PetroNeft Resources plc
Annual Report and
Financial Statements
for the year ended 31 December 2021
PetroNeft Resources plc
Table of Contents
Group Information .................................................................................................................................. 2
Board of Directors ................................................................................................................................... 4
Highlights ................................................................................................................................................ 6
Chairman’s Statement ............................................................................................................................ 7
Chief Executive Officer’s Report ............................................................................................................. 9
Financial Review .................................................................................................................................... 18
Directors’ Report ................................................................................................................................... 27
Independent Auditor’s Report to the Members of PetroNeft Resources plc ...................................... 34
Consolidated Income Statement .......................................................................................................... 41
Consolidated Statement of Comprehensive Income ............................................................................ 42
Consolidated Statement of Financial Position. ..................................................................................... 43
Consolidated Statement of Changes in Equity ..................................................................................... 44
Consolidated Cash Flow Statement ...................................................................................................... 45
Company Statement of Financial Position ............................................................................................ 46
Company Statement of Changes in Equity ........................................................................................... 47
Company Cash Flow Statement ............................................................................................................ 48
Notes to the Financial Statements........................................................................................................ 49
Corporate Governance Code .............................................................................................................. 110
Section 172(1) Statement ................................................................................................................... 120
Glossary ............................................................................................................................................... 123
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
[2]
Group Information
Directors
Alastair McBain (British citizen- appointed 29 January 2021)
(Non- Executive Chairman)
David Sturt (British citizen) (Chief Executive Officer)
Pavel Tetyakov (Russian citizen) (Vice President Business
Development)
Anthony Sacca (Australian citizen) (Independent Non-
Executive Director)
Daria Shaftelskaya (Non-Executive Director)
Eskil Jersing (British citizen - appointed 1 November 2021),
(Independent Non - Executive Director)
Registered Office and Business Address
20 Holles Street
Dublin 2
Ireland
Secretary
Michael Power FCA
Auditor
BDO
Beaux Lane House
Mercer Street Lower
Dublin 2
Ireland
Nominated Adviser and
Davy
Euronext Growth Market Adviser
49 Dawson Street
Dublin 2
Ireland
PetroNeft Resources plc
Group Information (continued)
[3]
Broker
Davy
49 Dawson Street
Dublin 2
Ireland
Principal Bankers
KBC Bank Ireland
AIB Bank
Sandwith Street
1 Lower Baggot Street
Dublin 2
Dublin 2
Ireland
Ireland
Raiffeisen Bank
Novosibirsk branch
Tomsk
Russia
Solicitors
Byrne Wallace
88 Harcourt Street
Dublin 2
Ireland
Registered Number
408101
Registrar
Computershare
3100 Lake Drive,
Citywest Business Campus,
Dublin 24, D24 AK82,
Ireland
PetroNeft Resources plc
[4]
Board of Directors
Alastair McBain – (Non-Executive Chairman) (Age 66)
Alastair 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 US$20M valuation with zero production to a US$0.5Bn company producing 12,000 boepd from assets in Kazakhstan,
Russia, and Azerbaijan. He also oversaw the migration of Arawak Energy 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 acquired a 50% interest in Licence 67. Sarum Energy still retains a
10% interest in Licence 67, having sold the remaining 40% 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 60)
David 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. In June 2022 he resigned his position as a 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 42)
Pavel was appointed to the Board as an Executive Director in January 2020. He 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. 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 50)
Anthony 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 43)
Daria was appointed a Non-Executive Director in January 2020. She has 20 years of experience in the oil & gas exploration and
production business within the West-Siberian basin (Tomsk region). 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).
PetroNeft Resources plc
Board of Directors (continued)
[5]
Eskil Jersing – (Independent Non- Executive Director) (Age 58)
Eskil was appointed an Independent Non-Executive Director on 1 November 2021. He is an Oil Industry Senior Executive with 35
years of International E&P experience in most of the world’s key Petroleum basins, including the North Sea, DW Gulf of Mexico,
Brazil, Africa, and SE Asia. He has had various Upstream Exploration and New Business focused roles with Enterprise Oil, Shell,
Marathon Oil, Apache corporation and Petrobras oil and Gas BV. He was most recently CEO of Wentworth Resources plc, and
CEO of Sterling Energy plc, both AIM listed Africa focused E&P Companies. In addition to his role at PetroNeft Resources plc, he
is a New Business Advisor to Eburon Resources LLC, a privately backed Exploration startup, on the Advisory panel of Energilink ltd
and a Director of Eskoil Ltd. Mr. Jersing graduated with a BSc. in Geophysics from Cardiff University, and an MSc. in Petroleum
Geology from Imperial College London.
PetroNeft Resources
[6]
Highlights
Financial
•
Convertible debt redeemed through share issuance US$3.55M (2020:US$Nil)
•
Raised US$2.93M through group of existing Shareholders, Directors, and Management.
•
Gross profit improved to US$1.4M (US$0.24M 2020).
Operational
•
Production increased by 21.17% with increase at both Licence 61 and 67.
•
Licence 67 brought into year-round production from C-4 well at Cheremshanskoye field.
•
Two well stimulation program (Sibkrayevskoye and Lineynoye fields) with investment being paid out by year end.
•
First sales achieved from mini oil processing unit located at Licence 61, generating third party revenue of US$0.19M.
ESG
•
Company Maintained its safety record with zero lost time incidents in 2021 (2020: zero)
•
Created ESG Committee reporting directly to the Board and supported by new sustainability Manager in Tomsk.
•
Refreshed and strengthened the Board with Alastair McBain taking over as Non- Executive Chairman of the Board and
Eskil Jersing joining the Board as Independent Non-Executive Director.
Outlook
•
Independent reserves report NPV10 valuation - US$522.21M (2021) – net attributable to PetroNeft based on the net
2P (Proved and Probable) for both Licenses 61 and 67.
•
Development drilling on Cheremshanskoye (Licence 67) soon to commence with initial five well program.
•
Scale of Emtorskaya prospect recognized by Miller and Lents, Pmean de-risked resource potential 96 mmbbls (gross)
with estimated geological chance of success 49.76% and P10 potential de-risked resource of 235.3 mmbbls (gross).
•
As reported by the Company on 29th August, the suspension of acceptance of our oil by Nord Imperial LLC from Licence
61 remains an uncertainty, the Company will focus attention on working to find a commercially viable solution.
[7]
Chairman’s Statement
Dear Shareholders,
World energy demand continued to rebound through 2021 leading to improved pricing as the effects of the COVID pandemic
waned. As we exited 2021, we were looking forward to 2022 with a great degree of optimism as the Company continued to
perform well across its asset portfolio on the back of the improving macro environment. Since the start of 2022 we have however
been watching the tragic events unfolding in Ukraine and the consequent geopolitical turmoil. While we face certain disruptions,
which now include the Nord Imperial LLC pipeline situation, Licence 61 operational performance, was in line with Company’s
expectations (pre shutdown), and Licence 67 continues to exceed Company’s expectations. We owe a duty to our shareholders
and all our stakeholders to continue to operate as best we can. As current constraints to date have mainly related to new
restrictions on fund transfers, the pipeline shutdown on Licence 61, we have thus far been successful in minimising the impact of
disruptions.
Our primary focus is on the effective and responsible development of our assets to increase production, revenue, and cash flow
to deliver growth in shareholder value.
We are doing all that 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 almost completely used for on-site electricity
generation and heating, dramatically reducing emissions by eliminating the need for diesel fuel and its transportation by truck.
In the Tomsk region we play our part in the local community, supporting local schools and re-foresting areas no longer required
for operations. We are proud once again to have passed 2021 with zero lost time incidents.
Your board is acutely aware of its responsibilities in respect of minimising the ecological impact of its operations, and continually
upgrading environmental and safety performance while cultivating a meritocratic, open, empowered, and fair management
culture. To that end, I am pleased to announce that in January 2022, the board unanimously approved the creation of an
Environmental Social and Governance (ESG) committee and the adoption of its constitution and terms of reference. We have also
created a new position of Sustainability Manager based in Tomsk. This new role will improve the board’s transparency of ESG
issues as the new appointee reports directly to Pavel Tetyakov, Senior Vice President, and Executive Director of PetroNeft.
As a company we remain focused on strong operational performance, combined with technical excellence, aimed at efficiently
lifting production, increasing revenue, and adding to reserves. Real benefits are beginning to emerge for all the Company’s
stakeholders. The successful acquisition of an additional 40% (Economic Interest) of Licence 67 which closed in Q1 2021, has seen
an incremental production uplift and a key addition to the Company’s cash flow on a 90% basis; a good example of this trend.
Corporate Development
2021 saw Board changes for the company. I was very pleased to have been elected to the Board on the 29th of January as a Non-
Executive Director and then, on David Golder’s retirement, was elected to the position of Non-Executive Chairman. As a new
Director of the Company, I look forward to working with the Board and management in what I believe is an exciting opportunity.
Later in November 2021 the company welcomed Eskil Jersing to the Board as Non-Executive Director. Eskil brings considerable
depth and breadth of experience within the international oil and gas industry and of leading listed E&P companies. I believe that
he will make a major contribution to the next chapter of our growth, and I look forward to working with him.
Strategy
As reported previously, we have a considerable stable of valuable organic growth opportunities and are primarily focused on
delivering value through development and production of this portfolio. This includes the northern hub in Licence 61 and the
Cheremshanskoye and Ledovoye fields in Licence 67.
[9]
Chief Executive Officer’s Report
Dear fellow shareholders, on the back of the improving energy markets, we achieved some notable successes in
2021 which are covered in the Highlights section at the front of this report.
Operational Performance
Gross Overall Production (Licence 67 and Licence
61)
2021
2020
Total Production bbls
692,669
571,710
Net to PetroNeft Resources plc
381,575
285,855
Licence 67
2021
2020
Total Gross Production
89,014
1,200
Gross bopd
243
3
Net to PetroNeft Resources plc -90% share
79,748
600
Licence 61
2021
2020
Total Gross Production
603,655
570,510
Gross bopd
1,653
1,563
Net to PetroNeft Resources plc -50% share
301,827
285,255
Financial Performance of the Licences (100% basis):
Licence 67
Units
2021
2020
Revenue
USD ’000
4,640
37
Cost of Sales
USD ’000
(3,482)
(158)
Gross Profit /(Loss)
USD ’000
1,158
(120)
Administrative Expenses
USD ’000
(513)
(394)
Operating Profit/(Loss)
USD ’000
645
(514)
Average realised price
$/bbl
52.14
31.17
Cash operating Costs*
$/bbl
9.76
274.9
Licence 61
Units
2021
2020
Revenue
USD ’000
29,912
16,720
Cost of Sales
USD ’000
(28,650)
(17,466)
Gross Profit /(Loss)
USD ’000
1,263
(746)
Administrative Expenses
USD ’000
(4,144)
(2,516)
Operating Profit/(Loss)
USD ’000
(2,882)
(3,262)
Average realised price
$/bbl
50.98
28.15
Cash operating Costs
$/bbl
16.2
14.3
* Cash operating costs, a non IFRS measure representing operating costs of each operating asset on a standalone
basis, excluding corporate overhead, mineral extraction tax, depreciation and amortisation and other non-
EBITDA items.
PetroNeft Resources plc
Chief Executive Officer’s Report (continued)
[10]
2021 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 and continue to show
improvement, even after the first-time consolidation of Russian BD Holding B.V. administration overhead. This
was primarily achieved by closing and downsizing offices, reducing, and optimising personnel, and working
closely with contractors and suppliers to improve contractual arrangements.
Gross production in 2021 was 692,669 barrels of oil or an average of 1,897 bopd. No new production wells were
drilled during the year, this represents an increase of 21.16% from 2020 production of 571,710 barrels (1,562
bopd average). The boost in production during 2021 was primarily driven by the re-entry of the C-4 well on the
Cheremshanskoye field in Licence 67. The well has been flowing naturally with production building as the choke
size was gradually increased from 2 mm to 8 mm. The current stabilised flow rate is 270 bopd.
In 2021, we continued to benefit from the ongoing reorganisation of the Company with the integration of the
additional 40% equity interest in Licence 67. The newly consolidated asset base, together with the recently
published Miller and Lents report has provided valuable fresh insights and impetus to further review and
optimise our operational activities and arrest the natural decline in some of our core fields.
Gross production 2021 by fields
Licence
Field
2021 Gross
production
2020 Gross
production
% Change
67
Cheremshanskoye
89,014
1,200
7317.8%
Sub Total =
89,014
1,200
7317.8%
61
Lineynoye
232,732
202,239
15.1%
West Lineynoye
59,071
64,424
-8.3%
Arbuzovskoye
204,263
222,203
-8.1%
Sibkrayevskoye†
107,589
78,231
37.5%
Tungolskoye
0
2,905
-100.0%
Kondrashevskoye
0
508
-100.0%
Sub Total =
603,655
570,510
5.8%
Total =
692,669
571,710
21.2%
†Note: Sibkrayevskoye only started producing year-round in from January 2020.
Licence 67
The Company holds a 90% operational interest in this licence with our partner Belgrave NaftoGaz B.V. (formerly
Arawak Energy) holding the remaining 10%. The ownership of Belgrave NaftoGaz B.V. 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). Following this buyout PTR acquired an additional interest in Licence 67
from Belgrave NaftoGaz B.V which increased our interest to 90%, this acquisition closed in the first quarter of
2021.
The licence is surrounded by producing fields and all-weather roads which run through the licence and past both
the Cheremshanskoye and Ledovoye fields. The proximity of roads to both fields provides an easy transportation
route which reduces CAPEX and OPEX costs on any forward development as well as providing multiple export
PetroNeft Resources plc
Chief Executive Officer’s Report (continued)
[11]
routes. Both these fields are covered by modern 3D seismic data which continues to be utilised to update the
geological models for the fields.
2021 was a very important year for this licence, as the asset moved from an exploration and evaluation asset to
a fully commercial producing asset with 89,014 bbls of oil being produced. The oil is of good quality, enabling it
to be sold at competitive market rates. In addition to the substantial incremental revenue achieved in 2021, the
field continues to provide valuable reservoir performance data.
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.
In 2021 a field reservoir simulation model was built and forward development well locations were identified.
The conclusions from this work were reviewed by Miller and Lents who calculated a gross 2P (Proven + Probable)
of 22.90 mmbbls and gross 3P (Proven + Probable + Possible) of 34.47 mmbbls for the main Upper Jurassic
reservoirs.
The C-3 well, located on the southern part of the Cheremshanskoye field was 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 to the shallower Upper Jurassic reservoirs due
to the economic crisis and the COVID-19 virus. Further work is ongoing to understand the implications of the
results for the potential of the Lower Jurassic J-14 reservoir. Miller and Lents assigned a gross 3P reserve of 17.59
mmbbls for this Lower Jurassic additional reservoir interval.
Following a technical review, combined with the economic advantages of developing short-cycle assets near
infrastructure, we see this licence as having the potential to add significant value for the Company through the
following strategy:
•
Full Field Development of the Upper Jurassic reservoir at Cheremshanskoye field where we see the
potential to drill up to 53 vertical and horizontal wells.
•
Evaluate the potential of the Lower-Middle Jurassic Tyumen formation which underlies the Upper
Jurassic productive zones at the Cheremshanskoye field.
•
Evaluate the Ledovoye field appraisal and development opportunities.
•
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. These wells were however drilled prior
to 3D seismic data which was acquired during 2014. Interpretation of this seismic data has since shown that
these wells were all located down dip on the flanks of the 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.
PetroNeft Resources plc
Chief Executive Officer’s Report (continued)
[12]
Following completion of the C-4 well, the Company, during the first quarter of 2019, had reserves of 2.5 mm
tons of C1 + C2 (19.26 mmbbls) approved by the Russian State Reserves Committee (approximately equivalent
to International 2P category). Crucially this reserves 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. A 15-20% reduction clearly
equates to considerable value potential over the life of the field.
The well was however not tested for a sufficient length of time, leaving 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 35-degree 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 and transportation costs.
The customer that purchased the test oil later agreed to provide a US$1 million 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 had produced by the end of 2021 a total of 89,014 barrels of oil without any appreciable water.
In 2021 a detailed reservoir simulation model was built for the field which provided an optimum full field
development plan which includes the drilling of 53 wells being a combination of vertical and horizontal wells.
The model excludes any potential Lower-Middle Jurassic Tyumen formation, which would require a separate
development plan.
The Cheremshanskoye field has reserves in both the J-1 and J-3/4 Upper Jurassic sands. Most of the reserves are
in the J-3/4 sands, but there is approximately 10-15% located in the upper J-1 sands. Therefore, planned
development will include a combination of vertical and horizontal wells to adequately drain both reservoir
sequences.
Immediately adjacent to this field along the Northeast margin lies the producing Lomovoye field operated by
Tomskneft (subsidiary of Rosneft) and reportedly already has over two hundred producing wells. We see the
geology and subsurface environment as being very similar and so a good analogue for Cheremshanskoye.
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 interval 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 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.
In May 2021 the L-2a well was successfully re-entered and a liner cemented in-place. The Upper Jurassic J1-1
and J1-2 reservoir intervals were perforated and tested. During several swabbing cycles the well started to flow
a mixture of oil and water. A total of approximately 132 bbls of oil was recovered with a gravity of 33 degrees
API. Inflow from the formation ranged from 100 to 300 bopd. The high water cut produced on test precludes oil
from being produced at this field as there are currently no separation facilities on site. A decision was therefore
made to suspend the well until separation facilities are in place. Further development of this field maybe
challenging due to the high water cut encountered in testing of the L-2a well.
PetroNeft Resources plc
Chief Executive Officer’s Report (continued)
[13]
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 four producing fields: Lineynoye, West Lineynoye, Arbuzovskoye and
Sibkrayevskoye (which historically produced only during the winter months but is now producing year-round).
A fifth field – Tungolskoye, was shut in during 2020 for economic reasons. In addition to these fields the licence
also contains several attractive low risk potentially material exploration prospects.
We are particularly excited about the development, appraisal, and exploration opportunities within the
‘Northern Hub’ area. This is an area close to the existing Central Processing Facilities and includes the
Sibkrayevskoye and West Lineynoye fields and the material Emtorskaya prospect. The Sibkrayevskoye and West
Lineynoye oil fields also contain significant development potential.
The Emtorskaya prospect up dip of the Lineynoye field is a low-risk aerially extensive infrastructure led prospect
which on success could be tied in quickly to the Central Processing Facilities Unit located 16 kilometres to the
south. The prospect was partly tested by two Soviet Era wells which have been re-interpreted as potential
missed oil zones.
The Sibkrayevskoye and West LIneynoye fields and Emtorskaya prospect all exhibit similar geology and
analogous reservoir characteristics to the successful Lineynoye field.
In addition to the Emtorskaya prospect, there are a further two high graded exploration prospects located in the
southern half of the licence, Traverskaya and Tuganskaya; both previously tested by Soviet Era wells. The well
data has been re-interpreted and indicates potential missed oil zones.
The strategy for value creation at Licence 61 is:
•
Resolve the long running tariff dispute with Nord Imperial to enable the Company to re-establish
production from Licence 61 at a commercially attractive rate to improve the attractiveness of future
investment.
•
Continue to optimise existing field production through; careful management and optimisation of water
flood programs, as well as the application of other low risk production enhancements such as fracking.
•
Develop low-risk development and appraisal opportunities in the Northern Hub, comprising the
Sibkrayevskoye and West Lineynoye fields. Additional production from further development can be
brought online quickly through existing infrastructure.
•
Prove up the Emtorskaya prospect which on success has the potential to significantly increase reserves,
production, and cash flow for PetroNeft.
•
Extract the value of additional exploration prospects in the southern half of the licence, particularly
Traverskaya and Tuganskaya.
Lineynoye field
During 2021, the wells at Lineynoye continued to perform consistently, with production increasing by 15.1%
from 533 bopd in 2020 to 638 bopd in 2021. The continued improvement in field performance is the result of
the work started in 2019 and continued through 2021. This included: improving the sweep efficiency of the
water flood; working efficiently to keep wells online and to intervene where necessary; implementing a very
successful well stimulation program on the L-115 well during Q1 2021. The results from this single well program
PetroNeft Resources plc
Chief Executive Officer’s Report (continued)
[14]
saw production increase from an average of 20 bopd to over 80 bopd post reservoir stimulation. Due to the
success of this program on a single well, a much expanded five well program was successfully carried out during
Q1 2022.
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 operational and production 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 field
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 2021 was 161 bopd (2020: 176 bopd), this represented an
8.3% decline. Most of this decline was due to pump failure in the L-7 well early in 2021. Due to the remote
location, the pump was not replaced until the winter roads were available in early 2022.
Based on the successful L-10 horizontal well (drilled 2015), which has had zero decline during the past six 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 longer 500m to 1,000m 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 which results in the economics of such a development being very
robust.
Sibkrayevskoye field
The field has performed very well since building the connection to the Central Processing Facility during Q1 2020
and carrying out a well stimulation program at the S-373 well during Q1 2021. The well stimulation program
initially resulted in production increasing from 250 bopd up to 520 bopd. However, the average gross daily
production rates for fiscal 2021 were affected by pipeline blockages after the reservoir stimulation program so
the average daily production for 2021 was 294 bopd (2020: 214 bopd), an increase of 37.8%.
We have continued to review the geology of this field and recognise that it is very similar to 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 channel 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.
Arbuzovskoye field
Production in 2021 continued to naturally decline with average gross daily production of 559 bopd (2020: 607
bopd). Much of this decline was from the A-214 well. The focus has therefore been to try to arrest the decline
due to the lack of pressure support at this southern part of the field.
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 rate at this 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.
PetroNeft Resources plc
Chief Executive Officer’s Report (continued)
[15]
Tungolskoye
As part of the ongoing 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 economic production. During 2021 there
was no production from the field. In 2020 the field produced 2,905 bbls prior to the field being shut in.
Whilst it is disappointing that we had to suspend production, especially after so much capital had been used to
develop the field, it is critical that we focus on economic viability to prioritise and guide capital allocation on our
fields. The geology of this field is particularly complex with the reservoir not being of the same quality as in our
adjacent producing fields. Currently we are reviewing all possible options to investigate if economic production
can be restored.
Exploration and Appraisal
The overwhelming exploration focus on the near term is the material Emtorskaya prospect (which lies within
the “Northern Hub”). Miller and Lents reviewed this prospect as part of the recent reserves audit and calculated
a Pmean un-risked resource of 96.2 mmbbls (gross) and estimated a geological chance of success of 50% with a
P10 potential un-risked resource of 235.3 mmbbls (gross).
The prospect is aerially extensive (up to 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 and results at the Lineynoye field has been a great success which
we believe could be replicated at Emtorskaya. Economically proving up this resource potential would add
material value due to its scale and proximity to existing production facilities where there is abundant spare
capacity. The primary reservoir target is analogous to that found in the S-373 well at the Sibkrayevskoye field.
The encouraging results at Sibkrayevskoye field where we have stable production has been further enhanced by
recent reservoir stimulation of the S-373 well providing further encouragement of the potential value of this
prospect.
In addition to Emtorskaya, there are an additional 25 prospects located in the southern half of the license,
estimated to potentially contain a combined gross 143.62 mmbbls (Ryder Scott 2016) of un-risked prospective
resource. Of particular interest are the Traverskaya and Tuganskaya prospects. Re-processing and re
interpretation of old well data has identified potential missed pay at various intervals in the Jurassic and
Cretaceous intervals.
Licence 61 and 67 Reserves and Resources report
Miller and Lents completed its assessment of the Company’s petroleum reserves and resources with an effective
date of 30 July 2021, in accordance with the standards of the Petroleum Resources Management System,
prepared by the Oil and Gas Reserves Committee of the Society of Petroleum Engineers (SPE-PRMS). This is the
first reserves and resource audit since Ryder Scott completed their assessment in 2016 for Licence 61 and since
2011 for Licence 67.
The following table show a comparison of the net attributable reserves due to the Company, between the legacy
audits carried out by Ryder Scott (adjusted for actual production) and the current Miller and Lents report. Such
a comparison is partly complicated by updates to the PRMS standards, which have impacted the categorisation
of the Emtorskaya prospect in Licence 61.
PetroNeft Resources plc
Chief Executive Officer’s Report (continued)
[16]
All metrics in mmbbls
Ryder Scott 2011/16
Miller & Lents 2021
Licence
Proved
Proved
&
Probable
Proved,
Probable &
Possible
Proved
Proved
&
Probable
Proved,
Probable &
Possible
67
1.5
14
17.4
4.3
24.5
71.7
61
14.2
49.4
86.8
12.2
24.2
35.5
Total(s)
100% basis net to PTR
15.7
63.4
104.2
16.5
48.6
107.2
The Miller and Lents report, also underlined the following key valuation metrics
The Proved and Probable (2P) NPV @10% has increased significantly from $255.7M in 2011/16 to $522.2M as
of 30 June 2021 (net to PetroNeft, Licence 61 and 67 combined). The increased valuation is mainly a reflection
of the materially improved long term oil pricing environment both internationally and domestically within Russia
since the last report. The total valuation uplift is further increased by the recent acquisition of an additional 40%
interest in Licence 67 in 2021.
NPV10 US$(M)
Gross
Net Attributable
Licence
Proved
Proved & Probable
Proved
Proved &
Probable
67
50.2
281.9
45.2
253.7
61
266.3
537.0
133.1
268.5
Total(s)
316.5
818.9
178.3
522.2
Significant low risk prospective resource estimate for Licence 61 - Emtorskaya prospect, Gross Pmean 96.19
Mmbbls with a geological Chance of Success of 49.7%, and Gross P10 upside of 253.35 Mmbbls
The Miller and Lents report underlines the importance and value of License 67 for the Company’s future, with
the 2P and 3P gross reserves largely driven by the newly producing Cheremshanskoye field and further upside
now recognised, supporting the Company’s strategy with dual focus on Licence 61 ad 67.
Miller and Lents have also estimated additional net Contingent resource (3C) of 23.74 Mmbbls (22.06 Mmbbls
in Licence 67 and 1.68 Mmbbls in Licence 61) and net Pmean prospective resources for the Emtorskaya prospect
of 48.09 Mmbbls (Gross 96.18 Mmbbls with a 49.7% geological chance of success).
All metrics in
Mmbbls
Gross
Net Attributable to PetroNeft
Licence
1C
2C
3C
1C
2C
3C
67
0.57
3.39
24.51
0.51
3.05
22.06
61
0.50
1.47
3.37
0.25
0.74
1.69
Total(s)
1.07
4.86
27.88
0.76
3.78
23.75
PetroNeft Resources plc
Chief Executive Officer’s Report (continued)
[17]
In 2016 Ryder Scott evaluated an additional 25 prospects located in the southern half of license 61 and estimated
to contain a combined 143.62 mmbbls of gross prospective resource. Of particular interest within this southern
area are the Traverskaya and Tuganskaya prospects. Re-processing of the old well data has identified potential
missed pay at various intervals in the Jurassic and Cretaceous intervals. In 2021 Miller & Lents evaluated the
Emtorskaya prospect but did not re-evaluate the southern prospects previously evaluated by Ryder Scott, given
no meaningful new information/data was available, and so currently Management have assumed those resource
estimates are still valid.
Conclusions
The Company is demonstrating the benefits of a strategic focus on technical and operational excellence,
combined with a rigorous emphasis on cost control, increasingly managed by a motivated knowledgeable in
country team. Whilst there are certain challenges caused by recent events in the Ukraine combined with the
ongoing dispute with Nord Imperial, we are pleased to see that the Company continues to perform well at an
operational level.
I am therefore cautiously optimistic that the various opportunities we are working can deliver improved
shareholder value going forwards. It is particularly encouraging to see the Company achieving several
operational successes throughout 2021 providing further confirmation of our understanding and execution of
our asset potential. In addition, the Miller & Lents report findings are truly encouraging in terms of providing an
independent confirmation of the significant latent value within the Company, by a highly respected consultant
with considerable experience looking at similar assets in both the basin and jurisdiction.
Whilst we are focused on developing the stable of opportunities within the Company, we continue to look at
other opportunities both within and external to the Russian Federation.
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. Their hard work
and commitment combined with the continued support from our shareholders has enabled the Company to
survive and position us to look forward to the future.
David Sturt
Chief Executive
PetroNeft Resources plc
[18]
Financial Review
Review of PetroNeft consolidated income statement for the year
The gross profit for the year was US$1,406,548 (2020: US$254,964)
Operating losses totalled US$2,925,830 (2020: US$780,076), the increase primarily resulting from an impairment charge on
exploration and evaluation assets of US$2,900,732 (2020: Nil), arising on a first-time consolidation of Russian BD Holdings B.V.
The loss after taxation for the year was US$4,871,064 (2020: US$4,541,861).
The loss included the Company’s share of the joint venture's net loss in WorldAce Investments of US$4,964,655 (2020:
US$5,737,042). The improvement in the Company’s share of joint venture net loss arose as revenues improved to US$29,992,441
from US$16,719,562 in 2020. This improvement arose as both demand and pricing metrics recovered post the worst effects of
the global shut down due to the Covid pandemic.
In addition, the share of the joint venture’s net loss in Russian BD Holdings, are included for the 2-month period ending 28
February 2021 US$ 126,031 (2020: US$705,249). Post-acquisition of an additional 40% equity in Russian BD Holdings B.V., by the
Company the results of Russian BD Holdings B.V., are fully consolidated within the reported financial statements as and from 1
March 2021. Please see Note 15 for further breakout of Russian BD Holdings B.V. contribution to the below mentioned results.
PetroNeft Consolidated Income Statement
2021
2020
Continuing operations
US$
US$
Revenue
5,815,255
1,695,524
Cost of sales
(4,408,707)
(1,440,560)
Gross profit
1,406,548
254,964
Administrative expenses
(1,431,446)
(1,035,040)
Impairment of exploration and evaluation assets
(2,900,732)
-
Operating loss
(2,925,830)
(780,076)
Share of joint venture's net loss -WorldAce Investment Limited
(4,964,655)
(5,737,042)
Share of joint venture's net loss – Russian BD Holdings B.V.
(126,031)
(705,249)
Finance Income
2,855,639
3,583,166
Finance costs
(803,558)
(432,362)
Fair value gain on financial derivatives
20,197
-
Unrealised gain on business combination
3,432,730
206,044
Profit/(Loss) on equity settlement of financial liabilities
(1,753,874)
218,898
Profit/(Loss) on modification of financial liabilities
354,194
218,898
Loss for the year for continuing operations before taxation
(3,910,988)
(3,646,621)
Income tax expense
(960,076)
(895,240)
Loss for the year attributable to equity holders
(4,871,064)
(4,541,861)
Loss for the period attributable to:
Owners of the Parent
(4,867,482)
(4,541,861)
Non-Controlling Interest
(3,582)
-
(4,871,064)
(4,541,861)
PetroNeft Resources plc
Financial Review (continued)
[19]
Revenue
Substantial increase in 2021 consolidated revenue to US$5,815,255 from US1,695,524 in 2020. The increase is primarily
accounted for by the first-time consolidation of crude oil sales of US$4,612,435 (2020:US$0), post-acquisition of an incremental
40% equity holding in Russian BD Holdings B.V, as and from 1 March 2021, (2020: Nil). For further information on the breakout
of the Revenue amount, refer to note 5 in the Annual Report.
Income of PetroNeft Group as Operator of Licence 61 and Licence 67
PetroNeft performs the role of operator for both the licences 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
Licence 61 require unanimous approval by both joint venture partners.
As operator, PetroNeft Holding is entitled to charge certain administrative, management and technical costs to its joint venture
WorldAce Investments Limited and its 90% subsidiary Russian BD Holdings B.V. The costs associated with this revenue are
included in cost of sales. In 2021 PetroNeft Group charged a total of US$433,409 (2020: US$895,590) in respect of such
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 2021 Granite Construction charged the WorldAce Group US$769,411 (2020: US$799,934) in respect of these services.
Administrative expenditure showed an increase year on year of 38.3%, which was attributable to the first-time consolidation of
Russian BD Holding B.V. as and from 1 March 2021. Excluding this sum of US$ 474,039, the year-on-year comparative showed a
decline in administrative expense of 7.4% as the Company benefitted from the reversing of expenses previously booked. The
Company continues its laser focus on reducing costs and bolstering its cashflow across the Group. As per Note 34, the Directors
and management agreed to reduce and defer significant portions of their remuneration; as at 31 December 2021 a total of
US$225,666 (2020: US$1,049,092) had been deferred by the Directors and senior management.
Of the 2020 accrual, a total of $658,802 was settled through director participation in the Convertible debt raise of March 2021,
part of which in the amount of US$361,856 was subsequently converted into equity in April 2021.
Most of the Finance income relates to interest receivable on loans to the joint ventures. During 2021 PetroNeft recognised
interest income of US$2,780,253 (2020: US$3,142,150) on its loans to WorldAce Group and US$65,896 (2020: US$440,822) on its
loans to Russian BD Holdings B.V pre consolidation.
Finance Costs
Finance costs relate to interest payable on loans from Petrogrand AB, and on separate convertible loans issued in June 2019 of
US$1,300,000 and US$2,903,802 concluded in February 2021. In addition, on first time consolidation of Russian BD Holdings B.V.
a loan became payable to Belgrave Naftogas B.V. in the sum of US$1,737,880 and a further loan payable to Belgrave Naftogas
B.V, arising out of funding provided to the Company on the acquisition of an additional 40% equity holding in Russian BD Holdings
B.V., in the sum of US$1,700,000.
The loan from Petrogrand AB was automatically extended to 15th December 2022 as the result of contractual performance by
PetroNeft. The final redemption date is currently 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 a 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 2024. For more details see Note 38.
The convertible loans are unsecured. The 2019 convertible loan has a maturity date of 31 December 2022, and the 2021
convertible loan has a maturity date of 11 March 2023. The loan acquired as part of the first-time consolidation of Russian BD
Holdings B.V has a final maturity date of 31 December 2025, and that provided to the Company to fund the acquisition of shares
in Russian BD Holdings B.V. by Belgrave Naftogas B.V., has a final maturity date of 5 March 2024.
PetroNeft Resources plc
Financial Review (continued)
[20]
Unrealised gain on business combination
Relates to the unrealised gain of US$3,432,730 arising on the transition of Russian BD Holdings B.V. from a joint venture equity
investment to a subsidiary following the Company’s acquisition, of an additional 40% equity stake. On acquisition as part of the
accounting treatment, the initial 50% equity interest and respective loans advanced by PetroNeft, were marked to fair value,
together with applicable foreign exchange losses. For more detail on this transaction see Note 10.
Profit on modification of financial liabilities
Profit on modification of financial liabilities of US$354,194 (2020: US$218,898), relates to the accounting profit booked on the
agreed extension of the final maturity dates of the Petrogrand Loan and the 2019 Convertible debt.
Loss on equity settlement of Financial Liabilities
Relates to the implied loss of US$1,753,874 in accordance with IFRS 2 Share based payments, where the agreed exercise price of
the shares transferred was lower than the market price at time of exercise. During 2021, a total of 232,435,872 shares were
issued in satisfaction of US$3,551,748 convertible debts owing and US$1,200,000 to part fund the extra 40% shareholding in
Russian BD Holdings B.V.
Review of Statement of Financial Position as at 31st December 2021.
Oil and Gas Properties, Property Plant and Equipment, Exploration and Evaluation Assets, Assets under Construction, and
Intangible Assets
Amounts recorded here, arose from the first-time consolidation of the assets held by Russian BD Holdings B.V.
Financial Assets- loans
The balance reported in the Statement of Financial Position under Financial Assets, represents the loans to joint venture WorldAce
Investment Limited of US$20,734,834 (2020: US$23,221,764). During the year PetroNeft made advances totalling US$1,657,561
(2020: US$1,677,210) to include PetroNeft head office charges and construction services performed by Granite LLC to WorldAce
Investments Limited to support the continued development of the assets. Interest Income from WorldAce Investment Limited of
US$2,780,253 was accrued but not paid. The total advances and fee income were offset by the share of losses of PetroNeft’s joint
venture operations WorldAce Investment Limited of US$5,267,183. For more details see Notes 13,22 and 34.
Trade and Other Receivables
There was a significant reduction in Trade and Other Receivables of US$1,402,877. As at 31 December 2021, US$1,126,054 (2020:
US$2,528,931). The primary reason for the reduction in receivables was the decrease in the receivable amounts owed from
PetroNeft’s joint venture business with WorldAce Investment Limited, which was reduced to US$938,030 (2020: US$1,879,475).
In addition, on first time consolidation of Russian BD Holdings B.V., inter group receivable balances were eliminated. For more
details see notes 24 and 34.
Called Up Share Capital and Share Premium Account
During 2021 a total of 232,435,872 ordinary shares were issued. In addition to the issuance of 80 million ordinary shares to fund
the acquisition of the 40% extra holding in Russian BD Holdings B.V., the shares issued led to a substantial debt retirement under
3 loan agreements:
•
The 2019 convertible loan principal was reduced by US$845,000
•
The 2021 convertible loan principal was reduced by US$1,856,748
•
The loan provided by Belgrave Naftogas B.V to the Company to support the acquisition of an additional 40% holding in
Russian BD Holdings B.V was reduced by US850,000.
For more details see note 29.
PetroNeft Resources plc
Financial Review (continued)
[21]
Interest Bearing Loans and Borrowings
Movement in Interest Bearing Loans and Borrowings can be accounted for as follows:
•
Automatic extension of the Petrogrand AB Loan redemption date from 15 December 2021 to 15 December 2022.
•
Conversion rights on 2019 Convertible loan of US$1.3M, amounting to US$0.845M exercised by all 5 lenders.
•
In 2021, PetroNeft secured a convertible loan of US$2.9M, redemption date 11 March 2023, from a group of 13 lenders.
•
During 2021, 9 of the 13 contributors to the 2021 Convertible loan, exercised their rights to covert US$1.85M to equity.
•
The acquisition of the extra 40% holding in Russian BD Holdings B.V. by the Company was part financed by the granting
of a US$1.7M convertible loan by Belgrave Naftogas B.V. to PetroNeft with a maturity date of 5 March 2024.
•
During 2021Belgrave Naftogas B.V. exercised their right to convert 50% of the loan principal to equity.
•
Consolidation adjustment now includes, the agreed loan balance owing to Belgrave Naftogas B.V, by Russian BD Holdings
B.V. is now reported within the Interest-bearing loans and borrowings section.
•
At year end the reported balance outstanding is US$1.8M, with final maturity date is 31 December 2025.
Key Financial Metrics – WorldAce Group
Because of the equity method of accounting for joint ventures that applies to PetroNeft’s interest in WorldAce, listed below are
the metrics which are an extraction from the audited financial statements of the WorldAce Group and give an indication as to the
performance of Licence 61:
WorldAce Group
WorldAce Group
2021
2020
US$
US$
Continuing operations
Revenue
29,912,441
16,719,562
Cost of sales
(28,649,622)
(17,465,594)
Gross profit
1,262,819
(746,032)
Administrative expenses
(4,144,337)
(2,515,578)
Operating profit/(loss)
(2,881,518)
(3,261,610)
Finance income
90,803
35,745
Finance costs
(7,138,593)
(7,985,620)
Loss for the year for continuing operations before taxation
(9,929,308)
(11,211,485)
Income tax expense
-
(262,599)
Loss for the year
(9,929,308)
(11,474,084)
Loss for the year
(9,929,308)
(11,474,084)
Other comprehensive income to be reclassified to profit or loss in
subsequent years:
Currency translation adjustments
(605,059)
(13,471,473)
Total comprehensive loss for the year
(10,534,367)
(24,945,557)
PetroNeft’s share of the Loss for the year
(4,964,655)
(5,737,042)
PetroNeft’s share of the currency translation adjustments
(302,530)
(6,735,737)
PetroNeft's Share 50%
(5,267,184)
(12,472,779)
PetroNeft Resources plc
Financial Review (continued)
[22]
Net Loss – WorldAce Group
PetroNeft’s share of the WorldAce Group net loss for the full year declined to US$4,964,655 (2020: US$5,737,042) during 2021.
The following factors contributed to the reduction in the share of WorldAce Group net loss:
•
The significant gross margin improvement was due to the increased production volume of 5.81%, plus the rebound in
average price per barrel of oil sold to US$50.86 (2020: US$28.15) post economic activity returning to more normal levels
after the Covid pandemic.
•
The gross margin improvement was mitigated by the increased administrative expenses, which was largely driven by
accrual of a provision in the sum of US$1,673,549 (2020: 317,026), because of an ongoing legal action against Nord
Imperial LLC arising out of dispute as to the calculation of transit tariffs and oil storage rates.
•
Financing costs are lower, due to a lower average LIBOR rate in 2021 versus 2020,
•
No tax charge has been accrued in the year.
Of the US$7,138,593 in interest payable by WorldAce, US$2,780,253 is payable to PetroNeft. (2020 US$7,985,620/US$3,142,150)
Revenue, Cost of Sales, and Gross Margin – WorldAce Group
Gross Revenue from oil sales was US$29,912,441 for the year (2020: US$16,719,562). Cost of sales includes depreciation of
US$1,125,173 (2020: US$1,256,822), which was lower mainly due to due to the release of the new independent Miller and Lents
report with an effective date of 31 July 2021 and released in December 2021. The report provided an updated assessment of the
overall reserve base and, given our Oil and Gas Property assets are written off on a unit of production basis, any verified
adjustment to our reserve base had a corresponding follow-on adjustment to our depreciation charge per unit of production.
The gross margin significantly improved during the year to a reported profit of US$1,262,819 (2020: US$746,032 loss) due to a
significant increase of 81% in the average price per barrel, as global market conditions improved. Cash operating costs per barrel,
as per page 9 above, were for the reporting period US$16.2 (2020: US$14.3 per barrel). Slightly higher, in line with expectations
as most overhead lines showed minimal increases year on year. We would expect the gross margin to continue 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 603,655 barrels of oil (2020: 570,510 barrels) in the year and sold 588,133 barrels of oil (2020: 593,840
barrels) achieving an average oil price of US$50.86 per barrel (2020: US$28.15 per barrel). In 2021, Licence 61 sold most of its oil
on Russian’s domestic market and started oil exports, which have been increasing since.
Finance Costs – WorldAce Group
Gross Finance costs of US$7,138,593 (2020: US$7,985,620) mainly relates to interest on loans from PetroNeft and Oil India.
Taxation – WorldAce Group
The tax charge accrued in the year is Nil (2020: US$262,599).
Current and Future Funding of PetroNeft Group
While there were consolidated net current liabilities at the year-end of US$2,600,480 (2020: US$3,416,497). Historically the
Company has consistently shown its ability to secure Shareholder funding and proactively works with its lenders in obtaining loan
maturity extensions and securing new funding as required. 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. In addition, the acquisition of a further 40% equity holding in Russian BD Holding B.V, was part funded by
the seller Belgrave Neftogaz B.V. granting a convertible loan to the Company. However, given the current situation and the
imposition of sanctions particularly targeting the Oil and Gas sector, the current climate for raising finance is more challenging
and will only happen when the Company is not seen to break sanctions either directly or indirectly.
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 34 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 2021. However, the maturity date has
been automatically extended to 15 December 2022, given the Company met the pre-agreed milestones.
PetroNeft Resources plc
Financial Review (continued)
[23]
In the event of a possible sale, it is expected that all loan facilities would be repaid from the proceeds of sale of one or both
Licences.
As reported by the Company on 29th August, oil produced from Licence 61 is currently not able to be shipped to market. The
operator of the pipeline which takes the oil produced from Licence 61 to the Transneft Entry point suspended acceptance of our
oil. This suspension is the culmination of a tariff dispute which started back in 2015. We are working with all stakeholders to try
and resume shipment of our oil but only on commercially viable terms. Whilst we are optimistic about reaching an amicable
settlement with Nord Imperial, there remains a material uncertainty over the capacity of that business to continue as a going
concern, given current revenues from Licence 61 is reduced to zero, and accordingly any capacity to fund the operations, or
leverage the asset to raise finance is minimal. However, the operations of Licence 67 are not affected, and the execution of a
successful development drilling program should enable the PetroNeft to leverage that success to raise further capital if needed.
Going Concern
Cash on hand.
As at 31st December 2021, PetroNeft Group had cash and cash equivalents of US$915,602 (2020: US$101,028). A comprehensive
review of all cash inflows and outflows is contained in the Consolidated Statement of Cash Flows on page 45 of the Annual
Accounts.
Improving liquidity in the near term.
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, analysed as to US$2,245,000 cash receipts and US$658,802 in retirement of fees
owing to directors and senior management. In addition, existing loan facility maturity dates have been extended by mutual
agreement. During 2021, from convertible debt in issue with a face value of US$5,903,802, a sum of US$3,551,748 was converted
by the lenders into Ordinary Shares of the Company.
Controlling expenditure.
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 were extended, staff took voluntarily pay deferrals, of in some cases up to 50%. Capex is allocated to projects based on
an assessment of future cash flows, combined with the analysis of risks, which generate the quickest payback. Where possible the
build out of key projects such as the mini refinery is done in house and accordingly minimizes third party fees and overhead.
Proactive liquidity management and cost control.
Include the following:
•
The loan facility agreement with Alexandrovskoye Refinery (AOR), which was secured to fund the construction of an all-
season road to the C-4 well on Cheremshanskoye, remains open, given the construction costs were funded internally by
PetroNeft’s own resources and potentially the facility could be used to develop further value accretive projects.
•
PetroNeft has invested in appropriate above ground infrastructure to support the expected development of its reserve
inventory. The legacy infrastructure has capacity for 14,700 barrels per day. Production in 2021 was 1,897 barrels per day
(2020: 1,563).
•
A mini refinery construction completed in Q4 2020, enabling significant savings and efficiencies on diesel overhead
occurring inhouse, plus the added opportunity to generate revenues from third party sales.
•
PetroNeft prepares Monthly projected Cashflow statements and monitors actual monthly performance back against
forecast. Monthly Cashflow forecasts are prepared to 31 December 2023. Oil deliveries are secured with prepayments
where possible.
•
PetroNeft through its subsidiaries and Joint Venture Company 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.
As announced by the Company on the 29 August, a) the unilateral suspension of acceptance of our oil from Licence 61 by Nord
Imperial LLC and efforts to seek an amicable settlement, b) the ability to re-finance the Petrogrand loan and the 2019 and 2021
PetroNeft Resources plc
Financial Review (continued)
[24]
convertible loans , c) the uncertainty and geopolitical tensions arising from the Russian / Ukrainian conflict, d) the capacity to
remit monies across borders, e) together with clarity on the capacity of the business to raise finance of US$0.3M and US$0.65M
in December 2022 and May 2023 respectively, f) and emerging climate related matters, represents material uncertainties 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 stakeholders, monitors the
impact of climate related on its operations and resultant financial statements and is confident of the ability of the company to
continue and prosper.
Focussed asset management and capital allocation
PetroNeft continually updates its operational plan, supported with a detailed capex plan, such that it can allocate capital and
resource in a manner to optimise future value.
•
Sibkrayevskoye and West Lineynoye fields in Licence 61
•
Cheremshanskoye and Ledovoye oil fields in Licence 67
•
Exploration Prospects such as Emtorskaya, which lies north of the Lineynoye field in Licence 61.
PetroNeft manages its workover program to both reverse declining production and identify sweet spots in its drilling program.
Principal risks and uncertainties
The Board monitors all risks to PetroNeft on a regular basis using information obtained or developed from external and internal
sources and will take actions as appropriate to mitigate these. PetroNeft utilises a risk management approach that identifies key
business risks and measures to address those critical to our operating environment in Russia. Other significant elements of the
risk management approach include regular Board reviews of the business, a defined process for preparation, monitoring and
approval of the annual work programme and budget, monthly management reporting, financial operating procedures and policy,
due attention to HSSE and anti-bribery and corruption systems.
The principal risks and uncertainties affecting the Group and the actions taken by the management team to mitigate these risks
and uncertainties are shown in the table below. The overall risk register is regularly reviewed by both the management team and
the Board. The primary focus is to manage exposure to risk rather than eliminate the risk completely.
Risk Type
Risk Issue
Mitigation
Country Risks
Geopolitical – sanctions and
the Russian / Ukrainian
conflict.
Previous sanctions were directed at a very high-level Government
officials and very high net worth individuals. With the onset of the
Russia / Ukraine conflict the added sanctions, being more penal and
universal in nature, are primarily directed at leading Russian financial
institutions and the Oil and Gas sector. The Group proactively works
with its advisors and stakeholders to ensure it does not breach
sanctions, the laws, or regulations of the jurisdictions in which it
operates.
Political - federal risks
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.
Local management are well respected in region.
Ownership of assets
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.
Changes in tax structure
Fiscal system is stable - recent and proposed changes largely benefit
upstream oil and gas companies. Both federal and regional authorities
proactively amend the Mineral Extraction Tax rate in periods of
PetroNeft Resources plc
Financial Review (continued)
[25]
Risk Type
Risk Issue
Mitigation
increased uncertainty as experienced with the Covid pandemic and the
sanctions resulting from the Russia / Ukraine conflict. Participation in
NEFT, a Moscow based organisation who actively advances the case
for small scale producers in all areas, most notably proposed changes
to the tax code
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.
Technical Risk
Knowledgeable technical and operational team with proven track
record in the region.
Drilling risk
Relatively shallow wells with proven technology and abundant adjacent
drilling history which demonstrates no significant drilling challenges.
In a market where the oil price is increasing, rig availability and pricing
inflation becomes matters of concern, as operators seek fixed period
contracts and payments in advance.
Experienced operations team who has experience of drilling vertical and
horizontal wells in the region.
Avoid drilling wells low on structure that risk poor results.
Production/Completion risk
Routine completion practices including fracture stimulation.
Reserves high graded; extensive reservoir simulation and reservoir
management undertaken.
Performance of similar adjacent fields in region.
Reserve risk
SPE and Russian reserves updated and in substantive alignment
Financial Risks
Availability of finance
Strong reserve base and key infrastructure in place to support
production up to 14,700 barrels per day, supports Investment Case.
Continually assess existing assets considering future capital needs from
a disciplined lifecycle investment perspective.
Strong and sustainable relationships with key shareholders.
Strong financial stewardship-manage commitments and liquidity,
monitor delivery of business plan, forecast and accuracy
Oil price
Robust project sanction economics - conservative base case
assumptions. Russian tax system means economics are less sensitive to
changes in oil price. For example, the Mineral Extraction Tax system
changes according to price thereby providing a natural cushion to price
changes.
Industry cost inflation
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.
Uninsured events
Comprehensive insurance programme in place.
Covid 19
Business interruption
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 and deferrals 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.
PetroNeft Resources plc
Financial Review (continued)
[26]
Risk Issue
Mitigation
Climate Risk
Asset impairment.
Changes in the useful life and
fair values of assets, example
deterioration
of
winter
roads.
Effect on impairment
calculations through
increased costs and
penalties.
Adverse changes in
expected credit losses (ECL)
on financial assets, and
contingent liabilities arising
from fines.
Increased provisions from
onerous contracts.
The Company considers climate transition related matters in applying
IFRS standards, when the effect of those matters is material in the
context of the financial statements taken as a whole.
Other Risks
HSSE incidents
HSSE standards set and monitored regularly across the Group.
Export quota
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.
Third party pipeline access
25-year transportation agreement in place for Licence 61, several
options available for ultimate development of Licence 67.
Transneft pipeline
access/Nord Imperial
pipeline access is
unilaterally withheld.
On-going Tariff dispute with Nord Imperial which has resulted in
production being temporarily suspended from Licence 61. If this
remains unresolved it remains a material concern.
East Siberia-Pacific Ocean (“ESPO”) pipeline allows export of oil to
Pacific market.
Significant Shareholders
The Company’s share register was migrated post Brexit to Euroclear Nominees Limited (Belgium) from CREST U.K. as of and
from March 15, 2021.
So far as the Directors are aware, the names of the entities, other than serving Directors, who directly or indirectly, maintain an
interest of 3% or more of the Issued Share Capital as at 31 March 2022, as per the share register is as follows:
Name of Shareholder
Percentage
Shares
Natlata Partners Limited*
25.7%
275,503,451
J&E Davy
6.6%
71,128,048
Seguro Nominees Limited
5.4%
58,280,564
* 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 Six Sis Olten AG for Maxim Korobov, bringing his total shareholding to 25.7%.
.
PetroNeft Resources plc
[27]
Directors’ Report
for the year ended 31 December 2021
The Directors present herewith their Annual Report and the audited financial statements of PetroNeft (“PetroNeft”, “the
Company”, or together with its subsidiaries and joint venture, “the Group”) for the year ended 31 December 2021.
Principal Activity
The principal activities of the Group are that of oil and gas exploration, development, and production in Russia. The Group’s assets
are represented by two blocks being Licence 61 (50% interest, held through a joint venture, WorldAce Investments Limited, a
Cypriot registered entity) and Licence 67 (90% interest, held through Russian BD Holdings B.V. an entity registered in the
Netherlands). 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$3,910,988 (2020: US$3,646,621). After a tax charge of US$960,076 (2020: US$
895,240) the loss for the year amounted to US4,871,064 (2020: US$4,541,861). 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 7 to 9,
the Chief Executive Officer’s Report on pages 10 to 18 and the Financial Review on pages 19 to 27. The key financial metrics used
by management are set out in the Financial Review on page 22.
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) 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.
c)
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.
d) 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. The roles of independent Non-Executive Directors are held by
Anthony Sacca and the recent appointment of Eskil Jersing.
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
PetroNeft Resources plc
Directors’ Report
for the year ended 31 December 2021 (continued)
[28]
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 December 2021 the Company approved the establishment of an
Environmental, Social and Governance committee to support a sustainable business and development plan.
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 111-120 of this Annual accounts pack. Alternatively, the principles and how PetroNeft
implements them, can be found by logging on to the PetroNeft website by clicking on the following link:
http://PetroNeft.com/investor-relations/rule26/.
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 31 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.
PetroNeft Resources plc
Directors’ Report
for the year ended 31 December 2021 (continued)
[29]
Environmental, Social and Governance Committee.
The members of the committee are Eskil Jersing (Non – Executive director), Alastair McBain (PetroNeft Chairman) David Sturt (CEO
and Director).
Following approval of the ESG committee’s terms of reference and constitution, the responsibilities include, oversight of the
Company’s ESG strategy, set targets and KPIs, and ensuring appropriate communication both internally and externally so all
stakeholders are fully informed of PetroNeft’s ESG strategy.
Governance of Joint Venture
Under the joint venture agreement in respect of Licence 61, partners are entitled to appoint board representatives to the joint
venture company, WorldAce Investments Limited. PetroNeft have recently approved the appointment of Michael Power who
replaces Karl Johnson, and Oil India International B.V, Pankaj K. Goswami to the Board of WorldAce Investments Limited a position
for which they receive no additional remuneration, along with local independent directors in Cyprus. The company is managed
and controlled in Cyprus 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, Nomination Committee and the Environmental, Social and
Governance 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. 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 regularly 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, Daria Shaftelskaya and Pavel Tetyakov are due to
retire by rotation at the next AGM and are eligible to offer themselves for re-election.
PetroNeft Resources plc
Directors’ Report
for the year ended 31 December 2021 (continued)
[30]
Directors, Company Secretary, and their Interests
The Directors and Company Secretaries who held office during 2021 and in the period up to 31 March 2022 had no interest, other
than those shown below, in the Ordinary Shares of the Company. All interests shown below are beneficial interests.
Ordinary Shares
Ordinary Shares
Ordinary Shares
Directors
As at
As at
As at
31 March 2022
31 December 2021
1 January 2021
Alastair McBain* (appointed 29 January 2021)
154,974,339
154,974,339
12,698,500
Daria Shaftelskaya**
98,164,020
98,164,020
88,079,986
David Sturt
26,094,132
26,094,132
15,876,866
Pavel Tetyakov
15,637,515
15,637,515
12,444,530
Eskil Jersing (appointed 1 November 2021)
768,807
-
-
Anthony Sacca
-
-
-
David Golder (resigned 22 February 2021)
3,165,458
3,165,458
3,165,458
Company Secretary
Michael Power
-
-
-
*Shares held by Alastair McBain via Pershing Securities Limited, ADM Consulting FZE, and Belgrave Naftogas BV.
**Shares held by Daria Shaftelskaya in her own capacity and on her behalf by National Securities Depository Russia.
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 25-27
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 page 24-25 in the paragraphs related to the “Current and future funding of PetroNeft” and 23-24 “Going Concern” and
in Note 2 to the financial statements on pages 49-50.
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 believe 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.
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 did not have a share option scheme in place during the 2021 financial year.
PetroNeft Resources plc
Directors’ Report
for the year ended 31 December 2021 (continued)
[31]
Directors’ Remuneration (US$)
2021
2020
Director
Basic
Pension
Total
Basic
Pension
Total
Executive directors
David Sturt*
413,832 16,250 430,082
428,817
30,000 458,817
Pavel Tetyakov
200,000
15,000 15,000
200,000
15,000 215,000
613,832
31,250 645,082
628,817
45,000 673,817
Non-executive directors
Alastair McBain
17,990 - 17,990 - - -
Daria Shaftelskaya
14,672 - 14,672
11,020 - 11,020
Anthony Sacca
14,672 - 14,672 11,533 - 11,533
Eskil Jersing
3,968 - 3,968 - - -
David Golder
2,222 - 2,222 15,224 - 15,224
Thomas Hickey
- - - 11,132 - 11,132
Maxim Korobov
- - - 913 - 913
53,524 - 53,524 49,822 - 49,822
Total Directors
remuneration
667,356 31,250
698,606
678,639 45,000
723,639
*Includes Medical Insurance premiums of US$13,832 (2020: US$28,817)
As detailed in Note 34, included in the above are unpaid fees and remuneration due to Directors as at 31 December 2021 of
US$172,926 (2020: US$470,023).
Political Donations
The Company did not make any political donations during the year.
Important Events after the Balance Sheet Date
By way of agreed board resolution, effective 9 February 2022, the shareholders of Russian BD Holdings agreed in proportion to
their respective shareholding, that is PetroNeft Resources plc 90% and Belgrave Naftogas B.V. 10% to convert loans or payables
due to them, into the share premium reserve of Russian BD Holdings. Per the adopted board resolution, the Company
converted a loan balance of US$15,854,631 and a payable of US$522,012 and Belgrave Naftogas B.V. a loan balance of
US$1,819,627.
The commencement of the Russian / Ukrainian conflict from 24 February 2022 led to heightened volatility in oil prices and
currency exchange rates. In addition, the imposition by the international community of harsher sanctions, affecting primarily the
Oil and Gas sector, saw significant declines in financing opportunities in the Russian Oil and Gas sector, increased legal and
financial compliance together with limitations on capital movements across international borders.
As announced on 29th August 2022, Nord Imperial LLC, the sole oil pipeline transhipment company for oil produced on Licence
61, unilaterally ceased taking shipment of all oil supplied by Stimul -T LLC, the Russian subsidiary of PetroNeft’s joint venture
WorldAce Investment Limited. The action was taken, despite ongoing legal actions initiated by Stimul-T LLC against Nord
Imperial LLC. There has been an ongoing dispute since 2015 over its transhipment rates that are excessive, not reflective of
market rates and are abusive in nature. Stimul-T has launched a series of legal cases in Tomsk combined with an Anti-Monopoly
case with the Russian Anti-Monopoly agency in Moscow. Stimul-T has also been working with all stakeholders including a series
of meetings with Nord Imperial to seek a resolution which enables both parties in the dispute to reach an amicable settlement
PetroNeft Resources plc
Directors’ Report
for the year ended 31 December 2021 (continued)
[32]
but crucially also one which enables Stimul-T to generate sufficient margins on its production to invest into the opportunities
within Licence 61. The pipeline owned by Nord Imperial connects Licence 61 through a 132km long pipeline to the Transneft
entry point. This pipeline is only used by Nord Imperial to transport oil from Licence 61. If this Nord Imperial continues to
suspend oil acceptance and transfer from Licence 61, it will affect the joint venture’s ability to survive and prosper.
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.
•
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.
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.
34
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 2021, 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 2021 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 2021;
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.
35
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 $4.9 million for the financial year ended 31 December 2021, had total assets of $41.9 million
and net current liabilities of $2.6 million.
Included in total assets are financial assets comprising of loans and receivable of $20.7 million
from Join Ventures and consolidated oil and gas assets of $19m. The recoverability of these assets
are dependent on the continued operations and future profitability of the Joint Venture and
Subsidiary undertakings. 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 hand in hand with the continued trading
of Licence 67 and resolution of current dispute with Nord Imperial.
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:
•
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;
•
evaluated the design and determine the implementation on key controls identified in
the going concern assessment process;
•
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;
•
considered the impact of the Ukraine Invasion;
•
considered the ongoing discussions with Nord Imperial 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.
36
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PETRONEFT RESOURCES PLC
(CONTINUED)
Recoverability of financial assets and loans advanced to joint venture and other
consolidated oil and gas assets
Key Audit Matter
The Group and Parent Company has a significant loans receivable from joint ventures amounting to
$20.7 million (2020: $27.3 million) and consolidated oil and gas assets of $19 million (2020: nil) as at
the balance sheet date.
The carrying amount of the investment in joint ventures and subsidiaries is represented by loans due
from joint venture, WorldAce Investments Limited and the consolidated oil and gas assets of
subsidiary Russian-BD Holdings BV. The joint venture and subsidiary control Licences 61 and 67 for
future exploration and development of the Sibkrayevskoye and Cheremshanskoye Oil fields
respectively. The recoverability of these loans and assets 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 assets 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-b), 3.5 (b-e), 16, 17, 18, 19, 20 and 22 of the accompanying financial
statements.
Audit Response
In response to this:
•
We have obtained Management’s Impairment assessment in relation to financial assets
and consolidated assets from joint venture and subsidiary which were directly linked to
the Oil & Gas impairment models produced;
•
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 Miller and Lents, 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.
37
INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PETRONEFT RESOURCES PLC
(CONTINUED)
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.
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 $547,000 and $382,900 which
represents approximately 2% of the Group net assets and 70% of the Group’s materiality.
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.
The Group’s auditors have performed a full scope audit of Petroneft Resources Plc and limited
scope and desktop reviews of insignificant components. Their involvement in the work performed
by other component auditors (auditors of Worldace Investments Limited, LLC Simul-T and LLC
Lineynoye) varies by location and involves, at a minimum, direction of the audit procedures to be
completed, and review of the reports received in relation to the results of the audit work
undertaken by component audit teams. In the current year, as a result of ongoing restrictions, the
Group auditor or senior members of the Group audit team have completed their oversight and
review work of other locations remotely.
38
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 2021, 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.
39
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.
A further description of our responsibilities for the audit of the financial statements is located on
the
IAASA's
website
at:
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.
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.
40
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 three years, covering the financial year ended 2021.
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 2021.
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: 27 September 2022
PetroNeft Resources plc
[41]
Consolidated Income Statement
For the year ended 31 December 2021
2021
2020
Note
US$
US$
Continuing operations
Revenue
5
5,815,255
1,695,524
Cost of sales
(4,408,707)
(1,440,560)
Gross profit
1,406,548
254,964
Administrative expenses
(1,431,446)
(1,035,040)
Impairment of exploration and evaluation assets
18
(2,900,732)
-
Operating loss
7
(2,925,630)
(780,076)
Share of joint venture's net loss - WorldAce Investments
Limited
13
(4,964,655)
(5,737,042)
Share of joint venture's net loss -Russian BD Holdings
B.V.
14
(126,031)
(705,249)
Finance Income
8
2,855,639
3,583,166
Finance costs
9
(803,358)
(432,362)
Fair value gains on financial derivatives.
29
20,197
-
Unrealised gain on business combination
10
3,432,730
Profit/ (Loss) on equity settlement of financial liabilities
(1,753,874)
206,044
Profit on modification of financial liabilities
29
354,194
218,898
Loss for the year for continuing operations before
taxation
(3,910,988)
(3,646,621)
Income tax expense
11
(960,076)
(895,240)
Loss for the year attributable to equity holders
(4,871,064)
(4,541,861)
Profit /(loss) for the period attributable to:
Owners of the Parent
(4,867,482)
(4,541,861)
Non-Controlling Interest
(3,582)
-
(4,871,064)
(4,541,861)
Loss per share attributable to ordinary equity holders
of the Parent
Basic and diluted - US dollar cent
12
(0.49)
(0.55)
PetroNeft Resources plc
[43]
Consolidated Statement of Financial Position.
As at 31 December 2021
2021
2020
Note
US$
US$
Assets
Non-current Assets
Oil and gas properties
16
5,006,667
-
Property, plant, and equipment
17
118,618
4,682
Exploration and evaluation assets
18
9,730,768
-
Assets under construction
19
516,953
-
Intangible assets
20
3,659,091
-
Financial assets - loans
22
20,734,834
27,340,710
39,766,931
27,345,392
Current Assets
Inventories
23
86,842
19,387
Trade and other receivables
24
1,126,054
2,528,931
Cash and cash equivalents
25
915,602
101,028
2,128,498
2,649,346
Total Assets
41,895,429
29,994,738
Equity and Liabilities
Capital and Reserves
Called up share capital
26
13,661,466
10,896,668
Share premium account
147,679,056
141,794,897
Share-based payments reserve
6,796,540
6,796,540
Retained loss
(106,455,050)
(101,587,568)
Currency translation reserve
(35,861,175)
(39,551,087)
Other reserves
511,981
379,923
Equity attributable to equity holders of the Parent
26,332,818
18,729,373
Non- Controlling Interest
27
716,410
0
Total Equity
27,049,228
18,729,373
Non-current Liabilities
Provisions
28
254,629
-
Interest-bearing loans and borrowings
29
3,477,078
-
Derivative financial liabilities
29
313,168
-
Deferred tax liability
11
6,072,348
5,199,522
10,117,223
5,199,522
Current Liabilities
Interest-bearing loans and borrowings
29
2,827,041
4,151,391
Trade and other payables
30
1,901,937
1,914,452
4,728,978
6,065,843
Total Liabilities
14,846,201
11,265,365
Total Equity and Liabilities
41,895,429
29,994,738
PetroNeft Resources plc
[44]
Consolidated Statement of Changes in Equity
For the year ended 31 December 2021
Called up share
capital
Share premium
account
Share-based
payment and
other reserves
Currency
translation
reserve
Retained loss
Total Equity
Holders
Minority
Interest
Total
US$
US$
US$
US$
US$
US$
US$
US$
At 1 January 2020
9,585,965
141,006,709
7,176,463
(32,040,081)
(97,045,707)
28,683,349
-
28,683,349
Loss for the year
-
-
-
-
(4,541,861)
(4,541,861)
-
(4,541,861)
Currency translation adjustments - subsidiaries
-
-
-
68,348
-
68,348
-
68,348
Share of joint ventures' other comprehensive income
-
-
-
(7,579,354)
-
(7,579,354)
-
(7,579,354)
Total comprehensive loss for the year
-
-
-
(7,511,006)
(4,541,861)
(12,052,867)
-
(12,052,867)
New Share Capital subscribed
1,310,703
788,188
-
-
-
2,098,891
-
2,098,891
At 31 December 2020
10,896,668
141,794,897
7,176,463
(39,551,087)
(101,587,568)
18,729,373
-
18,729,373
At 1 January 2021
10,896,668
141,794,897
7,176,463
(39,551,087)
(101,587,568)
18,729,373
-
18,729,373
Loss for the year
-
-
-
-
(4,867,482)
(4,867,482)
(3,582)
(4,871,064)
Recycle FX differences on RBD acqusition (Note 10)
-
-
-
4,026,539
-
4,026,539
-
4,026,539
Currency translation adjustments - subsidiaries
-
-
-
(7,778)
-
(7,778)
(5,008)
(12,786)
Share of joint ventures' other comprehensive income
-
-
-
(328,849)
-
(328,849)
-
(328,849)
Total comprehensive loss for the year
-
-
-
3,689,912
(4,867,482)
(1,177,570)
(8,590)
(1,186,160)
Acquisition of a subsidiary (Note 27)
-
-
-
-
-
-
725,000
725,000
Convertible Share Option reserve
-
-
132,058
-
-
132,058
-
132,058
New Share Capital subscribed *1 (Note 26)
2,764,798
5,884,159
-
-
-
8,648,957
-
8,648,957
At 31 December 2021
13,661,466
147,679,056
7,308,521
(35,861,175)
(106,455,050)
26,332,818
716,410
27,049,228
Share premium is the amount received for shares issued in excess of their nominal value, net of share issusance costs
Share based payment and other reserves are the credits arising on the options granted on funding secured during 2021
Currency translation reserves is gains or losses arising on the translation of the overseas operations
Retained loss is the cumulative losses recognised in the Consolidated Statement of Comprehensive Income
Minority interest rpresents the amount owing to Belgrave Naftogas B.V., following consolidation of Russian B.D. Holdings B.V.
*1-During 2021 , a total of 232,435,872 ordinary shares were issued which included the 80,000,000 shares issued as part consideration of the extra 40% equity holding in Licence 67. The remaining
152,435,872 shares were issued in satisfaction of convertible share options, granted as part of the Convertible loan funding programs in 2019 and 2021, plus the convert element attached to the loan
secured to secure the 40% equity holding in Licence 67
PetroNeft Resources plc
[45]
Consolidated Cash Flow Statement
For the year ended 31 December 2021
2021
2020
US$
US$
Operating activities
Loss before taxation
(3,910,988)
(3,646,621)
Adjustment to reconcile loss before tax to net cash
flows
Non-cash
Depreciation
167,690
21,671
Share of loss in joint ventures
5,090,686
6,442,296
Foreign Exchange Gains/ (Losses)
(163,898)
146,580
Share based payment
-
731,268
Impairment of exploration and evaluation assets
2,900,732
-
Loss/(Profit) on equity settlement of financial liabilities
1,753,874
(206,044)
Profit on modification of financial liabilities
(354,194)
(218,898)
Unrealised gain on business combination
(3,432,730)
-
Finance income
8
(2,855,639)
(3,583,166)
Finance costs
9
803,358
432,362
Fair value gains on financial derivatives
(20,197)
-
Working capital adjustments
Decrease/(Increase) in trade and other receivables
1,459,937
(1,415,494)
Decrease/(Increase) in inventories
39,804
(3,741)
Increase /(Decrease) in trade and other payables
(808,766)
42,671
Income tax paid
(87,248)
503
Net cash flows used in operating activities
582,421
(1,256,613)
Investing activities
Acquisition of subsidiary net of Cash Acquired
18,893
-
Purchase of property, plant, and equipment
17
(153,475)
-
Disposal of property, plant, and equipment
17
-
4,980
Purchase of exploration and evaluation assets
18
(730,901)
-
Purchase of assets under construction
19
(495,983)
-
Loan facilities advanced to joint venture
-
(277,095)
Interest received
9,490
194
Net cash used in investing activities
(1,351,976)
(271,921)
Financing activities
Proceeds from the issue of share capital
-
1,573,667
Proceeds from issue of convertible debt options
29
2,245,000
-
Repayment of interest on loan facilities
29
(88,013)
(277,746)
Repayment of principal on loan facilities
29
(574,430)
-
Net cash received from financing activities
1,582,557
1,295,921
Net increase/(decrease) in cash and cash
equivalents
813,002
(232,613)
Translation adjustment
1,572
(11,891)
Cash and cash equivalents at the beginning of the
year
101,028
345,532
Cash and cash equivalents at the end of the year
25
915,602
101,028
PetroNeft Resources plc
[47]
Company Statement of Changes in Equity
For the year ended 31 December 2021
Share capital
Share
premium
Share-based
payment and
other reserves
Retained loss
Total
US$
US$
US$
US$
US$
At 1 January 2020
9,585,965
141,006,709
7,176,463
(128,926,419)
28,842,718
Loss for the year
-
-
-
(12,231,171)
(12,231,171)
Total comprehensive loss for the year
-
-
-
(12,231,171)
(12,231,171)
Convertible debt option reserve
-
-
-
-
-
New Share Capital Subscribed
1,310,703
788,188
-
-
2,098,891
At 31 December 2020
10,896,668
141,794,897
7,176,463
(141,157,590)
18,710,438
At 1 January 2021
10,896,668
141,794,897
7,176,463
(141,157,590)
18,710,438
Loss for the year
-
-
-
1,389,670
1,389,670
Total comprehensive loss for the year
-
-
-
1,389,670
1,389,670
Convertible debt option reserve
-
-
132,058
-
-
New Share Capital Subscribed*1
2,764,798
5,884,159
-
-
8,781,015
At 31 December 2021
13,661,466
147,679,056
7,308,521
(139,767,920)
28,881,123
*1-During 2021, a total of 232,435,872 ordinary shares were issued which included the 80,000,000 shares issued as part consideration of the extra 40% equity
holding in Licence 67. The remaining 152,435,872 shares were issued in satisfaction of convertible share options, granted as part of the Convertible loan
funding programs in 2019 and 2021, plus the convert element attached to the loan secured to secure the 40% equity holding in Licence 67.
Share premium is the amount received for shares issued more than their nominal value, net of share issuance costs.
Share based payment and other reserves are the credits arising on the options granted on funding secured during 2021
Retained loss is the cumulative losses recognised in the Statement of Comprehensive Income
PetroNeft Resources plc
[48]
Company Cash Flow Statement
For the year ended 31 December 2021
2021
2020
Note
US$
US$
Operating Activities
Profit /(Loss) before taxation
2,262,498
(11,335,428)
Adjustments to reconcile loss before tax to net cash flows
Non-cash
Impairment of financial assets
1,883,503
14,036,806
Foreign Exchange Gains
4,137
128,204
Share based payment
-
731,268
Loss/(Profit) on equity settlement of financial liabilities
1,753,874
(206,044)
Profit on modification of financial liabilities
(354,194)
(218,898)
Finance income
(3,491,312)
(3,582,975)
Finance costs
689,044
432,362
Fair value gains on financial derivatives
20,197
-
Unrealised gain on investment in subsidiary
(3,625,000)
-
Income tax expense
-
196
Working capital adjustments
Decrease/(Increase) in trade and other receivables
752,941
(1,353,657)
Increase/Decrease correct signs???? in trade and
other payables
(560,315)
105,645
Income tax expense paid
-
-
Net cash flows used in operating activities
(664,627)
(1,262,521)
Investing activities
Loan facilities advances
(330,000)
(277,095)
Return of loan facilities
26,990
79,993
Interest received
-
3
Net cash (used in)/received from investing activities
(303,010)
(197,099)
Financing activities
Proceeds from the issue of share capital
-
1,573,667
Proceeds from issue of convertible debt
29
2,245,000
-
Repayment of interest on loan facilities
29
(88,013)
(277,746)
Repayment of principal on loan facilities
29
(574,430)
-
Net cash received from financing activities
1,582,557
1,295,921
Net increase/(decrease) in cash and cash equivalents
614,920
(163,699)
Translation adjustment
(1)
753
Cash and cash equivalents at the beginning of the
year
94,970
257,916
Cash and cash equivalents at the end of the year
25
709,889
94,970
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[49]
Notes to the Financial Statements
For the year ended 31 December 2021
1.
General information on the Company and the Group
PetroNeft Resources plc (“PetroNeft”, “the Company”, or together with its subsidiaries and joint venture, “the Group”) is a
public limited Company incorporated in the Republic of Ireland with the 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 pages 23-24, in December 2021 PetroNeft automatically extended the loan facility,
which was due to mature on 15 December 2021 with Swedish Company Petrogrand AB, a related party. The revised loan
maturity date is 15 December 2022. 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 an additional loan facility with a group of thirteen investors for US$2.9M. 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 GBP0.02p per share
within one year of signing the loan agreements and GBP0.025p per share within 2 years of signing. Seven of the thirteen
investors are related parties. The money raised was primarily used to fund the 2021 capital investment program and meet
ongoing operational cost. During 2021, nine of the thirteen lenders elected to exercise their conversion rights and
accordingly a sum equal to US$1.85M of loan principal was cancelled through the issuance of ordinary shares. The new
funding, and subsequent conversion, demonstrated continued significant commitment from the largest Shareholders,
Directors, and Senior Management
During 2021 all five of the 2019 Convertible loan holders exercised their conversion rights and extended the final maturity
on the loan balance outstanding through to 31 December 2022.
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 2021. With a rebound in oil prices and the ongoing cost saving program the Group's cashflow improved, enabling it
to address payables that had been rescheduled, reverse the temporary salary reduction, and engage constructively with its
joint venture partner, 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.
As announced by the Company on the 29 August, Nord Imperial LLC suspended all transhipments of oil from Stimul T LLC,
which owns Licence 61 and is the 100% subsidiary of PetroNeft’s joint venture WorldAce Investment Limited which itself is
equally owned by PetroNeft Resources and Oil India Limited. Suspension was a unilateral act by Nord Imperial LLC, given
both it and Stimul T LLC have been engaged in a legal dispute over the transhipment tariff rates dating back to 2015. More
recently Stimul-T has also launched an Anti-Monopoly case with the Russian Anti-Monopoly agency in Moscow. The
management of Stimul T LLC deem the transhipment rates as excessive and are highly indicative of abusive market practises
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[50]
2.
Going Concern (continued)
by Nord Imperial LLC. The suspension, given no viable alternative transhipment route, see Oil revenues at Stimul-T LLC
reduced to zero and no near-term alternative Income streams.
The Group has analysed its cash flow requirements through to 31 December 2023. The cash flows are dependent on a) the
successful extension or re-financing of the Petrogrand AB loan and other Convertible loans, b) the raising of finance in
particular by PetroNeft of US$0.35M in December 2022 and US$0.60M in May 2023, c) the access to cross border cash
holdings d) proactive management of trade creditors and other accruals, including the agreed deferral of directors and
senior management fees, e) on future production rates and oil prices achieved and consequent future cash flows from LLC
Lineynoye (L67) once Cheremshanskoye is producing at material levels, f) amicable agreement on Nord Imperial pipeline
dispute
Should the Petrogrand AB loan or other loans not be extended or re-financed, or the ability to access intercompany cash
holdings is restricted, or proposed fund raises by PetroNeft holding not materialise, the Group will need additional funding
to continue as a going concern. The Group, together with its partners is actively investigating the opportunity to secure debt
in the local Russian market for both Licences 61 and 67. The recent Russian / Ukrainian conflict and the associated sanctions
have made the raising of funds local on the Russian marketplace extremely complicated and any confidences management
held pre-sanctions have subsided, such that both the Directors and Senior Management have adopted a wait and see
approach. In the meantime, the sanctions impose restrictions on the use of Group assets and liabilities, in particular the
ability to transfer and avail of intercompany cash balances.
The Group has put in place proactive steps to manage third party payables across all legal entities, including tax payables,
cost saving measures were possible and the Board and management have agreed to defer their remuneration. Note 34
outlines the amounts owed to the Board and management in this regard as of the reporting date.
Given the remarkable rebound in oil prices, and Management demonstrating their capacity to maintain and increase
production through efficient capital allocation programs, the confirmation that Licence 67 will become a significant oil
generating asset. 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 operating expenditure and capital spend, drives through enhanced valuation, improved cashflows and future
sustainability
The Group is also proactive with all stakeholders at both regional and national levels in securing a fair resolution to the
suspension of the transhipment of oil from Licence 61. Engagement is at all stakeholder levels, including respective
shareholders, joint venture partner, and government departments remains ongoing.
If the Group does not adequately embed risks associated with climate change into its risk framework to appropriately
measure , manage and disclose the various financial and operational risks it faces as a result of climate change, or fails to
adapt its strategy and business model to the changing regulatory requirements and market expectations on a timely basis,
it may have a material and adverse impact on the Company’s level of business growth, competitiveness, profitability, capital
requirements, cost of funding and financial condition.
With respect to the ongoing conflict between Russia and Ukraine, PetroNeft continues to operate within the laws of the
countries in which it has operations. PetroNeft and its management look forward to a swift resolution to the ongoing conflict.
At this time, it is not possible to determine when such a resolution will be achieved.
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
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[51]
2.
Going Concern (continued)
•
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 issue and
subsequent conversion.
•
the continuous support of our lenders, both convertible and conventional debt
•
Continued oil price resilience.
•
the incorporation of Environmental, Social and Governance matters to the core of its operations.
•
As per note 37 below, the post year end agreement to restructure debts, as agreed by all shareholders to treat
debts owing by Lineynoye LLC to Russian BD Holdings B.V. and by Russia BD Holdings B.V to both PetroNeft
Resources plc and Belgrave Naftogas B.V., as equity contributions through their respective share premium accounts,
thereby eliminating any near-term financial overhang that may arise due to demands for interest or principal
payments from the respective contracting parties.
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.
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.
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[52]
3.2 Basis of consolidation (continued)
•
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.
No change in the current year in the shareholding in WorldAce Investment Limited and thus remains a Group Joint Venture.
Post-acquisition of a further 40% equity holding in Russian BD Holdings B.V., the reporting entity transited from a Group JV
type arrangement from 1 March 2021 to a Group subsidiary type arrangement. A 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 venture 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 venture 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 Joint Venture, receives reimbursement of direct costs recharged to its joint venture,
such recharges represent reimbursements of costs that the operator incurred as an agent for the joint venture. 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. Non-controlling interests’ equity interests are measured at fair value at the time of change in control.
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;
•
liabilities or equity instruments related to share-based payment arrangements of the acquiree, or share-based payment
arrangements of the Group entered 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
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[53]
3.4
Significant Accounting Judgements, Estimates and Assumptions (continued)
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 near 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.
Exploration and evaluation expenditure – Note 18
Exploration and evaluation expenditure represent active exploration projects. These amounts will be written-off to the
Consolidated Income Statement as exploration costs unless commercial reserves are established, or the determination
process is not completed. The outcome of ongoing exploration, and therefore whether the carrying value of these assets
will ultimately be recovered, is inherently uncertain.
The Group has capitalised intangible exploration and evaluation assets in accordance with IFRS 6 Exploration for and
Evaluation of Mineral Resources, which are evaluated for indicators of impairment. Any impairment review, where
required, involves significant judgement related to matters such as recoverable reserves, climate risk, production profiles,
oil and gas prices, discount rate, development, operating and offtake costs and other matters. The carrying amount of
exploration and evaluation assets at 31 December 2021 is US$9,730,768 (2020: nil).
Financial assets at amortised cost. – Notes 13, 14 and 22
During the year share of losses and currency translation adjustments in Russian BD Holdings B.V. pre consolidation and
WorldAce Investment Limited joint ventures exceeded the carrying value of equity-accounted investment in the joint
ventures. It was judged that the financial assets from the joint ventures are long term interests that, in substance, form part
of the entity’s net investment in the joint ventures, 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 financial assets 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.
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[54]
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:
Reserves base
Certain oil and gas properties are depreciated on a unit-of-production (“UOP”) basis at a rate calculated by reference to
Proved and Probable reserves, determined in accordance with the Society of Petroleum Engineers Petroleum Resources
Management System rules and incorporating the estimated future cost of developing and extracting those reserves. This
results in a depreciation charge proportional to the depletion of the anticipated remaining production from the field.
Commercial reserves are determined using estimates of oil in place, recovery factors and future oil prices.
Future development costs are estimated using assumptions as to the number of wells required to produce the commercial
reserves, the cost of such wells and associated production facilities, and other capital costs. The Urals blend oil price
assumption used in the estimation of commercial reserves is an export price of US$70 to $100 per barrel with an average
of US$72.2.
Each item's life, which is assessed annually, has regard to both its physical life limitations and to present assessments of
economically recoverable reserves of the field at which the asset is located. These calculations require the use of estimates
and assumptions, including the number of recoverable reserves and estimates of future capital expenditure. The
calculation of the UOP rate of depreciation could be impacted to the extent that actual production in the future is different
from current forecast production based on Proved and Probable reserves. This would generally result from significant
changes in any of the factors or assumptions used in estimating reserves.
These factors could include:
•
Changes in Proved and Probable reserves;
•
The effect on Proved and Probable reserves of differences between actual commodity prices and commodity price
assumptions; and
•
Unforeseen operational issues.
Recoverability of oil and gas properties – Note 16
The Group assesses each asset or cash-generating unit (“CGU”) every reporting period to determine whether any indication
of impairment exists. Where an indicator of impairment exists, a formal estimate of the recoverable amount is made, which
is the higher of the fair-value-less-costs-of-disposal and value-in-use. These assessments require the use of estimates and
assumptions such as long-term oil prices (considering current and historical prices, price trends and related factors), discount
rates, operating costs, future capital requirements, decommissioning costs, exploration potential, reserves (see 3.4(b)
reserves base above) and operating performance (which includes production and sales volumes). These estimates and
assumptions are subject to risk and uncertainty. Therefore, there is a possibility that changes in circumstances will impact
these projections, which may impact the recoverable amount of assets and/or CGUs.
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. Fair value for oil and gas properties is generally determined as the present
value of estimated future cash flows arising from the continued use of the assets, which includes estimates such as the cost
of future expansion plans and eventual disposal, using assumptions that an independent market participant may consider.
Cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset. Management has assessed its CGUs as being an individual field, which is
the lowest level for which cash inflows are largely independent of those of other assets.
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[55]
3.4
Significant Accounting Judgements, Estimates and Assumptions (continued)
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.
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.
Impairment of financial assets – Note 22
Investments in joint venture 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
Decommissioning costs – Note 28
Decommissioning costs will be incurred by the Group at the end of the operating life of certain of the Group’s facilities and
properties. The ultimate decommissioning costs are uncertain and cost estimates can vary in response to many factors
including changes to relevant legal requirements, the emergence of new restoration techniques or experience at other sites.
The expected timing and amount of expenditure can also change, for example, in response to changes in reserves or changes
in laws and regulations or their interpretation. As a result, there could be significant adjustments to the provisions
established which would affect future financial results. Refer to Note 28 for details of this provision and related assumptions.
Income tax- Note 11
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.
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
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[56]
3.5
Summary of Significant Accounting Policies
(a) Foreign currencies (continued)
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 2021 and 2020 were:
2021
2020
US$1 =
Closing
Average
Closing
Average
Russian Rouble
75.313
73.694
74.54
72.325
Euro
0.8829
0.8468
0.8149
0.8774
British Pound
0.7419
0.7267
0.7326
0.7771
(b) Oil and gas exploration, evaluation, and development expenditure
Oil and gas exploration, evaluation and development expenditure are accounted for using the successful efforts method of
accounting.
Pre-licence costs
Pre-licence costs are expensed in the period in which they are incurred.
Exploration and evaluation costs
Costs directly associated with an exploration well are capitalised until the drilling of the well is complete and the results have
been evaluated. These costs include employee remuneration, materials and fuel used, rig costs and payments made to
contractors. If hydrocarbons are not found, the exploration expenditure is written-off as a dry hole. If extractable oil is found
and subject to further appraisal activity, which may include the drilling of further wells, is likely to be developed
commercially, the costs continue to be carried as exploration and evaluation costs. All such carried costs are subject to
technical, commercial and management review as well as review for impairment at least once a year to confirm the
continued intent to develop or otherwise extract value from the discovery. If this is no longer the case, the costs are written-
off. When proved reserves are determined and development is sanctioned, the relevant expenditure is transferred to oil
and gas properties after impairment is assessed and any resulting impairment loss is recognised. The net proceeds or costs
of pilot production are allocated to exploration and evaluation costs.
Development costs
Expenditure on the construction, installation or completion of infrastructure facilities such as platforms, pipelines and the
drilling of development wells, including unsuccessful development or delineation wells, is capitalised within oil and gas
properties and depreciated from the commencement of production on a unit-of-production basis other than certain non-
production related equipment and facilities which are expected to have a shorter useful economic life and are depreciated
on a straight-line basis.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a
substantial period to get ready for its intended use or sale are capitalised as part of the cost of the respective assets. All
other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an
entity incurs in connection with the borrowing of funds. No finance costs met the criteria to be capitalised as borrowing
costs in either 2021 or 2020.
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[57]
3.5
Summary of Significant Accounting Policies (continued)
(c) Oil and gas properties, assets under construction and property, plant, and equipment.
Oil and gas properties, assets under construction and property, plant and equipment are stated at cost, less accumulated
depreciation, and accumulated impairment losses, if any.
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
Oil and gas properties are depreciated on the following basis:
•
Production related items including the wells, production facility and pipeline are depreciated on a unit-of-
production basis over the Proved and Probable reserves of the field concerned. The unit-of-production rate for the
amortisation of field development costs considers expenditures incurred to date, together with sanctioned future
development expenditure to extract these reserves. The related depreciation is included within cost of sales.
• Certain non-production related equipment and facilities which are expected to have a shorter useful economic life
are depreciated on a straight-line basis over their estimated useful lives at annual rates ranging from 10% to 50%.
The related depreciation is included within administrative expenses.
•
Assets under construction are not depreciated until construction is completed and the assets are available for their
intended use.
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%.
•
Motor vehicles – 14% to 35%.
•
Property, plant, and equipment – 10 % -15%
(d) Intangible Assets
Intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. The carrying
values are reviewed for indicators of impairment at each reporting date and are subject to impairment testing when events
or changes in circumstances indicate that the carrying values may not be recoverable.
Intangible assets are amortised on a straight-line basis. In general, based on the current composition of definite-lived
intangible assets which represents extraction rights, the useful lives are 35 years. Amortisation periods, useful lives, expected
patterns of production and residual values are reviewed at each financial year-end. Changes in the expected useful life or
the expected pattern of production of future economic benefits embodied in the asset are accounted for by changing the
amortisation period or method as appropriate on a prospective basis.
(e) 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.
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.
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[58]
3.5
Summary of Significant Accounting Policies (continued)
(e) Financial assets (continued)
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 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
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.
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.
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[59]
3.5
Summary of Significant Accounting Policies (continued)
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 and other receivables are classified as trade and other receivables. Financial assets 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.
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
Derivative Financial Instruments
Derivative financial instruments are contracts, the fair value of which is derived from one or more underlying financial
instruments or indices, and include futures, forwards, swaps and options in the interest rate, foreign exchange, equity, and
credit markets.
Derivative financial instruments are recognised in the statement of financial position at fair value. Fair values are derived
from prevailing market prices, discounted cash flows or option pricing models as appropriate.
In the statement of financial position,
•
derivative financial instruments with positive fair values (unrealised gains) are included as assets and
derivative financial instruments
•
with negative fair values (unrealised losses) are included as liabilities.
The changes in the fair values of derivative financial instruments are recognised through profit and loss.
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[60]
3.5
Summary of Significant Accounting Policies (continued)
(f) Trade payables
Trade payables are initially measured at fair value and are subsequently measured at amortised cost, using the effective
interest rate method.
(g) Non-current liabilities
Non-current liabilities represent amounts that are due more than twelve months from the reporting date.
(h) 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.
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.
(i) 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. Substantially modified means when the net present value of the cashflows under the original terms
and the modified terms is greater than 10%.
(j) Comparatives
Where necessary, comparative figures have been adjusted to conform to changes in presentation in the current year.
(k) 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.
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[61]
3.5
Summary of Significant Accounting Policies (continued)
(k) Fair value measurement (continued)
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.
(l) 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.
(m) 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.
(n) 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.
(o) Share capital
Ordinary shares are classified as equity. Costs of share issues are deducted from equity.
(p) 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.
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[62]
3.5
Summary of Significant Accounting Policies (continued)
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:
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.
(q) 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:
Crude oil sales
Management services; and
Construction services.
Revenue from sale of crude oil is recognized at the transaction price which the Group expects to be entitled to, after
deducting sales taxes, excise duties and similar levies. Revenue is recognised when control has been transferred to the
customer. For sales of crude oil, this generally occurs when product is physically transferred into a pipe or other delivery
mechanism. Crude oil sales are paid for in advance.
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[63]
3.5
Summary of Significant Accounting Policies (continued)
(q) Revenue recognition (continued)
Revenue from management services is recognised in accordance with agreements with our subsidiaries and joint venture
partner. 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.
(r) 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.
(s) 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
26.
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 is 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.
(t) 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
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[64]
3.5
Summary of Significant Accounting Policies (continued)
(t) Leases (continued)
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 from 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.
(u) 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
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. Interest expense is included in the Finance
cost in the income statement.
(v) 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.
(w) 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.
(x) 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: were 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
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[65]
3.5
Summary of Significant Accounting Policies (continued)
(t) Leases (continued)
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.
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
2021:
o
Amendments to IFRS 9 Financial Instruments,
o
IAS 39 Financial Instruments: Recognition and measurement,
o
IFRS 7 Financial Instruments: Disclosures, IFRS 4 Insurance Contracts and
o
IFRS 16 Leases – Interest Rate Benchmark Reform – Phase 2.
The amendments did not result in a material impact on the Group’s results
The following standard amendment was issued in March 2021 effective for annual reporting periods beginning on or after
1 April 2021 with earlier application permitted:
o
Amendments to IFRS 16 – COVID-19-Related Rent Concessions beyond 30 June 2021.
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 PetroNeft 2021 financial year-end that are
expected to have a material impact on the results or
financial position of the Group
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[66]
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:
2021
2021
Non-current assets
US$
US$
Russia
39,766,931
27,345,392
Ireland
-
-
39,766,931
27,345,392
Revenues are allocated on where the underlying business
and assets are located.
2021
2020
US$
US$
Revenue- Location
Russia
5,815,255
1,695,524
5,815,255
1,695,524
2021
2020
US$
US$
Revenue- Customer
Alexandrovskoye Oil Refinery 71% (2020:0%)
4,133,446
-
SMPH LLC 8% (2020: 0%)
459,063
-
CJSC Sovkhimteh .0.03% (2020: 0%)
19,926
-
Total Crude oil revenues 79.3% (2020: 0%) -(Note 5)
4,612,435
WorldAce Investments Limited-7% (2020- 40.5%) -(Note 5)
406,577
686,498
Russian BD Holdings B.V- 0.5% (2020-12.3%)- (Note 5)
26,832
209,092
LLC Stimul T- 13.2% (2020-47.2%)- (Note 5)
769,411
799,934
5,815,255
1,695,525
5.
Revenue
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[67]
2021
2020
US$
US$
Revenue
Crude Oil Sales (Note 4)
4,612,435
-
Management Services (Note 4)
433,409
895,590
Construction Services (Note 4)
769,411
799,934
5,815,255
1,695,524
With the reclassification of Russian BD Holdings B.V. from a joint venture to subsidiary entity as and from 1 March 2021,
most of the revenue arises from sale of Crude oil to third party offtakers (see Note 4). Revenue from crude oil sales arises
primarily from sales to third parties based in the Russian Federation. The Group receives payment for crude oil sales in
advance, therefor the risk of default is very low.
The management service fee services fee income reimburses expenditure that PetroNeft incurred, as operator of the
licences.
The construction revenue is mainly derived from Granite LLC construction services offered to Stimul-T LLC, which is the
100% subsidiary of joint venture arrangement WorldAce Investments Limited. Payment terms are stated at 10 business
days after acceptance of the invoice.
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[68]
6.
Employees
Number of employees
2021
2020
Group
Number
Number
The average numbers of employees (including
Directors) during the year were:
Directors
5
6
Senior Management
2
2
Professional staff
4
4
Oil field workers
6
-
Construction crew employees
20
20
37
32
Number of employees
2021
2020
Company
Number
Number
The average numbers of employees (including
Directors) during the year were:
Directors
5
6
Senior Management
2
2
Professional Staff
-
-
7
8
Employment costs (including Directors)
2021
2020
Group
US$
US$
Wages and salaries
1,447,041
1,411,844
Social insurance costs
149,030
145,691
Contributions to defined contribution pension plan
21,156
79,161
1,617,227
1,636,696
Employment costs (including Directors)
2021
2020
Company
US$
US$
Wages and salaries
991,618
1,087,842
Social insurance costs
63,796
67,040
Contributions to defined Pension Plan
21,156
79,161
1,076,570
1,234,043
Directors' emoluments
2021
2020
Group and Company
US$
US$
Remuneration and other emoluments - Executive
Directors*
613,832
628,817
Remuneration and other emoluments - non-Executive
Directors
53,524
49,822
Pension contributions
31,250
45,000
698,606
723,639
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[69]
6.
Employees (continued)
2021
2020
Director
Basic
Pension
Total
Basic
Pension
Total
Executive directors
David Sturt*
413,832 16,250 430,082 428,817 30,000 458,817
Pavel Tetyakov
200,000 15,000 215,000 200,000 15,000 215,000
613,832 31,250 645,082 628,817 45,000 673,817
Non-executive directors
Alastair McBain
17,990 - 17,990 - - -
Daria Shaftelskaya
14,672 - 14,672 11,020 - 11,020
Anthony Sacca
14,672 - 14,672 11,533 - 11,533
Eskil Jersing
3,968
- 3,968
- - -
David Golder
2,222
- 2,222
15,224 - 15,224
Thomas Hickey
- - - 11,132 - 11,132
Maxim Korobov
- - -
913
- 913
53,524 - 53,524 49,822 - 49,822
Total Directors remuneration
667,356
31,250 698,606
678,639 45,000 723,639
* Includes Medical Insurance of US$13,832 (2020: 28,817).
(a) As part of the 2021 Convertible Debt raise, amount due to directors and senior management was reduced by the
issuance of a convertible note in the sum of US$658,802.
(b) Included in the above are unpaid fees and remuneration due to Directors as at 31 December 2021 of US$172,926 (2020:
US$470,023)
(c) Pension contributions to directors during the year relate to 2 directors (2020: 2 director).
(d) An amount of US$340,323 (2020: US$336,908) relating to Executive Directors’ salaries was re-charged to WorldAce
Investments Limited. An amount of US$102,097 (2020: US$101.073) relating to Executive Directors’ salaries was re-charged
to Russian BD Holdings B.V.
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[70]
7.
Operating loss
Note
2021
2020
Operating loss is stated after charging/(crediting):
US$
US$
Included in cost of sales
Short term lease rentals - equipment
17,339
15,835
Included in administrative expenses
Foreign exchange (gains)/losses
(40,772)
35,642
Short term lease rentals - land and buildings
8,435
5,192
Depreciation of property, plant, and equipment
Included in cost of sales
167,690
21,667
Included in administrative expenses
4
17
167,690
21,671
Auditors' remuneration - Group
-audit of group financial statements
80,704
69,791
-tax advisory services
-
-
-other non-audit services
196,966
109,453
-other assurance services
-
-
277,670
179,244
Auditors' remuneration - Company
-audit of entity financial statements
17,250
17,250
-audit of group financial statements
55,934
52,541
-tax advisory services
-
-
-other non-audit services
7,520
-
-other assurance services
-
-
80,704
69,791
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[71]
8.
Finance income
2021
2020
US$
US$
Bank interest receivable
9,490
194
Interest receivable on loans to Joint Ventures
2,846,149
3,582,972
2,855,639
3,583,166
Total interest income on financial assets
2,846,149
3,582,972
9.
Finance costs
2021
2020
US$
US$
Interest on loans
800,698
432,362
Unwinding of discount on decommissioning provision (note 28)
2,660
-
803,358
432,362
In respect of liabilities not at fair value through Profit and Loss
-
-
Total interest expense on financial liabilities
803,358
432,362
10.
Unrealised Gain on Business Combination
Note
2021
US$
FX losses recycled to Profit and Loss Account (Note
14)
A
(4,026,539)
Revalue Investment in Russian B.D. Holding B.V. to fair value (Note
21)
B
3,625,000
Revalue of Russian B.D. Holdings B.V. Loan recoverable to fair
value (Note 15 & 22)
C
3,834,269
Unrealised gain on business combination
3,432,730
The unrealised gain arose from netting off, at consolidated level the following:
A) Negative currency exchange differences of US$4.02M, accruing to Russian BD Holdings B.V., and reflected in
the Group Financial Statements, which has been recycled to the Group Income Statement, and offset against
gains arising on:
B) Revaluation of PetroNeft's original 50% holding in Russian BD Holdings B.V. of US$3.625M. The investment
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[72]
10.
Unrealised Gain on Business Combination (continued)
had previously been written down to zero in both the Group and Company Financial Statements and:
C) Marking to fair value at PetroNeft Group level an intercompany loan receivable from Russian BD Holdings
B.V., by an amount of US$3.83M. This loan had previously been carried in the PetroNeft Consolidated Financial
Statements of US$4.1M.
11.
Income Tax
Group
2021
2020
US$
US$
Current income tax
Current income tax charge
87,522
(2,635)
Total current income tax
87,522
(2,635)
Deferred tax
Relating to the origination and reversal of temporary differences
872,554
897,875
Total deferred tax
872,554
897,875
Income tax expense reported in the Consolidated Income
Statement
960,076
895,240
2021
2020
US$
US$
Loss before income tax
(3,910,988)
(3,646,621)
Accounting loss multiplied by Irish standard rate of tax of 12.5%
(488,874)
(455,827)
Non-deductible expenses
454,989
110,200
Effect of higher tax rates on investment income
436,414
447,872
Tax deductible timing differences
(12,104)
(5,208)
Share of joint ventures' net loss
636,336
805,287
Other
22,444
(10,528)
Profits taxable at higher rates
7,168
3,445
Taxable losses not utilised
(96,297)
-
Total tax expense reported in the Consolidated Income
Statement
960,076
895,240
Deferred tax
Group and Company
2021
2020
US$
US$
Deferred income tax liability
At 1 January
5,199,522
4,303,779
Expense for the year recognised in the income statement
872,554
897,875
Translation adjustment
272
(2,132)
At 31 December
6,072,348
5,199,522
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[73]
11.
Income Tax (continued)
Deferred tax at 31 December relates to the following:
2021
2020
US$
US$
Deferred income tax liability
Accrued interest income on intra-Group loans
6,072,348
5,199,522
6,072,348
5,199,522
The Group has tax losses which arose in Russia that are available for offset against future profits.
Deferred tax assets of US$0.90 million have not been recognised in respect of these losses as they may not be used to
offset taxable profits elsewhere in the Group and they have arisen in its subsidiary, Russian BD Holdings B.V, that has
been loss making over the recent number of years
Factors that may affect future tax charges
The tax charge in future years will be affected by changes to the rates of Irish Corporation Tax. There is no current
expectation that the tax rate of 12.5% in Ireland will change in the foreseeable future.
12.
Loss per Ordinary Share
Basic loss per Ordinary Share amounts is calculated by dividing net loss for the year attributable to ordinary equity holders
of the Parent by the weighted average number of Ordinary Shares outstanding during the year.
2021
2020
Numerator
US$
US$
Loss attributable to equity shareholders of the Parent
for basic loss
(4,867,482)
(4,541,861)
(4,867,482)
(4,541,861)
Denominator
Weighted average number of Ordinary Shares for
basic
1,000,024,400
831,674,668
Loss per share:
Basic and Diluted - US dollar cent
(0.49)
(0.55)
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 Note 35. Of the 17,442,269 converts in issue at financial year end, they relate entirely
to 4 of the 13 lenders contributing to the 2021 Convertible debt. Given the Company is substantially loss making, the
addbacks and increased equity holding would be anti-dilutive.
During 2021 subscription rights accruing to all 5 lenders of the 2019 Convertible loan, 9 of the 2021 Convertible loans, and
the 50% convert awarded as part of funding the 40% extra shareholding in Russian BD Holdings B.V had been exercised by
the option holders.
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[74]
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.
Share of net
assets
US$
At 1 January 2020
-
Elimination of unrealised profit on intra-Group transactions
-
Retained loss
(5,737,042)
Currency Translation adjustment
(6,735,737)
Credited against loans receivable from WorldAce Investments Limited (Note
22)
12,472,779
At 1 January 2021
-
Elimination of unrealised profit on intra-Group transactions
-
Retained loss
(4,964,654)
Currency Translation adjustment
(302,530)
Credited against loans receivable from WorldAce Investments Limited (Note
22)
5,267,184
At 31 December 2021
-
The balance sheet position of WorldAce shows net liabilities of US$99,448,212 (2020: US$88,913,849) following a loss in the
year of US$9,929,308 (2020: US$11,474,084) together with a negative currency translation adjustment of US$605,059 (2020:
negative US$13,471,473). PetroNeft’s 50% share is included above and results in a negative carrying value of US$45,041,703
(2020: US$39,774,519). 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$45,041,073 (2020: US$39,774,519) is deducted from other assets
associated with the joint venture on the Balance Sheet which are the loans receivable from WorldAce Investments (see Note
22).
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[75]
13.
Equity-accounted Investment in Joint Venture – WorldAce Investments Limited (continued)
Additional financial information in respect of PetroNeft’s 50% interest in the equity-accounted joint venture entity is
disclosed below.
Summarised Financial statements of equity-accounted joint venture
2021
2020
US$
US$
Revenue
29,912,441
16,719,562
Cost of sales
(28,649,622)
(17,465,594)
Gross profit
1,262,819
(746,032)
Administrative expenses
(4,144,337)
(2,515,578)
Operating profit/(loss)
(2,881,518)
(3,261,610)
Finance Income
90,803
35,745
Finance costs
(7,138,593)
(7,985,620)
Loss for the year for continuing operations before taxation
(9,929,308)
(11,211,485)
Income tax expense
-
(262,599)
Loss for the year
(9,929,308)
(11,474,084)
Loss for the year
(9,929,308)
(11,474,084)
Other comprehensive income to be reclassified to profit or loss in
subsequent years:
-
Currency translation adjustments
(605,059)
(13,471,473)
Total comprehensive loss for the year
(10,534,367)
(24,945,557)
PetroNeft share of net loss for year
(4,964,655)
(5,737,042)
PetroNeft share of currency translation adjustments
(302,530)
(6,735,757)
PetroNeft share (50%)
(5,267,184)
(12,472,779)
Included in the above numbers are charges for
Depreciation and Amortisation
1,125,173
1,256,822
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 34 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 remained relatively stable versus the US dollar during 2021 as evidenced by the minimal movement/
weakening in the dollar / rouble exchange rate at year end RUB75.31:US$1 (2020: RUB 74.54:US$1).
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[76]
13.
Equity-accounted Investment in Joint Venture – WorldAce Investments Limited (continued)
2021
2020
US$
US$
Non-current Assets
Oil and gas properties
61,593,374
63,884,598
Property, plant, and equipment
851,000
241,080
Exploration and evaluation assets
-
-
Assets under construction
1,565,336
1,517,064
Intangible Assets
1,786,837
1,829,477
65,796,546
67,472,219
Current Assets
Inventories
3,088,533
2,149,712
Trade and other receivables
2,058,182
904,824
Cash and cash equivalents
185,274
212,433
5,331,989
3,266,969
Total Assets
71,128,535
70,739,188
Non-current Liabilities
Provisions
1,954,593
1,360,704
Obligations under finance lease
16,009
61,222
Interest-bearing loans and borrowings
157,285,969
147,877,926
159,256,571
149,299,852
Current Liabilities
Trade and other payables
11,014,189
7,571,206
Obligations under finance lease
43,242
43,242
Corporation Tax
262,745
262,745
Interest-bearing loans and borrowings
-
2,475,992
11,320,176
10,353,185
Total Liabilities
170,576,747
159,653,037
Net Liabilities
99,448,212
88,913,849
Non -Current Financial Liabilities
157,301,978
147,939,148
Current Financial Liabilities
43,242
43,242
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 34 Related party disclosures.
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[77]
13.
Equity-accounted Investment in Joint Venture – WorldAce Investments Limited (continued)
Capital commitments
2021
2020
US$
US$
Details of capital commitments at balance sheet date includes:
Contracted but not provided for in the financial statements
-
-
14.
Equity-accounted Investment in Joint Venture - Russian BD Holdings B.V.
Russian BD Holdings B.V., is a Netherlands registered legal entity which holds 100% of LLC Lineynoye, an entity involved in
oil and gas exploration and the registered holder of Licence 67 in Russia. The interest in this joint venture is accounted for
using the equity accounting method through to 28 February 2021, and as PetroNeft increased its shareholding by an
additional 40% from 1 March 2021, thereafter the acquisition method of accounting is applied.
Accordingly for joint venture purposes only, the data below is prepared up to 28 February 2021.
Share of net
assets
US$
At 1 January 2020
-
Elimination of unrealised profit on intra-Group transactions
-
Share of net loss of joint venture for the year
(705,249)
Currency Translation adjustment
(843,617)
Credited against loans receivable from Russian BD Holdings B.V. (Note 16)
1,548,866
At 1 January 2021
-
Elimination of unrealised profit on intra-Group transactions
-
Retained loss
(126,031)
Currency Translation adjustment
(26,319)
Credited against loans receivable from Russian BD Holdings B.V. (Note 16)
152,350
At 28 February 2021
-
The balance sheet position of Russian BD Holdings B.V. shows net liabilities, pre consolidation of US$7,630,075 (2020:
US$7,350,155) following a loss in the 2-month period ending 28 February 2021 of US$252,062 (2020: US$1,410,498)
together with a negative currency translation of US$52,638 (2020: negative US$1,687,233). PetroNeft’s 50% share is
included above and results in a negative carrying value of US$3,834,269 (2020: US$3,681,920). 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$3,834,269 (2020: US$3,681,920) is deducted from other assets associated with the joint venture on the Balance Sheet
which are the loans receivable from Russian BD Holdings B.V.
The cumulative loss offset against loans receivable is subsequently, as and from 1 March 2021, reversed on acquisition by
PetroNeft of an additional 40% equity holding in Russian BD Holdings B.V. (See note 10 above point C)
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[78]
14.
Equity-accounted Investment in Joint Venture - Russian BD Holdings B.V. (continued)
Additional financial information in respect of PetroNeft’s 50% interest in the equity-accounted joint venture entity is
disclosed below
Summarised Financial statements of equity-accounted joint venture
28 February
31 December
2021
2020
US$
US$
Revenue
27,980
37,400
Cost of sales
(95,637)
(157,567)
Gross profit
(67,657)
(120,167)
Administrative expenses
(39,367)
(393,639)
Operating loss
(107,024)
(513,806)
Finance Income
6
325
Finance costs
(145,044)
(897,017)
Loss for the year for continuing operations before taxation
(252,062)
(1,410,498)
Taxation
-
-
Loss for the year
(252,062)
(1,410,498)
Loss for the year
(252,062)
(1,410,498)
Other comprehensive income to be reclassified to profit or loss in
subsequent years:
Currency translation adjustments
(52,638)
(1,687,233)
Total comprehensive loss for the year
(304,700)
(3,097,731)
PetroNeft share of net loss for year
(126,031)
(705,249)
PetroNeft share of currency translation adjustments
(26,319)
(843,617)
PetroNeft share (50%) (Note 15)
(152,350)
(1,548,866)
Included in the above numbers are charges for
Depreciation and Amortisation
-
-
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 34 Related party disclosures.
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[79]
14.
Equity-accounted Investment in Joint Venture - Russian BD Holdings B.V. (continued)
28 February
31 December
2021
2020
US$
US$
Non-current assets
10,674,204
10,098,999
Current assets
185,039
199,720
Total assets
10,859,243
10,298,719
Non-current liabilities
16,549,062
16,404,101
Current liabilities
1,940,256
1,244,773
Total liabilities
18,489,318
17,648,874
Net Liabilities
7,630,075
7,350,155
Non -Current Financial Liabilities
16,525,991
16,404,101
Current Financial Liabilities
253,832
119,384
Capital commitments
2021
2020
US$
US$
Details of capital commitments at balance sheet date includes:
Contracted but not provided for in the financial statements
-
1,000,000
15.
Business Combination during the period.
On 5 March 2021 the Company acquired an additional 40% voting equity instruments of Russian BD Holdings B.V., a
company in which the Company previously held 50% equity and was reported under the equity method of accounting.
Given Management believes the accounting transactions over the 4-day period was immaterial, for the purposes of this
consolidation, the consolidation date is deemed to be 1 March 2021.
The principal reason for the acquisition was to further enhance the value proposition that is the Group PetroNeft
Resources plc, which saw rather quickly post consolidation the asset moving from an exploratory type of asset to full
commercial production.
Details of fair value of identifiable assets and liabilities acquired, purchase consideration and goodwill, which was
reallocated to Exploration and Evaluation assets is shown below.
On acquisition Russian BD Holdings B.V, had a loan payable to Belgrave Naftogas B.V., which was assigned to PetroNeft
Resources plc. While the Group will make every effort to recover all contractual liabilities it considers it unlikely that the
sum of US$6,921,346 will be ultimately be received.
At a Group level PetroNeft Resources had a loan receivable from Russian BD Holdings B.V. of US$4,032,496 after deducting
loss allowances of US$3,834,269. To align the balances on the intercompany loans and reflecting fair value reporting
below, the loss allowance of US$3,834,269 was reversed.
Acquisition costs of US$71,120, primarily legal and tax advice, have been expensed in the period in which they were
incurred.
The total consideration for the additional 40% equity transaction was US$3,392,000, which included the issuing of
80,000,000 PetroNeft Ordinary shares to Belgrave Naftogas B.V, and the granting of a convertible loan by Belgrave
Naftogas B.V. to PetroNeft of US$1,700,000.
The fair value of 100% equity in Russian BD Holdings B.V. was deemed to be US$7,250,000, based on the agreed
consideration of US$2,900,000 for 40% equity acquired. Given excess consideration of US$10,150,732 was posted to
Exploration and Evaluation assets, any excess over the total fair value of US$7,250,000 in the amount of US$2,900,732
was deemed to be impaired and expensed to the Profit and Loss Statement.
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[80]
15.
Business Combination during the period (continued)
Book Value
Adjustment
Fair Value
US$
US$
US$
Exploration and Evaluation Assets
10,674,205
-
10,674,205
Inventories
107,501
-
107,501
Trade and Other Receivables
58,645
-
58,645
Cash and Cash Equivalents
18,893
-
18,893
Trade and Other Payables
(1,686,424)
-
(1,686,424)
Loans Short term
(253,832)
-
(253,832)
Provisions
(23,071)
-
(23,071)
Loan from PetroNeft Resource plc (PTR)
(7,866,765)
-
(7,866,765)
Loan from Belgrave Naftogas B.V. (BELG)
(1,737,880)
-
(1,737,880)
Loan Reassignment from BELG to PTR
(6,921,346)
-
(6,921,346)
Total Net Assets / (Liabilities)
(7,630,076)
-
(7,630,076)
Fair Value of business combination
Issue of 80,000,0000 Ordinary Shares
3,392,000
Convertible Loan
1,700,000
Fair value of 40% Equity Acquired in Period
5,092,000
Loan reassignment deemed reduction of
consideration
(6,921,346)
Marking PetroNeft's 50% equity to Fair value
3,625,000
Non-Controlling Interest
725,000
Total Fair Value
2,520,654
Excess posted to Exploration and Evaluation Assets
10,150,732
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[81]
15.
Business combination during the period (continued)
Contribution to PetroNeft Resources (PTR)
Statement of Consolidated Financial Position
RBD Fair
Value
Adjustment
1 March
2021 PTR
31
December
2021 PTR
US$
US$
US$
US$
Exploration and Evaluation Assets
10,674,204
10,150,731
20,824,935
12,631,500
Impairment of Exploration and Evaluation Assets
-
(2,900,732)
(2,900,732)
(2,900,732)
Exploration and Evaluation Assets post impairment
-
-
17,924,203
9,730,768
Oil and Gas Properties
-
-
-
5,006,667
Property, Plant and Equipment
-
-
-
9,890
Assets under construction
-
-
-
516,953
Intangible Assets
-
-
-
3,659,091
Inventories
107,501
-
107,501
68,268
Trade and Other Receivables
58,645
-
58,645
64,911
Cash and Cash Equivalents
18,893
-
18,893
205,304
Trade and Other Payables
(1,686,424)
-
(1,686,424)
(1,897,958)
Loans Short term
(253,832)
-
(253,832)
(2,828)
Provisions
(23,071)
-
(23,071)
(254,629)
Loan from PetroNeft Resource plc (PTR)
(7,866,765)
7,866,765
-
-
Loan from Belgrave Naftogas B.V. (BELG)
(1,737,880)
-
(1,737,880)
(1,809,140)
Loan Reassignment from BELG to PTR
(6,921,346)
6,921,346
-
Loan from Belgrave Naftogas B.V. (BELG)
-
(1,700,000)
(914,396)
Recycle currency translation difference from
PetroNeft
-
Group Statement of Financial Position to Income
-
-
(4,026,539)
(4,026,539)
Statement (Note 10)
Non -Controlling Interest (Note 27)
-
-
(725,000)
(716,410)
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[82]
15.
Business combination during the period (continued)
Russian BD Holdings B.V.- Consolidated
Income Statement
Unaudited
Audited full 12
Month period
Consolidation
Audited
10 months
ended 31
December
2021
2 months
ended 28
February
2021
12 months
ended 31
December
2021
Year ended
31
December
2020
US$
US$
US$
US$
Revenue
4,612,435
27,980
4,640,415
37,400
Cost of sales
(3,386,515)
(95,637)
(3,482,152)
(157,567)
Gross profit/ (Loss)
1,225,920
(67,657)
1,158,263
(120,167)
Administrative expenses
(474,039)
(39,367)
(513,406)
(393,639)
Operating Profit/ (Loss)
751,881
(107,024)
644,857
(513,806)
Finance revenue
9,317
6
9,323
325
Finance costs
(719,084)
(145,044)
(864,128)
(897,017)
Profit/(Loss) for the period for continuing
operations before taxation
42,114
(252,062)
(209,948)
Taxation
(77,936)
-
(77,936)
-
Loss for the period
(35,822)
(252,062)
(287,884)
(1,410,498)
Loss for the period
(35,822)
(252,062)
(287,884)
(1,410,498)
Other comprehensive income to be reclassified
to profit or loss in subsequent periods:
Currency translation adjustments
(50,078)
(52,638)
(102,716)
(1,687,233)
Total comprehensive loss for the period
(85,900)
(304,700)
(390,600)
(3,097,731)
PetroNeft Share
90%
50%
90%
50%
Non-Controlling Interest/ Joint Venture
Partner
10%
50%
10%
50%
100%
100%
100%
100%
PetroNeft Share
(77,310)
(152,350)
(351,540)
(1,548,866)
Non-Controlling Interest/ Joint Venture
Partner
(8,590)
(152,350)
(39,060)
(1,548,866)
(85,900)
(304,700)
(390,600)
(3,097,731)
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[83]
16.
Oil and Gas Properties
Wells
Equipment and
facilities
Total
US$
US$
US$
Cost
At 1 January 2020
-
-
-
At 1 January 2021
-
-
-
Transferred from exploration and evaluation assets
(Note 18)
3,960,847
101,131
4,061,978
Transferred from assets under construction (Note 19)
-
1,139,456
1,139,456
Translation adjustment
(72,092)
(58,571)
(130,663)
At 31 December 2021
3,888,755
1,182,016
5,070,771
Depreciation
At 1 January 2020
-
-
-
At 1 January 2021
-
-
-
Charge for the year
54,446
11,020
65,466
Translation adjustment
(1,112)
(250)
(1,362)
At 31 December 2021
53,334
10,770
64,104
Net book values
At 31 December 2021
3,835,422
1,171,246
5,006,667
At 31 December 2020
-
-
-
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[84]
17.
Property, Plant and Equipment
Property
Plant and
Motor
Plant and
machinery
Vehicles
Equipment
Total
US$
US$
US$
US$
Cost
At 1 January 2020
688,135
-
32,065
720,200
Disposals
(3,846)
-
-
(3,846)
Translation adjustment
(108,871)
-
-
(108,871)
At 1 January 2021
575,418
-
32,065
607,483
Additions
142,150
11,325
-
153,475
Disposals
-
-
-
-
Translation adjustment
(8,094)
116
-
(7,978)
At 31 December 2021
709,474
11,441
32,065
752,980
Depreciation
At 1 January 2020
659,293
-
32,065
691,358
Charge for the year
21,671
-
-
21,671
Disposals
(3,846)
-
-
(3,846)
Translation adjustment
(106,381)
-
-
(106,381)
At 1 January 2021
570,737
-
32,065
602,802
Charge for the year
35,928
1,598
-
37,526
Translation adjustment
(5,918)
(47)
-
(5,965)
At 31 December 2021
600,747
1,551
32,065
634,363
Net book values
At 31 December 2021
108,727
9,890
-
118,618
At 31 December 2020
4,682
-
-
4,682
Company
Plant and
machinery
US$
Cost
At 1 January 2020
32,066
At 1 January 2021
32,066
At 31 December 2021
32,066
Depreciation
At 1 January 2020
31,580
Charge for the year
(486)
At 1 January 2021
32,066
Charge for the period
-
At 31 December 2021
32,066
Net book values
At 31 December 2021
-
At 31 December 2020
-
*Petrogrand AB has a first floating charge over the assets of the Company.
**At 31 December 2021 and 2020, there was no property, plant, and equipment capital commitments
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[85]
18.
Exploration and evaluation assets
Group
Exploration &
Evaluation
Expenditure
US$
Cost
At 1 January 2020
-
At 1 January 2021
-
Acquired through Business combination (Note 15)
20,824,936
Impairment of oil and exploration assets (Note 15)
(2,900,732)
Acquired through Business combination post
impairment
17,924,204
Additions
730,901
Transferred to oil and gas properties (Note 16)
(3,960,847)
Transferred to equipment & facilities (Note 16)
(101,131)
Transferred to assets under construction (Note 19)
(1,135,999)
Transferred to intangible assets (Note 20)
(3,809,804)
Translation adjustment
83,444
At 31 December 2021
9,730,768
Net book values
At 31 December 2021
9,730,768
At 31 December 2020
-
*At 31 December 2021 and 2020, there was no exploration and evaluation capital commitments
19.
Assets under construction
Group
Assets under
construction
US$
Cost
At 1 January 2020
-
At 1 January 2021
-
Transferred from exploration and evaluation assets
(Note 18)
1,135,999
Transferred to Equipment and Facilities (Note 16)
(1,139,456)
Additions
495,983
Translation adjustment
24,427
At 31 December 2021
516,953
Net book values
At 31 December 2021
516,953
At 31 December 2020
-
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[86]
20.
Intangible Assets
Group
US$
Cost
At 1 January 2020
-
At 1 January 2021
-
Transfer from Exploration and Evaluation Assets
(Note 18)
3,809,804
Translation Adjustment
(66,710)
At 31 December 2021
3,743,094
Depreciation
At 1 January 2020
-
At 1 January 2021
-
Charge for the year
64,698
Translation adjustment
19,305
At 31 December 2021
84,003
Net book values
At 31 December 2021
3,659,091
At 31 December 2020
-
21.
Intangible assets represent extraction rights attributable to License 67, which are amortised on a unit of production
basis on commencement of commercial production. Extraction rights, subject to adherence to licencing conditions
expire in 2039.
Investment in Joint Venture and Subsidiaries
Company
Investment
in joint
ventures
Investment
in
Subsidiaries
Total
US$
US$
US$
Cost
At 1 January 2020
-
13,848
13,848
At 1 January 2021
-
13,848
13,848
Investment in Russian BD Holdings B.V.*
-
8,717,000
8,717,000
At 31 December 2021
8,730,848
8,730,848
Net book values
At 31 December 2021
8,730,848
8,730,848
At 31 December 2020
13,848
13,848
* Analysed as follow:
Revaluation of 50% equity holding previously written off (Note 10)
3,625,000
Consideration for extra 40% equity acquired:
Loan Consideration (Note 29)
1,700,000
Market value of equity shares issued. (Note 15)
3,392,000
Investment in Russian BD Holdings B.V.
8,717,000
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[87]
21.
Investment in Joint Venture and Subsidiaries (continued)
Details of the Company's holding in direct and indirect subsidiaries at 31st December 2021 are as follows:
Name of subsidiary
Registered office
Proportion of
ownership
interest
Proportion of
voting power
held
Principal activity
LLC Granite Construction
13 Sovpartshkolny
Lane, Office 210,
Tomsk 634009, Russia
100%
100%
Construction
LLC Dolomite
13 Sovpartshkolny
Lane, Office 210,
Tomsk 634009, Russia
100%
100%
Oil and gas exploration
Russian BD Holdings B.V.
Prins Bernhardplein
200, 1097 JB,
Amsterdam, the
Netherlands
90%
90%
Holding Company
LLC Lineynoye
13 Sovpartshkolny
Lane, Office 210,
Tomsk 634009, Russia
90%
90%
Oil and gas exploration
Details of the Group's interest in joint ventures at 31st December 2021 are as follows:
Name of entity
Registered office
Proportion of
ownership
interest
Proportion of
voting power
held
Principal activity
WorldAce Investments
Limited
3 Themistocles Street,
Nicosia, Cyprus
50%
50%
Holding Company
LLC Stimul-T
13 Sovpartshkolny
Lane, Office 210,
Tomsk 634009, Russia
50%
50%
Oil and gas exploration
Oil India International B.V. owns the other 50% of WorldAce Investments Limited.
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[88]
22.
Financial assets - loans and receivables
Group
2021
2020
US$
US$
Loans to WorldAce Investments Limited (Note 34)
68,886,038
66,105,781
Loss Allowance
(3,109,501)
(3,109,501)
Less: share of WorldAce Investments Limited loss (Note 13)
(45,041,703)
(39,774,519)
20,734,834
23,221,761
Loans to Russian BD Holdings B.V. (Note 34)
7,866,765
7,800,869
Less Accumulated Share of Joint Venture losses
through February (Note 10)
(3,834,269)
(3,681,920)
Loans to Russian BD Holdings B.V., pre-Consolidation
4,032,492
4,118,949
Reversal of Accumulated Share of Joint Venture losses
-Consolidation adjustment
3,834,269
-
Revaluation of Russian BD Holding B.V., loans post
Acquisition
7,866,765
-
Interest accrued March to December
346,923
-
Loan advances
330,000
-
Loans to Russian BD Holdings B.V at 31 December
8,543,688
4,118,949
Elimination of Russian BD Holding B.V. loans payable
to PetroNeft on Consolidation at year end
(8,543,688)
-
Total Group Loans to Joint Ventures
20,734,834
27,340,710
Company
2021
2020
US$
US$
Loans to WorldAce Investments Limited (Note 34)
68,886,038
66,105,781
Loss Allowance
(3,109,501)
(3,109,501)
Less: share of WorldAce Investments Limited loss (Note 13)
(45,041,703)
(39,774,519)
20,734,834
23,221,761
Loans to Russian BD Holdings B.V. (Note 34)
8,841,927
7,800,869
Less Accumulated Share of Joint Venture losses
-
(3,681,920)
8,841,927
4,118,949
Less Loss Allowance on Reassigned Loan
(298,239)
-
8,543,688
4,118,949
Total Company Loans to Joint Venture and Subsidiary
29,278,522
27,340,710
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%.
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[89]
22.
Financial assets - loans and receivables (continued)
The Company has agreed not to seek payment of interest until 30 June 2023 at the earliest. The loan is set to mature on 31
December 2025. As at 31 December 2021 the loan was fully drawn down. The realisation of financial assets of $20.7m 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.
In March 2021, the Company increased its equity holding in Licence 67 from 50% to 90%. Also in March 2021, the Company
announced commercial production on Licence 67. The C-4 well was successfully re-entered in Q1 2021 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 pf P1 and P2 which were confirmed by Miller and Lents reserve audit in 2021.In addition, the Company is
also working on plans to re-enter two wells on the Ledovoye field, also in Licence 67, during the 2021/2022 period. Should
this be successful the Company will be looking to both a) book additional reserves and b) 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. As per note 37, Important events after the balance sheet date, all shareholders of
Russian BD Holdings B.V. passed a resolution, effective as of 9 February 2022, to convert all loan balances and payables
owing to them, into the share premium account as part of equity of Russian BD Holdings B.V. Trading performance during
2021 rebounded from the lows of 2020, however the ongoing Covid pandemic plus the Russian / Ukrainian conflict have
been considered as significant impairment factors. After due consideration it is considered that there is sufficient headroom
in the detailed calculations of future trading performance of both WorldAce Investments Limited and Russian BD Holdings
B.V., such that no impairment provision was recorded against the loans outstanding as of 31 December2021 on either a
Company or Group level.
23.
Inventories
2021
2020
US$
US$
Materials
86,842
19,387
86,842
19,387
24.
Trade and other receivables
Group
2021
2020
US$
US$
Receivable from joint ventures (Note 34)
938,033
2,329,529
Trade Receivable
-
45,718
Prepayments
61,467
84,188
Advances to contractors
37,694
1,468
Other receivables
88,860
68,028
1,126,054
2,528,931
Company
2021
2020
US$
US$
Amounts owed by subsidiary undertakings (Note 34)
596,511
449,488
Amounts owed by other related companies (Note 34)
921,295
1,833,761
VAT Receivable
36,414
36,075
Prepayments
59,106
83,760
1,613,326
2,403,084
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[90]
24.
Trade and other receivables (continued)
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%.
25.
Cash and Cash Equivalents
Group
2021
2020
US$
US$
Cash at bank
915,602
101,028
915,602
101,028
Company
2021
2020
US$
US$
Cash at bank
709,889
94,970
709,889
94,970
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.
26.
Share Capital - Group and Company
2021
2020
€
€
Authorised Share Capital
1,250,000,000 (2020: 1,000,000,000) Ordinary Shares
of €0.01 each
12,500,000
10,000,000
Authorised Share Capital increase of 250,000,000
Ordinary Shares of €0.01 each
-
2,500,000
12,500,000
12,500,000
Allotted, called up and fully paid equity
Number of
Ordinary Shares
Called up share
capital US$
At 1 January 2020
721,130,500
9,585,965
Issued during the year
118,226,241
1,310,703
At 1 January 2021
839,356,741
10,896,668
Issued during the year
232,435,872
2,764,798
At 31 December 2021
1,071,792,613
13,661,466
During 2021 a total of 232,435, 872 shares were issued in contemplation of the following transactions:
•
To part fund the acquisition of an extra 40% equity holding in Russian BD Holdings B.V. - 80,000,000
Ordinary shares
•
To redeem the conversion rights on loan advance by Belgrave Naftogas B.V. to part fund the 40% equity holding in
Russian BD Holdings B.V. -30,612,870 ordinary shares
•
To redeem conversion rights on the 2019 Convertible debt – 54,621,848 ordinary shares
•
To redeem conversion rights on the 2021 Convertible debt – 67,201,154 ordinary shares
•
On conversion difference between the market prices of the equities and the agreed conversion price per the
agreements gave rise to an accounting loss of US$1,753,874
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[91]
27.
Non-Controlling Interests
2021
2020
US$
US$
At date of Business Combination (1 March 2021)
725,000
-
Share of Russian BD Holdings B.V. Profit/ (Loss)
(3,582)
-
Share of Russian BD Holdings B.V. Currency Exchange
Differences
(5,008)
-
At 31 December
716,410
-
28.
Provisions
2021
2020
US$
US$
At 1 January
Additions
251,969
-
Used during the year
-
-
Unused amounts reversed
-
-
Adjustment arising from changes in the discount rate
-
-
-
Unwinding of discount (Note 9)
2,660
-
Translation adjustment
-
-
At 31 December
254,629
-
The decommissioning provision represents the present value of decommissioning costs relating to the Group’s Russian oil
interests, which are expected to be incurred near 2039. These provisions have been created based on the Group’s internal
estimates. Assumptions, based on the current economic environment, have been made which management believe are a
reasonable basis upon which to estimate the future liability. A discount rate of 12.6% is used for the assessment of the
provision. The charge relating to the unwinding of the discount on the provision is reflected in finance costs in the
Consolidated Income Statement.
These estimates are reviewed regularly to consider any material changes to the assumptions. However, actual
decommissioning costs will ultimately depend upon future market prices for the necessary decommissioning works required,
which will reflect market conditions at the relevant time. Furthermore, the timing of decommissioning is likely to depend on
when the fields cease to produce at economically viable rates. This in turn will depend upon future oil prices, which are
inherently uncertain.
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[92]
29.
Loans and Borrowings
Group
Company
Group and Company
Effective
interest
rate
Contractual
maturity
date
2021
2020
2021
2020
%
US$
US$
US$
US$
Interest-bearing
Current liabilities
Petrogrand AB
10.59%
15-Dec-22
2,271,495
2,675,774
2,271,495
2,675,774
Natlata Partner Limited
10.14%
31-Dec-22
238,911
632,417
238,911
632,417
ADM Consulting
10.16%
31-Dec-22
171,584
459,297
171,584
459,297
Daria Shaftelskaya
10.13%
31-Dec-22
102,170
269,259
102,170
269,259
Michael Murphy
10.14%
31-Dec-22
21,444
57,322
21,444
57,322
David Sturt
10.14%
31-Dec-22
21,437
57,322
21,437
57,322
Total current loans
2,827,041
4,151,391
2,827,041
4,151,391
Non- Current Liabilities
Belgrave Naftogas B.V.
6.05%
31-Dec-25
1,809,140
-
-
-
Belgrave Naftogas B.V.
8.10%
04-Mar-24
914,396
-
914,396
-
Natlata Partners Limited
8.10%
11-Mar-23
147,079
-
147,079
-
ADM Consulting
8.10%
11-Mar-23
147,475
-
147,475
-
David Sturt
8.10%
11-Mar-23
81,040
-
81,040
-
Karl Johnson
8.10%
11-Mar-23
39,955
-
39,955
-
Pavel Tetyakov
8.10%
11-Mar-23
31,880
-
31,880
-
Others
8.10%
11-Mar-23
306,113
-
306,113
-
3,477,078
-
1,667,938
-
Derivative financial
liabilities
8.10%
11-Mar-23
313,168
313,168
Total non-current loans
3,790,246
4,151,391
1,981,106
4,151,391
Total loans and borrowings
6,617,287
4,151,391
4,808,147
4,151,391
Contractual undiscounted liability
6,617,287
4,151,391
4,808,147
4,151,391
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[93]
29.
Loans and Borrowings (continued)
Group
Company
Changes in financial liabilities arising from financing
activities
2021
2020
2021
2020
US$
US$
US$
US$
At 1 January
4,151,391 4,242,849
4,151,391
4,242,849
2021 Convertible debt -13 Lenders
2,903,802
-
2,903,802
-
Convertible debt- Belgrave Naftogas B.V.
1,700,000
-
1,700,000
-
Consolidate Loan Belgrave Naftogas B.V.-Licence 67
1,737,880
-
-
-
Accrued Interest
800,698
432,362
729,438
432,362
11,293,771 4,675,211
9,484,631
4,675,211
Equity Conversion:
a) 2019 Convertible debt- 5 lenders
(845,000)
-
(845,000)
-
b) 2021 Convertible debt - 9 lenders
(1,856,748)
-
(1,856,748)
-
c) Belgrave Naftogas B.V.
(850,000)
-
(850,000)
-
Interest Repayment
(88,013)
(277,746)
(88,013)
(277,746)
Principal Repayment
(574,430)
-
(574,430)
-
Loss/(Profit) on modification of financial liabilities
(354,194)
(218,898)
(354,194)
(218,898)
Loss/(Profit) on settlement of financial liabilities
(19,232)
(19,232)
Reserve accounting for changes in financial liabilities
(83,182)
-
(83,182)
-
Translation Reserve
(5,685)
(27,176)
(5,685)
(27,176)
At period end
6,617,287 4,151,391
4,808,147
4,151,391
Loan facilities.
1. In 2018 the Company obtained a US$2M secured loan facility and subsequently increased by US$0.5M in 2019 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. Post repayment of 20% of the revised loan balance
including rolled up interest as of 31 December 2021, it was agreed the final maturity date would be 15th December 2022.
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 34
Related party disclosures.
2. During 2021 all five lenders of the 2019 convertible loan facility elected to convert their rights into Ordinary Shares of the
Company. The election was 65% of the loan principal amounting to US$0.845M, at a conversion price of US$0.01547 per
ordinary share. On conversion, the interest element attributable to the converted amount was reduced to nil. The
remaining principal carries an interest rate of USD LIBOR plus 8% and has a final revised maturity date of 31 December
2022.
3. PetroNeft on first time consolidation of Russian BD Holdings B.V., includes loans payable at Group level, to Belgrave
Naftogas B.V., the former joint venture partner and now 10% equity holder in Russian BD Holdings B.V. The loan facility
carries an interest rate of 3 months average LIBOR plus 5%, and the final date of maturity is 31 December 2025. After the
balance sheet date as per Note 37, loans due and owing to Belgrave Naftogas B.V. were converted, as part of an agreed
restructuring with PetroNeft, into share premium as part of the equity of Russian BD Holdings B.V.
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[94]
29.
Loans and Borrowings (continued)
4. The consideration for the acquisition of a further 40% equity in Russian BD Holding included both the issuance of shares in
PetroNeft and a convertible loan facility of US$1.7M, with the holder of the loan retaining an option to convert 50% of the
loan amount at 0.02p stg per share. During 2021 the holder of the loan Belgrave Naftogas B.V., made an election to convert
their full entitlement, equating to US$0.85M. The remaining balance which carries a bank of England base rate plus 8%
matures on 4 March 2024.
5. During 2021 PetroNeft entered a convertible loan facility of US$2.9M with a group of thirteen lenders, seven of which are
related parties. Net cash proceeds received was US$2.245M, the balance of US$0.65M, discharged salaries and fees owing
to directors and senior managers. The convertible loan, has a final maturity date of 11 March 2023, carries an interest rate
of bank of England base rate plus 8%. The holders of the convertible debt are entitled to convert up to 75% of their loan
amount into ordinary shares of PetroNeft at 0.02p stg within 1 year of signing the loan agreement and 0.025p stg within
2 years of signing. During 2021 a total of nine lenders made an election to convert, their full conversion amount. The
principal on the Convertible loan post conversion was reduced by an amount of US$1.85M.
6. The Company performed an assessment under its accounting policies and the requirements of IAS 39 as to whether the
restructuring of the terms of its loan facilities were deemed substantial modifications. 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$2.274M (2020:US$2.894M) was derecognised by an amount of US$0.221M and increased by the reversal of
the 2020 modification US$0.218M. Accordingly, the book value of the loan notes is US$2.271M and recognised at the date
of the Statement of Financial Position. Similarly with the 2019 convertible Loan, the facility was derecognised by the sum
of US$132,255 (2020:US$ Nil) and the note value was reduced to US$0.555M from US$0.687M. The gains arising on
substantial modification of the loan notes has been recognised in the Income Statement as profits on modification of
financial liabilities
30.
Trade and other payables
2021
2020
US$
US$
Trade payables
329,956
552,841
Trade and other payables to joint ventures (Note 34)
712,455
703,333
Director Expenses
6,200
-
Corporation tax
55,232
55,232
Other taxes and social insurance costs
539,643
59,395
Accruals and other payables
258,451
543,651
1,901,937
1,914,452
Company
2021
2021
US$
US$
Trade payables
241,995
550,030
Director Expenses
6,200
-
Corporation tax
55,232
55,232
Other taxes and social welfare costs
10,879
30,971
Accruals and other payables
256,661
1,155,028
570,967
1,791,261
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[95]
30.
Trade and other payables (continued)
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.
31.
Financial risk management objectives and policies
The Group’s and Company’s principal financial instruments comprise loans to its joint venture undertaking, 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, climate 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 subsidiary
and its joint venture interest. Historically the Group and its joint venture have sold all their oil on the domestic market in
Russia. Starting in 2021, the Group commenced exports, with up to 7% of total oil produced from its operating units being
exported. There are no banks providing hedging or derivative type contracts for oil sold on the domestic market, so it is not
possible to mitigate 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 2021 and 2020, 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 2021 and 2020, 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 venture 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 2021. 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.
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[96]
31.
Financial risk management objectives and policies (continued)
Group
Change in
USD/RUB
Effect
on loss
before
tax
Effect
on pre-
tax
equity
Change in
USD/EUR
Effect on
loss
before
tax
Effect on
pre-tax
equity
Change
in
USD/GBP
Effect on
loss before
tax
Effect on
pre-tax
equity
US$
US$
US$
US$
US$
US$
2021
5%
-11,796
-11,796
5%
2,526
2,526
5%
-20,497
-20,497
2021
-5%
13,038
13,038
-5%
-2,792
-2,792
-5%
-884
-884
2020
5%
181,785
-181,785
5%
-7,161
-7,161
5%
3,201
3,201
2020
-5%
153,261
-153,261
-5%
-68,974
-68,974
-5%
-3,734
-3,734
Company
Change in
USD/RUB
Effect
on
profit
before
tax
Effect
on pre-
tax
equity
Change in
USD/EUR
Effect on
profit
before
tax
Effect on
pre-tax
equity
Change
in
USD/GBP
Effect on
profit
before tax
Effect on
pre-tax
equity
US$
US$
US$
US$
US$
US$
2021
5%
-11,796
-11,796
5%
2,526
2,526
5%
-20,497
-20,497
2021
-5%
13,038
13,038
-5%
-2,792
-2,792
-5%
-884
-884
2020
5%
181,785
-181,785
5%
-7,161
-7,161
5%
3,201
3,201
2020
-5%
153,261
-153,261
-5%
-68,974
-68,974
-5%
-3,734
-3,734
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.
Climate Risk
The risks associated with climate change are subject to rapidly increasing societal, regulatory, and political focus. Embedded
climate risk into the Group’s risk framework in line with regulatory expectations and adapting the Group’s operations and
business strategy to address both the financial risks resulting from: (i) the physical risk of climate change (ii) the risk of a
transition to a low carbon economy, could have a significant impact on the Group’s operations. Physical risks from climate
change arise from several factors and relate to specific weather events and longer-term shifts in the climate. The nature and
timing of extreme weather events are uncertain, but they are increasing in frequency and their impact on the global
economy is predicted to be more acute in the future. The potential impact on economies includes, but is not limited to,
lower GDP growth, higher unemployment, and significant changes in asset prices and profitability of industries. Damage to
properties and operations of PetroNeft’s subsidiaries and joint venture could lead to increased write offs and impairment
charges in the Group’s and Company’s financial statements.
As the economy transitions to a low carbon economy, Oil and Gas operations such as the Group may face significant and
rapid developments in stakeholder expectation, policy, law, and regulation which could impact activities the Group
undertakes, as well as the risks associated with its loan recoverability from its joint venture operations and impact adversely
the Group’s financial assets.
As sentiment toward climate change shifts and societal preferences change, the Group may face greater scrutiny of the type
of business it conducts, adverse media coverage and reputational damage, which may in turn impact demand for the Group’s
products, returns on certain business activities and the value of certain assets and trading positions resulting in impairment
charges. If the Group does not adequately embed risk associated with climate change into its risk framework
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[97]
31.
Financial risk management objectives and policies (continued)
to appropriately, measure, manage and disclose the various financial and operational risks it faces because of climate
change, or fails to adapt its business model and business strategy to the changing regulatory requirement and market
expectations on a timely basis, it may have a material and adverse on the Group’s level of business growth, competitiveness,
profitability, capital requirements, cost of funding and financial condition.
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 joint venture
WorldAce Investment Limited and PetroNeft’s subsidiary Russian BD Holding B.V. 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 and subsidiaries 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.
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[98]
31.
Financial risk management objectives and policies (continued)
No further ECL have being estimated for 2021 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.
A summary of the assumptions underpinning the Company's expected credit loss model is as follows:
Category
Company definition of category
Basis for recognition of
expected credit loss
provision
Basis for calculation of
interest revenue
Performing
Counterparties have a minimal
risk of default and a strong
capacity to meet contractual cash
flows
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.
Gross carrying amount
Underperforming
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)
Stage 2: Lifetime expected
losses
Gross carrying amount
Non-performing
Interest and/or principal
repayments are 90 days past due
Stage 3: Lifetime expected
losses
Amortised cost carrying
amount (net of credit
allowance)
Write-off
Interest and/or principal
repayments are 180 days past
due and there is no reasonable
expectation of recovery.
Asset is written off
None
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[99]
31.
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
Accumulated
joint venture
losses
Loss
allowance
Net carrying
amount
2021
US$
US$
US$
US$
Group:
Loans to joint venture-
WorldAce
N/A
N/A
General
Impairment
Model
applies
68,886,038
(45,041,703)
(3,109,501)
20,734,834
Company:
Loans to subsidiary
Russian BD Holdings B.V
and joint venture
WorldAce
N/A
N/A
77,727,965
(45,041,703)
(3,407,740)
29,278,522
Cash and cash equivalents
The total amount of US$915,602 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 31
December 2020, the Group, and the Company have outstanding loan facilities as described in Note 29 above.
The expected maturity of the Group and Company’s third-party financial assets (excluding prepayments) as at 31
December 2021 and 2020 was less than one month. The expected maturity of the Group and Company’s related party
financial assets as of 31 December 2021 and 2020 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 31 December 2021 and 2020.
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 31 December 2021 (2020: 31 December 2020). These projections are based on the foreign
exchange rates applying on 31 December 2021 (2020: 31 December 2020):
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[100]
31.
Financial risk management objectives and policies (continued)
Group
Within 1 year
Between 1 and
2 years
Between 2 to 5
years
After 5 years
Total
Year ended 31 December 2021
US$
US$
US$
US$
US$
Interest-bearing loans and borrowings
- current
3,064,558
2,232,041
2,150,057
-
7,446,657
Trade and other payables
1,300,862
-
-
-
1,300,862
4,365,420
2,232,041
2,150,057
0
8,747,519
Group
Within 1 year
Between 1 and
2 years
Between 2 to 5
years
After 5 years
Total
Year ended 31 December 2020
US$
US$
US$
US$
US$
Interest-bearing loans and borrowings
- current
4,512,001
4,512,001
Trade and other payables
1,799,825
-
-
-
1,799,825
6,311,826
0
0
0
6,311,826
Company
Within 1 year
Between 1 and
2 years
Between 2 to 5
years
After 5 years
Total
Year ended 31 December 2021
US$
US$
US$
US$
US$
Interest-bearing loans and borrowings
- current
3,064,558
2,232,041
0
-
5,296,600
Trade and other payables
498,656
-
-
-
498,656
3,563,214
2,232,041
0
0
5,795,256
Year ended 31 December 2020
Interest-bearing loans and borrowings
- current
4,512,001
4,512,001
Trade and other payables
1,705,058
-
-
-
1,705,058
6,217,059
0
0
0
6,217,059
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
Fixed %
Variable %
Interest-bearing loans to joint venture-WorldAce Investments Ltd
6.0%
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 venture would be
to increase Group loss before tax by US$66,000 and Company profit before tax by US$450,000
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.
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[101]
31.
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 2021 and 2020. 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$20.73 million, which approximates the fair value.
The carrying value of the loans to Russian BD Holdings B.V. in the Company, as reported in accordance with IAS 27, is US$8.54
million, which approximates the fair value. See note 22.
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 2021 and 2020, 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 2021 and 2020.
32.
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
profit dealt with in the Parent undertaking for the year was US$1,369,473 (2020: loss of US$12,231,171).
33.
Future minimum rentals payable under short term leases at the balance sheet date are as follows:
2021
2020
US$
US$
Land and buildings
Within one year
2,722
2,722
2,722
2,722
There were no capital commitments as of 31 December 2021 or 31 December 2020.
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[102]
34. Related party disclosures
Transactions with subsidiaries
Transactions between the Group and its subsidiaries, Russian BD Holdings B.V, Granite and Dolomite have been eliminated
on consolidation. The Company had the following transactions with its subsidiaries during the years ended 31 December
2021 and 2020.
As and from 1 March 2021, Russian BD Holdings B.V. was consolidated as PetroNeft increased its shareholding to 90% from
50%. For information purposes only the Company activity with Russian BD Holding B.V. for fiscal 2020 is shown below.
Transactions with Russian BD Holdings B.V.
2021
2020
US$
US$
At 1 January
8,195,983
7,277,550
Advanced during the year
400,812
124,195
Transactions during the year
127,000
209,092
Interest accrued in the year
711,058
440,822
Payments for services made during the year
(13,972)
65,630
Loss Allowance (Note 22)
(298,239)
-
Translation adjustment
-
78,694
At 31 December
9,122,642
8,195,983
Balance at 31 December comprised of:
Loans receivable (Note 22)
8,543,688
7,800,869
Trade and other receivables (Note 24)
578,954
395,114
9,122,642
8,195,983
Transactions with Granite construction
2021
2020
US$
US$
At 1 January
54,374
222,604
Interest accrued in the year
-
-
Loan repaid in the year
(26,990)
(79,993)
Loss Allowance
-
Translation adjustment
(9,827)
(88,237)
At 31 December (Note 24)
17,557
54,374
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[103]
34. Related party disclosures (continued)
Transactions with joint venture partners.
PetroNeft had the following transactions with its joint venture partners in 2021 and 2021. As and from 1 March 2021, Russian
BD Holdings B.V. ceased to be a joint venture arrangement as PetroNeft acquired a further 40% equity share.
Transactions with JV Partner WorldAce Investment Limited for both PTR Company and Group
2021
2020
Company
US$
US$
At 1 January
64,830,041
60,627,473
Advanced during the year
160,879
152,900
Transactions during the year
406,577
686,498
Interest accrued in the year
2,780,253
3,142,150
Payments for services made during the year
(1,479,921)
224,956
Translation adjustment
-
(3,936)
At 31 December
66,697,829
64,830,041
Balance at 31 December comprised of:
Loans receivable (Note 22)
68,886,038
66,105,781
Trade and other receivables (Note 24)
921,2925
1,833,761
Loss Allowance
(3,109,501)
(3,109,501)
66,697,829
64,8830,041
2021
2020
Group
US$
US$
At 1 January 2021
24,397,906
32,611,241
Advanced during the year
321,455
152,900
Transactions during the year
1,336,106
1,524,310
Interest accrued in the year
2,780,253
3,142,150
Payments for services made during the year
(2,388,119)
(604,237)
Loans received from WorldAce Group during the year
(201,560)
-
Interest receivable accrued in the year
(8,106)
-
Share of joint venture's translation adjustment
(5,267,185)
(12,472,780)
Translation adjustment
(10,342)
44,322
At 31 December
20,960,407
24,397,906
Balance at 31 December comprised of:
Loans receivable (Note 22)
20,734,834
23,221,761
Trade and other receivables (Note 24)
938,033
1,879,475
Trade and other payables (Note 30)
(712,455)
(703,333)
20,960,412
24,397,906
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[104]
34. Related party disclosures (continued)
Transactions with JV Partner Russia BD Holding B.V. and PTR Group only.
(Note: Activity shown for Russian BD Holdings BV for 2021)
2021
2020
Group
US$
US$
At 1 January
4,569,000
5,227,243
Advanced during the year
400,812
124,195
Transactions during the year
127,000
209,092
Interest accrued in the year
711,058
440,822
Payments for services made during the year
(13,972)
65,630
Share of joint venture's translation adjustment
(152,350)
(1,548,866)
Consolidation Elimination
(5,641,548)
-
Translation adjustment
-
50,884
At 31 December
-
4,569,000
Balance at 31 December comprised of:
Loans receivable (Note 22)
-
4,118,949
Trade and other receivables (Note 24)
-
450,051
Loss Allowance
-
-
-
4,569,000
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 Tsarina Development Limited for finance and Company secretarial support.
Renumeration of key management
2021
2020
US$
US$
Compensation of key management
1,024,154
1,154,882
Contributions to defined contribution pension plan
52,404
79,161
Consulting fees (Tsarina Development Limited-Michael Power)
60,640
121,884
At 31 December
1,137,198
1,355,927
The following amounts were owed to existing key management, former management as at 31st December 2021 and 2020
Renumeration of key management
2021
2020
US$
US$
Renumeration, fees and expenses due to Directors who were in
office during the year
172,926
470,023
Renumeration due to other key management
36,906
558,509
Consulting fees (Tsarina Development Limited- Michael Power)
13,744
11,314
Consulting fees (HGR Consulting- former CFO Paul Dowling)
2,090
9,246
At 31 December
225,666
1,049,092
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[105]
34. Related party disclosures (continued)
During 2021 of the total 232,435,872 shares, a sum of 205,878,646 issued shares were issued to related parties, which
includes both former and current Directors and Senior Management in satisfaction of USS4.08 million debts owing. In
accordance with IFRS 2 Share based payments, where the agreed exercise price of the shares transferred was lower than
the market price at time of exercise an implied loss of US$1.315M was reported in the Income Statement.
During 2021 amounts owing to Directors and Senior Management in the sum of US$658,802 was reclassed as Convertible
debt as part of the 2021 debt funding program. The convertible loan interest rate is bank of England base rate plus 8%.
Holders of the loan may convert up to 75% of their loan into ordinary equities of the Company at 0.02p stg within the first 1
year of signing the loan agreement and 0.025p stg within 2 years. During 2021 of the total of US$658,802 a sum of
US$361,856 of convertible debt was converted into ordinary shares of the Company through the issuance of 13,032,277
shares.
Transactions with Petrogrand AB
Petrogrand AB is a related party by virtue of Maxim Korobov, current beneficial owner of 25.7% equity in PetroNeft and a
former director of PetroNeft who resigned as PetroNeft’s Company Director on 17 January 2020. The loan facility is secured
by way of a floating charge on the assets of the Company, carries an interest of US$ LIBOR plus 9%. The loan facility will be
repaid on the earliest of the following events, the sale of either or both licences or the final redemption date of 15 December
2022.
The following is the history of this transaction in:
Company
Petrogrand AB
US$
Loans
2018- Loan facility amount
2,000,000
2019- Loan advances
500,000
Interest accrued but not yet paid
394,672
Profit on modification of financial liabilities
(218,898)
At 1 January 2021 (Note 29)
2,675,774
Interest accrued in the year
261,205
Unwinding prior year loan modification
218,898
Current year loan modification
(221,939)
Loan principal repaid during the year
(574,430)
Loan interest repaid during the year
(88,013)
At 31 December 2021 (Note 29)
2,271,495
At 31 December 2020 (Note 29)
2,675,774
Transactions with Belgrave Naftogas B.V.
Belgrave Naftogas B.V. is a related party by virtue of Alastair McBain, current beneficial owner of 14.46% equity in PetroNeft,
who was initially appointed non-executive director on 29 January 2021 and later non-executive chairman on 19 February
2021. Belgrave Naftogas B.V, initially provided a loan facility to Russian BD Holdings B.V, in its capacity as joint venture
partner holding 50% equity in Russian BD Holdings B.V. The loan facility’s maturity date is 31 December 2025 and carries
interest at 3-month average LIBOR plus 5%. As part of the acquisition by PetroNeft of an extra 40% holding in Russian BD
Holding, 80% of the loan balance due and owing to Belgrave Naftogas as of 31 December 2020 was reassigned to PetroNeft.
PetroNeft funded the acquisition through the issuance of 80,000,000 ordinary shares to Belgrave Naftogas B.V., plus the
seller provided PetroNeft a convertible loan facility equally to US1.7M at bank of England base rate plus 8%. The loan
advanced carried an option to convert up to 50% of the loan facility into ordinary shares of PetroNeft at a price of GBP 0.02p
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[106]
34.
Related party disclosures (continued)
per share. During the year, lender exercised their conversion rights. The following is the history of the above-mentioned
transactions
Transactions with Belgrave Naftogas B.V and PetroNeft.
2021
2020
Group Only - Original Joint Venture loan
US$
US$
At 1 January
8,580,601
7,580,706
Interest accrued in the year
149,885
999,895
Belgrave loan reassigned to PetroNeft
(6,921,346)
-
At 31 December
1,809,140
8,580,601
2021
2020
Group & Company- Loan to fund 40% acquisition in L67
US$
US$
At 1 January
-
-
Advanced during the year
1,700,000
-
Conversion to ordinary shares PetroNeft
(850,000)
-
Interest accrued in year
64,395
-
At 31 December
914,395
-
Convertible Loan agreed in June 2019
PetroNeft entered a convertible loan facility of US$1.3M with a group of five investors in June 2019. All lenders listed below
elected in April 2021 to exercise their 65% conversion rights on the original loan advances. In January 2022, the lenders
agreed any loan principal balance outstanding may be converted at the rate of STG0.06p per Ordinary share of the Company.
Listed below is of 31 December 2021, the balance owing to the related parties on the June 2019 funding was as follows:
i
f
i
Lender
Amount
provided
(US$)
Interest
accrued
and not yet paid
(US$)
Amount
due
31
December 2021
(US$)
Relationship at time of
transaction
Natlata Partners
LLP.
196,000
42,911
238,911
Ultimate beneficial owner is
Maxim Korobov, former
PetroNeft director
ADM FZE
140,000
31,584
171,584
Ultimate beneficial owner is
Alastair McBain, current
PetroNeft
director
and
chairman
Daria
Shaftelskaya
84,000
18,171
102,170
Substantial shareholder of
PetroNeft
and
current
director.
David Sturt
17,500
3,937
21,437
PetroNeft director, chief
executive
officer
and
shareholder
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[107]
34.
Related party disclosures (continued)
New Loan agreed in February 2021
PetroNeft entered a convertible loan facility of US$2.9M with a group of thirteen investors in February 2021. Of the thirteen
lenders seven are related parties. Up to 75% of the loan maybe converted into ordinary shares of PetroNeft at GBP 0.02p
per share within 12 months of signing the loan agreement and 0.025p within 24 months of signing. The interest rate is the
Bank of England base rate plus 8%. Of the seven lenders listed below, all bar David Golder, former chairman PetroNeft and
Karl Johnson, previous vice president of Operations had elected to convert within 2021. As of 31 December 2021, the
balance owing to the related parties on the February 2021 funding was as follows:
Lender
Amount
provided
(US$)
Interest accrued
and not yet paid
(US$)
FVTPL
(US$)
Amount due
31 December
2021
(US$)
Relationship at time of
transaction
Natlata Partners
LLP.
137,500
9,579
147,079
Ultimate
beneficial
owner
is
Maxim
Korobov,
former
PetroNeft director
ADM FZE
137,455
10,020
147,475
Ultimate
beneficial
owner
is
Alastair
McBain,
current
PetroNeft director and
chairman
David Sturt
75,120
5,920
81,040
PetroNeft director, chief
executive officer and
shareholder
Pavel Tetyakov
29,552
2,328
31,880
PetroNeft director, vice
president
business
development
and
shareholder
Karl Johnson
150,000
5,751
(7,621)
148,130
PetroNeft’s
vice
president of operations
Alken Kuanbay
15,946
1,258
17,204
PetroNeft
finance
director
David Golder
26,328
1,088
(1,352)
26,064
PetroNeft’s
former
chairman
35.
Share-based payment
Share options
The expense recognised for employee services during the year is US$NIL (2020: US$NIL). The Group currently does not have
a share-based payment scheme in operation, post expiration of the previous plan in 2019.
Share Options outstanding
2021
2020
US$
US$
In Issue.
17,442,269
54,621,849
17,442,269
54,621,849
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[108]
35.
Share-based payment (continued)
At 31 December 2021, the share options in issue relate entirely to those 4 lenders who contributed to the February 2021
convertible funding program who had not made an election to exercise their conversion rights. Given it is now 12 months
since signing of the original loan agreements, they may elect within the next 12 months to convert at 0.025p stg per share.
36.
Accounting policies up to 31 December 2020
There was no change in accounting policies applicable to the comparative period ended 31 December 2020, as the Company
and Group adheres to the latest accounting pronouncements and adhere to IFRS standards.
37.
Important Events after the Balance Sheet Date
The Covid pandemic is an ongoing global crisis, and the Company was not immune from its economic impact. These Annual
Accounts and Financial Statements reports that all the Company’s stakeholders continue to support the operations during
these periods of uncertainty. While there has been a considerable rebound in the oil price per barrel, the volatility in the
rouble / dollar exchange rate, plus added inflationary pressures, and the impact of the Russian /Ukrainian conflict makes
forecasting more difficult.
The uncertainty bought about with the Covid pandemic has been compounded by the onset of the Russian / Ukrainian
conflict, which has led the global community to the imposition of more substantial and penal sanctions on the Russian
government and its officials. The sanctions led to prohibitions on doing business with key banks in Russia, of which
Promsvyazbank is listed.
PetroNeft is committed to adhering to all laws in the jurisdictions in which it operates. The local PetroNeft office in Tomsk,
has secured alternative banking arrangements by opening local accounts with Raiffeisen bank.
PetroNeft had committed to an extensive capital investment program during 2022, with a view to proving up reserves and
boosting production. Funding for this program was primarily third-party lending. Given the evolving nature and severity of
the sanctions, both directors and senior management will review the investment program as to timing and proceed when
there is more certainty as to the long-term nature of the evolving sanctions program.
In early February 2022, all shareholders of Russian BD Holdings agreed by way of board resolution to convert loans
outstanding to them as share premium contributions to the equity of Russian BD Holdings B.V. Likewise loans owing by
Lineynoye LLC to Russian BD Holdings B.V. will similarly be converted into equity contributions of Lineynoye LLC.
As announced by the Company, Nord Imperial LLC suspended all transhipments of oil from Stimul T LLC, the 100% subsidiary
of PetroNeft’s joint venture WorldAce Investment Limited who own 100% of Licence 61. Suspension was a unilateral act by
Nord Imperial LLC, given both it and Stimul T LLC have been engaged in a legal dispute over the transhipment tariff rates
dating back to 2015. The management of Stimul T LLC deem the transhipment rates as excessive and are highly indicative of
abusive market practises by Nord Imperial LLC. The suspension, given no viable alternative transhipment route, see Oil
revenues at Stimul - T LLC reduced to zero and no near-term alternative Income stream. The Company is working with all
stakeholders to seek an amicable settlement to the dispute but crucially one which reflects normal market tariffs which
would make further investment in Licence 61 more viable.
38.
Contingent Liability
2021
2020
US$
US$
5,000,000
5,000,000
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 2024.
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2021
[109]
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.
39.
Approval of financial statements
The financial statements were approved, and authorised for issue, by the Board of Directors on 27 September 2022.
PetroNeft Resources plc
[110]
Corporate Governance Code
The London Stock Exchange, new AIM Rules were published in March 2018. One of the key amendments is in respect of AIM Rule 26 (as set out in AIM Notice 50), which now requires AIM
companies to state on their website which recognised corporate governance code they apply and how they have applied that code.
The Board of Directors of PetroNeft Resources Plc is committed, where practicable, to developing and applying exacting standards of corporate governance appropriate to the Company’s
size and stage of development. The Board of Directors seeks to apply the QCA Code, revised in April 2018 as devised by the Quoted Companies Alliance.
The Quoted Companies Alliance is the independent membership organisation that champions the interests of small to mid-size quoted companies. The QCA Code takes key elements of
good governance and applies them in a manner which is workable for the diverse needs of growing companies.
A revised version of the QCA Code (the “Revised Code”) was published in April 2018, based on the ‘comply or explain’ principle.
The QCA Code is constructed around ten broad principles (accompanied by an explanation of what these principles entail, under ‘application’) and a set of disclosures. The Code states
what is appropriate arrangements for growing companies and asks companies to provide an explanation about how they are meeting the principles through the prescribed disclosures.
The table below sets out the principles, the application recommended by the QCA code. It then sets out how PetroNeft complies with these requirements and departures from code and
provides links to appropriate disclosures. These are based upon the recommended disclosures provided in the QCA code.
These disclosures were last reviewed on the 31 March 2022.
PetroNeft Resources plc
Corporate Governance Code (continued)
[111]
QCA PRINCIPLE
APPLICATION
HOW PETRONEFT COMPLIES
DEPARTURES
AND REASONS
LINKS
DELIVER GROWTH
1. Establish a strategy
and business model
which promote long-
term value for
shareholders
The board must be able to express a
shared view of the Company’s
purpose, business model and
strategy. It should go beyond the
simple description of products and
corporate structures and set out
how the Company intends to deliver
shareholder value in the medium to
long-term. It should demonstrate
that the delivery of long-term
growth is underpinned by a clear set
of values aimed at protecting the
Company from unnecessary risk and
securing its long-term future.
The Board of Directors has clearly set out
vision for PetroNeft for the medium to
long term that it regularly sets out in
communications with stakeholders.
The Board of Directors meet on a regular
basis to discuss the strategic direction of
the Company, and progress in achieving
against its aims.
PetroNeft provides detailed disclosure on
the Company’s business model and
strategy in the Annual Report.
None
www.PetroNeft.com
2. Seek to understand
and meet shareholder
needs and expectations
Directors must develop a good
understanding of the needs and
expectations of all elements of the
Company’s shareholder base. The
board must manage shareholders’
expectations and should seek to
understand the motivations behind
shareholder voting decisions.
PetroNeft has a Board of Directors with
experience in understanding the needs
and expectations of its shareholder base.
It supplements this board with
professional advisers in the form of a
Public Relations Company, NOMAD, Joint
Brokers, Auditor and Company Secretary
who provide advice and recommendations
in various areas of its communications
with shareholders.
PetroNeft engages with shareholders in
the following way:
- The Company website has been designed
as a hub to provide information to
shareholders and communicate with
them. The website is regularly reviewed to
ensure the information is up to date and
The Company does
not currently have a
dedicated investor
relations role. The
Board feels that this
is appropriate given
the size and stage of
development of the
Company.
www.PetroNeft.com
PetroNeft Resources plc
Corporate Governance Code (continued)
[112]
QCA PRINCIPLE
APPLICATION
HOW PETRONEFT COMPLIES
DEPARTURES
AND REASONS
LINKS
relevant. The website contains copies of all
Company communications and public
documents.
- The Company provides regular updates
to the market via the Regulatory News
Service.
- The Company’s Annual Report provides
required information about historical
performance, strategy, and objectives of
the Company. An Annual General Meeting
is held to which all shareholders are
invited and may engage with the Board of
Directors.
- Contact details for the Company are
provided on the Company website along
with public documents.
3. Consider wider
stakeholder and social
responsibilities and
their implications for
long-term success
Long-term success relies upon good
relations with a range of different
stakeholder groups both internal
(workforce) and external (suppliers,
customers, regulators, and others).
The board needs to identify the
Company’s stakeholders and
understand their needs, interests,
and expectations.
Where matters that relate to the
Company’s impact on society, the
communities within which it
operates or the environment have
the potential to affect the
Company’s ability to deliver
shareholder value over the medium
Key resources and relationships and on
which the business relies are its
workforce, suppliers, sub-contractors,
shareholders, local community, and
regulatory authorities.
- Employees are encouraged to raise any
concerns they may have with relevant
management and are also provided with
independent contact should they not want
to engage directly with their managers.
- The mechanisms for feedback from
shareholders have been considered under
point (2) above.
- Feedback from regulators is provided via
the regular framework of reporting and
inspections that are carried out and the
The Company does
not have a formal
feedback mechanism
with respect to
stakeholder outside
the Company.
The board will keep
this under
consideration and put
in place procedures
when it is felt
appropriate.
External stakeholders
can contact the
Company via their
key contact, or
PetroNeft Resources plc
Corporate Governance Code (continued)
[113]
QCA PRINCIPLE
APPLICATION
HOW PETRONEFT COMPLIES
DEPARTURES
AND REASONS
LINKS
to long-term, then those matters
must be integrated into the
Company’s strategy and business
model.
Feedback is an essential part of all
control mechanisms. Systems need
to be in place to solicit, consider and
act on feedback from all stakeholder
groups.
Board received regular feedback on all
material findings.
-In December 2021, the Company
established an Environmental, Social and
Governance Committee (ESG) and
approved the Committee’s Constitution
and Terms of Reference. Appointment on
a full-time basis Andrei Zarubbin, as the
Company’s Sustainability Manager.
directly via the
website, Company’s
NOMAD or at the
AGM.
4. Embed effective risk
management,
considering both
opportunities and
threats, throughout the
organisation
The board needs to ensure that the
Company’s risk management
framework identifies and addresses
all relevant risks to execute and
deliver strategy; companies need to
consider their extended business,
including the Company’s supply
chain, from key suppliers to end-
customer.
Setting strategy includes
determining the extent of exposure
to the identified risks that the
Company can bear and willing to
take (risk tolerance and risk
appetite).
PetroNeft recognises that risk is inherent
in all its business activities. Its risks can
have a financial, operational,
environmental, or reputational impact.
The Company’s system of risk
identification, supported by established
governance controls, ensures that it
effectively responds to such risks, whilst
acting ethically and with integrity for the
benefit of all our stakeholders.
Once identified, risks are evaluated to
establish root causes, financial and non-
financial impacts, and likelihood of
occurrence. Consideration of risk impact
and likelihood is considered to create a
prioritised risk register and to determine
which of the risks should be considered as
a principal risk. The effectiveness and
adequacy of mitigating controls are
assessed. If additional controls are
required, these will be identified, and
responsibilities assigned. The Company’s
management is responsible for monitoring
None
Annual Report
PetroNeft Resources plc
Corporate Governance Code (continued)
[114]
QCA PRINCIPLE
APPLICATION
HOW PETRONEFT COMPLIES
DEPARTURES
AND REASONS
LINKS
the progress of actions to mitigate key
risks. The risk management process is
continuous; key risks are reported to the
Audit Committee and at least once a year
to the full Board.
MAINTAIN A DYNAMIC MANAGEMENT FRAMEWORK
5. Maintain the board
as a well-functioning,
balanced team led by
the chair
The board members have a
collective responsibility and legal
obligation to promote the interests
of the Company and are collectively
responsible for defining corporate
governance arrangements. Ultimate
responsibility for the quality of, and
approach to, corporate governance
lies with the chair of the board. The
board (and any committees) should
be provided with high quality
information in a timely manner to
facilitate proper assessment of the
matters requiring a decision or
insight. The board should have an
appropriate balance between
executive and non-executive
directors and should have at least
two independent non-executive
directors. Independence is a board
judgement. The board should be
supported by committees (e.g.,
audit, remuneration, nomination,
ESG) that have the necessary skills
and knowledge to discharge their
duties and responsibilities
The Board has six directors, four of whom
are non-executive. The Board is
responsible for the management of the
business of the Company, setting its
strategic direction and establishing
appropriate policies. It is the directors’
responsibility to oversee the financial
position of the Company and monitor its
business and affairs, on behalf of the
shareholders, to whom they are
accountable. The primary duty of the
Board is always to act in the best interests
of the Company. The Board also addresses
issues relating to internal controls and risk
management.
The non-executive directors, Alastair
McBain, Anthony Sacca, Daria Shaftelskaya
and Eskil Jersing. Considered independent
are Anthony Sacca and Eskil Jersing.
The non-executive director brings a wide
range of skills and experience to the
Company, as well as independent
judgment on strategy, risk, and
performance. The independence of each
non-executive director is assessed at least
annually.
PetroNeft Resources plc
Corporate Governance Code (continued)
[115]
QCA PRINCIPLE
APPLICATION
HOW PETRONEFT COMPLIES
DEPARTURES
AND REASONS
LINKS
effectively. Directors must commit
the time necessary to fulfil their
roles.
The Board of Directors meet at least six
times a year as a full board.
The board has appointed several
subcommittees to assist in its activities.
The terms of reference of the board
committees are reviewed regularly and
are available on the Company’s website
www.PetroNeft.com
The Remuneration Committee consists of
Alastair McBain (Committee Chairman)
and Anthony Sacca. It is responsible for
reviewing the performance of the senior
executives and for determining their levels
of remuneration.
The Nomination Committee meets as
required to consider the composition of
and succession planning for the Board, and
to lead the process of appointments to the
Board. The Committee Chairman is
Alastair McBain. The other member of the
Committee is Anthony Sacca
The Audit Committee consists of two non-
executive Directors: Anthony Sacca,
(Committee Chairman) and Alastair
McBain. The Executive Directors and
Senior Management, attends the
committee meetings by invitation. The
Audit Committee meets at least three
times a year to consider the annual and
interim financial statements and the audit
plan. The Audit Committee is responsible
for ensuring that appropriate financial
PetroNeft Resources plc
Corporate Governance Code (continued)
[116]
QCA PRINCIPLE
APPLICATION
HOW PETRONEFT COMPLIES
DEPARTURES
AND REASONS
LINKS
reporting procedures are properly
maintained and reported upon, reviewing
accounting policies and for meeting the
auditors and reviewing their reports
relating to the financial statements and
internal control systems.
The Environmental, Social and Governance
Committee meets at least twice a year to
monitor and review how the Company
adheres to its social responsibility goals.
The Committee is updated on feedback
from the roll out of the Company’s social
responsibility policies and procedures
from the full time Sustainability Manager
Andrei Zarubbin. Eskil Jersing is its
chairman, and other members included
Alastair McBain, Company Chairman and
David Sturt, the Company’s Chief
Executive Officer.
6. Ensure that between
them the directors have
the necessary up-to-
date experience, skills,
and capabilities
The board must have an appropriate
balance of sector, financial and
public markets skills and experience,
as well as an appropriate balance of
personal qualities and capabilities.
The board should understand and
challenge its own diversity, including
gender balance, as part of its
composition. The board should not
be dominated by one person or a
group of people. Strong personal
bonds can be important but can also
divide a board. As companies evolve,
The Board of PetroNeft has been
assembled to allow each director to
contribute the necessary mix of
experience, skills, and personal qualities to
deliver the strategy of the Company for
the benefit of the shareholders over the
medium to long term. Full details of the
Board Members and their experience and
skills can be found by following the link
opposite.
Together the Board of Directors provide
relevant oil and gas skills, the skills
associated with running large public
None
Directors Biographies
www.PetroNeft.com/about/directors/
PetroNeft Resources plc
Corporate Governance Code (continued)
[117]
QCA PRINCIPLE
APPLICATION
HOW PETRONEFT COMPLIES
DEPARTURES
AND REASONS
LINKS
the mix of skills and experience
required on the board will change,
and board composition will need to
evolve to reflect this change.
companies, technical skills, country
experience and technical and financial
qualifications to assist the Company in
achieving its stated aims.
The Directors keep their skillsets up to
date through as required through the
range of roles they perform and
consideration of technical and industry
updates.
The Board has not sought external advice
on any significant matter, apart from
advice sought in the normal course of
business from our auditors, lawyers, and
tax compliance advice. No external
advisers have been engaged by the Board
of Directors, except as noted above.
The role of Company Secretary is fulfilled
by Michael Power FCA and supports and
advises the Board in its function.
7. Evaluate board
performance based on
clear and relevant
objectives, seeking
continuous
improvement
The board should regularly review
the effectiveness of its performance
as a unit, as well as that of its
committees and the individual
directors. The board performance
review may be carried out internally
or, ideally, externally facilitated from
time to time. The review should
identify development or mentoring
needs of individual directors or the
wider senior management team. It is
healthy for membership of the board
to be periodically refreshed.
PetroNeft has yet to carry out a formal
assessment of board effectiveness.
PetroNeft has yet to
carry out a formal
assessment of board
effectiveness.
The board will keep
this under
consideration and put
in place procedures
when it is felt
appropriate.
PetroNeft Resources plc
Corporate Governance Code (continued)
[118]
QCA PRINCIPLE
APPLICATION
HOW PETRONEFT COMPLIES
DEPARTURES
AND REASONS
LINKS
Succession planning is a vital task for
boards. No member of the board
should become indispensable.
8. Promote a corporate
culture that is based on
ethical values and
behaviours
The board should embody and
promote a corporate culture that is
based on sound ethical values and
behaviours and use it as an asset and
a source of competitive advantage.
The policy set by the board should
be visible in the actions and
decisions of the chief executive and
the rest of the management team.
Corporate values should guide the
objectives and strategy of the
Company. The culture should be
visible in every aspect of the
business, including recruitment,
nominations, training, and
engagement. The performance and
reward system should endorse the
desired ethical behaviours across all
levels of the Company. The
corporate culture should be
recognisable throughout the
disclosures in the annual report,
website and any other statements
issued by the Company
Refer to corporate governance statement
contained within the Directors’ Report in
the Annual Report for a full description of
how the Board promotes a culture based
on sound ethical values.
None
Corporate Governance Statement
www.PetroNeft.com/investor-
relations/rule26/
9. Maintain governance
structures and
processes that are fit for
purpose and support
The Company should maintain
governance structures and processes
in line with its corporate culture and
appropriate to its:
Refer to corporate governance statement
for a full description of the corporate
governance structures.
None
Corporate Governance Statement
www.PetroNeft.com/investor-
relations/rule26/
PetroNeft Resources plc
Corporate Governance Code (continued)
[119]
QCA PRINCIPLE
APPLICATION
HOW PETRONEFT COMPLIES
DEPARTURES
AND REASONS
LINKS
good decision-making
by the board
• size and complexity; and
• capacity, appetite, and tolerance
for risk.
The governance structures should
evolve over time in parallel with its
objectives, strategy, and business
model to reflect the development of
the Company.
BUILD TRUST
10. Communicate how
the Company is
governed and is
performing by
maintaining a dialogue
with shareholders and
other relevant
stakeholders
A healthy dialogue should exist
between the board and all its
stakeholders, including shareholders,
to enable all interested parties to
come to informed decisions about
the Company. Appropriate
communication and reporting
structures should exist between the
board and all constituent parts of its
shareholder base. This will assist:
• the communication of
shareholders’ views to the board;
and
• the shareholders’ understanding of
the unique circumstances and
constraints faced by the Company. It
should be clear where these
communication practices are
described (annual report or website).
Historical annual reports and other
governance-related material, notices of all
general meetings can be found on the
website.
None
Annual Report
www.PetroNeft.com/investor-
relations/rule26/
PetroNeft Resources plc
[120]
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, 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 enviromental, social and goverance
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
sectorial c 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.
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
PetroNeft Resources plc
[121]
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
the onset of the covid pandemic necessiated fundamental changes as to how we schedule and structure
our operations , such that the health and well being of our workers and third party contractors is
protected. 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 partner, related to items such as project updates and supplier
contract management topics to information provided by the business units (on customers and joint-
venture partner 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 and the Environmental, Social and Governanca 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 matters listed on the next page are considered by the Directors to be the key
stakeholders who are important to our success, the table also lists the methods of engagment and key
issues considered.
PetroNeft Resources plc
[122]
Key Stakeholders
Engagement Platform
Issues Considered
Shareholders
RNS Annoucements
Website
Third Party Advisors
AGM/EGM meetings
Face to Face Meetings (except
during CoVid)
Emails & Telephone calls
Strategy
Operational and Financial
performance
Risk Management
Ongoing sanctions
Employees and Consultants
Face to Face meetings
Video conferencing
Emails
Direct link to board for issues
of concern
Strategy
HR policies
HSE policies and performance
Company News
Anti-Bribery and Corruption
Work environment and
managing Covid.
Local Communites
Face to Face Meetings
Email
Telephone
Environmental Management
Operational plans where
required
Enviromental, Social and
Governance Responsibility aims
and objectives
Government and Regulatory
Agencies
Face to Face meetings
Written Communications
Telephone and email
Operational plans
Environmental management
Legal/Regulatory Matters
Taxes/Revenue collection
Social Iniatives
Joint Venture Partner
Face to Face Meetings
Email/Telephone/Written
Communications
Operational plans
Strategy
Budgets
Joint Venture stakeholder
engagements
Fianncial updates including cash
call status
Managing shareholder loans and
expectations as to recoverability.
Impact of sanctions.
Financing Partners
Face to Face meetings
Telephone calls, emails, video
conferencing
Funding requirements.
Funding structures
Pricing of funding alternatives.
Contractors and Suppliers
Face to Face meetings
Emails/Telephone/Written
Communications
Operational plans/requirements
Technical, Regulatory, Fianncial
and Legal Support
Pricing and inflationary impacts.
Availability of rigs.
PetroNeft Resources plc
[123]
Glossary
1P
Proved reserves according to SPE standards.
2P
Proved and probable reserves according to SPE standards.
3P
Proved, probable and possible reserves according to SPE standards.
C1
Russian reserves approximately equivalent to SPE standard 1P reserves.
C2
Russian reserves approximately equivalent to SPE probable reserves.
C1+C2
Russian reserves approximately equivalent to SPE standard 2P reserves.
AGM
Annual General Meeting.
AIM
Alternative Investment Market of the London Stock Exchange.
Arawak
Arawak Energy Russia B.V.
bbl.
Barrel.
Belgrave Naftogas
Belgrave Naftogas B.V., formerly called Arawak
bfpd
Barrels of fluid per day.
boe
Barrel of oil equivalent.
bopd
Barrels of oil per day.
Company
PetroNeft Resources plc.
CPF
Central Processing Facility.
CSR
Corporate and Social Responsibility.
Custody Transfer Point
Facility/location at which custody of oil transfers to another operator.
Dolomite
LLC Dolomite, a 100% subsidiary of PetroNeft registered in the Russian
Federation
DST
Drill stem test.
ESG
Environmental, Social & Governance
ESM
Enterprise Securities Market of the Irish Stock Exchange.
ESP
Electric Submersible Pump
Exploration resources
An undrilled prospect in an area of known hydrocarbons with unequivocal
four-way dip closure at the reservoir horizon.
Granite Construction
LLC Granite Construction, a 100% subsidiary of PetroNeft registered in the
Russian Federation
Group
The Company and its joint venture and subsidiary undertakings.
HSE
Health, Safety and Environment.
IAS
International Accounting Standard.
IFRIC
IFRS Interpretations Committee.
IFRS
International Financial Reporting Standard.
km
Kilometres.
km2/ sq. km
Square kilometres.
Licence 61
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 numerous Prospects and Leads that are currently
being explored.
Licence 61 Farmout
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
PetroNeft Resources plc
[124]
GLOSSARY (continued)
Licence 67
The Exploration and Production Licence in the Tomsk Oblast, Russia
owned by the subsidiary Company Russian BD Holdings B.V. It contains
two oil fields, Ledovoye and Cheremshanskoye and several potential
prospects.
Lineynoye
Limited Liability Company Lineynoye, a wholly owned subsidiary of
Russian BD Holdings B.V., registered in the Russian Federation.
m
Metres.
mmbbls
Million barrels.
mmbo
Million barrels of oil.
mm tons
Million tons of oil
Natlata
Natlata Partners Limited, a significant shareholder of PetroNeft.
NPV10
Net Present Value discounted at 10%
Oil pay
A formation containing producible hydrocarbons.
P1
Proved reserves according to SPE standards.
P2
Probable reserves according to SPE standards.
P3
Possible reserves according to SPE standards.
Pmean
The average of the values in the probabilistic distribution between
defined ‘boundary conditions. Universally regarded as the best single
value to quote or communicate for any uncertain distribution of
outcomes involved in repeated trial investigations
P10
The value on a probabilistic distribution which is exceeded by 10% of the
outcomes
P90
The value on a probabilistic distribution which is exceeded by 90% of the
outcomes
PetroNeft
PetroNeft Resources plc.
POD
Plan of Development
QCA
Corporate Governance Code for small and mid-size quoted companies
2018
Russian BD Holdings B.V.
Russian BD Holdings B.V., a Company owned 90% by PetroNeft and
registered in the Netherlands.
SPE
Society of Petroleum Engineers.
Spud
To commence drilling a well.
Stimul-T
Limited Liability Company Stimul-T, a wholly owned subsidiary of
WorldAce, based in the Russian Federation.
TSR
Total Shareholder Return.
VAT
Value Added Tax.
WAEP
Weighted Average Exercise Price.
WorldAce
WorldAce Investments Limited, a Company owned 50% by PetroNeft,
registered in Cyprus.
WorldAce Group
WorldAce Investments Limited and its 100% subsidiary LLC Stimul-T
PetroNeft Resources plc
[125]
THE FOLLOWING PAGE IS REQUIRED, BUT SHOULD NOT BE INCLUDED IN THE ANNUAL REPORT
PetroNeft Resources plc
[126]
Company Income Statement
For the year ended 31 December 2021
2021
2020
US$
US$
Revenue
533,576
895,590
Cost of sales
-
-
Gross profit
533,576
895,590
Administrative expenses
(1,394,966)
(1,769,767)
Operating loss
(861,390)
(874,177)
Finance Income
3,491,312
3,582,975
Finance costs
(729,438)
(432,362)
Impairment of financial assets at amortised cost.
(1,883,503)
(14,036,806)
Profit /(Loss) on equity investment
3,625,000
-
Profit/ (Loss) on equity settlement of financial liabilities
(1,753,874)
206,044
Profit/ (Loss) on modification of financial liabilities
354,194
218,898
Fair value gains on financial derivatives
20,197
-
Loss for the year for continuing operations before
taxation
2,262,498
(11,335,428)
Taxation
(872,828)
(895,743)
Loss for the year
1,389,670
(12,231,171)
Company Statement of Comprehensive Income
Loss for the year attributable to equity holders
1,389,670
(12,231,171)
Other comprehensive income
-
-
Total comprehensive loss for the year attributable to
equity holders
1,389,670
(12,231,171)