ANNUAL REPORT 2014
IN THIS REPORT
INTRODUCTION
Directors & Advisers
Chairman’s Statement
Strategy
Our Assets
Review of Operations
Financial Review
CSR
FINANCIAL INFORMATION
The Board
Directors’ Report
Directors’ Responsibilities
Corporate Governance
Auditors’ Report
Financial Statements
Notes to the Accounts
Glossary
1
2
5
6
8
14
16
18
20
22
24
28
30
34
65
FIRST REVENUES
$20
million
TOTAL 2014
PRODUCTION
2.8
mmboe
TOTAL GROUP
2P RESERVES
210
mmboe
BOARD OF DIRECTORS
ADVISERS
DIRECTORS
& ADVISERS
Alastair Muir Ferguson
Executive Chairman
(appointed 19 June 2014)
Andrey Komarov
Executive Director
(appointed 17 November 2014)
Stephen Lowden
Senior Independent Director
Symon Drake-Brockman
Non-executive Director
Michael Lombardi
Non-executive Director
Marcus James Rhodes
Non-executive Director
(appointed 19 June 2014)
Yulia Lebedina
Non-executive Director
(appointed 17 November 2014)
Oliver Donagher
Non-executive Director
(appointed 7 June 2013; resigned 19 June 2014)
John Grimshaw
Non-executive Director
(appointed 19 March 2013; resigned 19 June 2014)
AUDIT COMMITTEE
Marcus Rhodes (Chairman)
Michael Lombardi
Stephen Lowden
REMUNERATION AND NOMINATION
COMMITTEE
Stephen Lowden (Chairman)
Michael Lombardi
COMPANY SECRETARY
Elian Corporate Services (Jersey) Limited
44 Esplanade, St Helier, Jersey, JE4 9WG,
Channel Islands
CORPORATE ADMINISTRATOR
Elian Corporate Services (Jersey) Limited
44 Esplanade, St Helier, Jersey, JE4 9WG,
Channel Islands
BANKERS
Barclays Private Clients International Limited
39-41 Broad Street, St Helier,
Jersey, JE4 8PU, Channel Islands
Deutsche Bank International Limited
St Paul’s Gate, New Street, St Helier,
Jersey, JE4 8ZB, Channel Islands
NOMINATED ADVISER
Shore Capital & Corporate Limited
Bond Street House,14 Clifford Street,
London, W1S 4JU, United Kingdom
BROKER
Shore Capital Stockbrokers Limited
Bond Street House, 14 Clifford Street,
London, W1S 4JU, United Kingdom
SOLICITORS
Berwin Leighton Paisner
Adelaide House, London Bridge, London,
EC4R 9HA, United Kingdom
INDEPENDENT AUDITOR
PricewaterhouseCoopers LLP
1 Embankment Place, London WC2N 6RH
REGISTRAR
Computershare Investor Services (Cayman) Limited
R&H Trust Co. Ltd, Windward 1,
Regatta Office Park, West Bay Road,
Grand Cayman KY1-1103, Cayman Islands
REGISTERED OFFICE
89 Nexus Way, Camana Bay,
Grand Cayman KY1-9007, Cayman Islands
2
1
Zoltav Resources Inc. Annual Report 2014Zoltav Resources Inc. Annual Report 2014INTRODUCTION
CHAIRMAN’S
STATEMENT
of 48.4 mmcf/d (1.4 mmcm/d); and that we have considerably
improved our understanding of the Western Fields, enabling us
to keep the plant full.
In parallel, we have been reviewing the feasibility and viability of
development options for the Eastern Fields. The Nepriakhinskoye
field in the far east of the licence contains Proved plus Probable
plus Possible gas reserves of 899 bcf (25.5 bcm). During the
latter part of 2014 and early 2015 the Company has been
focusing on planning for the appraisal and development of this
significant asset.
Zoltav paid a total consideration of US$180 million to the
vendor of the Bortovoy Licence, Bandbear (a significant
Zoltav shareholder), which was satisfied through the issue of
38,263,095 new Ordinary Shares at an effective price of US$1.60
(100 pence) per share (equivalent to US$61.22 million); the
payment of US$58.94 million in cash and the assumption of
Ruble 2.2 billion (US$59.84 million) of bank debt held by the
operating company.
The Company was pleased to enjoy the support for the
transaction of several investors including Bandbear, whose
agreement to accept approximately one-third of the consideration
payable in Zoltav shares further demonstrates its confidence in
the Company; and ARA Capital, whose investment of a further
US$45.61 million into the Company by way of a subscription
for Zoltav shares at US$1.60 (100 pence) per share funded the
majority of the cash component of the acquisition consideration.
The Koltogor Licences
The Koltogor Exploration and Production Licence (“Koltogor
Licence”) and Koltogor Exploration Licence 10 (“Koltogor 10”)
cover a contiguous area of 695 square kilometres in Khantiy-
Mansisk, Western Siberia.
A significant seismic acquisition programme was completed
over the Koltogor Licence during 2014, resulting in the
acquisition of 466 square kilometres of 3D seismic data and
71 kilometres of 2D seismic data.
This, together with the incorporation into the Company’s existing
reservoir model of test data acquired by previous operators
and a successful well testing programme on both Koltogor
Licences, has resulted in a greater understanding of the reservoir
distribution and, in turn, a 288% increase in the Company’s
Russian standard C1 plus C2 oil reserves attributed to this
acreage.
The C1 plus C2 reserves on these assets under the Russian
Federation Classification Scheme now stand at more than 1
billion barrels (137 mmT). The Company intends to commission
an update of its reserves and resources under the Petroleum
Resources Management System under which it reports later this
year.
The Koltogor Licences contain the largest undeveloped oil
discovery in the prolific Western Siberian oil province of Khantiy-
Mansisk. Zoltav’s 100% interest places the Company in a very
favourable position to advance the development of these fields.
We are commencing the next phase in the appraisal programme
which will in due course include appraisal drilling and testing
in order to further define and prove the optimum method of
extracting the hydrocarbons.
A detailed review of operations during 2014 accompanies this
report.
Corporate and managerial developments
The changes to the Board and management that occurred during
2014 reflected the Company’s transition to an operating oil and
gas company.
In May, the Company announced the appointments of Marcus
Rhodes and myself as Non-executive Directors. Mr Rhodes is
an experienced director and audit committee chairman of major
publicly-listed companies operating in Russia and the CIS; while
I have considerable personal experience of the Russian gas
Zoltav has been able to add considerable
value to its assets in a short space of time
CHAIRMAN’S STATEMENT
2014 was the
year in which
Zoltav
became a
producing
oil and gas
business
I am pleased to present Zoltav’s annual report for
the year ended 31 December 2014.
2014 was the year in which Zoltav became a
producing oil and gas business. Activity during the
year was dominated by two significant projects: the
acquisition and integration of the Bortovoy Licence
and operating assets in the Saratov Oblast; and the
seismic acquisition and well-testing programmes
on the Koltogor Licences in Khantiy-Mansisk, West
Siberia. In both cases, Zoltav has been able to add
considerable value to its assets in a short space
of time.
With a strong foundation of assets, experienced management,
regional knowledge and supportive shareholders, Zoltav
is uniquely well placed to build an oil and gas business of
considerable scale in the CIS. We will continue to leverage our
strengths to grow the business both organically and through
acquisitions in the region.
Notwithstanding the macroeconomic and geopolitical challenges
faced during 2014, Zoltav is operationally and financially sound.
The impact of the significant movement in exchange rates is
explained in the financial review. In summary, however, while
the Company’s U.S. Dollar reported revenue has inevitably
declined, our Ruble revenue, operating costs and margin remain
unaffected.
The Bortovoy Licence
The primary focus of the Company during 2014 has been the
completion of the acquisition of the Bortovoy Licence and the
transition into a producing oil and gas business.
In June, Zoltav completed the acquisition of a 100% interest
in the Bortovoy Licence. Bortovoy is a 3,215 square kilometre
area containing a number of productive gas fields, a processing
plant and significant potential upside from further exploration
and appraisal in the east of the licence. The Bortovoy Licence is
a sizeable asset situated along the northern margin of the Pre-
Caspian Basin, one of the largest hydrocarbon basins in the CIS.
It contains Proved plus Probable gas reserves of 750 bcf (21.2 bcm)
and 3.9 mmbbls (488 mT) of oil and condensate. In the year to
31 December 2014 the Bortovoy Licence produced 14.7 bcf (416
mcm) of gas (2013: 14.8 bcf / 419 mcm) and 174,429 bbls of oil
and condensate (2013: 284,178 bbls) - a total of 2.8 mmboe
(396 mToe) (2013: 2.9 mmboe/413 thousand Toe).
Zoltav’s interest in the Bortovoy Licence stemmed not only from
its existing reserve base and ongoing gas and liquids production,
but also from the considerable upside potential that exists from
additional prospects within the licence area and the scope for
increased future production. The latter is being accomplished
through the hooking-up of additional fields to the existing gas
processing facility and, longer-term, through the construction of
additional gas production facilities in the east of the licence.
In the latter half of the year significant progress was made on both
of these objectives. I am pleased to report that, by November,
the West Bortovoy gas plant was operating at its full capacity
2
3
Zoltav Resources Inc. Annual Report 2014Zoltav Resources Inc. Annual Report 2014INTRODUCTION CHAIRMAN’S STATEMENT
market having led TNK-BP’s gas and power business in Russia
and Ukraine. John Grimshaw and Oliver Donagher (previously
Non-executive Directors of the Company) retired from the Board
in May. The Board is grateful for their contributions.
We continue to seek opportunities for growth, both organically
and through acquisition in our core areas of Russia and the CIS
and we anticipate a significant amount of our effort to be focused
on this during 2015.
STRATEGY
STRATEGY
Zoltav is building a mid-size oil and gas business
focused on the CIS. There are five characteristics which
demonstrate why we are distinctive and uniquely well
positioned to achieve this:
Attractive asset base with substantial organic appraisal
and development upside
Ability to add considerable value to assets in a short
space of time – we will seek acquisition targets where
we can replicate that performance
Targeting further acquisitions in the CIS which will
generate additional cash flows and more exploration
upside
Support of strong major shareholders, providing
access to finance for acquisitions
High principles of corporate governance
I would like to express the Board’s appreciation of our entire
staff’s dedication to meeting the growth objectives set by the
Company.
I look forward to reporting further progress in the months ahead.
Alastair Ferguson
Executive Chairman
23 April 2014
In November, Andrey Komarov and Yulia Lebedina were
appointed to the Board as Non-executive Directors. Mr Komarov
is a very experienced Russian oil and gas professional having
held senior managerial positions with a number of major Russian
energy businesses including having served as Vice President,
Gas Business Development & Sales, and latterly as Vice
President, Gas & Power, at TNK-BP. Ms Lebedina is Head of
the Corporate Department at Millhouse LLC. She initially joined
Millhouse LLC in 2006 in the group’s legal department, prior to
which she was Senior Corporate Counsel at Sibneft OJSC (now
Gazprom Neft).
At the end of the year Symon Drake-Brockman stepped down
from the role of Executive Chairman but remains on the Board
as a Non-executive Director. At the same time, I became
Executive Chairman with Andrey Komarov taking on the role of
Executive Director. These are key building blocks in developing
an experienced team capable of managing a growing oil and gas
business in the CIS.
I would like to reiterate the Board’s thanks to Mr Drake-Brockman
for having made a valuable contribution to the development of
the Company during its transition from an investing company into
an operational oil and gas business.
In June, alongside the completion of the acquisition of the
Bortovoy Licence, we further strengthened the management
of Bortovoy’s operating company through the appointments of
Alexei Khomyakov as Technical Director and Airat Ganeev as
Chief Geologist.
Outlook
The conditions currently affecting the sector in our region have, in
my opinion, created a significant opportunity for a company with
Zoltav’s specific characteristics to build a strong, medium sized,
CIS-focussed oil and gas company. While we undertake the
work to develop our existing portfolio and review the acquisition
opportunities available to the Company we have set out to live
within our means and focus on operational excellence. Our
current plans do not include any need to access additional capital
unless required to fund acquisitions. If the Company follows the
growth curve we expect it to, it is the Board’s intention to seek, in
the next 24 months, a listing on the Main Market of the London
Stock Exchange once appropriate to the Company’s stage of
development and scale of operations.
With the completion of the acquisition of the Bortovoy Licence and
the integration of this asset into the Company, our focus there is
on ensuring that the Western Gas Plant continues to produce at
full capacity and that the Western Fields are developed efficiently
and effectively; while concurrently developing an appraisal
strategy for the highly prospective Eastern Fields of the licence.
At Koltogor, the interpretation of 3D seismic data from last year’s
programme has enabled the Company to re-map the reservoir
distribution of the oil field which we now understand to be a
significantly bigger asset. With over 1 billion barrels (137 mmT)
of Russian standard reserves, the Koltogor licences contain the
largest undeveloped oil discovery in the prolific Western Siberian
oil province of Khantiy-Mansisk. The immediate focus will be on
developing an appraisal programme for the conventional Upper
Jurassic formations. Having significantly enhanced the Koltogor
Licences’ value potential as a 100% interest holder we will, in
due course, consider bringing on a partner with the capacity
to accelerate the appraisal – and ultimately development –
programmes.
4
Zoltav Resources Inc. Annual Report 2014
5
Zoltav Resources Inc. Annual Report 2014INTRODUCTION OUR ASSETS
Moscow
KHANTIY-MANSISK
AUTONOMOUS OKRUG
OUR
ASSETS
Zoltav is uniquely well
placed to build an oil
and gas business of
considerable scale
in the CIS
Khantiy-Mansisk
Nizhnevartovsk
Koltogor
SARATOV
OBLAST
Bortovoy
KAZAKHSTAN
TURKMENISTAN
UZBEKISTAN
KYRGYZSTAN
TAJIKISTAN
GROUP RESERVES UNDER PRMS
AS AT 31 DECEMBER 2014
RUSSIA
Proved
Probable
Proved +
Probable
Possible
Bortovoy Licence
Gas
Oil &
Liquids
Gas, Oil
and Liquids
bcf
mmbbls
352.9
2.0
396.8
1.8
749.7
640.0
3.8
2.4
mmboe
62.0
69.2
131.2
111.2
Koltogor Licences
Gas
Oil
Gas & Oil
bcf
mmbbls
mmboe
0.5
1.6
1.7
23.5
73.5
77.5
24.0
75.1
79.2
55.7
174.0
183.5
Total
Gas
Oil &
Liquids
Gas, Oil
and Liquids
bcf
mmbbls
353.4
3.6
420.3
75.3
773.7
78.9
695.7
176.4
mmboe
63.7
146.7
210.4
294.6
INTRODUCTION REVIEW OF OPERATIONS
Zoltav’s main
operational
objective at
Bortovoy
has been to
achieve and
maintain
full capacity
production
Bortovoy Licence
The acquisition of the Bortovoy Licence
in the Saratov Oblast completed on 18
June 2014; 196 days of production are
therefore included in the group accounts
for the year.
Zoltav’s main priority since the acquisition
of the Bortovoy Licence has been to
restore the Western Gas Plant to its full
average daily production capacity of
approximately 48.4 mmcf/d (1.4 mmcm/d).
Zoltav planned to achieve this by boosting
production on the Karpenskoye field (the
main producer) with a series of workover
operations and through the drilling of an
infill well; as well as through hooking-up
the Zhdanovskoye field to the Western
Gas Plant.
The three-well Zhdanovskoye field
hook-up project was commenced
shortly after Zoltav assumed managerial
responsibility for the Bortovoy Licence
on 21 November 2013. All three
Zhdanovskoye wells and the newly drilled
Karpenskoye Well 100 were successfully
hooked-up to the Western Gas Plant and
were on stream by late October 2014.
Full plant capacity was achieved on 27
October 2014 – approximately three
months ahead of plan – and has since
been maintained.
While Zoltav’s main operational objective
at Bortovoy has been to achieve and
maintain full capacity production, Zoltav
has concurrently been undertaking
scenario planning for the development of
the highly prospective Eastern Fields of
the licence. The construction of a second
gas plant in this area of the licence, close
to the Pavlovskoye field – with its Proved
plus Probable plus Possible gas reserves
of 183.7 bcf (5.2 bcm) - is currently
perceived by management as the most
likely scenario.
Additional prefeasibility work was
carried out to look at early development
options from the phased development
of the more advanced Eastern Fields –
including Pavlovskoye, Kochkurovskoye,
West Lipovskoye, Lipovskoye and
Nepriakhinskoye. During Q4 we refocused
on preparing to appraise the substantial
easternmost field – Nepriakhinskoye -
which has Proved plus Probable plus
Possible gas reserves of 899 bcf (25.5
bcm). Our current planning assumes that
we will develop a new gas plant with an
annual capacity of approximately 70 bcf
(2 bcm). This will naturally be dependent
upon the success of the appraisal
programme at Nepriakhinskoye.
8
Production
In 2014, production from the Bortovoy
Licence was 7,656 boe/d (1,086 Toe/d)
(2013: 8,004 boe/d / 1,132 Toe/d). This
comprised 40.2 mcf/d (1.14 mcm/d) of
gas (2013: 40.5 mcf/d / 1.15 mcm/d)
and 478 bbls/d (60 T/d) of oil and
condensate (2013: 779 bbls/d / 99 T/d).
Overall this was a 4.4% reduction in
production compared with 2013. Gas
production decreased by 0.7%, whilst
liquids production reduced by 38.6%. This
reflects significant declines in the oil wells
producing from the Karpenskoye rim.
The Company’s immediate priority is on
exploiting the considerable gas potential
of the licence and as such we are not
planning to target any further oil rim wells
in the foreseeable future. The highest
monthly production achieved in 2014 was
approximately 8,636 boe/d (1,225 Toe/d)
in December – a level which we expect to
maintain throughout 2015.
Approximately 54% of 2014’s production
described above is included in Zoltav’s
the
accounts
Company’s acquisition of the Bortovoy
Licence on 18 June.
for 2014
following
Development drilling and other well
activity
Well 100 was spudded on 29 June. This
was an infill well on the Karpenskoye
field, which is the main producing field at
present. The well was hooked-up to the
Western Gas Plant and brought on stream
on 27 October. It tested at a rate of 7.8
mmcf/d (220 mcm/d) of gas and 67 bbls/d
(8 T/d) of condensate. It was brought into
production at a constrained rate of 5.9
mmcf/d (165 mcm/d) of gas and 42 bbls/d
(5 T/d) of condensate on a 10mm choke.
Production from Well 100 is constrained
by the capacity of the Western Gas Plant.
During 2014 we undertook a number of
recompletions and workovers on existing
Karpenskoye wells with a view to reducing
water producing zones. We completed
seven workovers and six recompletions
on Karpenskoye and Zhdanovskoye wells.
Whilst largely successful we were unable
to return Karpenskoye Wells 17 and 19
to production despite efforts to isolate the
water. Testing confirmed that neither is
producing formation water. Accordingly,
at the end of the year we commissioned
consultants to review plans to side-track
these wells by the end of 2015.
The Company has also started planning
work and engineering studies for
compression on the Karpenskoye field in
order to optimise reserve recovery.
REVIEW OF
OPERATIONS
Existing Gazprom pipelines
Existing sales pipelines
Pipelines to be constructed
Oil and Gas Field
Gas processing plant
Railroads
Gas field
Other field
Gazprom trunkline
from Kazakhstan/
Turkmenistan to
Central Russia
Krasnokutskoye
Mokrousovskoye
Karpenskoye
Zhdanovskoye
Gazprom pipeline
Pavlovskoye
West Liposkoye
Liposkoye
Kochkurovskoye
Nepryakhinskoye
RUSSIA
KAZAKHSTAN
Bortovoy Field by Field 2P reserves
Gas (Proved+Probable)
Oil & Liquids (Proved+Probable)
Metric
(mmcm)
English
(mbbls)
Metric
(mT)
Field Reserve Category
Krasnokutskoye
Zhdanovskoye
Karpenskoye
Mokrousovkoye
Total Western Fields
Pavlovskoye
Kochkurovskoye
West-Lipovskoye
Lipovskoye
Nepriyakhinskoye
Total Eastern Fields
English
(mmcf)
9,923
72,995
95,350
45,133
223,401
162,518
-
-
49,935
313,841
526,294
281
2,067
2,700
1,278
6,326
4,602
-
-
1,414
8,887
14,903
Total All Fields
749,695
21,229
-
366
2,215
-
2,581
1,028
-
-
279
-
1,307
3,888
-
52
283
-
335
119
-
-
34
-
153
488
9
Zoltav Resources Inc. Annual Report 2014Zoltav Resources Inc. Annual Report 2014INTRODUCTION
REVIEW OF OPERATIONS
Zhdanovskoye hook-up
Work commenced in May to hook-up
Wells 8, 30 and 102 in the eastern part
of the Zhdanovskoye field to the Western
Gas Plant. This included the laying of
pipeline and the installation of associated
well management equipment. The three
wells have been re-entered and were
hooked-up to the Western Gas Plant on
8 October on a temporary permit. A full
permit was subsequently granted during
Q1 2015.
Western Gas Plant
Operations at the Western Gas Plant
have continued smoothly with the plant
operating more reliably than the prior
year. During the course of 2014 we
reduced operational downtime at the
plant by approximately 30%. We expect
to maintain and improve this operational
performance in 2015. We have instituted
a programme to improve the efficiency of
the processing plant which has involved
replacing the cooling units and filters, with
the objective of improving the throughput.
The main project has been an upgrade of
the plant to ensure that the gas remains
at the appropriate GOST standard
temperature during the summer period.
The project commenced in April 2014 and
is expected to be completed during June
2015.
Eastern Fields and gas plant
The newly appointed Chief Geologist
and Technical Director of our operating
subsidiary have been reviewing the
existing data on the Eastern Fields. Work
is ongoing to determine an appraisal plan
for the Nepryakhinskoye field, the most
easterly on the Bortovoy Licence and most
sizeable of the Eastern Fields. The results
of the appraisal programme will determine
the required size and configuration of the
future Eastern Gas Plant.
The Nepriakhinskoye 1 Well was drilled
by the previous owners in 2011. The well
did not discover a gas-water contact and
thus reserve certainty will require further
appraisal. The well tested at a rate of
approximately 21.1 mmcf/d (600 mcm/d)
of gas over a limited period. We believe
that the Nepriakhinskoye field may extend
across to the Muravlinskoye field. The
Muravlinskoye 2 Exploration Well was
spudded by the previous owner in 2011
but was aborted prior to reaching target
depth due to budgetary constraints.
Zoltav expects to revisit this well as part
of the future appraisal programme of the
Eastern Fields.
REVIEW OF
OPERATIONS
WESTERN GAS PLANT:
2014 MONTHLY GAS PRODUCTION
BORTOVOY LICENCE:
GAS SALES PRICE
t
e
e
f
i
c
b
u
c
n
o
i
l
l
i
b
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
i n c r e a s e y e a r - o n - y e a r
7. 9 %
RUB 2,727
million cubic
metres
2013
RUB 2,942
million cubic
metres
2014
n
a
J
b
e
F
r
a
M
r
p
A
y
a
M
n
u
J
l
u
J
g
u
A
p
e
S
t
c
O
v
o
N
c
e
D
WESTERN GAS PLANT:
OPERATIONAL EFFICIENCY
BORTOVOY LICENCE:
REDUCED HEADCOUNT
2014
97.73%
Full plant capacity was
achieved approximately
three months ahead of
plan – and has since
been maintained
10 Zoltav Resources Inc. Annual Report 2014
11
Zoltav Resources Inc. Annual Report 2014INTRODUCTION201330420142802013 93.37%
REVIEW OF OPERATIONS
KOLTOGOR
EXPLORATION AND
PRODUCTION LICENCE
Well 71
KOLTOGOR
EXPLORATION
LICENCE 10
Well 103
Well 101
Well 111
Well 141
Discovery wells
Jurassic sands
Oil and Gas pipelines
Proposed pipeline
Oil processing plant
All weather road
Road
REVIEW OF
OPERATIONS
With over a billion barrels of Russian Standard
C1+C2 reserves, the Koltogor Licences contain the
largest undeveloped oil discovery in the prolific
West Siberian oil province of Khantiy-Mansisk
Koltogor Licences
Koltogor Exploration and Production Licence (“Koltogor
E&P Licence”)
During 2014 at Koltogor, in Khantiy-Mansisk, Western Siberia,
we completed the acquisition of 466 square kilometres of 3D
seismic data and 71 kilometres of 2D seismic data.
The interpretation of the data, which was completed by the end
of 2014 – combined with the incorporation into the Company’s
existing reservoir model of well test data acquired by previous
operators – resulted in two substantial upgrades by the Russian
Federal Agency for Subsoil Use (“Rosnedra”) of C1 plus C2 oil
reserves under the Russian Federation Classification Scheme
(“Russian Standard”). The first of these upgrades came in June
while the second occurred after the year-end in Q1 2015.
The interpretation of 3D seismic data has enabled the Company
to re-map the reservoir distribution of the Koltogor oil field which
we now understand to be a significantly larger asset.
The Russian Standard reserves at the Koltogor E&P Licence
have increased by 683.3 mmbbls (90 mmT) since Zoltav’s
acquisition of the licence in July 2013 and now stand at 949.4
mmbbls (125 mmT).
In addition to the 3D seismic survey, Zoltav completed limited
testing of Well 141 in the southernmost part of the Koltogor E&P
Licence. The testing of the Upper Jurassic Ju1-1 horizon was
undertaken over a period of 6 days. Once cleaned, the well was
tested using a 10mm choke and flowed 201 cf/d (32 cm/d) of
liquids of which 101 cf/d (16 cm/d) was a crude oil of 43 degrees
API.
This result corroborated the 2009 test data acquired from the
previous operator when Well 141 flowed 182 cf/d (29 cm/d) of
liquids of which 85 cf/d (13.6 cm/d) was oil.
Koltogor Exploration Licence 10 (“Koltogor 10”)
Following completion of testing operations on Well 141 on the
Koltogor E&P Licence, the workover rig was moved to Koltogor
10 where it re-opened Well 103 with a primary objective to test
the Upper Jurassic Ju1-1 horizon. The well flowed 21.4 cf/d (3.4
cm/d) of oil. The successful testing of the Upper Jurassic Ju1-1
horizon at Well 103 resulted in the discovery of the new West
Koltogor oil field. This discovery was made in the same formation
as the neighbouring Koltogor E&P Licence, however we believe
the two fields are separated by a fault.
The work programme on Koltogor 10 resulted in Rosnedra’s
registering, in June, of 84 mmbbls (12 mmT) of Russian Standard
C1 plus C2 oil reserves, giving total current registered reserves
of the two Koltogor licences combined to in excess of 1 billion
barrels (137mmT). The Company intends to commission an
update of its reserves and resources under the Petroleum
Resources Management System, under which Zoltav reports
the reserves and resources for its licences, and will publish this
upon completion (expected to be during Q3 2015).
KOLTOGOR LICENCES: GROWING IN SIZE
Russian Standard Reserves (C1+C2)
266
million
barrels
June 2013
1 billion
barrels
487
million
barrels
June 2014
March 2015
Acquisition of Koltogor Licences
3D seismic acquisition programme
3D interpretation
Jul 13 Aug 13 Sep 13 Oct 13 Nov 13 Dec 13 Jan 14 Feb 14 Mar 14 Apr 14 May 14 Jun 14 Jul 14 Aug 14 Sep 14 Oct 14 Nov 14 Dec 14
Jan 15 Feb 15 Mar 15
Well testing programme; discovery of West Koltogor field
12
13
Zoltav Resources Inc. Annual Report 2014Zoltav Resources Inc. Annual Report 2014INTRODUCTION
Diall Alliance Financial Performance
Oil and condensate (barrels)
Gas (mcf)
Total (boe)
Operating results (US $’000)
Oil and condensate sales
Gas Sales
Revenue
Production costs
Production based taxes
Depreciation, depletion and amortisation
Cost of sales
Operating profit/(loss)
Net realisation
Oil and condensate (US $/barrels)
Gas (US $/mcf)
Operating data (US $/boe)
Production costs
Production based taxes
Depreciation, depletion and amortisation
EBITDA calculation (US $’000)
EBITDA
EBITDA per boe (US $/boe)
FINANCIAL
REVIEW
FY 2014
171,854
13,867,030
2,646,706
FY 2013
286,275
13,858,759
2,759,652
8,042
30,100
38,142
(9,792)
(6,818)
(9,071)
(25,681)
6,227
46.80
2.17
3.70
2.58
3.43
15,384
5.81
13,450
33,766
47,216
(11,221)
(6,534)
(10,649)
(28,404)
8,826
46.98
2.44
4.07
2.37
3.86
22,005
7.97
* Note: 196 days of Diall Alliance 2014 production are included in the group accounts for the year.
FINANCIAL REVIEW
Zoltav completed the acquisition of Royal Atlantic Energy (Cyprus)
Limited (“Royal Atlantic Energy”) and OOO Vostok Energy (the
“Management Company”) on 18 June 2014 and, with it, the
Company’s readmission to trading on the AIM Market. The
accounts to 31 December 2014, which follow, therefore include
196 days of trading of Royal Atlantic Energy’s licence holding
entity, Diall Alliance – the operator of the Bortovoy Licence.
The review of operations, which precedes this financial review,
includes a summary of Diall Alliance’s key production and financial
metrics. These demonstrate that the lack of investment by the prior
owners in the Western Fields resulted in a decline in production
rates and hence revenue and ultimately cash generation. Our
immediate focus since assuming managerial responsibility at
Bortovoy has been on returning the Western Gas Plant to its full
capacity during 2014. This was achieved in October 2014.
As noted below our operating revenues and costs are both
denominated in Rubles (“RUB”); as are our assets at Diall Alliance
and SibGeCo (the operating company of the Koltogor Licences).
There has been significant foreign exchange volatility in the
RUB, and thus significant movement in the value of our assets
presented in US$. This volatility has been recorded for each asset
and liability, as well as through reserves as the value of the assets
has not been impaired.
Revenue
Group revenues – the first since Zoltav’s establishment as an
oil and gas company - for the 196 days in which Diall Alliance
was owned by the Company were US$20.0 million (2013: nil).
Gas sales are priced in RUB and are not tied to either the United
States Dollar (“US$”). Accordingly, revenues in US$, the Group’s
reporting currency, will naturally be affected by fluctuations in the
rate of US$ to RUB. Diall Alliance’s RUB-denominated revenue
for 2014 was RUB1,466 million (2013 RUB1,501 million) with
the increase in our RUB denominated revenue being offset by a
reduction in oil production.
Gas realisations were US$2.17/mcf or RUB83.30/mcf (US$ 76.58/
mcm or RUB2,941/mcm) (2013: US$2.43/mcf or RUB77.46/mcf
(US$85.8/mcm or RUB2,734/mcm)). Gas produced was sold to
Mezhregiongaz, a Gazprom subsidiary, at the transfer point on
entry to the Central Asian Centre Pipeline.
Oil and condensate realisations were US$46.8/bbl or RUB1,798/
bbl (US$368/t or RUB14,115/t) (2013: US$47.0/bbl or RUB1,496/
bbl (US$369/t or RUB11,746/t)). Oil and condensate are sold
directly at the Western Gas Plant to a small number of different
purchasers through a tender process.
With the Western Gas Plant operating at full capacity we expect
to see commensurately higher gas RUB-denominated revenue
in 2015. We have not forecasted an increase in the RUB-based
gas price during the year, but continue to seek to maximise sales
prices where possible.
Operating loss
The operating loss, before the exceptional gain on the date of
acquisition of Diall, for the period was US$7.6 million (2013:
US$4.4 million), reflecting that, for the just over half of the period
under review, Zoltav was not producing any revenues but bore
the costs of US$3.2 million associated both with the acquisition
of Royal Atlantic Energy and its Management Company; and the
costs of the work programme at the Koltogor Licences.
At Diall Alliance the operating profit denominated in RUB was
RUB6.2 million, a reduction of 30%. As our operating costs are
largely fixed, a reduction in production revenue is not matched
by a reduction in operating costs. We would expect to see a
commensurate increase in RUB-denominated operating profit in
2015 as a result of our efforts to maintain the Western Gas Plant’s
full production capacity.
Finance costs are represented by interest on the Sberbank
facility of RUB2,400 million (US$40.6 million) entered into by
Diall Alliance on 4 April 2014, a second and final tranche of which
was drawn down on 8 December 2014.
Taxation
The total tax charge for the year was US$2.4 million (2013: US$
nil). Despite the Group being predominantly in a development
phase it is not able to use losses incurred in one part of the
Group against profits in another.
Other taxation
A new gas mineral extraction tax (“MET”) formula was
implemented from 1 July 2014 and is based on a combination
of average gas prices, gas production as a share of total
hydrocarbon output and complexity of gas reservoirs. The
effective (“MET”) rate applicable in the period was RUB15.4/mcf
or RUB543/mcm (2013: RUB9.4/mcf or RUB331/mcm).
In addition to production taxes the Company was subject to
a 2.2% property tax which is based on the net book value of
Russian assets calculated for property tax purposes. This figure
is included in the cost of sales in the consolidated income
statement.
Profit after tax
Our profit after tax amounted to US$21.7 million in the year
ended 31 December 2014 (2013: US$4.3 million). In 2014
we recorded an exceptional gain on the acquisition of Diall of
US$35.0 million relating to the negative goodwill that arose from
the excess of value of the assets purchased.
Cash
Total cash resources at the end of the period were US$10.7
million.
Liquidity
Following the acquisition of Royal Atlantic Energy and the
associated capital raise, the Company has sufficient liquidity to
fund its improvements on the Western Fields at Bortovoy; and
for the investment planned for the Koltogor Licences through
to the end of 2015. It is expected that the longer-term plans to
appraise – and ultimately develop - the Eastern Fields on the
highly prospective Bortovoy Licence; and the appraisal drilling
plans for the Koltogor Licences will require additional funding.
Outlook
We do not expect to see any above-Russian inflation increases in
gas realisations in the near future. As a result of the Company’s
successful investment programme to bring the Western Gas
Plant at Bortovoy up to full capacity, the Company expects
production rates to be maintained at approximately 48.4 mmcf/d
(1.4 mmcm/d) in 2015.
Alistair Stobie
Director Finance
23 April 2015
14
15
Zoltav Resources Inc. Annual Report 2014Zoltav Resources Inc. Annual Report 2014INTRODUCTION
CORPORATE AND SOCIAL RESPONSIBILITY
CSR
CSR is embedded in
everything we do.
We strongly believe
in our responsibility to
protect and preserve
the natural environment
we operate in
Environment
Responsible environmental management is a core component of our approach to CSR. Zoltav is committed to complying with
applicable legislation and to identifying risks to the environment. We recognise that oil and gas exploration and production activities
can have an impact on the environment. As such we aim, wherever possible, to implement processes to avoid, mitigate or manage
any adverse impacts our operations might have.
Zoltav is committed to employing highly competent personnel who share the company’s values and who are committed to implementing
our high standards of environmental performance in everything they do. We regularly review and monitor key environmental
performance indicators to measure our success in this area.
Engaging with local communities
By engaging with local communities in the areas around our licences, Zoltav aims to stimulate sustainable development. Co-operation
with local communities is key to the success of our operations, and we continually seek to maximise local involvement to provide
the potential for economic and social benefits. We are also committed to building and utilising the skills available locally at all levels.
Health and Safety
Zoltav is committed to providing a safe and healthy work environment and to conducting our various businesses in a safe and
environmentally protective manner. All employees and officers are expected to perform their duties consistent with the site specific
safety and environmental rules and regulations and are expected to obey all local, regional and national laws and regulations. All
employees and officers are expected to carry out their duties in all ways that enhance health, safety and environmental compliance.
ENSURING A FUTURE FOR THE GREAT BUSTARD
Great bustards are among the heaviest flying birds in the
world. However, it is also a vulnerable species and South
West Russia - where the Bortovoy Licence is situated - is
one of the few remaining thriving populations of this rare
breed.
The great bustard are often spotted on the Bortovoy
Licence and Zoltav is deeply committed to maintaining
the great bustard’s natural environment by identifying key
areas where they can co-habit easily with our operations.
As part of our environmental scheme, we carry out regular
monitoring and studies of the birds wherever they are on
the Bortovoy Licence. Throughout 2014 Zoltav continued
to financially support monitoring initiatives across a
12,000 square kilometre area. A total of 827 sightings of
these magnificent, stately birds were recorded during the
year.
THE ROAD TO KARPENKA
The road from Lebedevka to Karpenka - within the
Bortovoy Licence in the Saratov Oblast - was in
extremely poor condition at the outset of 2014. This is
an essential road used on a daily basis by residents of
Lebedevka, Karpenka, Rozovka and Repnoe - especially
by families taking children to and from the schools and
kindergartens of Lebedevka and Karpenka. Zoltav has
funded substantial repairs to 10,992 square metres of
road surface during 2014, reducing the risk of accidents
and improving the access for these communities to rapid
medical or other important services.
16
17
Zoltav Resources Inc. Annual Report 2014Zoltav Resources Inc. Annual Report 2014INTRODUCTION THE BOARD OF DIRECTORS - PROFILES
Alastair Ferguson - Executive Chairman
Alastair Ferguson, 57, was appointed as a non-executive director in May 2014; and subsequently
became the executive chairman in December 2014. He has an extensive background in the oil
and gas industry and considerable experience of the Russian gas market. He is a non-executive
director of JKX Oil and Gas plc, listed on the London Stock Exchange with assets in Eastern
and Central Europe, and Kazmunaigaz Exploration and Production, an oil and gas exploration
and production company focused on the Caspian region in Kazakhstan. Alastair Ferguson was
an executive vice-president gas & power with TNK-BP between 2003-2011 having successfully
led its gas and power business in Russia and Ukraine. He continues to work in Moscow as an
independent adviser on energy issues. Prior to that, he held a wide range of senior positions with
BP during his 33 year career in the oil and gas industry.
Andrey Komarov - Executive Director
Andrey Komarov, 50, was appointed as a non-executive director in November 2014; and
subsequently became an executive director in December 2014. He is a very experienced Russian
oil and gas professional having held senior managerial positions with a number of major Russian
energy businesses. Between 2006 and 2013 Andrey Komarov served as Vice President, Gas
Business Development & Sales, and latterly as Vice President, Gas & Power, at TNK-BP, where
he worked with Alastair Ferguson (also a director of Zoltav). In 2002 Andrey Komarov joined
Sibneft OJSC (now Gazprom Neft), one of Russia’s leading oil producers, as Director, Regional
Sales and was subsequently appointed as the group’s Vice President, Downstream in 2004. Prior
to Sibneft OJSC, Andrey Komarov held the positions of Deputy General Director and Commercial
Director of the Moscow Oil Refinery and served as an adviser to the Minister of Fuel and Energy
of the Russian Federation.
Stephen Lowden - Senior Independent Director
Stephen Lowden, 55, was appointed as a non-executive director in August 2011. He has over
25 years’ experience in the international oil and gas industry across exploration, development,
production and gas liquefaction. Throughout his career in the oil and gas industry, Stephen
Lowden has worked around the world but has spent a considerable time working on projects in
the CIS, where Zoltav is focused. Stephen Lowden has previously held positions with Premier
Oil plc, including chief petroleum engineer, general manager for development and production and
an executive director of the board and, more recently, at Marathon Oil Company as president of
Marathon International, head of corporate business development and an officer of the company.
Stephen Lowden is also involved with two private energy businesses.
Symon Drake-Brockman – Non-executive Director
Symon Drake-Brockman, 53, was appointed Executive Chairman in August 2011; and
subsequently became a non-executive director in December 2014. He has a wealth of experience
from a long career in finance covering both debt and equity markets and was formerly chief
executive officer of RBS Global Banking and Markets in the Americas and chief executive officer
of RBS Greenwich Capital, global head of RBS’ Debt Markets division and Board member of
RBS Global Banking and Markets. Mr Drake-Brockman previously held senior positions with
ING Barings and JP Morgan in London, New York, Tokyo and Hong Kong. He is currently a non-
executive on the Board of Nexus Energy in Australia, and the Managing Partner of Pemberton,
the London based Private Equity firm.
Michael Lombardi - Non-executive Director
Michael Lombardi, 58, was appointed as a non-executive director in March 2013. He qualified as
a Jersey solicitor in 1994 and is a senior partner of Ogier, one of the world’s largest offshore law
firms, headquartered in Jersey. As a partner for over fifteen years, providing integrated legal and
administration services on an international basis, Michael Lombardi has a wealth of experience
in advising on risk management and governance structures. He is a director of Ogier Fund
Administration (Jersey) Limited, which has over US$20 billion in assets under administration and
is a subsidiary of Ogier Fiduciary Services Limited, which has total assets under administration
exceeding US$250 billion. He is a founder director of the Channel Islands Stock Exchange and
the author of a guide to corporate governance in Jersey.
Marcus Rhodes - Non-executive Director
Marcus Rhodes, 53, was appointed as a non-executive director in May 2014. He is an
experienced director of major publicly-listed companies operating in Russia and the CIS. He
is a qualified chartered accountant and a member of the Institute of Accountants in England &
Wales. Marcus Rhodes is currently a non-executive director and chairman of the audit committee
of NASDAQ-listed QIWI plc, a major provider of payment solutions in Russia and the CIS. He
is also a non-executive director and chairman of the audit committee for the Russian company
PhosAgro OJSC, one of the world’s leading producers of phosphate-based fertilisers and listed
on the London Stock Exchange, Tethys Petroleum Limited, the London Stock Exchange-listed
company with assets in Central Asia and the Caspian region, London Stock Exchange-listed
Cherkizovo Group OJSC, Russia’s largest meat producer and the MICEX and RTS-listed Rosinter
Restaurants Holding OJSC, the leading casual dining chain operator in Russia and the CIS. From
2008-2012, Marcus Rhodes was a non-executive director and chairman of the audit committee
for NYSE-listed Wimm-Bill-Dann Foods OJSC, one of Europe’s largest dairy products companies,
headquartered in Moscow. From 2010-2012 he was a non-executive director and chairman of the
audit committee for London Stock Exchange-listed Ros Agro plc, one of the largest agriculture
industry holding companies in Russia. Marcus Rhodes was an audit partner for Ernst & Young
from 2002-2008. Prior to that, he was an audit partner for Arthur Andersen from 1998-2002.
Yulia Lebedina – Non-executive Director
Yulia Lebedina, 36, was appointed as a non-executive director in November 2014. She is
an experienced corporate lawyer based in Moscow and is currently Head of the Corporate
Department at Millhouse LLC, responsible for corporate governance and the provision of legal
and corporate support for transactions. Yulia Lebedina initially joined Millhouse LLC in 2006 in
the group’s legal department, prior to which she was Senior Corporate Counsel at Sibneft OJSC
(now Gazprom Neft), one of Russia’s leading oil producers.
18
Zoltav Resources Inc. Annual Report 2014
Zoltav Resources Inc. Annual Report 2014
19
THEBOARDFINANCIALINFORMATION DIRECTORS’ REPORT FOR THE YEAR ENDED 31 DECEMBER 2014
The Directors of the Company present their annual report together with the audited consolidated financial statements for the year
ended 31 December 2014.
Principal activities
The principal activities of the Company and its subsidiaries (the “Group”) are the acquisition, exploration and development of
hydrocarbon assets and production of hydrocarbons in the Russian Federation.
Business review
A review of the business for the year and of future developments is given in the Chairman’s Report.
Results
The results of the Company are as shown on page 30.
Dividends
The Directors do not recommend the payment of a final dividend and no interim dividend was paid during the year (2013: US$nil).
Share capital
Details of movements in the share capital of the Company during the year are set out in note 2.16 to the financial statements. The
Company’s policy in respect of capital and risk management is set out in note 28.
Directors
The membership of the Board who served during the year and up to the date of approving the financial statements is set out on
page 1.
Going concern
The going concern basis of accounting is appropriate because there are no material uncertainties related to events or conditions that
may cast significant doubt about the ability of the company to continue as a going concern.
Directors’ interests
Certain Directors have owned shares of the Company during the year ended 31 December 2013. Interests in the ordinary shares
of the Company are as follows:
Symon Drake-Brockman
Stephen Lowden
John Grimshaw (resigned 19 May 2014)
Michael Lombardi
Oliver Donagher (resigned 19 May 2014)
Alastair Ferguson
Andrey Komarov (appointed 17 November 2014)
Yulia Lebedina (appointed 17 November 2014)
Marcus Rhodes
31 December 2014
31 December 2013
Number of
ordinary
shares
469,055
Percentage of
existing share
capital
Number of
ordinary
shares
Percentage of
existing share
capital
0.3%
469,055
0.8%
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
469,055
0.3%
469,055
0.8%
Symon Drake-Brockman
Stephen Lowden
John Grimshaw (resigned 19 May 2014)
Michael Lombardi
Oliver Donagher (resigned 19 May 2014)
Alastair Ferguson
Andrey Komarov (appointed 17 November 2014)
Yulia Lebedina (appointed 17 November 2014)
Marcus Rhodes
31 December 2014
31 December 2013
Number of ordinary
share options
Number of ordinary
share options
1,250,000
500,000
1,250,000
500,000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
On 12 December 2014 the expiry date of Messrs Drake-Brockman and Lowden’s Options was extended to 30 October 2017.
Substantial shareholdings
The interests in excess of 3% of the issued share capital of the Company which have been notified to the Company as at 31
December 2014 were as follows:
1,750,000
1,750,000
ARA Capital Limited
Bandbear Limited
Crediton Invest Limited
Matteson Overseas
Number of ordinary
shares
Percentage of existing
share capital
56,243,076
56,243,076
6,353,568
6,353,568
125,193,288
39.6%
39.6%
4.5%
4.5%
88.2%
20 Zoltav Resources Inc. Annual Report 2014
Zoltav Resources Inc. Annual Report 2014
21
DIRECTORS’REPORTFINANCIALINFORMATION
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The Directors are responsible for preparing the annual report and financial statements in accordance with applicable law and
regulations.
AIM Rules for Companies require the Directors to prepare financial statements for each financial year. Under those Rules the
Directors have elected to prepare the financial statements in accordance with International Financial Reporting Standards (IFRS)
as adopted by the European Union. The financial statements are required to give a true and fair view of the state of affairs of the
Company and of the profit or loss of the Company for that period.
International Accounting Standard 1 requires that financial statements present fairly for each financial year the Company’s financial
position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events
and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the
International Accounting Standards Board’s ‘Framework for the preparation and presentation of financial statements’. In virtually all
circumstances, a fair presentation will be achieved by compliance with all applicable IFRS. However, Directors are also required to:
•
•
•
properly select and apply accounting policies;
present information, including accounting policies, in a manner that provides relevant, reliable, comparable and
understandable information;
provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to
understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial
performance; and
• make an assessment of the Company’s ability to continue as a going concern.
The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial
position of the Company. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable
steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s
website.
Financial risk management objectives and policies
Details of the financial risk management objectives and policies are provided in note 28 to the financial statements.
Independent Auditor
PricewaterhouseCoopers LLP were appointed as the Company’s independent auditor on 2 April 2013 and have expressed their
willingness to continue in office.
For and on behalf of the Board:
Alastair Ferguson
Executive Chairman
23 April 2015
22 Zoltav Resources Inc. Annual Report 2014
CORPORATE GOVERNANCE REPORT FOR THE YEAR ENDED 31 DECEMBER 2014
Introduction
The Board’s overriding objective is to ensure that the Group
delivers long-term capital appreciation for its shareholders.
Compliance
The Company complies with elements of the Smaller Company
provisions of the UK Corporate Governance Code (“the Code”)
albeit as an AIM-listed company and Cayman Island incorporated
company it is not required to. The Board of Directors is committed
to developing and applying high standards of corporate
governance appropriate to the Company’s size and its future
prospects.
This statement sets out measures taken by the Board to apply
the principles of the Code to the year ended 31 December 2014
and to the date of the Directors’ Report.
Board of directors
Role of the Board
The Board’s role is to provide leadership to the Group within a
framework of prudent and effective controls which enables risk to
be assessed and managed. The Board sets the Group’s strategic
aims and ensures that the necessary financial and human
resources are in place for the Group to meet its objectives, and
reviews management’s performance in meeting these objectives.
The Board sets and monitors the Group’s values and standards
and ensures that the Group’s obligations to shareholders and
other stakeholders are understood and met.
The Board has a formal schedule of matters reserved for its
approval, including:
Strategic and policy considerations
•
Annual budget, including capital expenditure
•
•
Interim and final financial statements
• Management structure and appointments
• Mergers, acquisitions, disposals
• Capital raising
•
•
Significant changes in accounting policies
Appointment or removal of Directors or the Company
Secretary
Pay and rewards
•
The Chairman of the Board is an executive and is responsible
for the leadership and effective running of the Board, including
the interaction between executive and non-executive members,
and for ensuring that the Board is kept appropriately informed
about the business activities of the Company. The Chairman also
seeks to ensure effective communication with shareholders and
other stakeholders.
The Board has access to the Company’s advisers to notify them
on financial, governance and regulatory matters. Any Director
wishing to do so in the furtherance of his duties may take
independent professional advice at the Company’s expense.
This also applies to any Director in his capacity as a member
of the Audit, Remuneration or Nomination committees. Through
the Chairman the Directors also have access to the Company
Secretary, Elian Corporate Services (Jersey) Limited.
The Board is supported by specialised committees ensuring
that sound governance procedures are followed. The Corporate
Governance section of the Company’s website includes the
terms of reference of the Audit, Remuneration and Nomination
Committees at www.zoltav.com.
Board Committees
The Audit Committee
The Audit Committee currently comprises Marcus Rhodes,
Stephen Lowden and Michael Lombardi, with Marcus Rhodes
as Chairman. The Board is satisfied that collectively the
Audit Committee has sufficient, recent and relevant financial
experience.
The duties of the Audit Committee are to review the financial
information of the Company, to oversee the Company’s financial
reporting processes and internal control systems, and to
manage the relationship with the Company’s external auditor.
The Audit Committee also has primary responsibility for making
recommendations on the appointment, re-appointment and
removal of the external auditor, and for approving any significant
non-audit services provided by the external auditor to ensure that
objectivity and integrity are safeguarded. The Audit Committee
reports its work, findings and recommendations to the Board
after each meeting.
Board composition
The Board currently comprises two executive directors and
five non-executive directors of whom three are deemed to be
independent:
The Remuneration and Nomination Committee
The Remuneration and Nomination Committee currently
comprises Stephen Lowden and Michael Lombardi with Stephen
Lowden as Chairman.
Alastair Ferguson – Executive Chairman
Andrey Komarov – Executive Director
Stephen Lowden – Senior Independent Director
•
•
•
• Michael Lombardi – Independent Non-executive Director
Symon Drake-Brockman –Non-executive Director
•
• Marcus Rhodes – Independent Non-executive Director
•
Yulia Lebedina – Non-executive Director
There is a clear division of responsibilities between the executive
and non-executive directors.
Board balance and independence
Under the provisions of the UK Corporate Governance Code as a
Smaller Company the Company meets the requirements to have
at least two independent non-executives on the Board.
The Board meets at least quarterly to discuss opportunities
available to the Company as a whole.
The Company maintains insurance for Directors and Officers of
the Company.
The principal functions of the Remuneration and Nomination
Committee include recommending to the Board the policy
and structure for the remuneration of the Chairman, Non-
Executive Directors and (as determined by the Board) senior
management, determining the remuneration packages of the
Chairman, the Non-Executive Directors and senior management,
reviewing and approving performance-based remuneration and
compensation for loss or termination of office payable to Non-
Executive Directors and senior management, ensuring that no
Director is involved in deciding his own remuneration, approving
the service contracts of Directors and senior management and
leading the process for appointments to the Board and make
recommendations to the Board based on their evaluation of the
balance of skills, knowledge and experience on the Board.
The report on remuneration is set out on page 26.
Attendance at Board and Committee Meetings
The board held three in person board meetings during 2014. These were attended by all the directors appointed at the time who
were able to attend.
The table below sets out the total number of meetings of the Board and its committees during the year and attendance by members
at those meetings. In addition to the three “in person” board meetings five others were held on an ad hoc basis to facilitate the
acquisition of Diall.
Board
Audit committee
Nomination and
Remuneration
Meetings held during the year
Meetings attended during the year:
Symon Drake-Brockman
Stephen Lowden
John Grimshaw
(Resigned 19 May 2014)
Oliver Donagher
(Resigned 19 May 2014)
Michael Lombardi
Alastair Ferguson
(Appointed 19 May 2014)
Marcus Rhodes
(19 Appointed May 2014)
8
3
3
5
5
5
3
3
2
-
2
1
-
2
-
1
2
2
2
1
Internal control
The Board is responsible for maintaining a strong system of internal control and risk management to safeguard shareholders’
investments and the Company’s assets. The system of internal control is designed, taking into account the Company’s business
objectives and strategy, to provide reasonable, but not absolute, assurance against material misstatement or loss.
The criteria the Board uses to assess the effectiveness of the system of internal control include:
•
•
•
•
•
the nature and extent of the risks facing the Company;
the extent and categories of risk that the Board regards as acceptable for the Company to bear;
the likelihood of the risks materialising and the financial impact of the risks;
the Company’s ability to reduce the incidence and impact on the business of risks that do materialise; and
the costs of operating particular controls relative to the benefit thereby obtained.
The Board has considered the need for an internal audit function but has decided, after taking into account the current status of the
Company, such a function is not at present justified.
Relations with Shareholders
The Company believes that effective communication with shareholders is of utmost importance. It has an established cycle for
communicating trading results at the interim and year end stages and, as appropriate, of providing business updates via the
Regulatory News Service and press releases.
The Company makes information available through regulatory announcements and its interim and annual reports. Copies of all such
communications can be found on the Company website, www.zoltav.com.
24
Zoltav Resources Inc. Annual Report 2014
Zoltav Resources Inc. Annual Report 2014
25
CORPORATEGOVERNANCEFINANCIALINFORMATION CORPORATE GOVERNANCE REPORT FOR THE YEAR ENDED 31 DECEMBER 2014
Report on remuneration
The Board recognises that Directors’ and employees’ remuneration
is of legitimate concern to shareholders, and is committed to
following good practice and to ensuring that the interests of the
Directors and employees are aligned with those of shareholders.
Policy on remuneration
The Company aims to set levels of remuneration that are
sufficient to attract, retain and motivate Directors and senior
management of the quality required to run the Company
successfully, whilst ensuring that the interests of Directors
and employees are aligned with those of shareholders. The
Company operates within a competitive environment in which the
Company’s performance depends on the individual contributions
of the Directors.
When determining annual salaries and performance-based
remuneration the Company takes into account the following
factors:
•
•
•
•
•
•
direct and indirect contribution towards the Company’s
current profitability;
the development of businesses or transactions that may
help achieve the Company’s objective in future years;
the quality of earnings, in the context of market
conditions, as well as the quantity of earnings;
vision and innovation;
remuneration levels and practices in other firms
engaged in similar activities; and
incentive to continue to contribute to the Company’s
objectives.
Directors’ remuneration
The remuneration of the Directors for the year ended 31
December 2014 is shown in the table below:
Alastair
Ferguson
(1)
Symon
Drake-
Brockman
Andrey
Komarov
(1)
Marcus
Rhodes
(1)
Michael
Lombardi
Stephen
Lowden
Yulia
Lebedina
(1)
John
Grimshaw
Oliver
Donagher
Total
US$
US$
US$
US$
US$
US$
US$
US$
US$
US$
Salary
252,680
666,461
7,363
65,891
59,369
138,568
7,363
19,206
23,047
1,239,948
Share based
complensation
2014 Total
-
-
-
-
-
-
-
-
-
-
252,680
666,461
7,363
65,891
59,369
138,568
7,363
19,206
23,047
1,239,948
Salary
-
234,769
Share based
compensation
2013 Total
-
-
-
234,769
-
-
-
-
-
-
44,186 131,492
-
-
44,186 131,492
-
-
-
44,186
26,936
481,569
-
-
-
44,186
26,936
481,569
(1) Represents remuneration since joining the board.
Share price
During the year, the share price of the Company traded in the
range of £0.54 to £1.70 pence. The shares were readmitted to
trading on Aim on 17 June following the acquisition of RAECL
and resumed trading from suspension on 23 May 2014.
26
Zoltav Resources Inc. Annual Report 2014
Zoltav Resources Inc. Annual Report 2014
27
CORPORATEGOVERNANCEFINANCIALINFORMATION INDEPENDENT AUDITORS’ REPORT TO THE DIRECTORS OF ZOLTAV RESOURCES INC.
What an audit of financial statements involves
We conducted our audit in accordance with ISAs (UK & Ireland).
An audit involves obtaining evidence about the amounts
and disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from
material misstatement, whether caused by fraud or error. This
includes an assessment of:
•
•
•
whether the accounting policies are appropriate to the
group’s circumstances and have been consistently
applied and adequately disclosed;
the reasonableness of significant accounting estimates
made by the directors; and
the overall presentation of the financial statements.
We primarily focus our work in these areas by assessing the
directors’ judgements against available evidence, forming our
own judgements, and evaluating the disclosures in the financial
statements.
We test and examine information, using sampling and other
auditing techniques, to the extent we consider necessary to
provide a reasonable basis for us to draw conclusions. We obtain
audit evidence through testing the effectiveness of controls,
substantive procedures or a combination of both.
In addition, we read all the financial and non-financial
information in the Annual Report and Audited Consolidated
Financial Statements to identify material inconsistencies with
the audited financial statements and to identify any information
that is apparently materially incorrect based on, or materially
inconsistent with, the knowledge acquired by us in the course
of performing the audit. If we become aware of any apparent
material misstatements or inconsistencies we consider the
implications for our report.
Other matter
We draw attention to the fact that these financial statements have
not been prepared under section 394 of the Companies Act 2006
and are not the company’s statutory group financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
23 April 2015
Report on the group financial statements
Our opinion
In our opinion, Zoltav Resources Inc.’s non-statutory group
financial statements (the “financial statements”):
•
•
give a true and fair view of the state of the group’s
affairs as at 31 December 2014 and of its profit and
cash flows for the year then ended; and
have been properly prepared in accordance with
International Financial Reporting Standards (“IFRSs”)
as adopted by the European Union.
•
•
What we have audited
Zoltav Resources Inc.’s financial statements comprise:
the consolidated statement of financial position as at
31 December 2014;
the consolidated statement of comprehensive income
for the year then ended;
the consolidated statement of cash flows for the year
then ended;
the consolidated statement of changes in equity for the
year then ended; and
the notes to the financial statements, which include a
summary of significant accounting policies and other
explanatory information.
•
•
•
Certain required disclosures have been presented elsewhere
in the Annual Report and Audited Consolidated Financial
Statements, rather than in the notes to the financial statements.
These are cross-referenced from the financial statements and
are identified as audited.
The financial reporting framework that has been applied in the
preparation of the financial statements is applicable law and
IFRSs as adopted by the European Union.
In applying the financial reporting framework, the directors have
made a number of subjective judgements, for example in respect
of significant accounting estimates. In making such estimates,
they have made assumptions and considered future events.
Responsibilities for the financial statements and
the audit
Our responsibilities and those of the directors
As explained more fully in the Statement of Directors’
responsibilities set out on page 22, the directors are responsible
for the preparation of the financial statements and for being
satisfied that they give a true and fair view.
Our responsibility is to audit and express an opinion on the
financial statements in accordance with applicable law and
International Standards on Auditing (UK and Ireland) (“ISAs
(UK & Ireland)”). Those standards require us to comply with the
Auditing Practices Board’s Ethical Standards for Auditors.
This report, including the opinion, has been prepared for and only
for the company’s directors as a body for reporting obligations
under the AIM rules for Companies issued by the London Stock
Exchange in accordance with our engagement letter dated
23 September 2014 and for no other purpose. We do not, in
giving this opinion, accept or assume responsibility for any other
purpose or to any other person to whom this report is shown
or into whose hands it may come, including without limitation
under any contractual obligations of the company, save where
expressly agreed by our prior consent in writing.
28 Zoltav Resources Inc. Annual Report 2014
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014
Consolidated statement of comprehensive income for the year ended 31 December 2014
(in ‘000s US dollars, unless otherwise stated)
Consolidated statement of financial position as at 31 December 2014
(in ‘000s US dollars, unless otherwise stated)
Revenue
Cost of sales
Production based taxes
Depreciation, depletion and amortization
Other cost of sales
Total cost of sales
Gross profit
Operating, administrative,
selling expenses
Other gains/(losses) - net
Loss before exceptional items
Gain on acquisition
Profit/(loss) after exceptional items
Finance income
Finance cost
Profit/(loss) before tax
Taxation
Profit/(loss) for the year attributable
to owners of the parent
Note
6
7
8
4
10
10
11
12
Items that may be subsequently reclassified
to the income statement
Currency translation differences
Other comprehensive income for the year
Total comprehensive income/(loss) for the year
Income/(loss) per share attributable
to owners of the parent during the year:
Basic
Diluted
2014
20,018
(3,871)
(4,241)
(5,407)
(13,519)
6,499
(14,196)
138
(7,559)
34,974
27,415
489
(3,798)
24,106
(2,399)
21,707
(74,927)
(74,927)
(53,220)
$ cents
20.74
20.25
2013
-
-
-
-
-
-
(4,419)
30
(4,389)
-
(4,389)
-
-
(4,366)
42
(4,324)
493
493
(3,831)
$ cents
(11.72)
(10.87)
Note
2014
2013
ASSETS
Non-current assets
Exploration and evaluation assets
Property, plant and equipment
Total non-current assets
Current assets
Inventories
Trade and other receivables
Financial assets at fair value through profit or loss
Cash and cash equivalents
Total current assets
TOTAL ASSETS
EQUITY AND LIABILITIES
Share capital
Share premium
Other reserves
Accumulated losses
Translation reserve
Total equity
Non-current liabilities
Borrowings
Provisions
Deferred tax liabilities
Total non-current liabilities
Current liabilities
Borrowings
Other taxes payable
Trade and other payables
Total current liabilities
TOTAL LIABILITIES
TOTAL EQUITY AND LIABILITIES
13
14
15
16
17
18
22
23
24
22
25
26
83,922
82,163
166,085
323
3,139
196
10,694
14,352
180,437
28,391
159,899
43,592
(39,542)
(74,434)
117,906
39,076
10,649
5,369
55,094
3,200
1,137
3,100
7,437
62,531
180,437
38,099
5
38,104
-
828
307
7,265
8,400
46,504
11,432
42,975
44,350
(61,249)
493
38,001
-
4,383
3,923
8,306
-
25
172
197
8,503
46,504
The consolidated financial statements on pages 30 to 64 were approved by the Board of Directors and authorised for issue on
23 April 2014.
30
Zoltav Resources Inc. Annual Report 2014
Zoltav Resources Inc. Annual Report 2014
31
FINANCIALSTATEMENTSFINANCIALINFORMATION CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014
Consolidated statement of cash flows for the year ended 31 December 2014
(in ‘000s US dollars, unless otherwise stated)
Consolidated statement of changes in equity for the year ended 31 December 2014
(in ‘000s US dollars, unless otherwise stated)
Cash flows from operating activities
Operating gain/(loss)
Adjustments for:
Gain on acquisition
Change in estimates of decommissioning
and environmental restoration provisions
DD&A
Net finance costs
Other gains/(losses) - net
Operating cash inflows/(outflows) before
working capital changes
Increase in inventory
Decrease/(increase) in other receivables
Increase/(decrease) in trade and other payables
Net cash from/(used in) operating activities
before tax paid and interests
Interest received
Interest paid
Income tax paid
Net cash from/(used in) operating activities
Cash flows from investing activities
Disposal of investment securities
Acquisition of subsidiaries
Net cash acquired on acquisition of Royal Group
Capital expenditure in relation to exploration
and evaluation activities
Purchase of property, plant and equipment
Net cash (used in)/generated from investing activities
Cash flows from financing activities
Proceeds from borrowings
Repayment of borrowings
Issue of ordinary shares
Net cash generated from financing activities
Net increase/(decrease) in cash and cash equivalents
Translation differences
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
2014
24,106
-
(34,974)
753
4,330
3,309
(170)
(2.646)
(18)
3,057
(2,271)
(1,878)
439
(3,046)
(15)
(4,500)
-
(58,941)
9,229
(8,359)
(4,810)
(62,881)
4,024
-
71,898
75,922
8,541
(5,112)
7,265
10,694
2013
(4,389)
-
17
-
(30)
(4,402)
-
(725)
107
(5,020)
12
-
-
(5,008)
127
-
82
(3,636)
(5)
(3,432)
777
(381)
15,000
15,396
6,957
200
108
7,265
Share
capital
Share
premium
Capital
reserve
Employee
share-based
compensation
reserve
Convertible
loan note
Accumulated
losses
Translation
reserve
Total
equity
3,752
8,892
40,444
3,906
61
(56,925)
At 1 January
2013
Issue of shares
on conversion
Issue of ordinary
shares
Transactions
with owners
Translation
reserve
movements
Loss for the year
At 31 December
2013
Employee
share-based
compensation
Transactions
with owners
Translation
reserve
movements
Income/(loss) for
the year
At 31 December
2014
218
545
7,462
33,538
7,680
34,083
-
-
-
-
-
-
-
-
-
-
-
-
-
-
11,432
42,975
40,444
3,906
-
-
16,959
116,924
-
-
-
-
-
-
-
-
-
-
(758)
(758)
-
-
28,391
159,899
40,444
3,148
Issue of ordinary
shares
16,959
116,924
-
-
-
-
130
702
41,000
41,702
493
493
-
-
-
-
(4,324)
-
(4,324)
(61,249)
493
38,001
-
,
-
-
-
,
-
133,883
(758)
133,125
(74,927)
(74,927)
21,707
-
21,707
(39,542)
(74,434)
117,906
(61)
-
(61)
-
-
-
-
,
-
-
-
-
32
Zoltav Resources Inc. Annual Report 2014
Zoltav Resources Inc. Annual Report 2014
33
FINANCIALSTATEMENTSFINANCIALINFORMATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (in ‘000s US dollars, unless otherwise stated)
1
Background
2
Significant accounting policies
1.1
The Zoltav Group (Group) comprises Zoltav Resources Inc. (Company), together with its subsidiaries:
The Company and its operations
Name
Place of incorporation
Function
Zoltav Resources Holdings (Jersey)
Limited
ZRI Services (UK) Ltd
CenGeo Holdings Limited (hereinafter
“CenGeo Holdings”)
CJSC SibGeCo (hereinafter “SibGeCo”)
Royal Atlantic Energy (Cyprus) Limited
(hereinafter “Royal”)
Diall Alliance LLC (hereinafter “Diall”)
Vostok Energy LLC (hereinafter “Vostok”)
was renamed as Zoltav Resource LLC
Jersey
United Kingdom
Cyprus
Russia
Cyprus
Russia
Russia
Holding company
Service company
Holding company
Operating company
Holding company
Operating company
Management company
The Company was incorporated in the Cayman Islands on 18 November 2003, which does not prescribe the adoption of any
particular accounting framework. The Board has therefore adopted International Financial Reporting Standards (IFRS) issued by the
International Accounting Standards Board and as adopted by the European Union.
The principal activities of the Company and its subsidiaries (the “Group”) are the acquisition, exploration and development of
hydrocarbon assets and production of hydrocarbons in the Russian Federation and the CIS. The Company’s shares are listed on
the AIM of London Stock Exchange. The financial statements are prepared in United States Dollars.
CenGeo Holdings, incorporated in Cyprus, was acquired by Zoltav Resources Holdings (Jersey) Limited on 4 July 2013. CenGeo
Holdings has a 100% interest in SibGeCo, a company incorporated in Russia, which holds the Koltogorsky production licence and
the legacy Koltogorsky exploration licences.
Royal Atlantic Energy (Cyprus) Limited, incorporated in Cyprus, was acquired by Zoltav Resources Holdings (Jersey) Limited on 18
June 2014. Royal Atlantic Energy (Cyprus) Limited has a 100% interest in Diall Alliance LLC, incorporated in Russia, which holds
the Bortovoy exploration and production licence, and in Zoltav Resource LLC “), incorporated in Russia, which is a management
company for Diall Alliance LLC.
Zoltav Resources Holdings (Jersey) Limited was incorporated in Jersey as a private limited company on 9 January 2013 and acts
as a holding company for the Group’s investments.
ZRI Services (UK) Ltd was incorporated in the United Kingdom as a private limited company on 29 January 2013 and provides
London-based services to the Group.
1.2
The Company’s operations are located in the Russian Federation
Russian business environment
Russian Federation
1.3
The Russian Federation displays certain characteristics of an emerging market. Its economy is particularly sensitive to oil and gas
prices. The legal, tax and regulatory frameworks continue to develop and are subject to varying interpretations.
The recent political and economic turmoil witnessed in the region, in particular the developments in Ukraine, and falling crude oil
prices, have had and may continue to have a negative impact on the Russian economy, including further weakening of the Russian
Ruble, higher interest rates, reduced liquidity and making it harder to raise international funding. These events, including current and
future international sanctions against Russian companies and individuals and the related uncertainty and volatility of the financial
markets, may have a significant impact on the Group’s operations and financial position, the effect of which is difficult to predict. The
future economic and regulatory situation may differ from management’s expectations.
Whilst not currently affecting the Company’s operations, the sanctions being imposed by the European Union and the United States
of America continue to evolve. The Company cannot confirm that the sanctions will not have an effect on the Company’s operations
or its ability to access international capital markets in the future.
Basis of preparation
2.1
The consolidated financial statements of The Group have been prepared in accordance with International Financial Reporting
Standards (IFRSs), as adopted by the European Union (EU), International Financial Reporting Interpretations Committee (IFRIC)
interpretations, and the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial statements
have been prepared under the historical cost convention, as modified by the revaluation of financial assets and financial liabilities
(including derivative instruments) at fair value through profit or loss.
The preparation of financial statements in conformity with IFRSs requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a
higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial
statements are disclosed in Note 3.
Going concern
2.2
The consolidated financial statements have been prepared on the going concern basis as the directors have concluded that the Group
will continue to have access to sufficient funds in order to meet its obligations as they fall due for at least the foreseeable future as
explained further in the Directors Report.
2.3
A number of new and amended IFRS and IFRIC interpretations became effective as of 1 January 2014 as described below:
Disclosure of impact of new and future accounting standards
(a)
There were no standards, amendments and interpretations adopted early by the Company.
Amendments early adopted by the Company
New Standards, Amendment to Standards and Interpretations effective and relevant
(b)
IAS 27 Separate Financial Statements, IFRS 10 Consolidated Financial Statements and IFRS 12 Disclosure of interests in other
entities effective for periods beginning on or after 1 January 2014.
IFRS 10 replaces the portion of IAS 27 that addresses the accounting for consolidated financial statements and the issues raised
in SIC 12 Consolidation - Special Purpose Entities. IFRS 10 establishes a single control model that applies to all entities including
special purpose entities. The standard provides additional guidance to assist in the determination of control where this is difficult to
assess
IFRS 12 includes the disclosure requirements for all forms of interests in other entities, including joint arrangements, associates,
structured entities and other off balance sheet vehicles.
The adoption of these Accounting Standards didn’t have a material impact on the Company’s consolidated financial statements.
(c)
Standards, Amendments and Interpretations effective but not relevant
IAS 28
Investments in Associates and Joint Ventures (as revised in 2011)
IAS 32
Offsetting Financial Assets and Financial Liabilities (Amendments)
IAS 36
IAS 39
Recoverable Amount Disclosures for Non-Financial Assets
(Amendments)
Novation of Derivatives and Continuation of Hedge Accounting
(Amendments)
IFRS 11
Joint Arrangements
Various
Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS
27)
IFRIC 21
Levies
Effective for annual periods
beginning or after
01-Jan-14
01-Jan-14
01-Jan-14
01-Jan-14
01-Jan-14
01-Jan-14
01-Jan-14
The directors do not expect the new Standards, Amendments and Interpretations to have a material impact on the financial statements.
(d)
Standards, Amendments and Interpretations not effective
IFRS 9
Financial Instruments - classification and measurement
01-Jan-18
The directors do not expect the new Standards, Amendments and Interpretations to have a material impact on the financial statements.
34
Zoltav Resources Inc. Annual Report 2014
Zoltav Resources Inc. Annual Report 2014
35
NOTES TO ACCOUNTSFINANCIALINFORMATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (in ‘000s US dollars, unless otherwise stated)
2.4
The consolidated financial statements include the financial statements of the Company and its subsidiaries.
Consolidation
Subsidiaries are all entities (including structured entities) over which the group has control. The group controls an entity when the
group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns
through its power over the entity.
Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the
date that control ceases.
The group uses the acquisition method of accounting to account for business combinations. The consideration transferred for
the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by
the group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration
arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities
assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisition-by acquisition
basis, the group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s
proportionate share of the acquiree’s net assets.
Investments in subsidiaries are accounted for at cost less impairment. Cost is adjusted to reflect changes in consideration arising from
contingent consideration amendments. Cost also includes direct attributable costs of investment. The excess of the consideration
transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity
interest in the acquiree over the fair value of the group’s share of the identifiable net assets acquired is recorded as goodwill. If this
is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised
directly in the statement of comprehensive income. Inter-company transactions, balances and unrealised gains on transactions
between Group companies are eliminated; unrealised losses are also eliminated unless the cost cannot be recovered.
The Company and its subsidiaries outside the Russian Federation maintain their financial statements in accordance with IFRSs
as adopted by the EU. The Russian subsidiaries of the Group maintain their statutory accounting records in accordance with the
Regulations on Accounting and Reporting of the Russian Federation. The consolidated financial statements are based on these
statutory accounting records, appropriately adjusted and reclassified for fair presentation in accordance with International Financial
Reporting Standards as adopted by the EU. A list of the Company’s subsidiaries is provided in Note 1.
Acquisitions, asset purchases and disposals
2.5
Acquisitions of oil and gas properties are accounted for under the purchase method where the target meets the definition of a
business combination.
Transactions involving the purchases of an individual field interest, or a group of field interests, that do not qualify as a business
combination are treated as asset purchases, irrespective of whether the specific transactions involved the transfer of the field interests
directly or the transfer of an incorporated entity. Accordingly, no goodwill or deferred tax gross up arises. The purchase consideration
is allocated to the assets and liabilities purchased on an appropriate basis. Proceeds on disposal are applied to the carrying amount
of the specific intangible asset or development and production assets disposed of and any surplus is recorded as a gain on disposal
in the statement of comprehensive income.
2.6
Segmental reporting follows the Group’s internal reporting structure.
Segment reporting
Operating segments are defined as components of the Group where separate financial information is available and reported regularly
to the chief operating decision maker (“CODM”), which is determined to be the Board of Directors of the Company. The Board of
Directors which decide how to allocate resources and assesses operational and financial performance using the information provided.
The CODM receives monthly IFRS-based financial information for the Group and its development and production entities. The Group
has other entities that engage as either head office or in a corporate capacity or as holding companies. Management has concluded
that due to application of the aggregation criteria that separate financial information for segments is not required. No geographic
segmental information is presented as all of the companies operating activities are based in the Russian Federation.
Management has determined therefore that the operations of the Group comprise one class of business, being oil and gas exploration,
development and production and the Group operates in only one geographic area - the Russian Federation.
2.7
Foreign currency translation
Functional and presentation currency
(a)
Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic
environment in which the entity operates (“the functional currency”). The consolidated financial statements are presented in US
dollars, which is the Company’s functional and the Group’s presentation currency.
The functional currency of the Group’s subsidiaries that are incorporated in the Russian Federation is the Russian Ruble (“RUB”). It
is the Management’s view that the RUB best reflects the financial results of its Cyprus subsidiaries because they are dependent on
entities based in Russia that operate in an RUB environment in order to recover their investments. As a result, the functional currency
of the Cypriot and Russian subsidiaries continues to be the RUB.
Transactions and balances
(b)
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at
year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of
comprehensive income. Translation differences on non-monetary financial assets and liabilities are reported as part of the fair value
gain or loss. Foreign exchange gains and losses that relate to cash and cash equivalents, borrowings and other foreign exchange
gains and losses are presented in the statement of comprehensive income within operating expenses.
Group companies
(c)
Loans between Group entities and related foreign exchange gains or losses are eliminated upon consolidation. However, where the
loan is between Group entities that have different functional currencies, the foreign exchange gain or loss cannot be eliminated in
full and is recognized in the consolidated profit or loss, unless the loan is not expected to be settled in the foreseeable future and
thus forms part of the net investment in foreign operation. In such a case, the foreign exchange gain or loss is recognized in other
comprehensive income.
The results and financial position of all the Group entities (none of which has the currency of a hyper-inflationary economy) that have
a functional currency different from the presentation currency are translated into the presentation currency as follows:
(i)
(ii)
(iii)
assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;
income and expenses are translated at average exchange rates (unless this average is not a reasonable approximation of
the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated
at the rate on the dates of the transactions); and
all resulting exchange differences are recognised in other comprehensive income.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign
entity and translated at the closing rate. Exchange differences arising are recognised in other comprehensive income.
The major exchange rates used for the revaluation of the closing balance sheet at 31 December 2014 were:
US$ 1: RUB 56.2584 (2013: US$ 1: RUB. 32.7292)
The accounting policies set out below have been applied consistently to all years presented in the historical financial information,
and have been applied consistently by the Company.
Exploration and evaluation assets
2.8
The Company and its subsidiaries apply the successful efforts method of accounting for Exploration and Evaluation (“E&E”) costs,
in accordance with IFRS 6 “Exploration for and Evaluation of Mineral Resources”. Costs are accumulated on a field-by-field basis.
Drilling, seismic and other costs
(a)
Costs directly associated with an exploration well, including certain geological and geophysical costs, and exploration and property
leasehold acquisition costs, are capitalised until the determination of reserves is evaluated. If it is determined that a commercial
discovery has not been achieved, these costs are charged to expense after the conclusion of appraisal activities. Exploration costs
such as geological and geophysical that are not directly related to an exploration well are expensed as incurred.
Capital expenditure is recognised as property, plant and equipment or intangible assets in the financial statements according to the
nature of the expenditure and the stage of development of the associated field, i.e. exploration, development, production. Once
commercial reserves are found, exploration and evaluation assets are tested for impairment and transferred to development property,
plant and equipment and intangible assets. No depreciation or amortisation is charged during the exploration and evaluation phase.
Sub-soil licences
(b)
Costs incurred prior to the award of oil and gas licences, concessions and other exploration rights are expensed in profit or loss.
Costs incurred on the acquisition of a licence interest are initially capitalised on a licence by licence basis and are capitalised within
exploration and evaluation assets and held un-depleted until the exploration phase on the licence is complete or commercial reserves
have been discovered at which time the costs are transferred to development assets as part of property, plant and equipment - oil
and gas assets.
36
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37
NOTES TOACCOUNTSFINANCIALINFORMATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (in ‘000s US dollars, unless otherwise stated)
2.9
Property, plant and equipment
(a)
Oil and gas assets are stated at cost less accumulated depletion or accumulated depreciation and, where relevant, impairment costs.
Property, plant and equipment – oil and gas assets
Expenditure on the construction, installation or completion of infrastructure facilities such as platforms, pipelines and the drilling
of development wells into commercially proved reserves, is capitalised within property, plant and equipment. When development
is completed on a specific field, it is transferred to producing assets within property, plant and equipment. No depreciation or
amortisation is charged during the development phase.
Development and production assets are accumulated generally on a field by field basis and represent the cost of developing the
commercial reserves discovered and bringing them into production together with E&E expenditures incurred in finding commercial
reserves and transferred from the intangible E&E assets as described above. The cost of development and production assets also
includes the cost of acquisitions and purchases of such assets, directly attributable overheads, any costs directly attributable to
bringing the asset into operation, and the cost of recognising provisions for future restoration and decommissioning, if any.
Major facilities may be capitalised separately if they relate to more than one field or to the licence area as a whole. Subsequent
expenditure is capitalised only if it either enhances the economic benefits of the development/production asset or replaces part of
the existing development/production asset. Any costs remaining associated with the part replaced are expensed. Directly attributed
overheads are capitalised where they relate to specific exploration and development activities.
(i)
Depletion
Oil and gas properties in production, including wells and directly related pipeline costs, are depreciated using the unit-of-production
method. Sub-soil licences and other licenses capitalised as part of oil and gas properties in production are amortised also using the
unit-of-production method. Unit-of-production rates are based on proved reserves of the field concerned, which are oil, gas and other
mineral reserves estimated to be recovered from existing facilities using current operating methods. The unit-of-production rate for
the amortisation of field development costs takes into account expenditures incurred to date.
(ii)
Depreciation
Major oil and gas facilities that have a shorter useful life than the lifetime of the related fields are depreciated on a straight-line basis
over the expected useful life of the facility. Depreciation of items of such assets is calculated using straight-line method to allocate
their cost to their residual values over their estimated useful lives:
Buildings and constructions – 15-30 years
Machinery and equipment – 5 years
The asset’s residual values and useful lives are reviewed, and adjusted as appropriate, at the end of each reporting period.
Property, plant and equipment – other business and corporate assets
(b)
Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses. The cost of an asset
comprises its purchase price and any directly attributable costs of bringing the asset to the working condition and location for its
intended use. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate,
only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be
measured reliably. All other costs, such as repairs and maintenance are charged to the income statement during the financial period
in which they are incurred.
The gain or loss arising from a retirement or disposal is determined as the difference between the sales proceeds and the carrying
amount of the assets, and is recognised in the income statement.
Depreciation is provided on buildings and facilities, motor vehicles, office equipment and furniture at rates calculated to write off the
cost, less estimated residual value, evenly over its expected useful life.
For depreciation purposes, useful lives are estimated as follows:
Other equipment and furniture – 5 years
Motor vehicles – 5 years
2.10
(i)
Impairment of non-current assets
Impairment indicators
Exploration and evaluation assets are tested for impairment when facts and circumstances assessed in accordance with IFRS 6
suggest that the carrying amount of an exploration and evaluation asset may exceed its recoverable amount and in any event prior to
the transfer of the carrying value to development and production assets. Other non-current assets are tested for impairment whenever
events or changes in circumstances assessed in accordance with IAS 36 indicate that the carrying amount may not be recoverable.
An impairment loss is recognised in profit or loss for the amount by which the asset’s carrying amount exceeds its recoverable
amount. Such review is undertaken on an asset by asset basis, except where such assets do not generate cash flows independent
of other assets, in which case the review is undertaken at the cash generating unit level.
(ii)
Calculation of recoverable amount
The recoverable amount of assets is the greater of their value in use and fair value less costs to sell. In assessing value in use,
the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset.
(iii) Cash generating units
For an asset that does not generate cash inflows largely independent of those from other assets, the recoverable amount is
determined for the cash generating unit to which the asset belongs. The Group’s cash generating units are the smallest identifiable
groups of assets that generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets.
For the purposes of assessing impairment, exploration and evaluation assets subject to testing are grouped with existing cash-
generating units of production fields that are located in the same geographical region. For development and production assets the
cash generating unit applied for impairment test purposes is generally the field. For shared infrastructure a number of field interests
may be grouped together where surface infrastructure is used by several fields in order to process production for sale.
(iv) Reversals of impairment
An impairment loss is reversed to the extent that the factors giving the rise to the impairment charge are no longer prevalent. An
impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have
been determined, net of depletion, depreciation or amortisation, if no impairment loss had been recognised.
Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual profit or loss.
Inventories
2.11
Unsold natural gas and hydrocarbon liquids and sulphur in storage are stated at the lower of cost of production or net realisable
value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion
and selling expenses.
Materials and supplies inventories include chemicals necessary for production activities and spare parts for the maintenance of
production facilities. Materials and supplies inventories are recorded at cost and are carried at amounts which do not exceed the
expected recoverable amount from use in the normal course of business. Cost of inventory is determined on a weighted average
basis. Cost of finished goods comprises direct materials and, where applicable, direct labour plus attributable overheads based
on a normal level of activity and other costs associated in bringing inventories to their present location and condition, but excludes
borrowing costs. Lower value items of materials and supplies are written-off directly to profit or loss.
Financial instruments
2.12
Financial assets and financial liabilities are recognised when and only when, the Company becomes a party to the contractual
provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are
directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial
liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities,
as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities
at fair value through profit or loss are recognised immediately in the statement of comprehensive income.
Financial assets
(a)
The Company classifies its financial assets into one of the following categories: financial assets at fair value through profit or loss
and loans and receivables.
Regular purchases of financial assets are recognised on the trade date. Management determines the classification of its financial
assets at initial recognition depending on the purpose for which the financial assets were acquired and where allowed and appropriate,
re-evaluates this designation at every reporting date. The accounting policies adopted for each category are:
Financial assets at fair value through profit or loss
(b)
Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial
recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose
of selling in the near term, or it is part of a portfolio of identified financial instruments that are managed together and for which there
is evidence of a recent pattern of short-term profit-taking.
Financial assets may be designated at initial recognition as at fair value through profit or loss if the following criteria are met:
•
•
the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the
assets or recognising gains or losses on them on a different basis; or
the assets are part of a group of financial assets which are managed and their performance is evaluated on a fair value
basis, in accordance with a documented risk management strategy and information about the Company of financial assets
is provided internally on that basis to the key management personnel.
Subsequent to initial recognition, the financial assets included in this category are measured at fair value with changes in fair value
recognised in the statement of comprehensive income. Fair value is determined by reference to active market transactions or using
a valuation technique where no active market exists. Fair value gains or losses do not include any dividend or interest earned on
these financial assets. Dividend and interest income is recognised in on an accruals basis.
38
Zoltav Resources Inc. Annual Report 2014
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39
NOTES TOACCOUNTSFINANCIALINFORMATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (in ‘000s US dollars, unless otherwise stated)
Other receivables
(c)
Other receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.
They are initially measured at fair value and subsequently measured at amortised cost using the effective interest method, less any
impairment losses. Amortised cost is calculated taking into account any discount or premium on acquisition and includes fees that
are an integral part of the effective interest rate and transaction cost.
Impairment losses on other receivables are provided for when objective evidence is received that the Company will not be able
to collect amounts due to it in accordance with the original terms of the receivables. The amount of the loss is measured as the
difference between the asset’s carrying amount and the present value of estimated future cash flows, excluding future credit losses
that have not been incurred, discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed
at initial recognition). The amount of the loss is recognised in the statement of comprehensive income for the period in which the
impairment occurs.
Objective evidence of impairment of individual financial assets includes observable data that comes to the attention of the Company
about one or more of the following loss events:
•
•
•
•
significant financial difficulty of the debtor;
a breach of contract, such as default or delinquency in interest or principal payments;
it becoming probable that the debtor will enter bankruptcy or other financial reorganisation; and
significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor.
Loss events in respect of a Company of financial assets include observable data indicating that there is a measurable decrease
in the estimated future cash flows from the Company of financial assets. Such observable data includes but not limited to adverse
changes in the payment status of debtors in the Company and, national or local economic conditions that correlate with defaults on
the assets in the Company.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event
occurring after the impairment was recognised, the previously recognised impairment loss is reversed to the extent that it does not
result in a carrying amount of the financial asset exceeding what the amortised cost would have been had the impairment not been
recognised at the date the impairment is reversed.
The amount of the reversal is recognised in the statement of comprehensive income in the period in which the reversal occurs.
Financial liabilities and equity
(d)
Financial liabilities and equity instruments issued by the Company are classified according to the substance of the contractual
arrangements entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any contract
that evidences a residual interest in the assets of the Company after deducting all of its liabilities. The accounting policies adopted
in respect of financial liabilities and equity instruments are set out below.
Other financial liabilities
(e)
Other financial liabilities include trade and other payables and are recognised initially at fair value and subsequently measured at
amortised cost, using the effective interest method.
(f)
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
Equity instruments
Derecognition
(g)
Financial assets are derecognised when the rights to receive cash flows from the assets expire or, the financial assets are transferred
and the Company has transferred substantially all the risks and rewards of ownership of the financial assets. On derecognition of a
financial asset, the difference between the asset’s carrying amount and the sum of the consideration received and the cumulative
gain or loss that had been recognised directly in equity is recognised in the statement of comprehensive income.
For financial liabilities, they are removed from the balance sheet when the obligation specified in the relevant contract is discharged,
cancelled or expires. The difference between the carrying amount of the financial liability derecognised and the consideration paid
is recognised in the statement of comprehensive income.
2.13 Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and amounts repayable on demand with banks and short-term highly liquid
investments which are readily convertible into known amounts of cash without notice and are subject to an insignificant risk of
changes in value and which were within three months of maturity when acquired.
2.14 Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortised
cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement
over the period of the borrowings using the effective interest method.
Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that
some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no
evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity
services and amortised over the period of the facility to which it relates.
Provisions
2.15
Provisions are recognised when the Company has a present obligation (legal or constructive) as a result of a past event, and it is
probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate of the amount of the
obligation can be made. Where the time value of money is material, provisions are stated at the present value of the expenditure
expected to settle the obligation.
All provisions are reviewed at each reporting date and adjusted to reflect the current best estimate.
Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the
obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations,
whose existence will only be confirmed by the occurrence or non-occurrence of one or more future uncertain events not wholly within
control of the Company are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.
Provision for decommissioning is made for the cost of decommissioning assets at the time when the obligation to decommission
arises. Such provision represents the estimated discounted liability for costs which are expected to be incurred in removing production
facilities and site restoration at the end of the producing life of each field. A corresponding item of property, plant and equipment
is also created at an amount equal to the provision. This is subsequently depreciated as part of the capital costs of the production
facilities. Any change in the present value of the estimated expenditure attributable to changes in the estimates of the cash flow or
the current estimate of the discount rate used are reflected as an adjustment to the provision and the property, plant and equipment.
The unwinding of the discount is recognised as a finance cost.
Provisions for environmental restoration, restructuring costs and legal claims are recognised when: the group has a present legal or
constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation;
and the amount has been reliably estimated. Restructuring provisions comprise lease termination penalties and employee termination
payments. Provisions are not recognised for future operating losses.
Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by
considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one
item included in the same class of obligations may be small.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax
rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the
provision due to passage of time is recognised as interest expense.
Share capital
2.16
Ordinary shares are classified as equity. Share capital is determined using the nominal value of shares that have been issued. Any
transaction costs associated with the issuing of shares are deducted from share premium (net of any related income tax benefit) to
the extent they are incremental costs directly attributable to the equity transaction. Any discount on the issue of ordinary shares is
deducted from the share premium account.
The capital reserve arose in prior periods on the application of the reverse acquisition accounting when the Company made its first
acquisition.
2.17 Revenue recognition
Revenue, which is the fair value of consideration received or receivable, is recognised when it is probable that economic benefits
will flow to the Group and when the revenue can be measured reliably. Revenue is shown net of value added tax, returns, rebates
and discounts and after eliminating sales within the Group. The following criteria must also be met before revenue is recognised:
(i)
Sale of goods
Revenue from the sale of oil, gas, and condensate is recognised when the title passes to the customer.
(ii)
Interest income
Interest income is recognised on a time-proportion basis using the effective interest method.
2.18 Mineral extraction tax
In the Russian Federation MET is payable on the extraction of hydrocarbons, including natural gas, crude oil and condensate, and is
levied based on quantities of natural resources extracted multiplied by the applicable MET rate for the product and field in question.
MET is a production based tax (as opposed to income) and is accrued as a tax on production and recorded within cost of sales.
2.19 Current and deferred income tax
The tax expense for the period comprises current and deferred tax. Tax is recognised in the statement of comprehensive income,
except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case the tax is also
recognized in other comprehensive income or directly in equity, respectively.
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at end of the reporting
period in the countries where the Company’s subsidiaries operate and generate taxable income. Management periodically evaluates
positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes
provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
40 Zoltav Resources Inc. Annual Report 2014
Zoltav Resources Inc. Annual Report 2014
41
NOTES TOACCOUNTSFINANCIALINFORMATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (in ‘000s US dollars, unless otherwise stated)
Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and
liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted
for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the
transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that
have been enacted or substantively enacted by the end of the reporting period and are expected to apply when the related deferred
income tax asset is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which
the temporary differences can be utilised.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against
current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation
authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
Employee benefits
Retirement benefit schemes
2.20
(a)
No pension contributions were payable in the year. In 2010, the Company participated only in defined contribution pension schemes
and paid contributions to independently administered funds on a mandatory or contractual basis. The assets of these schemes are
held separately from those of the Company in independently administered funds. The retirement benefit schemes are generally
funded by payments from employees and by the relevant Company. The Company has no further payment obligations once the
contributions have been paid. The contributions are recognised as an employee benefit expense on an accruals basis.
(b)
The Company operates equity-settled share-based compensation plans to remunerate its Directors and key management.
Share-based employee compensation
All services received in exchange for the grant of any share-based compensation are measured at their fair values. These are
indirectly determined by reference to the fair value of the share options and warrants awarded. Their value is appraised at the grant
date and excludes the impact of any non-market vesting conditions.
All share-based compensation is ultimately recognised as an expense in the statement of comprehensive income unless it qualifies
for recognition as an asset, with a corresponding credit to employee share-based compensation reserve in equity. If vesting periods
or other vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number
of share options expected to vest. Non-market vesting conditions are included in assumptions about the number of options that are
expected to become exercisable. Estimates are subsequently revised, if there is any indication that the number of share options
expected to vest differs from previous estimates. No adjustment to expense recognised in prior periods is made if fewer share options
ultimately are exercised than vested.
Upon exercise of share options or warrants the proceeds received net of any directly attributable transaction costs up to the
nominal value of the shares issued are allocated to share capital and the amount previously recognised in employee share-based
compensation reserve will be transferred out with any excess being recorded as share premium.
When the share options or warrants have vested and then lapsed, the amount previously recognised in the employee share-based
compensation reserve is transferred to the retained earnings or accumulated losses.
Bonus plans
(c)
The Company recognises a liability and an expense for bonuses where contractually obliged or where there is a past practice that
has created a constructive obligation.
Social obligations
(d)
Wages, salaries, contributions to the Russian Federation state pension and social insurance funds, paid annual leave, sick leave and
bonuses are accrued in the year in which the associated services are rendered by the employees of the Group.
Critical accounting estimates and judgements
3
The preparation of the historical financial information in conformity with IFRSs requires management to make judgements, estimates
and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and
expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the
year in which the estimate are revised and in any future years affected. The estimates and assumptions that have a significant risk
of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below:
Income taxes
3.1
The Group is subject to income and other taxes. Significant judgement is required in determining the provision for income tax
and other taxes due to complexity of the tax legislation of the Russian Federation. The taxation system in the Russian Federation
continues to evolve and is characterised by frequent changes in legislation official pronouncements and court decisions which are
sometimes contradictory and subject to varying interpretation by different tax authorities. Taxes are subject to review and investigation
by a number of authorities which have the authority to impose severe fines penalties and interest charges. A tax year remains open
for review by the tax authorities during the three subsequent calendar years; however under certain circumstances a tax year may
remain open longer.
Deferred tax assets are recognised to the extent that it is probable the Group will generate enough taxable profits to utilise deferred
income tax recognised. Significant management judgement is required to determine the amount of deferred tax assets recognised,
based upon the likely timing and the level of future taxable profits. Management prepares cash-flow forecasts to support recoverability
of deferred tax assets. Cash flow models are based on a number of assumptions relating to oil prices, operating expenses, production
volumes, etc. These assumptions are consistent with those, used by independent reserve engineers. Management also takes into
account uncertainties related to future activities of the company and going concern considerations. When significant uncertainties
exist, deferred tax losses are not recognised even if recoverability of these is supported by cash flow forecasts. Refer to further
details in note 14.
Provision for decommissioning and environmental restoration
3.2
This provision is significantly affected by changes in technology, laws and regulations which may affect the actual cost of
decommissioning and environmental restoration to be incurred at a future date. The estimate is also impacted by the discount rates
used in the provisioning calculations. The discount rates used are the Russian Government Bond Rates.
As at 31 December 2014 the provision has been estimated using a discount rate of 11.96% (31 December 2013: 8.43%) and a core
inflation rate of 11.4% (2013: 3.4%).
Under the current levels of enforcement of existing legislation, management believes there are no significant liabilities in addition to
amounts which are already accrued and which would have a material adverse effect on the financial position of the Group.
3.3
Impairment of assets
Exploration and evaluation:
(a)
An impairment exercise will be performed at the end of the exploration and evaluation process.
When, at the end of the exploration and evaluation stage, commercial reserves are determined to exist in respect of a particular field
the Company will perform an impairment test in relation to costs capitalised. Where reserves are determined in sufficient quantity to
justify development, the associated assets are transferred to property plant and equipment. Until conclusion of the exploration phase,
there can be no certainty that commercial reserves exist. Where commercial reserves are determined not to exist, capitalised E&E
expenditure is expensed.
Development and Production:
(b)
When the fields enter the production phase, the recoverable amounts of cash-generating units and individual assets will be determined
based on the higher of value-in-use calculations and fair values less costs to sell. These calculations will require the use of estimates
and assumptions. It is reasonably possible that the oil price assumption may change which may then impact the estimated life of the
field and may then require a material adjustment to the carrying value of long-term assets.
The Group monitors internal and external indicators of impairment relating to its tangible and intangible assets. There were no such
indicators of possible impairment identified during the reporting years covered by this historical financial information.
Valuations of share options or warrants granted
3.4
The fair value of share options or warrants granted was calculated using the Black-Scholes Pricing Model which requires the input
of highly subjective assumptions, including the volatility of the share price. Because changes in subjective input assumptions can
materially affect the fair value estimate, in the opinion of the Directors of the Company, the existing model will not always necessarily
provide a reliable single measure of the fair value of the share options. Details of the inputs are set out in note 20 to the financial
statements.
42 Zoltav Resources Inc. Annual Report 2014
Zoltav Resources Inc. Annual Report 2014
43
NOTES TOACCOUNTSFINANCIALINFORMATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (in ‘000s US dollars, unless otherwise stated)
Evaluation of reserves and resources
3.5
Estimates of proved reserves are used in determining the depletion charge for the period and assessing whether any impairment
charge/or reversal of impairment is required for development and producing assets. Proved reserves are estimated by an independent
international Oil and Gas Engineering Firm, by reference to available geological and engineering data, and only include volumes for
which access to market is assured with reasonable certainty.
When the fields enter the development and production phase, estimates of reserves are inherently imprecise, require the application
of judgments and are subject to regular revision, either upward or downward, based on new information such as from the drilling of
additional wells and changes in economic factors, including product prices, contract terms or development plans. Changes to Group’s
estimates of proved reserves affect prospectively the amounts of the depletion charge, decommissioning assets and provisions where
change in reserve estimates cause the estimated useful lives of assets to be revised.
Depletion is provided based on the production profile on a field by field basis which may exceed the existing licence period.
Licence extensions are generally awarded by the license authorities in Russia as a matter of course provided that production plans
demonstrate that additional time is required to economically produce the field and that the development and production requirements
of the initial license grant have been met.
Sub-soil licences
3.6
The Group is subject to periodic reviews of its activities by governmental authorities in Russia with respect to the requirements of
its sub-soil licences and seeks amendments to the licences when supported by the results of ongoing exploration and development
activities. The requirements under the licences are subject to interpretation and enforcement policies of the relevant authorities. In
management’s opinion, as of 31 December 2014, there are no non-compliance issues that will have an adverse effect on the financial
position or the operating results of the Group.
4
Acquisitions
4.1
In July 2013, the Group purchased 100% of the share capital of CenGeo.
Acquisition of CenGeo
The acquisition of CenGeo by the Group was determined to be an asset acquisition due to CenGeo having no significant processes
or outputs. The consideration paid by the Group was $26million settled by the issue of ordinary shares in the Company.
On acquisition, the Group acquired net liabilities of US$8million and with a value of $34million attributed to the acquired evaluation
and exploration assets.
Acquisition of Royal
4.2
On 13 December 2013, the Company signed a Sale and Purchase Agreement with Bandbear Limited to acquire 100% of the share
capital of Royal Atlantic Energy (and with it the Bortovoy Licence described above). The acquisition was completed on 18 June 2014
through the issue of 38,263,095 new Ordinary Shares at an effective price of US$1.60 (100 pence) per share (equivalent to US$61.22
million) and the payment of US$58.94 million in cash. In addition, following the transaction the Group assumed US$59.9 million of
bank debt held by Royal Atlantic Energy. The acquired business will increase the Group’s penetration of its chosen upstream gas
and oil market, provide operating cash flow immediately and is expected to provide value to its shareholders through developing and
producing hydrocarbons in the Saratov Region of the Russian Federation.
The acquisition-date fair value of the total purchase consideration and its components are as follows:
In million of US Dollars
Cash consideration paid
Fair value of new issued shares of the acquirer
Total purchase consideration
58.9
61.2
120.1
The fair value of the new issued shares of the acquirer was determined on the basis of the closing market price of the ordinary shares
on the date which Zoltav signed an Acquisition Agreement with Bandbear.
Acquisition related transaction costs of US$3.2 million were expensed as operating, administrative, selling expenses.
In accordance with IFRS 3 “Business Combinations”, the Group is required to account for acquisitions based on the fair values of
the identifiable assets acquired and liabilities and contingent liabilities assumed.
In millions of US Dollars
Cash and cash equivalents
Exploration and evaluation assets
Property, plant and equipment
Inventories
Trade and other receivables
Borrowings
Provisions
Trade and other payables
Other taxes payable
Deferred tax liabilities
Fair value of identifiable net assets of subsidiary
Negative goodwill arising from the acquisition
Total purchase consideration (net of assumed liability)
Less: Non-cash consideration
Outflow of cash and cash equivalents on acquisition
Attributed Fair Value
9.2
90.0
128.9
0.5
7.5
(62.1)
(9.1)
(5.6)
(1.8)
(2.4)
155.1
(35.0)
120.1
(61.2)
58.9
44 Zoltav Resources Inc. Annual Report 2014
Zoltav Resources Inc. Annual Report 2014
45
NOTES TOACCOUNTSFINANCIALINFORMATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (in ‘000s US dollars, unless otherwise stated)
The fair values of assets and liabilities acquired are based on a combined valuation approach that considered both discounted cash
flows expected to be generated from the acquired business and a multiple based approach looking to similar recent observable
market transactions The valuation of identifiable tangible and intangible assets was performed by an independent professional
appraiser. Based on the appraisal report the following items were included in the purchase price allocation:
• Mineral rights valued at US$90.0 million;
•
Property, plant and equipment valued at US$128.9 million.
The fair value of the assets acquired and liabilities assumed is greater than the purchase consideration given. The resultant negative
goodwill of $35.0 million is as a result the initial acquisition of the assets by Bandbear following the administration of the former owner
and the related party nature of the transaction. The negative goodwill on acquisition has been immediately recognised in the income
statement as a gain on acquisition.
Determination of fair value
5
A number of the Company’s accounting policies and disclosures require the determination of fair value, for both financial and
non-financial assets and liabilities. Fair values have been determined for measurement and / or disclosure purposes based on the
following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the
notes specific to that asset or liability.
Other receivables
5.1
The fair value of other receivables is estimated as the present value of future cash flows, discounted at the market rate of interest at
the reporting date. This fair value is determined for disclosure purposes.
The revenue included in the consolidated income statement from 18 June 2014 to 31 December 2014 and contributed by Diall
Alliance LLC was US$20.02 million. Had Diall Alliance been consolidated into the Group from 1 January 2014, the consolidated
income statement for the year ended 31 December 2014 would show pro-forma revenue of US$38.14 million (year ended 31
December 2013: US$47.2 million).
Non-derivative financial liabilities
5.2
Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest
cash flows, discounted at the market rate of interest at the reporting date. The book value of the non-derivative financial assets is
equal to their fair value.
5.3
Fair value measurements recognised in the statement of financial position
Listed securities:
Equity securities -United Kingdom
2014
196
2013
307
The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value,
grouped into level 1 to 3 based on the degree to which the fair value is observable:
•
•
•
level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets and
liabilities;
level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that
are not based on observable market data (unobservable inputs).
31 December 2014
Financial assets at FVPL
31 December 2013
Financial assets at FVPL
Level 1
Level 2
Level 3
Total
196
307
-
-
-
-
196
307
There were no transfers between level 1, 2 and 3 during the year (2013: none).
5.4
Fair values analysed by level in the fair value hierarchy of assets and liabilities of the Group not measured at fair value are as follows:
Assets and liabilities not measured at fair value but for which fair value is disclosed
Financial assets
Trade and other receivables
Cash and cash equivalents
Total ASSETS
Financial liabilities
Borrowings
Trade and other payables
Total LIABILITIES
31 December
2014
31 December
2014
31 December
2013
31 December
2013
Fair value
Carrying value
Fair value
Carrying value
3,139
10,694
13,833
40,606
3,100
43,706
3,139
10,694
13,833
42,275
3,100
43,706
828
7,265
8,093
-
172
172
828
7,265
8,093
-
172
172
The fair value of borrowings is based on cash flows discounted using a rate based on the borrowing rate of 12.02% and is within
level 2 of the fair value hierarchy.
46
Zoltav Resources Inc. Annual Report 2014
Zoltav Resources Inc. Annual Report 2014
47
NOTES TOACCOUNTSFINANCIALINFORMATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (in ‘000s US dollars, unless otherwise stated)
Revenue
6
The Group’s operations comprise one class of business being oil and gas exploration, development and production and all revenues
are from one geographical region, Saratov Region in the Russian Federation. Companies incorporated outside of Russia provide
support to the operations in Russia.
Revenue is primarily from the sale of three products:
Gas sales
Oil sales
Condensate sales
Total sales
2014
15,721
1,927
2,370
20,018
2013
-
-
-
-
All gas sales are to one customer, Gazprom Mezhreiongaz Saratov LLC under a long term contract effective till 31 December 2015
with terms reviewed annually. Condensate and oil are sold to regional buyers. The sales of all three products are denominated in
RUB.
7
Cost of sales
Depreciation and depletion
Mineral extraction tax
Wages and salaries
Repair and maintenance
Materials and supplies
Other taxes and royalties
Compensation benefits to operations personnel
Other
Total cost of sales
8
Operating, administrative, selling expenses
Accountancy, audit, legal and consulting services (1)
Wages and salaries including Director’s fee
Rent expense
Currency translation differences
Other
Total operating, administrative, selling expense
2014
4,241
3,871
1,579
1,378
1,144
363
230
713
13,519
2014
7,055
3,107
585
24
3,425
14,196
2013
-
-
-
-
-
-
-
-
-
2013
1,872
1,121
-
(11)
1,437
4,419
(1) Included within the accountancy, audit, legal and consulting services are US$3.2 million of expenses in respect of the acquisition of Diall.
9
Employee benefit expenses (including directors’ remuneration)
Salaries, allowances and benefits in kind
Share-based compensation
Average monthly Number of Employees for the year (including executive directors)
2014
4,686
-
4,686
Administrative
Operating
Total
10
Net finance (costs)/income
Interest on borrowings
Interest on deposits
Unwinding of the discount on decommissioning and environ-
mental restoration provision
Total
11
Profit/(loss) before taxation
Profit/(loss) before taxation is arrived at after charging:
Auditors’ remuneration:
Fee payable to the Company’s auditor for the audit of the
Company’s financial statements
Fees payable to the Company’s auditors’ for other services:
- Other assurance services (1)
-
Tax advisory and compliance
2014
Number
85
197
282
2014
(3,239)
489
(559)
(3,309)
470
839
75
2013
1,121
-
1,121
2013
Number
1
-
1
2013
(5)
17
11
23
219
969
30
1,121
Employee benefits expenses (including Directors’ remuneration)
4,686
(1) Fees for other assurance services are in respect of the Company’s readmission to Aim and the acquisition of Diall Alliance.
2014
2013
48 Zoltav Resources Inc. Annual Report 2014
Zoltav Resources Inc. Annual Report 2014
49
NOTES TOACCOUNTSFINANCIALINFORMATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (in ‘000s US dollars, unless otherwise stated)
12
The tax charge for the year comprises:
Taxation
Current tax expense
Deferred tax expense
Total income tax expense
Reconciliation between expected and actual taxation charge is provided below.
Profit before income tax
Theoretical tax charge at applicable income tax rate of 0%
(2013: 0%)
Effect of different foreign tax rates
Unrecognized DT assets
Tax effect of expenses not deductible for tax purposes
Total income tax expense
The Company is subject to Jersey income tax at the rate of 0% (2013 0%).
2014
9
(2,408)
(2,399)
2014
24,106
-
(172)
(1,555)
(672)
(2,399)
2013
-
42
42
2013
(4,366)
-
-
-
42
42
14
Property, plant and equipment
Cost (Balance at 1 January 2014)
Additions
Reclassification
Transfer from exploration and evaluation assets
Disposals
Exchange difference
Balance at 31 December 2014
Accumulated depreciation and impairment
Balance at 1 January 2014
Depreciation and depletion
Disposals
Exchange difference
Balance at 31 December 2014
Net book value at 1 January 2014
Net book value at 31 December 2014
Oil and
gas
assets
-
121,244
6,209
589
(431)
(48,690)
78,921
-
(4,151)
74
1,975
(2,102)
-
76,819
Motor
vehicles
Other
equipment and
furniture
Construction
work in
progress
Total
-
437
35
-
(24)
(183)
265
-
(69)
20
28
(21)
-
244
5
216
-
-
(1)
(82)
138
-
(109)
1
43
(65)
5
73
-
5
14,533
136,430
(6,244)
23
(208)
(3,077)
5,027
-
-
-
-
-
-
-
612
(664)
(52,032)
84,351
-
(4,329)
95
2,046
(2,188)
5
5,027
82,163
The Company has significant unrelieved tax losses, the utilisation of which is uncertain and consequently no deferred tax asset has
been recognised.
Additions in the year include additions on acquisition of Royal Atlantic Energy of US$128.4 million, US$0.4 million and US$0.1 million
in respect of ‘oil and gas assets’, ‘motor vehicles’ and ‘other equipment and furniture’ respectively.
13
Exploration and evaluation assets
Balance at 1 January 2014
Additions
Reclassification
Transfer to Property, plant and
equipment
Change in the estimates of
decommissioning provision
Exchange difference
Balance at 31 December 2014
Sub-soil
licences
19,212
38,254
1,575
-
-
(22,581)
36,460
Drilling,
seismic and
other costs
Decommissioning
asset
Construction
work in
progress
15,210
59,707
2
(612)
-
(29,223)
45,084
1,828
469
-
-
1,335
(1,363)
2,269
1,849
162
(1,577)
-
-
(325)
109
Total
38,099
98,592
-
(612)
1,335
(53,492)
83,922
Additions in the year include additions on acquisition of Royal Atlantic Energy of US$25.8 million, US$63.7 million and US$0.5 million
in respect of ‘licences and other intangibles’, ‘exploration, evaluation and other property plant and equipment’ and ‘decommissioning
asset’ respectively.
In management’s opinion, as at 31 December 2014 there were no non-compliance issues in respect of the licences that would have
an adverse effect on the financial position or the operating results of the Group.
All of the Group’s exploration and evaluation assets are denominated in RUB. The significant exchange differences recorded here
reflect the significant movement in the RUB, the functional currency of Diall and Royal, and the US$, the Group reporting currency.
Substantially all of the Group’s property, plant and equipment assets are denominated in RUB. The significant exchange differences
recorded here reflect the significant movement in the RUB, the functional currency of Diall and Royal, and the US$, the Group
reporting currency.
15
Inventories
Natural gas and hydrocarbon liquids
Materials and supplies
Total inventories
16
Trade and other receivables
Trade receivables
Prepayments
Other accounts receivable
VAT receivable
Other taxes prepaid
Total trade and other receivables
2014
36
287
323
2014
2,512
453
69
103
2
3,139
2013
-
-
-
2013
-
127
-
662
39
828
Prepayments are advance payments for services to be rendered within the next twelve months.
Current VAT receivable is expected to be recovered within the next twelve months.
50 Zoltav Resources Inc. Annual Report 2014
Zoltav Resources Inc. Annual Report 2014
51
NOTES TOACCOUNTSFINANCIALINFORMATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (in ‘000s US dollars, unless otherwise stated)
17
Cash and cash equivalents are represented by cash at bank and the majority of cash held is denominated in USD.
Cash and cash equivalents
The Company’s exposure to credit risk and impairment losses related to cash and cash equivalents are disclosed in Note 28.
18
Share capital
At 31 December 2014
Authorised
(par value of US$0.20 each)
Issued and fully paid
(par value of US$0.20 each)
At 31 December 2013
Authorised
(par value of US$0.20 each)
Issued and fully paid
(par value of US$0.20 each)
Number of ordinary shares
Nominal Value
250,000,000
141,955,385
50,000
28,391
250,000,000
50,000
57,161,189
11,432
On 31 March 2014, Zoltav received US$5.0 million related to the third tranche of the subscription agreement entered with ARA
Holdings at the time of the Company’s readmission to AIM following the acquisition of SibGeCo. On 31 March 2014, 4,549,591
shares of US$0.20 were issued for consideration of US$5,000,000.
On 12 June 2014, 100,000 shares of nominal value of US$0.20 were issued as a result of the warrants exercise for a consideration
of US$167,361. The amount of US$95,193 was transferred from employee share-based compensation reserve to share premium
upon exercise of the warrants.
On 18 June 2014, 38,263,095 shares of US$1.60 were issued for a consideration of US$61,220,952. The subscription was received
from Bandbear Limited as part of the consideration for the acquisition of the entire issued share capital of Royal Atlantic Energy
(Cyprus) Limited.
On 18 June 2014, The Company raised a total of US$65,946,418 through the issue of 41,216,511 shares at US$1.60 (100 pence).
Subscriptions were received from ARA Capital (US$45.615 million for 28,509,375 shares), Crediton Invest (US$10.166 million for
6,353,568 shares) and Matteson Overseas (US$10.166 million for 6,353,568 shares). An exchange rate of US$1.60: £1.00 was
agreed in the Subscription Agreements.
On 20 June 2014, 250,000 shares of US$0.20 were issued as a result of the warrants exercise for a consideration of US$425,690.
The amount of US$235,245 was transferred from employee share-based compensation reserve to share premium upon exercise
of the warrants.
On 26 June 2014, 250,000 shares of US$0.20 were issued as a result of the options exercise for a consideration of US$85,138.
The amount of US$271,246 was transferred from employee share-based compensation reserve to share premium upon exercise
of the options.
On 15 July 2014, 15,000 shares of US$0.20 were issued as a result of the warrants exercise for a consideration of US$25,685. The
amount of US$14,182 was transferred from employee share-based compensation reserve to share premium upon exercise of the
warrants.
On 25 July 2014, 110,000 shares of US$0.20 were issued as a result of the warrants exercise for a consideration of US$186,678.
The amount of US$104,003 was transferred from employee share-based compensation reserve to share premium upon exercise
of the warrants.
On 28 July 2014, 40,000 shares of US$0.20 were issued as a result of the warrants exercise for a consideration of US$67,950. The
amount of US$37,819 was transferred from employee share-based compensation reserve to share premium upon exercise of the
warrants.
Dividends
19
In accordance with the relevant legislation applicable to the Group, the Group’s distributable reserves are limited to the balance of
retained earnings as recorded in the Group’s statutory financial statements prepared in accordance with International Accounting
Standards. No dividends were paid.
Earnings/(loss) per share
20
Basic earnings/(loss) per share is calculated by dividing the loss attributable to owners of the Company by the weighted average
number of ordinary shares in issue during the year.
Diluted earnings/(loss) per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume
conversion of all dilutive potential ordinary shares. The Company has two categories of dilutive potential ordinary shares: convertible
loans and share options/warrants.
2014
2013
Earnings/(loss) attributable to owners of the Company – Basic
Earnings/(loss) attributable to owners of the Company – Diluted
21,786
21,786
(4,324)
(4,324)
Number of Shares
Number of Shares
Weighted average number of shares for calculating basic loss per share
Effect of dilutive potential ordinary shares – warrants
Effect of dilutive potential ordinary shares - share options
Weighted average number of shares for calculating diluted loss per share
105,022,152
301,377
2,236,678
107,560,207
36,895,011
527,500
2,367,500
39,790,011
Basic earnings/(loss) per share
Diluted earnings/(loss) per share
21
Share-based payments
US cents
US cents
20.74
20.25
(11.72)
(10.87)
Share Options
21.1
At 31 December 2014, the Company had a total of 2,117,500 outstanding share options (2013: 2,367,500). The only movement in
share options was a result of the exercise which took place during the year.
Options which are lapsed or are cancelled prior to their exercise date are deleted from the register of outstanding options and are
available for re-use.
Date of grant
11 January 2005
23 March 2006
23 February 2007
11 January 2008
31 October 2012
2014
2013
Option exercise price
(pence)
423
1904
653
445
20
Number
117,500
10,000
7,500
232,500
1,750,000
2,117,500
Option exercise price
(pence)
423
1904
653
445
20
Number
117,500
10,000
7,500
232,500
2,000,000
2,367,500
No share options were granted during the year ended 31 December 2014.
52 Zoltav Resources Inc. Annual Report 2014
Zoltav Resources Inc. Annual Report 2014
53
NOTES TOACCOUNTSFINANCIALINFORMATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (in ‘000s US dollars, unless otherwise stated)
Initial Share Options
21.2
The Company adopted an employee Share Option Scheme on 4 March 2005 (Share Option Scheme) in order to incentivise key
management and staff at that time. The following share options were granted to the former employees and directors of the Company
under the Initial Share Option Scheme adopted on 4 March 2005 (Initial Share Options) and are still in existence:
Outstanding at 1 January
Share consolidation
Outstanding at 31 December
2014
2013
Weighted
average exercise
price (pence)
482.2
482.2
Number
367,500
-
367,500
Weighted
average exercise
price (pence)
24.11
482.2
Number
7,350,000
(6,982,500)
367,500
Share options granted under the Initial Share Option scheme were exercisable as follows:
•
•
•
the first 30% of the options between the first and tenth anniversary of the date of grant;
the next 30% of the options between the second and tenth anniversary of the date of grant; and
the remaining options between the third and tenth anniversary of the date of grant.
Equity-settled share-based payments are measured at fair value (excluding the effect of non-market-based vesting conditions) as
determined through use of the binomial option pricing model, at the date of grant. The fair value determined at the grant date of the
equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Company’s estimate
of shares that will eventually vest. The options vested immediately.
The binomial option pricing model applied to the grant of share options in respect of calculating the fair values. Key inputs to the
model are as follows:
Share options
Share price at grant
Option exercise price
Expected life of option
Expected volatility
Expected dividend yield
11 January 2005
23 March 2006
23 February 2007
11 January 2008
20.75p
21.15p
10 years
60 - 65%
5.0%
93.25p
95.20p
10 years
60 - 65%
5.0%
36.25p
32.65p
10 years
60 - 65%
5.0%
22.25p
22.25p
10 years
60 - 65%
5.0%
Volatility has been based on the historical trading performance of the Company and comparable companies. The risk free rate has
been determined based on 10 year government bonds.
Total fair value as considered in the employee share-based compensation reserve for Initial Share Options was US$1,235,000
(2013 US$1,235,000).
21.3 Directors Share Options
Share options granted to certain existing Directors of the Company on 31 October 2012 (Directors Share Options) were exercisable
at any time between the commencement of the option period and third anniversary of the date of grant. Share options granted under
this scheme were as follows:
Outstanding at 1 January
Issued in the year
Exercised
Share consolidation
Outstanding at 31 December
2014
2013
Weighted
average exercise
price (pence)
Weighted
average exercise price
(pence)
Number
20.00
40,000,000
1.00
-
-
20.00
(38,000,000)
2,000,000
20.00
Number
2,000,000
-
(250,000)
-
1,750,000
250,000 share options were exercised during the year ended 31 December 2014. The options were exercised on 24 June 2014
which resulted in 250,000 shares being issued with the nominal value of $US0.2 at a price of £0.2. During the year the vesting
period of the remaining options was extended from 30 October 2015 to 30 October 2017. Equity-settled share-based payments
are measured at fair value (excluding the effect of non-market-based vesting conditions) as determined through use of the
Black-Scholes technique, at the date of grant. The fair value determined at the grant date of the equity-settled share-based
payments is expensed on a straight-line basis over the vesting period, based on the Company’s estimate of shares that will
eventually vest. The options vested immediately.
The Black-Scholes formula is the option pricing model applied to the grant of share options in respect of calculating the fair values.
Key inputs to the model are as follows:
Share price at grant
Option exercise price
Expected life of option
Expected volatility
Expected dividend yield
Risk free rate
Fair value per share option
Exchange rate used (USD:GBP)
Share options
31 October 2012
3.45p
1.00p
3 years
216.1%
0.0%
0.49%
3.342p
1.62525
Volatility has been based on the Company’s trading performance from 1 January 2011. The risk free rate has been determined based
on 5 year government bonds.
Total fair value as considered in the employee share-based compensation reserve for Directors Share Options was 1,900,791 (2013:
US$2,172,332).
21.4 Warrants
In August 2011, the Company granted 10,550,000 warrants with an exercise price of 5.0 pence, vesting from 2 August 2011 to 2
August 2014. After share consolidation in 2013 the number of warrants was 527,500. All 527,500 warrants were exercised or lapsed
in 2014.
515,000 warrants were exercised during the 12 month year ended 31 December 2014. 100,000 warrants were exercised on 5 June
2014;during July 2014 165,000 warrants were exercised; 250,000 warrants were exercised on 2 August 2014 which resulted in
515,000 shares being issued with the nominal value of $US0.2 at a price of £1. The remaining 12,500 warrants lapsed in 2014.
All shares issued in respect of the warrants rank pari-passu in all respects with the ordinary shares.
Total fair value as considered in the employee share-based compensation reserve for warrants was US$12,019 (2013: US$498,943).
Total share options and warrants
21.5
Total fair value for both share options and warrants as considered in the employee share-based compensation reserve was US$
3,147,809 (2013: US$3,906,275).
US$ 0 of the employee share-based compensation is included in the statement of comprehensive income for 2014 (2013:
US$2,172,332).
No liabilities were recognised due to share-based payment transactions.
54 Zoltav Resources Inc. Annual Report 2014
Zoltav Resources Inc. Annual Report 2014
55
NOTES TOACCOUNTSFINANCIALINFORMATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (in ‘000s US dollars, unless otherwise stated)
22
Borrowings
22.1 Non-current borrowings
Borrowings
Non-revolving credit facility - current liability
Non-revolving credit facility - non-current liability
Total borrowings
Non-revolving credit facility
2014
3,200
39,076
42,276
2013
-
-
-
On 4 April 2014, Diall Alliance entered into a non-revolving credit facility agreement no 5878 with Sberbank of Russia OJSC. The
maximum amount capable of being drawn down under the facility is RUB 2,400,000,000 (US$69.6 million). The facility may be
drawn down in a single or several tranches starting from 30 April 2014 until 31 March 2015. The maturity date is 30 April 2021,
being the 7 year anniversary of the facility being entered into. Diall Alliance is obliged to repay the principal amount of the loan in 24
tranches commencing on 11 May 2015 and on a quarterly basis from then on with a final repayment tranche being payable on the
maturity date. The interest rate is 10.98% per annum. Sberbank may unilaterally amend the interest rate in the event of increases in
refinancing rates of the Central Bank of Russia. Diall Alliance paid an upfront commission on the facility of 1% of the facility amount
(RUB24,000,000 (US$0.8 million)) and there is a drawdown charge of 0.25% per year on the balance of the facility amount not
withdrawn by Diall Alliance within the established timeframe. Diall Alliance has the option to prepay the loan in whole or in part at any
time, subject to the payment of a fee. Diall Alliance provided certain warranties and representations to Sberbank in the agreement.
The agreement contains certain loan covenants and events of default which are customary for a facility of this type. The Company is
in compliance with these covenants. The loan is secured on the fixed assets of Diall Alliance, such security being granted pursuant
to various pledge and mortgage deeds entered into by Diall Alliance on or about the date of the Sberbank Facility.
The amount of the draw down facility as of 31 December 2014 was RUB 2,400,000,000 (US$42.7 million). The credit facility is
measured at amortised cost, using the effective interest method.
Decommissioning and environmental restoration provision
23
The decommissioning and environmental restoration provision represents the net present value of the estimated future obligations
for abandonment and site restoration costs which are expected to be incurred at the end of the production lives of the oil fields which
is estimated to be in excess of 20 years.
Provision as at 1 January
Additions
Unwinding of discount
Change in estimate of decommissioning and environmental
restoration provision
Exchange difference
Provision as at 31 December
Additions in 2014 are in respect of the acquisition of Diall.
2014
4,383
9,109
559
2,953
(6,356)
10,649
2013
-
4,358
(18)
(18)
61
4,383
This provision has been created based on the Company’s internal estimates of the liability assumed in the acquisition of CenGeo
Holdings and Royal Atlantic Energy (Cyprus) Limited. Assumptions, based on the current economic environment, have been made
which the directors believe are a reasonable basis upon which to estimate the future liability. These estimates are reviewed regularly
to take into account any material changes to the assumptions. However, actual decommissioning costs will ultimately depend
upon future market prices for the necessary dismantlement works required which will reflect market conditions at the relevant time.
Furthermore, the timing is likely to depend on when the fields cease to produce at economically viable rates. This in turn will depend
upon future oil prices and future operating costs which are inherently uncertain.
The provision reflects two liabilities: one is to dismantle the property, plant and equipment assets and the other is to restore the
environment. The decommissioning part of the provision is reversed when an oil well is abandoned and corresponding capitalised
costs are expensed .The environmental part of the provision is reversed when the expenses on restoration are actually incurred.
The reversal of provision arises when the corresponding capitalised costs directly attributable to an exploration and evaluation
asset are expensed as it is determined that a commercial discovery has not been achieved and the restoration of the corresponding
environment has been made.
The discount rates used to determine the Decommissioning and environmental restoration provision is based on the Russian
Government Bond Rates.
56 Zoltav Resources Inc. Annual Report 2014
Zoltav Resources Inc. Annual Report 2014
57
NOTES TOACCOUNTSFINANCIALINFORMATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (in ‘000s US dollars, unless otherwise stated)
24
Movements in temporary differences during the year:
Deferred tax liabilities
26
Trade and other payables
31 December
2014
Recognizsd in
profit or loss
Exchange
difference
Acquisition of
Royal Group
31 December
2013
Decommissioning provision
Other current assets
Tax loss carry-forwards
Deferred tax assets
Exploration and evaluation
asset
1,310
142
4,488
5,940
203
(16)
1,636
1,823
(7,463)
(2,738)
Property, plant and equipment
(3,769)
(1,505)
Borrowings
(77)
13
Deferred tax liabilities
(11,309)
(4,230)
Net deferred tax
liabilities
(5,369)
(2,408)
(769)
(91)
(2,460)
(3,320)
4,600
2,043
50
6,693
3,372
1,876
249
5,312
7,437
-
-
-
-
(5,397)
(3,928)
(4,307)
(140)
-
-
(9,844)
(3,928)
(2,404)
(3,928)
Deferred income tax assets are not recognised for mainly tax losses carried forward for SibGeCo to the extent that the realisation
of the related tax benefit through future taxable profits are not probable. The Group has not recognised deferred income tax assets
of $8,082,887 (2013 – $9,637,810).
A net deferred tax asset has been recognised for on the basis that there will be sufficient taxable profits, based on the group’s profit
forecast, against which these temporary differences can be utilised.
The deferred tax assets expire in 2018-2024.
25
Other taxes payable
VAT payable
Property tax
Mineral extraction tax
Other taxes payable
Total
2014
816
97
93
131
1,137
2013
-
-
-
25
25
Trade payables
Accrued expenses
Payables to employees
Total
2014
2,043
1,038
19
3,100
2013
11
145
16
172
Operating leases
27
Operating lease payments are mainly rentals by the Group of land, office space and equipment required for use on a temporary
basis. Leases are normally signed on a short term basis of one to two years with options to extend.
Lease payments under operating leases recognised in the statement of comprehensive income for the year amounted to US$211,000
(2013 – US$0).
At the reporting date the Group’s outstanding commitments for future minimum lease payments under non-cancellable leases fall
due as follows:
Within one year
In two to five years
More than five years
28
Financial instruments and financial risk management
FINANCIAL ASSETS
Trade and other receivables
Cash and cash equivalents
FINANCIAL LIABILITIES
Financial liabilities carried at amortised cost
Trade and other payables
2014
67
22
105
2014
2,581
10,694
13,275
42,276
2.043
44,319
2013
-
-
-
2013
-
7,265
7,265
-
11
11
Overview of the Company’s financial risk management
The Company has exposure to the following risks from its use of financial instruments:
Liquidity risk
•
• Market risk
Credit risk
•
Capital risk
•
This note presents information about the Company’s exposure to each of the above risks, the Company’s objectives, policies and
processes for measuring and managing risk, and the Company’s management of capital. Further quantitative disclosures are included
throughout this historical financial information.
The Company’s risk management policies deal with identifying and analysing the risks faced by the Company, setting appropriate
risk limits and controls, and monitoring risks and adherence to limits. Risk management policies and systems are reviewed regularly
to reflect changes in market conditions and the Company’s activities. The Company, through its internal policies, aims to develop a
disciplined and constructive control environment in which all employees understand their roles and obligations.
58 Zoltav Resources Inc. Annual Report 2014
Zoltav Resources Inc. Annual Report 2014
59
NOTES TOACCOUNTSFINANCIALINFORMATION To limit exposure to credit risk on cash and cash equivalents Management’s policy is to hold cash and cash equivalents in reputable
financial institutions. During 2014 cash was held mainly with OAO Sberank Rossii (rating Ba2.ru, Moody’s).
Ba2.ru, Moody’s
Baa3.ru Moody’s
Other
Total cash and cash equivalents
2014
9,289
-
1,406
10,694
2013
-
6,705
560
7,265
28.4 Capital risk
The Company considers its capital and reserves attributable to equity shareholders to be the Company’s capital. In managing its
capital, the Company’s primary long-term objective is to provide a return for its equity shareholders through capital growth. Going
forward the Company may seek additional investment funds and also maintain a gearing ratio that balances risks and returns at an
acceptable level and also to maintain a sufficient funding base to enable the Company to meet its working capital needs. Details of
the Company’s capital is disclosed in the statement of changes in equity.
There have been no other significant changes to the Company’s management objectives, policies and processes in the year nor has
there been any change in what the Company considers to be capital.
The Company is not subject to externally imposed capital requirements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (in ‘000s US dollars, unless otherwise stated)
Liquidity risk
28.1
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company monitors
the risk of cash shortfalls by means of current liquidity planning. The Company’s approach to managing liquidity is to ensure, as far
as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions,
without incurring unacceptable losses or risking damage to the Company’s reputation. This approach is used to analyse payment
dates associated with financial assets, and also to forecast cash flows from operating activities. The contractual maturities of financial
liabilities presented including estimated interest payments.
Financial liabilities as at
31 December 2014
Borrowings
Trade and other payables
Total
Financial liabilities as at
31 December 2013
Unsecured borrowings
Trade and other payables
Total
Contractual amount
Less than 1 year
1-2 years
Over 5 years
60,015
2,043
62,058
7,747
2,043
9,790
39,031
-
39,031
13,237
-
13,237
Contractual amount
Less than 1 year
1-2 years
Over 5 years
11
11
11
11
-
-
-
-
28.2 Market risk
Market risk includes interest risk and foreign exchange risk.
Interest risk
(a)
The Company has exposure to interest risk since Diall Alliance entered into a non-revolving credit facility agreement with Sberbank
and according to the terms of the agreement Sberbank may unilaterally amend the interest rate in the event of increases in refinancing
rates of the Central Bank of Russia. Sberbank hasn’t amended interest rate by the reporting date.
Foreign exchange risk
(b)
The Company does not have any significant exposure to foreign currency risk as no significant sales, purchases and borrowings are
denominated in a currency other than the functional currency of Diall and SibGeCo, which is the RUB.
The Group’s operations are within the Russian Federation where all of its revenue, costs and financing from both Sberbank and
intra-group lending are denominated in RUB. As a result there is no exposure at the operating subsidiary level to foreign exchange
movements. The Company is exposed to foreign exchange movements to the extent that its US$ holdings become mismatched with
its RUB commitments.
The Group does not currently enter into forward exchange contracts or otherwise hedge its potential foreign exchange exposure.
28.3 Credit risk
Credit risk arises principally from the Group’s financial investments, trade and other receivables and cash and cash equivalents.
It is the risk that the value of the Group’s investments will not be recovered and the risk that the counterparty fails to discharge its
obligation in respect of the Company’s trade and other receivables and cash balances. The maximum exposure to credit risk equals
the carrying value of these items in the financial statements.
Due to the nature of the Group’s business, the Group is largely dependent on one customer (Gazprom Mezhregiongaz Saratov
LLC) for a significant portion of revenues. Gazprom Mezhregiongaz Saratov LLC accounted for 78.5%, 71.4%, 70.5%, and 72.1%
of its total revenue in fiscal 2014, 2013, 2012, and 2011, respectively. The loss or the insolvency of this customer for any reason,
or reduced sales of our principal product, could significantly reduce the Group’s ongoing revenue and/or profitability, and could
materially and adversely affect the Group’s financial condition. The credit rating assigned to Gazprom by Standard & Poor’s is BBB.
To manage credit risk and exposure for the key customer, the Group have entered into a long term five-year contract with Gazprom
Mezhregiongaz Saratov LLC, which will be due to renewal in 2015. As for the smaller customers, the Group imposes minimum credit
standards that the customers must meet before and during the sales transaction process.
Credit risk with cash and cash equivalents is reduced by placing funds with banks with acceptable credit ratings and indicated
government support where applicable.
60 Zoltav Resources Inc. Annual Report 2014
Zoltav Resources Inc. Annual Report 2014
61
NOTES TOACCOUNTSFINANCIALINFORMATION NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (in ‘000s US dollars, unless otherwise stated)
29
Commitments and contingencies
30
Related party transactions
29.1 Capital commitments
Capital expenditure contracted for at the end of the reporting period but not yet incurred at 31 December 2014 was US$1.7 million
(31 December 2013 – no material commitments).
30.1 Control relationships
Related parties include shareholders, affiliates and entities under common ownership and control with the Company and key
management personnel.
Insurance
29.2
The laws and practices of the insurance industry in the Russian Federation is in a developing state. The Company’s insurance
currently includes cover for damage to or loss of assets, including business interruption insurance should an insurable incident result
in a shut-down of the Western Plant for an extended period of time, insurance for out-of-control wells and environmental damage
caused thereby, third party liability coverage (including employer’s liability insurance) and directors and officers liability insurance, in
each case subject to excesses, exclusions and limitations. However, there can be no assurance that such insurance will be adequate
to cover losses or exposure for liability or that the Company will continue to be able to obtain insurance to cover such risks. Whilst
the laws and practices of the insurance industry continue to develop there is a risk that the loss or destruction of certain assets could
have a material adverse effect on the Company’s operations and financial position.
Litigation
29.3
The Company was involved in the number of court procedures (both as a plaintiff and as a defendant) arising in the course of
business. In the opinion of management there are no current legal proceedings or other claims outstanding which could have a
material adverse effect on the results of operation financial position or cash flows of the Company and which have not been accrued
or disclosed in this historical financial information.
Taxation contingencies
29.4
Russian tax legislation which was enacted or substantively enacted at the end of the reporting period is subject to varying
interpretations when being applied to the transactions and activities of the Group. Consequently, tax positions taken by management
and the formal documentation supporting the tax positions may be successfully challenged by relevant authorities. Russian tax
administration is gradually strengthening, including the fact that there is a higher risk of review of tax transactions without a clear
business purpose or with tax incompliant counterparties. Fiscal periods remain open to review by the authorities in respect of taxes
for three calendar years preceding the year of review. Under certain circumstances reviews may cover longer periods. As Russian
tax legislation does not provide definitive guidance in certain areas, the Group adopts, from time to time, interpretations of such
uncertain areas that reduce the overall tax rate of the Group. While management currently estimates that the tax positions and
interpretations that it has taken can probably be sustained, there is a possible risk that outflow of resources will be required should
such tax positions and interpretations be challenged by the relevant authorities. The impact of any such challenge cannot be reliably
estimated; however, it may be material to the financial position and/or the overall operations of the Group.
The taxation system in the Russian Federation continues to evolve and is characterised by frequent changes in legislation official
pronouncements and court decisions which are sometimes contradictory and subject to varying interpretation by different tax
authorities. Taxes are subject to review and investigation by a number of authorities which have the authority to impose severe fines
penalties and interest charges. A tax year remains open for review by the tax authorities during the three subsequent calendar years;
however under certain circumstances a tax year may remain open longer. Recent events within the Russian Federation suggest that
the tax authorities are taking a more assertive and substance-based position in their interpretation and enforcement of tax legislation.
These circumstances may create tax risks in the Russian Federation that are substantially more significant than in other countries.
Management believes that it has provided adequately for tax liabilities based on its interpretations of applicable Russian tax legislation
official pronouncements and court decisions. However the interpretations of the relevant authorities could differ and the effect on this
historical financial information if the authorities were successful in enforcing their interpretations could be significant.
Environmental matters
29.5
The Group’s operations are in the upstream oil industry in the Russian Federation and its activities may have an impact on the
environment. The enforcement of environmental regulations in the Russian Federation is evolving and the enforcement posture of
government authorities is continually being reconsidered. The Group periodically evaluates its obligation related thereto. The outcome
of environmental liabilities under proposed or future legislation, or as a result of stricter interpretation and enforcement of existing
legislation, cannot reasonably be estimated at present, but could be material.
Under the current levels of enforcement of existing legislation, management believes there are no significant liabilities in addition to
amounts which are already accrued and which would have a material adverse effect on the financial position of the Group.
30.2 Management remuneration
There are no transactions or balances with key management and their close family members, except for remuneration in the form
of salary and bonuses.
30.3 Other related parties
On 19 March 2013, the Company entered into the First ARA Subscription Agreement with ARA Capital, pursuant to which ARA
committed to provide up to US$20,000,000 of funds principally to support the working capital requirements of the Company, such
funding to be made at a price per Ordinary Share of £0.70. ARA Capital completed this subscription in full on 31 March 2014.
On 13 December 2013, the Company entered into the Second ARA Subscription Agreement with ARA Capital, pursuant to which ARA
Capital committed to subscribe for US$45,615,000, such funding to be made at a price per Ordinary Share of £1.00.
On 13 December 2013, the Company entered into the Acquisition Agreement (as subsequently amended pursuant to the SPA
Amendment) for the acquisition of 100% of the shares of Royal Atlantic Energy and 100% participatory interest in Vostok Energy
Limited Liability Company. The following is a summary of certain terms and conditions of the Acquisition Agreement:
(a)
(b)
(c)
(d)
(e)
Zoltav Resources conditionally agreed to acquire 100% of the shares of Royal Atlantic Energy and 100% participatory
interest in Vostok Energy Limited Liability Company and have the Diall Receivable and Royal Atlantic Energy Receivable
(to the extent the same remain outstanding at completion of the Acquisition Agreement) novated to it. Bandbear agreed to
sell such interest as is held by it in the shares of Royal Atlantic Energy and participatory interest in Vostok Energy Limited
Liability Company to Zoltav Resources and to enter into novations of the Diall Receivable and the Royal Atlantic Energy
Receivable.
The aggregate consideration for the purchase of 100% of the shares of Royal Atlantic Energy and 100% participatory
interest in Vostok Energy Limited Liability Company and the novation of the Diall Receivable and the Royal Atlantic Energy
Receivable was US$77,505,100, RUB10,000 and €5,100 in cash and US$102,500,000 to be satisfied by the allotment and
issue to Bandbear of Ordinary Shares as set out in the Acquisition Agreement, credited as fully paid.
The parties to the Acquisition Agreement agreed therein that Diall Alliance should be able to enter into a new debt facility
after the Acquisition Agreement had been entered into and before its completion and that all or part of such new facility
be used to reduce amounts outstanding under the Diall Receivable to Bandbear. Accordingly, on 20 December 2013
RUB82,000,000 and on 29 April 2014 a further RUB2,186,273,565 was repaid to Bandbear by Diall Alliance.
Bandbear provided the Company and Zoltav Resources with warranties as to capacity and certain other limited warranties
including as to title. The Company and Zoltav Resources also gave certain warranties and undertakings to Bandbear as to
capacity and authority and certain other limited warranties.
Pursuant to the SPA Amendment, the Acquisition Agreement was amended by the parties to reflect, inter alia, an assignment
to Zoltav Resources of a loan note issued by Royal Atlantic Energy in favour of Bandbear on 31 January 2014 and changes
to the Subscription which have been agreed subsequent to the Acquisition Agreement having been entered into, together
with consequential changes resulting therefrom.
There were no other related party transactions during the year.
62 Zoltav Resources Inc. Annual Report 2014
Zoltav Resources Inc. Annual Report 2014
63
NOTES TOACCOUNTSFINANCIALINFORMATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2014 (in ‘000s US dollars, unless otherwise stated)
31
Effects of movements in foreign exchange
As noted above, the Company’s operations are in the Russian Federation and its prime currency of operation in the region is the RUB.
The US$:RUB moved from US$1:RUB32.7292 at 31 December 2013 to US$1:RUB56.2584 as at 31 December 2014 and continues
to fluctuate. Under IFRS these movements are reflected at each asset and liability level with the net adjusting amount being reflected
within Shareholders equity. A summary of these movements in 2014 are set-out below:
Exploration and evaluation Assets
Property, plant and equipment
Borrowings
Other
Total currency translation differences
32
Events after reporting date
2014 US$,000
(53,492)
(49,986)
37,353
(8,802)
(74,927)
Foreign exchange rates
32.1
The RUB exchange rate at the date of authorising these financial statements for issue was RUB 53.6555 for 1 USD. As the
Group conducts its business in the Russian Federation in RUB this fact doesn’t have a significant adverse impact on the Financial
Statements.
32.2 Russia’s sovereign bonds downgrade
In January 2015, Fitch rating agency downgraded Russia’s credit rating to BBB- from BBB with a negative outlook, meaning further
downgrades are possible.
Availability of annual report and financial statements and General Meeting
33
Copies of the Company’s annual report and financial statements will be sent to Registered Shareholders but will not be sent to holders
of Depository Interests. The annual report and financial statements will be available for inspection at the Company’s registered office
and may also be viewed at the Company’s website at: www.zoltav.com. Notice of a General Meeting will be sent to shareholders in
due course.
“barrel” or “bbls”
a stock tank barrel, a standard measure of volume for oil, condensate and natural gas liquids,
which equals 42 US gallons
“bcf”
“bcm”
“boe”
“/d”
“mcf”
“mcm”
“mmboe”
“mmcf”
“mmcm”
“mmT”
“mT”
“mToe”
billion cubic feet
billion cubic metres
barrel of oil equivalent
per day
thousand cubic feet
thousand cubic metres
million barrels of oil equivalent
million cubic feet
million cubic metres
million tonnes
thousand tonnes
thousand tonnes of oil equivalent
64 Zoltav Resources Inc. Annual Report 2014
Zoltav Resources Inc. Annual Report 2014
65
GLOSSARY zoltav.com
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