
11,132
11,235
11,533
11,235
11,020
-
-
2,809
913
11,235
49,822
54,335
-
-
-
-
-
-
-
17,821
11,235
11,235
-
2,809
11,235
54,335+
678,639
45,000
723,639
361,425
22,836
384,261
*Includes Medical Insurance premiums of USD28,817
As detailed in Note 26, included in the above are unpaid fees and remuneration due to Directors as at 31 December 2020 of
US$470,023 (2019: US$932,344).
Political Donations
The Company did not make any political donations during the year.
[28]
PetroNeft Resources plc
Directors’ Report
for the year ended 31 December 2020 (continued)
Important Events after the Balance Sheet Date
In February 2021, the Company entered a convertible loan facility of US$2.9 million with a group of thirteen lenders that matures
in March 2023. The loan facility will be used for general corporate and ongoing operational purposes and carries an interest rate
of 8% above the base rate of the Bank of England. Lenders can elect at any time to convert up to 75% of the outstanding loan to
shares at a conversion price of stg£0.02 in year 1 and stg£0.025 in year 2.
In March 2021, the Company completed the migration of the Company’s corporate securities from CREST to Euroclear Bank
(“Migration”) under the Migration of Participating Securities Act 2019.
In March 2021 PetroNeft’s interest in Licence 67 has risen from 50% to 90%. Consideration for the acquisition was US$2.9 million
which has been satisfied through the issuance of 80,000,000 PetroNeft ordinary shares (“New Ordinary Shares”) to Belgrave
Naftogas B.V. for a value of US$1.2 million and cash consideration of US$1.7 million, which will be financed through a 3-year loan
from Belgrave Naftogas to PetroNeft.
In April 2021, some lenders under the various Convertible Loan Agreements, elected to exercise their options to convert part of
their Loan Facilities into Ordinary Shares of the Company. In total 125,878,647 Ordinary Shares were issued to various lenders and
$2.85 million of Convertible Debt was redeemed.
On a global level the effects of the Corona pandemic will live with us for a very long time. On a Company level the business was
supported throughout by its employees, oil marketing partners, suppliers, and contractors.
Accounting Records
The measures taken by the Directors to ensure compliance with the requirements of Sections 281 to 285, Companies Act 2014,
regarding accounting records are the implementation of necessary policies and procedures for recording transactions, the
employment of competent accounting personnel with appropriate expertise and the provision of adequate resources to the
financial function. The accounting records of the Company are maintained at 20 Holles Street, Dublin 2, Ireland.
Directors’ Compliance Statement
It is the policy of the Company to comply with its relevant obligations (as defined in the Companies Act 2014). The Directors have
drawn up a compliance policy statement (as defined in section 225(3)(a) of the Companies Act 2014) and arrangements and
structures are in place that are, in the Directors’ opinion, designed to secure material compliance with the Company’s relevant
obligations. The Directors confirm that these arrangements and structures were reviewed during the financial year. As required
by Section 225(2) of the Companies Act 2014, the Directors acknowledge that they are responsible for the Company’s compliance
with the relevant obligations. In discharging their responsibilities under Section 225, the Directors relied on the advice both of
persons employed by the Company and of persons retained by the Company under contract, who they believe have the requisite
knowledge and experience to advise the Company on compliance with its relevant obligations.
Directors’ Responsibilities Statement in Respect of the Financial Statements
The Directors are responsible for preparing the Directors’ Report and the financial statements in accordance with applicable law
and regulations.
Irish Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors
have elected to prepare the financial statements in accordance with IFRSs as adopted by the European Union. Under Company
law the Directors must not approve financial statements unless they are satisfied, they give a true and fair view of the assets,
liabilities, and financial position, of the Group and Parent Company as at the end of the financial year, and the profit or loss for
the Group for the financial year, and otherwise comply with the Companies Act 2014.
In preparing these financial statements, the Directors are required to:
•
select suitable accounting policies and then apply them consistently.
[29]
PetroNeft Resources plc
Directors’ Report
for the year ended 31 December 2020 (continued)
• make judgements and estimates that are reasonable and prudent.
•
•
state whether the financial statements have been prepared in accordance with applicable accounting standards, identify
those standards, and note the effect and reasons for any material departure from those standards; and
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and
Company will continue in business.
Directors’ Responsibilities Statement in Respect of the Financial Statements – (continued)
The Directors are responsible for ensuring that the Company keeps or causes to be kept adequate accounting records which
correctly explain and record the transactions of the Company, enable at any time the assets, liabilities, financial position and
profit or loss of the Company to be determined with reasonable accuracy, enable them to ensure that the financial statements
and Directors’ Report comply with the Companies Act 2014 and enable the financial statements to be audited. They are also
responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of
fraud and other irregularities. Legislation in Ireland governing the preparation and dissemination of financial statements may
differ from legislation in other jurisdictions. The Directors are responsible for the maintenance and integrity of the corporate
and financial information included on the Company’s website.
Disclosure of information to auditors
So far as each of the Directors in office at the date of approval of the financial statements is aware:
There is no relevant audit information of which the Company’s auditors are unaware; and
The Directors have taken all the steps that they ought to have taken as directors to make themselves aware of any
relevant audit information and to establish that the Company’s auditors are aware of that information.
•
•
This confirmation is given and should be interpreted in accordance with the provisions of Section 330 of the Companies Act 2014.
Auditors
BDO Ireland continue in office in accordance with the provisions of Section 383(2) of the Companies Act 2014.
Approved by the Board on
21 June 2021
______________________
Alastair McBain
Director
______________________
David Sturt
Director
[30]
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PETRONEFT RESOURCES PLC
Report on the audit of the financial statements
Opinion
We have audited the financial statements of Petroneft Resources Plc (the ‘Parent Company’) and
its subsidiaries (the ‘Group’) for the financial year ended 31 December 2020, which comprise the
Consolidated Income Statement, the Consolidated and the Parent Company Balance Sheet, the
Consolidated and the Parent Company Statement of Changes in Equity and the Consolidated and
the Parent Company Cash Flow Statements and notes to the financial statements, including the
summary of significant accounting policies set out in note 3.
The relevant financial reporting framework that has been applied in the preparation of the Group
and the Parent Company financial statements is the Companies Act 2014 and International
Financial Reporting Standards (IFRS) as adopted by the European Union (IFRSs as adopted by
the EU) (the ‘relevant financial reporting framework’).
In our opinion:
the financial statements give a true and fair view of the assets, liabilities and financial
position of the Group as at 31 December 2020 and of its loss for the financial year then ended;
the financial statements give a true and fair view of the assets, liabilities and financial
position of the Parent Company as at 31 December 2020;
the financial statements of the Group and the Parent Company have been properly prepared
in accordance with IFRSs as adopted by the EU; and
the financial statements of the Group and the Parent Company have been properly prepared
in accordance with the requirement of the Companies Act 2014.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (Ireland) (‘ISAs
(Ireland)’) and applicable law. Our responsibilities under those standards are described in the
Auditor's Responsibilities for the Audit of the Financial Statements section of our report.
We are independent of the Group and the Parent Company in accordance with ethical requirements
that are relevant to our audit of financial statements in Ireland, including the Ethical Standard
issued by the Irish Auditing and Accounting Supervisory Authority (‘IAASA’), as applied 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.
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PETRONEFT RESOURCES PLC
(CONTINUED)
Material uncertainty relating to going concern and the recoverability of financial assets
We draw your attention to note 2 to the Group’s Consolidated Financial Statements concerning
the Group and Parent Company’s ability to continue as a going concern. The Group incurred a loss
of $4.5 million for the financial year ended 31 December 2020, had total assets of $30 million and
net current liabilities of $5.9 million.
Included in total assets are financial assets comprising of loans and receivable of $27.3 million
from Join Ventures. The recoverability of these loans are dependent on the continued operations
and future profitability of the Joint Ventures. For the operations to continue, the Group is highly
dependent on continued funding by way of share placements, securing debt financing, successful
extension or re-financing of the Petrogrand AB and convertible loans.
As stated in note 2, these events and conditions, along with the other matters as set forth in note
2 to the financial statements, indicate that a material uncertainty exists that may cast significant
doubt on the Group and the Parent Company’s ability to continue as a going concern. Our opinion
is not modified in respect of this matter.
In response to this, we:
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
obtained an understanding of the Group’s and Parent Company’s assumptions in the
development and approval of the projections used in the cash flow forecasts to support
the going concern assumption and assessed the reasonability of these assumptions;
challenged the key assumptions used in the cash flow forecasts by agreement to
historical run rates, expenditure commitments and other supporting documentation;
assessed the reasonableness of securing funding through share placement and debt
financing or re-financing.
reviewed the terms of loan facilities in place;
tested the clerical accuracy of the cash flow forecast model; and
assessed the adequacy of the disclosures in the financial statements.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance
in our audit of the financial statements of the current financial year and include the most
significant assessed risks of material misstatement (whether or not due to fraud) we identified,
including those which had the greatest effect on: the overall audit strategy, the allocation of
resources in the audit; and directing the efforts of the engagement team. These matters were
addressed in the context of our audit of the financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these matters.
In addition to the matter described in the Material Uncertainty relating to Going Concern section,
we have determined the matters described below to be the key audit matters to be communicated
in our report.
32
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PETRONEFT RESOURCES PLC
(CONTINUED)
Recoverability of financial assets and loans advanced to joint venture undertakings
Key Audit Matter
The Group and Parent Company has a significant loans receivable from joint ventures amounting to
$27.3 million (2018: $37.6 million) as at the balance sheet date.
The carrying value of the investment in joint ventures is represented by loans due from joint
ventures, WorldAce Investments Limited and Russian-BD Holdings BV. The joint ventures control
Licences 61 and 67 for future exploration and development of the Sibkrayevskoye and
Cheremshanskoye Oil fields respectively. The recoverability of these loans due from Joint Ventures
are dependent on the successful development of the economic reserves and revenue growth or the
realisation of the value through sale. There is a risk that these loans due from joint ventures are not
recoverable and an impairment should be raised in the financial statements.
As such, we have identified this as a key audit matter.
Related Disclosures
Refer to notes 3.4(a), 3.4(b), 3.5(d), and 16 of the accompanying financial statements.
Audit Response
In response to this:
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
(cid:127)
We have obtained Management’s Impairment assessment in relation to financial assets
and loans receivable from JVs which were directly linked to the Oil & Gas impairment
models produced for the JVs;
We have gained an understanding of how management complete the impairment model,
including the key assumptions and key controls in the impairment assessment process.
We have assessed the design and implementation of key controls identified in the
impairment process;
We have assessed whether management has appropriately applied the requirements of
the applicable financial reporting framework relevant to the accounting estimate and
the methods for completing the impairment assessment are appropriate and have been
applied consistently;
We have assessed the expertise, competence, skills and independence of those involved,
including Ryder Scott, in making the key assumptions and estimates including
management experts where utilised;
We have performed a retrospective review of other key assumptions in the model such
as production and revenue growth by comparing budget versus actual for the prior year;
We have agreed cashflow data and capital expenditure amounts to budget and cashflow
projections approved by the Board of Directors;
We have assessed the level of headroom available, in relation to key assumptions in the
impairment model ensuring we exercise professional skepticism;
We have challenged management regarding the Group and the Parent Company’s ability
to raise sufficient finance to ensure that the value is recovered; and
We have performed stress tests to challenge any estimates within the budget to ensure
there is sufficient headroom if certain events occur.
Our audit procedures relating to these matters were designed in the context of our audit of the
financial statements as a whole, and not to express an opinion on individual accounts or
disclosures. Our opinion on the financial statements is not modified with respect to any of the risks
described above, and we do not express an opinion on these individual matters.
33
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PETRONEFT RESOURCES PLC
(CONTINUED)
Our application of materiality
We define materiality as the magnitude of misstatement, including omissions, in the financial
statements that, individually or in the aggregate, could reasonably be expected to influence the
economic decisions of a reasonably knowledgeable person taken on the basis of the financial
statements. We use materiality both in planning the scope of our audit work and in evaluating the
results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a
whole as follows:
For the purpose of our audit we used overall materiality of $374,587 and $262,211 which
represents approximately 2% of the Group and the Parent Company’s net assets
respectively.
We applied this threshold, together with qualitative considerations, to determine the
scope of our audit and the nature, timing and extent of our audit procedures and to
evaluate the effect of misstatements on the financial statements as a whole.
We chose net assets as the benchmark because, in our view, it is a key financial statement
metric used in assessing the performance of the Group and the Parent Company and is not
as volatile as other measures. We selected 2% based on our professional judgment, noting
that it is also within the range of commonly accepted asset-related benchmarks.
An overview of the scope of our audit
A description of the scope of an audit of financial statements is provided on the IAASA website at
https://www.iaasa.ie/getmedia/b2389013-1cf6-458b-9b8f-a98202dc9c3a/Description_of_
auditors_responsiblities_for_audit.pdf.
Our audit approach was developed by obtaining an understanding of the Group and the Parent
Company’s activities, the key functions undertaken on behalf of the Board and the overall control
environment. Based on this understanding we assessed those aspects of the Group and the Parent
Company’s financial statements which were most likely to give rise to a material misstatement. In
particular, we looked at where the directors made subjective judgements, for example in respect
of significant accounting estimates that involved making assumptions and considering future events
that are inherently uncertain. As in all of our audits, we also addressed the risk of management
override of internal controls, including evaluating whether there was evidence of bias by the
directors that represented a risk of material misstatement due to fraud.
34
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PETRONEFT RESOURCES PLC
(CONTINUED)
Other information
The directors are responsible for the other information. The other information comprises the
information included in the Annual Report and Financial Statements for the year ended 31
December 2020, other than the financial statements and our auditor’s report thereon.
Our opinion on the financial statements does not cover the other information and, except to the
extent otherwise explicitly stated in our report, we do not express any form of assurance
conclusion thereon.
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 such material inconsistencies or apparent material misstatements, we are required
to determine whether there is a material misstatement in 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 in respect of these matters.
Opinions on other matters prescribed by the Companies Act 2014
Based solely on the work undertaken in the course of the audit, we report that:
in our opinion, the information given in the directors’ report is consistent with the financial
statements; and
in our opinion, the directors’ report has been prepared in accordance with the Companies Act
2014.
We have obtained all the information and explanations which we consider necessary for the
purposes of our audit.
In our opinion, the accounting records of the Group and the Parent Company were sufficient to
permit the financial statements to be readily and properly audited and the financial statements
are in agreement with the accounting records.
Matters on which we are required to report by exception
Based on the knowledge and understanding of the company and its environment obtained in the
course of the audit, we have not identified material misstatements in the directors' report.
The Companies Act 2014 requires us to report to you if, in our opinion, the disclosures of directors’
remuneration and transactions required by sections 305 to 312 of the Act are not made. We have
nothing to report in this regard.
35
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PETRONEFT RESOURCES PLC
(CONTINUED)
Respective responsibilities
Responsibilities of 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 and for being satisfied that they give a true and
fair view, and 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 Company’s
ability to continue as going concerns, disclosing, as applicable, matters related to going concern
and using the going concern basis of accounting unless management either intends to liquidate the
Company or to cease operations, or has no realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a
whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's
report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with ISAs (Ireland) 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.
IAASA's
A further description of our responsibilities for the audit of the financial statements is located on
the
https://www.iaasa.ie/getmedia/b2389013-1cf6-458b-9b8f-
a98202dc9c3a/Description_of_ auditors_responsiblities_for_audit.pdf. This description forms part
of our auditor's report.
website
at:
The purpose of our audit work and to whom we owe our responsibilities
Our report is made solely to the Company’s members, as a body, in accordance with section 391
of the Companies Act 2014. Our audit work has been undertaken so that we might state to the
Company’s members those matters we are required to state to them in an auditor’s report and for
no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the Company and the Company’s members, as a body, for our audit work,
for this report, or for the opinions we have formed.
36
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PETRONEFT RESOURCES PLC
(CONTINUED)
Other matters which we are required to address
We were appointed by the Board of Directors on 11 November 2019 to audit the financial
statements for the financial year ended 31 December 2019.The period of total uninterrupted
engagement is therefore two year, covering the financial year ended 2020.
The non-audit services prohibited by IAASA’s Ethical Standard were not provided to the Company
and we remained independent of the Company in conducting our audit. We have not provided any
non-audit services to the Company during the financial year ended 31 December 2020.
Our audit opinion is consistent with the additional report to the Board of Directors we are required
to provide in accordance with ISA (Ireland) 260.
____________________
Teresa Morahan
for and on behalf of
BDO
Statutory Audit Firm
Dublin
AI223876
Date: 21 June 2021.
37
PetroNeft Resources plc
Consolidated Income Statement
For the year ended 31 December 2020
Revenue
Cost of sales
Gross profit
Administrative expenses
Operating loss
Share of joint venture's net loss - WorldAce
Investments Limited
Share of joint venture's net loss - Russian BD
Holdings B.V.
Finance Income
Finance costs
Profit on equity settlement of
liabilities
financial
Profit on modification of financial liabilities
Loss for the year for continuing operations
before taxation
Income tax expense
Loss for the year attributable to equity
holders of the Parent
Loss per share attributable to ordinary equity
holders of the Parent
Basic and Diluted - US dollar cent
Note
5
7
13
14
8
9
26
21
10
2020
US$
1,695,524
(1,440,560)
254,964
(1,035,040)
(780,076)
2019
US$
1,443,568
(1,333,339)
110,229
(807,507)
(697,278)
(5,737,042)
(7,510,318)
(705,249)
3,583,166
(432,362)
206,044
218,898
(664,455)
4,275,181
(369,950)
-
-
(3,646,621)
(4,966,820)
(895,240)
(1,075,634)
(4,541,861)
(6,042,454)
11
(0.55)
(0.84)
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2020
Loss for the year attributable to equity
holders of the Parent
Other comprehensive income maybe
reclassified to profit or loss in subsequent
years:
Currency translation adjustments -
subsidiaries
Share of joint ventures' other comprehensive
income - foreign exchange translation
differences
Total comprehensive loss for the year
attributable to equity holders of the Parent
2020
US$
2019
US$
(4,541,861)
(6,042,454)
68,348
(77,816)
(7,579,354)
4,996,109
(12,052,867)
(1,124,161)
[38]
PetroNeft Resources plc
Consolidated Statement of Financial Position
As at 31 December 2020
Note
2020
US$
2019
US$
Assets
Non-current Assets
Property, plant, and equipment
Equity-accounted investment in joint ventures -
WorldAce Investments Limited
Equity-accounted investment in joint ventures -
Russian BD Holdings B.V.
Financial assets - loans to joint ventures
Current Assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total Assets
Equity and Liabilities
Capital and Reserves
Called up share capital
Share premium account
Share-based payments reserve
Retained loss
Currency translation reserve
Other reserves
Non-current Liabilities
Interest-bearing loans and borrowings
Deferred tax liability
Current Liabilities
Interest-bearing loans and borrowings
Trade and other payables
Total Liabilities
Total Equity and Liabilities
12
13
14
16
17
18
19
20
21
10
21
22
Approved by the Board on 21 June 2021.
______________________
Alastair McBain
Director
______________________
David Sturt
Director
[39]
4,682
28,843
-
-
27,340,710
27,345,392
19,387
2,528,931
101,028
2,649,346
-
-
37,591,655
37,620,498
18,965
1,136,940
345,532
1,501,437
29,994,738
39,121,935
10,896,668
141,794,897
6,796,540
(101,587,568)
(39,551,087)
379,923
18,729,373
-
5,199,522
5,199,522
4,151,391
1,914,452
6,065,843
11,265,365
29,994,738
9,585,965
141,006,709
6,796,540
(97,045,707)
(32,040,081)
379,923
28,683,349
-
4,303,779
4,303,779
4,242,849
1,891,958
6,134,807
10,438,586
39,121,935
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[
PetroNeft Resources plc
Consolidated Cash Flow Statement
For the year ended 31 December
2020
Note
2020
US$
2019
US$
Operating activities
Loss before taxation
Adjustment to reconcile loss before tax to
net cash flows
Non-cash
Depreciation
Share of loss in joint ventures
Foreign Exchange Gains
Share based payment
Profit on equity settlement of financial
liabilities
Profit on modification of financial liabilities
Finance Income
Finance costs
8
9
Income tax expense
Working capital adjustments
Decrease/(Increase) in trade and other
receivables
Decrease/(Increase) in inventories
Increase in trade and other payables
Net cash flows used in operating activities
Investing activities
Loan facilities advanced to joint venture
undertakings
Purchase of Property, Plant and
Equipment
Interest received
Net cash used in investing activities
Financing activities
Proceeds from the issue of Share Capital
Proceeds from issue of Convertible debt
option
Repayment of interest on loan facilities
Proceeds from loan facilities
Net cash received from financing
activities
Net increase/(decrease) in cash and cash equivalents
Translation adjustment
Cash and cash equivalents at the beginning of the
year
Cash and cash equivalents at the end of
the year
19
(3,646,621)
(4,966,820)
23,884
8,174,773
(28,528)
-
-
-
(4,275,181)
369,950
(7,493)
(875,067)
(11,115)
73,598
(1,521,999)
(392,000)
(9,720)
2,613
(987,607)
250,594
43,923
-
1,756,074
2,050,591
795,166
2,609
9,389
345,532
21,671
6,442,296
146,580
731,268
(206,044)
(218,898)
(3,583,166)
432,362
503
(1,415,494)
(3,741)
42,671
(1,256,613)
(277,095)
4,980
194
(271,921)
1,573,667
-
(277,746)
-
1,295,921
(232,613)
(11,891)
345,532
101,028
[41]
PetroNeft Resources plc
Company Statement of Financial Position
As at 31 December 2020
Non-current Assets
Property, plant, and equipment
Financial assets - investments in joint ventures and
subsidiaries
Financial assets - loans to joint ventures
Current Assets
Trade and other receivables
Cash and cash equivalents
Total Assets
Equity and Liabilities
Capital and Reserves
Called up share capital
Share premium account
Share-based payment reserve
Retained loss
Other reserves
Equity attributable to equity holders of the parent
Non-current Liabilities
Deferred tax liability
Current Liabilities
Interest-bearing loans and borrowings
Trade and other payables
Total Liabilities
Total Equity and Liabilities
Note
2020
US$
2019
US$
12
15
16
18
19
20
10
21
22
-
-
13,848
27,340,710
27,354,558
2,403,084
94,970
2,498,054
13,848
37,591,655
37,605,503
1,220,339
257,916
1,478,255
29,852,612
39,083,758
10,896,668
141,794,897
6,796,540
9,585,965
141,006,709
6,796,540
(141,157,590)
(128,926,419)
379,923
18,710,438
379,923
28,842,718
5,199,522
5,199,522
4,151,391
1,791,261
5,942,652
4,303,779
4,303,779
4,242,849
1,694,412
5,937,261
11,142,174
29,852,612
10,241,040
39,083,758
The Company reported a loss for the financial year ended 31 December 2020 of US$12.2 million (2019: Loss of US$1.1
million).
Approved by the Board on
21 June 2021.
______________________
Alastair McBain
Director
______________________
David Sturt
Director
[42]
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[
PetroNeft Resources plc
Company Cash Flow Statement
For the year ended 31 December 2020
Note
2020
US$
2019
US$
Operating Activities
Loss before taxation
Adjustments to reconcile loss before tax to net cash flows
Non-cash
Depreciation of property, plant, and equipment
Allowance for doubtful debts on financial assets -
loans and receivables
Foreign Exchange Gains
Share based payment
Profit on equity settlement of financial liabilities
Profit on modification of financial liabilities
Finance income
Finance costs
Income tax expense
Working capital adjustments
Decrease/(Increase) in trade and other receivables
Increase in trade and other payables
Net cash flows used in operating activities
Investing activities
Loan facilities advances
Return of loan facilities
Interest received
Net cash (used in)/received from investing
activities
Financing activities
Proceeds from the issue of Share Capital
Proceeds from issue of Convertible debt option
Repayment of interest on loan facilities
Proceeds from loan facilities
Net cash received from financing activities
Net decrease in cash and cash equivalents
Translation adjustment
Cash and cash equivalents at the beginning of the
year
Cash and cash equivalents at the end of the year
19
(11,335,428)
(69,084)
-
486
14,036,806
128,204
731,268
(206,044)
(218,898)
3,178,664
(4,694)
-
-
-
(3,582,975)
(4,274,171)
432,362
196
(1,353,657)
105,645
(1,262,521)
(277,095)
79,993
3
369,950
(205)
(865,296)
61,863
(1,602,487)
(980,500)
-
1,603
(197,099)
(978,897)
1,573,667
-
(277,746)
-
1,295,921
(163,699)
753
257,916
94,970
250,594
43,923
-
1,756,074
2,050,591
(530,793)
(2,044)
790,753
257,916
[44]
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2020
1.
General information on the Company and the Group
PetroNeft Resources plc (“PetroNeft”, “the Company”, or together with its subsidiaries and joint ventures, “the Group”) is a
public limited Company incorporated in the Republic of Ireland with a Company registration number 408101. The Company
is listed on the Alternative Investments Market (“AIM”) of the London Stock Exchange and the Enterprise Securities Market
(“ESM”) of Euronext. The address of the registered office and the business address in Ireland is 20 Holles Street, Dublin 2.
The Company is domiciled in the Republic of Ireland.
The principal activities of the Group, which are unchanged from last year, are oil and gas exploration, development, and
production.
2.
Going Concern
As described in the Financial Review on page 19, in December2020 PetroNeft agreed an extension of the loan facility, which
was due to mature on 15 December 2020 with Swedish Company Petrogrand AB, a related party. The revised loan maturity
date is 15 December 2021, and may, at PetroNeft’s option, be extended for a further year if certain milestones are met. The
loan is secured by way of a floating charge on the assets of PetroNeft. The extension of the loan facility has provided time
and space for a more long-term financing solution to be put in place.
In February 2021, the Company agreed another loan facility with a group of 13 investors for US$2.9 million. This loan matures
on 11 March 2023, or such later date as may be agreed, and a portion (up to 75% of the principal) may be repaid via
conversion to Ordinary shares of the Company at the option of the lenders at a conversion price of STG0.02 per share. Seven
of the thirteen investors are related parties. The money raised will primarily be used to fund the 2021 capital investment
program and meet ongoing operational cost. It demonstrated significant commitment from the largest Shareholders,
Directors and Senior Management
In early 2020, the emergence of the Covid-19 pandemic required the Company to make several adjustments to operating
procedures, investment decisions and staff HSE protocols to protect its employees, joint venture partners and contractors.
Production continued with a reduced level of essential field staff, home working was instituted where practicable, staff
voluntarily took pay cuts and the Group actively worked with its suppliers and service providers in rescheduling payments
to retain maximum financial flexibility. When the restrictions were partially lifted, the Group resumed full scale production
in May. With a rebound in oil prices, the ongoing cost saving program and the Mineral Extraction Tax percentage per
barrel produced trending lower in 2020 than 2019, the Group's cashflow improved, enabling it to address payables that
had been rescheduled, reverse the temporary salary reduction, and engage constructively with joint venture partners,
current and potential future lenders, and investors to support its ongoing investment plans. The Group continuously
monitors the ongoing progress and status of the pandemic to ensure it reacts quickly where required. As part of this
process the frequency of Board meetings has increased and Board members are closely involved in material cost and
investment decisions as well as regular review of the Group's forecast cashflows, short term liquidity and expenditure
plans
The Group has analysed its cash flow requirements through to 30 June 2022 in detail. The cash flows are highly dependent
on the successful extension or re-financing of the Petrogrand AB loan and other loans, on future production rates and oil
prices achieved in its joint-venture undertaking, WorldAce Investments Limited and future cash flows from LLC LIneynoye
(Licence 67) once Cheremshanskoye is producing at material levels. In addition, the Group, together with its Joint Venture
partner OIL India B.V is actively investigating the opportunity to secure debt in the local Russian market for Stimul-T. Should
the Petrogrand AB loan or other loans not be extended or re-financed the Group will need additional funding to continue as
a going concern.
The Group has put in place cost saving measures and the Board and management have agreed to reduce and defer significant
portions of their remuneration. Note 26 outlines the amounts owed to the Board and management in this regard.
[45]
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2020
2. Going concern (continued)
Given the remarkable rebound in oil prices, and Management demonstrating their capacity to maintain and increase
production through efficient capital allocation programs, plus the real probability that Licence 67 will become a significant
oil generating asset in 2021, the Board and Management are confident in the underlying investment case supporting both
Licences. The Board and Management while rolling out their strategic plan for the operations will continue to realise the
latent potential of both the Licences. Proving up reserves, boosting production, maintaining efficient programs on opex and
capital spend, drives through enhanced valuation, improved cashflows and future sustainability.
None the less, the above circumstances represent material uncertainties that may cast significant doubt upon the Group
and the Company’s ability to continue as a going concern. After making enquiries, and considering the uncertainties
described above, the Directors are confident that the Group and the Company will have adequate resources to continue in
operational existence for the foreseeable future. The judgement is supported by
•
•
•
•
•
•
the strong reserve inventory and improvements in operational performance
the existing infrastructure in place that can support production volumes up to 14,700 bopd
a very strong investment case
the continued support of our Joint Venture and oil marketing partners
the continuous support of our principal shareholders, as evidenced by their support for both debt and equity issues
the continuous support of our lenders, both convertible and conventional debt
For these reasons, they continue to adopt the going concern basis in preparing the annual report and accounts.
Accordingly, these financial statements do not include any adjustments to the carrying amount or classification of assets
and liabilities that would result if the Group or Company were unable to continue as a going concern
3.
Accounting policies
3.1
Basis of Preparation
The financial statements have been prepared on a historical cost basis. The financial statements are presented in US Dollars
(’US$’).
The accounting policies set out below have been applied consistently by all the Group’s subsidiaries and joint ventures to all
periods presented in these consolidated financial statements.
Statement of Compliance
The consolidated and standalone financial statements of PetroNeft Resources plc and its subsidiaries have been prepared
in accordance with International Financial Reporting Standards (” IFRS”) as adopted by the European Union (“EU”).
3.2
Basis of Consolidation
The consolidated financial statements comprise the financial statements of PetroNeft Resources plc and its subsidiaries as
at 31 December each year.
Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and
continue to be consolidated until the date that such control ceases. Control is achieved when the Company has power over
the investee, is exposed or has rights to variable returns from its involvement with the investee and can use its power to
affect its returns. The financial statements of the subsidiaries are prepared for the same reporting period as the Parent
Company. All intra-Group balances, income and expenses and unrealised gains and losses resulting from intra-Group
transactions are eliminated in full.
[46]
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2020
3.
Accounting policies (continued)
3.2
Basis of Consolidation (continued)
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the
Group loses control over a subsidiary, it:
• Derecognises the assets (including goodwill) and liabilities of the subsidiary.
• Derecognises the carrying amount of any non-controlling interest.
• Derecognises the cumulative translation differences recognised in equity.
• Recognises the fair value of the consideration received.
• Recognises the fair value of any investment retained.
• Recognises any surplus or deficit in profit or loss.
• Reclassifies the parent’s share of components previously recognised in other comprehensive income to profit or
loss or retained earnings, as appropriate.
The Group has an interest in two joint venture undertakings, WorldAce Investments Limited and Russian BD Holdings B.V. A
joint venture (‘JV’) is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights
to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which
exists only when the decisions about the relevant activities require unanimous consent of the parties sharing control.
The Group’s investments in its joint ventures are accounted for using the equity method. Under the equity method, an
investment in the joint venture is initially recognised at cost. The carrying amount of the investment is adjusted to recognise
changes in the Group’s share of net assets of the joint venture since the acquisition date. Consolidated income statement
reflects Group’s share of the results of operations of joint venture. Any change in other comprehensive income of the
investee is presented as part of the Group’s other comprehensive income. In addition, when there has been a change
recognised directly in the equity of the joint venture, the Group recognises its share of any changes, when applicable, in the
statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and the joint
venture are eliminated to the extent of the interest in the joint venture. When the Group’s share of losses of a joint venture
exceeds the Group’s interest in that joint venture (which includes any long-term interest that, in substance, form part of the
Group’s net investment in joint venture), the Group discontinues recognising its share of further losses. The financial
statements of the joint ventures are prepared for the same reporting period as the Group. Where necessary, adjustments
are made to bring the accounting policies in line with those of the Group.
The Group, acting as the operator of the JVs, receives reimbursement of direct costs recharged to its joint ventures, such
recharges represent reimbursements of costs that the operator incurred as an agent for the joint ventures. When the Group
charges a management fee to cover other general costs incurred in carrying out the activities on behalf of the joint venture,
it is not acting as an agent.
3.3 Business Combination
Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business
combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets
transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests
issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as
incurred.
At the acquisition date, the identifiable assets acquired, and the liabilities assumed are recognised at their fair value at the
acquisition date, except that:
•
deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognised and
measured in accordance with IAS 12 Income Taxes and IAS 19 Employee Benefits respectively;
[47]
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2020
3. Accounting Policies (continued)
3.3 Business Combination (continued)
•
•
liabilities or equity instruments related to share-based payment arrangements of the acquiree, or share-based payment
arrangements of the Group entered into to replace share-based payment arrangements of the acquiree are measured
in accordance with IFRS 2 Share-based Payment at the acquisition date; and
assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale
and Discontinued Operations are measured in accordance with that Standard.
3.4
Significant Accounting Judgements, Estimates and Assumptions
The preparation of the Group’s consolidated financial statements in compliance with IFRS as adopted by the European Union
(“EU”) requires management to make judgements, estimates and assumptions that affect the reported amounts of assets
and liabilities at the end of the reporting year and the amounts of revenues and expenses recognised during the reporting
period. Estimates and judgements are continuously evaluated and are based on management’s experience and other factors,
including expectations of the future events that are believed to be reasonable under the circumstances. However,
uncertainty about these assumptions and estimates could result in outcomes that require an adjustment to the carrying
amount of the asset or liability affected in future periods.
(a) Judgements
In the process of applying the Group's accounting policies, management has made the following judgements, apart from
those involving estimations, which have a significant effect on amounts recognised in the consolidated financial statements.
Going concern – Note 2
The Directors have, at the time of approving the financial statements, a reasonable expectation that the Company and the
Group have adequate resources to continue in operational existence for the foreseeable future. The basis for this judgement
is the continued active support of its principal shareholders and the inherent value of the underlying reserves which should
generate considerable free cashflow once a targeted development program is rolled out. Thus, they continue to adopt the
going concern basis of accounting in preparing the financial statements. Further detail is contained in Note 2 above.
Loans and receivables from joint ventures – Notes 13, 14 and 16
During the year share of losses and currency translation adjustments in the joint ventures exceeded the carrying value of
equity-accounted investment in joint ventures. It was judged that the loans receivable from the joint ventures are long
term interests that, in substance, form part of the entity’s net investment in the joint venture, and post application of IFRS
9 to long term interest, under IAS 28, any excess loss should be credited against the carrying value of the receivable from
the joint venture Company in accordance with IAS 28.
Business model assessment
Classification and measurement of financial assets depends on the results of the Solely Payments of Principal and Interest
(SPPI) and the business model test. The Group determines the business model at a level that reflects how groups of
financial assets are managed together to achieve a business objective. This business model assessment moves from
estimates to judgements reflecting all relevant evidence including how the performance of the assets is evaluated and
their performance measured, the risks that affect the performance of the assets and how these are managed and how the
managers of the assets are compensated. The Group monitors financial assets measured at amortised cost or fair value
through other comprehensive income that are derecognised prior to their maturity to understand the reason for their
disposal and whether the reasons are consistent with the objective of the business model for which the asset was held.
Monitoring is part of the Group's continuous assessment of whether the business model for which the remaining financial
assets are held continues to be appropriate and if it is not appropriate whether there has been a change in business model
and so a prospective change to the classification of those assets. No such changes were required during the periods
presented.
[48]
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2020
3.
Accounting policies (continued)
3.4
Significant Accounting Judgements, Estimates and Assumptions (continued)
(b) Estimates and Assumptions
The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date that
have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next
financial year are discussed below:
Income tax
Significant judgment is required in determining the provision for income taxes. The Group recognises liabilities for
anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of
these matters is different from the amounts that were initially recorded, such differences will impact the income tax and
deferred tax provisions in the period in which such determination is made.
Impairment of financial assets – Note 15
Investments in joint ventures and subsidiaries in the Parent Company balance sheet are stated at cost and are reviewed for
impairment if there are indications that the carrying value may not be recoverable in the parent Company balance sheet.
3.5
Summary of Significant Accounting Policies
(a) Foreign currencies
The consolidated financial statements are presented in US Dollars, which is the Group’s presentational currency. The US
Dollar is also the Company’s functional currency. Each entity in the Group determines its own functional currency and items
included in the financial statements of each entity are measured using that functional currency. The Company’s Russian
subsidiaries’ functional currency is the Russian Rouble. Transactions in foreign currencies are initially recorded at the rate
ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at
the rate of exchange ruling at the balance sheet date. All differences are taken to the income statement except for all
monetary items that provide an effective hedge for a net investment in a foreign operation. These are recognised in other
comprehensive income until the disposal of the net investment.
Non-monetary items are translated using the exchange rates ruling as at the date of the initial transaction.
The assets and liabilities of foreign operations are translated into US Dollars at the rate of exchange ruling at the balance
sheet date and their Income Statements are translated at monthly average exchange rates. The exchange differences arising
on the translation are taken directly to equity.
The relevant average and closing exchange rates for 2020 and 2019 were:
US$1 =
Russian Rouble
Euro
British Pound
2020
2019
Closing
74.54
0.8149
0.7326
Average
72.325
0.8774
0.7771
Closing
61.905
0.8901
0.7573
Average
64.837
0.8935
0.7839
[49]
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2020
3.
Accounting policies (continued)
3.5
Summary of Significant Accounting Policies (continued)
(b) Property, plant, and equipment
Property, plant, and equipment are stated at cost, less accumulated depreciation.
The initial cost of an asset comprises its purchase price or construction cost, any costs directly attributable to bringing the
asset into operation, the initial estimate of the decommissioning obligation, and for qualifying assets, relevant borrowing
costs. The purchase price or construction cost is the aggregate amount paid and the fair value of any other consideration
given to acquire the asset.
Depreciation
Property, plant, and equipment are generally depreciated on a straight-line basis over their estimated useful lives at the
following annual rates:
•
Plant and machinery – 10% to 35%.
(c) Impairment of property, plant, and equipment
At each balance sheet date, the Group reviews the carrying amounts of its property, plant, and equipment to determine
whether there is any indication that those assets may be impaired. If such indication exists, the recoverable amount of the
asset is estimated to determine the extent of any impairment loss.
The recoverable amount is determined as the higher of the fair-value-less-costs–of-disposal for the asset and the asset’s
value-in-use. If the carrying amount of the asset exceeds its recoverable amount, the asset is impaired, and an impairment
loss is charged to the Consolidated Income Statement to reduce the carrying amount in the Consolidated Balance Sheet to
its recoverable amount.
Fair value is determined as the amount that would be obtained from the sale of the asset in an orderly transaction between
market participants at the measurement date. Direct costs of selling the asset are deducted. Fair value for oil and gas assets
is generally determined as the present value of the estimated future cash flows expected to arise from the continued use of
the asset, including any expansion prospects, and its eventual disposal, using assumptions that a market participant could
consider. These cash flows are discounted by an appropriate discount rate to arrive at a net present value (“NPV”) of the
asset.
Value-in-use is determined as the present value of the estimated future cash flows expected to arise from the continued use
of the asset in its present form and its eventual disposal. Value-in-use is determined by applying assumptions specific to the
Group’s continued use and cannot consider future development. These assumptions are different to those used in
calculating fair value and consequently the value-in-use calculation is likely to give a different result to a fair value
calculation.
Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable
amount of the cash-generating unit to which the asset belongs.
(d) Financial assets
Financial assets – Classification
From 1 January 2018, the Group classifies its financial assets in the following measurement categories:
• those to be measured at amortised cost, and
• those to be measured subsequently at fair value (either through OCI or through profit or loss).
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.
[50]
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2020
3.
Accounting policies (continued)
3.5
Summary of Significant Accounting Policies (continued)
For investments in equity instruments that are not held for trading, classification will depend on whether the Company has
made an irrevocable election at the time of initial recognition to account for the equity investment at fair value through
other comprehensive income (FVOCI). This election is made on an investment-by-investment basis.
For assets measured at fair value, gains and losses will either be recorded in profit or loss or OCI. For investments in equity
instruments that are not held for trading, this will depend on whether the Company has made an irrevocable election at the
time of initial recognition to account for the equity investment at fair value through other comprehensive income (FVOCI).
Financial assets - Recognition and derecognition
Purchases of financial assets are recognized when the entity becomes a party to the contractual provisions of the instrument.
Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or have been
transferred and the Group has transferred substantially all the risks and rewards of ownership.
Financial assets - Measurement
At initial recognition, a financial asset is measured at its fair value plus, in the case of a financial asset not at fair value through
profit or loss (FVTPL), transaction costs that are directly attributable to the acquisition of the financial asset. Transaction
costs of financial assets carried at FVTPL are expensed in profit or loss. 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.
Financial assets - impairment - credit loss allowance for ECL
From 1 January 2018, the Group assesses on a forward-looking basis the expected credit losses “ECL” for debt instruments
(including loans) measured at Amortised Cost and FVOCI and with the exposure arising from loan commitments and financial
guarantee contracts. The Group measures ECL and recognises credit loss allowance 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.
The carrying amount of the financial assets is reduced using an allowance account, and the amount of the loss is disclosed
separately in the statement of profit or loss within the Impairment of Financial Assets Loans and Receivables
Debt instruments measured at Amortised Cost are presented in the statement of financial position net of the allowance for
ECL.
Expected losses are recognized and measured according to one of two approaches: general approach or simplified approach.
For trade receivables the Group applies the simplified approach permitted by IFRS 9, which uses lifetime expected losses to
be recognised from initial recognition of the financial assets.
For all other financial asset that are subject to impairment under IFRS 9, the Group applies general approach three stage
model for impairment. 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.
[51]
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2020
3.
Accounting policies (continued)
3.5
Summary of Significant Accounting Policies (continued)
Financial assets - write off
Financial assets are written off, in whole or in part, when the Group exhausted all practical recovery efforts and has
concluded that there is no reasonable expectation of recovery. The write off represents a derecognition event. The
Group may write off financial assets that are still subject to enforcement activity when the Group seeks to recover amounts
that are contractually due, however, there is no reasonable expectation of recovery.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits. Cash and cash equivalents are carried at amortised
cost.
Financial assets at amortised cost
These are held with the objective to collect their contractual cash flows and their cash flows represent solely payments of
principal and interest. Accordingly, these are measured at amortised cost using the effective interest method, less provision
for impairment. Financial assets at amortised cost are classified as current assets if they are due within one year or less (or
in the normal operating cycle of the business if longer). If not, they are presented as non-current assets.
Trade receivables, loans, and other receivables are classified as ‘loans and receivables. Loans and receivables are measured
at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the
effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. Loans to and
receivables from joint ventures represent funding by the Company for which repayment is neither planned nor likely to
occur in the foreseeable future. These are treated as part of the Company’s net investment in the joint ventures.
(e) Financial liabilities
Financial liabilities - measurement categories
Financial liabilities are initially recognised at fair value and classified as subsequently measured at amortised cost, 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.
Financial Liabilities-Fair value through profit or loss
This category comprises out-of-the-money derivatives where the time value does not offset the negative intrinsic value.
They are carried in the consolidated statement of financial position at fair value with changes in fair value recognised in the
consolidated statement of comprehensive income. The Group does not hold or issue derivative instruments for speculative
purposes, but for hedging purposes. Other than these derivative financial instruments, the Group does not have any
liabilities held for trading nor has it designated any financial liabilities as being at fair value through profit or loss
Trade payables
Trade payables are initially measured at fair value and are subsequently measured at amortised cost, using the effective
interest rate method.
Non-current liabilities
Non-current liabilities represent amounts that are due more than twelve months from the reporting date.
Interest-bearing loans and borrowings
After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the
effective interest rate method. Gains and losses are recognised in the Income Statement when the liabilities are
derecognised as well as through the EIR amortisation
process.
[52]
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2020
3.
Accounting policies (continued)
3.5
Summary of Significant Accounting Policies (continued)
Amortised cost is calculated by considering any discount or premium on acquisition and fee or costs that are an integral part
of the EIR. The EIR amortisation is included in finance cost in the Income Statement.
Derecognition
A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an
existing financial liability is replaced by another from the same lender on substantially different terms, or the terms
of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the
original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised
in the Income Statement.
Comparatives
Where necessary, comparative figures have been adjusted to conform to changes in presentation in the current year.
(f) Fair value measurement
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 fair value measurement is based on the presumption that the
transaction to sell the asset or transfer the liability takes place either:
•
•
In the principal market for the asset or liability, or
In the absence of a principal market, in the most advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible by the Group.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing
the asset or liability, if market participants act in their economic best interest.
A fair value measurement of a non-financial asset considers a market participant's ability to generate economic benefits by
using the asset in its highest and best use or by selling it to another market participant that would use the asset in its
highest and best use.
For financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to
which inputs to the fair value measurements are observable and the significance of the inputs to the fair value
measurement in its entirety, which are described as follows:
Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: valuation techniques for which the lowest level of inputs which have a significant effect on the recorded fair value
are observable, either directly or indirectly.
Level 3: valuation techniques for which the lowest level of inputs that have a significant effect on the recorded fair value
are not based on observable market data.
(g) Inventories
Inventories are stated at the lower of cost and net realisable value. Cost includes all costs incurred in bringing each product
to its present location and condition. Net realisable value represents the estimated selling price in the normal course of
business less estimated costs of completion and estimated costs necessary to make the sale.
[53]
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2020
3.
Accounting policies (continued)
3.5
Summary of Significant Accounting Policies(continued)
(h) Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) because of a past event and it is
probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable
estimate can be made of the amount of the obligation. Where the Group expects some or all a provision to be reimbursed,
for example, under an insurance contract, the reimbursement is recognised as a separate asset but only when the
reimbursement is virtually certain. The expense relating to any provision is presented in the Consolidated Income Statement
net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current
pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the
provision due to the passage of time is recognised as a finance cost.
A contingent liability is disclosed where the existence of an obligation will only be confirmed by future events or where the
amount of the obligation cannot be measured with reasonable reliability. Contingent assets are not recognised but are
disclosed where an inflow of economic benefits is probable.
(i) Other financial liabilities
Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs and are
subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an
effective yield basis.
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest
expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash
payments through the expected life of the financial liability, or, where appropriate, a shorter period, to the net carrying
amount on initial recognition.
(j) Share capital
Ordinary shares are classified as equity. Costs of share issues are deducted from equity.
(k) Taxes
Current income tax
Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be
recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that
are enacted or substantively enacted, by the reporting date, in the countries where the Group operates and generates
taxable income.
Deferred income tax
Deferred income tax is provided using the liability method on temporary differences at the balance sheet date between the
tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities
are recognised for all taxable temporary differences, except:
in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint
ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the
temporary differences will not reverse in the foreseeable future.
Deferred income tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and
unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary
differences and the carry forward of unused tax credits and unused tax losses can be utilised except:
[54]
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2020
3.
Accounting policies (continued)
3.5
Summary of Significant Accounting Policies (continued)
in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in
joint ventures, deferred income tax assets are recognised only to the extent that it is probable that the temporary
differences will reverse in the foreseeable future and taxable profit will be available against which the temporary
differences can be utilised.
The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it
is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be
utilised. Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the
extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the
asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted
at the balance sheet date.
Deferred income tax relating to items recognised outside of profit and loss is recognised outside profit and loss. Deferred
tax items are recognised in correlation to the underlying transaction either in other comprehensive income or directly in
equity.
Deferred income tax assets and deferred income tax liabilities are offset if a legally enforceable right exists to set off current
tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same
taxation authority.
(l) Revenue recognition
Revenue is recognised when control has been transferred to the customer. Revenue is recognized at the transaction price
which the Group expects to be entitled to, after deducting sales taxes, excise duties and similar levies. For contracts that
contain separate performance obligations the transaction price is allocated to those separate performance obligations by
reference to their relative standalone selling prices.
The Group recognises revenue from the following major sources:
Management services; and
Construction services.
Both streams of revenue are predominantly generated from joint venture undertakings.
Revenue from management services is recognised in accordance with agreements with our joint venture partners. The
provision of management services is recognised monthly at a variable price with an application of “right to invoice” practical
expedient. Revenue from construction services is recognised monthly in accordance with agreed work completion schedules.
(m) Share-based payment
Employees (including senior executives) and Directors of the Group may receive fees and remuneration in the form of share-
based payment transactions, whereby employees render services as consideration for equity instruments (“equity-settled
transactions”).
In situations where equity instruments are issued and some or all the goods or services received by the entity as
consideration cannot be specifically identified, the unidentified goods or services received (or to be received) are measured
as the difference between the fair value of the share-based payment transaction and the fair value of any identifiable goods
or services received at the grant date. This is then capitalised or expensed as appropriate.
[55]
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2020
3.
Accounting policies (continued)
3.5
Summary of Significant Accounting Policies
Equity-settled transactions
The cost of equity-settled transactions is measured by reference to the fair value at the date on which they are granted. The
fair value is determined by an external valuer using an appropriate pricing model, further details of which are given in Note
27.
The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in
which the performance and/or service conditions are fulfilled. The cumulative expense recognised for equity-settled
transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the
Group’s best estimate of the number of equity instruments that will ultimately vest. The income statement charge or credit
for a period represents the movement in cumulative expense recognised as at the beginning and end of that period and is
recognised in employee benefits expense.
No expense is recognised for awards that do not ultimately vest, except for equity-settled transactions where vesting is
conditional upon a market or non-vesting condition, which are treated as vesting irrespective of whether the market or non-
vesting condition is satisfied, provided that all other performance and/or service conditions are satisfied.
Where the terms of an equity-settled transaction are modified, the minimum expense recognised is the expense as if the
terms had not been modified if the original terms of the awards are met. An additional expense is recognised for any
modification that increases the total fair value of the share-based payment transaction or is otherwise beneficial to the
employee as measured at the date of modification.
Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not
yet recognised for the award is recognised immediately. This includes any award where non-vesting conditions within the
control of either the entity or the employee are not met. However, if a new award is substituted for the cancelled award
and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they
were a modification of the original award, as described in the previous paragraph.
Where appropriate, the dilutive effect of outstanding options is reflected as additional share dilution in the computation of
diluted earnings per share.
(n) Leases
The Company accounts for a contract, or a portion of a contract, as a lease when it conveys the right to use an asset for a
period in exchange for consideration. Leases are those contracts that satisfy the following criteria: (a) There is an identified
asset; (b) The Company obtains substantially all the economic benefits from use of the asset; and (c) The Company has the
right to direct use of the asset. The Company considers whether the supplier has substantive substitution rights. If the
supplier does have those rights, the contract is not identified as giving rise to a lease. In determining whether the
Company obtains substantially all the economic benefits from use of the asset, the Company considers only the economic
benefits that arise use of the asset, not those incidentals to legal ownership or other potential benefits. In determining
whether the Company has the right to direct use of the asset, the Company considers whether it directs how and for what
purpose the asset is used throughout the period of use. If there are no significant decisions to be made because they are
pre-determined due to the nature of the asset, the Company considers whether it was involved in the design of the asset
in a way that predetermines how and for what purpose the asset will be used throughout the period of use. If the contract
or portion of a contract does not satisfy these criteria, the Company applies other applicable IFRSs rather than IFRS 16.
(o) Finance Income and finance cost
For all financial instruments measured at amortised cost, interest income or expense is recorded using the effective
interest rate, which is the rate that exactly discounts the estimated future cash payments or receipts through the expected
[56]
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2020
3.
Accounting policies (continued)
3.5
Summary of Significant Accounting Policies (continued)
life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or
liability. Interest income is included in Finance Income in the income statement.
(p) Employee Costs
Liabilities for wages and salaries, including non-monetary benefits are measured at the amount expected to be paid when
the liability is settled. The liability for annual leave is recognised in current provisions in respect of employees' services up
to the reporting date and is measured at the amount expected to be paid when the liability is settled. Regardless of the
expected timing of settlements, provisions made in respect of employee benefits are classified as a current liability, unless
there is an unconditional right to defer the settlement of the liability for at least 12 months after the reporting date, in which
case it would be classified as a non-current liability.
Pension benefits are funded over the employees’ period of service by way of contributions to a defined contribution
scheme. Contributions are charged to the Consolidated Income Statement in the year to which they relate.
(q) Convertible debt
The proceeds received on issue of the Group's convertible debt are allocated into their liability and equity components. The
amount initially attributed to the debt component equals the discounted cash flows using a market rate of interest that
would be payable on a similar debt instrument that does not include an option to convert. Subsequently, the debt
component is accounted for as a financial liability measured at amortised cost until extinguished on conversion or maturity
of the bond. The remainder of the proceeds is allocated to the conversion option and is recognised in the "Convertible debt
option reserve" within shareholders' equity, net of income tax effects.
(r) Joint Arrangements
Joint arrangements the group is a party to a joint arrangement when there is a contractual arrangement that confers joint
control over the relevant activities of the arrangement to the group and at least one other party. Joint control is assessed
under the same principles as control over subsidiaries. The group classifies its interests in joint arrangements as either: -
Joint ventures: where the group has rights to only the net assets of the joint arrangement - Joint operations: where the
group has both the rights to assets and obligations for the liabilities of the joint arrangement. In assessing the classification
of interests in joint arrangements, the Group considers: - The structure of the joint arrangement - The legal form of joint
arrangements structured through a separate vehicle - The contractual terms of the joint arrangement agreement - Any
other facts and circumstances (including any other contractual arrangements). The Group accounts for its interests in joint
ventures in the same manner as investments in Associates (i.e., using the equity method). Any premium paid for an
investment in a joint venture above the fair value of the Group's share of the identifiable assets, liabilities and contingent
liabilities acquired is capitalised and included in the carrying amount of the investment in joint venture. Where there is
objective evidence that the investment in a joint venture has been impaired the carrying amount of the investment is
tested for impairment in the same way as other non-financial assets. The Group accounts for its interests in joint
operations by recognising its share of assets, liabilities, revenues, and expenses in accordance with its contractually
conferred rights and obligations. In accordance with IFRS 11 Joint Arrangements, the Group is required to apply all the
principles of IFRS 3 Business Combinations when it acquires an interest in a joint operation that constitutes a business as
defined by IFRS 3. Judgement For all joint arrangements structured in separate vehicles the Group must assess the
substance of the joint arrangement in determining whether it is classified as a joint venture or joint operation. This
assessment requires the Group to consider whether it has rights to the joint arrangement’s net assets (in which case it is
classified as a joint venture), or rights to and obligations for specific assets, liabilities, expenses, and revenues (in which
case it is classified as a joint operation). Factors the group must consider include: − Structure − Legal form − Contractual
agreement − Other facts and circumstances. Upon consideration of these factors, the Group has determined that all its
joint arrangements structured through separate vehicles give it rights to the net assets and are therefore classified as joint
ventures.
[57]
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2020
3.6
Changes in Accounting Policy and Disclosures
Adoption of IFRS and International Financial Reporting Interpretations Committee (IFRIC) interpretations
3.6 Adoption of new or revised standards and interpretations
The following new standards, interpretations and standard amendments became effective for the Group as of 1 January
2020:
IFRS 3 Business Combinations – Definition of a business
• Amendments to IAS 1 Presentation of Financial Statements and IAS 8 – Definition of material
• Amendments to References to the Conceptual Framework in IFRS Standards
• Amendments to IFRS 9 Financial Instruments, IAS 39 Financial Instruments: Recognition and Measurement and IFRS 7
Financial Instruments: Disclosures - Interest Rate Benchmark Reform.
The following standard amendment was issued in May 2020 effective for annual reporting periods beginning on or after 1
June 2020 with earlier application permitted:
• Amendments to IFRS 16 Leases – COVID-19-Related Rent Concessions. The amendment was adopted effective 1 January
2020 and did not result in a material impact on the Group’s results.
The new standards, interpretations and standard amendments did not result in a material impact on the Group’s results.
3.7
New accounting pronouncements
At the date of approval of these financial statements, standards and interpretations were issued by the International
Accounting Standards Board which were not yet effective. Some of them were adopted by the European Union and others
not yet. The Board of Directors expects that the adoption of these accounting standards in future periods will not have a
material effect on the financial statements of the Company
New standards
IFRS 17 ''Insurance Contracts''
In May 2017, the IASB issued IFRS 17 which will be effective for reporting periods beginning on or after 1 January 2023, with
presentation of comparative figures required. The Group is currently evaluating the impact of this standard on future
periods. There are no other IFRS or IFRIC interpretations that are effective after the Group’s 2020 financial year.
[58]
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2020
4.
Segment information
The Group has several reporting segments which are shown below. They include segment information on allocation of assets
and segment information on revenues by both location and customer.
The risk and returns of the Group’s operations are primarily determined by the nature of the activities that the Group
engages in, rather than the geographical location of these operations. This is reflected by the Group’s organisational
structure and the Group’s internal financial reporting systems.
Management monitors and evaluates the operating results for the purpose of making decisions consistently with how it
determines operating profit or loss in the consolidated financial statements.
Geographical segments
Although the joint venture undertakings WorldAce Investments Limited and Russian BD Holdings B.V. are domiciled in
Cyprus and the Netherlands, the underlying businesses and assets are in Russia. Substantially all the Group’s sales and
capital expenditures are in Russia.
Segment Information
Assets are allocated based on where the assets are located:
Non-current assets
Russia
Ireland
Revenues are allocated on where the underlying business
and assets are located.
Revenue- Location
Russia
Revenue- Customer
2020
US$
2019
US$
27,345,392
37,620,498
-
-
27,345,392
37,620,498
2020
US$
2019
US$
1,695,524
1,443,568
1,695,524
1,443,568
2020
US$
2019
US$
WorldAce Investments Limited-40% (2019- 38%)
686,498
547,617
Russian BD Holdings B.V- 12% (2019-9%)
209,092
130,544
LLC Stimul T- 48% (2019-53%)
799,934
765,407
1,695,524
1,443,568
[59]
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2020
5.
Revenue (continued)
Revenue
Management Services
Construction Services
2020
US$
2019
US$
895,590
678,161
799,934
765,407
1,695,524
1,443,568
Most of the revenue from management services relate to services provided to the joint venture undertakings which
PetroNeft Group have interests in. The revenue is mainly derived from two major customers Stimul-T LLC and Lineynoye
LLC which comprise 77% (2019: 81%) and 23 % (2019: 19%) respectively. Payment terms are stated at 10 business days after
acceptance of the invoice.
6.
Employees
Number of employees
Group
The average numbers of employees (including Directors)
during the year was:
Directors
Senior Management
Professional staff
Construction crew employees
Number of employees
Company
The average numbers of employees (including Directors)
during the year was:
Directors
Senior Management
Professional Staff
Employment costs (including Directors)
Group
Wages and salaries
Social insurance costs
Contributions to defined contribution pension plan
[60]
2020
Number
2019
Number
6
2
4
20
32
5
2
5
24
36
2020
Number
2019
Number
6
2
-
8
2020
US$
1,411,844
145,691
79,161
1,636,696
5
2
1
8
2019
US$
1,276,237
126,790
47,965
1,450,992
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2020
6.
Employees (continued)
Employment costs (including Directors)
Company
Wages and salaries
Social insurance costs
Contributions to defined Pension Plan
Directors' emoluments
Group and Company
Remuneration and other emoluments - Executive Directors
Remuneration and other emoluments - non-Executive
Directors
Pension contributions
2020
US$
1,087,842
67,040
79,161
1,234,043
2020
US$
2019
US$
907,114
29,380
47,965
984,459
2019
US$
628,817
307,090
49,822
45,000
723,639
54,335
22,836
384,261
Director
Executive directors
David Sturt*
Pavel Tetyakov
Non-executive directors
Thomas Hickey
Anthony Sacca
Daria Shaftelskaya
David Sturt
2020
2019
Basic Pension
Total
Basic Pension
Total
428,817
30,000
458,817
307,090
22,836
329,926
200,000
15,000
215,000
-
-
-
628,817
45,000
673,817
307.090
22,836
329,926
11,132
-
11,132
11,235
-
11,235
11,533
-
11,533
11,235
-
11,235
11,020
-
11,020
-
-
-
-
-
-
2,809
-
2,809
Maxim Korobov
913
-
913
11,235
-
11,235
Total Directors
remuneration
* Includes Medical Insurance of US$28,817.
49,822
-
49,822
54,335
54,335
678,639
45,000
723,639
361,425
22,836
384,261
[61]
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2020
During the year amounts due to Directors and Senior Management was reduced by a share-based payment of $531,268.
As detailed in Note 26, included in the above are unpaid fees and remuneration due to Directors as at 31 December 2020
of US$470,023 (2019: US$932,344) .
During 2020, a total of 10,471,204 ordinary shares was issued to former Director and Chief Executive Officer, Dennis
Francis in satisfaction of $200,000 Director's fees owing.
Your attention is drawn to the details of the share options held by the Directors as set out in the Report of the Directors
on page 27.
Pension contributions to directors during the year relate to 2 directors (2019: 1 director).
An amount of US$336,908 (2019: US$165,376) relating to Executive Directors’ salaries was re-charged to WorldAce
Investments Limited. An amount of US$101,073 (2019: US$53,018) relating to Executive Directors’ salaries was re-charged
to Russian BD Holdings B.V.
7.
Operating loss
Operating loss is stated after charging/(crediting):
Note
2020
US$
2019
US$
Included in cost of sales
Short term lease rentals - equipment
Included in administrative expenses
Foreign exchange (gains)/losses
Short term lease rentals - land and buildings
Depreciation of property, plant, and equipment
Included in cost of sales
Included in administrative expenses
Auditors' remuneration - Group
-audit of group financial statements
-tax advisory services
-other non-audit services
Auditors' remuneration - Company
-audit of entity financial statements
-audit of group financial statements
-tax advisory services
-other non-audit services
12
[62]
15,835
17,614
35,642
5,192
21,667
4
21,671
69,791
-
109,453
179,244
17,250
52,541
-
-
18,524
28,592
23,394
490
23,884
50,372
-
102,407
152,779
17,250
33,122
-
-
69,791
50,372
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2020
8.
Finance income
Bank interest receivable
Interest receivable on loans to Joint Ventures
Loss Allowance
2020
US$
194
3,582,972
3,583,166
-
2019
US$
2,613
4,272,568
4,275,181
-
3,583,166
4,275,181
The above financial income and expense include the following in respect of assets not at fair value through profit or
loss:
Total interest income on financial assets
3,583,166
4,272,181
9.
Finance costs
Interest on loans
2020
US$
432,362
432,362
2019
US$
369,950
369,950
The above financial income and expense include the following in respect of liabilities
not at fair value through profit or loss:
Total interest expense on financial liabilities
432,362
369,950
[63]
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2020
10.
Income Tax
Group
Current income tax
Current income tax charge
Total current income tax
Deferred tax
Relating to the origination and reversal of temporary
differences
Total deferred tax
Income tax expense reported in the Consolidated Income
Statement
Loss before income tax
Accounting loss multiplied by Irish standard rate of tax of
12.5%
Non-deductible expenses
Effect of higher tax rates on investment
income
Tax deductible timing differences
Share of joint ventures' net loss
Other
Profits taxable at higher rates
Taxable losses not utilised
Utilisation of previously unrecognised tax
losses
Total tax expense reported in the Consolidated Income
Statement
Deferred tax
Group and Company
Deferred income tax liability
At 1 January
Expense for the year recognised in the income statement
Translation adjustment
At 31 December
Deferred tax at 31 December relates to the
following:
Deferred income tax liability
Accrued interest income on intra-Group loans
[64]
2020
US$
(2,635)
(2,635)
2019
US$
7,516
7,516
897,875
897,875
1,068,118
1,068,118
895,240
1,075,634
2020
US$
(3,646,621)
2019
US$
(4,966,820)
(455,828)
110,200
447,872
(5,208)
805,287
(10,528)
3,445
-
(620,852)
142,117
534,271
(11,868)
1,021,847
3,971
6,148
-
-
-
895,240
1,075,634
2020
US$
4,303,779
897,875
(2,132)
5,199,522
2019
US$
3,219,203
1,068,118
16,458
4,303,779
2020
US$
2019
US$
5,199,522
5,199,522
4,303,779
4,303,779
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2020
10.
Income Tax (continued)
Factors that may affect future tax charges
The tax charge in future years will be affected by changes to the rates of Irish Corporation Tax. There is no current
expectation that the tax rate of 12.5% in Ireland will change in the foreseeable future.
11.
Loss per Ordinary Share
Basic loss per Ordinary Share amounts is calculated by dividing net loss for the year attributable to ordinary equity holders
of the Parent by the weighted average number of Ordinary Shares outstanding during the year.
Numerator
Loss attributable to equity shareholders of the
Parent for basic loss
Denominator
Weighted average number of Ordinary Shares
for basic (Note 20)
Loss per share:
Basic and Diluted - US dollar cent
2020
US$
2019
US$
(4,541,861)
(4,541,861)
(6,042,454)
(6,042,454)
831,674,668
716,793,942
(0.55)
(0.84)
At the Financial year end the Company had convertible debt instruments in issue that could potentially dilute basic earnings
per Ordinary Share in the future as per Notes 20 and 27. Of the 54,621,849 converts in issue at financial year end, a total
of 52,521,008 were converted into Ordinary Shares of the Company in April 2021. Given the Company is substantially loss
making, the addbacks and increased equity holding would be anti-dilutive.
.
[65]
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2020
12.
Property, Plant and Equipment
Cost
At 1 January 2019
Additions
Disposals
Translation adjustment
At 1 January 2020
Additions
Disposals
Translation adjustment
At 31 December 2020
Depreciation
At 1 January 2019
Charge for the year
Disposals
Translation adjustment
At 1 January 2020
Charge for the year
Disposals
Translation adjustment
At 31 December 2020
Net book values
At 31 December 2020
At 31 December 2019
Company
Cost
At 1 January 2019
At 1 January 2020
At 31 December 2020
Depreciation
At 1 January 2019
Charge for the year
At 1 January 2020
Charge for the year
At 31 December 2020
Net book values
At 31 December 2020
At 31 December 2019
[66]
Plant and
machinery
US$
839,805
9,720
(213,181)
83,857
720,201
-
(3,846)
(108,871)
607,484
801,509
23,884
(222,541)
88,506
691,358
21,671
(3,846)
(106,381)
602,802
4,682
28,843
Plant and
machinery
US$
32,066
32,066
32,066
(31,580)
(486)
(32,066)
-
(32,066)
-
-
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2020
12. Property, Plant and Equipment (continued)
Petrogrand AB has a floating charge over the assets of the Company
At 31st December 2020 and 2019, there was no Property, Plant and Equipment Capital Commitments
13. Equity-accounted Investment in Joint Venture – WorldAce Investments Limited
PetroNeft has a 50% interest in WorldAce Investments Limited (“WorldAce”), a joint venture which holds 100% of LLC Stimul-
T, an entity involved in oil and gas exploration and the registered holder of Licence 61. The interest in this joint venture is
accounted for using the equity accounting method. WorldAce Investments Limited is incorporated in Cyprus and carries out
its activities, through LLC Stimul-T, in Russia.
At 1 January 2019
Elimination of unrealised profit on intra-Group transactions
Retained loss
Translation adjustment
Credited against loans receivable from WorldAce Investments Limited (Note
16)
At 1 January 2020
Elimination of unrealised profit on intra-Group transactions
Retained loss
Translation adjustment
Credited against loans receivable from WorldAce Investments Limited (Note
16)
At 31 December 2020
Share of net
assets
US$
-
-
(7,510,318)
4,513,212
2,997,106
-
-
(5,737,042)
(6,735,737)
12,472,779
-
The balance sheet position of WorldAce shows net liabilities of US$88,913,849 (2019: US$63,968,289) following a loss in the
year of US$11,474,084 (2019: US$15,020,636) together with a negative currency translation adjustment of US$13,471,473
(2019: positive US$9,026,423). PetroNeft’s 50% share is included above and results in a negative carrying value of
US$39,774,519 (2019: US$27,301,740). Therefore, the share of net assets is reduced to Nil and, in accordance with IAS 28
Investments in Associates and Joint Ventures, the amount of US$39,774,519 (2019: US$27,301,740) is deducted from other
assets associated with the joint venture on the Balance Sheet which are the loans receivable from WorldAce Investments
(see Note 16).
[67]
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2020
13.
Equity-accounted Investment in Joint Venture – WorldAce Investments Limited (continued)
Additional financial information in respect of PetroNeft’s 50% interest in the equity-accounted joint venture entity is
disclosed below.
Summarised Financial statements of equity-accounted joint venture
Revenue
Cost of sales
Gross profit
Administrative expenses
Impairment of exploration and evaluation assets
Operating profit/(loss)
Write-off of oil and gas properties
Write-off of exploration and evaluation assets
Finance Income
Finance costs
2020
US$
2019
US$
16,719,562
(17,465,594)
(746,032)
(2,515,578)
-
(3,261,610)
-
-
35,745
(7,985,620)
24,852,620
(25,100,495)
(247,875)
(2,624,057)
(1,382,769)
(4,254,701)
-
(1,299,887)
57,906
(9,523,954)
Loss for the year for continuing operations before taxation
Income tax expense
Loss for the year
(11,211,485)
(262,599)
(11,474,084)
(15,020,636)
-
(15,020,636)
Loss for the year
Other comprehensive income to be reclassified to profit or loss in
subsequent years:
Currency translation adjustments
Total comprehensive loss for the year
(11,474,084)
(15,020,636)
(13,471,473)
(24,945,557)
9,026,423
(5,994,213)
Included in the above numbers are charges for
Depreciation and Amortisation
1,256,822
1,936,923
Finance costs mainly relate to interest on shareholder loans from Oil India International B.V. and PetroNeft. The details of
gross interest accrued on loans to PetroNeft are disclosed in Note 26 Related party disclosures.
The currency translation adjustment results from the movement of the Russian Rouble during the year. All Russian Rouble
carrying values in Stimul-T, the 100% subsidiary of WorldAce are converted to US Dollars at each period end. The resulting
gain or loss is recognised through other comprehensive income and transferred to the currency translation reserve. The
Russian Rouble weakened against the US Dollar during the year from RUB61.905:US$1 as at 31 December 2019 to RUB74.54:
US$1 as at 31 December 2020.
[68]
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2020
13.
Equity-accounted Investment in Joint Venture – WorldAce Investments Limited (continued)
Non-current Assets
Oil and gas properties
Property, plant, and equipment
Exploration and evaluation assets
Assets under construction
Intangible Assets
Current Assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total Assets
Non-current Liabilities
Provisions
Obligations under finance lease
Interest-bearing loans and borrowings
Current Liabilities
Interest-bearing loans and borrowings
Obligations under finance lease
Trade and other payables
Total Liabilities
Net Liabilities
2020
US$
63,884,598
241,080
-
1,517,064
1,829,477
67,472,219
2,149,712
904,824
212,433
3,266,969
70,739,188
1,360,704
61,222
147,877,926
149,299,852
2,475,992
43,242
7,833,951
10,353,185
159,653,037
2019
US$
78,147,884
374,632
-
1,468,233
2,178,884
82,169,633
2,390,999
996,439
30,895
3,418,333
85,587,966
1,833,969
172,969
140,244,130
142,251,068
2,346,265
41,318
4,917,604
7,305,187
149,556,255
88,913,849
63,968,289
Non -Current Financial Liabilities
147,939,148
140,417,099
Current Financial Liabilities
2,519,234
2,387,583
Interest-bearing loans and borrowings are shareholder loans from Oil India International B.V. and PetroNeft. The details of
loans due to PetroNeft are disclosed in Note 26 Related party disclosures.
Capital commitments
Details of capital commitments at the balance sheet date are as follows:
Contracted for but not provided in the financial statements
[69]
2020
US$
Nil
2019
US$
Nil
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2020
14. Equity-accounted Investment in Joint Venture - Russian BD Holdings B.V.
At year end, PetroNeft Resources plc has a 50% interest in Russian BD Holdings B.V., a joint venture which holds 100% of
LLC Lineynoye, an entity involved in oil and gas exploration and the registered holder of Licence 67. The interest in this joint
venture is accounted for using the equity accounting method. Russian BD Holdings B.V. is incorporated in the Netherlands
and carries out its activities in Russia.
At 1 January 2019
Elimination of unrealised profit on intra-Group transactions
Share of net loss of joint venture for the year
Translation adjustment
Credited against loans receivable from Russian BD Holdings B.V.
(Note 16)
At 1 January 2020
Elimination of unrealised profit on intra-Group transactions
Retained loss
Translation adjustment
Credited against loans receivable from Russian BD Holdings B.V.
(Note 16)
At 31 December 2020
Share of net
assets
US$
-
-
(664,455)
482,897
181,558
-
-
(705,249)
(843,617)
1,548,866
-
The balance sheet position of Russian BD Holdings B.V. shows net liabilities of US$7,350,155 (2019: US$4,235,793) following
a loss in the year of US$1,410,498 (2019: US$1,328,910) together with a negative currency translation of US$1,687,233
(2019: positive US$965,794). PetroNeft’s 50% share is included above and results in a negative carrying value of
US$3,681,920 (2019: US$2,117,897). Therefore, the share of net assets is reduced to Nil and, in accordance with IAS 28
Investments in Associates and Joint Ventures, the amount of US$3,681,920 (2019: US$2,117,897) is deducted from other
assets associated with the joint venture on the Balance Sheet which are the loans receivable from Russian BD Holdings B.V.
(Note 16).
[70]
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2020
14.
Equity-accounted Investment in Joint Venture - Russian BD Holdings B.V. (continued)
Additional financial information in respect of PetroNeft’s 50% interest in the equity-accounted joint venture entity is
disclosed below
Summarised Financial statements of equity-accounted joint venture
Revenue
Cost of sales
Gross profit
Administrative expenses
Operating loss
Finance Income
Finance costs
Loss for the year for continuing operations before taxation
Taxation
Loss for the year
Loss for the year
Other comprehensive income to be reclassified to profit or loss in
subsequent years:
Currency translation adjustments
Total comprehensive loss for the year
Included in the above numbers are charges for
Depreciation and Amortisation
2020
US$
37,400
(157,567)
(120,167)
(393,639)
(513,806)
325
(897,017)
(1,410,498)
2019
US$
-
-
-
(332,635)
(332,635)
1,280
(997,548)
(1,328,903)
-
(7)
(1,410,498)
(1,328,910)
(1,410,498)
(1,328,910)
(1,687,233)
(3,097,731)
965,794
(363,116)
-
6,676
Finance costs comprise of interest on shareholder loans from Belgrave Naftogas B.V. and PetroNeft. The details of gross
interest accrued on loans to PetroNeft are disclosed in Note 26 Related party disclosures
[71]
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2020
14.
Equity-accounted Investment in Joint Venture - Russian BD Holdings B.V. (continued)
Non-current assets
Current assets
Total assets
Non-current liabilities
Current liabilities
Total liabilities
Net Liabilities
2020
US$
10,098,999
199,720
10,298,719
16,404,101
1,244,773
17,648,874
2019
US$
11,252,892
118,311
11,371,203
14,758,627
848,369
15,606,996
7,350,155
4,235,793
Non -Current Financial Liabilities
16,404,101
14,758,627
Current Financial Liabilities
Capital commitments
119,384
131,337
2020
US$
2019
US$
Details of capital commitments at the balance sheet date are as follows:
Contracted for but not provided in the financial statements
1,000,000
Nil
[72]
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2020
15. Financial assets – investments in joint ventures and subsidiaries
Company
Cost
At 1 January 2019
At 31 December 2019
At 31 December 2020
Net book values
At 31 December 2020
At 31 December 2019
Investment in
joint ventures
US$
Investment in
Subsidiaries
US$
-
-
-
-
-
13,848
13,848
13,848
13,848
13,848
Total
US$
13,848
13,848
13,848
13,848
13,848
Details of the Company's holding in direct and indirect subsidiaries at 31st December 2020 are as follows:
Name of subsidiary
LLC Granite Construction
LLC Dolomite
Registered office
13 Sovpartshkolny
Lane, Office 210,
Tomsk 634009, Russia
13 Sovpartshkolny
Lane, Office 210,
Tomsk 634009, Russia
Proportion of
ownership
interest
Proportion of
voting power
held
100%
100%
Principal activity
Construction
100%
100%
Oil and gas exploration
Details of the Group's interest in joint ventures at 31st December 2020 are as follows:
Name of entity
WorldAce Investments
Limited
LLC Stimul-T
Russian BD Holdings B.V.
LLC Lineynoye
Registered office
3 Themistocles Street,
Nicosia, Cyprus
13 Sovpartshkolny
Lane, Office 210,
Tomsk 634009, Russia
Prins Bernhardplein
200, 1097 JB,
Amsterdam, the
Netherlands
13 Sovpartshkolny
Lane, Office 210,
Tomsk 634009, Russia
Proportion of
ownership
interest
Proportion of
voting power
held
50%
50%
Principal activity
Holding Company
50%
50%
Oil and gas exploration
50%
50%
Holding Company
50%
50%
Oil and gas exploration
[73]
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2020
15.
Financial assets – investments in joint ventures and subsidiaries (continued)
Oil India International B.V. owns the other 50% of WorldAce Investments Limited and Belgrave Naftogas B.V. owned the
other 50% of Russian BD Holdings B.V. at the Financial Statement year end.
In March 2021, Sarum Energy Limited sold 80% of its equity holding in Russian BD Holdings B.V. to PetroNeft Resources
PLC.
Financial
receivables
16.
assets
-
loans
and
Group
Loans to WorldAce Investments
Limited (Note 26)
Loss Allowance (Note 26)
Less: share of WorldAce Investments Limited loss
(Note 13)
Loans to Russian BD Holdings B.V.
(Note 26)
Less: share of Russian BD Holdings B.V. loss (Note
14)
Company
Loans to WorldAce Investments
Limited (Note 26)
Loans to Russian BD Holdings B.V.
(Note 26)
Loss Allowance (Note 26)
Less: Accumulated Share of Joint
Venture Losses
2020
US$
2019
US$
66,105,781
(3,109,501)
62,963,635
(3,109,501)
(39,774,519)
(27,301,740)
23,221,761
32,552,394
7,800,869
7,157,158
(3,681,920)
(2,117,897)
4,118,949
5,039,261
27,340,710
37,591,655
2020
US$
2019
US$
66,105,781
62,963,635
7,800,869
7,157,158
(3,109,501)
(3,109,501)
(43,456,439)
(29,419,637)
27,340,710
37,591,655
The Company has granted a loan facility to its joint venture undertaking WorldAce Investments Limited of up to US$45
million. This loan facility is US$ denominated and unsecured. Interest currently accrues on the loan at USD LIBOR plus 6.0%
but the Company has agreed not to seek payment of interest until 2022 at the earliest. The loan is set to mature on 31
December 2025. As at 31 December 2020 the loan was fully drawn down. The realisation of financial assets of $23.1m in
respect of WorldAce is dependent on the continued successful development of economic reserves which is subject to several
uncertainties including the ability to raise finance, future rates of oil production and future international oil prices to
continue to successfully generate revenue from the assets or the monetisation of the asset through a sale or farmout.
[74]
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2020
16.
Financial assets - loans and receivables (continued)
The loan from the Company to Russian BD Holdings B.V. is repayable on demand. Interest currently accrues on the loan at
USD LIBOR plus 5.0% per annum. The group drilled the Cheremshanskoye No. 4 well in 2018 which tested oil at 450 bopd
and demonstrated the potential of License 67. This activity was augmented by further well simulation in Spring 2021, and
the well is expected to be in daily production during 2021. The realisation of financial assets of US$4.1 m in respect of Russian
BD Holdings B.V. is ultimately dependent on the successful development of reserves as outlined above in relation to
Cheremshanskoye, which is subject to several uncertainties including the ability to finance the well development and
bringing the assets to economic maturity and profitability or the monetisation of the asset through a sale or farmout.
As previously advised to shareholders, the Company has been examining development options for Licence 67. The Company
previously announce that they would be re-entering the C4 and C3 wells on the Cheremshanskoye field during 2020 with
the combined aim of bringing the field into production and at the same time providing crucial reservoir performance data.
This would enable the Company to optimise forward development of the field which benefits from a favourable
infrastructure location, allowing low-cost operations. There is a road running along the eastern edge of the field, plus
powerlines running close to the western margin of the field, which should allow the Company to reduce OPEX over the
longer term.
In March 2021, the Company increased its equity holding in Licence 67 from 50% to 90%. Also in March 2017, the Company
announced commercial production on Licence 67. The C-4 well was successfully re-entered in Q1 2020 to perform an
extended well test. During this test, the well flowed at various choke sizes from the same Upper Jurassic J1-1 & J1-3 clastic
reservoirs and flowed naturally at up to a maximum 476 bopd on a 10mm choke size. The Cheremshanskoye field reserves
are 19.26 mmbbls C1+C2 which were approved by GKZ (Russian State Reserves Committee) January 2019.
In addition, the Company is also working on plans to re-enter two wells on the Ledovoye field, also in Licence 67, during the
period 2021. Should this be successful the Company will be looking to both book additional reserves and promptly start
production from the Ledovoye field. Like the Cheremshanskoye field, Ledovoye is ideally located close to existing
infrastructure, being only 60m away from a major all-weather road.
Due to the difference in carrying value caused by the application of the equity method of accounting to the Group financial
statements the Company thought it was deemed prudent in 2018, to provide for an allowance for doubtful debts against
the carrying value of these loans on the Company Balance Sheet to align the balances on the Group and Company balance
sheets. It is not expected that any repayment will be received within 12 months of the balance sheet date.
The weakened trading performance during 2020, including the ongoing Covid pandemic have been considered as
impairment factors, but there has been sufficient headroom in the detailed calculations of future trading performance, so
no impairment provision was recorded during 2020.
17.
Inventories
Materials
2020
US$
19,387
19,387
2019
US$
18,965
18,965
[75]
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2020
18.
Trade and other receivables
Group
Receivable from joint ventures (Note 26)
Trade Receivable
Prepayments
Advances to contractors
Other receivables
Company
Amounts owed by subsidiary undertakings (Note
26)
Amounts owed by other related companies (Note
26)
VAT Receivable
Prepayments
2020
US$
2,329,529
45,718
84,188
1,468
68,028
2,528,931
2020
US$
54,374
2,228,875
36,075
83,760
2019
US$
1,005,991
44,670
83,145
1,353
1,781
1,136,940
2019
US$
222,604
893,731
27,412
76,592
2,403,084
1,220,339
Other receivables are non-interest-bearing and are normally settled on 60-day terms. Amounts owed by subsidiary
undertakings are interest-bearing. Interest is charged at 10%.
19.
Cash and Cash Equivalents
Group
Cash at bank
Company
Cash at bank
2020
US$
101,028
101,028
2020
US$
94,970
94,970
2019
US$
345,532
345,532
2019
US$
257,916
257,916
[76]
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2020
19.
Cash and Cash Equivalents (continued)
Bank deposits earn interest at floating rates based on daily deposit rates. Short-term deposits are made for varying periods
of between one day and one month depending on the immediate cash requirements of the Group and earn interest at the
respective short-term deposit rates.
20.
Share Capital - Group and Company
Authorised Share Capital
1,000,000,000 (2019: 1,000,000,000) Ordinary
Shares of €0.01 each
Authorised Share Capital increase of 250,000,000
Shares of €0.01 each
Allotted, called up and fully paid equity
At 1 January 2019
Issued during the year
At 1 January 2020
Issued during the year
At 31 December 2020
21.
Loans and Borrowings
Group and Company
Interest-bearing
Current liabilities
Petrogrand AB
Natlata Partner Limited
ADM Consulting
Daria Shaftelskaya
Michael Murphy
David Sturt
Total current liabilities
Total loans and borrowings
Contractual undiscounted liability
2020
€
2019
€
10,000,000
10,000,000
2,500,000
-
12,500,000
10,000,000
Number of
Ordinary Shares
707,245,906
13,884,594
721,130,500
118,226,241
839,356,741
Called up share
capital US$
9,429,182
156,783
9,585,965
1,310,703
10,896,668
Effective
interest rate
%
Contractual
maturity
date
10.59%
10.14%
10.16%
10.13%
10.14%
10.14%
15-Dec-21
31-Dec-21
31-Dec-21
31-Dec-21
31-Dec-21
31-Dec-21
2020
US$
2019
US$
2,675,774
2,897,958
632,417
459,297
269,259
57,322
57,322
577,347
417,051
246,341
52,076
52,076
4,151,391
4,242,849
4,151,391
4,242,849
4,151,391
4,242,849
[77]
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2020
21
Loans and Borrowings (continued)
Changes in financial liabilities arising from financing activities
At 1 January
Cash flows
Accrued interest (Note 9)
Profit on modification of financial liabilities
Translation adjustment
Convertible debt option reserve
At 31 December
2020
US$
4,242,849
(277,746)
432,362
(218,898)
(27,176)
2019
US$
2,116,825
1,799,997
369,950
-
-
-
(43,923)
4,151,391
4,242,849
Loan facilities.
PetroNeft had entered a convertible loan facility of US$1.3 million with a group of five lenders in 2019. The convertible loan,
when renegotiated in January 2021, was to remain unsecured, to mature on 31st December 2021 or on the sale of either
Licence 61 or Licence 67. The loan facility carries an interest rate of USD LIBOR plus 8%. Lenders can elect at any time to
convert up to 65% of the outstanding loan to shares at a conversion price of US$0.01547 (1.547 cent). In April 2021 four of
the five lenders elected to convert their rights into Ordinary Shares of the Company. The principal on the Convertible loan
post conversion was reduced by an amount of US$812,500. Please refer to Note 29 for details.
In 2018 the Company obtained a US$2m secured loan facility from Petrogrand AB. The security attaches to any of the assets
of PetroNeft Resources plc. An asset being defined as any present or future assets, revenues, and rights of every description.
The security is for any obligation for the repayment of monies owed to Petrogrand AB, be it present, or future, actual or
contingent. This loan facility was fully drawn down in 2018 and carries an interest rate of US$ LIBOR plus 9%. In March 2019,
the parties agreed a further increase in the facility by US$500,000 and it was agreed that the maturity date would be
extended for one year until 15th December 2020. It was further agreed between the parties that the loan plus any
outstanding interest would be further extended for another 12-month period ending 15th December 2021, which can be
further extended if PetroNeft on or before 15th December 2021, makes a payment of 20% of the loan balance outstanding
at that time.
The Company performed an assessment under its accounting policies and the requirements of IAS 39 as to whether the
restructuring of the terms of the loan facility was a deemed substantial modification. As the net present value of the
cashflows under the original terms and the modified terms was greater than 10%, the modification was accounted for as
substantial. As a result on completion of the restructuring the carrying value of the Petrogrand loan facility with a note value
of US$2,894,672 was derecognised by an amount of US$218,898 and the fair value of the loan notes of US$2,675,774 was
recognised at the date of the Statement of Financial Position. The gain arising on substantial modification of the loan notes
has been recognised in the Income Statement as a profit on modification of financial liabilities.
Petrogrand AB is a related party by virtue of Maxim Korobov, until 17th January 2020 a director of PetroNeft, being a
significant shareholder of Petrogrand AB. For details of transactions between PetroNeft and Petrogrand AB see Note 26
Related party disclosures.
[78]
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2020
22.
Trade and other payables
Group
Trade payables
Trade and other payables to joint ventures (Note 26)
Corporation tax
Other taxes and social insurance costs
2020
US$
552,841
57,703
55,232
59,395
2019
US$
403,835
113,532
55,232
28,457
Accruals and other payables
1,189,281
1,290,902
Company
Trade payables
Corporation tax
Other taxes and social welfare costs
1,914,452
1,891,958
2020
US$
550,030
55,232
30,971
2019
US$
403,400
55,232
-
6,932
Accruals and other payables
1,155,028
1,242,712
1,791,261
1,694,412
The Directors consider that the carrying amount of trade and other payables approximates their fair value.
Trade and other payables are non-interest-bearing and are normally settled on 60-day terms.
Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs.
23.
Financial risk management objectives and policies
The Group’s and Company’s principal financial instruments comprise loans to joint venture undertakings, cash and cash
equivalents and interest-bearing loans and borrowings. The main purpose of these financial instruments is to provide finance
for the Group and Company’s operations. The Group has various other financial assets and liabilities such as receivables and
trade payables, which arise directly from its operations.
The main risks arising from the Group and Company’s financial instruments are commodity price risk, foreign currency risk,
credit risk, liquidity risk, interest rate risk and capital risk. The Board reviews and agrees policies for managing each of these
risks which are summarised below.
Commodity price risk
The Group is exposed to the risk of fluctuations in prevailing market commodity prices on the oil produced by its joint venture
interests. To date the Group and its joint ventures have sold all their oil on the domestic market in Russia. There are no
banks providing hedging or derivative type contracts for oil sold on the domestic market, so it is not possible to mitigate
[79]
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2020
23.
Financial risk management objectives and policies (continued)
risks in this way. The high taxes on oil produced in Russia are based on prevailing international oil prices and therefore
operate as a natural hedge to a fall in oil prices. At 31 December 2020 and 2019, the Group and the Company had no
outstanding commodity contracts.
Foreign currency risk
The Group and the Company undertake certain transactions denominated in foreign currencies. Hence, exposures to
exchange rate fluctuations arise. Exchange rate exposures are managed within approved policy parameters utilising forward
exchange contracts where appropriate.
At 31 December 2020 and 2019, the Group and the Company had no outstanding forward exchange contracts.
The Group’s and the Company’s principal currency exposures arise in the currencies of Russian Rouble, Euro, UK Sterling and
US Dollar. The Group has an exposure to US Dollars because the functional currency of its Russian subsidiaries is Russian
Roubles. A change in the US Dollar: Russian Rouble exchange rate will therefore result in a foreign exchange gain or loss on
the US Dollar denominated balances in these subsidiaries. The Group and the Company have an exposure to Russian Rouble,
Euro and UK Sterling because the Company has trade and other receivables and payables denominated in these
currencies. In addition, the Group has an exposure to Russian Rouble as currency translation of the foreign subsidiaries and
joint ventures affects the Group’s net equity.
Foreign currency sensitivity analysis
In accordance with IFRS 7, the impact of foreign currencies is determined based on the balances of financial assets and
liabilities at 31 December 2020. The sensitivity analysis includes only outstanding foreign currency denominated monetary
items and largely results from payables and receivables and adjusts their translation at the year-end for a 5% change in
foreign currency rates.
If the US Dollar had gained/lost 5% against all currencies significant to the Group and Company at 31 December, the impact
on loss and equity for the Group and the Company is shown below.
Group
2020
2020
2019
2019
Company
2020
2020
2019
2019
Change in
USD/RUB
Effect
on loss
before
tax
US$
5% 181,785
-5% 153,261
Effect
on pre-
tax
equity
US$
-181,785
-153,261
5%
-5%
-21,554
23,837
-21,554
23,837
Change in
USD/RUB
Effect
on
profit
before
tax
US$
5% 181,785
-5% 153,261
Effect
on pre-
tax
equity
US$
-181,785
-153,261
5%
-5%
-21,554
23,837
-21,554
23,837
Change in
USD/EUR
5%
-5%
5%
-5%
Change in
USD/EUR
5%
-5%
5%
-5%
[80]
Effect on
loss
before
tax
US$
-7,161
-68,974
Effect on
profit
before
tax
US$
-7,161
-68,974
Effect on
pre-tax
equity
Change
in
USD/GBP
Effect on
loss before
tax
Effect on
pre-tax
equity
US$
-7,161
-68,974
21,211
-23,430
21,211
-23,430
5%
-5%
5%
-5%
US$
3,201
-3,734
4,432
-2,570
US$
3,201
-3,734
4,432
-2,570
Effect on
pre-tax
equity
Change
in
USD/GBP
Effect on
profit
before tax
Effect on
pre-tax
equity
US$
-7,161
-68,974
21,211
-23,430
21,211
-23,430
5%
-5%
5%
-5%
US$
3,201
-3,734
4,432
-2,570
US$
3,201
-3,734
4,432
-2,570
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2020
23.
Financial risk management objectives and policies (continued)
Credit risk
Credit risk arises from contractual cash flows of debt instruments carried at amortised cost, cash and cash equivalents,
deposits with banks, as well as credit exposures to customers, including outstanding receivables from joint ventures.
(i) Risk management
Credit risk is managed on a group basis according to established policies, procedures, and controls. Credit quality is assessed
in line with credit rating criteria and credit limits are established where appropriate.
The credit risk on cash and cash equivalents is limited because the counterparties are banks with high credit ratings assigned
by international credit-rating agencies.
Management assesses the credit quality of the customer, considering its financial position, experience, and other factors.
As the Group does not have any trade receivables outstanding from third parties, this risk is minimal. Recoverability of
amounts due from joint venture companies are dependent on the success of the joint ventures.
The Group and the Company do not have any significant credit risk exposure to any single counterparty or any group of
counterparties having similar characteristics except for the loans and trade and other receivables from its two joint ventures.
The Group and the Company define counterparties as having similar characteristics if they are connected entities.
(ii) Impairment of financial assets
The Group and the Company have the following types of financial assets that are subject to the expected credit loss model:
•
Trade Receivables – Qualify for the simplified model provided they are trade receivables and do not contain a significant
financing component.
Intra-Group Loans – General Impairment Model applies
•
• Cash and cash equivalents
Trade Receivables
Within the PetroNeft Group, a provision matrix has been developed to measure the expected credit loss on trade
receivables. Trade receivables are grouped by aging of receivable and by type (receivable from related parties and
receivables from third parties). This grouping is based on management judgement of the risk characteristics and is based on
internal sub-groupings.
The Group has determined the historical period of 36 months prior to date at which the expected credit loss is measured to
determine historical loss data. For receivables from related parties, it has been determined that over the historical period
there has been a zero percent loss rate. Notwithstanding the fact that some of these trade receivables may go substantially
past due, these amounts are managed on a Group basis by the ultimate controlling party and as such, no loss has been
recorded or is expected on these amounts.
Based on the historical loss rate of close to 0% and forward-looking information at the reporting date, the Group has applied
prudent expected loss rates across the various sub-groupings and the final expected credit loss has been determined as
immaterial.
Intra-Group Loans
PetroNeft has granted loans to its joint ventures over the years. The largest portion of these intra-Group loans is to WorldAce
Investments Limited, bears interest at USD LIBOR plus 6.0% and have a maturity date of 31 December 2025. The remaining
loan is repayable on demand and carries interest at USD LIBOR plus 5.0%.
[81]
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2020
23. Financial risk management objectives and policies (continued)
No further ECL have being estimated for 2019 or accrued for 2020.
When measuring ECL the Group uses reasonable and supportable forward-looking information incorporated in the financial
model to estimate the ECL. The model encompasses multiple scenarios which outcomes are multiplied by estimated
probability factors. The ECL is the sum of probability weighted scenarios.
The forward-looking information, including macroeconomic factors (such as consumer price index, oil prices, interest rates
and exchange rates), is based on assumptions for the future movement of different economic drivers relevant to the Group's
business and how these drivers will affect each other. The probability factors are based on management’s estimate of the
likelihood of different scenarios.
Loans to Granite Construction are classified as credit impaired and a loss allowance of US$381,086 was made in 2018. No
further loss allowance was created in 2019 or 2020.
A summary of the assumptions underpinning the Company's expected credit loss model is as follows:
Category
Company definition of category
Performing
Counterparties have a low risk of
default and a strong capacity to
meet contractual cash flows
Underperforming
Non-performing
Write-off
Counterparties for which there is
a significant increase in credit risk
as significant increase in credit
risk is presumed if interest and/or
principal repayments are 30 days
past due (see above in more
detail)
Interest and/or principal
repayments are 90 days past due
Interest and/or principal
repayments are 180 days past
due and there is no reasonable
expectation of recovery.
Basis for recognition of
expected credit loss
provision
Stage 1: 12 month
expected losses. Where the
expected lifetime of an
asset is less than 12
months, expected losses
are measured at its
expected lifetime.
Stage 2: Lifetime expected
losses
Basis for calculation of
interest revenue
Gross carrying amount
Gross carrying amount
Stage 3: Lifetime expected
losses
Asset is written off
Amortised cost carrying
amount (net of credit
allowance)
None
[82]
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2020
23.
Financial risk management objectives and policies (continued)
The Group’s and Company’s exposure to credit risk and the credit quality of its financial assets is presented below:
Internal
credit
rating
External
credit
rating
ECL
Gross
carrying
amount
US$
Accumulated
joint venture
losses
Loss
allowance
Net carrying
amount
US$
US$
US$
N/A
N/A
N/A
N/A
General
Impairment
Model
applies
73,906,654
(43,456,443)
(3,109,501)
27,340,710
54,374
-
-
54,374
2020
Group:
Loans to
joint
ventures
Company:
Loan to
subsidiary
Cash and cash equivalents
The total amount of US$ 107,671 are cash held in banks. Credit losses are expected to have an immaterial effect on cash
and cash equivalents.
Liquidity risk management
Liquidity risk is the risk that the Group and the Company will encounter difficulties in meeting obligations associated with
their financial liabilities. Ultimate responsibility for liquidity risk management rests with the Board of Directors, who manage
liquidity risk and short, medium, and long-term funding and liquidity management requirements by continuously monitoring
forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Cash forecasts are
regularly produced to identify the liquidity requirements of the Group and the Company. To date, the Group and the
Company have relied on shareholder funding, loan facilities and normal trade credit to finance its operations. As at 31st
December 2020, the Group, and the Company have outstanding loan facilities as described in Note 21 above.
The expected maturity of the Group and Company’s third-party financial assets (excluding prepayments) as at 31st
December 2020 and 2019 was less than one month. The expected maturity of the Group and Company’s related party
financial assets as of 31st December 2020 and 2019 is more than one year.
The Group and the Company further mitigate liquidity risk by maintaining an insurance programme to minimise exposure to
insurable losses. The Group and the Company had no derivative financial instruments as of 31st December 2020 and 2019.
The tables below show the projected contractual undiscounted total cash outflows arising from the Group’s and Company’s
trade and other payables and gross debt based on the earliest date on which the Group is expected to pay. The tables include
both interest and principal cash flows. To the extent that interest flows are floating rate, the undiscounted amount is derived
by using rate applicable on 1st January 2020. These projections are based on the foreign exchange rates applying on 31st
December 2020 (2019: 31st December 2019):
[83]
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2020
23.
Financial risk management objectives and policies (continued)
Group
Within 1 year
Year ended 31 December 2020
US$
Interest-bearing loans and borrowings
Between 1 and
2 years
US$
Between 2 to 5
years
US$
- current
Trade and other payables
4,151,391
1,799,825
5,951,216
-
-
0
-
-
0
After 5 years
US$
-
-
0
Total
US$
4,151,391
1,799,825
5,951,216
Year ended 31 December
2019
Interest-bearing loans and borrowings
- current
Trade and other payables
4,242,849
1,808,269
6,051,118
-
0
-
0
-
0
Company
Within 1 year
Year ended 31 December 2020
US$
Interest-bearing loans and borrowings
Between 1 and
2 years
US$
Between 2 to 5
years
US$
After 5 years
US$
- current
Trade and other payables
Year ended 31 December 2019
Interest-bearing loans and borrowings
- current
Trade and other payables
4,151,391
1,705,058
5,856,449
4,242,849
1,646,112
5,888,961
-
-
0
-
0
-
-
0
-
0
-
-
0
-
0
4,242,849
1,808,269
6,051,118
Total
US$
4,151,391
1,705,058
5,856,449
4,242,849
1,646,112
5,888,961
Interest rate risk
The Group and Company’s exposure to the risk of changes in market interest rates relates primarily to the Group and
Company’s loans to joint ventures which are tied to the LIBOR interest rate, and their holdings of cash and short-term
deposits which are on variable rates ranging from 0.1% to 0.5%.
Financial instrument
Interest-bearing loans to joint ventures
Fixed %
5.0% to 6.0%
Variable %
US$ LIBOR
The effect of a rise of 1% in the LIBOR interest rate (e.g., from 2.4% to 3.4%) receivable on loans to joint ventures would be
to increase Group loss before tax by US$71,268 and Company profit before tax by US$506,546
It is the Group and Company’s policy, as part of its disciplined management of the budgetary process, to place surplus funds
on short-term deposit to maximise interest earned.
[84]
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2020
23.
Financial risk management objectives and policies (continued)
Capital risk management
The Group and the Company manage capital to ensure that entities in the Group will be able to continue as a going concern
while maximising the return to stakeholders through the optimisation of the debt and equity balance. The Group and the
Company manage their capital structure and adjust it considering changes in economic conditions. To maintain or adjust its
capital structure, the Group and the Company may issue new shares or raise debt. No changes were made in the objectives,
policies or processes during the years ended 31 December 2020 and 2019. The capital structure of the Group and the
Company consists of equity attributable to equity holders of the Parent, comprising issued capital, reserves and retained
losses as disclosed in the Consolidated Statement of Changes in Equity as well as external debt.
Fair values
The carrying amount of the Company’s financial assets and the Group and Company’s financial liabilities is a reasonable
approximation of the fair value and there is no specific items of financial assets or liabilities stated at fair value. The carrying
amount of the Group’s financial assets is lower than the estimated fair value because of the adjustment required in
accordance with IAS 28 arising primarily from the currency translation adjustments in the joint venture companies that
exceeded the carrying value of the equity accounted investment in joint venture. See notes 13 and 14. The carrying value of
the loans to WorldAce in the Group and Company is US$23.22 million, which approximates the fair value. The carrying value
of the loans to Russian BD in the Group and Company is US$4.12 million, which approximates the fair value. See note 16.
The fair value of the Group’s financial liabilities is included at the amount at which the instrument could be exchanged in a
current transaction between willing parties other than in a forced or liquidation sale.
Hedging
At the year ended 31 December 2020 and 2019, the Group had no outstanding contracts designated as hedges.
Offsetting of financial assets and liabilities
No financial assets and liabilities were offset in the balance sheet as of 31 December 2020 and 2019.
24.
Loss of Parent Undertaking
The Company is availing of the exemption set out in section 304 of the Companies Act 2014 from presenting its individual
Income Statement to the Annual General Meeting and from filing it with the Registrar of Companies. The amount of the loss
dealt with in the Parent undertaking for the year was US$12,231,171 (2019: loss of US$1,137,626).
25.
Future minimum rentals payable under short term leases at the balance sheet date are as follows:
Land and buildings
Within one year
2020
US$
2,722
2,722
2019
US$
2,722
2,722
There were no capital commitments as of 31 December 2020 or 31 December 2019.
[85]
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2020
26. Related party disclosures
Transactions with subsidiaries
Transactions between the Group and its subsidiaries, Granite and Dolomite have been eliminated on consolidation. The
Company had the following transactions with its subsidiaries during the years ended 31 December 2020 and 2019
Company
Loans
At 1 January 2019 (Note 18)
Interest accrued in the year
Loans repaid during the year
Loss Allowance
Translation adjustment
At 1 January 2020 (Note 18)
Interest accrued in the year
Loans repaid during the year
Loss Allowance
Translation adjustment
At 31 December 2020 (Note 18)
At 31 December 2019 (Note 18)
Granite
Construction
US$
156,866
-
-
-
65,738
222,604
-
(79,993)
-
(88,237)
54,374
222,604
[86]
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2020
26. Related party disclosures (continued)
PetroNeft Resources had the following transactions with its Joint Venture Partners in 2020 and 2019.
Related parties - PTR Group with JVs
Group
Receivable by PetroNeft Group at 1 January 2019
Advanced during the year
Transactions during the year
Interest accrued in the year
Payments for services made during the year
Share of joint venture's translation adjustment
Impairment Provision
Translation adjustment
At 1 January 2020
Advanced during the year
Transactions during the year
Interest accrued in the year
Payments for services made during the year
Share of joint venture's translation adjustment
Translation adjustment
Russian BD
Holdings BV
Group
US$
3,818,994
980,500
154,521
469,974
29,564
(181,558)
-
(44,753)
5,227,243
124,195
209,092
440,822
65,630
(1,548,866)
50,884
WorldAce
Investments
Limited Group
US$
31,773,261
-
1,642,624
3,802,594
(947,209)
(2,997,106)
-
(17,293)
33,256,871
152,900
1,524,310
3,142,150
(604,237)
(12,472,780)
44,322
At 31 December 2020
4,569,000
25,043,536
Balance at 31 December 2019 comprised of:
Loans receivable (Note 16)
Trade and other receivables (Note 18)
Trade Payables (Note 22)
Balance at 31 December 2020 comprised of:
Loans receivable (Note 16)
Trade and other receivables (Note 18)
Trade and other payables (Note 22)
5,039,262
187,981
-
5,227,243
4,118,946
450,054
-
4,569,000
32,552,394
818,010
(113,532)
33,256,871
23,221,764
1,879,475
(57,703)
25,043,536
[87]
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2020
26.
Related party disclosures (continued)
Company
At 1 January 2019
Advanced during the year
Transactions during the year
Interest accrued in the year
Payments for services made during the year
Translation adjustment
At 1 January 2020
Advanced during the year
Transactions during the year
Interest accrued in the year
Payments for services made during the year
Translation adjustment
Russian BD
Holdings BV Group
WorldAce
Investments
Limited Group
US$
US$
5,715,176
980,500
130,544
469,974
29,564
(48,208)
7,277,550
124,195
209,092
440,822
65,630
78,694
56,134,643
-
547,617
3,802,594
142,618
-
60,627,473
152,900
686,498
3,142,150
224,956
(3,936)
At 31 December 2020
8,195,983
64,830,041
Balance at 31 December 2019 comprised of:
Loans receivable (Note 16)
Trade and other receivables (Note 18)
Loss Allowance (Note 16)
Balance at 31 December 2020 comprised of:
Loans receivable (Note 16)
Trade and other receivables (Note 18)
Loss Allowance (Note 16)
7,157,158
120,392
-
7,277,550
7,800,869
395,114
-
8,195,983
62,963,635
773,339
(3,109,501)
60,627,473
66,105,781
1,833,761
(3,109,501)
64,830,041
Remuneration of key management
Key management comprise the Directors, the Vice Presidents of Business Development and Operations of the Company and
the consulting fees paid to Michael Power FCA for Finance and Company Secretarial support.
Remuneration of key management
Compensation of key management
Contributions to defined contribution pension plan
Consulting fees Michael Power
2020
US$
1,154,882
79,161
121,884
1,355,927
2019
US$
898,501
45,564
-
944,065
[88]
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2020
26.
Related party disclosures (continued)
The following amounts were owed to existing key management, former management as at 31st December 2020 and 2019
Remuneration, fees, and expenses due to Directors who were
in office during the year
Remuneration due to other key management
Consulting fees Michael Power (Tsarina Developments
Limited)
Consulting fees (HGR Consulting – former CFO Paul Dowling)
2020 2019
US$ US$
470,023
558,509
11,314
9,246
1,049,092
932,344
233,108
-
112,616
1,278,068
During 2020, 37,456,431 shares were issued in satisfaction of USS0.73 million in fees owing to Directors and Senior
Management. In accordance with IFRS 2 Share based payments, where the agreed exercise price of the shares transferred
was higher than the market price at time of exercise an implied profit of US$0.206 million was reported in the Income
Statement.
Details of transactions between the Group and other related parties are disclosed below.
Transactions with Petrogrand AB
Petrogrand AB is a related party by virtue of Maxim Korobov, a director of PetroNeft who resigned as PetroNeft’s Company
Director on 17th January 2020. In 2018 the Company agreed a loan facility for up to US$2m with Petrogrand AB. The loan
facility is secured by way of a floating charge on the assets of the Company, carries an interest of US$ LIBOR plus 9% and
had an original maturity date of 31 December 2018. This loan facility was fully drawn down in 2018. In March 2019, the
parties had agreed an increase in the facility by US$500,000 and a revised maturity date of 15 December 2020. It was further
agreed the revised maturity date could be extended for one year until 15th December 2021 and a further year if certain
milestones are reached.
The following is the history of this transaction in:
2018- Loan facility amount
2019- Loan drawdowns during the year
Interest accrued but not yet paid
Profit on modification of financial liabilities
Amount due to Petrogrand AB at 31 December 2020
Petrogrand AB
2020
US$
2,000,000
500,000
394,672
(218,898)
2,675,774
[89]
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2020
26.
Related party disclosures (continued)
New Loan agreed in June 2019
As detailed in Note 21 above PetroNeft entered a convertible loan facility of US$1.3 million with a group of five investors in
June 2019. All lenders listed below elected in April 2021 to exercise their conversion rights. As of 31 December 2020, the
balance owing to the related parties on the June 2019 funding was as follows:
Lender
Natlata Partners
LLP.
Amount
provided
(US$)
accrued
Interest
and not yet paid
(US$)
Amount due 31
December 2020
(US$)
560,000
72,417
632,417
i
f
i
Relationship at time of
transaction
Ultimate Beneficial owner is
former
Maxim Korobov,
PetroNeft director
Daria Shaftelskaya
240,000
29,259
269,259 Substantial shareholder of
PetroNeft and director from
17th January 2020.
David Sturt
50,000
7,322
57,322 PetroNeft director
and
shareholder
27. Share-based payment
Share options
The expense recognised for employee services during the year is US$NIL (2019: US$NIL). The Group share-based payment
plan is described below. The plan expired during 2019.
Under the Group share option plan, employees of the Group could receive conditional awards of share options depending
on their performance, seniority, and length of service. The options typically vested in tranches and were subject to the
achievement of vesting conditions related to drilling, production, and shareholder return. The maximum term for options
was seven years. There are no cash settlement alternatives.
Movement in the year
The fair value of the options is estimated at the grant date using an option pricing model considering the terms and conditions
upon which the instruments were granted. The following table illustrates the number and weighted average exercise prices
(“WAEP”) of, and movements in, share options during the year.
Outstanding as at 1 January
Granted during the year
Forfeited during the year
Expired during the year
Outstanding at 31 December
Exercisable at 31 December
2020
Number
-
-
-
-
-
-
2020
WAEP
-
-
-
-
-
-
2019
Number
4,270,000
-
-
(4,270,000)
-
-
2019
WAEP
£0.065
-
-
£0.065
-
-
The weighted average share price of forfeited options in 2020 was Nil (2019: £0. Nil).
The Company has no employee share option plan and accordingly had no share options in issue during 2020. Therefore,
the options expiring was Nil (2019: 4,270,00). The weighted average share price of expired options in 2020 was Nil. (2019:
£0.65)
As no options were issued in 2020 or 2019, no valuation was carried out in 2020 or 2019.
[90]
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2020
27. Share-based payment (continued)
Warrants
In Issue.
2020
US$
54,621,849
54,621,849
2019
US$
54,621,849
54,621,849
During 2019 the Company secured debt financing in the sum of US$1.3 million from a group of 5 lenders, 3 of which are
related parties as described in Note 26. The loan interest is LIBOR plus 8%. In addition, the Lenders may at their election
convert up to 65% of their loan amount into Ordinary Shares at any time up to the Final Maturity date, which is 31st December
2021. The conversion price is US$0.01547 per Ordinary Share and the Conversion date occurs within a period of 5 business
days of service of the Conversion Notice. If the loan is not repaid by the Final Maturity date, the loan interest increases to
LIBOR plus 11%. In April 2021 four of the five lenders elected to exercise their conversion rights. Accordingly, the principal
amount of the Convertible loan was reduced by US$812,500 through the issuance of 52,521,008 Ordinary Shares. At the end
of April 2021, total warrants outstanding was 2,100,841
28.
Accounting policies up to 31 December 2019
There was no change in accounting policies applicable to the comparative period ended 31 December 2019, as the Company
and Group adheres to the latest accounting pronouncements and adhere to IFRS standards.
29.
Important Events after the Balance Sheet Date
In February 2021, the Company entered a convertible loan facility of US$2.9 million with a group of thirteen lenders that
matures in March 2023. The loan facility will be used for general corporate and ongoing operational purposes and carries
an interest rate of 8% above the base rate of the Bank of England. Lenders can elect at any time to convert up to 75% of the
outstanding loan to shares at a conversion price of stg£0.02 in year 1 and stg£0.025 in year 2.
In March 2021, the Company completed the migration of the Company’s corporate securities from CREST to Euroclear Bank
(“Migration”) under the Migration of Participating Securities Act 2019.
In March 2021 PetroNeft’s interest in Licence 67 has increased from 50% to 90%, following a partial disposal by Sarum Energy
Ltd of its equity holding. The Consideration for the acquisition was US$2.9 million which has been satisfied through the
issuance of 80,000,000 PetroNeft ordinary shares (“New Ordinary Shares”) to Belgrave Naftogas for a value of US$1.2 million
and cash consideration of US$1.7 million, which was financed through a 3 year loan from Belgrave Naftogas to PetroNeft.
In April 2021, some lenders under the various Convertible Loan Agreements, elected to exercise their options to convert
part of their Loan Facilities into Ordinary Shares of the Company. In total 125,878,647 Ordinary Shares were issued to various
lenders and $2.9 million of Convertible Debt was redeemed.
The Covid pandemic is a global crisis, and the Company was not immune from its economic impact. These Annual Accounts
and Financial Statements report how all the Company’s stakeholders supported the operations during these very difficult
economic times.
[91]
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2020
30
Contingent Liability
2020
US$
5,000,000
5,000,000
2019
US$
5,000,000
5,000,000
In consideration for the loan advances and extending out the repayment period, Petrogrand AB is entitled to receive
additional fees in the sum of US$2,500,000 per licence if the sale of either or both occurs before the 31 December 2023.
The obligation and liability shall survive the repayment or mandatory repayment of the Petrogrand AB loan and shall
continue to be secured by the floating charge.
31.
Approval of financial statements
The financial statements were approved, and authorised for issue, by the Board of Directors on 21 June 2021.
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PetroNeft Resources plc
Section 172(1) Statement
The revised UK Corporate Governance Code (‘2018 Code’) was published in July 2018 and applies to
accounting periods beginning on or after January 1, 2019. The Companies (Miscellaneous Reporting)
Regulations 2018 (‘2018 MRR’) require Directors to explain how they considered the interests of key
stakeholders and the broader matters set out in section 172(1) (A) to (F) of the Companies Act 2006
(‘S172’) when performing their duty to promote the success of the Company under S172. This includes
considering the interest of other stakeholders which will have an impact on the long-term success of
the Company. The Board welcomes the direction of the UK Financial Reporting Council (the ‘FRC’). This
S172 statement, which is reported for the first time, explains how PetroNeft Resource PLC Directors:
•
•
have engaged with its key stakeholders; and
have had regard to employee interests, the need to foster the Company’s business
relationships with suppliers, customers and other, and the effect of that regards, including on
the principal decisions taken by the Company during the financial year.
The S172 statement focuses on matters of strategic importance to PetroNeft Resources PLC, and the
level of information disclosed is believed to be consistent with the size and the complexity of the
business.
General confirmation of Directors’ duties
PetroNeft Resources PLC’s Board has a clear framework for determining the matters within its remit
and has approved Terms of Reference for the matters delegated to its Committees. Certain financial
and strategic thresholds have been determined to identify matters requiring Board consideration and
approval. More information on PetroNeft Resources PLC’s Controls and Procedures can be found by
clicking on the following link. http://PetroNeft.com/investor-relations/rule26/
When making decisions, each Director ensures that he/she acts in the way he/she considers, in good
faith, would most likely promote the Company’s success for the benefit of its stakeholders as a whole,
and in doing so have regard (among other matters) to:
S172(1) (A) “The likely consequences of any decision in the long term”
The Directors understand the business and the evolving environment in which the Company operates,
including the challenges of navigating through the energy sector. Based on PetroNeft Resources PLC’s
purpose to economically develop its hydrocarbon resources, the strategy set by the Board is intended
to optimise the development of its resource basewhile keeping safety and social responsibility
fundamental in our business approach. The board reviews the forward plans to achieve its stratgeic
aims and continues to re evaluate on the operational plans , while ensuring the health and wellbeing of
its employees and shareholders, suppliers and offtakers during the height of the Covid pandemic.
In this context as part of the PetroNeft Resources PLC Story, the rising standard of living of a growing
global population is likely to continue to drive demand for energy, including oil and gas, for years to
come. At the same time, technological changes and the need to tackle climate change mean there is a
sector under way to a lower-carbon, multi-source energy system with increasing customer choice.
These three strategic ambitions: thrive in the energy sector, world-class investment case and strong
licence to operate have been set in that context with the objective to increase long-term value for
shareholders recognising that the long-term success of our business is dependent on our stakeholders
and the external impact of our business activities on society.
The Directors recognise how our operations are viewed by different parts of society and that some
decisions they take today may not align with all stakeholder groups. Given the complexity of the energy
sector, the Directors have taken the decisions they believe best support PetroNeft Resources PLC’s
strategic plan.
[103]
PetroNeft Resources plc
S172(1) (B) “The interests of the Company’s employees”
The Directors recognise that PetroNeft Resources PLC employees are fundamental and core to our
business and delivery of our strategic plan. The success of our business depends on attracting, retaining
and motivating employees. From ensuring that we remain a responsible employer, from pay and
benefits to our health, safety and workplace environment, the Directors factor the implications of
decisions on employees and the wider workforce, where relevant and feasible. The Directors recognise
that our pensioners, though no longer employees, also remain important stakeholders.
S172(1) (C) “The need to foster the Company’s business relationships with suppliers, customers and
others”
Delivering our strategy requires strong mutually beneficial relationships with suppliers, customers,
governments, national oil companies and joint-venture partners. PetroNeft Resources PLC seeks the
promotion and application of certain general principles in such relationships. The ability to promote
these principles effectively is an important factor in the decision to enter into or remain in such
relationships.. The businesses continuously assess the priorities related to customers and those with
whom we do business, and the Board engages with the businesses on these topics, for example, within
the context of business strategy updates and investment proposals.
Moreover, the Directors receive information updates on a variety of topics that indicate and inform
how these stakeholders have been engaged. These range from information provided from our
management and and joint-venture partners, related to items such as project updates and supplier
contract management topics to information provided by the business units (on customers and joint-
venture partners related to, for example, business strategies, projects and investment or divestment
proposals).
S172(1) (D) “The impact of the Company’s operations on the community and the environment”
This aspect is inherent in our strategic ambitions, most notably on our ambitions to thrive through the
energy sector and to sustain a strong societal licence to operate. As such, the Board receives
information on these topics to both provide relevant information for specific Board decisions (e.g. those
related to specific strategic initiatives such as the investment or divestment proposals, business
strategy reviews and country wide considerations) and to provide ongoing overviews at the PetroNeft
Resources PLC group level (e.g., regular Safety & Environment Performance Up, reports from the Audit
Committee).
S172(1) (E) “The desirability of the Company maintaining a reputation for high standards of business
conduct”
The Board periodically reviews and approves clear frameworks, to ensure that its high standards are
maintained both within PetroNeft Resources PLC businesses and the business relationships we
maintain. This, complemented by the ways the Board is informed and monitors compliance with
relevant governance standards help assure its decisions are taken and that PetroNeft Resources PLC act
in ways that promote high standards of business conduct.
S172(1) (F) “The need to act fairly as between members of the Company”
After weighing up all relevant factors, the Directors consider which course of action best enables
delivery of our strategy through taking into consideration the impact on various stakeholder groups. In
doing so, our Directors believe they act fairly as between the Company’s members but are not required
to balance the Company’s interest with those of other stakeholders as this can sometimes mean that
certain stakeholder interests may not be fully aligned.
Stakeholder Engagement.
The following are considered by the Directors to be the key stakeholders who are important to our
success, the table also lists the methods of engagemt and key issues considered.
[104]
PetroNeft Resources plc
Key Stakeholders
Shareholders
Employees and Consultants
Local Communites
Engagement Platform
RNS Annoucements
Website
Third Party Advisors
AGM/EGM meetings
Face to Face Meetings (except
during CoVid)
Emails & Telephone calls
Face to Face meetings
Video conferencing
Emails
Direct link to board for issues
of concern
Face to Face Meetings
Email
Telephone
Government and Regulatory
Agencies
Face to Face meetings
Written Communications
Telephone and email
Joint Venture Partners
Face to Face Meetings
Email/Telephone/Written
Communications
Financing Partners
Contractors and Suppliers
Face to Face meetings
Telephone calls, emails, video
conferencing
Fce to Face meetings
Emails/Telephone/Written
Communications
Issues Considered
Strategy
Operational and Financial
performance
Risk Management
Strategy
HR policies
HSE policies and performance
Company News
Anti-Bribery and Corruption
Environmental Management
Operational plans where
required
Corporate Social Responsibility
aims and objectives
Operational plans
Environmental management
Legal/Regulatory Matters
Taxes/Revenue collection
Social Iniatives
Operational plans
Strategy
Budgets
Joint Venture stakeholder
engagements
Fianncial updates including cash
call status
Funding
Operational plans/requirements
Technical, Regulatory, Fianncial
and Legal Support
[105]
PetroNeft Resources plc
Glossary
1P
2P
3P
C1
C2
C1+C2
AGM
AIM
Arawak
bbl.
Belgrave Naftogas
bopd
boe
bopd
Company
CPF
CSR
Custody Transfer Point
Dolomite
DST
ESM
ESP
Exploration resources
Granite Construction
Group
HSE
IAS
IFRIC
IFRS
km
km2/ sq. km
Licence 61
Licence 61 Farmout
Proved reserves according to SPE standards.
Proved and probable reserves according to SPE standards.
Proved, probable and possible reserves according to SPE standards.
Russian reserves approximately equivalent to SPE standard 1P reserves.
Russian reserves approximately equivalent to SPE probable reserves.
Russian reserves approximately equivalent to SPE standard 2P reserves.
Annual General Meeting.
Alternative Investment Market of the London Stock Exchange.
Arawak Energy Russia B.V.
Barrel.
Belgrave Naftogas B.V., formerly called Arawak
Barrels of fluid per day.
Barrel of oil equivalent.
Barrels of oil per day.
PetroNeft Resources plc.
Central Processing Facility.
Corporate and Social Responsibility.
Facility/location at which custody of oil transfers to another operator.
LLC Dolomite, a 100% subsidiary of PetroNeft registered in the Russian
Federation
Drill stem test.
Enterprise Securities Market of the Irish Stock Exchange.
Electric Submersible Pump
An undrilled prospect in an area of known hydrocarbons with unequivocal
four-way dip closure at the reservoir horizon.
LLC Granite Construction, a 100% subsidiary of PetroNeft registered in the
Russian Federation
The Company and its joint ventures and subsidiary undertakings.
Health, Safety and Environment.
International Accounting Standard.
IFRS Interpretations Committee.
International Financial Reporting Standard.
Kilometres.
Square kilometres.
The Exploration and Production Licence in the Tomsk Oblast, Russia
owned by the joint venture Company WorldAce Investments Limited. It
contains seven known oil fields, Lineynoye, Tungolskoye, West
Lineynoye, Arbuzovskoye, Kondrashevskoye, Sibkrayevskoye and North
Varyakhskoye and 27 Prospects and Leads that are currently being
explored.
An agreement whereby Oil India Limited subscribed for shares in
WorldAce, the holding Company for Stimul-T, the entity which holds
Licence 61 and all related assets and liabilities, and following, PetroNeft
and Oil India Limited both hold 50% of the voting shares, and through the
shareholders agreement, both parties have joint control of WorldAce
with PetroNeft as operator
[106]
PetroNeft Resources plc
GLOSSARY (continued)
Licence 67
Lineynoye
m
mmbbls
mmbo
Natlata
Oil pay
P1
P2
P3
PetroNeft
POD
Russian BD Holdings B.V.
SPE
Spud
Stimul-T
TSR
VAT
WAEP
WorldAce
WorldAce Group
The Exploration and Production Licence in the Tomsk Oblast, Russia
owned by the joint venture Company Russian BD Holdings B.V. It contains
two oil fields, Ledovoye and Cheremshanskoye and several potential
prospects.
Limited Liability Company Lineynoye, a wholly owned subsidiary of
Russian BD Holdings B.V., registered in the Russian Federation.
Metres.
Million barrels.
Million barrels of oil.
Natlata Partners Limited, a significant shareholder of PetroNeft.
A formation containing producible hydrocarbons.
Proved reserves according to SPE standards.
Probable reserves according to SPE standards.
Possible reserves according to SPE standards.
PetroNeft Resources plc.
Plan of Development
Russian BD Holdings B.V., a Company owned 50% by PetroNeft and
registered in the Netherlands.
Society of Petroleum Engineers.
To commence drilling a well.
Limited Liability Company Stimul-T, a wholly owned subsidiary of
WorldAce, based in the Russian Federation.
Total Shareholder Return.
Value Added Tax.
Weighted Average Exercise Price.
WorldAce Investments Limited, a Company owned 50% by PetroNeft,
registered in Cyprus.
WorldAce Investments Limited and its 100% subsidiary LLC Stimul-T
[107]
Producing oil from
a solid asset base
Our Assets
The main assets of the Company are a
50% operating interest in a 4,991 km² oil
and gas licence (Licence 61) in the Tomsk
Oblast in Russia and a 90% operating
interest in a 2,447 km² oil and gas licence
(Licence 67) also located in the Tomsk
Oblast. Both licences are located in the
prolifi c Western Siberian Oil and Gas Basin.
RUSSIATomsk OblastMoscow01,000 KM0100 KMKEY:PetroNeft LicencesOther Held LicencesOil FieldOil and Gas FieldGas Condensate FieldOil PipelineGas Pipeline P
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R
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PetroNeft Resources plc
Dublin Offi ce
20 Holles Street
Dublin 2
Ireland
PetroNeft
Resources plc
Annual Report
Годовой Отчет
2020