ANNUAL REPORT 2015
IN THIS REPORT
INTRODUCTION
Directors & Advisers
Chairman’s Statement
Review of Operations
Financial Review
Board of Directors
FINANCIAL INFORMATION
Directors’ Report
Directors’ Responsibilities
Corporate Governance
Auditors’ Report
Financial Statements
Notes to the Accounts
Glossary
1
2
6
10
14
16
18
20
24
26
30
57
INTRODUCTION
DIRECTORS
& ADVISERS
BOARD OF DIRECTORS
ADVISERS
Alastair Ferguson
Executive Chairman
Andrey Komarov
Executive Director
Stephen Lowden
Senior Independent Director
Alexander Gorodetsky
Independent Non-executive Director
(appointed 24 September 2015)
Andrey Immel
Non-executive Director
(appointed 24 September 2015)
Marcus James Rhodes
Independent Non-executive Director
Michael Lombardi
Non-executive Director
(appointed 9 July 2015)
Symon Drake-Brockman
Non-executive Director
(non re-elected 9 July 2015)
Yulia Lebedina
Non-executive Director
(resigned 9 July 2015)
AUDIT COMMITTEE
Marcus Rhodes (Chairman)
Andrey Immel
REMUNERATION AND NOMINATION
COMMITTEE
Stephen Lowden (Chairman)
Alexander Gorodetsky
CORPORATE ADMINISTRATOR
CO Services Cayman Limited
P.O. Box 10008, Willow House, Cricket Square,
Grand Cayman KY1-1001, Cayman 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
SOLICITORS
Berwin Leighton Paisner
Adelaide House, London Bridge, London,
EC4R 9HA, United Kingdom
JOINT BROKERS
Shore Capital Stockbrokers Limited
Bond Street House, 14 Clifford Street,
London, W1S 4JU, United Kingdom
Panmure Gordon (UK) Limited
1 New Change, London, EC4M 9AF, United Kingdom
INDEPENDENT AUDITOR
Ernst & Young LLC
Sadovnicheskaya Nab., 77, bld. 1, Moscow, 115035, Russia
REGISTRAR
Computershare Investor Services (Cayman) Limited
R&H Trust Co. Ltd, Windward 1,
Regatta Offi ce Park, West Bay Road,
Grand Cayman KY1-1103, Cayman Islands
REGISTERED OFFICE
PO Box 10008, Willow House, Cricket Square,
Grand Cayman KY1-1001, Cayman
REVENUES
+41%
$28
million
PRODUCTION
+15.6%
8,853
boe/d
FIRST POSITIVE
EBITDA
$7.2
million
2
2
Zoltav Resources Inc. Annual Report 2015
Zoltav Resources Inc. Annual Report 2015
Zoltav Resources Inc. Annual Report 2015
1
CHAIRMAN’S STATEMENT
INTRODUCTION
CHAIRMAN’S
STATEMENT
I believe a number of factors
combine to make Zoltav an
extremely attractive vehicle
through which to access Russian
oil and gas opportunities in a
distressed market
I am pleased to present Zoltav’s results for the
year ended 31 December 2015 which show a 41%
increase in revenues to USD 28.1 million (2014:
USD 20.0 million) and the Company’s fi rst operating
profi t. This is derived from a 15.6% increase in
daily production compared with 2014. This has
been achieved despite a challenging environment
for oil and gas producers in Russia; and despite a
weak RUB against our reporting currency of USD.
Improvements in both factors would in the future
have a very positive corresponding impact on
Zoltav.
Our Western Gas Plant was operated at full capacity in 2015,
producing 8,853 boe/d (1,256 toe/d). This enabled the Company
to deliver its fi rst positive EBITDA of USD 7.2 million (2014: USD
3.3 loss) and maintain a positive operating cash fl ow throughout
the period.
We have also continued to assess various development
scenarios to commercialise the highly prospective Eastern
Fields of the Bortovoy Licence and the medium term objective
remains that of constructing a second gas plant in the East of the
licence to exploit the very considerable reserves. At Koltogor, we
completed a number of exploration-related tasks. In particular, as
a result of the work undertaken to open up the West Koltogor oil
fi eld on Koltogor Exploration Licence 10, we were able to convert
this last month into an Exploration and Production Licence valid
through to March 2036. We will, in the future, look to bring a
partner into Koltogor to assist in the development of these fi elds.
Zoltav’s strategic objective remains that of generating the
maximum value from our existing assets, which we will achieve
through efficiencies and through exploration, appraisal and
development activities; while at the same time pursuing a highly
selective acquisition strategy. We have very strict acquisition
criteria and will consider only those opportunities which we
believe will deliver considerable value for shareholders under
Zoltav’s management.
Our focus continues to be on maintaining full plant capacity
through the implementation of optimal production enhancement
activities to increase economic effectiveness. We have
undertaken an extensive programme of cost optimisation at
Bortovoy, which we believe will produce further benefi ts in the
current year and beyond.
I am pleased to note that, on 1 July 2015, our gas sales price
to Mezhregiongaz increased by 7.5% in RUB − the benefi ts of
which will continue to be felt as we improve production effi ciency.
Zoltav is developing an appraisal strategy to capitalise on
the Devonian structure in both the undeveloped Western and
Eastern fi elds of the Bortovoy Licence, underpinned by a more
attractive gas sales price.
Our strategy at Bortovoy is to continue maximising production
from the Western Gas Plant, both through the above-mentioned
effi ciencies and, later, by hooking up other nearby fi elds in the
Western area of the Bortovoy Licence to the plant. At the current
assessment of remaining reserves in the Western Fields, the
Company estimates that the Western Gas Plant could be kept at
full capacity for at least a further decade.
I believe a number of factors combine to make Zoltav an
extremely attractive vehicle through which to access Russian
oil and gas opportunities in a distressed market. We have
unrivalled local operating expertise − as is demonstrated in the
continual improvements being made at Bortovoy; we have a very
experienced board which brings a western standard of corporate
governance to the Company’s management; and fi nally, we have
engaged and supportive shareholders with access to capital
when the right opportunities present themselves.
.
Alastair Ferguson
Executive Chairman
21 April 2016
OUR MAJOR SHAREHOLDERS
Zoltav has unparalleled access to opportunities in Russia and the CIS
through its supportive major shareholders Arkadiy Abramovich (ARA
Capital Limited) and Valentin Bukhtoyarov (Bandbear Limited) - who each
own approximately 40% of the Company
STRATEGY
Zoltav is building a mid-size oil and gas business focused on the CIS.
There are fi ve 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
are seeking acquisition targets where we can replicate that performance
• Targeting further acquisitions in the CIS which will generate additional
cash fl ows and more exploration upside
• Support of strong major shareholders, providing access to fi nance for
acquisitions
• High principles of corporate governance
2
Zoltav Resources Inc. Annual Report 2015
Zoltav Resources Inc. Annual Report 2015
3
OUR ASSETS
Moscow
KHANTIY-MANSISK
AUTONOMOUS OKRUG
Khantiy-Mansisk
Nizhnevartovsk
SARATOV
OBLAST
Bortovoy
Koltogor
RUSSIA
KAZAKHSTAN
TURKMENISTAN
UZBEKISTAN
KYRGYZSTAN
TAJIKISTAN
4
Zoltav Resources Inc. Annual Report 2015
INTRODUCTION
OUR
ASSETS
Zoltav’s strategic objective
remains that of generating
the maximum value from our
existing assets, which we will
achieve through effi ciencies and
through exploration, appraisal
and development activities;
while at the same time pursuing
a highly selective acquisition
strategy
GROUP RESERVES UNDER PRMS
AS AT 31 DECEMBER 2015
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
294.7
Source: DeGolyer and & MacNaughton
REVIEW OF OPERATIONS - BORTOVOY
BORTOVOY LICENCE
Zoltav’s main operational priority in 2015 was to operate the
Western Gas Plant at its full capacity of 8,853 boe/d (1,256
toe/d). This was successfully achieved following the prior year’s
hooking-up of the Zhdanovskoye fi eld and the drilling of an infi ll
well on the Karpenskoye fi eld.
The next target will be the development of the highly promising
Devonian structure within the North Mokrousovskoye fi eld that
lies just 13 km from the Western Gas Plant and will allow us to
keep the plant at full capacity for at least a further decade.
The Company continues to evaluate the future development
opportunities offered by the highly prospective Eastern Fields
of the licence. The construction of a second gas plant close to
the Pavlovskoye fi eld − hooking-up the Nepriyakhinskoye and
Lipovskoye fi elds − is currently being assessed by management
as the most likely scenario.
Production
The Company was able to keep the Western Gas Plant operating
at full capacity throughout 2015.
Average daily production from the Western Gas Plant during
2015 was 8,853 boe/d (1,256 toe/d) compared to 7,656 boe/d
(1,086 toe/d) in 2014. This comprised 46.6 mmcf/d (1.32
mmcm/d) of gas (2014: 40.2 mmcf/d / 1.14 mmcm/d) and 587
bbls/d (75 T/d) of oil and condensate (2014: 478 bbls/d / 60 T/d).
Overall this was a 15.6% increase in daily production compared
to 2014. Gas production increased by 15.9%, while liquids
production increased by 23%.
The improved output is a direct result of an integrated value-
enhancement programme that has taken place under Zoltav’s
ownership. The Company spent USD 0.63 million in 2015 for
one-off maintenance and repair costs to debottleneck production
on the Western Gas Plant, complete a dew point project to allow
for sustained production during warmer weather and complete
the hooking up of the Zhdanovskoye fi eld.
In December 2015, the Zhdanovskoye infi ll Well 107 was put into
operation with a production rate of 6.0 mmcf/d (0.17 mmcm/d)
that was higher than expected, with potential future upside from
acid treatment.
We have, since the start of 2016, achieved one of our primary
objectives for the current year of completing the new Well 117
on the Karpenskoye fi eld. Another core objective for the year will
be the hooking-up of the pre-existing Well 19 in the western area
of the Zhdanovskoye fi eld. Well 19’s potential was confi rmed by
well tests undertaken in December 2015. These developments
will allow Zoltav to keep the plant operating at full capacity
throughout 2016.
Development drilling and other well activity
Geological and hydrodynamic models for the Karpenskoye
and Zhdanovskoye fi elds were re estimated in 2015. These
models, combined with detailed historic production data, provide
confi dence in our production targets and base decline forecasts.
The model showed substantial remaining reserves in the area of
Wells 17 and 19 on the Karpenskoye fi eld.
Well 117 on Karpenskoye (selected as the optimal option versus
a Well 17 side-track) was completed and put online at 16 April
2016. Well 19 on the Zhdanovskoye fi eld is scheduled to be
hooked-up in October 2016.
Western Gas Plant
Operations at the Western Gas Plant have continued smoothly
with the plant operating more reliably compared to 2014.
The dew point project was successfully completed in June
2015 on time and within budget. This allowed Zoltav to continue
delivering treated gas even during the hot summer season in
volumes specifi ed in the sales agreement with Mezhregiongaz.
BORTOVOY LICENCE:
WESTERN GAS PLANT
AVERAGE DAILY PRODUCTION
BORTOVOY LICENCE:
GAS SALES PRICE
- o n - y e a r
i n c r e a s e y e a r
1 5 . 6 %
i n c r e a s e y e a r - o n - y e a r
4 . 1 %
RUB 2,941
thousand
cubic meters
2014
RUB 3,063
thousand
cubic meters
2015
2014
2015
INTRODUCTION
REVIEW OF
OPERATIONS
BORTOVOY LICENCE
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
6
Zoltav Resources Inc. Annual Report 2015
Zoltav Resources Inc. Annual Report 2015
7
INTRODUCTION
REVIEW OF
OPERATIONS
REVIEW OF OPERATIONS - KOLTOGOR
KOLTOGOR LICENCES
The work programme across both the Koltogor Exploration and
Production Licence and Koltogor Exploration Licence 10 resulted
in Rosnedra registering, in March 2015, an additional 546
mmbbls (72 mmT) of Russian standard C1 plus C2 oil reserves,
bringing the current registered reserves of the combined
Koltogor fi elds to over 1 billion barrels (137 mmT). It remains
Zoltav’s intention to commission an update of its reserves and
resources under PRMS, however the Company has deferred
this expenditure until such time as it is strategically necessary
to commission an updated report. The Company has now been
granted Exploration and Production status on Licence 10. As the
sole owner of the Koltogor Licences, management continues to
evaluate farm-out options from a position of strength.
Koltogor Exploration and Production Licence
Following the extensive 3D and 2D seismic acquisition and
analysis programme carried out from 2013 to 2015, the Company
completed a re-estimation of its reserves and registered new
volumes with Rosnedra in March 2015. This included booking
new JV2 (Jurassic) oil formation volumes. As a result, the
additional reserves across the JV0 (Bazhenov), JV1, JV2 and
JV3 (Jurassic) formations now total 949.4 mmbbls (125 mmT)
of C1 plus C2 reserves under the Russian classifi cation system.
Well construction tasks and ground survey work associated with
future drilling plans were undertaken in 2015 and are ongoing.
Koltogor Exploration and Production Licence 10
On 7 May 2015, Rosnedra granted the Company a certifi cate
confi rming the discovery of the West Koltogor oil fi eld. As a
result, the Company applied to Rosnedra for an exploration and
production licence which was approved in March 2016.
KOLTOGOR LICENCES: GROWING IN SIZE
Russian Standard Reserves (C1+C2)
1 billion
barrels
487
million
barrels
2014
2015
KOLTOGOR LICENCES
KOLTOGOR
E & P LICENCE
Well 71
West Koltogor Oil Field
Koltogor Oil Field
Discovery wells
Oil and gas pipelines
Proposed pipeline
Oil processing plant
All weather road
Road
KOLTOGOR
E & P LICENCE 10
Well 103
Well 101
Well 111
Well 141
8
Zoltav Resources Inc. Annual Report 2015
Zoltav Resources Inc. Annual Report 2015
9
FINANCIAL REVIEW
INTRODUCTION
FINANCIAL
REVIEW
CASH
Net cash generated by operating activities was USD 4.3 million
(2014: cash used in operating activities USD 5.3 million).
Diall Alliance successfully serviced its credit facility from PJSC
Sberbank and repaid RUB 180 million of the principal amount
according to its schedule. The Company remains in line with the
covenants of its credit facility agreement.
The Group has sufficient liquidity to fund its investment
programme on the Western Fields at Bortovoy and its
development plans for Koltogor at least through to the end of
2018.
Total cash at the end of the period was USD 5.9 million.
Denis Golubovskiy
Director of Finance
21 April 2016
Management’s focus on maintaining full production
capacity at the Western Gas Plant, on operational
performance enhancements and on cost reduction
allowed Zoltav to generate its fi rst operating profi t
and positive cash fl ow from operating activities.
EBITDA reached USD 7.2 million.
cost of sales included USD 0.63 million of one-off maintenance
and repair costs (including costs of associated materials)
on the Western Gas Plant within a programme of production
enhancement activities, as well as the usual recurring other
cost of sales including salaries, chemicals and other agents,
equipment maintenance and repairs, well workovers and leasing
of land plots.
REVENUE
Group revenues were USD 28.1 million (2014: USD 20.0 million),
however it should be noted that the comparative numbers for
2014 include only 196 days of production, following Zoltav’s
acquisition of Bortovoy in June 2014. The Group’s RUB revenues
in 2015 were RUB 1,697 million, compared to RUB 826 million
in 2014. Accordingly, revenues in USD, the Group’s reporting
currency, were signifi cantly affected by the devaluation of RUB
(61.0 RUB/USD average rate in 2015 versus 41.3 RUB/USD
average rate for the 196 days in 2014).
Gas realisations were USD 1.4/mcf or RUB 3,063/mcm (2014:
USD 2.2/mcf or RUB 2,941/mcm). Gas produced was sold to
Mezhregiongaz, a Gazprom subsidiary, at the transfer point on
entry to the Central Asia − Centre gas pipeline system.
Gas sales to Mezhregiongaz are priced in RUB. The price
increased on 1 July 2015 by 7.5% in RUB.
Oil and condensate realisations were USD 27.3/bbl or RUB
1,633/bbl (USD 214.2/T or RUB 12,832/T)) (2014: USD 46.8/
bbl or RUB 1,798/bbl (USD 368/T or RUB 14,115/T)). Oil and
condensate are sold directly at the Western Gas Plant through a
tender process to a small number of different purchasers.
Despite the decline in oil prices, the Company still managed to
achieve a 16% increase in RUB denominated revenue generated
from the Western Gas Plant, as compared to 2014, as a direct
result of the signifi cant improvements in effi ciency since Zoltav
acquired the Bortovoy Licence in June 2014.
COST OF SALES
Total cost of sales were USD 19.5 million (2014: USD 13.5
million). This comprised USD 6.4 million of production based
taxes (2014: USD 3.8 million), USD 6.1 million of depreciation
and depletion of assets (2014: USD 4.2 million) and USD 7.0
million of other cost of sales (2014: USD 5.4 million). Other
10
Zoltav Resources Inc. Annual Report 2015
OPERATING PROFIT
Zoltav turned an operating loss (excluding gain on acquisition) in
2014 of USD 7.6 million into an operating profi t in 2015 of USD
1.1 million.
Finance costs of USD 5.5 million are mainly represented by
interest on the RUB 2,220 million (USD 30.5 million) Sberbank
facility which was entered into by our Bortovoy operating
company, Diall Alliance, on 4 April 2014.
TAXATION
The production based tax for the period was USD 6.4 million
(2014: USD 3.9 million) which is recognised in the cost of
sales. The new gas mineral extraction (“MET”) formula was
implemented from 1 July 2014. This formula is based on multi-
component gas composition, average gas prices and reservoir
complexity and maturity. As a result of these changes the
effective MET rate applicable for the period rose by 15.5% to
RUB 17.8/mcf RUB 627/mcm (2014: RUB 15.4/mcf or RUB 543/
mcm).
In addition to production taxes the Group was subject to a 2.2
per cent property tax which is based on the net book value of
Russian assets calculated for property tax purposes. Property
tax on the major part of the Bortovoy operating company’s
assets, including the Western Gas Plant, is paid at a reduced
tax rate of 0.1 per cent.
The income tax charge for the year was USD 0.5 million (2014:
USD 2.4 million) and represents deferred tax expense.
CURRENCY TRANSLATION DIFFERENCES
The signifi cant RUB/USD exchange rates volatility had a material
effect on the value of our assets and liabilities presented in USD
which is disclosed in note 27.2.
Our focus on
maintaining full
production capacity, on
operational performance
enhancements and on
cost reduction allowed
Zoltav to generate its fi rst
operating profi t
Zoltav Resources Inc. Annual Report 2015
11
CORPORATE AND SOCIAL RESPONSIBILITY
INTRODUCTION
CSR
We are committed
to providing a safe
and healthy work
environment - there
were zero injuries to
our personnel and
contractors in 2015ed in
2015.
HEALTH AND SAFETY
We are committed to providing a safe and healthy work
environment and to conducting our activities in a safe and
environmentally protective manner. All of our employees and
offi cers are expected to perform their duties consistent with the
site specifi c safety and environmental rules and regulations and
are expected to obey all local, regional and national laws and
regulations.
We are committed to the goals of:
•
Avoiding harm to all personnel involved in, or affected by,
our operations
• Complying with all the applicable legal and other
requirements where we operate
Achieving continual improvement in our HSE performance
•
We are proud of our HSE achievement of zero injuries to
personnel and contractors in 2015.
Our Bortovoy Licence operating subsidiary, Diall Alliance,
continued its compliance in 2015 with BS OHSAS 18001: 2007 -
an internationally applied British standard for occupational health
and safety management systems. This certifi cation demonstrates
our commitment to ensuring the safety of our employees and
any others that may be affected by our business activities,
and reaffirms our engagement in improving environmental
and occupational health and safety standards throughout the
company.
PATI O
U
C
C
O
N A L HEALT
H
&
S
A
F
E
T
Y
L
A
E N T
M
N
O
R
I
V
N
E
M ANAG
E
M
E
N
T
S
Y
S
T
E
M
ENVIRONMENT
Responsible environmental management is a core
component of our approach to CSR. We are 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. We are
committed to employing highly competent personnel who
share the company’s values and who are themselves
committed to implementing our high standards of
environmental performance in everything they do.
We are proud that our operating company at the Bortovoy
Licence continued its compliance in 2015 with ISO 14001:
2004 – a globally recognised management system standard
which specifi es the requirements for the formulation and
maintenance of an environmental management system.
Above all, this certifi cation refl ects that our business is
environmentally responsible. It shows how committed we
are to reducing our environmental impacts and living up to
expectations of sustainability and continual improvement.
Russia’s “Green Spring” initiative
Inspired by the nationwide environmental programme
“Green Spring” to promote, conserve and restore the natural
environment, we planted dozens of new elm, maple and
spruce trees on the Bortovoy Licence in 2015.
COMMUNITY ENGAGEMENT
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
benefi ts. We are also committed to building and utilising
skills available locally at all levels.
We have been very active throughout 2015 in the local
communities of the Saratov region where our Bortovoy
Licence and Western Gas Plant are situated. This has
included active support for the development of sport in the
region - especially for children - exhibited most proudly
by our renovation of a school sports hall in the village of
Dergachi, the repairs of the Krasnokutsky Fitness Centre,
and through our purchase of equipment for, or construction
of, playgrounds in the villages of Zhdanovka, Lebedevka
and Eruslan, Additionally, Zoltav allocated funding for the
purchase of sports clothing and footwear for the Victoria
Saratov basketball club.
We also provided financial assistance in 2015 for the
construction and repair of local infrastructure. This included
the repairs of local roads, street lighting and water supply
pipes in local districts; and installations of fi re alarm systems
in schools and nurseries in Karpenka and Lebedevka.
The letters of thanks from children, parents and local
authorities demonstrate the popularity, effectiveness and
importance of our social engagement programmes and we
will continue this commitment wherever we have operations
in the future.
ANTI-BRIBERY & CORRUPTION POLICY
Our policy is to conduct all of our business in an honest
and ethical manner. We take a zero-tolerance approach
to bribery and corruption and are committed to acting
professionally, fairly and with integrity in all our business
dealings and relationships wherever we operate and
implementing and enforcing effective systems to counter
bribery. We will uphold all laws relevant to countering bribery
and corruption in all the jurisdictions in which we operate.
We take our
responsibility to protect
and preserve the
natural environment
we operate in very
seriously and we are
actively participating in
Russia’s “Green Spring”
environmental initiative
12
Zoltav Resources Inc. Annual Report 2015
Zoltav Resources Inc. Annual Report 2015
13
BOARD OF DIRECTORS - PROFILES
INTRODUCTION
THE BOARD
Following a review of the effectiveness of the board, and in consultation with its major shareholders, Zoltav announced at the
Annual General Meeting a number of changes intended to simplify the Company’s board structure. Accordingly, Symon Drake-
Brockman, Michael Lombardi and Julia Lebedina left the board.
The changes to the board were intended to improve the effi ciency and effectiveness of decision making, allowing the Company
to make faster operational decisions and to more quickly assess new opportunities for growth. It remains the board’s intention to
make further appointments in the future of directors with highly relevant Russian and CIS experience who can add value to the
Company’s strategy to grow organically and through acquisition.
ALASTAIR FERGUSON
Executive Chairman
ANDREY KOMAROV
Executive Director
STEPHEN LOWDEN
Senior Independent Director
ALEXANDER GORODETSKY
Independent Non-executive Director
ANDREY IMMEL
Non-executive Director
MARCUS RHODES
Independent Non-executive Director
Alastair Ferguson 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 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 advisor on energy issues.
Prior to that, he held a wide range of
senior positions with BP during his 35
year career in the oil and gas industry.
Andrey Komarov 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. 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 Refi nery and served as
an advisor to the Minister of Fuel and
Energy of the Russian Federation.
Stephen Lowden 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 and head of corporate
business development. Stephen Lowden
is also involved with two private energy
businesses.
Andrey Immel was appointed as a non-
executive director in September 2015.
He is an experienced Russian corporate
lawyer. He has, since 2012, been the
head of the legal department of Moscow-
based Contact-Service LLC, a real estate
company, where his responsibilities
include corporate governance and
the provision of legal support for
transactions. From 2008-2012, Andrey
Immel worked for Himuglemet, a
manufacturer of conveyer band and
other components for coal mines, both as
legal counsel and as a corporate and tax
lawyer. His responsibilities included legal
due diligence and support for corporate
transactions.
Marcus Rhodes 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 and London
Stock Exchange-listed Cherkizovo Group
OJSC, Russia’s largest meat producer.
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.
Alexander Gorodetsky was appointed as
a non-executive director in September
2015. He is currently the general partner
of Strategy Capital Advisor Limited, a
private equity fund established in 2009
with a mandate to invest in projects,
including within the oil and gas sector,
across the former Soviet Union. Prior
to Strategy Capital Advisor Limited,
Alexander Gorodetsky was fi rst deputy
to the chairman of East One Group, an
international investment advisory group
providing strategic and investment
management services. During his time
at East One Group, he assisted in the
strategic development of over 25 portfolio
companies including GEO ALLIANCE
Group, one of the leading independent
oil and gas exploration and production
groups in Ukraine. From 2000-2006,
Alexander Gorodetsky was president/
business unit leader for TNK BP Ukraine.
He contributed significantly to the
increased brand awareness of TNK-BP in
the Ukrainian market, where it is among
the leading oil and gas companies. He
began his career in 1995 within Alfa-Eco,
a leading gas and oil trading business in
Russia.
14
14
Zoltav Resources Inc. Annual Report 2015
Zoltav Resources Inc. Annual Report 2015
15
15
FINANCIAL
INFORMATION
DIRECTORS’
REPORT
Substantial shareholdings
The interests in excess of 3% of the issued share capital of the Company which have been notifi ed to the Company as at 31
December 2015 were as follows:
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%
DIRECTORS’ REPORT FOR THE YEAR ENDED 31 DECEMBER 2015
The Directors of the Company present their annual report together with the audited consolidated fi nancial statements for the year
ended 31 December 2015.
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 26.
Dividends
The Directors do not recommend the payment of a fi nal dividend and no interim dividend was paid during the year (2014: USD nil).
Share capital
No movements in share capital occurred in 2015. The Company’s policy in respect of capital and risk management is set out in note
27.
Directors
The membership of the Board who served during the year and up to the date of approving the fi nancial 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 signifi cant 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 2015. Interests in the ordinary shares
of the Company are as follows:
Marcus Rhodes
Alastair Ferguson
Andrey Komarov
Stephen Lowden
Alexander Gorodetsky
Andrey Immel
Symon Drake-Brockman*
Stephen Lowden*
Alastair Ferguson
Andrey Komarov
Alexander Gorodetsky
Andrey Immel
Marcus Rhodes
Symon Drake-Brockman**
31 December 2015
31 December 2014
Number of
ordinary
shares
Percentage of
existing share
capital
Number of
ordinary
shares
Percentage of
existing share
capital
15,000
0.01%
-
-
-
-
-
-
-
-
-
-
-
-
15,000
0.01%
-
-
-
-
-
-
-
-
-
-
-
-
469,055
469,055
0.30%
0.30%
* Is not Director at 31 December 2015
31 December 2015
Number of ordinary
share options
Number of ordinary
share options
500,000
500,000
-
-
-
-
-
-
500,000
-
-
-
-
-
1,250,000
1,750,000
* Mr Lowden’s Options expiry date is 30 October 2017
** Is not Director at 31 December 2015
16
Zoltav Resources Inc. Annual Report 2015
Zoltav Resources Inc. Annual Report 2015
17
17
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 27 to the financial statements.
Independent Auditor
Ernst & Young LLC were appointed as the Company’s independent auditor on 26 November 2015 and have expressed their
willingness to continue in office.
For and on behalf of the Board:
Alastair Ferguson
Executive Chairman
21 April 2016
18 Zoltav Resources Inc. Annual Report 2015
CORPORATE GOVERNANCE REPORT FOR THE YEAR ENDED 31 DECEMBER 2015
FINANCIAL
INFORMATION
CORPORATE
GOVERNANCE
The Board has access to the Company’s advisers to notify them
on fi nancial, 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 Corporate
Administrator, CO Services Cayman 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.
Board Committees
The Audit Committee
The Audit Committee currently comprises Marcus Rhodes and
Andrey Immel, with Marcus Rhodes as Chairman. The Board
is satisfi ed that collectively the Audit Committee has suffi cient,
recent and relevant fi nancial experience.
The duties of the Audit Committee are to review the fi nancial
information of the Company, to oversee the Company’s fi nancial
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 signifi cant
non-audit services provided by the external auditor to ensure that
objectivity and integrity are safeguarded. The Audit Committee
reports its work, fi ndings and recommendations to the Board
after each meeting.
The Remuneration and Nomination Committee
The Remuneration and Nomination Committee currently
comprises Stephen Lowden and Alexander Gorodetsky with
Stephen Lowden as Chairman.
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 offi ce 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 22.
Attendance at Board and Committee Meetings
The board held three in person board meetings during 2015. 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 fi ve 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:
Alastair Ferguson
Andrey Komarov
Stephen Lowden
Alexander Gorodetsky
Andrey Immel
Marcus Rhodes
Michael Lombardi
Yulia Lebedina
3
3
3
3
1
2
3
1
1
2
−
−
2
−
1
2
−
−
2
−
−
2
1
−
2
−
−
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 fi nancial 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 benefi t 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 justifi ed.
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.
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 2015
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 fi nal fi nancial statements;
• Management structure and appointments;
• Mergers, acquisitions, disposals;
• Capital raising;
•
•
•
Signifi cant changes in accounting policies;
Appointment or removal of Directors;
Pay and rewards.
Board composition
The Board currently comprises two executive directors and four
non-executive independent directors:
•
•
•
•
Alastair Ferguson – Executive Chairman;
Andrey Komarov – Executive Director;
Stephen Lowden – Senior Independent Director;
Alexander Gorodetsky – Independent Non-executive
Director;
Andrey Immel – Independent Non-executive Director;
•
• Marcus Rhodes – Independent 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 Offi cers of
the Company.
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.
20
Zoltav Resources Inc. Annual Report 2015
Zoltav Resources Inc. Annual Report 2015
21
CORPORATE GOVERNANCE REPORT FOR THE YEAR ENDED 31 DECEMBER 2015
FINANCIAL
INFORMATION
CORPORATE
GOVERNANCE
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
suffi cient 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 profi tability;
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 2015 is shown in the table below.
Alastair
Ferguson
Andrey
Komarov
Stephen
Lowden
Alexander
Gorodetsky
Andrey
Immel
Marcus
Rhodes
Symon
Drake-
Brockman
Michael
Lombardi
Yulia
Lebedina
John
Grimshaw
Oliver
Donagher
Total
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
Salary
522,412
459,615
130,100
12,856
Share based
compensation
−
−
−
−
2015 Total
522,412
459,615
130,100
12,856
Salary
252,680
7,363
138,568
Share based
compensation
−
−
−
2014 Total
252,680
7,363
138,568
−
−
−
−
−
−
−
−
−
109,633
229,599
36,827
8,992
−
−
−
−
109,633
229,599
36,827
8,992
−
−
−
−
1,510,034
−
−
−
1,510,034
65,891
666,461
59,369
7,363
19,206
23,047
1,239,948
−
−
−
−
−
−
−
65,891
666,461
59,369
7,363
19,206
23,047
1,239,948
Share price
During the year, the share price of the Company traded in the
range of 0.24 to 0.80 GBP.
22
Zoltav Resources Inc. Annual Report 2015
Zoltav Resources Inc. Annual Report 2014
23
INDEPENDENT AUDITORS’ REPORT
To the shareholders of Zoltav Resources Inc.
We have audited the accompanying consolidated fi nancial statements of Zoltav Resources Inc., which comprise the consolidated
statement of fi nancial position as at 31 December 2015, and the consolidated statement of profi t or loss, consolidated statement of
other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash fl ows for the year
then ended, and a summary of signifi cant accounting policies and other explanatory information.
Management’s responsibility for the consolidated fi nancial statements
Management is responsible for the preparation and fair presentation of these consolidated fi nancial statements in accordance with
International Financial Reporting Standards, as adopted by the European Union, and for such internal control as management
determines is necessary to enable the preparation of consolidated fi nancial statements that are free from material misstatement,
whether due to fraud or error.
Auditors’ responsibility
Our responsibility is to express an opinion on these consolidated fi nancial statements based on our audit. We conducted our audit
in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan
and perform the audit to obtain reasonable assurance about whether the fi nancial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated fi nancial
statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material
misstatement of the consolidated fi nancial statements, whether due to fraud or error. In making those risk assessments, the auditor
considers internal control relevant to the entity’s preparation and fair presentation of the consolidated fi nancial statements in order
to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and
the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated
fi nancial statements.
We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated fi nancial statements present fairly, in all material respects, the fi nancial position of Zoltav Resources
Inc. as at 31 December 2015, and its fi nancial performance and cash fl ows for the year then ended in accordance with International
Financial Reporting Standards, as adopted by the European Union.
Other matter
The consolidated fi nancial statements of Zoltav Resources Inc. for the year ended 31 December 2014 were audited by another
auditor who expressed an unmodifi ed opinion on those statements on 23 April 2015.
21 April 2016
Ernst & Young LLC
Moscow, Russia
24 Zoltav Resources Inc. Annual Report 2015
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
FINANCIAL
INFORMATION
FINANCIAL
STATEMENTS
Consolidated statement of comprehensive income for the year ended 31 December 2015
(in ʻ000s US dollars, unless otherwise stated)
Consolidated statement of fi nancial position as at 31 December 2015
(in ʻ000s US dollars, unless otherwise stated)
Revenue
Cost of sales
Mineral extraction tax
Depreciation and depletion
Other cost of sales
Total cost of sales
Gross profi t
Operating, administrative, selling expenses
Other income and expense, net
Gain on acquisition
Operating Profi t
Finance income
Finance cost
(Loss)/profi t before tax
Income tax expense
Note
5
6
7
9
10
10
11
(Loss)/profi t for the year attributable to own-
ers of the parent
Other comprehensive loss not to be to be
reclassifi ed to profi t or loss in subsequent
periods:
Currency translation differences
27.2
Other comprehensive loss for the year
Total comprehensive loss for the year
(Loss)/earnings per share attributable to
owners of the parent during the year:
19
Basic
Diluted
2015
28,138
(6,443)
(6,094)
(6,972)
(19,509)
8,629
(7,906)
374
−
1,097
847
(5,501)
(3,557)
(475)
(4,032)
(25,454)
(25,454)
(29,486)
$ cents
(2.84)
(2.80)
2014
20,018
(3,871)
(4,241)
(5,407)
(13,519)
6,499
(14,196)
138
34,974
27,415
489
(3,798)
24,106
(2,399)
21,707
(74,927)
(74,927)
(53,220)
$ cents
20.67
20.19
Note
2015
2014
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 profi t 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
12
13
14
15
16
17
27.2
21
22
23
21
24
25
64,355
59,524
123,879
134
2,584
65
5,880
8,663
132,542
28,391
159,899
43,026
(43,008)
(99,888)
88,420
25,317
4,912
4,578
34,807
5,123
1,244
2,948
9,315
44,122
132,542
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
The consolidated fi nancial statements on pages 26 to 56 were approved by the Board of Directors and authorised for issue on
21 April 2016.
The accompanying notes on pages 26-56 are an integral part of these consolidated fi nancial statements.
The accompanying notes on pages 26-56 are an integral part of these consolidated fi nancial statements.
26
Zoltav Resources Inc. Annual Report 2015
Zoltav Resources Inc. Annual Report 2015
27
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015
FINANCIAL
INFORMATION
FINANCIAL
STATEMENTS
Consolidated statement of cash fl ows for the year ended 31 December 2015
(in ʻ000s US dollars, unless otherwise stated)
Consolidated statement of changes in equity for the year ended 31 December 2015
(in ʻ000s US dollars, unless otherwise stated)
Cash fl ows from operating activities
Note
Operating (loss)/gain
Adjustments for:
Gain on acquisition
Depreciation and depletion
Net fi nance costs
Other gains/(losses), net
Operating cash infl ows/(outfl ows) before working
capital changes
Decrease/(increase) in inventory
Decrease in trade and 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 fl ows from investing activities
Cash paid for the acquisition of subsidiaries net of cash
acquired
9
Capital expenditure in relation to exploration and evaluation
activities
Purchase of property, plant and equipment
Net cash used in investing activities
Cash fl ows from fi nancing activities
Proceeds from borrowings
Repayment of borrowings
Issue of ordinary shares
Net cash (used in)/generated from fi nancing activities
Net (decrease)/increase 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
2015
(3,557)
−
6,094
4,654
(374)
6,817
189
555
212
7,773
847
(4,313)
−
4,307
−
(893)
(4,461)
(5,354)
−
(3,044)
−
(3,044)
(4,091)
(723)
10,694
5,880
2014
24,106
(34,974)
4,330
3,309
(170)
(3,399)
(18)
3,057
(2,271)
(2,631)
439
(3,046)
(15)
(5,253)
(49,712)
(8,359)
(4,810)
(62,881)
4,024
−
71,898
75,922
7,788
(4,359)
7,265
10,694
Note
Share
capital
Share
premium
Capital
reserve
Employee
share-based
compensation
reserve
Accumulated
losses
Translation
reserve
Total
equity
11,432
42,975
40,444
3,906
(61,249)
493
38,001
17
17
27.2
27.2
16,806
115,361
153
1,563
16,959
116,924
−
−
−
−
−
−
−
−
−
−
−
−
−
(758)
(758)
−
−
−
−
−
−
−
−
−
−
132,167
958
133,125
(74,927)
(74,927)
21,707
−
21,707
21,707
(74,927)
(53,220)
28,391
159,899
40,444
3,148
(39,542)
(74,434)
117,906
−
−
−
−
−
−
−
−
−
−
−
−
−
−
−
(566)
(566)
−
−
−
566
566
−
−
−
−
−
(25,454)
(25,454)
(4,032)
−
(4,032)
(4,032)
(25,454)
(29,486)
28,391
159,899
40,444
2,582
(43,008)
(99,888)
88,420
At 1 January
2014
Issue of ordinary
shares
Employee
share-based
compensation
Transactions
with owners
Translation
reserve
movements
Profi t for the
year
Total
comprehensive
income
At 31
December 2014
Employee
share-based
compensation
Transactions
with owners
Translation
reserve
movements
Loss for the year
Total
comprehensive
income
At 31
December 2015
The accompanying notes on pages 26-56 are an integral part of these consolidated fi nancial statements.
The accompanying notes on pages 26-56 are an integral part of these consolidated fi nancial statements.
28
Zoltav Resources Inc. Annual Report 2015
Zoltav Resources Inc. Annual Report 2015
29
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015 (in ʻ000s US dollars, unless otherwise stated)
1
1.1
The Zoltav Group (Group) comprises Zoltav Resources Inc. (Company), together with its subsidiaries:
Background
The Company and its operations
Name
Zoltav Resources Holdings (Jersey)
Limited
Place of
incorporation
Function
Share of the Group in a
subsidiary
Jersey
Holding company
ZRI Services (UK) Ltd
United Kingdom
Service company
CenGeo Holdings Limited (hereinafter
“CenGeo Holdings”)
Cyprus
Holding company
CJSC SibGeCo (hereinafter “SibGeCo”)
Russia
Operating company
Royal Atlantic Energy (Cyprus) Limited
(hereinafter “Royal”)
Diall Alliance LLC (hereinafter “Diall”)
Zoltav Resource LLC
Cyprus
Russia
Russia
Holding company
Operating company
Management company
100%
100%
100%
100%
100%
100%
100%
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 are the acquisition, exploration and development of hydrocarbon assets
and production of hydrocarbons in the Russian Federation and the Commonwealth of Independent States (“CIS”). The Company’s
shares are listed on the Alternative Investment Market (“AIM”) of London Stock Exchange. The fi nancial statements are prepared in
United States dollars.
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 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 fi nancial markets, may have a signifi cant impact on the
Group’s operations and fi nancial position, the effect of which is diffi cult to predict. The future economic and regulatory situation may
differ from management’s expectations.
Whilst not currently affecting the Group’s operations, the sanctions being imposed by the European Union and the United States of
America continue to evolve. The Company cannot confi rm that the sanctions will not have an effect on the Group’s operations or its
ability to access international capital markets in the future.
FINANCIAL
INFORMATION
NOTES TO
ACCOUNTS
Signifi cant accounting policies
Basis of preparation
2
2.1
The consolidated fi nancial 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 fi nancial statements
have been prepared under the historical cost convention, as modifi ed by the revaluation of fi nancial assets and fi nancial liabilities
(including derivative instruments) at fair value through profi t or loss.
The preparation of fi nancial 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 signifi cant to the consolidated fi nancial
statements are disclosed in Note 3.
Going concern
2.2
The consolidated fi nancial statements have been prepared on the going concern basis as the directors have concluded that the Group
will continue to have access to suffi cient funds in order to meet its obligations as they fall due for at least the foreseeable future as
explained further in the Directors Report. Liquidity issues related to Group’s going concern assumption are described in Note 27.1.
Disclosure of impact of new and future accounting standards
Adoption of amended Standards
2.3
(a)
The Group applied for the fi rst time certain standards and amendments, which are effective for annual periods beginning on or after
1 January 2015. The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not
yet effective.
Although these new standards and amendments applied for the fi rst time in 2015, they did not have a material impact on the annual
consolidated fi nancial statements of the Group.
Standards
IAS 19 (amended) Employee Benefi ts
Annual improvements 2010-2012 cycle
IFRS 2 (amended) Share-based Payments
IFRS 3 (amended) Business Combinations
IFRS 8 (amended) Operating Segments
IAS 16 (amended) Property, Plant and Equipment
IAS 38 (amended) Intangible Assets
IAS 24 (amended) Related Party Disclosures
Annual improvements 2011-2013 cycle
IFRS 3 (amended) Business Combinations
IFRS 13 (amended) Fair Value Measurement
IAS 40 (amended) Investment Property
Effective for annual periods
beginning or after
1 July 2014
1 July 2014
1 July 2014
1 July 2014
1 July 2014
1 July 2014
1 July 2014
1 July 2014
1 July 2014
1 July 2014
Standards issued but not yet effective
(b)
The most signifi cant standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group’s
consolidated fi nancial statements are disclosed below.
IFRS 9 Financial Instruments
In July 2014, the IASB issued the fi nal version of IFRS 9 Financial Instruments which refl ects all phases of the fi nancial instruments
project and replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. The standard
introduces new requirements for classifi cation and measurement, impairment, and hedge accounting. IFRS 9 is effective for annual
periods beginning on or after 1 January 2018, with early application permitted. Retrospective application is required, but comparative
information is not compulsory. Early application of previous versions of IFRS 9 (2009, 2010 and 2013) is permitted if the date of initial
application is before 1 February 2015. The adoption of IFRS 9 will have insignifi cant effect on the classifi cation and measurement
of the Group’s fi nancial assets.
30
Zoltav Resources Inc. Annual Report 2015
Zoltav Resources Inc. Annual Report 2015
31
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015 (in ʻ000s US dollars, unless otherwise stated)
IFRS 15 Revenue from Contracts with Customers
IFRS 15 was issued in May 2014 and establishes a new fi ve-step model that will apply to revenue arising from contracts with
customers. Under IFRS 15 revenue is recognised at an amount that refl ects the consideration to which an entity expects to be
entitled in exchange for transferring goods or services to a customer. The principles in IFRS 15 provide a more structured approach
to measuring and recognising revenue. The new revenue standard is applicable to all entities and will supersede all current revenue
recognition requirements under IFRS. Either a full or modifi ed retrospective application is required for annual periods beginning on
or after 1 January 2018 with early adoption permitted.
IFRS 16 Leases
The IASB issued its new leases standard, IFRS 16 Leases, which replaces existing IFRS leases requirements and requires lessees
to recognise assets and liabilities for most leases. For lessees, the new leases standard marks a signifi cant change from current
requirements under IFRS. The application is required for annual periods starting from 1 January 2019.
The Group is considering the implication of the new standards and the impact on the Group’s consolidated fi nancial statements. The
Group plans to adopt new standards and amendments when they become effective.
There are other improvements, pronouncements and amendments that are not relevant to the current Group’s operations.
Basis of Consolidation
2.4
The consolidated fi nancial statements comprise the fi nancial statements of the Group and its subsidiaries as at 31 December 2015.
Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the
ability to affect those returns through its power over the investee.
Specifi cally, the Group controls an investee if, and only if, the Group has:
•
•
•
Power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee)
Exposure, or rights, to variable returns from its involvement with the investee
The ability to use its power over the investee to affect its returns
Generally, there is a presumption that a majority of voting rights results in control. To support this presumption and when the Group
has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in
assessing whether it has power over an investee, including:
•
•
•
The contractual arrangement(s) with the other vote holders of the investee
Rights arising from other contractual arrangements
The Group’s voting rights and potential voting rights
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or
more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and
ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed
of during the year are included in the consolidated fi nancial statements from the date the Group gains control until the date the Group
ceases to control the subsidiary.
When necessary, adjustments are made to the fi nancial statements of subsidiaries to bring their accounting policies into line with the
Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash fl ows relating to transactions
between members of the Group are eliminated in full on consolidation.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction.
If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities and components of
equity, while any resultant gain or loss is recognised in profi t or loss. Any investment retained is recognised at fair value.
Acquisitions, asset purchases and disposals
2.5
Transactions involving the purchases of an individual fi eld interest, or a group of fi eld interests, that do not qualify as a business
combination are treated as asset purchases, irrespective of whether the specifi c transactions involved the transfer of the fi eld 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 specifi c 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.
Business combinations
2.6
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of
the consideration transferred, which is measured at acquisition date fair value, and the amount of any non-controlling interests in
the acquiree. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree at
fair value or at the proportionate share of the acquiree’s identifi able net assets. Acquisition-related costs are expensed as incurred
and included in administrative expenses.
When the Group acquires a business, it assesses the fi nancial assets and liabilities assumed for appropriate classifi cation and
designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date.
This includes the separation of embedded derivatives in host contracts by the acquiree.
FINANCIAL
INFORMATION
NOTES TO
ACCOUNTS
Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Contingent
consideration classifi ed as an asset or liability that is a fi nancial instrument and within the scope of IAS 39 Financial Instruments:
Recognition and Measurement, is measured at fair value with the changes in fair value recognised in the statement of profi t or loss.
Goodwill is initially measured at cost (being the excess of the aggregate of the consideration transferred and the amount recognised
for non-controlling interests) and any previous interest held over the net identifi able assets acquired and liabilities assumed. If the
fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Group re-assesses whether it has
correctly identifi ed all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the
amounts to be recognised at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired
over the aggregate consideration transferred, then the gain is recognised in profi t or loss.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing,
goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units
that are expected to benefi t from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to
those units.
Where goodwill has been allocated to a cash-generating unit (CGU) and part of the operation within that unit is disposed of, the
goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or
loss on disposal. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and
the portion of the cash-generating unit retained.
2.7
Segment reporting
Segmental reporting follows the Group’s internal reporting structure.
Operating segments are defi ned as components of the Group where separate fi nancial 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 fi nancial performance using the information provided.
The CODM receives monthly IFRS-based fi nancial information for the Group and its development and production entities. The Group
has other entities that engage as either head offi ce or in a corporate capacity or as holding companies. Management has concluded
that due to application of the aggregation criteria that separate fi nancial 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 operating segment and the Group operates
in only one geographic area − the Russian Federation.
2.8
Foreign currency translation
Functional and presentation currency
(a)
Items included in the fi nancial 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 functional currency of the Group entities is considered to
be the Russian ruble (“RUB”), the currency of the primary economic environment in which the Group operates. The consolidated
fi nancial statements are presented in USD, which is the Group’s presentation currency, since management believes that this currency
is a more useful measure for the potential users of the consolidated fi nancial statements (shareholders).
Transactions and balances
(b)
Transactions in foreign currencies are initially recorded by the Group’s entities at their respective functional currency spot rates at
the date the transaction fi rst qualifi es for recognition.
Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange
at the reporting date.
Differences arising on settlement or translation of monetary items are recognised in profi t or loss with the exception of monetary
items that are designated as part of the hedge of the Group’s net investment of a foreign operation. These are recognised in OCI
until the net investment is disposed of, at which time, the cumulative amount is reclassifi ed to profi t or loss. Tax charges and credits
attributable to exchange differences on those monetary items are also recorded in OCI.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the
dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange
rates at the date when the fair value is determined. The gain or loss arising on translation of non-monetary items measured at fair
value is treated in line with the recognition of the gain or loss on the change in fair value of the item (i.e., translation differences on
items whose fair value gain or loss is recognised in OCI or profi t or loss are also recognised in OCI or profi t or loss, respectively).
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 profi t 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.
32
Zoltav Resources Inc. Annual Report 2015
Zoltav Resources Inc. Annual Report 2015
33
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015 (in ʻ000s US dollars, unless otherwise stated)
FINANCIAL
INFORMATION
NOTES TO
ACCOUNTS
The results and fi nancial position of all the Group entities (none of which has the currency of a hyper-infl ationary economy) that have
a functional currency different from the presentation currency are translated into the presentation currency as follows:
the amortisation of fi eld development costs takes into account expenditures incurred to date.
(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 accounting policies set out below have been applied consistently to all years presented in the historical fi nancial information,
and have been applied consistently by the Company.
The period-end exchange rates and the average exchange rates for the respective reporting periods are indicated below.
RUB/USD as at 31 December
RUB/USD average for the year ended 31 December
2015
72.8827
60.9579
2014
56.2584
38.4217
Exploration and evaluation assets
2.9
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 fi eld-by-fi eld 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 fi nancial statements according to
the nature of the expenditure and the stage of development of the associated fi eld, 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 profi t 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.
2.10
(a)
Oil and gas assets are stated at cost less accumulated depletion or accumulated depreciation and, where relevant, impairment costs.
Property, plant and equipment
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 specifi c fi eld, 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 fi eld by fi eld basis and represent the cost of developing the
commercial reserves discovered and bringing them into production together with E&E expenditures incurred in fi nding 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 fi eld or to the licence area as a whole. Subsequent
expenditure is capitalised only if it either enhances the economic benefi ts 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 specifi c 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 fi eld 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
(ii)
Depreciation
Major oil and gas facilities that have a shorter useful life than the lifetime of the related fi elds 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 benefi ts associated with the item will fl ow 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 fi nancial 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, offi ce 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
2.11
(i)
Impairment of non-current assets
Impairment indicators
The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or
when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable
amount is the higher of an asset’s or CGU’s fair value less costs of disposal and its value in use. The recoverable amount is
determined for an individual asset, unless the asset does not generate cash infl ows that are largely independent of those from other
assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered
impaired and is written down to its recoverable amount.
In assessing value in use, the estimated future cash fl ows are discounted to their present value using a pre-tax discount rate that
refl ects current market assessments of the time value of money and the risks specifi c to the asset. In determining fair value less costs
of disposal, recent market transactions are taken into account. If no such transactions can be identifi ed, an appropriate valuation
model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or
other available fair value indicators.
The Group bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each
of the Group’s CGUs to which the individual assets are allocated. These budgets and forecast calculations generally cover a period
of fi ve years. A long-term growth rate is calculated and applied to project future cash fl ows after the fi fth year.
Impairment losses of continuing operations are recognised in the statement of profi t or loss in expense categories consistent with
the function of the impaired asset, except for properties previously revalued with the revaluation taken to OCI. For such properties,
the impairment is recognised in OCI up to the amount of any previous revaluation.
For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that
previously recognised impairment losses no longer exist or have decreased. If such indication exists, the Group estimates the
asset’s or CGU’s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the
assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised. The reversal is
limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would
have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is
recognized in the statement of profi t or loss unless the asset is carried at a revalued amount, in which case, the reversal is treated
as a revaluation increase.
(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 fl ows are discounted to their present value using a pre-tax discount rate that refl ects current market
assessments of the time value of money and the risks specifi c to the asset.
(iii) Cash generating units
For an asset that does not generate cash infl ows 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 identifi able
groups of assets that generate cash infl ows that are largely independent of the cash infl ows from other assets or groups of assets.
34
Zoltav Resources Inc. Annual Report 2015
Zoltav Resources Inc. Annual Report 2015
35
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015 (in ʻ000s US dollars, unless otherwise stated)
For the purposes of assessing impairment, exploration and evaluation assets subject to testing are grouped with existing cash-
generating units of production fi elds 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 fi eld. For shared infrastructure a number of fi eld interests
may be grouped together where surface infrastructure is used by several fi elds 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 profi t or loss.
Inventories
2.12
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 fi nished 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 profi t or loss.
Financial instruments
2.13
A fi nancial instrument is any contract that gives rise to a fi nancial asset of one entity and a fi nancial liability or equity instrument of
another entity. Financial assets and fi nancial liabilities are recognised when and only when, the Company becomes a party to the
contractual provisions of the instrument. Financial assets and fi nancial liabilities are initially measured at fair value. Transaction costs
that are directly attributable to the acquisition or issue of fi nancial assets and fi nancial liabilities (other than fi nancial assets and
fi nancial liabilities at fair value through profi t or loss) are added to or deducted from the fair value of the fi nancial assets or fi nancial
liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of fi nancial assets or fi nancial
liabilities at fair value through profi t or loss are recognised immediately in the statement of comprehensive income.
Financial assets
(a)
The Company classifi es its fi nancial assets into one of the following categories: fi nancial assets at fair value through profi t or loss
and loans and receivables.
Regular purchases of fi nancial assets are recognised on the trade date. Management determines the classifi cation of its fi nancial
assets at initial recognition depending on the purpose for which the fi nancial 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 profi t or loss
Financial assets at fair value through profi t or loss include fi nancial assets held for trading and fi nancial assets designated upon initial
recognition at fair value through profi t or loss. Financial assets are classifi ed 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 identifi ed fi nancial instruments that are managed together and for which there
is evidence of a recent pattern of short-term profi t-taking.
Financial assets may be designated at initial recognition as at fair value through profi t or loss if the following criteria are met:
•
•
the designation eliminates or signifi cantly 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 fi nancial 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 fi nancial assets
is provided internally on that basis to the key management personnel.
Subsequent to initial recognition, the fi nancial 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 fi nancial assets. Dividend and interest income is recognised in on an accruals basis.
Other receivables
Other receivables are non-derivative fi nancial assets with fi xed 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 fl ows, excluding future credit losses
that have not been incurred, discounted at the fi nancial 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.
FINANCIAL
INFORMATION
NOTES TO
ACCOUNTS
Objective evidence of impairment of individual fi nancial assets includes observable data that comes to the attention of the Company
about one or more of the following loss events:
•
•
•
•
signifi cant fi nancial diffi culty 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 fi nancial reorganisation; and
signifi cant 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 fi nancial assets include observable data indicating that there is a measurable decrease
in the estimated future cash fl ows from the Company of fi nancial 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 fi nancial 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
(b)
Financial liabilities and equity instruments issued by the Company are classifi ed according to the substance of the contractual
arrangements entered into and the defi nitions of a fi nancial 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 fi nancial liabilities and equity instruments are set out below.
Other fi nancial liabilities
Other fi nancial liabilities include trade and other payables and are recognised initially at fair value and subsequently measured at
amortised cost, using the effective interest method.
Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
Derecognition
(c)
Financial assets are derecognised when the rights to receive cash fl ows from the assets expire or, the fi nancial assets are transferred
and the Company has transferred substantially all the risks and rewards of ownership of the fi nancial assets. On derecognition of a
fi nancial 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 fi nancial liabilities, they are removed from the balance sheet when the obligation specifi ed in the relevant contract is discharged,
cancelled or expires. The difference between the carrying amount of the fi nancial liability derecognised and the consideration paid
is recognised in the statement of comprehensive income.
2.14 Cash and cash equivalents
Cash and short-term deposits in the statement of fi nancial position comprise cash at banks and on hand and short-term deposits with
a maturity of three months or less, which are subject to an insignifi cant risk of changes in value. For the purpose of the consolidated
statement of cash fl ows, cash and cash equivalents consist of cash and short-term deposits, as defi ned above, net of outstanding
bank overdrafts as they are considered an integral part of the Group’s cash management.
2.15 Borrowings
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the EIR method.
Gains and losses are recognised in profi t or loss when the liabilities are derecognised as well as through the EIR amortisation
process. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an
integral part of the EIR. The EIR amortisation is included as fi nance costs in the statement of profi t or loss.
Provisions
2.16
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 outfl ow of economic benefi ts 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 refl ect the current best estimate.
Where it is not probable that an outfl ow of economic benefi ts will be required, or the amount cannot be estimated reliably, the
obligation is disclosed as a contingent liability, unless the probability of outfl ow of economic benefi ts is remote. Possible obligations,
whose existence will only be confi rmed 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 outfl ow of economic benefi ts 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 fi eld. 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
36 Zoltav Resources Inc. Annual Report 2015
Zoltav Resources Inc. Annual Report 2015
37
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015 (in ʻ000s US dollars, unless otherwise stated)
facilities. Any change in the present value of the estimated expenditure attributable to changes in the estimates of the cash fl ow or
the current estimate of the discount rate used are refl ected as an adjustment to the provision and the property, plant and equipment.
The unwinding of the discount is recognised as a fi nance 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 outfl ow 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 outfl ow 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 outfl ow 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 refl ects current market assessments of the time value of money and the risks specifi c to the obligation. The increase in the
provision due to passage of time is recognised as interest expense.
Share capital
2.17
Ordinary shares are classifi ed 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 benefi t) 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 acquisition under common control.
2.18 Revenue recognition
Revenue, which is the fair value of consideration received or receivable, is recognised when it is probable that economic benefi ts
will fl ow 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.
2.19 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 fi eld 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.
2.20 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.
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 fi nancial 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 profi t 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 profi t 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.
FINANCIAL
INFORMATION
NOTES TO
ACCOUNTS
Employee benefi ts
Retirement benefi t schemes
2.21
(a)
No pension contributions were payable in the year. In 2010, the Company participated only in defi ned 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 benefi t 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 benefi t 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 qualifi es
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 fi nancial 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 signifi cant risk
of causing a material adjustment to the carrying amounts of assets and liabilities within the next fi nancial year are discussed below:
Income taxes
3.1
The Group is subject to income and other taxes. Signifi cant 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 offi cial 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 fi nes 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 profi ts to utilise deferred
income tax recognised. Signifi cant management judgement is required to determine the amount of deferred tax assets recognised,
based upon the likely timing and the level of future taxable profi ts. Management prepares cash-fl ow forecasts to support recoverability
of deferred tax assets. Cash fl ow 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 signifi cant uncertainties
exist, deferred tax losses are not recognised even if recoverability of these is supported by cash fl ow forecasts. Refer to further
details in note 23.
38 Zoltav Resources Inc. Annual Report 2015
Zoltav Resources Inc. Annual Report 2015
39
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015 (in ʻ000s US dollars, unless otherwise stated)
Provision for decommissioning and environmental restoration
3.2
This provision is signifi cantly 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.
Under the current levels of enforcement of existing legislation, management believes there are no signifi cant liabilities in addition to
amounts which are already accrued and which would have a material adverse effect on the fi nancial position of the Group.
The Company’s exploration, development and production activities involve the use of wells, related equipment and operating sites.
Generally, licenses and other regulatory acts require that such assets be decommissioned upon the completion of production.
According to these requirements, the Company is obliged to decommission wells, dismantle equipment, restore the sites and perform
other related activities. The Company’s estimates of these obligations are based on current regulatory or license requirements, as
well as actual dismantling and other related costs. These liabilities are measured by the Company using the present value of the
estimated future costs of decommissioning of these assets. The discount rate is reviewed at each reporting date and refl ects risk
free rate. The Company adjusts specifi c cash fl ows for risk.
3.3
(a)
An impairment exercise will be performed at the end of the exploration and evaluation process.
Impairment of assets
Exploration and evaluation
When, at the end of the exploration and evaluation stage, commercial reserves are determined to exist in respect of a particular fi eld
the Company will perform an impairment test in relation to costs capitalised. Where reserves are determined in suffi cient 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 fi elds 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
fi eld 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 identifi ed during the reporting years covered by this historical fi nancial information.
Valuations of share options or warrants granted
3.4
Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation model, which
depends on the terms and conditions of the grant. This estimate also requires determination of the most appropriate inputs to
the valuation model including the expected life of the share option or appreciation right, volatility and dividend yield and making
assumptions about them. 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 fi nancial statements.
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 fi elds 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 profi le on a fi eld by fi eld 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 fi eld 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 2015, there are no non-compliance issues that will have an adverse effect on the fi nancial
position or the operating results of the Group.
FINANCIAL
INFORMATION
NOTES TO
ACCOUNTS
Determination of fair value
4
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 specifi c to that asset or liability.
Other receivables
4.1
The fair value of other receivables is estimated as the present value of future cash fl ows, discounted at the market rate of interest at
the reporting date. This fair value is determined for disclosure purposes.
Non-derivative fi nancial liabilities
4.2
Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash
fl ows, discounted at the market rate of interest at the reporting date. Fair value of the non-derivative fi nancial assets is disclosed in
Note 4.3 to the fi nancial statements.
4.3
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
Total assets
Financial liabilities
Borrowings
Trade and other payables
Total liabilities
31 December 2015
31 December 2014
Fair value
Carrying value
Fair value
Carrying value
2,584
2,584
30,385
2,948
33,333
2,584
2,584
30,440
2,948
33,388
3,139
3,139
42,516
3,100
45,616
3,139
3,139
42,276
3,100
45,376
The fair value of borrowings is based on cash fl ows discounted using a rate based on the borrowing rate of 12.07% (2014: 12.02%)
and is within level 2 of the fair value hierarchy.
Revenue
5
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
2015
22,679
3,137
2,322
28,138
2014
15,721
1,927
2,370
20,018
All gas sales are to one customer, Gazprom Mezhreiongaz Saratov LLC under a long term contract effective until 31 December
2020 with terms reviewed annually. Condensate and oil are sold to regional buyers. The sales of all three products are denominated
in RUB.
40 Zoltav Resources Inc. Annual Report 2015
Zoltav Resources Inc. Annual Report 2015
41
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015 (in ʻ000s US dollars, unless otherwise stated)
6
Cost of sales
Mineral extraction tax
Depreciation and depletion
Wages and salaries
Materials and supplies
Repair and maintenance
Other taxes and royalties
Compensation benefi ts to operations personnel
Other
Total cost of sales
7
Operating, administrative, selling expenses
Wages and salaries including Director’s fee
Accountancy, audit, legal and consulting services*
Rent expense
Insurance
Computers and software
Travelling
Offi ce expenses
Other
Total operating, administrative, selling expense
2015
6,443
6,094
2,060
1,948
1,126
351
327
1,160
19,509
2015
4,634
1,872
281
159
137
123
82
618
7,906
2014
3,871
4,241
1,579
1,144
1,378
363
230
713
13,519
2014
3,107
7,055
585
166
152
121
566
2,444
14,196
* In 2014 included within the accountancy, audit, legal and consulting services are USD 3,200 thousand of expenses in respect of the acquisition of Diall.
8
Employee benefi t expenses (including directors’ remuneration)
Salaries and other employee benefi ts
Total
2015
6,694
6,694
Personnel expenses are included in cost of sales and operating, administrative and selling expenses.
Average monthly Number of Employees for the year (including executive directors):
Administrative
Operating
Total
2015
Number
92
206
298
2014
4,686
4,686
2014
Number
85
197
282
FINANCIAL
INFORMATION
NOTES TO
ACCOUNTS
Acquisitions
9
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 control was obtained during fi rst half of 2014
through the issue of 38,263,095 new Ordinary Shares at an effective price of USD 1.60 (100 pence) per share (equivalent to USD
61,221 thousand) and the payment of USD 58,941 thousand in cash. The acquired business will increase the Group’s penetration of
its chosen upstream gas and oil market, provide operating cash fl ow 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:
Cash consideration paid
Fair value of new issued shares of the acquirer
Total purchase consideration
USD’000
58,941
61,221
120,162
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 USD 3,200 thousand were expensed in 2014 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
identifi able assets acquired and liabilities and contingent liabilities assumed.
In USD’000
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 identifi able net assets of subsidiary
Negative goodwill arising from the acquisition
Total purchase consideration, including
Non-cash consideration
Cash consideration
Net cash outfl ow on acquisition comprised USD 49,712 thousand.
Attributed fair value
9,229
90,000
128,900
500
7,471
(62,100)
(9,064)
(5,600)
(1,800)
(2,400)
155,136
(34,974)
120,162
61,221
58,941
The fair values of assets and liabilities acquired are based on a combined valuation approach that considered both discounted cash
fl ows expected to be generated from the acquired business and a multiple based approach looking to similar recent observable
market transactions The valuation of identifi able tangible and intangible assets was performed by an independent professional
appraiser.
The fair value of the assets acquired and liabilities assumed is greater than the purchase consideration given. The resultant negative
goodwill of USD 34,974 thousand is as a result the initial acquisition of the assets by Bandbear, the related party of the Group (Note
29). The negative goodwill on acquisition has been immediately recognised in the income statement as a gain on acquisition.
The revenue included in the consolidated income statement from 18 June 2014 to 31 December 2014 and contributed by Royal
Atlantic Energy was USD 20,018 thousand. Had Royal Atlantic Energy been consolidated into the Group from 1 January 2014, the
consolidated income statement for the year ended 31 December 2014 would show revenue of USD 38,140 thousand.
42
Zoltav Resources Inc. Annual Report 2015
Zoltav Resources Inc. Annual Report 2015
43
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015 (in ʻ000s US dollars, unless otherwise stated)
10
Net fi nance (costs)/income
12
Exploration and evaluation assets
FINANCIAL
INFORMATION
NOTES TO
ACCOUNTS
Interest on borrowings
Interest on deposits
Unwinding of the discount on decommissioning and environ-
mental restoration provision (Note 22)
Total
11
The tax charge for the year comprises:
Income tax expense
Current tax expense
Deferred tax expense
Total income tax expense
Reconciliation between expected and actual taxation charge is provided below.
Profi t 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 Cayman income tax at the rate of 0% (2014: 0%).
2015
(4,295)
847
(1,206)
(4,654)
2015
−
(475)
(475)
2015
(4,032)
−
(295)
(106)
(74)
(475)
2014
(3,239)
489
(559)
(3,309)
2014
9
(2,408)
(2,399)
2014
21,707
−
(172)
(1,555)
(672)
(2,399)
Drilling,
seismic and
other costs
Decommissioning
asset
Construction
work in
progress
Balance at 1 January 2014
Additions
Reclassifi cation
Transfer to Property, plant and
equipment
Change in the estimates of
decommissioning provision
Exchange difference
Balance at 31 December 2014
Additions
Reclassifi cation
Transfer to Property, plant and
equipment
Change in the estimates of
decommissioning provision
Exchange difference
Balance at 31 December 2015
Sub-soil
licences
19,212
38,254
1,575
−
−
(22,581)
36,460
724
100
−
−
15,210
59,707
2
(612)
−
(29,223)
45,084
166
−
−
−
(8,456)
28,828
(10,177)
35,073
1,828
469
−
−
1,335
(1,363)
2,269
−
−
−
(1,555)
(263)
451
1,849
162
(1,577)
−
−
(325)
109
3
(100)
−
−
(9)
3
Total
38,099
98,592
−
(612)
1,335
(53,492)
83,922
893
−
−
(1,555)
(18,905)
64,355
Additions in 2014 include additions on acquisition of Royal Atlantic Energy of USD 25,800 thousand, USD 63,700 thousand and
USD 500 thousand 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 2015 there were no non-compliance issues in respect of the licences that would have
an adverse effect on the fi nancial position or the operating results of the Group.
44 Zoltav Resources Inc. Annual Report 2015
Zoltav Resources Inc. Annual Report 2015
45
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015 (in ʻ000s US dollars, unless otherwise stated)
13
Property, plant and equipment
15
Trade and other receivables
FINANCIAL
INFORMATION
NOTES TO
ACCOUNTS
Motor
vehicles
Other
equipment and
furniture
Construction
work in
progress
Cost at 1 January 2014
Additions
Reclassifi cation
Transfer from exploration and evaluation assets
Disposals
Exchange difference
Cost at 31 December 2014
Additions
Reclassifi cation
Transfer from exploration and evaluation assets
Disposals
Exchange difference
Cost at 31 December 2015
Accumulated depreciation and impairment
Balance at 1 January 2014
Depreciation and depletion
Disposals
Exchange difference
Balance at 31 December 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
Net book value at 31 December 2015
Oil and
gas
assets
−
121,244
6,209
589
(431)
(48,690)
78,921
−
4,752
−
(3,011)
(18,309)
62,353
−
(4,151)
74
1,975
(2,102)
(5,982)
108
1,441
(6,535)
−
76,819
55,818
−
437
35
−
(24)
(183)
265
−
15
−
−
(63)
217
−
(69)
20
28
(21)
(95)
−
20
(96)
−
244
121
5
216
−
−
(1)
(82)
138
−
−
−
(1)
(31)
106
−
(109)
1
43
(65)
(9)
1
16
(57)
5
73
49
Total
5
−
14,533
136,430
(6,244)
23
(208)
−
612
(664)
(3,077)
(52,032)
5,027
4,461
(4,767)
−
(104)
(1,081)
3,536
−
−
−
−
−
−
−
−
−
−
5,027
3,536
84,351
4,461
−
−
(3,116)
(19,484)
66,212
−
(4,329)
95
2,046
(2,188)
(6,086)
109
1,477
(6,688)
5
82,163
59,524
Additions in 2014 include additions on acquisition of Royal Atlantic Energy of USD 128,400 thousand, USD 400 thousand and USD
100 thousand in respect of “oil and gas assets”, “motor vehicles” and “other equipment and furniture” respectively.
14
Inventories
Natural gas and hydrocarbon liquids
Materials and supplies
Total inventories
2015
27
107
134
2014
36
287
323
Financial assets
Trade receivables
Other accounts receivable
Non-fi nancial assets
Prepayments
VAT receivable
Other taxes prepaid
Total trade and other receivables
2015
2,048
1,990
58
536
413
117
6
2,584
2014
2,581
2,512
69
558
453
103
2
3,139
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.
16
Cash and cash equivalents are represented by cash at bank and the majority of cash held is denominated in RUB.
Cash and cash equivalents
The Company’s exposure to credit risk and impairment losses related to cash and cash equivalents are disclosed in Note 27.
17
Share capital
As at 31 December 2015 and 2014
Number of ordinary shares
Nominal Value
Authorised (par value of USD 0.20 each)
Issued and fully paid (par value of USD 0.20 each)
250,000,000
141,955,386
50,000
28,391
On 31 March 2014, Zoltav received USD 5,000 thousand 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, which took place in 2013. On 31
March 2014, 4,549,591 shares of USD 0.20 were issued for consideration of USD 5,000 thousand.
On 12 June 2014, 100,000 shares of nominal value of USD 0.20 were issued as a result of the warrants exercise for a cash
consideration of USD 167 thousand. The amount of USD 95 thousand 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 USD 1.60 were issued for a consideration of USD 61,221 thousand. 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 USD 65,946 thousand through the issue of 41,216,511 shares at USD 1.60 (100
pence). Subscriptions were received from ARA Capital (USD 45,615 thousand for 28,509,375 shares), Crediton Invest (USD 10,166
thousand for 6,353,568 shares) and Matteson Overseas (USD 10,166 thousand for 6,353,568 shares). An exchange rate of USD
1.60: GBP 1.00 was agreed in the Subscription Agreements.
On 20 June 2014, 250,000 shares of USD 0.20 were issued as a result of the warrants exercise for a cash consideration of USD 426
thousand. The amount of USD 235 thousand was transferred from employee share-based compensation reserve to share premium
upon exercise of the warrants.
On 26 June 2014, 250,000 shares of USD 0.20 were issued as a result of the options exercise for a cash consideration of USD 85
thousand. The amount of USD 271 thousand was transferred from employee share-based compensation reserve to share premium
upon exercise of the options.
On 15 July 2014, 15,000 shares of USD 0.20 were issued as a result of the warrants exercise for a cash consideration of USD 26
thousand. The amount of USD 14 thousand was transferred from employee share-based compensation reserve to share premium
upon exercise of the warrants.
On 25 July 2014, 110,000 shares of USD 0.20 were issued as a result of the warrants exercise for a cash consideration of USD 187
thousand. The amount of USD 104 thousand was transferred from employee share-based compensation reserve to share premium
upon exercise of the warrants.
On 28 July 2014, 40,000 shares of USD 0.20 were issued as a result of the warrants exercise for a cash consideration of USD 68
46 Zoltav Resources Inc. Annual Report 2015
Zoltav Resources Inc. Annual Report 2015
47
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015 (in ʻ000s US dollars, unless otherwise stated)
thousand. The amount of USD 38 thousand was transferred from employee share-based compensation reserve to share premium
upon exercise of the warrants.
Dividends
18
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 fi nancial statements prepared in accordance with International Accounting
Standards. No dividends were declared and paid.
FINANCIAL
INFORMATION
NOTES TO
ACCOUNTS
Initial Share Options
20.2
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:
2015
2014
Weighted
average exercise
price (pence)
445
445
Number
367,500
(165,000) −
202,500
Weighted
average exercise
price (pence)
482
482
Number
367,500
− −
367,500
(Loss)/earnings per share
19
Basic (loss)/earnings 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 (loss)/earnings 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 share options and warrants as dilutive potential ordinary shares.
Outstanding at 1 January
Expired
Outstanding at 31 December
2015
2014
Share options granted under the Initial Share Option scheme were exercisable as follows:
•
•
•
the fi rst 30% of the options between the fi rst 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.
(Loss)/earnings attributable to owners of the Company – Basic and diluted
(4,032)
21,707
Number of Shares
Number of Shares
Weighted average number of shares for calculating basic loss per share
141,955,386
104,997,495
Effect of dilutive potential ordinary shares – warrants
Effect of dilutive potential ordinary shares - share options
10,377
1,957,021
293,158
2,236,678
Weighted average number of shares for calculating diluted loss per share
143,922,784
107,527,331
Basic (loss)/earnings per share
Diluted (loss)/earnings per share
US cents
US cents
(2.84)
(2.80)
20.67
20.19
Share-based payments
Share Options
20
20.1
At 31 December 2015, the Company had a total of 1,952,500 outstanding share options (2014: 2,117,500). The only movement in
share options was expiration 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
2015
2014
Number
Option exercise price
(pence)
−
−
−
202,500
1,750,000
1,952,500
−
−
−
445
20
Option exercise price
(pence)
423
1,904
653
445
20
Number
117,500
10,000
7,500
232,500
1,750,000
2,117,500
No share options were granted during the year ended 31 December 2015.
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 USD 680 thousand
(2014: USD 1,235 thousand).
20.3 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
Number
1,750,000
−
−
−
Outstanding at 31 December
1,750,000
2015
2014
Weighted
average exercise
price (pence)
20
−
−
−
20
Number
2,000,000
−
(250,000)
−
1,750,000
Weighted
average exercise price
(pence)
20
−
−
−
20
During 2014 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.
48 Zoltav Resources Inc. Annual Report 2015
Zoltav Resources Inc. Annual Report 2015
49
FINANCIAL
INFORMATION
NOTES TO
ACCOUNTS
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. In December 2015 the Company signed an amendment altering covenants.
The Company is in compliance with these covenants. The loan is secured on the fi xed 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 outstanding amount of the facility as of 31 December 2015 was RUB 2,220,000 thousand (USD 30,440 thousand). The credit
facility is measured at amortised cost, using the effective interest method.
Decommissioning and environmental restoration provision
22
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 gas and oil
fi elds which is estimated to be within 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
2015
10,649
36
1,206
(5,193)
(1,786)
4,912
2014
4,383
9,109
559
2,953
(6,355)
10,649
This provision has been created based on the Company’s internal estimates. 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 refl ect market
conditions at the relevant time. Furthermore, the timing is likely to depend on when the fi elds 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 refl ects 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 decommissioning and environmental restoration provision as of 31 December 2015 decreased in comparison with 31 December
2014 due to the change in estimate of forecasted infl ation rates. During 2015 the Company reconsidered the application of infl ation
rates used for the provision estimation and moved from the historical to the forecasting approach based on the forecast of the
Ministry of Economic Development of the Russian Federation. The infl ation rate used in the estimation of the provision was 7.4% in
2016 decreasing to 5.3% in 2036 (in 2014 the fl at rate of 11.4% was applied based on an historical basis) based on the forecast of
the Ministry of Economic Development of the Russian Federation. The discount rates used to determine the decommissioning and
environmental restoration provision is based on the Russian Government Bond Rates.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015 (in ʻ000s US dollars, unless otherwise stated)
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 USD 1,901
thousand (2014: USD 1,901 thousand).
20.4 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.
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 GBP. During 2015 the remaining 12,500 outstanding
warrants were expired.
21
Borrowings
Non-revolving credit facility −
current liability, as at 1 January
Interest accrued
Interest paid
Exchange difference
Non-revolving credit facility −
current liability, as at 31 December
Non-revolving credit facility –
non-current liability, as at 1 January
Diall acquisition
Drawdown
Repayment
Exchange difference
Non-revolving credit facility –
non-current liability, as at 31 December
2015
3,200
4,295
(4,313)
1,941
5,123
39,076
-
-
(3,044)
(10,715)
25,317
2014
-
3,239
(3,046)
3,007
3,200
-
62,100
4,024
-
(27,048)
39,076
On 4 April 2014, Diall Alliance entered into a non-revolving credit facility agreement no 5878 with Sberbank of Russia OJSC with
the maximum amount of the facility of RUB 2,400,000 thousand (USD 32,930 thousand at exchange rate at 31 December 2015).
The full amount of the facility was drown down in full in 2014. 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 fi nal repayment tranche being payable on the maturity date. In 2015, Diall Alliance
repaid RUB 180,000 thousand. The interest rate is 10.98% per annum. Sberbank may unilaterally amend the interest rate in the
event of increases in refi nancing rates of the Central Bank of Russia. Diall Alliance paid an upfront commission on the facility of 1%
of the facility amount (RUB 24,000 thousand (USD 800 thousand at the transaction date exchange rate)) and there is a drawdown
50 Zoltav Resources Inc. Annual Report 2015
Zoltav Resources Inc. Annual Report 2015
51
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015 (in ʻ000s US dollars, unless otherwise stated)
FINANCIAL
INFORMATION
NOTES TO
ACCOUNTS
23
Movements in temporary differences during the year:
Deferred tax liabilities
Decommissioning provision
Other current assets
Tax loss carry-forwards
Deferred tax assets
Exploration and evaluation
asset
31 December
2015
581
194
4,351
5,126
(5,925)
Property, plant and equipment
(3,733)
(1,133)
Borrowings
(46)
18
Deferred tax liabilities
(9,704)
(1,122)
Net deferred tax liabilities
(4,578)
(475)
Recognised in
profi t or loss
Exchange
difference
Acquisition of
Royal Group
31 December
2014
(514)
101
(215)
(49)
1,060
(1,197)
647
(7)
(1,461)
1,545
1,169
13
2,727
1,266
−
−
−
−
−
−
−
−
−
1,310
142
4,488
5,940
(7,463)
(3,769)
(77)
(11,309)
(5,369)
31 December
2014
Recognised in
profi t 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)
(2,739)
Property, plant and equipment
(3,769)
(1,505)
Borrowings
(77)
13
Deferred tax liabilities
(11,309)
(4,231)
Net deferred tax liabilities
(5,369)
(2,408)
(769)
(91)
(2,460)
(3,320)
4,601
2,043
50
6,694
3,374
1,876
249
5,312
7,437
−
−
−
−
(5,397)
(3,928)
(4,307)
(140)
−
−
(9,844)
(3,928)
(2,407)
(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 benefi t through future taxable profi ts are not probable. The Group has not recognised deferred income tax assets of
USD 6,646 thousand (2014: USD 8,083 thousand).
The deferred tax assets expire in 2019-2025.
24
Other taxes payable
VAT payable
Property tax
Mineral extraction tax
Other taxes payable
Total
25
Trade and other payables
Trade payables
Accrued expenses
Payables to employees
Total
2015
628
37
445
134
1,244
2015
1,714
998
236
2,948
2014
816
97
93
131
1,137
2014
2,043
1,038
19
3,100
Operating leases
26
Operating lease payments are mainly rentals by the Group of land, offi ce 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 USD 281
thousand (2014: USD 585 thousand).
At the reporting date the Group’s outstanding commitments for future minimum lease payments under non-cancellable leases fall
due as follows:
2015
91
18
82
2014
67
22
105
Within one year
In two to fi ve years
More than fi ve years
Financial instruments and fi nancial risk management
27
Overview of the Company’s fi nancial risk management
The Company has exposure to the following risks from its use of fi nancial 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 fi nancial 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 refl ect 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.
52 Zoltav Resources Inc. Annual Report 2015
Zoltav Resources Inc. Annual Report 2015
53
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015 (in ʻ000s US dollars, unless otherwise stated)
Liquidity risk
27.1
Liquidity risk is the risk that the Company will not be able to meet its fi nancial 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 suffi cient 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 fi nancial assets, and also to forecast cash fl ows from operating activities. The contractual maturities of fi nancial
liabilities presented including estimated interest payments.
Company’s current liabilities exceed current assets at 31 December 2015 by USD 652 thousand. Starting from 2016 the Company
budgeted 20% sales increase, negotiates with contractors the payment terms, which should lead to improvement of cash position
and decrease of the liquidity risk.
Contractual amount
Less than 1 year
1-5 years
Over 5 years
Financial liabilities as at
31 December 2015
Borrowings
Trade and other payables
Total
Financial liabilities as at
31 December 2014
Unsecured borrowings
Trade and other payables
Total
40,346
2,948
43,294
8,006
2,948
10,954
12,921
−
12,921
19,419
−
19,419
Contractual amount
Less than 1 year
1-5 years
Over 5 years
60,015
2,043
62,058
7,747
2,043
9,790
39,031
−
39,031
13,237
−
13,237
27.2 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 refi nancing
rates of the Central Bank of Russia. Sberbank hasn’t amended interest rate by the reporting date.
Foreign exchange risk and the effect of translation to presentational currency
(b)
The Company does not have any signifi cant exposure to foreign currency risk as no signifi cant 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 fi nancing 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 Group does not currently enter into forward exchange contracts or otherwise hedge its potential foreign exchange exposure.
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 RUB/USD exchange rate moved from 56.2584 at 31 December 2014 to 72.8827 as at 31 December 2015 and continues
to fl uctuate. When presenting fi nancial statements in USD under IFRS, these movements are refl ected at each asset and liability level
with the net adjusting amount being refl ected within Shareholders equity. Total translation reserve as at 31 December 2015 equals
USD 99,888 thousand (31 December 2014: USD 74,434 thousand) and the effect of such recalculation into presentation currency
of net assets amounts USD 25,454 thousand (2014: USD 74,927 thousand).
27.3 Credit risk
Credit risk arises principally from the Group’s fi nancial 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 fi nancial statements.
Due to the nature of the Group’s business, the Group is largely dependent on one customer (Gazprom Mezhregiongaz Saratov LLC)
for a signifi cant portion of revenues. Gazprom Mezhregiongaz Saratov LLC accounted for 80.7%, 78.5%, 71.4%, and 70.5% of its
total revenue in fi scal 2015, 2014, 2013 and 2012, respectively. The loss or the insolvency of this customer for any reason, or reduced
sales of our principal product, could signifi cantly reduce the Group’s ongoing revenue and/or profi tability, and could materially and
FINANCIAL
INFORMATION
NOTES TO
ACCOUNTS
adversely affect the Group’s fi nancial condition. The credit rating assigned to Gazprom by Standard & Poor’s is BB+. To manage
credit risk and exposure for the key customer, the Group have entered into a long term contract with Gazprom Mezhregiongaz
Saratov LLC, effective till 31 December 2020. 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.
To limit exposure to credit risk on cash and cash equivalents Management’s policy is to hold cash and cash equivalents in reputable
fi nancial institutions. During 2015 cash was held mainly with OAO Sberbank Rossii (rating Ba2.ru, Moody’s).
Ba2.ru, Moody’s
Other
Total cash and cash equivalents
2015
5,806
74
5,880
2014
9,289
1,405
10,694
27.4 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 suffi cient 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 signifi cant 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.
Commitments and contingencies
28
28.1 Capital commitments
Capital expenditure contracted for at the end of the reporting period but not yet incurred at 31 December 2015 was USD 226 thousand
(2014: USD 1,676 thousand).
Insurance
28.2
The insurance industry in the Russian Federation is in a developing state and many forms of insurance protection common in other
parts of the world are not generally available. 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 offi cers 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. Until the Company obtains adequate insurance
coverage there is a risk that the loss or destruction of certain assets could have a material adverse effect on the Company’s
operations and fi nancial position.
Litigation
28.3
The Company was involved in a number of court procedures (both as a plaintiff and as a defendant) arising in the normal 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 fi nancial position or cash fl ows of the Company and which have not been accrued
or disclosed in these fi nancial statements.
Taxation contingencies
28.4
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 defi nitive 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 outfl ow 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 fi nancial position and/or the overall operations of the Group.
54 Zoltav Resources Inc. Annual Report 2015
Zoltav Resources Inc. Annual Report 2015
55
FINANCIAL
INFORMATION
NOTES TO
ACCOUNTS
GLOSSARY
“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”
“toe”
“/d”
“mcf”
“mcm”
“mmboe”
“mmcf”
“mmcm”
“mmT”
“mT”
“mToe”
billion cubic feet
billion cubic metres
barrel of oil equivalent
tonnes 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
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2015 (in ʻ000s US dollars, unless otherwise stated)
The taxation system in the Russian Federation continues to evolve and is characterised by frequent changes in legislation offi cial
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
fi nes penalties and interest charges. 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 signifi cant than in other countries.
Management believes that it has provided adequately for tax liabilities based on its interpretations of applicable Russian tax
legislation, offi cial pronouncements and court decisions. However the interpretations of the relevant authorities could differ and the
effect on this historical fi nancial information if the authorities were successful in enforcing their interpretations could be signifi cant.
Environmental matters
28.5
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 signifi cant liabilities in addition to
amounts which are already accrued as a part of decommissioning provision and which would have a material adverse effect on the
fi nancial position of the Group.
Related party transactions
29
During 2014 operations with related parties were presented by transactions with ARA Holdings and Bandbear Limited, the entities
with signifi cant infl uence over the Group. Details of operations are provided in notes 9 and 17 to the fi nancial statements. During
2015 there were no operations with related parties, except for key management remunerations.
The remuneration of key management comprises salary and bonuses in the amount USD 1,510 thousand (2014: USD 1,240
thousand).
Events after reporting date
30
In 2015 Rosnedra granted the Company a certifi cate confi rming the discovery of the West Koltogor oil fi eld. As a result the Company
applied to Rosnedra for the hydrocarbons exploration and production license. Rosnedra approved the licensing in March 2016.
Availability of annual report and fi nancial statements and General Meeting
31
Copies of the Company’s annual report and fi nancial statements will be sent to Registered Shareholders but will not be sent to holders
of Depository Interests. The annual report and fi nancial statements will be available for inspection at the Company’s registered offi ce
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.
56
Zoltav Resources Inc. Annual Report 2015
Zoltav Resources Inc. Annual Report 2015
57
zoltav.com
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