PetroNeft Resources plc
Annual Report and
Financial Statements
for the year ended 31 December 2022
PetroNeft Resources plc
Contents
Group Information .................................................................................................................................. 2
Board of Directors ................................................................................................................................... 4
Highlights ................................................................................................................................................ 5
Chairman’s Statement ............................................................................................................................ 6
Chief Executive Officer’s Report ............................................................................................................. 8
Financial Review .................................................................................................................................... 14
Directors’ Report ................................................................................................................................... 23
Consolidated Income Statement .......................................................................................................... 30
Consolidated Statement of Comprehensive Income ............................................................................ 31
Consolidated Statement of Financial Position ...................................................................................... 32
Consolidated Statement of Changes in Equity ..................................................................................... 33
Consolidated Cash Flow Statement ...................................................................................................... 34
Company Statement of Financial Position ............................................................................................ 35
Company Statement of Changes in Equity ........................................................................................... 36
Company Cash Flow Statement ............................................................................................................ 37
Notes to the Financial Statements........................................................................................................ 38
Corporate Governance Code ................................................................................................................ 99
Section 172(1) Statement ................................................................................................................... 110
Glossary ............................................................................................................................................... 114
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- resigns 21 October 2022)
(Non- Executive Chairman)
David Sturt (British citizen- appointed 21 October 2022,
previously Chief Executive Officer) (Executive Chairman)
Pavel Tetyakov (Russian citizen- appointed 21 October 2022,
previously Executive Director and Senior Vice President Business
Development) (Chief Executive Officer)
Anthony Sacca (Australian citizen – appointed in April 2016)
(Independent Non-Executive Director)
Daria Shaftelskaya (Russian citizen – appointed in January 2020)
(Non-Executive Director)
Eskil Jersing (British citizen – appointed in November 2021),
(Independent Non - Executive Director)
Registered Office and Business Address
20 Holles Street
Dublin 2
Ireland
Secretary
Michael Power FCA
Auditor
Evelyn Partners (subject to appointment confirmation)
Paramount Court
Carraig Road
Sandford Business Park
Dublin 18
D18 R9C7
Ireland
Nomad and Euronext Growth Listing
Davy
Sponsor
49 Dawson Street
Dublin 2
Ireland
PetroNeft Resources plc
Group Information (continued)
[3]
Broker
Davy
49 Dawson Street
Dublin 2
Ireland
Principal Bankers
Raiffeisen Bank
AIB Bank
Novosibirsk branch
1 Lower Baggot Street
Tomsk
Dublin 2
Russia
Ireland
Legal Advisers
Mark Jenkinson
North Yorkshire
BD24 OHZ
United Kingdom
Registered Number
408101
Registrar
Computershare
3100 Lake Drive,
Citywest Business Campus,
Dublin 24, D24 AK82,
Ireland
PetroNeft Resources plc
[4]
Board of Directors
David Sturt – (Executive Chairman from 21st October 2022, previously Chief Executive Officer) (Age 61)
David was appointed a Non-Executive Director of the Company in April 2016 and became Chief Executive Officer on 25 March
2019, subsequently resigning as Chief Executive Office to become Executive Chairman on 21 October 2022. 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 – (Chief Executive Officer from 21st October 2022, previously Senior Vice President Business Development and
Executive Director) (Age 43)
Pavel was appointed to the Board as an Executive Director in January 2020 and resigning that role to become Chief Executive
Officer on 21 October 2022. 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. In October 2022, Pavel became the Company’s CEO. 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 51)
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 44)
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).
Eskil Jersing – (Independent Non- Executive Director) (Age 58)
Eskil was appointed as 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 the 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 plc
[5]
Highlights
Operational
Licence 67 (90% interest)
•
Gross production increased by 7.9% to 96,065 bbls (2021: 89,014 bbls).
Licence 61 (50% interest)
•
Gross production 426,158bbls (2021: 603,655 bbls).
•
The pipeline connecting oil fields to Transneft oil transportation system was shut down by Nord
Imperial LLC (owner of the pipeline) on the 29 August 2022 due to ongoing tariff dispute.
Financial
•
Average realized price per barrel of oil
o
L67 US $63.9 (2021: US $52.14)
o
L61 US $71.4 (US $50.98)
•
Reduction in trade and other payables year on year to US$1,663,347 (2021 US$ 1,901,937)
•
Gross debt 2022 US5,289,349 (2021: US $6,617,287)
•
Debt reduction primarily due to debt owing and accruing to Belgrave Naftogas B.V., which on
consolidation in FY 2021, and later by way of unanimous shareholder meeting of Russian BD Holding
B.V., was converted into equity of Russian BD Holding B.V.
•
Cash and cash equivalents US104,489 (2021: US $915,602)
•
US $36.8M write down of assets in light of agreed sale of the Russian assets to Pavel Tetyakov, post a
strategic review of options by the Company first announced on 25 November 2022. The review was
prompted by the Russian / Ukrainian conflict and Nord Imperial LLC refusing to transport L61 crude its
pipeline. The reported net assets and liabilities held for sale reflect expected final consideration to be
received.
ESG
•
Company Maintained its safety record with zero lost time incidents in 2022 (2021: zero)
Outlook
•
Due to increasing challenges created by the Ukrainian/Russia conflict, strategic review announced by
the Board on 25 November 2022, PetroNeft’s Russian assets will be sold to Pavel Tetyakov the current
Chief Executive officer. On October 12th, 2023, the proposed disposals have been approved at
Extraordinary General Meeting with 88% of votes cast in favor.
•
PetroNeft’s equities are currently suspended on the Dublin Euronext and London A.I.M. markets,
pending publication of the Company’s audited financial statement for FY 2022. The last date for
publication is 31 December 2023.
PetroNeft Resources
[6]
Chairman’s Statement
Dear Shareholders,
As we exited 2021, we were looking forward to 2022 with a great degree of optimism. Production remained
stable at Licence 61 whilst preparations were underway for a multi well development program at the
Cheremshanskoye field. This all changed with the tragic events that unfolded in Ukraine at the start of 2022.
A direct result of the Ukrainian-Russian conflict was that through 2022 and into 2023 it became increasingly
challenging to operate the Company. As reported on the 25 September 2022, our former auditor (BDO) since
2019 informed us that they would not be able to carry out our 2022 audit due to the Ukrainian-Russian conflict.
As the international sanctions against Russia intensified in quantum and application, it became increasingly
obvious that professional service companies were no longer able or willing to even consider retaining PetroNeft
as their client. Amply illustrated by the inability of PetroNeft to retain Irish legal advisers and the resignation of
our auditors (BDO). It is only during the second half of 2023 that Irish registered Audit companies started to
engage with PetroNeft although on the clear understanding that any engagement could only occur if the
Company was able to demonstrate that it was in the process of concluding its exit from Russia. This engagement
is predicated on two key matters, the first being an extensive third-party review of the PetroNeft board,
management, and shareholder registrar to ensure that they are fully sanction compliant and secondly, the Audit
company required receipt of independent legal advice, that their engagement with PetroNeft does not breach
sanctions.
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
perform in line with 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 able to manage through the various impacts of
disruptions.
Corporate Development
2022 saw Board changes for the company with the resignation of Alastair McBain as Non-Executive Chairman
on 21 October. I assumed the role of Executive Chairman and Pavel Tetyakov became Chief Executive Officer.
Strategy
Our strategy has always bene focused on improving shareholder value by increasing production, cash flow and
reserves. The conflict in Ukraine has meant that this strategy is no longer possible. Also, it has become
increasingly apparent that if we had continued to try to maintain our assets in Russia, then the Company would
eventually be forced into insolvency.
It was against this backdrop that we announced on 25th November 2022, a strategic asset review which has led
to the recent EGM on 12th October 2023 where 88% of the shareholders voted in favour of the Company
disposing of its entire Russian portfolio with the key assets being 90% of Licence 67 and 50% of Licence 61, to
Pavel Tetyakov, the current Chief Executive Officer of PetroNeft. Whilst this is a very sad time for everyone
connected to PetroNeft, it is recognised that this was the only way that the Company had a chance to survive
and one day potentially prosper.
As we exit Russia the company will become a cash shell and as such, we will be required to make an acquisition(s)
which will constitute a reverse takeover on or before the date falling six months and twelve months (AIM and
Euronext Growth markets respectively) from Completion. If we fail, then the Company’s ordinary shares will be
cancelled six months from the date of suspension should the reason for suspension not be rectified during this
period.
PetroNeft Resources
[7]
The strategy of the Company is therefore to try and identify an asset(s) which represents an attractive growth
opportunity for the Company
Summary
The Company has been and continues to be going through incredibly challenging times which threaten its very
existence. Whilst we are still not certain about the Company’s future, the continued support from shareholders
and staff maximises the potential for the Company to survive and prosper.
Finally, I know that I speak for all of the Directors, management, and staff of the Group in giving sincere thanks
to our shareholders for your continued support throughout this past year.
David Sturt
Executive Chairman
PetroNeft Resources
[8]
Chief Executive Officer’s Report
Dear fellow shareholders, the Company’s operational performance was greatly affected by a combination of the
Nord Imperial pipeline being shut down from the 29 August 2022, and the inability to be able to progress the
development drilling campaign at the Cheremshanskoye field in Licence 67, as previously reported in PetroNeft’s
2021 Annual Report.
Due to the rollout of international sanctions against Russia in the wake of the Ukrainian-Russan conflict directly
impacted the ability of PetroNeft to be able to source funding for the development drilling program. The funding,
which was at the time pre-conflict, was to be sourced directly from a Russian bank, which is now sanctioned,
and significant shareholders and financers of PetroNeft are no longer able to support such operations in light of
the current sanction regime.
From an operational perspective, the shutdown of the Nord Imperial pipeline lost the company just over three
months of production at Licence 61.
Operational Performance
Gross Overall Production (Licence 67 and Licence
61)
2022
2021
Total Production bbls
522,223
692,669
Net to PetroNeft Resources plc
299,537
381,575
Licence 67
2022
2021
Total Gross Production
96,065
89,014
Gross bopd
263
243
Net to PetroNeft Resources plc-90% share
86,458
79,748
Licence 61
2022
2021
Total Gross Production
426,158
603,655
Gross bopd
1,167.5
1,653
Net to PetroNeft Resources plc -50% share
213,079
301,827
Financial Performance of the Licences (100% basis):
Licence 67
Units
2022
2021
Revenue
USD ’000
6,141
4,640
Cost of Sales
USD ’000
(5,302)
(3,482)
Gross Profit /(Loss)
USD ’000
838
1,158
Administrative Expenses
USD ’000
(352)
(513)
Operating Profit/(Loss)
USD ’000
487
645
Average realised price
$/bbl
63.9
52.14
Licence 61
Units
2022
2021
Revenue
USD ’000
30,446
29,912
Cost of Sales
USD ’000
(30,972)
(28,650)
Gross Profit /(Loss)
USD ’000
(526)
1,263
Administrative Expenses
USD ’000
(5,796)
(4,144)
Operating Profit/(Loss)
USD ’000
(6,322)
(2,882)
Average realised price
$/bbl
71.4
50.98
PetroNeft Resources
Chief Executive Report continued
[9]
2022 Review
Management has worked hard to continually focus on cost reduction and optimisation across all levels of the
Group. Any initial perceived operational improvements achieved domestically in Russia, as in increased average
realised price per barrel, translated into increased remittances from Russia for reimbursement of CMSA costs.
This supported cashflow at corporate level and allowed Management to navigate a difficult external geopolitical
environment, as Management got to grips with the complexity and implications of the international sanctions
on PetroNeft’s business strategy. Management also worked closely with personnel, and improved contractual
arrangements with contractors and suppliers.
Gross production in 2022 was 522,223 barrels of oil or an average of 1,430.7 bopd average. No new production
wells were drilled during the year, this represents a decrease of 24.7% from 2021 production levels of 692,669
barrels (1,897.7 bopd average). The decrease was due to the shutdown of the Nord Imperial pipeline from the
29 August which resulted in a 29.4% decrease in production from Licence 61. The production from Licence 67
actually increased by 7.92% as the 2021 production only started towards the end of the first quarter 2021.
Gross production 2022 by fields
Licence
Field
2022 Gross
production
2021 Gross
production
% Change
67
Cheremshanskoye
96,065
89,014
7.92%
Sub Total =
96,065
89,014
7.92%
61
Lineynoye
151,576
232,732
-34.9%
West Lineynoye
40,167
59,071
-32%
Arbuzovskoye
126,226
204,263
-38.2%
Sibkrayevskoye
107,754
107,589
-0.15%
Tungolskoye
435
0
+100.0%
Sub Total =
426,158
603,655
-29.4%
Total =
522,223
692,669
-24.7%
Licence 67
The Company holds a 90% interest as operator 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 former 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
routes. Both these fields are covered by modern 3D seismic data.
In 2022 production continued from the C-4 well at the Cheremshanskoye field at an average rate of 263 BOPD
vs 243 BOPD in 2021 representing 7.92% year over year increase due to production from the field only
commencing in 2021 at the end of the first quarter.
PetroNeft Resources
Chief Executive Report continued
[10]
Towards the end of 2021 and during January 2022, the company continued to plan for a five well development
plan on the Cheremshanskoye field to increase production and introduce pressure support for the C-4 area of
the field. The contract for the drilling was awarded to SSK drilling in January 2022 whilst discussions progressed
with a domestic bank to provide a significant part of the capital costs for the program. Regrettably the start of
this program had initially to be delayed and then cancelled as financing was no longer possible due to the effects
of the ongoing conflict in Ukraine.
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.
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.
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.
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.
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
PetroNeft Resources
Chief Executive Report continued
[11]
from being produced at this field as there are currently no separation facilities on site and installing such facilities
is considered to be uneconomic.
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 previously producing fields: Lineynoye, West Lineynoye, Arbuzovskoye
and Sibkrayevskoye (which historically produced only during the winter months but was bought into year-round
production from 2021). A fifth field – Tungolskoye, was shut in during 2020 for economic reasons, in 2022 a work
over of the Tungolskoye-5 well was carried out but only produced in total 435 BO, as this is an uneconomic rate
the decision was made to shut down the field again. In addition to these fields the licence also contains several
attractive low risk potentially material exploration prospects.
The oil from Licence 61 is exported via a third-party pipeline to the Transneft entry point at Zavyalov. Due to an
on-going tariff dispute on the 29 August 2022, the operator of this third part pipeline (Nord Imperial) shut the
pipeline down. During September 2022, all the fields were shut in as the infield storage capacity became full. To
protect the company’s position several unsuccessful court cases were launched against Nord Imperial, including
a submission to the Russian Anti-Monopoly Committee.
With the fields shut in, the Licence 61 operator Stimul-T LLC was forced under Russian legal regulations to file
for voluntary bankruptcy as announced on 10 May 2023. The bankruptcy administration process, which is
multifaceted, time consuming, is still ongoing at the time of issuance of the PetroNeft’s 2022 Annual Report.
Production from Licence 61 was 29.4% lower in 2022 vs 2021 due to the fields being shut in from end of August.
All production numbers therefore do not contain any production from the fourth quarter 2022.
Lineynoye field
The wells at Lineynoye performed consistently until the field had to be shut in due to the Nord Imperial tariff
dispute.
Following the success of the 2021 well stimulation program at well L-115, due to this success, the well
stimulation program in 2022 was expanded to five wells. The program was carried out on schedule and within
budget resulting in production improvement of +/- 200 BOPD/
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 2022 was 110 bopd (2021: 161 bopd), this represented an
32% decline mainly due to the shutdown of the Nord Imperial pipeline from 29th August.
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 average daily production for
2022 was 295.2 bopd (2021: 294 bopd), an increase of 0.15%. This increase was achieved, even though the field
was shut down at the end of the third quarter due to the Nord Imperial pipeline dispute.
Arbuzovskoye field
Production in 2022 continued to naturally decline with average gross daily production of 347.2 bopd (2021:
559.6 bopd). This decline was due to two reasons, firstly the continued decline at the A-214 well and secondly
from losing fourth quarter production due to the Nord Imperial pipeline being shut down from 29 August. The
PetroNeft Resources
Chief Executive Report continued
[12]
actual daily production whilst the pipeline was in operation for the first three months was 462.2 bopd which is
a 17.2% decline between 2021 and 2022.
Tungolskoye
The field was suspended in 2021 due to uneconomic production rate. After review of all technical information
well T-501Hz was re perforated over a 50m interval to investigate whether near well bore reservoir damage may
have been affecting production rates. The post workover production rates were between 20-30 BOPD with a
total of 435 BO being produced. These rates for this remote field are uneconomic so the field was shut in again.
The geology of this field is particularly complex with the reservoir not being of the same quality as in our adjacent
previously producing fields (Lineynoye, West Lineynoye, Sibkrayevskoye & Arbuzovskoye).
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 tables shows the current Miller and Lents report.
All metrics in mmbbls
Miller & Lents 2021
Licence
Proved
Proved
&
Probable
Proved,
Probable &
Possible
67
4.3
24.5
71.7
61
12.2
24.2
35.5
Total(s)
100% basis net to PTR
16.5
48.6
107.2
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
PetroNeft Resources
Chief Executive Report continued
Мillеr and Lents also estimated additional net Contingent rеsочrсе (ЗС) of 23.75 Mmbbls (22.06 Mmbbls in
Licence 67 and ]..69 Mmbbls in Licence 61) and net Рmеап prospective resources for the Emtorskaya prospect
of 48.09 Mmbbls (Gross 96.18 Mmbbls with а 49.7% geological сhапсе of success),
ln 2016 Ryder Scott evaluated an additional 25 prospects located in the southern half of license 61 and estimated
to contain а combined 143.62 mmbbls of gross prospective rеsочrсе. Of раrtiсulаr interest within this southern
аrеа аrе the Traverskaya and Tuganskaya prospects. Re-processing of the old welI data has identified potential
missed рау at чаriочs intervals iп the Jurassic and Сrеtасеочs intervals. lп 202t Мillеr & Lents evaluated the
Emtorskaya prospect but did not re-evaluate the southern prospects previously evaluated Ьу RyderScott, given
no meaningful new information/data was available, and so счrrепtlу Management have assumed those rеsоurсе
estimates аrе still valid.
conclusions
The Company's operations have been badly affected Ьу the combination of the shutdown of the Nord lmреriаl
pipeline at Licence 61 and the inability to start the development drilling рrоgrаm at Licence 67 due to the effects
oftheUkrainian-Russianconflict. Inaddition,serviceprovidersarenotwillingorabletoworkwiththeCompany.
These events have created significant рrеssurе and uncertainty about the Company's ability to survive unleýs it
disposes of its Russian assets.
Whilst the pending sale of the Company's Russian assets is а sad event, it will provide the potential opportunity
for PetroNeft to try and identify and sесчrе other assets.
l would like to take this opportunity to thank оur shareholders fortheir patience and suрроrt. l would also like
to thank all our staff for their professionalism, commitment, and dedication through the challenges of 2022 and
into 202З. Their hard work and commitment combined with the continued support from очr shareholders has
enabled the Company to survive thus far.
Pavel Tetyakov
chief Executive
[1з]
All metrics iп
Mmbbls
Gross
Net Attributable to PetroNeft
Licence
1с
2с
зс
1с
2с
зс
67
0.57
з.з9
24.5t
0.51
3.05
22.06
61
0.50
t,47
з.з7
0.25
0.74
]..69
Total(s)
L,o7
4.86
27.88
о,76
з,78
2з.75
PetroNeft Resources plc
[14]
Financial Review
Review of PetroNeft consolidated income statement for the year
PetroNeft Consolidated Income Statement
2022
2021
Continuing operations
US$
US$
Revenue
7,727,599
5,815,255
Cost of sales
(6,696,718)
(4,408,707)
Gross profit
1,030,881
1,406,548
Administrative expenses
(2,698,705)
(1,431,446)
Impairment of exploration and evaluation assets
-
(2,900,732)
Impairment of financial assets
(19,382,427)
-
Impairment of assets held for sale
(17.446,534)
-
Operating loss
(38,496,785)
(2,925,830)
Share of joint venture's net loss -WorldAce Investment Limited
(7,670,443)
(4,964,655)
Share of joint venture's net loss – Russian BD Holdings B.V.
-
(126,031)
Finance Income
3,599,756
2,855,639
Finance costs
(735,252)
(803,558)
Fair value gain on financial derivatives
-
20,197
Unrealised gain on business combination
-
3,432,730
Profit/(Loss) on equity settlement of financial liabilities
-
(1,753,874)
Profit/(Loss) on modification of financial liabilities
-
354,194
Loss for the year for continuing operations before taxation
(43,302,724)
(3,910,988)
Income tax expense
(923,160)
(960,076)
Loss for the year attributable to equity holders
(43,852,772)
(4,871,064)
Loss for the period attributable to:
Owners of the Parent
(44,262,760)
(4,867,482)
Non-Controlling Interest
36,876
(3,582)
(44,225,884)
(4,871,064)
PetroNeft Resources plc
Financial Review (continued)
[15]
Revenue
Substantial increase in 2022 consolidated revenue to US$7,727,599 from US5,815,255 in 2021. The increase is attributable to a
number of factors, primarily accounted for by the full year consolidation of crude oil sales during 2022, versus a 10- month period
of consolidation in 2021. In addition, the 2022 daily output at Russian BD Holdings B.V, increased to 263 bopd, versus 243 bopd
for 2021 plus the 2022 average realised price per bop increased to US$63.9 versus US$52.14 for 2021. For further information on
the breakout of the Revenue amount, refer to note 5 in the Annual Report.
Margins
The gross profit for the year was US$1,030,881 (2021: US$1,406,548)
Operating losses totalled US$38,496,785 (2021: US$2,925,830). The increase primarily resulting from increased impairment
charges attributable to the expected losses accruing to the disposal of PetroNeft’s Russian subsidiary assets, in the sum of
US17,446,534. In addition, on the disposal of PetroNeft joint venture interest in the Cypriot registered WorldAce Investment
Limited the Joint venture loans recoverable, which to that point would have been recovered out of sale of Licence 61 or a farm
in, are deemed to be fully impaired. The impairment charge on joint venture loans is US$19,382,427.
The loss after taxation for the year was US$44,225,884 (2021: US$4,871,064).
The loss included the Company’s share of the joint venture's net loss in WorldAce Investments of US$7,670,443 (2021:
US$4,964,655). The adverse movement in the Company’s share of joint venture net loss arose, despite revenues improving to
US$30,445,771 (FY 2022) from US$29,992,441(FY 2021).
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 and 67 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 2022 PetroNeft Group charged a total of US$859,666 (2021: US$533,576) 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 2022 Granite Construction charged the WorldAce Group US$1,252,784 (2021: US$769,411) in respect of these services.
Administrative expenditure showed an increase year on year of 88.5%, which was primarily attributable, to the loss allowance
created against PetroNeft receivables from the WorldAce Group of companies, in the sum of US$1,125,138 .Excluding this sum
the year-on-year comparative showed an increase in administrative expense of 9.9 % as the Company incurred additional
overhead on senior management termination fees, accrued but not paid, and other overhead increases, such as increased
auditing expenses. The Company continues to monitor its costs on an ongoing basis. As per Note 35, the Directors and
management agreed to reduce and defer significant portions of their remuneration; as at 31 December 2022 a total of
US$1,097,010 (2021: US$225,666) had been deferred by the Directors and senior management.
Most of the Finance income relates to interest receivable on loans to the joint ventures. During 2022 PetroNeft recognised
interest income of US$3,589,220 (2021: US$2,780,253) on its loans to WorldAce Group and US$Nil (2021: US$65,896) 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, and
in February 2021. In addition, on first time consolidation of Russian BD Holdings B.V. a loan became payable to Belgrave Naftogas
B.V. 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.
[16]
PetroNeft Resources plc
Financial Review (continued)
Given PetroNeft has elected to dispose of its Russian assets, post a strategic review, first announced on 25 November 2022,
Management has worked with the loan note holders to agree revised amounts and terms which are payable on full and final
settlement of all loan monies outstanding, post receipt of the monies from the Sale of the Russian assets. For more information
on the revised terms and conditions, please see Note 30.
Unrealised gain on business combination
During 2022, there was no new reporting of any business combination. For 2021 the unrealised gain of US$3,432,730 arises on
the transition of Russian BD Holdings B.V. from a joint venture equity investment to a subsidiary following the Company’s
acquisition, of an additional 40% equity stake. On acquisition as part of the accounting treatment, the initial 50% equity interest
and respective loans advanced by PetroNeft, were marked to fair value, together with applicable foreign exchange losses. For
more detail on this transaction see Note 10.
Profit on modification of financial liabilities
Profit on modification of financial liabilities of US$Nil (2021: US$354,194), relates to the accounting profit booked on the agreed
extension of the final maturity dates of the Petrogrand Loan and the 2019 Convertible debt.
Loss on equity settlement of Financial Liabilities
During 2022 no new equities were issued and the profit/ (loss) on equity settlement of financial liabilities was US$Nil, as no
liabilities were discharged through the issue of equities in PetroNeft. For 2021, the sum of US$1,753,874, relates to an implied
loss, 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$1,200,000 to part fund the extra 40% shareholding in Russian BD Holdings B.V.
Review of Statement of Financial Position as at 31st December 2022.
Oil and Gas Properties, Property Plant and Equipment, Exploration and Evaluation Assets, Assets under Construction, and
Intangible Assets
Amounts recorded here, arose from the consolidation of the assets held by Russian BD Holdings B.V., which at year end, given
the Board were actively looking at strategic options with a view to a sale, as announced on 25 November 2022, have been
transferred to Current assets, under the heading Assets associated with assets held for sale.
Financial Assets- loans
The balance reported in the Statement of Financial Position under Financial Assets, represents the loans to joint venture WorldAce
Investment Limited of US$Nil (2021: US$20,734,834). It was understood that the loan balance would ultimately be repaid out of
farm in or sale of the underlying asset, Stimul T LLC, the Russian registered legal entity, which owns the operating Licence 61.
WorldAce Investment Limited is a Cypriot registered legal entity, and parent company to Stimul T LLC. On 12 October 2023, the
PetroNeft shareholders at an Extraordinary General Meeting, agreed by 88% to 12%, to accept for US$1.00 (One dollar) the sale
of PetroNeft’s 50% equity interest in WorldAce Investment Limited to Pavel Tetyakov, PetroNeft’s current Chief Executive Officer,
plus 10% of any shareholder debts, including shareholder loans and CSMA costs if repaid within 1 year of signing the Sales
Purchase Agreement. On 10 May 2023, Stimul T LLC filed for bankruptcy administration. Accordingly full provision at 100% in the
sum of US$19,382,427 was recorded against the book value of the loan payable to PetroNeft by WorldAce Investment Limited.
Trade and Other Receivables
There was a significant reduction in Trade and Other Receivables of US$1,031,571. As at 31 December 2022, US$94,483 (2021:
US$1,126,054). The primary reason for the reduction in receivables was the loss allowance provision of US$1,125,138 booked
when the PetroNeft shareholders agreed to the sale of PetroNeft’s interest in WorldAce Investment Limited.
Called Up Share Capital and Share Premium Account
During 2022, there was no new shares issued during the fiscal year, unlike 2021, where 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$1,856,748.
PetroNeft Resources plc
Financial Review (continued)
[17]
•
The loan provided by Belgrave Naftogas B.V to the Company to support the acquisition of an additional 40% holding in
Russian BD Holdings B.V was reduced by US850,000.
For more details see Note 30-Loans and Borrowings, subsection “Changes in financial liabilities arising from financing activities
Interest Bearing Loans and Borrowings
Movement in Interest Bearing Loans and Borrowings can be accounted for as follows:
•
Automatic extension of the Petrogrand AB Loan redemption date from 15 December 2022 to 15 March 2023.
•
Per note 30, points 1-5, Management has secured from the loan note holders, significant concessions on loan balances
and the associated terms and conditions, provided amounts agreed are paid out within 7 business days of receipt by
PetroNeft of the sale proceeds for its interest in Licence 67. The concessions include cancellation of all, and any charges
held by Petrogrand AB, the cancellation of all interest accrued across all loan types, and full and final payment of 30% of
the principal amount on the Petrogrand AB Loan and 10% on all other loan types. Final payments will be subject to
Russian withholding tax and any adverse exchange rate movements.
Key Financial Metrics – WorldAce Group
Because of the equity method of accounting for joint ventures that applies to PetroNeft’s interest in WorldAce, listed below are
the metrics which are an extraction from the audited financial statements of the WorldAce Group and give an indication as to the
performance of Licence 61:
WorldAce Group
WorldAce Group
2022
2021
US$
US$
Continuing operations
Revenue
30,445,771
29,912,441
Cost of sales
(30,972,007)
(28,649,622)
Gross profit
(526,236)
1,262,819
Administrative expenses
(5,795,756)
(4,144,337)
Operating profit/(loss)
(6,321,992)
(2,881,518)
Finance income
73,583
90,803
Finance costs
(9,092,480)
(7,138,593)
Loss for the year for continuing operations before taxation
(15,340,888)
(9,929,308)
Income tax expense
-
-
Loss for the year
(15,340,888)
(9,929,308)
Loss for the year
(15,340,888)
(9,929,308)
Other comprehensive income to be reclassified to profit or loss in
subsequent years:
Currency translation adjustments
5,457,627
(605,059)
Total comprehensive loss for the year
(9,883,261)
(10,534,367)
PetroNeft’s share of the Loss for the year
(7,670,443)
(4,964,655)
PetroNeft’s share of the currency translation adjustments
2,728,814
(302,530)
PetroNeft's Share 50%
(4,941,631)
(5,267,184)
PetroNeft Resources plc
Financial Review (continued)
[18]
Net Loss – WorldAce Group
PetroNeft’s share of the WorldAce Group net loss for the full year increased to US$7,670,443 (2021: US$4,964,655) during 2022.
The following factors contributed to the increase in the share of WorldAce Group net loss:
•
Due to the dispute with Nord Imperial LLC, transhipment of crude oil ceased, at the end of August 2022.
•
Licence 61 was shut in and did not generate any revenues from crude production in the last quarter of 2022.
•
The significant weakening of the gross margin rate was due to the increased transhipment costs, increasing by
US$1,524,154 in the financial year under review.
•
Administrative expenses were significantly higher than prior years. The current reporting period saw expense increases
across all main expense headings.
•
Financing costs are higher, due to LIBOR rate increases in 2022 versus 2021.
•
No tax charge has been accrued in the year.
Of the US$9,092,480 in interest payable by WorldAce, US$3,589,220 is payable to PetroNeft. (2021 US$7,138,593/US$2,780,253)
Revenue, Cost of Sales, and Gross Margin – WorldAce Group
Gross Revenue from oil sales was US$30,445,771 for the year (2021: US$29,912,441).
Cost of sales includes depreciation of US$1,572,706 (2021: US$1,125,173).
The gross margin significantly worsened during the year to a reported loss of US$526,236 (2021: US$1,262,819 profit) due to a
significant increase in transhipment costs. WorldAce Group produced 426,158 barrels of oil (2021: 603,655 barrels). During 2022,
426,158 barrels of oil were sold (2021: 588,133 barrels) achieving an average oil price of US$71.40 per barrel (2021: US$50.86 per
barrel).
In 2022, Licence 61 sold most of its oil on the Russian’s domestic market.
Finance Costs – WorldAce Group
Gross Finance costs of US$9,092,480 (2021: US$7,138,593) mainly relates to interest on loans from PetroNeft and Oil India.
Taxation – WorldAce Group
The tax charge accrued in the year is US$ Nil (2021: US$Nil).
Current and Future Funding of PetroNeft Group
While there are consolidated net current liabilities at the year-end of US$3,822,282 (2021: US$2,600,480), the Statement of
Financial position reflects the valuation ascribed to the assets and liabilities, post a Strategic review of its Russian business
operations, first announced on 25 November 2022 and firmed up on 12 October 2023, when the shareholders at an extraordinary
general meeting of PetroNeft agreed by 88% to 12%, to dispose of its Russian assets to Pavel Tetyakov.
The Company continually tries to minimise its costs, especially in the present situation. The Directors and Management have
agreed to reduce and defer significant portions of their remuneration and will continue to manage other trade creditors and
accruals on a proactive basis.
The Company has met with all loan note holders and as indicated in Note 30 – Loans and Borrowings, secured favourable terms
for full and final settlement, plus the cancellation of onerous charges.
Going Concern
Cash on hand.
As at 31st December 2022, PetroNeft Group had cash and cash equivalents of US$104,489 (2021: US$915,602). A comprehensive
review of all cash inflows and outflows is contained in the Consolidated Statement of Cash Flows on page 34 of the Annual
Accounts.
PetroNeft Resources plc
Financial Review (continued)
[19]
Improving liquidity in the near term.
PetroNeft near term financial health is highly dependent on completion of the sale of PetroNeft’s assets to Pavel Tetyakov and
the successful remittance of those proceeds to the PetroNeft’s bank account in Dublin. Unknowns include the percentage
withholding tax to be deducted in Russia, and the final dollar/ rouble exchange rate on remittance. PetroNeft has where possible
mitigated those risks, by shifting the risk burden on to the note loan holders.
Monies once received will be used to pay down the note loan holders, at the revised terms, pay down fees on full settlement basis
reduced amounts owing to the Directors and Management, and the balance remaining to proactively manage trade creditors and
payout concurrent operating costs to support the business going forward as it attempts to secure alternative business
opportunities or wind down in a fully compliant manner.
Controlling expenditure.
PetroNeft will manage expenditures in line with the Company’s commentary as reported under the heading “Improving liquidity
in the near term”, as reported above.
Proactive liquidity management and cost control.
Include the following:
•
Secured from all loan note holders, substantial wavering of onerous charges, plus significant write down of Principal and
Interest amounts on full and final settlement, as reported on in Note 30 – Loans and Borrowings. Write downs will be
confirmed on payout of agreed final amounts.
•
Renumeration amounts owing to key Management increased in the reporting period from US$225,666 in FY 2021 to
US$1,097,010 in FY 2022, as per Note 35 related party transactions.
•
Expected outgoings post receipt of sale proceeds from the disposal of PetroNeft’s Russian assets is captured in Note 31
Financial Risk Management Objectives and Policies, subsection Liquidity Risk Management. The subsection includes
amounts for full and final settlement. Total disbursements are projected in the region of US$1,751,802. The amounts
reported are considerably less than those amounts reported outstanding as of 31 December 2022 for total interest-
bearing loans and borrowings and trade and other payables which amount to US$6,952,696 in total.
The Company announced on the 25 November 2022, a strategic review of its operations, culminating with the EGM on then 12
October 2023 which voted in favour of the disposal of its Russian assets to Pavel Tetyakov, subject to the normal regulatory
approval and closing procedures. The sale proceeds are to be remitted to PetroNeft’s Irish bank account.
Subject to the Russian Withholding tax rate, plus the prevailing rouble/ dollar exchange rate, the net proceeds will be used to pay
down a) loan note holders b) salaries and fees to senior management, c) trade creditors and accruals, d) meet ongoing operational
costs as the Company reviews its strategic alternatives e) seek further funding for new business opportunities.
The Parent Company incurred a loss of US$40.86 million after providing 100% against the WorldAce Joint Venture loan, plus
marking down the value of the Russian B.D. Holding B.V. to the expected recoverable amount. The Parent’s Company total
liabilities exceed its total assets by US$11.98 million
These 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 will where
possible strive to ensure that the company continues against the background of the noted significant uncertainties described
above.
Focussed asset management and capital allocation:
PetroNeft continually updates its operational plan more so in light of its decision to exit the Russian marketplace.
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
PetroNeft Resources plc
Financial Review (continued)
[20]
business risks and measures to address those critical to our operating environment in Russia. Accordingly, given the current
sanction regime in place, and the inability to fund the development of its Russian assets, PetroNeft has taken the opportunity to
exit the Russian marketplace. 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 HSE 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. Clearly with the sale of the
Company’s Russian assets, most of the risk factors will no longer be relevant.
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 61 has entered voluntary bankruptcy administration; Pavel
Tetyakov to acquire PetroNeft’s interests in WorldAce Investment
Limited. Licence 67 will be sold to Pavel Tetyakov. Granite Construction
LLC, the construction service provider will be sold to Pavel Tetyakov.
Dolomite OOO, which has been dormant, will file for bankruptcy
administration. At the end of the disposal process, PetroNeft will have
no Russian assets.
25-year licence term can be automatically extended based on
approved production plan.
Technical Risks
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
Exploration risk
Proven oil and gas basin with multiple plays.
Focused on lower risk production and development assets.
Good quality 2D & 3D seismic.
Knowledgeable technical and operational team with proven track
record in the region.
Drilling risk
Relatively shallow wells with proven technology and abundant adjacent
drilling history which demonstrates no significant drilling challenges.
A market where the oil price is increasing, rigs sourcing and inflation
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.
PetroNeft Resources plc
Financial Review (continued)
[21]
Risk Type
Risk Issue
Mitigation
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.
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.
PetroNeft Resources plc
Financial Review (continued)
[22]
Risk Type
Risk Issue
Mitigation
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 suspended from Licence 61. This remains unresolved
it remains a material concern.
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 30 October 2023, as per the share register is as follows:
Name of Shareholder
Percentage
Shares
Natlata Partners Limited*
25.7%
275,503,451
Mr. Lloyd Wiggins
14.46%
154,974,339
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%.
.
[23]
PetroNeft Resources plc
Directors’ Report
for the year ended 31 December 2022
The Directors present herewith their Annual Report and the un-audited financial statements of PetroNeft (“PetroNeft”,
“the Company”, or together with its subsidiaries and joint venture, “the Group”) for the year ended 31 December 2022.
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$43,302,724 (2021: US$3,910,988). After a tax charge of US$923,160 (2021: US$
960,076) the loss for the year amounted to US44,225,884 (2021: US$4,871,064). 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 6 to 7,
the Chief Executive Officer’s Report on pages 8 to 13 and the Financial Review on pages 14 to 22. The key financial metrics used
by management are set out in the Financial Review on page 14.
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 by 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 2022 (continued)
[24]
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 105-115 of this Annual Report. 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 32 to the financial statements.
Audit Committee
The members of the Audit Committee are non-executive directors, Anthony Sacca (Chairman), and Eskil Jersing. 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. No
external auditors were appointed during the year and accordingly the external auditors did not undertake any non-audit work during
the current year.
The committee, with management, reviews the effectiveness of internal controls.
Remuneration Committee
The members of the Remuneration Committee are David Sturt (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 David Sturt (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 2022 (continued)
[25]
Environmental, Social and Governance Committee.
The members of the committee are Eskil Jersing David Sturt and Pavel Tetyakov.
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’s appointee is Michael Power, 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 normally 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, David Sturt and Anthony Sacca 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 2022 (continued)
[26]
Directors, Company Secretary, and their Interests
The Directors and Company Secretaries who held office during 2022 and in the period up to 30 October 2023 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
30 October 2023
31 December 2022
1 January 2022
Alastair McBain* (resigned 21 October 2022)
-
-
154,974,339
Daria Shaftelskaya**
98,164,020
98,164,020
98,164,020
David Sturt
26,094,132
26,094,132
26,094,132
Pavel Tetyakov
15,637,515
15,637,515
15,637,515
Eskil Jersing (appointed 1 November 2021)
768,807
768,807
-
Anthony Sacca
-
-
-
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 20-22
Going Concern
The appropriateness of continuing to prepare the financial statements on a going concern basis is discussed in detail in the Finance
Review on page 18 in the paragraphs related to the “Current and future funding of PetroNeft” and - “Going Concern”, page 19 for
“Improving liquidity in the near term” and “Proactive liquidity management and cost control” and in Note 2 to the financial
statements on pages 45-46.
The circumstances outlined in the Finance Review and Note 2 represent material uncertainties that may cast significant doubt
upon the Group and the Company’s ability to continue as a going concern. Nevertheless, after making enquiries, and considering
the uncertainties described in the Finance Review and Note 2, the Directors 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.
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 2022 financial year.
PetroNeft Resources plc
Directors’ Report
for the year ended 31 December 2022 (continued)
[27]
Directors’ Remuneration (US$)
2022
2021
Director
Basic
Pension
Total
Basic
Pension
Total
Executive directors
David Sturt*
527,946 36,940
564,886 413,832
16,250
430,082
Pavel Tetyakov
243,437 17,943
261,380 200,000
15,000
215,000
771,383 54,883
826,266 613,832
31,250
645,082
Non-executive directors
Alastair McBain
22,416 - 22,416 17,990 - 17,990
Daria Shaftelskaya
21,029
- 21,029 14,672 - 14,672
Anthony Sacca
21,029 - 21,029 14,672 - 14,672
Eskil Jersing
21,029 - 21,029 3,968 - 3,968
David Golder
-
-
-
2,222 - 2,222
Thomas Hickey
- - - - - -
Maxim Korobov
- - - - - -
85,503
- 85,503
53,524
-
53,524
Total Directors
remuneration
856,886 54,883
911,769
667,356 31,250
698,606
*Includes termination fees on retiring as PetroNeft’s Chief Executive officer of US$188,628 (2021:US$Nil) accrued but not paid
and Medical Insurance premiums of US$13,171 (2021: US$13,832)
As detailed in Note 35, included in the above are unpaid fees and remuneration due to Directors as at 31 December 2022 of
US$817,943 (2021: US$172,926).
Political Donations
The Company did not make any political donations during the year.
Important Events after the Balance Sheet Date
The onset of the Russian / Ukrainian conflict, which has led the global community to the imposition of substantial and penal
sanctions on the Russian government and its officials. The sanctions led to prohibitions on doing business in any meaningful
commercial way in Russia.
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 from within Russia. Given the evolving nature and severity
of the sanctions, both directors and senior management are unable to secure sanction compliant funding for rollout and
development of PetroNeft’s Russian Assets. On 25 November 2022, PetroNeft announced the Company would undertake a
strategic review of all options available to it. On 12 October 2023, at an Extraordinary General Meeting of PetroNeft, 88% of the
voted shareholders passed a special resolution authorising the Board to dispose of the Company’s key assets to Pavel Tetyakov.
Previously on 14 June 2023, PetroNeft announced it had agreed, subject to shareholder approval, sale terms for the disposal of its
100% interest in Lineynoye to Pavel Tetyakov, and again on 1 August 2023, it had agreed sale terms for the disposal of Granite
Construction OOO and PetroNeft’s equity interest in the Cypriot registered entity WorldAce Investment Limited to Pavel Tetyakov.
PetroNeft Resources plc
Directors’ Report
for the year ended 31 December 2022 (continued)
[28]
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 tariff 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, saw revenues at Stimul - T LLC
reduced to zero. On 10 May 2023, Stimul T LLC files for voluntary bankruptcy administration in Russia.
On the 30 June 2023 and again on 5 September 2023, PetroNeft announced it had concluded indicative full and final debt
settlement agreements with its debt holders. In all cases, there was achieved a 100% concession on interest payable, and loan
principals would be reimbursed 10% of the book value if unsecured, and 30% if secured. Final disbursements would be subject to
any withholding tax in Russia, plus any adverse movements in the rouble/ dollar exchange rate.
On the 30 June 2023, the Company announced suspension of trading of its equities on both the A.I.M. and Euronext markets
pending publication of its audited annual report for FY 2022. Dealings in the Company's ordinary shares was therefore suspended
from 7.30 a.m. on Monday 3 July 2023 until such time as the Audited Accounts have been duly published. Should the Audited
Accounts not be published by 31 December 2023, the Company’s admission to AIM and Euronext Growth will be cancelled.
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.
PetroNeft Resources plc
Directors' Report
for the yeor ended З7 December 2022 (сопtiпuеd)
The Directors аrе responsible for ensuring that the Company keeps оr causes to Ье kept adequate accounting rесоrds which
correctly explain and rесоrd the transactions of the Company, enable at anytime the assets, liabilities, financial position and
profit оr loss of the Company to Ье determined with reasonable ассчrасу, enable them to ensure that the financial statements
and Directors' Rероrt comply with the Companies Act 2014 and епаЬlе the financial statements to Ье audited. They are a|so
responsible fоr safeguarding the assets ofthe Group and hепсе for taking rеаsопаЬlе steps fоr the prevention and detection of
fraud and other irregularities. Legislation in lreland governing the рrераrаtiоп and dissemination of financial statements may
differ from legislation in оthеr jurisdictions. The Directors аrе responsible for the maintenance and integrity of the соrроrаtе
and financial information included on the Company's website.
Disclosure of information to auditors
So fаr as each of the Dirесtоrs in office at the date of approval of the financial statements is аwаrе and subject to and ratification
of the auditot/s appointment:
ъ
ALL re|evant audit information is to Ье made available to the auditors if appointed,; and
о The Directors have taken all the steps that they ought to have taken as directors to make themselves aware of any
relevant audit information and to establish that this information is disclosed to the Company's auditors if appointed,
This confirmation is given and should Ье interpreted in accordance with the provisions of Section З30 of the Companies Act 2014.
Auditors
At the time of drafting these financial statements no Auditors had being appointed Ьу the Company in accordance with the
provisions of the Companies Act 2014, due to the fact that no f unding was available to meet the Auditors fees, and it was а Board
decision taking in 2023 that monies опсе received would Ье better allocated to meet the Group's payables.
Approved Ьу the Board оп
22 November 2023
David Sturt
Director
Pavel Т
[29]
PetroNeft Resources plc
[30]
Consolidated Income Statement
For the year ended 31 December 2022
2022
2021
Note
US$
US$
Continuing operations
Revenue
5
7,727,599
5,815,255
Cost of sales
(6,696,718)
(4,408,707)
Gross profit
1,030,881
1,406,548
Administrative expenses
(2,698,705)
(1,431,646)
Impairment of exploration and evaluation assets
18
-
(2,900,732)
Impairment of financial assets
22
(19,382,427)
-
Impairment of assets held for sale
26
(17,446,534)
-
Operating loss
7
(38,496,785)
(2,925,830)
Share of joint venture's net loss - WorldAce Investments
Limited
13
(7,670,443)
(4,964,655)
Share of joint venture's net loss -Russian BD Holdings B.V.
14
-
(126,031)
Finance Income
8
3,599,756
2,855,639
Finance costs
9
(735,252)
(803,358)
Fair value gains on financial derivatives
-
20,197
Unrealised gain on business combination
10
-
3,432,730
Profit/ (Loss) on equity settlement of financial liabilities
-
(1,753,874)
Profit/ (Loss) on modification of financial liabilities
-
354,194
Loss for the year for continuing operations before
taxation
(43,302,724)
(3,910,988)
Income tax expense
11
(923,160)
(960,076)
Loss for the year attributable to equity holders
(44,225,884)
(4,871,064)
Profit /(loss) for the period attributable to:
Owners of the Parent
(44,262,760)
(4,867,482)
Non-Controlling Interest
28
36,876
(3,582)
(44,225,884)
(4,871,064)
Loss per share attributable to ordinary equity holders
of the Parent
Basic and diluted - US dollar cent
12
(4.13)
(0.49)
PetroNeft Resources р!с
Consolidated Statement of Comprehensive lncome
For the уеаr ended З1 December 2022
Loss for the year attributable to equity holders
Other comprehensive income:
ltems that will поt Ье reclassified to profit оr loss:
ltems that will оr mауЬе reclassified to profit оr loss:
Сurrепсу translation adjustments - subsidiaries
Сurrепсу translation adjustments reclassified to profit
and loss
10
Share of joint ventures' other comprehensive income -
foreign exchange translation differences
Other comprehensive income for the year net of tax
Total comprehensive loss for the year attributable to
equity holders
Total Comprehensive lпсоmе attributable to:
оwпеrs of the Ра rent
Non-Controlling l nterest
Approved bythe Воаrd on
_-__gg9ддgl_ _____цдgщgq-
|4о,770,987|
(1,177,570|
94953
(8,590)
_____g99zq9щ_ ___]1,186,t99I_
2о22
Us$
(44,225,884)
2o2L
Uss
(4871,064)
82t,оз7
2,728,8tз
(I2,786\
4,026,539
(з28,849)
3,684,904
з,684,904
3,549,850
3,549,850
David Sturt
Director
")й7
W
Director
[з1]
PetroNeft Resources plc
[32]
Consolidated Statement of Financial Position.
As at 31 December 2022
2022
2021
Assets
Note
US$
US$
Non-current Assets
Oil and Gas Properties
16
-
5,006,667
Property, plant, and equipment
17
-
118,618
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
-
39,766,931
Current Assets
Inventories
23
-
86,842
Trade and other receivables
24
94,483
1,126,054
Cash and cash equivalents
25
104,489
915,602
198,972
2,128,498
Assets associated with assets held for sale
26
3,806,205
-
4,005,177
2,128,498
Total Assets
4,005,177
41,895,429
Equity and Liabilities
Capital and Reserves
Called up share capital
27
13,661,466
13,661,466
Share premium account
147,679,056
147,679,056
Share-based payments reserve
6,796,540
6,796,540
Retained loss
(150,717,810)
(106,455,050)
Currency translation reserve
(32,369,402)
(35,861,175)
Other reserves
511,981
511,981
Equity attributable to equity holders of the Parent
(14,438,169)
26,332,818
Non- Controlling Interest
28
2,630,988
716,410
Total Equity
(11,807,181)
27,049,228
Non-current Liabilities
Provisions
29
-
254,629
Interest-bearing loans and borrowings
30
1,004,787
3,477,078
Derivative financial liabilities
30
-
313,168
Deferred tax liability
11
6,980,112
6,072,348
7,984,899
10,117,223
Current Liabilities
Interest-bearing loans and borrowings
30
3,971,394
2,827,041
Derivative financial liabilities
30
313,168
-
Trade and other payables
31
1,663,347
1,901,937
5,947,909
4,728,978
Liabilities associated with assets held for sale
26
1,879,550
-
7,827,459
4,728,978
Total Liabilities
15,812,358
14,846,201
Total Equity and Liabilities
4,005,177
41,895,429
PetroNeft Resources plc
[33]
Consolidated Statement of Changes in Equity
For the year ended 31 December 2022
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 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
-
-
-
-
-
-
725,000
725,000
Convertible Share Option reserve
-
-
132,058
-
132,058
-
132,058
New Share Capital subscribed
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
At 1 January 2022
13,661,466
147,679,056
7,308,521
(35,861,175)
(106,455,050)
26,332,818
-
27,049,228
Loss for the year
-
-
-
-
(44,262,760)
(44,262,760)
36,876
(44,225,884)
Currency translation adjustments - subsidiaries
-
-
-
762,960
-
762,960
58,077
821,037
Share of joint ventures' other comprehensive income
-
-
-
2,728,813
-
2,728,813
-
2,728,813
Total comprehensive loss for the year
-
-
-
(32,369,402)
(44,262,760)
(40,770,987)
94,953
(40,676,034)
Conversion of Belgrave Debt to equity in RBD
-
-
-
-
-
-
1,819,625
1,819,625
Convertible Share Option reserve
-
-
-
-
-
-
-
-
New Share Capital subscribed (Note 27)
-
-
-
-
-
-
-
-
At 31 December 2022
13,661,466
147,679,056
7,308,521
(32,369,402)
(150,717,810)
(14,438,169)
2,630,988
(11,807,181)
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.
PetroNeft Resources plc
[34]
Consolidated Cash Flow Statement
For the year ended 31 December 2022
2022
2021
Operating activities
US$
US$
Loss before taxation
(43,302,724)
(3,910,988)
Adjustment to reconcile loss before tax to net cash
flows
Non-cash
Depreciation
258,012
167,690
Share of loss in joint ventures
7,670,443
5,090,686
Foreign Exchange Gains/ (Losses)
253,083
(163,898)
Loss Allowance
1,023,258
-
Impairment of financial assets
19,382,427
-
Impairment of assets held for sale
17,446,534
-
Impairment of Exploration and Evaluation assets
-
2,900,732
Loss/(Profit) on equity settlement of financial liabilities
-
1,753,874
Loss/(Profit) on modification of financial liabilities
-
(354,194)
Unrealised gain on business combination
-
(3,432,730)
Finance income
8
(3,599,756)
(2,855,639)
Finance costs
9
735,252
803,358
Fair value gains on financial derivatives
-
(20,197)
Working capital adjustments
Decrease/(Increase) in trade and other receivables
(86,643)
1,459,937
Decrease/(Increase) in inventories
(12,874)
39,804
Increase /(Decrease) in trade and other payables
1,344,138
(808,766)
Income tax paid
(15,396)
(87,248)
Net cash flows used in operating activities
1,095,754
582,421
Investing activities
Acquisition of subsidiary net of Cash Acquired
-
18,893
Purchase of oil and gas properties
(102,765)
(153,475)
Purchase of exploration and evaluation Assets
(9,762)
(730,901)
Purchase of assets under construction
(1,554,508)
(495,983)
Interest received
10,535
9,490
Net cash used in investing activities
(1,656,500)
(1,351,976)
Financing activities
Proceeds from issue of Convertible debt option
-
2,245,000
Repayment of interest on loan facilities
(248,055)
(88,013)
Repayment of principal on loan facilities
-
(574,430)
Net cash received from financing activities
(248,055)
1,582,557
Net increase/(decrease) in cash and cash equivalents
(808,801)
813,002
Translation adjustment
(2,312)
1,572
Cash and cash equivalents at the beginning of the
year
915,602
101,028
Cash and cash equivalents at the end of the year
25
104,489
915,602
PetroNeft Resources р!с
Соmрапу Statement of Financial Position
дs at З7 December 2022
Non-current Assets
Рrорегtу, plant, and equipment
Financial assets - investments in joint ventures and
subsidiaries
Fiпапсiаl assets - loans
current Assets
Trade and other receivables
Cash and cash equivalents
Assets associated with assets held for sale
Total Assets
Equity and Liabilities
Capital and Reserves
Called up share capital
Share рrеmium account
Share-based payment rеsеrче
Retained loss
оthеr reserves
Equity attributable to equity holders of the parent
Non_current Liabilities
lnterest bearing loans and borrowings
Derivative financial lia bilities
Deferred tax liability
счrrепt Liabilities
lnterest-bearing loans and borrowings
Derivative financial liabilities
Trade and other payables
Total Liabilities
Total Equity апd Liabilities
з,97L,з94
31з,168
1,580,175
5,864,7з7
1з,849,636
lL,45L,462
_______lдqqщg_ _____l9tэзЁg5
77
2о22
Uss
94,48з
66,z4o
160,72з
L,7o7,896
1,868,619
_*_____199&9ц_
13,661,466
t47,679,056
6,796,540
(180,6з0,060)
511,981
(11,981,017)
202L
Uss
8,7з0,848
29,278,522
38,009,370
L,6Lз,з26
709,889
2,з2з,2L5
2,з2з,2L5
--_щ19?дq9_
Iз,661-,466
147,679,056
6,796,54о
(Iз9,767,920|
511,981
28,88L,L2з
21
22
24
25
27
30
з0
71
7,о04,787
6,980,112
7,984,899
1,667,9з8
з13,168
6,072,з48
8,053,454
2,827,o4t
570,967
3,398,008
30
The Company reported а loss for the financial уеаr ended 31 DесеmЬеr 2022 of USS4O.sб million (2021: profit of
USSl.З89 million).
Approved Ьу the Board on
David Sturt
Director
з1
PetroNeft Resources plc
[36]
Company Statement of Changes in Equity
For the year ended 31 December 2022
Share
capital
Share
premium
Share-based
payment and
other reserves
Retained loss
Total
US$
US$
US$
US$
US$
At 1 January 2021
10,896,668
141,794,897
7,176,463
(141,157,590)
18,710,438
Profit/(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
-
132,058
New Share Capital Subscribed
2,764,798
5,884,159
-
-
8,648,957
At 31 December 2021
13,661,466
147,679,056
7,308,521
(139,767,920)
28,881,123
At 1 January 2022
13,661,466
147,679,056
7,308,521
(139,767,920)
28,881,123
Loss for the year
-
-
-
(40,862,140)
(40,862,140)
Total comprehensive loss for the year
-
-
-
(40,862,140)
(40,862,140)
Convertible debt option reserve
-
-
-
-
New Share Capital Subscribed
-
-
-
-
-
At 31 December 2022
13,661,466
147,679,056
7,308,521
(180,630,060)
(11,981,017)
Share premium is the amount received for shares issued in excess of 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
[37]
Company Cash Flow Statement
For the year ended 31 December 2022
2022
2021
Operating Activities
Note
US$
US$
Profit /(Loss) before taxation
(39,954,376)
2,262,498
Adjustments to reconcile loss before tax to net cash flows
Non-cash
Impairment of financial assets- investments in joint
ventures and subsidiaries
16,180,007
-
Impairment of financial assets-Loans Receivable
24,324,057
1,883,503
Foreign Exchange Gains
(425)
4,137
Loss Allowance
1,314,016
-
Loss/(Profit) on equity settlement of financial liabilities
-
1,753,874
Loss /(Profit) on modification of financial liabilities
-
(354,194)
Finance income
(3,680,578)
(3,491,312)
Finance costs
749,880
689,044
Fair value gains on financial derivatives
(20,199)
20,197
Unrealised gain on investment in subsidiary
-
(3,625,000)
Working capital adjustments
Decrease/(Increase) in trade and other receivables
(317,185)
752,941
Increase / (Decrease) in trade and other payables
1,009,208
(560,315)
Net cash flows used in operating activities
(395,595)
(664,627)
Investing activities
Loan facilities advances
-
(330,000)
Return of loan facilities
-
26,990
Net cash (used in)/received from investing activities
-
(303,010)
Financing activities
Proceeds from issue of Convertible debt
-
2,245,000
Repayment of interest on loan facilities
(248,055)
(88,013)
Repayment of principal on loan facilities
-
(574,430)
Net cash received from financing activities
(248,055)
1,582,557
Net decrease in cash and cash equivalents
(643,650)
614,920
Translation adjustment
1
(1)
Cash and cash equivalents at the beginning of the
year
709,889
94,970
Cash and cash equivalents at the end of the year
25
66,240
709,889
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[38]
Notes to the Financial Statements
For the year ended 31 December 2022
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 announced by the Company on the 29 August 2022, Nord Imperial LLC suspended all transhipments of oil from Stimul T
LLC, which owns Licence 6. Stimul T LLC parent company is the Cypriot registered WorldAce Investment Limited, a joint
venture entity owned 50% by PetroNeft and 50% Oil India International S.P.I.
Suspension of oil transhipments 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 had 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.
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.
Stimul T failed in the first instance to secure legal redress against Nord Imperial LLC, and there were no preliminary adverse
Anti-Monopoly findings against Nord Imperial LLC. Accordingly on 10 May 2023, Stimul T LLC, the operator of Licence 61
voluntary filed for bankruptcy administration. On the 1 August 2023, PetroNeft announces it has agreed Heads of Terms for
the sale of its equity interest in WorldAce Investment Limited for US$1 to Pavel Tetyakov, current chief executive officer of
PetroNeft.
As reported on Note 30, paragraphs (1-2) and (4-5), the Company achieved revised full and final debt settlement terms, for
all its loan finance agreements. The main settlement terms include the following.
•
For payments equating to 10% of unsecured Loan principal amounts, there would be cancellation of all accrued
interest plus the remaining 90% Loan principal.
•
For payment equating to 30% of Petrogrand’s AB secured Loan principal, there would be cancellation of all accrued
interest plus the remaining 70% Loan principal.
•
Petrogrand AB, was the only third-party entity holding security over all the assets and future revenue streams of
PetroNeft. It is a related party, given Maxim Korobov, a former director and ultimate beneficial owner of Natlata
Partners Limited which own 25.7% of PetroNeft. Maxim Korobov also owns more than 50% interest in Petrogrand
AB. On payment of the final settlement amounts, all and any securities accruing to Petrogrand AB are cancelled.
The Group has analysed its cash flow requirements through to 31 December 2024. The cash flows are dependent on a) the
successful completion of the sale of PetroNeft’s Russian assets to Pavel Tetyakov, b) the successful remittance of the sale
proceeds to PetroNeft’s bank account in Dublin c) proactive management of trade creditors and other accruals, including
the agreed deferral of directors and senior management fees, d) discharge debt holders liabilities in line with revised full
and final settlement terms e) identify suitable business opportunities that could be reversed into PetroNeft by way of reverse
takeover. f) Linked to item e, secure adequate third-party funding to support the integration of the secured new business
opportunity while it gets established.
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[39]
2.
Going Concern (continued)
The Group will need additional funding to continue as a going concern, were:
•
The disposal of PetroNeft’s Russian assets does not materialise.
•
The Petrogrand AB loan or other loans will not be extended or re-financed.
•
The inability to access intercompany cash holdings continues.
•
PetroNeft fails to identify other business opportunities.
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 35
outlines the amounts owed to the Board and management in this regard as of the reporting date.
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:
•
Strong support of a its broad shareholder base
•
Industry experience and Management’s know how in identifying new business opportunities and developing
associated strong investment cases.
•
the continuous support of our lenders, both convertible and conventional debt
•
the incorporation of Environmental, Social and Governance matters to the core of its operations.
•
Near term cash injection following the disposal of PetroNeft’s Russian assets.
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”).
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[40]
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.
•
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.
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[41]
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 attributable
to the 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 broad shareholders base, and the expected remittance of the sale proceeds
to PetroNeft’s Irish bank account following the successful sale of PetroNeft’s Russian assets which will allow for proactive
management of trade payables and loan balances. In addition, PetroNeft’s experienced Management team, tasked with
identifying targeted companies, which should generate free cashflow once consolidated. 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 2022 is US$Nil, given these assets are now classified a held for sale,
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[42]
3.4
Significant Accounting Judgements, Estimates and Assumptions (continued)
post shareholders’ approval for disposal of Lineynoye LLC, the holder of Licence 67, to Pavel Tetyakov current Chief Executive
officer of PetroNeft. (2021: US$9,730,768).
Financial assets at amortised cost. – Notes 13, 14 ,21 and 22
For 2022, the share of losses and currency translation adjustments in the WorldAce Investment Limited joint venture
exceeded the carrying value of equity-accounted investment in the joint venture. Historically 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.
(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.
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[43]
3.4
Significant Accounting Judgements, Estimates and Assumptions (continued)
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.
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.
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[44]
3.4
Significant Accounting Judgements, Estimates and Assumptions (continued)
Impairment of financial assets – Note 21
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 29
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 29 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.
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 2022 and 2021 were:
2022
2021
US$1 =
Closing
Average
Closing
Average
Russian Rouble
70.3383
61.8924
75.313
73.694
Euro
0.9376
0.9509
0.8829
0.8468
British Pound
0.8315
0.8112
0.7419
0.7267
(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.
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[45]
3.5
Summary of Significant Accounting Policies (continued)
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 2022 or 2021.
(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%.
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[46]
•
Motor vehicles – 14% to 35%.
•
Property, plant, and equipment – 10 % -15%
3.5
Summary of Significant Accounting Policies (continued)
(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.
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
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[47]
3.5
Summary of Significant Accounting Policies (continued)
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.
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.
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[48]
3.5
Summary of Significant Accounting Policies (continued)
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.
(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.
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[49]
3.5
Summary of Significant Accounting Policies (continued)
(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.
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.
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[50]
3.5
Summary of Significant Accounting Policies (continued)
(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.
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, including 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.
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[51]
3.5
Summary of Significant Accounting Policies (continued)
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.
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.
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
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[52]
3.5
Summary of Significant Accounting Policies (continued)
the Group’s best estimate of the number of equity instruments that will ultimately vest. The income statement charges 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
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
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[53]
3.5
Summary of Significant Accounting Policies (continued)
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
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. 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 new or revised standards and interpretations
There have been no new standards or amendments to standards adopted by the Group during the year ended 31 December
2022, which have had a material impact on the Group.
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[54]
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, plus given the adoption of international sanctions in the wake of the Russian invasion of Ukraine, 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.
Assets are allocated based on where the assets are located:
2022
2021
Non-current assets
US$
US$
Russia
-
39,766,931
Ireland
-
-
-
39,766,931
Revenues are allocated on where the underlying business
and assets are located.
2022
2021
US$
US$
Revenue- Location
Russia
7,727,599
5,815,255
7,727,599
5,815,255
2022
2021
US$
US$
Revenue- Customer
Alexandrovskoye Oil Refinery 79.4% (2021:71%)
6,141,151
4,133,446
SMPH LLC 0% (2021: 8%)
-
459,063
CJSC Sovkhimteh 0% (2021: 0.03%)
-
19,926
Total Crude oil revenues 79.4% (2021: 79.3%)
6,141,151
4,612,435
WorldAce Investments Limited-8.5% (2021- 7.0%)
655,660
406,577
Russian BD Holdings B.V- 0% (2021-0.5%)
-
26,832
LLC Stimul T- 12.1%, (2021-13.2%)
930,788
769,411
7,727,599
5,815,255
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[55]
5.
Revenue
2022
2021
US$
US$
Revenue
Crude Oil Sales
6,141,151
4,612,435
Management Services
655,660
433,409
Construction Services
930,788
769,411
7,727,599
5,815,255
All Crude oil revenues are recorded in Russian BD Holdings B.V., which transitioned from a joint venture to subsidiary entity
as and from 1 March 2021.
The revenue arises from sale of Crude oil to third party offtakers, based in the Russian federation (see Note 4).
The Group receives payment for crude oil sales in advance, therefor the risk of default is very low.
The management service 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 2022
[56]
6.
Employees
Number of employees
2022
2021
Group
Number
Number
The average numbers of employees (including Directors)
during the year were:
Directors
5
5
Senior Management
2
2
Professional staff
4
4
Oil field workers
6
6
Construction crew employees
20
20
37
37
Number of employees
2022
2021
Company
Number
Number
The average numbers of employees (including Directors)
during the year were:
Directors
6
5
Senior Management
2
2
8
7
Employment costs (including Directors)
2022
2021
Group
US$
US$
Wages and salaries
1,866,949
1,447,041
Social insurance costs
191,671
149,030
Contributions to defined contribution pension plan
26,576
21,156
2,085,196
1,617,227
Employment costs (including Directors)
2022
2021
Company
US$
US$
Wages and salaries
1,228,161
991,618
Social insurance costs
81,050
63,796
Contributions to defined Pension Plan
26,576
21,156
1,335,787
1,076,570
Directors' emoluments
2022
2021
Group and Company
US$
US$
Remuneration and
other emoluments -
Executive
Directors*
771,383
613,832
Remuneration and other emoluments - non-Executive
Directors
85,503
53,524
Pension contributions
54,883
31,250
911,769
698,606
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[57]
6.
Employees (continued)
* Includes termination fees on retirement of PetroNeft’s Chief Executive officer of US$188,628 (2021:US$Nil), and Medical
Insurance of US$13,171 (2021: 13,832).
(a) Included in the above are unpaid fees and remuneration due to Directors as at 31 December 2022 of US$817,944 (2021:
US$172,926)
(b) Pension contributions to directors during the year relate to 2 directors (2021: 2 director).
(c) An amount of US$407,778 (2021: US$340,323) relating to Executive Directors’ salaries was re-charged to WorldAce
Investments Limited.
(d) An amount of US$122,333 (2021: US$102,097) relating to Executive Directors’ salaries was re-charged to Russian BD
Holdings B.V.
7.
Operating loss
Note
2022
2021
Operating loss is stated after charging/(crediting):
US$
US$
Included in cost of sales
Short term lease rentals - equipment
41,252
17,339
Included in administrative expenses
Foreign exchange (gains)/losses
20,852
(40,772)
Short term lease rentals - land and buildings
29,602
8,435
Depreciation of property, plant, and equipment
Included in cost of sales
258,012
167,690
Included in administrative expenses
-
-
258,012
167,690
Auditors' remuneration - Group
-audit of group financial statements
171,194
80,704
-other non-audit services
134,531
196,966
305,725
277,670
Auditors' remuneration - Company
-audit of entity financial statements
45,000
17,250
-audit of group financial statements
126,194
55,934
-other non-audit services
-
7,520
171,194
80,704
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[58]
8.
Finance income
2022
2021
US$
US$
Bank interest receivable
10,535
9,490
Interest receivable on loans to Joint Ventures
3,589,221
2,846,149
3,599,756
2,855,639
Total interest income on financial assets
3,589,221
2,846,149
9.
Finance costs
2022
2021
US$
US$
Interest on loans
719,967
800,698
Unwinding of discount on decommissioning provision (note 29)
15,285
2,660
735,252
803,358
In respect of liabilities not at fair value through Profit and Loss
-
-
Total interest expense on financial liabilities
735,252
803,358
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 2022
[59]
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$4.1M.
11.
Income Tax
Group
2022
2021
US$
US$
Current income tax
Current income tax charge
8,885
87,522
Total current income tax
8,885
87,522
Deferred tax
Relating to the origination and reversal of temporary differences
914,275
872,554
Total deferred tax
914,275
872,554
Income tax expense reported in the Consolidated Income
Statement
923,160
960,076
2022
2021
US$
US$
Loss before income tax
(43,302,724)
(3,910,988)
Accounting loss multiplied by Irish standard rate of tax of 12.5%
(5,412,840)
(488,874)
Non-deductible expenses
4,603.620
454,989
Effect of higher tax rates on investment income
449,970
436,414
Tax deductible timing differences
-
(12,104)
Share of joint ventures' net loss
958,805
636,336
Other
323,606
22,444
Profits taxable at higher rates
-
7,168
Taxable losses not utilised
-
(96,297)
Total tax expense reported in the Consolidated Income
Statement
923,160
960,076
Deferred tax
Group and Company
2022
2021
US$
US$
Deferred income tax liability
At 1 January
6,072,348
5,199,522
Expense for the year recognised in the income statement
914,275
872,554
Translation adjustment
(6,511)
272
At 31 December
6,980,112
6,072,348
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[60]
11.
Income Tax (continued)
Deferred tax at 31 December relates to the following:
2022
2021
US$
US$
Deferred income tax liability
Accrued interest income on intra-Group loans
6,980,112
6,072,348
6,980,112
6,072,348
The Group has tax losses which arose in Russia that are available for offset against future profits in Russia
only.
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.
2022
2021
Numerator
US$
US$
Loss attributable to equity shareholders of the Parent
for basic loss
(44,262,760)
(4,867,482)
(44,262,760)
(4,867,482)
Denominator
Weighted average number of Ordinary Shares for
basic
1,071,792,613
1,000,024,400
Loss per share:
Basic and Diluted - US dollar cent
(4.13)
(0.49)
At the Financial year end the Company had convertible debt instruments in issue that had the potential to dilute basic
earnings per Ordinary Share in the future as per Note 36. At time of publication of the PetroNeft’s Annual Report for FY
2022, the options have expired.
During FY 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 2022
[61]
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 2021
-
Elimination of unrealised profit on intra-Group transactions
-
Retained loss
(4,964,655)
Currency Translation adjustment
(302,530)
Credited against loans receivable from WorldAce Investments Limited (Note
22)
5,267,184
At 1 January 2022
-
Elimination of unrealised profit on intra-Group transactions
-
Retained loss
(7,670,443)
Currency Translation adjustment
2,728,813
Credited against loans receivable from WorldAce Investments Limited (Note
22)
4,941,627
At 31 December 2022
-
The balance sheet position of WorldAce shows net liabilities of US$109,331,457 (2021: US$99,448,212) following a loss in
the year of US$15,340,888 (2021: US$9,929,308) together with a positive currency translation adjustment of US$5,457,527
(2021: negative US$605,059). PetroNeft’s 50% share is included above and results in a negative carrying value of
US$49,983,330 (2021: US$45,041,703). 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$49,983,330 (2021: US$45,041,073) is deducted from other
assets associated with the joint venture on the Balance Sheet which are the loans receivable from WorldAce Investments
(see Note 22).
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[62]
13.
Equity-accounted Investment in Joint Venture – WorldAce Investments Limited (continued)
Additional financial information in respect of PetroNeft’s 50% interest in the equity-accounted joint venture entity is
disclosed below.
Summarised Financial statements of equity-accounted joint venture
2022
2021
US$
US$
Revenue
30,445,771
29,912,441
Cost of sales
(30,972,007)
(28,649,622)
Gross profit
(526,236)
1,262,819
Administrative expenses
(5,795,756)
(4,144,337)
Operating profit/(loss)
(6,321,992)
(2,881,518)
Finance Income
73,583
90,803
Finance costs
(9,092,480)
(7,138,593)
Loss for the year for continuing operations before taxation
(15,340,888)
(9,929,308)
Income tax expense
-
-
Loss for the year
(15,340,888)
(9,929,308)
Loss for the year
(15,340,888)
(9,929,308)
Other comprehensive income to be reclassified to profit or loss in
subsequent years:
Currency translation adjustments
5,457,627
(605,059)
Total comprehensive loss for the year
(9,883,261)
(10,534,367)
PetroNeft share of net loss for year
(7,670,443)
(4,964,655)
PetroNeft share of currency translation adjustments
2,728,814
(302,530)
PetroNeft share (50%)
(4,941,627)
(5,267,184)
Included in the above numbers are charges for
Depreciation and Amortisation
1,572,706
1,125,173
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 fluctuated considerably during 2022 as evidenced by the movement of the average dollar/ rouble exchange
rate year over year, RUB61.89:US$1 (2021: RUB 73.69:US$1).
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[63]
13.
Equity-accounted Investment in Joint Venture – WorldAce Investments Limited (continued)
2022
2021
US$
US$
Non-current Assets
Oil and gas properties
65,101,373
61,593,374
Property, plant, and equipment
960,301
851,000
Exploration and evaluation assets
-
-
Assets under construction
1,403,978
1,565,336
Intangible Assets
1,904,998
1,786,837
69,370,649
65,796,546
Current Assets
Inventories
3,514,430
3,088,533
Trade and other receivables
951,572
2,058,182
Cash and cash equivalents
226,315
185,274
4,692,317
5,331,989
Total Assets
74,062,966
71,128,535
Non-current Liabilities
Provisions
2,356,553
1,954,593
Obligations under finance lease
9,659
16,009
Interest-bearing loans and borrowings
166,073,233
157,285,969
168,439,445
159,256,571
Current Liabilities
Trade and other payables
14,692,233
11,014,189
Obligations under finance lease
-
43,242
Corporation Tax
262,745
262,745
Interest-bearing loans and borrowings
-
-
14,954,978
11,320,176
Total Liabilities
183,394,423
170,576,747
Net Liabilities
109,331,457
99,448,212
Non -Current Financial Liabilities
166,082,892
157,301,978
Current Financial Liabilities
-
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 35 Related party disclosures.
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[64]
13.
Equity-accounted Investment in Joint Venture – WorldAce Investments Limited (continued)
Capital commitments
2022
2021
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 was 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 2021
-
Elimination of unrealised profit on intra-Group transactions
-
Share of net loss of joint venture for the year
(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 following a
loss in the 2-month period ending 28 February 2021 of US$252,062 together with a negative currency translation of
US$52,638. PetroNeft’s 50% share is included above and results in a negative carrying value of US$3,834,269. 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$3,834,269 is deducted from other assets associated with the joint venture on the Balance Sheet which are
the loans receivable from Russian BD Holdings B.V.
The cumulative loss offset against loans receivable is subsequently, as and from 1 March 2021, reversed on acquisition by
PetroNeft of an additional 40% equity holding in Russian BD Holdings B.V. (See note 10 above point C)
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[65]
15. Financial reporting of PetroNeft’s investment in Russian BD Holdings B.V.
Consolidated
Consolidated
Consolidated
Joint
Venture
2022
2021
10 Months
Ended 31
December
2021
2 Months
Ended 28
February
2021
US$
US$
Continuing operations
Revenue
6,141,151
4,640,415
4,612,435
27,980
Cost of sales
5,302,719
(3,482,152)
(3,386,515)
(95,637)
Gross profit
838,432
1,158,263
1,225,920
(67,657)
Administrative expenses
(351,882)
(513,406)
(474,039)
(39,367)
Operating profit/(loss)
486,550
644,857
751,881
(107,024)
Finance income
8,249
9,323
9,317
6
Finance costs
(117,127)
(864,128)
(719,084)
(145,044)
Loss for the year for continuing
operations before taxation
377,672
(209,948)
42,114
(252,062)
Income tax expense
8,915
(77,936)
(77,936)
-
Loss for the year
368,757
(287,884)
(35,822)
(252,062)
Loss for the year
368,757
(287,884)
(35,822)
(252,062)
Other comprehensive income to be
reclassified to profit or loss in subsequent
years:
Currency translation adjustments
580,770
(102,716)
(50,078)
(52,638)
Total comprehensive loss for the year
949,527
(390,600)
(85,900)
(304,700)
PetroNeft Share
90%
90%
90%
50%
Non-Controlling Interest/ Joint Venture
Partner
10%
10%
10%
50%
100%
100%
100%
100%
PetroNeft Share
854,574
(229,660)
(77,310)
(152,350)
Non-Controlling Interest/ Joint Venture
Partner-Share of Profit/(Loss) (Note 28)
36,876
(129,613)
(3,582)
(126,031)
Currency translation adjustments (Note
28)
58,077
(31,327)
(5,008)
(26,319)
949,527
390,600
85,900
304,700
Included in the above numbers are
charges for
Depreciation and Amortisation
235,201
152,817
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[66]
15.
Financial reporting of PetroNeft’s investment in Russian BD Holdings B.V (continued)
2022
2021
US$
US$
Non-current Assets
Oil and gas properties
5,343,036
5,006,667
Property, plant, and equipment
14,788
9,890
Exploration and evaluation assets
9,826,019
9,730,768
Assets under construction
1,959,644
516,953
Intangible Assets
3,827,838
3,659,091
20,971,324
18,923,368
Current Assets
Inventories
92,877
68,268
Trade and other receivables
77,608
64,911
Cash and cash equivalents
24,014
205,304
194,499
338,483
Total Assets
21,165,823
19,261,851
Non-current Liabilities
Provisions
283,958
254,629
Interest-bearing loans and borrowings
-
1,809,140
283,958
2,063,769
Current Liabilities
Trade and other payables
1,891,005
1,897,958
1,891,005
1,897,958
Total Liabilities
2,174,963
3,961,727
Net Liabilities
(18,990,860)
(15,300,124)
Non -Current Financial Liabilities
0
1,809,140
Current Financial Liabilities
-
-
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[67]
16.
Oil and gas properties
Wells
Equipment
and facilities
Total
US$
US$
US$
Cost
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 1 January 2022
3,888,755
1,182,016
5,070,771
Transferred from exploration and evaluation
assets (Note 18)
-
-
-
Transferred from assets under construction
(Note 19)
-
-
-
Additions
-
93,708
93,708
Reclassified to current assets held for sale
(Note 26)
(4,163,831)
(1,343,568)
(5,507,399)
Translation adjustment
275,076
67,845
342,921
At 31 December 2022
-
-
-
Depreciation
At 1 January 2021
-
-
-
Charge for the year
54,446
11,020
65,466
Translation adjustment
(1,112)
(250)
(1,362)
At 1 January 2022
53,334
10,770
64,104
Charge for the year
90,435
43,901
134,336
Reclassified to current assets held for sale
(Note 26)
(114,300)
(50,063)
(164,363)
Translation adjustment
(29,468)
(4,608)
(34,076)
At 31 December 2022
-
-
-
Net book values
At 31 December 2022
-
-
-
At 31 December 2021
3,835,422
1,171,246
5,006,667
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[68]
17.
Property, Plant and Equipment
Property
Plant and
Motor
Plant and
machinery
Vehicles
Equipment
Total
US$
US$
US$
US$
Cost
At 1 January 2021
575,418
-
32,065
607,483
Additions
142,150
11,325
-
153,475
Translation adjustment
(8,094)
116
-
(7,978)
At 1 January 2022
709,474
11,441
32,066
752,981
Additions
-
9,057
-
9,057
Reclassified to current assets held for sale (Note
26)
(756,372)
(20,556)
(776,928)
Translation adjustment
46,898
58
-
46,956
At 31 December 2022
-
-
32,066
32,066
Depreciation
At 1 January 2021
570,737
-
32,066
602,803
Charge for the year
35,928
1,598
-
37,526
Translation adjustment
(5,918)
(47)
-
(5,965)
At 1 January 2022
600,747
1,551
32,066
634,364
Charge for the year
25,798
4,811
-
30,609
Reclassified to current assets held for sale (Note
26)
(662,777)
(5,767)
(668,544)
Translation adjustment
36,232
(595)
-
35,637
At 31 December 2022
-
-
32,066
32,066
Net book values
At 31 December 2022
-
-
-
-
At 31 December 2021
108,727
9,890
-
118,618
Company
Plant and
machinery
US$
Cost
At 1 January 2021
32,066
At 1 January 2022
32,066
At 31 December 2022
32,066
Depreciation
At 1 January 2021
32,066
Charge for the year
-
At 1 January 2022
32,066
Charge for the period
-
At 31 December 2022
32,066
Net book values
At 31 December 2022
-
At 31 December 2021
-
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[69]
18.
Exploration and evaluation assets
Group
Exploration &
Evaluation
Expenditure
US$
Cost
At 1 January 2021
-
Acquired through Business combination
20,824,936
Impairment of oil and exploration assets
(2,900,732)
Acquired through Business combination post impairment
17,924,204
Additions
730,901
Transferred to oil and gas properties
(3,960,847)
Transferred to equipment & facilities
(101,131)
Transferred to assets under construction
(1,135,999)
Transferred to intangible assets
(3,809,804)
Translation adjustment
83,444
At 1 January 2022
9,730,768
Acquired through Business combination
-
Impairment of oil and exploration assets
-
Acquired through Business combination post impairment
9,730,768
Additions
9,762
Transferred to oil and gas properties
-
Transferred to equipment & facilities
-
Transferred to assets under construction
-
Transferred to intangible assets
-
Reclassified to current assets held for sale (Note 26)
(9,826,019)
Translation adjustment
85,489
At 31 December 2022
-
Net book values
At 31 December 2022
-
At 31 December 2021
9,730,768
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[70]
19.
Assets under construction
Group
Assets under
construction
US$
Cost
At 1 January 2021
-
Transferred from exploration and evaluation assets (Note
18)
1,135,999
Transferred to equipment & facilities (Note 16)
(1,139,456)
Additions
495,983
Translation adjustment
24,427
At 1 January 2022
516,953
Transferred from exploration and evaluation assets (Note
18)
-
Transferred to Equipment and Facilities (Note 16)
-
Additions
1,554,508
Reclassified to current assets held for sale (Note 26)
(1,959,644)
Translation adjustment
(111,817)
At 31 December 2022
-
Net book values
At 31 December 2022
-
At 31 December 2021
516,953
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[71]
20.
Intangible Assets
Group
US$
Cost
At 1 January 2021
-
Transferred from exploration and evaluation assets (Note 18)
3,809,804
Translation Adjustment
(66,710)
At 1 January 2022
3,743,094
Transfer from Exploration and Evaluation Assets
-
Reclassified to current assets held for sale (Note 26)
(4,007,866)
Translation Adjustment
264,772
At 31 December 2022
-
Depreciation
At 1 January 2020
-
Charge for the year
64,098
Translation adjustment
19,305
At 1 January 2021
84,003
Charge for the year
93,067
Reclassified to current assets held for sale (Note 26)
(180,028)
Translation adjustment
2,958
At 31 December 2022
-
Net book values
At 31 December 2022
-
At 31 December 2021
3,659,091
21.
Investment in Joint Venture and Subsidiaries
Company
Investment
in joint
ventures
Investment
in
Subsidiaries
Total
US$
US$
US$
Cost
At 1 January 2021
-
13,848
13,848
Investment in Russian BD Holdings B.V.
-
8,717,000
8,717,000
At 1 January 2022
-
8,730,848
8,730,848
Investment in Russian BD Holdings B.V.*(Note
32 & 35)
-
9,157,055
9,157,055
Reclassified to current assets held for sale (Note
26)
-
(1,707,896)
(1,707,896)
-
16,180,007
16,180,007
Impairment of financial assets**
-
(16,180,007)
(16,180,007)
At 31 December 2022
-
-
-
Net book values
At 31 December 2022
-
-
-
At 31 December 2021
-
8,730,848
8,730,848
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[72]
21.
Investment in Joint Venture and Subsidiaries (continued)
*The increase in Investment in Russian BD Holdings B.V., arose as to the transfer of loans receivable by PetroNeft in the
sum of US$8,593,199 (Note 22) and receivables from recharge of recoverable CSMA costs of US$563,856, totalling
US$9,157,055.
** The investment in the subsidiary net of amount reclassified to current assets held for sale is subsequently impaired at
100% level.
Details of the Company's holding in direct and indirect subsidiaries at 31st December 2022 are as follows:
Name of subsidiary
Registered office
Proportion of
ownership
interest
Proportion of
voting power
held
Principal activity
Granite Construction LLC
13 Sovpartshkolny
Lane, Office 210,
Tomsk 634009, Russia
100%
100%
Construction
Dolomite LLC
13 Sovpartshkolny
Lane, Office 210,
Tomsk 634009, Russia
100%
100%
Oil and gas exploration
Russian BD Holdings B.V.
Prins Bernhardplein
200, 1097 JB,
Amsterdam, the
Netherlands
90%
90%
Holding Company
Lineynoye LLC
13 Sovpartshkolny
Lane, Office 210,
Tomsk 634009, Russia
90%
90%
Oil and gas exploration
Details of the Group's interest in joint ventures at 31st December 2022 are as follows:
Name of entity
Registered office
Proportion of
ownership
interest
Proportion of
voting power
held
Principal activity
WorldAce Investments
Limited
3 Themistocles Street,
Nicosia, Cyprus
50%
50%
Holding Company
Stimul-T LLC
13 Sovpartshkolny
Lane, Office 210,
Tomsk 634009, Russia
50%
50%
Oil and gas exploration
Oil India International B.V. owns the other 50% of WorldAce Investments Limited.
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[73]
22.
Financial assets - loans and receivables
Group
2022
2021
US$
US$
Loans to WorldAce Investments Limited (Note 35)
72,475,258
68,886,038
Loss Allowance (Note 31)
(3,109,501)
(3,109,501)
Less: share of WorldAce Investments Limited loss (Note 13)
(49,983,330)
(45,041,703)
Less: Impairment Provision (Note 31)
(19,382,427)
-
-
20,734,834
Loans to Russian BD Holdings B.V. (Note 35)
8,543,688
7,866,765
Less Accumulated Share of Joint Venture losses
through Feb 2021 (Note 10)
-
(3,834,269)
Loans to Russian BD Holdings B.V., pre-
Consolidation
-
4,032,496
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
49,511
346,923
Loan Advances
-
330,000
Loans to Russian BD Holdings B.V. at 31 December
8,593,199
8,543,688
Elimination of Russian BD Holding B.V. loan on
Consolidation at year End
(8,593,199)
(8,543,688)
Total Group Loans to Joint Ventures
-
20,734,834
Company
2022
2021
US$
US$
Loans to WorldAce Investments Limited (Note 35)
72,475,258
68,886,038
Loss Allowance (Note 35)
(3,109,501)
(3,109,501)
Less: share of WorldAce Investments Limited loss (Note 13)
(49,983,330)
(45,041,703)
Less: Impairment Provision (Note 35)
(19,382,427)
-
-
20,734,834
Loans to Russian BD Holdings B.V. (Note 35)
8,593,199
8,841,927
Less Transfer to Investments in Subsidiaries (Note
21 & 32)
(8,593,199)
-
-
8,841,927
Loss Allowance
-
(298,239)
-
8,543,688
Total Company Loans to Joint Venture and Subsidiary
-
29,278,522
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[74]
22.
Financial assets - loans and receivables (continued)
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%.
The loan was set to mature on 31 December 2025. As at 31 December 2022 the loan was fully drawn down. The realisation
of financial assets of $19.3m in respect of WorldAce was dependent on the continued successful development of economic
reserves which is subject to several uncertainties including the ability to raise finance, future rates of oil production and
future international oil prices to continue to successfully generate revenue from the assets or the monetisation of the asset
through a sale or farmout. The asset has been shut in due to the non-transhipment of oil on the Nord Imperial LLC pipeline.
This occurred as a commercial and legal dispute arose between Stimul T LLC and Nord Imperial LLC as to tariff rates applicable
which increasingly made the production of oil on L61 non-commercial. Post a protracted legal dispute, Stimul T LLC lost in
the first instance and on 10 May 2023 Stimul T filed for voluntary bankruptcy. On 12 October 2023 at the Extraordinary
General Meeting of PetroNeft, the shareholders voted by 88% for and 12 % against, to accept an offer of 1$(one dollar) for
PetroNeft’s equity interest in WorldAce Investment Limited from Pavel Tetyakov. Accordingly, any sums outstanding on loan
facilities are considered fully impaired.
In March 2021, the Company increased its equity holding in Licence 67 from 50% to 90%. The shareholders of Russian BD
Holdings B.V. (RBD) passed a resolution, effective as of 9 February 2022, to convert all loan balances and payables owing to
them, at that time into the share premium account as part of equity of Russian BD Holdings B.V. This increased the value of
the Investment in Subsidiaries at PetroNeft Company level. As no financial assets loan facilities, attributable to Russian BD
Holdings B.V., were outstanding as of 31 December 2022 no impairment provision was recorded against the loans
outstanding as of 31 December 2022 on either a Company or Group level.
23.
Inventories
2022
2021
US$
US$
Lineynoye LLC. Part of Russian BD Holdings B.V. -
Materials (Note 15)
92,877
68,628
Granite LLC -Materials
9,561
18,214
Transfer to Assets held for sale (Note 26)
(102,438)
-
-
86,842
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[75]
24.
Trade and other receivables
Group
2022
2021
US$
US$
Receivable from joint venture (Note 35)
-
938,033
Prepayments
25,155
61,467
Advances to contractors
0
37,694
Other receivables
69,328
88,860
Receivables LLC. Part of Russian Holdings B.V. (Note
15)
77,608
-
Receivables Granite LLC
7,772
-
Transfer To Assets held for sale (Note 26)
(85,380)
-
94,483
1,126,054
Company
2022
2021
US$
US$
Amounts owed by subsidiary undertakings (Note 35)
-
596,511
Amounts owed by other related companies (Note 35)
-
921,295
VAT Receivable
69,329
36,414
Prepayments
25,154
59,106
94,483
1,613,326
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%.
Amounts owed by joint venture and or subsidiary undertakings, are provided for loss allowance at 100% at year end, at
both Company and Group level. Given PetroNeft has formally agreed Heads of Terms for sale of its Russian assets to Pavel
Tetyakov, the reimbursement of the amount owed by the Subsidiaries or Joint Venture, is not expected to be recovered
from remittances by the Russian business operations or expected receipts from disposal of the Russian assets.
25.
Cash and Cash Equivalents
Group
2022
2021
US$
US$
Cash at bank
104,489
915,602
104,489
915,602
Company
2022
2021
US$
US$
Cash at bank
66,240
709,889
66,240
709,889
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[76]
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.
Assets and Liabilities held for sale
Group
2022
2021
US$
US$
Oil and gas properties (Note 16)
5,343,036
-
Property plant and Equipment (Note 17)
108,384
-
Exploration and evaluation assets (Note 18)
9,826,019
-
Assets under construction (Note 19)
1,959,644
-
Intangible Assets (Note 20)
3,827,838
-
Inventories (Note 23)
102,438
-
Trade and other receivables (Note 24)
85,380
-
21,252,739
-
Impairment of Assets held for Sale
(17,446,534)
-
Assets Held for Sale
3,806,205
-
Provisions (Note 29)
283,958
-
Trade and other payables (Note 31)
1,595,591
-
Liabilities held for Sale
1,879,550
-
Assets Held for Sale -Net of Liabilities
1,926,656
-
Analysed as to:
PetroNeft Resources plc (Holding Company)
1,707,896
-
Belgrave Naftogas B.V. (Minority Shareholder)
218,760
-
1,926,656
-
Company
2022
2021
US$
US$
Investment in subsidiaries (Note 21)
1,707,896
-
Assets held for sale
1,707,896
-
On 25 November 2022, the Company announced a strategic review of its business operations as it was facing increasing
challenges due to the continued Ukrainian-Russian conflict and the consequent international sanctions directed at leading
Russian financial institutions and in particular, the Oil and Gas sector. The difficulties in financing the drilling of development
wells at the Cheremshanskoye field combined with the challenges in retaining professional service companies was more
evidence of these significant operational challenges. Matters were compounded by the inability to secure any resolution to
the Nord Imperial LLC tariff dispute, which ultimately led to Stimul T LLC, the owner of Licence 61 filing for bankruptcy
administration on 10 May 2023. The strategic review which included all stakeholders, would eventually lead to Heads of
Terms agreed with Pavel Tetyakov for the sale of PetroNeft’s key assets. The disposal will include the sale of PetroNeft’s
100% indirect shareholdings in both Lineynoye LLC, the holder of Licence 67, and Granite Construction LLC, the provider of
well maintenance services. While Stimul T LLC is in bankruptcy administration, Pavel Tetyakov has agreed to acquire
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[77]
PetroNeft’s 50% equity interest in the joint venture arrangement with Oil India International B.V., the Cypriot registered
WorldAce Investment Limited and parent of Stimul T LLC.
PetroNeft’s remaining Russian legal entity, Dolomite LLC, given it has remained dormant for a number of years will also seek
voluntary bankruptcy administration.
27.
Share Capital - Group and Company
2022
2021
€
€
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 2021
839,356,741
10,896,668
Issued during the year
232,435,872
2,764,798
At 1 January 2022
1,071,792,613
13,661,466
Issued during the year
-
-
At 31 December 2022
1,071,792,613
13,661,466
28.
Non - Controlling Interests
2022
2021
US$
US$
Opening Balance
716,410
725,000
Belgrave loans converted to RBD equity (Note 30 &
35)
1,819,625
-
Share of Russian BD Holdings B.V. Profit/ (Loss) (Note
15)
36,876
(3,582)
Share of Russian BD Holdings B.V. Currency Exchange
Differences (Note 15)
58,077
(5,008)
2,630,988
716,410
29.
Provisions
2022
2021
US$
US$
At 1 January
254,629
-
Additions
-
251,969
Unwinding of discount
15,285
2,660
Transfer to Liabilities held for sale (note 26)
(283,958)
Translation adjustment
14,044
-
At 31 December
-
254,629
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[78]
29.
Provisions (continued)
The decommissioning provision represents the present value of decommissioning costs relating to the Group’s Russian oil
interests in Lineynoye LLC., 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.
At an Extraordinary General Meeting of PetroNeft, held on 12 October 2023, the shareholders voted by 88% to sanction the
sale of Lineynoye LLC to Pavel Tetyakov. Accordingly, as of 31 December 2022, the sum reported as a provision against future
decommissioning costs is transferred to liabilities held for sale.
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[79]
30.
Loans and Borrowings
Group
Company
Group and Company
Effective
interest
rate
Contractual
maturity
date
2022
2021
2022
2021
%
US$
US$
US$
US$
Interest-bearing
Current liabilities
Petrogrand AB
10.59%
15-Mar-23
2,494,021
2,271,495
2,494,021
2,271,495
Natlata Partner Limited
10.14%
31-Mar-23
258,418
238,911
258,418
238,911
ADM Consulting
10.16%
31-Mar-23
185,519
171,584
185,519
171,584
Daria Shaftelskaya
10.13%
31-Mar-23
110,530
102,170
110,530
102,170
Michael Murphy
10.14%
31-Mar-23
23,184
21,444
23,184
21,444
David Sturt
10.14%
31-Mar-23
23,177
21,437
23,177
21,437
Natlata Partners Limited
8.1%
11-Mar-23
159,952
-
159,592
-
ADM Consulting
8.1%
11-Mar-23
160,344
-
160,344
-
David Sturt
8.1%
11-Mar-23
88,073
-
88,073
-
Karl Johnson
8.1%
11-Mar-23
65,688
-
65,688
-
Pavel Tetyakov
8.1%
11-Mar-23
34,646
-
34,646
-
Others
8.1%
11-Mar-23
367,842
-
367,842
-
3,971,394
3,971,394
Derivative financial
liabilities
8.1%
11-Mar-23
313,168
-
313,168
-
Total current loans
4,284,562
2,827,041
4,284,562
2,827,041
Non- Current Liabilities
Belgrave Naftogas B.V.
6.05%
31-Dec-25
-
1,809,140
-
-
Belgrave Naftogas B.V.
8.10%
04-Mar-24
1,004,787
914,396
1,004,787
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
1,004,787
3,477,078
1,004,787
1,667,938
Derivative financial
liabilities
8.10%
11-Mar-23
-
313,168
-
313,168
Total non-current loans
1,004,787
3,790,246
1,004,787
1,981,106
Total loans and borrowings
5,289,349
6,617,287
5,289,349
6,617,287
Contractual undiscounted liability
5,289,349
6,617,287
5,289,349
6,617,287
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[80]
30.
Loans and Borrowings (continued)
Group
Company
Changes in financial liabilities arising from financing
activities
2022
2021
2022
2021
US$
US$
US$
US$
At 1 January
6,617,287
4,151,391
4,808,147
4,151,391
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
719,967
800,698
729,681
729,438
7,337,254
11,293,771
5,537,828
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
(248,055)
(88,013)
(248,055)
(88,013)
Principal Repayment
-
(574,430)
-
(574,430)
Converted to equity in RBD (Note 28 & 3
5)
(1,819,625)
-
-
-
Loss/(Profit) on modification of financial liabilities
-
(354,194)
-
(354,194)
Loss/(Profit) on settlement of financial liabilities
-
(19,232)
-
(19,232)
Reserve accounting for changes in financial liabilities
-
(83,182)
-
(83,182)
Translation Reserve
19,775
(5,685)
(424)
(5,685)
At period end
5,289,349
6,617,287
5,289,349
4,808,147
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, which was subsequently extended by mutual agreement to 15 March 2023. On
30 June 2023, PetroNeft announced subject to receipt of funds from the anticipated sale of PetroNeft’s Russian
assets that it had secured from Petrogrand AB, for full and final settlement, concessions of 70% on the principal
outstanding and 100% on the accrued interest. Expected cash outgoing was estimated at $0.69M, which would be
subject to revision depending on the Russian withholding tax, if any plus the then prevailing rouble/ dollar exchange
rate. In addition, it was agreed that on payment of the final agreed amount, there would be an automatic
cancellation of any and all securities held by Petrogrand AB. Given by virtue of Maxim Korobov, until 17th January
2020 a director of PetroNeft, and being a majority shareholder of Petrogrand, in excess of 50%, plus a significant
shareholder in PetroNeft controlling 25.7% of its issued equity, it is reported that Petrogrand AB is a related party.
For details of transactions between PetroNeft and Petrogrand AB, see Note 35 Related party disclosures.
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[81]
2. Post conversion of the 65% loan principal attributable to the 2019 convertible loan facility, the final revised maturity
date was extended to 31 December 2022 and subsequently to the 31 March 2023. On 5 September 2023, PetroNeft
announced subject to receipt of funds from the anticipated sale of PetroNeft’s Russian assets that it had secured
from 2019 Convert Loan Holders, for full and final settlement, concessions of 90% on the principal outstanding and
100% on the accrued interest. Expected cash outgoing is estimated at $0.045M, which would be subject to revision
depending on the Russian withholding tax, if any plus the then prevailing rouble/ dollar exchange rate.
3. From 1 March 2021, 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 carried an interest rate of 3 months average LIBOR plus 5%, and the final date of
maturity was 31 December 2025. On the 9 February 2022, shareholders in Russian BD Holdings B.V, elected to
convert their loan balances into equity of Russian BD Holdings B.V. See note 28 non-controlling liabilities.
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 carried a
bank of England base rate plus 8% matures on 4 March 2024. On 5 September 2023, PetroNeft announced subject
to receipt of funds from the anticipated sale of PetroNeft’s Russian assets that it had secured from Belgrave
Naftogas B.V, for full and final settlement, concessions of 90% on the principal outstanding and 100% on the
accrued interest. Expected cash outgoing was estimated at $0.085M, which would be subject to revision
depending on the Russian withholding tax, if any plus the then prevailing rouble/ dollar exchange rate.
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. During 2022 and given the conversion period has elapsed the remaining 4 holders did not
exercise their rights to convert their loan receivable amounts to equity in PetroNeft. On 5 September 2023,
PetroNeft announced subject to receipt of funds from the anticipated sale of PetroNeft’s Russian assets that it had
secured from the 2021 Convertible debt holders, for full and final settlement, concessions of 90% on the principal
outstanding and 100% on the accrued interest. Expected cash outgoing is estimated at $0.103M, which would be
subject to revision depending on the Russian withholding tax, if any plus the then prevailing rouble/ dollar exchange
rate.
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[82]
31.
Trade and other payables
Group
2022
2021
US$
US$
Trade payables
302,408
329,956
Trade and other payables to joint ventures
0
712,455
Director Expenses
1,086
6,200
Corporation tax
55,232
55,031
Other taxes and social insurance costs
44,305
539,844
Accruals and other payables
1,260,317
258,451
Lineynoye LLC, part of Russian BD Holdings B.V. -Trade
and other payables (Note 15)
1,517,893
-
Granite LLC
77,698
-
Transfer to Liabilities held for sale- (Note 26)
(1,595,591)
-
1,663,347
1,901,937
Company
2022
2021
US$
US$
Trade payables
235,409
241,995
Director Expenses
1,086
6,200
Corporation tax
55,232
55,232
Other taxes and social welfare costs
44,305
10,879
Accruals and other payables
1,244,143
256,661
1,580,175
570,967
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.
A sum of US$754,102 (Note 35), representing trade payables by Lineynoye LLC to Stimul T LLC of US$748,546 and by Granite
Construction LLC to Stimul T LLC of US$ 5,556 has been reclassified at year end as Liabilities held for sale and included with
the overall Liabilities held for Sale sum of US$1,595,591 as per Note 26.
32.
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.
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[83]
32.
Financial risk management objectives and policies (continued)
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. 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 2022 and 2021, 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 2022 and 2021, 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 2022. 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 2022
[84]
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$
2022
5%
-13,282
-13,282
5%
40,620
40,620
5%
5,890
5,890
2022
-5%
14,680
14,680
-5%
23,209
23,209
-5%
3,722
3,722
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
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$
2022
5%
-13,282
-13,282
5%
40,620
40,620
5%
5,890
5,890
2022
-5%
14,680
14,680
-5%
23,209
23,209
-5%
3,722
3,722
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
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 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
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[85]
32.
Financial risk management objectives and policies (continued)
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 2022
[86]
32.
Financial risk management objectives and policies (continued)
Further ECL of $ 19,382,427 USD (note 22), have been estimated for 2022, given the shareholders of PetroNeft, at the
Company’s Extraordinary General Meeting, held on 12 October 2023, agreed to the sale of PetroNeft’s equity interest in
WorldAce Investments Limited (W.I.L). for $1 USD (one dollar). The loan to WorldAce Investment Limited was to be
reimbursed out of the sale or farm in, to its Oil interest, Licence 61 held by Stimul -T LLC, it being a subsidiary of WorldAce
Investment Limited. Stimul-T LLC has been in bankruptcy administration since first announced by PetroNeft on 11 May 2023,
given the lack of a resolution to a commercial dispute between it and Nord Imperial LLC, the transhipment company for oil
from Licence 61.
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 2022
[87]
32.
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:
2022
Group
Internal
credit
rating
External
credit
rating
Gross
carrying
amount.
US$
ECL
US$
Accumulated
joint venture
losses.
US$
Loss
allowance
US$
Net
carrying
amount.
US$
Loans
to
joint
venture
WorldAce
N/A
N/A
72,475,258
(19,382,427)
(49,983,330)
(3,109,501)
-
2022
Company
Loans
to
subsidiary
Russian BD
Holdings
B.V.
N/A
N/A
-
-
-
-
-
Loans
to
joint
venture
WorldAce
N/A
N/A
72,475,258
(19,382,427)
(49,983,330)
(3,109,501)
-
The 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 equity of Russian BD Holdings B.V. From a PetroNeft Company perspective the loans
owing from Russian BD Holdings, in the sum of US$8,593,199 (Note 22) was reclassified to Financial Assets Investment in
Subsidiary, which was subsequently impaired post confirmation of agreed sale by the members of PetroNeft at its
Extraordinary General Meeting on 12 October 2023 to Pavel Tetyakov, of its 100% interest in Lineynoye LLC, the holder of
Licence 67.
Cash and cash equivalents
The total amount of US$104,489 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 2022, the Group, and the Company have outstanding loan facilities and payables as described in Notes
30 and 31 above.
The expected maturity of the Group and Company’s third-party financial assets (excluding prepayments) as at 31
December 2022 and 2021 was less than one month.
The expected maturity of the Group and Company’s related party financial assets as of 31 December 2022 and 2021 is less
than one year.
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[88]
32. Financial risk management objectives and policies (continued)
The Group and the Company further mitigated liquidity risk by entering into preliminary agreement with debt holders for
full and final settlement of all loans outstanding at significant reductions to Principal and interest. Settlement will be
conditional on successful completion of the sale of the Russian assets to Pavel Tetyakov and reimbursement of proceeds to
PetroNeft’s bank account in Ireland for onward payment to the Debt holders on the revised terms and conditions as outlined
above in Note 30- Loans and borrowings.
The Group and the Company had no derivative financial instruments as of 31 December 2022 and 2021.
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
full and final agreed payments to third party debt holders.
Group
Within 1 year
Between 1 and
2 years
Between 2 to 5
years
After 5 years
Total
Year ended 31 December 2022
US$
US$
US$
US$
US$
Interest-bearing loans and borrowings
- current
922,838
-
-
-
922,838
Trade and other payables
1,003,818
-
-
-
1,003,818
1,926,656
-
-
-
1,926,656
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
-
8,747,519
Company
Within 1 year
Between 1 and
2 years
Between 2 to 5
years
After 5 years
Total
Year ended 31 December 2022
US$
US$
US$
US$
US$
Interest-bearing loans and borrowings
- current
922,838
-
-
-
922,838
Trade and other payables
785,058
-
-
-
785,058
1,707,896
-
-
-
1,707,896
Year ended 31 December 2021
Interest-bearing loans and borrowings
- current
3,064,558
2,232,041
-
-
5,296,600
Trade and other payables
498,656
-
-
-
498,656
3,563,214
2,232,041
0
0
5,795,256
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[89]
32.
Financial risk management objectives and policies (continued)
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
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.
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 2022 and 2021. 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. The carrying amount of the Group’s financial assets is stated at their 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 plus
recognition in principle of agreed Sale terms for PetroNeft’s equity interest in WorldAce Investment Limited to Pavel
Tetyakov. The carrying value of the loans to WorldAce in the Group and Company is US$Nil, which approximates to the fair
value.
The carrying value of the loans to Russian BD Holdings B.V. in the Company is US$Nil million, given on 9 February 2022, both
shareholders in Russian BD Holdings B.V., elected to treat financial assets loans receivable as equity through and increase in
the share premium account of Russian BD Holdings B.V.
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 2022 and 2021, 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 2022 and 2021.
33.
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 loss was US$40,862,140 (2021: profit of US$1,389,670).
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[90]
34.
Future minimum rentals payable under short term leases at the balance sheet date are as follows:
2022
2021
US$
US$
Land and buildings
Within one year
2,722
2,722
2,722
2,722
There were no capital commitments as of 31 December 2022 or 31 December 2021.
35. 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
2022 and 2021.
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 2022 and 2021 is shown
below.
Transactions with Russian BD Holdings B.V.
2022
2021
US$
US$
At 1 January
9,122,462
8,195,983
Advanced during the year
43,489
400,812
Transactions during the year
204,006
127,000
Interest accrued in the year
49,515
711,058
Payments for services made during the year
(14,502)
(13,972)
Loss Allowance (Note 24)
(289,939)
(298,239)
Transfer to Investment in RBD Subsidiary (Note 21)
(9,157,055)
-
Translation adjustment
42,024
-
At 31 December
-
9,122,642
Balance at 31 December comprised of:
Loans receivable (Note 22)
-
8,543,688
Trade and other receivables (Note 24)
-
578,954
-
9,122,642
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[91]
Transactions with JV Partner Russia BD Holding B.V. and PTR Group only.
(Note: Activity shown for Russian BD Holdings BV for 2021)
2022
2021
Group
US$
US$
At 1 January
-
4,569,000
Advanced during the year
43,489
400,812
Transactions during the year
204,006
127,000
Interest accrued in the year
49,515
711,058
Payments for services made during the year
(14,502)
(13,972)
Share of joint venture's translation adjustment
-
(152,350)
Consolidation Elimination
(282,508)
(5,641,548)
Translation adjustment
-
-
At 31 December
-
-
Balance at 31 December comprised of:
Loans receivable (Note 22)
-
-
Trade and other receivables (Note 24)
-
-
Loss Allowance
-
-
-
-
Transactions with Granite construction
2022
2021
US$
US$
At 1 January
17,557
54,374
Loan repaid in the year
-
(26,990)
Loss Allowance
(45,756)
-
Translation adjustment
28,199
(9,827)
At 31 December (Note 24)
-
17,557
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[92]
35. Related party disclosures (continued)
Transactions with joint venture partners.
PetroNeft had the following transactions with its joint venture partners in 2022 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
2022
2021
Company
US$
US$
At 1 January
66,697,829
64,830,041
Advanced during the year
159,749
160,879
Transactions during the year
655,660
406,577
Interest accrued in the year
3,589,220
2,780,253
Payments for services made during the year
(730,181)
(1,479,921)
Loss Allowance
(1,006,520)
-
Less Share of WorldAce Investment loss
(49,983,330)
(45,041,703)
Less Impairment of Financial Asset
(19,382,427)
-
At 31 December
-
21,656,126
Balance at 31 December comprised of:
Loans receivable (Note 22)
72,475,258
68,886,038
Less Loss Allowance (Note 22)
(3,109,501)
(3,109,501)
69,365,757
65,776,537
Less Share of WorldAce Investment loss
(49,983,330)
(45,041,703)
Less Impairment of Financial Asset
(19,382,427)
-
-
20,734,834
Trade and other receivables (Note 24)
-
921,292
-
21,656,126
2022
2021
Group
US$
US$
At 1 January
20,960,407
24,397,906
Advanced during the year
-
321,455
Transactions during the year
2,068,193
1,336,106
Interest accrued in the year
3,589,220
2,780,253
Payments for services made during the year
(1,871,231)
(2,388,119)
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
(4,941,631)
(5,267,185)
Impairment of Financial Asset
(19,382,427)
-
Loss allowance
(1,125,138)
-
Transfer to Liabilities held for Sale (Note 31)
754,102
-
Translation adjustment
(51,495)
(10,342)
At 31 December
-
20,960,407
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[93]
35. Related party disclosure (continued)
Transactions with JV Partner WorldAce Investment Limited for
both PTR Company and Group
Balance at 31 December comprised of:
Loans receivable (Note 22)
19,382,427
20,734,834
Impairment of Financial Asset
(19,382,427)
-
Trade and other receivables (Note 24)
-
938,033
Trade and other payables (Note 31)
(754,102)
(712,455)
Transfer of Liabilities held for Sale
754,102
-
-
24,960,407
Group 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 across services
provided to the holding Company, PetroNeft Resources plc, the joint venture Company WorldAce Investment Limited, and
the subsidiary Company Russian BD Holdings B.V.
Renumeration of key management
2022
2021
US$
US$
Compensation of key management
1,258,155
1,024,154
Contributions to defined contribution pension plan
77,632
52,404
Consulting fees (Tsarina Development Limited-Michael Power)
169,936
177,409
At 31 December
1,505,723
1,253,967
The following amounts were owed by PetroNeft Group to existing key management, former management as at 31st
December 2022 and 2021
Renumeration of key management
2022
2021
US$
US$
Renumeration, fees and expenses due to Directors who were in
office during the year
817,943
172,926
Renumeration due to other key management
248,506
36,906
Consulting fees (Tsarina Development Limited- Michael Power)
30,561
13,744
Consulting fees (HGR Consulting- former CFO Paul Dowling)
-
2,090
At 31 December
1,097,010
225,666
During 2022, no new PetroNeft shares were issued to related parties. 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 2022 no amount of monies owing to Directors and Senior Management was reclassified to Convertible debt program,
as there was no Convertible debt program. 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 could 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, from
a possible total US$658,802 a sum equal to US$361,856 of convertible debt was converted into ordinary shares of the
Company through the issuance of 13,032,277 shares. The remaining 4 holders of Convertible debt, who did not exercise
their conversions rights during 2021, did not exercise their rights up to the 2nd anniversary of the option period post issuance
of the 2021 Convertible loan program.
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[94]
35.
Related party disclosures (continued)
Transactions with Petrogrand AB
Petrogrand AB is a related party by virtue of Maxim Korobov, current beneficial owner of 25.7% equity in PetroNeft and a
former director of PetroNeft who resigned as PetroNeft’s Company Director on 17 January 2020. The loan facility is secured
by way of a floating charge on the assets of the Company and carries an interest of US$ LIBOR plus 9%. The loan facility, as
revised in quantum and cancellation of security charge held, as per Note 30.1 above, will be repaid out of the sale proceeds
of Licence 67, through the sale of Lineynoye LLC to Pavel Tetyakov.
The following is the history of this transaction in the reporting periods:
Company
Petrogrand AB
US$
Loans
At 1 January 2021 (Note 30)
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 30)
2,271,495
Interest accrued in the year
248,642
Unwinding prior year loan modification
221,939
Loan interest repaid in the year
(248,055)
At 31 December 2022 (Note 30)
2,494,021
Transactions with Belgrave Naftogas B.V.
Belgrave Naftogas B.V. is a related party by virtue of Alastair McBain, who resigned as non-executive Chairman PetroNeft
on 21 October 2022, and former beneficial owner of 14.46% equity in PetroNeft. Mr. McBain initially was 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
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.
2022
2021
Group Only - Original Joint Venture loan
US$
US$
At 1 January
1,809,140
8,580,601
Interest accrued in the year
10,485
149,885
Belgrave loan reassigned to PetroNeft
-
(6,921,346)
Transferred to equity in Russian BD Holding B.V. (Note 30)
(1,819,627)
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[95]
At 31 December
-
1,809,140
35. Related party disclosures (continued)
2022
2021
Group & Company- Loan to fund 40% acquisition in L67
US$
US$
At 1 January
914,395
-
Advanced during the year
-
1,700,000
Conversion to ordinary shares PetroNeft
-
(850,000)
Interest accrued in year
90,391
64,395
At 31 December
1,004,786
914,395
Convertible Loan agreed in June 2019
PetroNeft entered a convertible loan facility of US$1.3M with a group of five investors in June 2019. All lenders listed below
elected in April 2021 to exercise their 65% conversion rights on the original loan advances. In January 2022, the lenders
agreed any loan principal balance outstanding may be converted at the rate of STG0.06p per Ordinary share of the Company.
As of 31 December 2022, the balance owing to the related parties on the June 2019 funding was as follows:
i
f
i
Lender
Amount
provided.
(US$)
Interest
accrued
and not yet paid.
(US$)
Amount
due
31
December 2022
(US$)
Relationship at time of
transaction
Natlata Partners
LLP.
196,000
62,417
258,417
Ultimate beneficial owner is
Maxim Korobov, former
PetroNeft director
ADM FZE
140,000
45,518
185,518
Ultimate beneficial owner is
Alastair
McBain,
former
PetroNeft
director
and
chairman
Daria
Shaftelskaya
84,000
26,530
110,530
Substantial shareholder of
PetroNeft
and
current
director.
David Sturt
17,500
5,679
23,179
PetroNeft
director,
executive Chairman and
shareholder
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[96]
35.
Related party disclosures (continued)
New Loan agreed in February 2021
PetroNeft entered a convertible loan facility of US$2.9M with a group of thirteen investors in February 2021. Of the thirteen
lenders seven are related parties. Up to 75% of the loan may be converted into ordinary shares of PetroNeft at GBP 0.02p
per share within 12 months of signing the loan agreement and 0.025p within 24 months of signing. The interest rate is the
Bank of England base rate plus 8%. Of the seven lenders listed below, all except David Golder, former Chairman PetroNeft
and Karl Johnson, previous vice president of Operations had elected to convert within the 2-year period from the anniversary
of the loan. As of 31 December 2022, the balance owing to the related parties on the February 2021 funding was as follows:
Lender
Amount
provided.
(US$)
Interest accrued
and not yet
paid.
(US$)
FVTPL
(US$)
Amount due
31 December
2022
(US$)
Relationship at time of
transaction
Natlata Partners
LLP.
137,500
22,452
159,952
Ultimate
beneficial
owner
is
Maxim
Korobov,
former
PetroNeft director
ADM FZE
137,455
22,889
160,344
Ultimate
beneficial
owner
is
Alastair
McBain,
former
PetroNeft director and
chairman
David Sturt
75,120
12,953
88,073
PetroNeft
director,
executive Chairman and
shareholder
Pavel Tetyakov
29,552
5,094
34,646
PetroNeft
Chief
executive officer and
shareholder
Karl Johnson
150,000
23,863
-
173,863
PetroNeft’s former vice
president of operations
Alken Kuanbay
15,946
2,749
18,695
PetroNeft
finance
director
David Golder
26,328
3,553
-
29,881
PetroNeft’s
former
Chairman
36.
Share-based payment
Share options.
The expense recognised for employee services during the year is US$NIL (2021: US$NIL). The Group currently does not have
a share-based payment scheme in operation, post expiration of the previous plan in 2019.
•
At December 2022, share options remained outstanding in respect of options exercisable on the 2019 Convertible
loan principal sums outstanding, exercisable at £0.06stg per share and
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[97]
•
In respect of the 4 participants in the 2021 Loan Convert who did not exercise during year 1 of the grant at £0.02stg,
or during year 2 of the grant at £0.025stg per share. This option expired as of 12 March 2023.
Share Options outstanding
2022
2021
US$
US$
In Issue.
16,939,795
17,442,269
16,939,795
17,442,269
37.
Accounting policies up to 31 December 2022
There was no change in accounting policies applicable to the comparative period ended 31 December 2021, as the Company
and Group adheres to the latest accounting pronouncements and adhere to IFRS standards.
38.
Important Events after the Balance Sheet Date
The onset of the Russian / Ukrainian conflict has led the global community to the imposition of substantial and penal
sanctions on the Russian government and its officials. The sanctions led to prohibitions on doing business in any meaningful
commercial way in Russia.
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 from within Russia. Given the evolving
nature and severity of the sanctions, both directors and senior management are unable to secure sanction compliant funding
for rollout and development of PetroNeft’s Russian Assets. On 25 November 2022, PetroNeft announced the Company
would undertake a strategic review of all options available to it. On 12 October 2023, at an Extraordinary General Meeting
of PetroNeft, 88% of the voted shareholders passed a special resolution authorising the Board to dispose of the Company’s
key assets to Pavel Tetyakov. Previously on 14 June 2023, PetroNeft announced it had agreed sale terms for the disposal of
its 100% interest in Lineynoye to Pavel Tetyakov, and again on 1 August 2023, it had agreed sale terms for the disposal of
Granite Construction OOO and PetroNeft’s equity interest in the Cypriot registered entity WorldAce Investment Limited to
Pavel Tetyakov.
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, saw
revenues at Stimul - T LLC reduced to zero. On 10 May 2023, Stimul T LLC files for voluntary bankruptcy administration in
Russia.
On the 30 June 2023 and again on 5 September 2023, PetroNeft announced it had concluded indicative full and final debt
settlement agreements with its debt holders. In all cases, there was achieved a 100% concession on interest payable, and
loan principals would be reimbursed at 10% of the book value if unsecured, and 30% if secured. Final disbursements would
be subject to any withholding tax in Russia, plus any adverse movements in the rouble/ dollar exchange rate.
On the 30 June 2023, the Company announced suspension of trading of its equities on both the A.I.M. and Euronext markets
pending publication of its audited annual report for FY 2022. Dealings in the Company's ordinary shares was therefore
suspended from 7.30 a.m. on Monday 3 July 2023 until such time as the Accounts have been duly published. Should the
Accounts not be published by 31 December 2023, the Company’s admission to AIM and Euronext Growth will be cancelled.
PetroNeft Resources plc
Notes to the Financial Statements
For the year ended 31 December 2022
[98]
39.
Contingent Liability
2022
2021
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.
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 in the event the Company cannot adhere to the revised debt settlement
terms, in full and final as announced on 30 June 2023 and described in Note 30.1 above.
40.
Approval of financial statements
The financial statements were approved, and authorised for issue, by the Board of Directors on 22 November 2023.
PetroNeft Resources plc
[99]
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 30 November 2023.
PetroNeft Resources plc
Corporate Governance Code (continued)
[100]
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, where possible,
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 not appropriate
given the size and
stage of development
of the Company.
The Company does
not currently have an
Auditor. The Board
feels given the
difficulties imposed
by adherence to
global sanctions
against Russia, the
www.PetroNeft.com
PetroNeft Resources plc
Corporate Governance Code (continued)
[101]
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.
lack of Investor
appetite for Russian
based ventures, the
lack of engagement
by professional
service providers, the
restrictions placed on
the ability to secure
funding to support
operations, that it at
this stage cannot
engage an auditor,
and this matter is
compounded as any
engagement by an
auditor would need
funding ,such as not
to impact the
Auditor’s
independence
criteria, and that
funding is not
available to the
Board.
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
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
The Company does
not have a formal
feedback mechanism
with respect to
stakeholder outside
the Company.
The board will keep
this under
PetroNeft Resources plc
Corporate Governance Code (continued)
[102]
QCA PRINCIPLE
APPLICATION
HOW PETRONEFT COMPLIES
DEPARTURES
AND REASONS
LINKS
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
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.
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
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.
consideration and put
in place procedures
when it is felt
appropriate.
External stakeholders
can contact the
Company via their
key contact, or
directly via the
website, Company’s
NOMAD or at the
AGM.
Engagement with key
suppliers became
more complicated as
they too had to
operate under
international
Sanctions
requirements.
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
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
None
Annual Report
PetroNeft Resources plc
Corporate Governance Code (continued)
[103]
QCA PRINCIPLE
APPLICATION
HOW PETRONEFT COMPLIES
DEPARTURES
AND REASONS
LINKS
take (risk tolerance and risk
appetite).
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
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
The Board has five directors, three 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.
PetroNeft Resources plc
Corporate Governance Code (continued)
[104]
QCA PRINCIPLE
APPLICATION
HOW PETRONEFT COMPLIES
DEPARTURES
AND REASONS
LINKS
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
effectively. Directors must commit
the time necessary to fulfil their
roles.
The non-executive directors are 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.
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
David Sturt (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 David
Sturt. The other member of the
Committee is Anthony Sacca
PetroNeft Resources plc
Corporate Governance Code (continued)
[105]
QCA PRINCIPLE
APPLICATION
HOW PETRONEFT COMPLIES
DEPARTURES
AND REASONS
LINKS
The Audit Committee consists of two non-
executive Directors: Anthony Sacca,
(Committee Chairman) and David Sturt.
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
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
David Sturt, Company Chairman and Pavel
Tetyakov, the Company’s Chief Executive
Officer.
6. Ensure that between
them the directors have
The board must have an appropriate
balance of sector, financial and
The Board of PetroNeft has been
assembled to allow each director to
None
Directors Biographies
www.PetroNeft.com/about/directors/
PetroNeft Resources plc
Corporate Governance Code (continued)
[106]
QCA PRINCIPLE
APPLICATION
HOW PETRONEFT COMPLIES
DEPARTURES
AND REASONS
LINKS
the necessary up-to-
date experience, skills,
and capabilities
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 mix of skills and experience
required on the board will change,
and board composition will need to
evolve to reflect this change.
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
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 sought a fairness opinion from
Carlsquare AB, on the consideration
offered by Pavel Tetyakov for PetroNeft’s
equity interest in Lineynoye LLC.
The Board has sought external advice on
other matters 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.
PetroNeft Resources plc
Corporate Governance Code (continued)
[107]
QCA PRINCIPLE
APPLICATION
HOW PETRONEFT COMPLIES
DEPARTURES
AND REASONS
LINKS
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.
Succession planning is a vital task for
boards. No member of the board
should become indispensable.
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.
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
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/
PetroNeft Resources plc
Corporate Governance Code (continued)
[108]
QCA PRINCIPLE
APPLICATION
HOW PETRONEFT COMPLIES
DEPARTURES
AND REASONS
LINKS
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.
9. Maintain governance
structures and
processes that are fit for
purpose and support
good decision-making
by the board
The Company should maintain
governance structures and processes
in line with its corporate culture and
appropriate to its:
• 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.
Refer to corporate governance statement
for a full description of the corporate
governance structures.
None
Corporate Governance Statement
www.PetroNeft.com/investor-
relations/rule26/
BUILD TRUST
10. Communicate how
the Company is
governed and is
performing by
maintaining a dialogue
with shareholders and
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
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
Corporate Governance Code (continued)
[109]
QCA PRINCIPLE
APPLICATION
HOW PETRONEFT COMPLIES
DEPARTURES
AND REASONS
LINKS
other relevant
stakeholders
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).
PetroNeft Resources plc
[110]
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 as compounded by the Company’s
adherance to international sanctions imposed on Russia in light of the Russian/ Ukrainina conflict,
having started on 24 February 2022. Based on PetroNeft Resources PLC’s purpose to economically
develop its hydrocarbon resources, the strategy set by the Board was intended to optimise the
development of its resource base while 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 this period of immense uncertainty, particularly as it
relates to Russian assets and the application of international sanctions and the decision taken by
PetroNeft to exit all its Russian assets.
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 change 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 and the capacity of the
Company to reinvent itself post disposal of its Russian assets.
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
PetroNeft Resources plc
[111]
sector, the impact of international sanctions on operations, 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
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.
PetroNeft Resources plc
[112]
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.
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
PetroNeft Resources plc
[113]
Pricing and inflationary impacts.
Availability of rigs.
PetroNeft Resources plc
[114]
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
[115]
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
[116]
THE FOLLOWING PAGE IS REQUIRED, BUT SHOULD NOT BE INCLUDED IN THE ANNUAL REPORT
PetroNeft Resources plc
[117]
Company Income Statement
For the year ended 31 December 2022
Note
2022
2021
US$
US$
Revenue
859,666
533,576
Cost of sales
-
-
Gross profit
859,666
533,576
Administrative expenses
(3,260,875)
(1,394,966)
Operating loss
(2,401,209)
(861,390)
Finance Income
3,680,578
3,491,312
Finance costs
(709,482)
(729,438)
Impairment of financial assets- investments in joint
ventures and subsidiaries
21
(16,180,007)
-
Impairment of financial assets- loans at amortised cost.
13 & 22
(24,324,057)
(1,883,503)
Profit /(Loss) on equity investment
10
-
3,625,000
Profit/ (Loss) on equity settlement of financial liabilities
-
(1,753,874)
Profit/ (Loss) on modification of financial liabilities
-
354,194
Valuation of gains/ (losses) on fair value through profit
and loss on debt instruments
(20,199)
20,197
Loss for the year for continuing operations before
taxation
(39,954,376)
2,262,498
Taxation
(907,764)
(872,828)
Loss for the year
(40,862,140)
1,389,670
Company Statement of Comprehensive Income
Loss for the year attributable to equity holders
(40,862,140)
1,389,670
Other comprehensive income
-
-
Total comprehensive loss for the year attributable to
equity holders
(40,862,140)
1,389,670