ANNUAL REPORT 2016 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
1
2
6
8
12
14
16
18
22
24
28
REVENUES
+17%
RUB 1,989
million
PRODUCTION
+3%
9,137
boe/d
FIRST NET
PROFIT
RUB 97
million
BOARD OF DIRECTORS
ADVISERS
DIRECTORS
& ADVISERS
Lea Verny
Non-executive Chairman,
Independent Non-executive Director
(appointed 20 December 2016 as Director,
appointed 22 March 2017 as Chairman)
Marcus Rhodes
Senior Independent Director
(resigned 22 March 2017 as Chairman
but continues as Director)
Alexander Gorodetsky
Independent Non-executive Director
Andrey Immel
Non-executive Director
Alastair Ferguson
Executive Chairman
(resigned 7 September 2016)
Stephen Lowden
Senior Independent Director
(resigned 7 September 2016)
Andrey Komarov
Executive Director
(resigned from the Board 7 September 2016
but continues in an executive management position)
AUDIT COMMITTEE
Marcus Rhodes (Chairman)
Andrey Immel
REMUNERATION AND NOMINATION
COMMITTEE
Alexander Gorodetsky (Chairman)
Marcus Rhodes
CORPORATE ADMINISTRATOR
CO Services Cayman Limited
P.O. Box 10008, Willow House, Cricket Square,
Grand Cayman KY1-1001, Cayman Islands
NOMINATED ADVISER
SP Angel Corporate Finance LLP
Prince Frederick House, 35-39, Maddox Street,
London, W1S 2PP, United Kingdom
JOINT BROKERS
SP Angel Corporate Finance LLP
Prince Frederick House, 35-39, Maddox Street,
London, W1S 2PP, United Kingdom
Panmure Gordon (UK) Limited
1 New Change, London, EC4M 9AF, United Kingdom
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
SOLICITORS
Berwin Leighton Paisner
Adelaide House, London Bridge, London,
EC4R 9HA, 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 Office Park, West Bay Road,
Grand Cayman KY1-1103, Cayman Islands
REGISTERED OFFICE
PO Box 10008, Willow House, Cricket Square,
Grand Cayman KY1-1001, Cayman Islands
2
1
Zoltav Resources Inc. Annual Report 2016Zoltav Resources Inc. Annual Report 2016INTRODUCTION
CHAIRMAN’S
STATEMENT
I am pleased to present an
outstanding set of
financial results for Zoltav
which show a 17% increase
in revenues and
the Company’s first
annual net profit
CHAIRMAN’S STATEMENT
Notwithstanding the challenging economics of
the oil and gas industry throughout 2016, I am
pleased to present an outstanding set of financial
results for Zoltav which show a 17% increase
in revenues to RUB 1,989 million (2015: RUB
1,697 million) and the Company’s first annual net
profit of RUB 97 million (2015: RUB 247 million
loss). This is derived from a 3% increase in daily
production compared to 2015 and a significant
reduction of almost 6% in the production cost
per barrel of oil equivalent. The Company has
elected to adopt RUB as its reporting currency
going forward, consistent with Zoltav’s currency
of operation.
Our Western Gas Plant was operated at an increased capacity
of 9,137 boe/d (1,296 toe/d) compared to 8,853 boe/d (1,256
toe/d) in 2015. Cost cutting initiatives enabled the Company
to increase EBITDA margin from 26% to 43% and maintain a
positive operating cash flow throughout the period.
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 benefits in
the current year and beyond.
Zoltav is developing an appraisal strategy to capitalise on
the Devonian structure in both the undeveloped Western
fields and in the Eastern fields of the Bortovoy Licence. The
interpretation of 3D seismic data currently being acquired will
enable the Company to develop its drilling strategy to target the
Devonian structure.
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 field on Koltogor Exploration
Licence 10, we were able to convert this in March 2016 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 its commercialisation.
Zoltav’s strategic objective remains that of generating the
maximum value from our existing assets, where there is
scope to significantly increase our reserves. We will achieve
this through the generation of further efficiencies and through
exploration, appraisal and development activities.
We look forward to communicating more regular operational
updates and key milestones and results as we achieve them.
Lea Verny
Non-executive Chairman
26 April 2017
2
3
Zoltav Resources Inc. Annual Report 2016Zoltav Resources Inc. Annual Report 2016INTRODUCTION
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 2016
OUR
ASSETS
Our strategic objective remains
that of generating the maximum
value from our assets, where
there is scope to significantly
increase our reserves. We will
achieve this through further
efficiencies and through
exploration, appraisal and
development activities
GROUP RESERVES UNDER PRMS
AS PER LATEST REPORT OF
DEGOLYER AND MACNAUGHTON (MAY 2014):
Proved
Probable
Proved +
Probable
Possible
Bortovoy Licence
Gas
Oil &
Liquids
Gas, Oil
and Liquids
bcf
352.9
396.8
749.7
640.0
mmbbls
2.0
1.8
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
353.4
420.3
773.7
695.7
mmbbls
3.6
75.3
78.9
176.4
mmboe
63.7
146.7
210.4
294.7
INTRODUCTION
REVIEW OF OPERATIONS
BORTOVOY LICENCE
Zoltav operated the Western Gas Plant at an increased
capacity throughout 2016 of 9,137 boe/d (1,296 toe/d)
compared to 8,853 boe/d (1,256 toe/d) in 2015. This
represented an increase of approximately 3% compared
to 2015. A number of factors contributed to this strong
performance including:
•
•
the efficient and continuous working of gas compressors;
and
the optimisation of the current well stock production
regime.
A preliminary assessment of the Devonian structure within
the North Mokrousovskoye field enabled the Company to
commission a 3D seismic programme in September 2016. As
of the end of 2016, 120 sq km. were completed (out of 200 sq
km) with a delay arising due to bad weather conditions and
inaccessibility of the seismic area. The seismic interpretation is
expected to be completed in Q3 2017.
Production
Average daily production from the Western Gas Plant during
2016 was 47.7 mmcf/d (1.35 mmcm/d) of gas and 487 bbls/d
(62 T/d) of oil and condensate comparing to 46.6 mmcf/d (1.32
mmcm/d) and 587 bbls/d (75 T/d) in 2015.
In April 2016, Karpenskoye Well 117 was completed at an
unstimulated rate of 3.9 mmcf/d (0.11 mmcm/d). Higher than
expected water cut prevented Zoltav from stimulating the well
by applying acid treatment, thus limiting its production rate.
In order to balance the projected decline, in July 2016, the
Company successfully acid treated the Zhanovskoye Well 107
(which was hooked-up to the Western Gas Plant in December
2015), enabling it to produce an additional 1.13 mmcf/d (0.032
mmcm/d) of gas.
To further offset the negative effect of Karpenskoye Well 117’s
underperformance, the Zhdanovskoye Wells 19 and 103 were
put into operation in early September, two months ahead of
schedule, providing an additional combined 386.2 mmcf (10.94
mmcm) of gas volume.
Development drilling and other well activity
The Zhdanovskoye Well 108 completed in January 2017 in line
with the Company’s strategy to maintain full plant capacity.
BORTOVOY LICENCE:
WESTERN GAS PLANT
AVERAGE DAILY PRODUCTION
- o n - y e a r
i n c r e a s e y e a r
3 %
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
2015
2016
Bortovoy Field by Field 2P reserves
Gas (Proved+Probable)
Oil & Liquids (Proved+Probable)
Metric
(mmcm)
English
(mbbls)
Metric
(mT)
KOLTOGOR LICENCES
As a result of opening up the West Koltogor oil field on Koltogor Exploration Licence 10, the Company applied to Rosnedra for an
Exploration and Production Licence and was granted approval in March 2016 for the licence now valid through March 2036.
The Company is currently considering different options for the commercialisation of the Koltogor assets including partnerships.
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
6
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
7
Zoltav Resources Inc. Annual Report 2016Zoltav Resources Inc. Annual Report 2016INTRODUCTION
FINANCIAL REVIEW
FINANCIAL
REVIEW
Management’s continued focus
on profit generation and
Group cost optimisation
enabled Zoltav to generate its
first annual net profit
of RUB 97 million
Management’s continued focus on profit
generation from the Western Gas Plant
at Bortovoy, combined with Group cost
optimisation, enabled Zoltav to generate RUB
441 million of operating profit in 2016. EBITDA
increased by 94% and reached RUB 846 million
allowing the Company to generate its first annual
net profit of RUB 97 million.
REVENUE
The Group’s RUB revenues in 2016 increased by 17% to RUB
1,989 million, compared to RUB 1,697 million in 2015.
86% of revenue was derived from gas sold to Mezhregiongaz, a
Gazprom subsidiary, at the transfer point on entry to the Central
Asia – Centre gas pipeline system. The gas prices are fixed in a
contract with Mezhregiongaz and are subject to indexation. We
anticipate that an increase of 2% in gas price indexation will be
approved by the Russian Government in June 2017 which will
subsequently benefit the Company.
The remaining revenue was from oil and condensate sold
directly at the Western Gas Plant through a tender process to a
small number of different buyers. The Company is considering
alternative channels to increase liquids realisations such
as exporting to Baltic countries, commodity exchanges and
electronic b2b platforms.
COST OF SALES AND G&A COSTS
Total cost of sales was RUB 1,155 million (2015: RUB 1,172
million). This comprised RUB 406 million of production based
taxes (2015: RUB 389 million), RUB 405 million of depreciation
and depletion of assets (2015: RUB 367 million) and RUB 344
million of other cost of sales (2015: RUB 417 million). Other
cost of sales comprised operating expenses from the Bortovoy
operating company, Diall Alliance, which fell by 17% primarily
due to a cost optimisation programme including staff reduction,
fewer well workovers required, materially more efficient
purchasing of methanol fluids and fewer equipment repairs due
to one-off maintenance expenditures in 2015.
The Group’s G&A costs decreased by 38% to RUB 299 million
(2015: RUB 482 million), mostly driven by staff reduction and
optimisation of consultancy and administrative fees.
OPERATING PROFIT
Zoltav achieved an operating profit for 2016 of RUB 441 million,
compared to RUB 69 million in 2015.
Finance costs of RUB 268 million are mainly represented by
interest on the RUB 1,860 million Sberbank facility.
PROFIT BEFORE TAX
Zoltav generated RUB 197 million of profit before tax,
compared to a loss of RUB 215 million in 2015.
TAXATION
The production based tax for the period was RUB 406 million
(2015: RUB 389 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 was flat at RUB
18.3/mcf or RUB 645/mcm (2015: RUB 17.8/mcf or RUB 627/
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 as a part of tax incentive for regional
investment projects.
The income tax charge for the year was RUB 100 million (2015:
RUB 32 million) and represents mostly deferred tax expense.
There was a significant deferred tax charge increase due to
the usage of tax loss carry-forwards and the net book value
differences between IFRS and statutory accounting standards
relating to PPE and E&E assets.
NET PROFIT
Zoltav generated its first annual net profit of RUB 97 million,
compared to a net loss of RUB 247 million in 2015.
CASH
Net cash generated from operating activities was RUB 719
million (2015: RUB 286 million).
Diall Alliance successfully serviced its credit facility from PJSC
Sberbank and repaid a further RUB 360 million of the principal
amount (RUB 1,860 million at 31 December 2016) 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 at Koltogor at least through to the end of
2018.
Total cash at the end of the period was RUB 294 million.
Kirill Suetov
Director of Finance
26 April 2017
8
9
Zoltav Resources Inc. Annual Report 2016Zoltav Resources Inc. Annual Report 2016INTRODUCTION
CORPORATE AND SOCIAL RESPONSIBILITY
CSR
We continued our active
community engagement
in the Saratov region
throughout 2016015.
HEALTH AND SAFETY
Our highest priority is providing a safe and healthy work
environment and to conducting our activities in a safe and
environmentally protective manner. Our employees and officers
are expected to perform their duties consistent with the site-
specific safety and environmental rules and regulations and
are expected to obey all local, regional and national laws and
regulations.
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 2016.
In 2016, Diall Alliance, the operating company for the Bortovoy
Licence, won the 14th Annual Health and Safety Competition for
industrial companies in the Saratov region. On the World Day for
Safety and Health at Work, the Company’s HSE practices were
recognised by the Saratov regional government and included in
an HSE best practices publication.
We improved our processes for maintaining high quality
personal protection equipment in 2016 to ensure that every
employee receives high quality and well-fitting equipment
in a timely manner. We regularly conduct HSE classes for
employees and carry out training manoeuvres in the field.
The Company offers a market leading health insurance plan.
We support healthy lifestyle and sporting activities. The
Company rents out a sports hall for our employees and
sponsors regional competitions.
10
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.
The Company also deals with the legacy of Soviet wells
by re-cultivating the soil on our land plots. We regularly
support the nationwide environmental programme “Green
Spring” to promote, conserve and restore the natural
environment. We continued to plant new elm, maple and
spruce trees and lots of flowers on the Bortovoy Licence
in 2016.
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 benefits. We are also committed to building and
utilising skills available locally at all levels.
We continued our active community engagement in the
Saratov region, where our Bortovoy Licence and Western
Gas Plant are situated, throughout 2016.
The Company contributed more than RUB 3 million for
various projects. These included the construction of
playgrounds in the Lebedevka and Rosovka villages, the
renovation of a cultural centre in Karpenka village, the
renovation of a sports centre in Krasnokut and the building
of an ice hockey rink in Zhdanovka. We also provided
financial assistance in 2016 for the construction and repair
of local infrastructure. This included the repair of water
pipes in Karpenka, Lebedevka and Konstantinovka, the
building of a water tower in Repnoe and the repair of a
water heating system in Ozinki School.
ANTI-BRIBERY & CORRUPTION POLICY
Our policy is to conduct all 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 support the
nationwide environmental
programme “Green
Spring” to promote,
conserve and restore the
natural environment
11
Zoltav Resources Inc. Annual Report 2016Zoltav Resources Inc. Annual Report 2016INTRODUCTION
BOARD OF DIRECTORS - PROFILES
Following a review of the effectiveness of the board, and in consultation with its major shareholders, Zoltav announced
at the Annual General Meeting in 2016 a number of changes intended to simplify the Company’s board structure.
Accordingly, Alastair Ferguson, Stephen Lowden and Andrey Komarov (who continues in an executive management
position) left the board.
The changes to the board were intended to improve the efficiency and effectiveness of decision making, allowing
the Company to make faster operational decisions. 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.
THE BOARD
LEA VERNY
Independent Non-executive Chairman
MARCUS RHODES
Senior Independent Director
ALEXANDER GORODETSKY
Independent Non-executive Director
ANDREY IMMEL
Non-executive Director
Lea Verny was appointed as a non-executive
director in December 2016. She has significant
and high level corporate finance experience,
with particular expertise in Russia. Since 2008,
Lea Verny has acted as an independent financial
adviser on cross-border transactions. Prior
to becoming an independent consultant, Lea
Verny served as a private banker with Banque
Pictet, Switzerland, where she was responsible
for developing the bank’s activities in Russia,
following a career of more than a decade with
HSBC. From 2001 to 2007, Lea Verny was
Head of Investment Banking for HSBC Bank plc
in Moscow, during which time she advised on
structured transactions for large Russian and
CIS corporations including Lukoil, Rostelekom,
Eastern Oil Company and Rosbank. Between
1997 and 2001, Ms Verny was a representative
of HSBC Investment Bank plc in Russia,
where she was responsible for establishing the
bank’s presence in the country and developing
opportunities specifically within the oil and gas
sector. Lea Verny holds a Bachelor’s degree in
Statistics and International Relations from the
Hebrew University in Jerusalem as well as an
MBA from INSEAD in France.
Marcus Rhodes was appointed as a non-
executive director in May 2014. 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.
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.
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 first
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.
12
12
13
13
Zoltav Resources Inc. Annual Report 2016Zoltav Resources Inc. Annual Report 2016INTRODUCTION DIRECTORS’ REPORT FOR THE YEAR ENDED 31 DECEMBER 2016
The Directors of the Company present their annual report together with the audited consolidated financial statements for the year
ended 31 December 2016.
Directors’ interests
Certain Directors have owned shares of the Company during the years ended 31 December 2016 and 2015. Interests in
the ordinary shares of the Company are as follows:
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 24.
Dividends
The Directors do not recommend the payment of a final dividend and no interim dividend was paid during the year (2015: RUB nil).
Share capital
No movements in share capital occurred in 2016. 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 financial statements is set out on
page 1.
Going concern
The going concern basis of accounting is appropriate because there are no material uncertainties related to events or conditions
that may cast significant doubt about the ability of the company to continue as a going concern.
Lea Verny
Marcus Rhodes
Alexander Gorodetsky
Andrey Immel
Lea Verny
Marcus Rhodes
Alexander Gorodetsky
Andrey Immel
Stephen Lowden*
31 December 2016
31 December 2015
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%
31 December 2016
31 December 2015
Number of ordinary
share options
Number of ordinary
share options
-
-
-
-
-
-
-
-
-
-
500,000
500,000
* Is not Director at 31 December 2016
Substantial shareholdings
The interests in excess of 3% of the issued share capital of the Company which have been notified to the Company as at
31 December 2016 were as follows:
ARA Capital Limited
Bandbear Limited
Crediton Invest Limited
Erlinad Holdings Limited
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%
14 Zoltav Resources Inc. Annual Report 2016
1515
Zoltav Resources Inc. Annual Report 2016DIRECTORS’REPORTFINANCIALINFORMATION
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The Directors are responsible for preparing the annual report and financial statements in accordance with applicable law and
regulations.
AIM Rules for Companies require the Directors to prepare financial statements for each financial year. Under those Rules
the Directors have elected to prepare the financial statements in accordance with International Financial Reporting Standards
(IFRS) as adopted by the European Union. The financial statements are required to give a true and fair view of the state of affairs
of the Company and of the profit or loss of the Company for that period.
International Accounting Standard 1 requires that financial statements present fairly for each financial year the Company’s financial
position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events
and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in
the International Accounting Standards Board’s “Framework for the preparation and presentation of financial statements”. In
virtually all circumstances, a fair presentation will be achieved by compliance with all applicable IFRS. However, Directors are also
required to:
•
•
•
properly select and apply accounting policies;
present information, including accounting policies, in a manner that provides relevant, reliable, comparable and
understandable information;
provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to
understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial
performance; and
• make an assessment of the Company’s ability to continue as a going concern.
The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time
the financial position of the Company. They are also responsible for safeguarding the assets of the Company and hence for taking
reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the corporate and financial information included on
the Company’s website.
Financial risk management objectives and policies
Details of the financial risk management objectives and policies are provided in note 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:
Lea Verny
Non-executive Chairman
26 April 2017
16
Zoltav Resources Inc. Annual Report 2016
CORPORATE GOVERNANCE REPORT FOR THE YEAR ENDED 31 DECEMBER 2016
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
2016 and to the date of the Directors’ report.
Board of directors
Role of the Board
The Board’s role is to provide leadership to the Group within
a framework of prudent and effective controls which enables
risk to be assessed and managed. The Board sets the Group’s
strategic aims and ensures that the necessary financial
and human resources are in place for the Group to meet its
objectives, and reviews management’s performance in meeting
these objectives. The Board sets and monitors the Group’s
values and standards and ensures that the Group’s obligations
to shareholders and other stakeholders are understood and
met.
The Board has a formal schedule of matters reserved for its
approval, including:
•
•
•
Strategic and policy considerations;
Annual budget, including capital expenditure;
Interim and final financial statements;
• Management structure and appointments;
• Mergers, acquisitions, disposals;
• Capital raising;
•
•
•
Significant changes in accounting policies;
Appointment or removal of Directors or the Company
Secretary;
Pay and rewards.
Board composition
The Board currently comprises three non-executive
independent directors and one non-executive directors:
•
Lea Verny – Non-executive Chairman, Independent Non-
executive Director;
• Marcus Rhodes – Senior Independent Director;
•
•
Alexander Gorodetsky – Independent Non-executive
Director;
Andrey Immel – Non-executive Director.
Board balance and independence
Under the provisions of the UK Corporate Governance Code as
a Smaller Company the Company meets the requirements to
have at least two independent non-executives on the Board.
The Board meets at least quarterly to discuss opportunities
available to the Company as a whole.
The Company maintains insurance for Directors and Officers of
the Company.
The Chairman of the Board is non-executive and is responsible
for the leadership and effective running of the Board and for
ensuring that the Board is kept appropriately informed about
the business activities of the Company. The Chairman also
seeks to ensure effective communication with shareholders and
other stakeholders.
The Board has access to the Company’s advisers to notify
them on financial, governance and regulatory matters. Any
Director wishing to do so in the furtherance of his duties
may take independent professional advice at the Company’s
expense. This also applies to any Director in his capacity as a
member of the Audit, Remuneration or Nomination committees.
Through the Chairman the Directors also have access to
the Company Secretary, 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 and Remuneration and
Nomination Committees.
Board Committees
The Audit Committee
The Audit Committee currently comprises Marcus Rhodes and
Andrey Immel, with Marcus Rhodes as Chairman. The Board
is satisfied that collectively the Audit Committee has sufficient,
recent and relevant financial experience.
The duties of the Audit Committee are to review the financial
information of the Company, to oversee the Company’s
financial reporting processes and internal control systems,
and to manage the relationship with the Company’s external
auditor. The Audit Committee also has primary responsibility for
making recommendations on the appointment, re-appointment
and removal of the external auditor, and for approving any
significant non-audit services provided by the external auditor
to ensure that objectivity and integrity are safeguarded.
The Audit Committee reports its work, findings and
recommendations to the Board after each meeting.
The Remuneration and Nomination Committee
The Remuneration and Nomination Committee currently
comprises Alexander Gorodetsky and Marcus Rhodes with
Alexander Gorodetsky 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 office
payable to Non-executive Directors and senior management,
ensuring that no Director is involved in deciding his own
remuneration, approving the service contracts of Directors and
senior management and leading the process for appointments
to the Board and make recommendations to the Board based
on their evaluation of the balance of skills, knowledge and
experience on the Board.
The report on remuneration is set out on page 20.
Attendance at Board and Committee Meetings
The board held four in person board meetings during 2016. 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.
Meetings held during the year
Meetings attended during the year:
Lea Verny
Marcus Rhodes
Alexander Gorodetsky
Andrey Immel
Alastair Ferguson
Andrey Komarov
Stephen Lowden
Board
Audit committee
Nomination and
Remuneration
4
-
4
4
4
2
2
2
2
-
2
-
-
-
-
-
3
-
-
3
-
-
-
3
Internal control
The Board is responsible for maintaining a strong system of internal control and risk management to safeguard shareholders’
investments and the Company’s assets. The system of internal control is designed, taking into account the Company’s business
objectives and strategy, to provide reasonable, but not absolute, assurance against material misstatement or loss.
The criteria the Board uses to assess the effectiveness of the system of internal control include:
•
•
•
•
•
the nature and extent of the risks facing the Company;
the extent and categories of risk that the Board regards as acceptable for the Company to bear;
the likelihood of the risks materialising and the financial impact of the risks;
the Company’s ability to reduce the incidence and impact on the business of risks that do materialise; and
the costs of operating particular controls relative to the benefit thereby obtained.
The Board has considered the need for an internal audit function but has decided, after taking into account the current status of
the Company, such a function is not at present justified.
Relations with Shareholders
The Company believes that effective communication with shareholders is of utmost importance. It has an established cycle
for communicating trading results at the interim and year end stages and, as appropriate, of providing business updates via
the Regulatory News Service and press releases.
The Company makes information available through regulatory announcements and its interim and annual reports. Copies of all
such communications can be found on the Company website, www.zoltav.com.
18 Zoltav Resources Inc. Annual Report 2016
Zoltav Resources Inc. Annual Report 2016
19
NOTES TOACCOUNTSFINANCIALINFORMATION
CORPORATE GOVERNANCE REPORT FOR THE YEAR ENDED 31 DECEMBER 2016
Report on remuneration
The Board recognises that Directors’ and employees’
remuneration is of legitimate concern to shareholders, and
is committed to following good practice and to ensuring that
the interests of the Directors and employees are aligned
with those of shareholders.
Policy on remuneration
The Company aims to set levels of remuneration that are
sufficient to attract, retain and motivate Directors and senior
management of the quality required to run the Company
successfully, whilst ensuring that the interests of Directors
and employees are aligned with those of shareholders.
The Company operates within a competitive environment in
which the Company’s performance depends on the individual
contributions of the Directors.
When determining annual salaries and performance-based
remuneration the Company takes into account the following
factors:
•
•
•
•
•
•
direct and indirect contribution towards the Company’s
current profitability;
the development of businesses or transactions that may
help achieve the Company’s objective in future years;
the quality of earnings, in the context of market conditions,
as well as the quantity of earnings;
vision and innovation;
remuneration levels and practices in other firms engaged
in similar activities; and
incentive to continue to contribute to the Company’s
objectives.
Directors’ remuneration
The remuneration of the Directors for the year ended
31 December 2016 is shown in the table below.
Lea Verny
Marcus
Rhodes
Alexander
Gorodetsky
Andrey
Immel
Alastair
Ferguson
Andrey
Komarov
Stephen
Lowden
Symon
Drake-
Brockman
Michael
Lombardi
Yulia
Lebedina
Total
RUB’000
RUB’000
RUB’000
RUB’000
RUB’000
RUB’000
RUB’000
RUB’000
RUB’000
RUB’000
RUB’000
Salary
49
5,971
1,968
-
23,873
19,197
6,117
-
-
-
57,175
Share based
compensation
-
-
-
-
-
-
-
-
-
-
-
2016 total
49
5,971
1,968
-
23,873
19,197
6,117
-
-
-
57,175
Salary
-
7,349
862
-
35,020
30,810
8,721
15,391
2,469
603 101,225
Share based
compensation
-
-
-
-
-
-
-
-
-
-
-
2015 total
-
7,349
862
-
35,020
30,810
8,721
15,391
2,469
603 101,225
Share price
During the year, the share price of the Company traded in
the range of 0.19 to 0.39 GBP.
20
Zoltav Resources Inc. Annual Report 2016
Zoltav Resources Inc. Annual Report 2014
21
CORPORATEGOVERNANCEFINANCIALINFORMATION
INDEPENDENT AUDITORS’ REPORT
To the Shareholders and Board of Directors of
Zoltav Resources Inc.
the Russian Federation affects the Group’s plans to complete
exploration and evaluation and start commercial production.
Group or to cease operations, or has no realistic alternative but
to do so.
Opinion
We have audited the consolidated financial statements of
Zoltav Resources Inc. and its subsidiaries (the Group), which
comprise the consolidated statement of financial position as
at 31 December 2016, and the consolidated statement of
comprehensive income, consolidated statement of changes
in equity and consolidated statement of cash flows for 2016,
and notes to the consolidated financial statements, including a
summary of significant accounting policies.
In our opinion, the accompanying consolidated financial
statements present fairly, in all material respects, the financial
position of the Group as at 31 December 2016 and its financial
performance and its cash flows for 2016 in accordance with
International Financial Reporting Standards (IFRSs).
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (ISAs). Our responsibilities under those
standards are further described in the Auditor’s responsibilities
for the audit of the consolidated financial statements section
of our report. We are independent of the Group in accordance
with the International Ethics Standards Board for Accountants’
Code of Ethics for Professional Accountants (IESBA Code)
together with the ethical requirements that are relevant to
our audit of the consolidated financial statements in the
Russian Federation, and we have fulfilled our other ethical
responsibilities in accordance with these requirements and
the IESBA Code. We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our
opinion.
Other matter
The consolidated financial statements of Zoltav Resources
Inc. for the year ended 31 December 2014 were audited by
another auditor who expressed an unmodified opinion on those
statements on 23 April 2015.
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the
consolidated financial statements of the current period. These
matters were addressed in the context of our audit of the
consolidated financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion
on these matters. For each matter below, our description of
how our audit addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s
responsibilities for the audit of the consolidated financial
statements section of our report, including in relation to these
matters. Accordingly, our audit included the performance of
procedures designed to respond to our assessment of the
risks of material misstatement of the consolidated financial
statements. The results of our audit procedures, including
the procedures performed to address the matters below,
provide the basis for our audit opinion on the accompanying
consolidated financial statements.
Assessing exploration and evaluation assets for
impairment
We considered this matter to be one of most significance
in our audit due to the high level of subjectivity in respect
of assumptions underlying the impairment analysis and the
significant judgements and estimates made by management.
In addition, the absence of significant exploration activity at
Koltogor oil field during 2015 and 2016 and the combination
of uncertainty regarding sources of financing of Koltogor oil
field development, future oil prices and inflation forecasts in
22 Zoltav Resources Inc. Annual Report 2016
We assessed the assumptions including forecasted oil and gas
prices, planned mineral extraction tax, inflation rate projections
and discount rate as well as methodology used by the
Group. We analyzed sources of financing of Koltogor oil field
development, which are being considered by the management.
We also verified the mathematical accuracy of the model and
sensitivity to changes in key estimates.
Information on assessing exploration and evaluation assets for
impairment is disclosed in Note 12 to the consolidated financial
statements.
Decommissioning and environmental restoration
provision
The calculation of decommissioning and environmental
restoration provision requires significant judgement
management because of the inherent complexity in estimating
future costs therefore this matter is considered to be one of
most significance in our audit.
Our procedures on the decommissioning provision included
assessing management’s methodology by comparing it to
common industry practices. We assessed key assumptions and
compared them to available market information from industry
studies and benchmark data such as recent oil price quotes,
discount rates and inflation forecasts.
Information about decommissioning and environmental
restoration provision is disclosed in Note 22 to the consolidated
financial statements. A description of the accounting policy and
key judgements and estimates is included in Note 3.2 to the
consolidated financial statements.
Other information included in Zoltav Resources Inc.
Annual Report for 2016
Other information consists of the information included in
Zoltav Resources Inc. Annual Report for 2016, other than the
consolidated financial statements and our auditor’s report
thereon. Management is responsible for the other information.
Our opinion on the consolidated financial statements does not
cover the other information and we do not express any form of
assurance conclusion thereon.
In connection with our audit of the consolidated financial
statements, our responsibility is to read the other information
and, in doing so, consider whether the other information
is materially inconsistent with the consolidated financial
statements or our knowledge obtained in the audit or otherwise
appears to be materially misstated. If, based on the work
we have performed, we conclude that there is a material
misstatement of this other information, we are required to
report that fact. We have nothing to report in this regard.
Responsibilities of management and the Audit
Committee for the consolidated financial statements
Management is responsible for the preparation and fair
presentation of the consolidated financial statements
in accordance with IFRSs, and for such internal control
as management determines is necessary to enable the
preparation of consolidated financial statements that are free
from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements,
management is responsible for assessing the Group’s ability to
continue as a going concern, disclosing, as applicable, matters
related to going concern and using the going concern basis of
accounting unless management either intends to liquidate the
The Audit Committee is responsible for overseeing the Group’s
financial reporting process.
Auditor’s responsibilities for the audit of the
consolidated financial statements
Our objectives are to obtain reasonable assurance about
whether the consolidated financial statements as a whole
are free from material misstatement, whether due to fraud or
error, and to issue an auditor’s report that includes our opinion.
Reasonable assurance is a high level of assurance, but is
not a guarantee that an audit conducted in accordance with
ISAs will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions
of users taken on the basis of these consolidated financial
statements.
As part of an audit in accordance with ISAs, we exercise
professional judgment and maintain professional skepticism
throughout the audit. We also:
•
Identify and assess the risks of material misstatement
of the consolidated financial statements, whether due
to fraud or error, design and perform audit procedures
responsive to those risks, and obtain audit evidence that
is sufficient and appropriate to provide a basis for our
opinion. The risk of not detecting a material misstatement
resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal
control.
• Obtain an understanding of internal control relevant to
the audit 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
Group’s internal control.
•
Evaluate the appropriateness of accounting policies used
and the reasonableness of accounting estimates and
related disclosures made by management.
• Conclude on the appropriateness of management’s use of
the going concern basis of accounting and, based on the
audit evidence obtained, whether a material uncertainty
exists related to events or conditions that may cast
significant doubt on the Group’s ability to continue as a
going concern. If we conclude that a material uncertainty
exists, we are required to draw attention in our auditor’s
report to the related disclosures in the consolidated
financial statements or, if such disclosures are inadequate,
to modify our opinion. Our conclusions are based on the
audit evidence obtained up to the date of our auditor’s
report. However, future events or conditions may cause
the Group to cease to continue as a going concern.
•
Evaluate the overall presentation, structure and content
of the consolidated financial statements, including the
disclosures, and whether the consolidated financial
statements represent the underlying transactions and
events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the
financial information of the entities or business activities
within the Group to express an opinion on the consolidated
financial statements. We are responsible for the direction,
supervision and performance of the group audit. We
remain solely responsible for our audit opinion.
We communicate with the Audit Committee regarding, among
other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
We also provide the Audit Committee with a statement that we
have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships
and other matters that may reasonably be thought to bear on
our independence, and where applicable, related safeguards.
From the matters communicated with Audit Committee, we
determine those matters that were of most significance in the
audit of the consolidated financial statements of the current
period and are therefore the key audit matters. We describe
these matters in our auditor’s report unless law or regulation
precludes public disclosure about the matter or when, in
extremely rare circumstances, we determine that a matter
should not be communicated in our report because the adverse
consequences of doing so would reasonably be expected to
outweigh the public interest benefits of such communication.
The partner in charge of the audit resulting in this independent
auditor’s report is T.L. Okolotina.
T.L. Okolotina
Partner
Ernst & Young LLC
26 April 2017
Details of the audited entity
NAME: Zoltav Resources Inc.
Record made in the Registar of Companies, Cayman Islands on 18
November 2003, Registration Number 130605.
ADDRESS: PO Box 10008, Willow House, Cricket Square,
Grand Cayman KY1-1001, Cayman Islands.
Details of the auditor
NAME: Ernst & Young LLC
Record made in the State Register of Legal Entities on 5 December
2002, State Registration Number 1027739707203.
ADDRESS: Russia 115035, Moscow,
Sadovnicheskaya naberezhnaya, 77, building 1.
Ernst & Young LLC is a member of Self-regulated organization of
auditors “Russian Union of auditors” (Association) (“SRO RUA”).
Ernst & Young LLC is included in the control copy of the register of
auditors and audit organizations,
main registration number 11603050648.
Zoltav Resources Inc. Annual Report 2016
23
AUDITORS’REPORTFINANCIALINFORMATION
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
Consolidated statement of comprehensive income for the year ended 31 December 2016
(in ‘000s of Russian rubles, unless otherwise stated)
Consolidated statement of financial position as at 31 December 2016
(in ‘000s of Russian rubles, unless otherwise stated)
Note
5
6
7
9
9
10
10
11
19
Revenue
Cost of sales
Mineral extraction tax
Depreciation and depletion
Other cost of sales
Total cost of sales
Gross profit
Operating, administrative and selling expenses
Other income
Other expenses
Operating profit
Finance income
Finance costs
Profit/(loss) before tax
Income tax expense
Profit/(loss) for the year attributable to owners
of the parent
Earnings/(loss) per share attributable to own-
ers of the parent
Basic
Diluted
2016
1,989,430
(406,499)
(404,684)
(344,104)
(1,155,287)
834,143
(299,346)
49,076
(142,860)
441,013
24,409
(267,985)
197,437
(100,336)
97,101
RUB
0.68
0.67
2015
(Restated)*
1,697,276
(388,521)
(366,824)
(416,801)
(1,172,146)
525,130
(481,933)
60,854
(35,405)
68,646
51,631
(335,329)
(215,052)
(31,606)
(246,658)
RUB
(1.74)
(1.74)
* The amounts shown here do not correspond to the consolidated financial statements for the year ended 31 December 2015 due to
change in presentation currency as described in Note 2.8
Note
31 December 2016 31 December 2015
(Restated)*
31 December 2014
(Restated)*
ASSETS
Non-current assets
Exploration and evaluation assets
Property, plant and equipment
Total non-current assets
Current assets
Inventories
Trade and other receivables
Other current non-financial assets
Financial assets at fair value through profit or loss
Cash and cash equivalents
Total current assets
TOTAL ASSETS
EQUITY AND LIABILITIES
Share capital
Share premium
Other reserves
Accumulated losses
Total equity
Non-current liabilities
Borrowings
Provisions
Other payables
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
15
16
17
21
22
24
23
21
24
25
4,788,314
4,211,254
8,999,568
18,830
172,294
15,186
-
294,254
500,564
4,690,366
4,338,270
9,028,636
9,766
149,264
39,065
4,737
428,550
631,382
4,721,317
4,622,359
9,343,676
18,171
145,203
31,392
11,027
601,627
807,420
9,500,132
9,660,018
10,151,096
970,218
5,498,009
1,429,341
(1,356,179)
6,541,389
1,548,789
359,153
57,874
433,888
2,399,704
311,160
118,500
129,379
559,039
2,958,743
9,500,132
970,218
5,498,009
1,429,341
(1,453,280)
6,444,288
1,845,171
358,000
-
333,657
2,536,828
373,378
90,666
214,858
678,902
3,215,730
9,660,018
970,218
5,498,009
1,448,144
(1,225,425)
6,690,946
2,198,353
599,096
-
302,051
3,099,500
180,027
63,966
116,657
360,650
3,460,150
10,151,096
The consolidated financial statements on pages 24 to 53 were approved by the Board of Directors and authorised for issue on
26 April 2017.
* The amounts shown here do not correspond to the consolidated financial statements for the year ended 31 December 2015 due to
change in presentation currency as described in Note 2.8
The accompanying notes on pages 28-53 are an integral part of these consolidated financial statements.
The accompanying notes on pages 28-53 are an integral part of these consolidated financial statements.
24
Zoltav Resources Inc. Annual Report 2016
Zoltav Resources Inc. Annual Report 2016
25
FINANCIALSTATEMENTSFINANCIALINFORMATION
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016
Consolidated statement of cash flows for the year ended 31 December 2016
(in ‘000s of Russian rubles, unless otherwise stated)
Consolidated statement of changes in equity for the year ended 31 December 2016
(in ‘000s of Russian rubles, unless otherwise stated)
Note
2016
2015
(Restated)*
197,437
(215,052)
Cash flows from operating activities
Profit/(loss) before tax
Adjustments for:
Depreciation and depletion
Finance costs
Finance income
Other income
Other expenses
Operating cash inflows before working capital changes
(Increase)/decrease in inventory
Increase in trade and other receivables
(Decrease)/Increase in trade and other payables
Increase in other taxes payables
Net cash from operating activities before tax and
interests paid
Interest received
Interest paid
Income tax paid
Net cash flows from operating activities
Cash flows from investing activities
Capital expenditure on exploration and evaluation
activities
Purchase of property, plant and equipment
Net cash used in investing activities
Cash flows from financing activities
Repayment of borrowings
Net cash used in financing activities
Net decrease in cash and cash equivalents
Net foreign exchange difference
21
21
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
16
406,972
267,985
(24,409)
(34,076)
126,894
940,803
(6,162)
(19,022)
(22,298)
27,834
921,155
25,158
(227,138)
(105)
719,070
(56,048)
(436,416)
(492,464)
(360,000)
(360,000)
(133,394)
(902)
428,550
294,254
370,990
335,329
(51,631)
(60,854)
34,446
413,228
8,405
(11,734)
38,468
26,700
475,067
52,488
(241,645)
-
285,910
(63,829)
(228,486)
(292,315)
(180,000)
(180,000)
(186,405)
13,328
601,627
428,550
Attributable to owners of the Parent
Note
Share
capital
Share
premium
Capital
reserve
Employee
share-based
compenstion
reserve
Accumulated
losses
Total
equity
At 1 January 2015
(restated*)
Employee share-based
compensation
20
Transactions with owners
Loss for the year
Total comprehensive loss
At 31 December 2015
(restated*)
970,218
5,498,009
1,343,566
104,578
(1,225,425)
6,690,946
-
-
-
-
-
-
-
-
-
-
-
-
(18,803)
18,803
(18,803)
18,803
-
-
-
(246,658)
(246,658)
(18,803)
(227,855)
(246,658)
970,218
5,498,009
1,343,566
85,775
(1,453,280)
6,444,288
Profit for the year
Total comprehensive
income
-
-
-
-
-
-
-
-
97,101
97,101
97,101
97,101
At 31 December 2016
970,218
5,498,009
1,343,566
85,775
(1,356,179)
6,541,389
* The amounts shown here do not correspond to the consolidated financial statements for the year ended 31 December 2015 due to
change in presentation currency as described in Note 2.8
* The amounts shown here do not correspond to the consolidated financial statements for the year ended 31 December 2015 due to
change in presentation currency as described in Note 2.8
The accompanying notes on pages 28-53 are an integral part of these consolidated financial statements.
The accompanying notes on pages 28-53 are an integral part of these consolidated financial statements.
26
Zoltav Resources Inc. Annual Report 2016
Zoltav Resources Inc. Annual Report 2016
27
FINANCIALSTATEMENTSFINANCIALINFORMATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016 (in ‘000s of Russian rubles, unless otherwise stated)
1.
1.1
The Zoltav Group (the “Group”) comprises Zoltav Resources Inc. (the “Company”), together with its subsidiaries:
Background
The Company and its operations
Name
Place of
incorporation
Function
Share of the Group in a subsidiary
31
December
2016
31
December
2015
31
December
2014
Cyprus
Holding company
100%
100%
100%
Russia
Operating company
100%
100%
100%
Going concern
2.2
The consolidated financial statements have been prepared on a going concern basis as the directors have concluded
that the Group will continue to have access to sufficient funds in order to meet its obligations as they fall due for at least
the foreseeable future as explained further in the Directors Report. Liquidity risk is additionally disclosed in Note 27.1.
Disclosure of impact of new and future accounting standards
Adoption of new and amended standards
2.3
(a)
In the preparation of these consolidated financial statements, the Group followed the same accounting policies and methods of
computation as compared with those applied in the previous year, except for the adoption of new standards and interpretations
and revision of the existing standards as of 1 January 2016. 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 first time in 2016, they did not have a material impact on
the annual consolidated financial statements of the Group.
CenGeo Holdings Limited
(hereinafter – “CenGeo Holdings”)
CJSC SibGeCo
(hereinafter – “SibGeCo”)
Royal Atlantic Energy (Cyprus)
Limited (hereinafter – “Royal”)
Diall Alliance LLC
(hereinafter – “Diall”)
Zoltav Resource LLC
(previously Vostok Energy LLC)
Zoltav Resources Holdings (Jer-
sey) Limited
ZRI Services (UK) Ltd
Cyprus
Holding
100%
100%
100%
New/Revised Standards and Interpretations Adopted in 2016
Effective for annual
periods beginning
on or after
Russia
Operating company
100%
100%
100%
Amendments to IFRS 10, IFRS 12 and IAS 28: Investment Entities – Applying the Consolidation Exception
1 January 2016
Russia
Management company
100%
100%
100%
Amendments to IAS 27: Equity Method in Separate Financial Statements
Jersey
Holding company
United
Kingdom
Service company
-
-
100%
100%
100%
100%
Amendments to IAS 1: Disclosure Initiative
Annual improvements to IFRSs 2010-2012 Cycle
Annual Improvements to IFRSs 2012–2014 Cycle
1 January 2016
1 January 2016
1 February 2015
1 January 2016
Zolltav Resources Holdings (Jersey) Limited and ZRI Services (UK) Ltd, 100% owned subsidiaries were dissolved via voluntary
strike-off at 19 August 2016 and 20 September 2016, respectively.
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 the production of hydrocarbons in the Russian Federation. The Company’s shares are listed on the Alternative
Investment Market (“AIM”) of the London Stock Exchange.
1.2
The Group’s operations are located in the Russian Federation.
Russian business environment
The Russian Federation
1.3
Russia continues economic reforms and development of its legal, tax and regulatory frameworks as required by a market
economy. The future stability of the Russian economy is largely dependent upon these reforms and developments and the
effectiveness of economic, financial and monetary measures undertaken by the government.
The Russian economy has been negatively impacted by a decline in oil prices and sanctions imposed on Russia by a number of
countries. The Ruble interest rates remained high. The combination of the above resulted in reduced access to capital, a higher
cost of capital and uncertainty regarding economic growth, which could negatively affect the Group’s future financial position,
results of operations and business prospects. Management believes it is taking appropriate measures to support the sustainability
of the Group’s business in the current circumstances.
Significant accounting policies
Basis of preparation
2.
2.1
The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting
Standards (IFRS), as adopted by the European Union (EU), International Financial Reporting Interpretations Committee (IFRIC)
interpretations, and the Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial statements
have been prepared under the historical cost convention, as modified by the revaluation of financial assets and financial liabilities
(including derivative instruments) at fair value through profit or loss.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a
higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial
statements are disclosed in Note 3.
Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortisation
1 January 2016
Amendments to IFRS 11: Accounting for Acquisitions of Interests in Joint Operations
Amendments to IAS 16 and IAS 41: Bearer Plants
Amendments to IAS 19 – Defined Benefit Plans: Employee Contributions
1 January 2016
1 January 2016
1 February 2015
New accounting pronouncements
(b)
A number of new and amended standards were not effective for the year ended 31 December 2016 and have not been applied in
these consolidated financial statements.
Standards issued but not yet effective in the European Union
IFRS 14 Regulatory Deferral Accounts
IAS 7 Disclosure Initiative – Amendments to IAS 7
Effective for annual
periods beginning on
or after
1 January 2016*
1 January 2017*
IAS 12 Recognition of Deferred Tax Assets for Unrealised Losses – Amendments to IAS 12
1 January 2017*
Amendments to IAS 40 – Transfers of Investment Property
1 January 2018*
Amendments to IFRS 4 – Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts
1 January 2018*
Annual Improvements to IFRSs 2014-2016 Cycle
IFRS 9 Financial Instruments
IFRS 15 Revenue from Contracts with Customers
Clarification to IFRS 15 Revenue from Contracts with Customers
IFRIC 22 Foreign Currency Transactions and Advance Consideration
1 January 2018*
1 January 2018
1 January 2018
1 January 2018*
1 January 2018*
IFRS 2 Classification and Measurement of Share-based Payment Transactions — Amendments to IFRS 2
1 January 2018*
IFRS 16 Leases
1 January 2019*
Amendments to IFRS 10 and IAS 28: Sale of Contribution of Assets between on Investor and its
Associate or Joint Venture
Deferred indefinitely *
*Subject to EU endorsement
28
Zoltav Resources Inc. Annual Report 2016
Zoltav Resources Inc. Annual Report 2016
29
NOTES TO ACCOUNTSFINANCIALINFORMATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016 (in ‘000s of Russian rubles, unless otherwise stated)
At present the Group is in the process of analysis of the possible impact of the application of these standards on its consolidated
financial statements. The Group intends to adopt these standards, if applicable, when they become effective.
Basis of consolidation
2.4
The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at 31 December
2016. 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.
Specifically, 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 financial 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 financial 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 flows 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 profit or loss. Any investment retained is recognised at fair value.
Acquisitions, asset purchases and disposals
2.5
Transactions involving the purchases of an individual field interest, or a group of field interests, that do not qualify as a business
combination are treated as asset purchases, irrespective of whether the specific transactions involved the transfer of the field
interests directly or the transfer of an incorporated entity. Accordingly, no goodwill or deferred tax gross up arises. The purchase
consideration is allocated to the assets and liabilities purchased on an appropriate basis. Proceeds from the disposal are applied
to the carrying amount of the specific intangible asset or development and production assets disposed of and any surplus is
recorded as a gain on disposal in the statement of comprehensive income.
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 identifiable net assets. Acquisition-related costs are expensed as
incurred and included in administrative expenses.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification 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.
Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Contingent
consideration classified as an asset or liability that is a financial 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 profit 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 identifiable 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 identified 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 profit 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 benefit 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 follows the Group’s internal reporting structure.
Segment reporting
Operating segments are defined as components of the Group where separate financial information is available and reported
regularly to the chief operating decision maker (“CODM”), which is determined to be the Board of Directors of the Company.
The Board of Directors decides how to allocate resources and assesses operational and financial performance using
the information provided.
The CODM receives monthly IFRS-based financial information for the Group and its development and production entities. The
Group has other entities that engage as either head office or in a corporate capacity, or as holding companies. Management
has concluded that, due to the application of aggregation criteria, separate financial information for segments is not required. No
geographic segmental information is presented, as all of the companies’ operating activities are based in the Russian Federation.
Management has therefore determined that the operations of the Group comprise one operating segment and the Group operates
in only one geographic area − the Russian Federation.
Foreign currency translation
Functional and presentation currency
2.8
(a)
The functional currency of the Group entities is the Russian ruble (“RUB”), the currency of the primary economic environment in
which the Group operates.
Starting from 1 January 2016, the presentation currency was changed from US dollar (“USD”) to the Russian ruble, which the
Board considers more representative for users of these financial statements to better assess the performance of the Group.
A change in presentation currency is a change in accounting policy which is accounted for retrospectively. The financial
information included in the Group’s consolidated financial statements for the year ended 31 December 2015 and 31 December
2014 previously reported in US dollar has been restated into Russian ruble using the procedures outlined below:
•
•
•
Assets and liabilities for each balance sheet date are translated at the closing rate at the date of that balance sheet;
Share capital and other equity components are translated at historic rates;
Income and expenses are translated at exchange rates at the dates of the transactions (or at average exchange rates
that approximate the translation using the rate of the actual transaction dates).
Translation has been performed using the exchange rates set by the Central Bank of the Russian Federation.
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 first qualifies 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 the settlement or translation of monetary items are recognised in profit 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 statement of comprehensive income (“OCI”) until the net investment is disposed of, at which time the cumulative
amount is reclassified to profit 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 profit or loss are also recognised in OCI or
profit 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 profit or loss, unless the loan is not expected to be settled in the foreseeable future
and thus forms part of the net investment in foreign operation. In such a case, the foreign exchange gain or loss is recognized in
other comprehensive income.
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.
30
Zoltav Resources Inc. Annual Report 2016
Zoltav Resources Inc. Annual Report 2016
31
NOTES TOACCOUNTSFINANCIALINFORMATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016 (in ‘000s of Russian rubles, unless otherwise stated)
The accounting policies set out below have been applied consistently to all years presented in the consolidated financial
statements, and have been applied consistently by the Group.
The period-end exchange rates and the average exchange rates for the respective reporting periods are indicated below.
Depreciation
(ii)
Major oil and gas facilities that have a shorter useful life than the lifetime of the related fields are depreciated on a straight-line
basis over the expected useful life of the facility. Depreciation of items of such assets is calculated using the straight-line method
to allocate their cost to their residual values over their estimated useful lives:
RUB/USD as at 31 December
RUB/USD average for the year ended 31 December
2016
60.6569
67.0349
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 field-by-field basis.
Drilling, seismic and other costs
(a)
Costs directly associated with an exploration well, including certain geological and geophysical costs, and exploration and property
leasehold acquisition costs, are capitalised until the reserves are evaluated. If it is determined that a commercial discovery has
not been achieved, these costs are charged to expense after the conclusion of appraisal activities. Exploration costs such as
geological and geophysical that are not directly related to an exploration well are expensed as incurred.
Capital expenditure is recognised as property, plant and equipment or intangible assets in the financial statements in accordance
with the nature of the expenditure and the stage of development of the associated field, i.e. exploration, development, or
production. Once commercial reserves are found, exploration and evaluation assets are tested for impairment and transferred to
development property, plant and equipment or intangible assets. No depreciation or amortisation is charged during the exploration
and evaluation phase.
Sub-soil licences
(b)
Costs incurred prior to the award of oil and gas licences, concessions and other exploration rights are expensed in profit or loss.
Costs incurred on the acquisition of a licence interest are initially capitalised on a licence by licence basis and are capitalised
within exploration and evaluation assets and held un-depleted until the exploration phase of 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.
Property, plant and equipment
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.
Expenditure on the construction, installation or completion of infrastructure facilities such as platforms and pipelines, as well
as on the drilling of development wells into commercially proved reserves, is capitalised within property, plant and equipment.
When development is completed on a specific field, it is transferred to producing assets within property, plant and equipment. No
depreciation or amortisation is charged during the development phase.
Development and production assets are accumulated generally on a field by field basis and represent the cost of developing
the commercial reserves discovered and bringing them into production, together with E&E expenditures incurred in finding
commercial reserves and transferred from intangible E&E assets as described above. The cost of development and production
assets also includes the cost of acquisitions and purchases of such assets, directly attributable overheads, any costs directly
attributable to bringing the asset into operation, and the cost of recognising provisions for future restoration and decommissioning,
if any.
Major facilities may be capitalised separately if they relate to more than one field or to the licence area as a whole. Subsequent
expenditure is capitalised only if it either enhances the economic benefits of the development/production asset or replaces part
of the existing development/ production asset. Any costs remaining associated with the part replaced are expensed. Directly
attributed overheads are capitalised where they relate to specific exploration and development activities.
Depletion
(i)
Oil and gas properties in production, including wells and directly related pipeline costs, are depreciated using the unit-of-
production method. Sub-soil licences and other licenses capitalised as part of oil and gas properties in production are amortised
also using the unit-of-production method. Unit-of-production rates are based on proved reserves of the field concerned, which are
oil, gas and other mineral reserves estimated to be recovered from existing facilities using current operating methods. The unit-of-
production rate for the amortisation of field development costs takes into account expenditures incurred to date.
Buildings and constructions
Machinery and equipment
15-30 years
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 asset to the working condition and to the location for
its intended use. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate,
only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can
be measured reliably. All other costs, such as repairs and maintenance are charged to the income statement during the financial
period in which they are incurred.
The gain or loss arising from a retirement or disposal is determined as the difference between the sales proceeds and the carrying
amount of the assets, and is recognised in the income statement.
Depreciation is provided on buildings and facilities, motor vehicles, office equipment and furniture at rates calculated to write off
the cost, less estimated residual value, evenly over the asset’s expected useful life.
For depreciation purposes, useful lives are estimated as follows:
Other equipment and furniture
Motor vehicles
5 years
5 years
Impairment of non-current assets
Impairment indicators
2.11
(i)
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 inflows 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 flows are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less
costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, 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 five years. A long-term growth rate is calculated and applied to project future cash flows after the fifth year.
Impairment losses of continuing operations are recognised in the statement of profit 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 or 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 profit or loss unless the asset is carried at a revalued amount, in which case the reversal is treated
as a revaluation increase.
Calculation of recoverable amount
(ii)
The recoverable amount of assets is the greater of their value in use and fair value less costs to sell. In assessing value in use,
the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset.
Cash generating units
(iii)
For an asset that does not generate cash inflows largely independent of those from other assets, the recoverable amount is
determined for the cash generating unit to which the asset belongs. The Group’s cash generating units are the smallest identifiable
groups of assets that generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets.
32
Zoltav Resources Inc. Annual Report 2016
Zoltav Resources Inc. Annual Report 2016
33
NOTES TOACCOUNTSFINANCIALINFORMATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016 (in ‘000s of Russian rubles, 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 fields that are located in the same geographical region. For development and production assets
the cash generating unit applied for impairment test purposes is generally the field. For shared infrastructure a number of field
interests may be grouped together where surface infrastructure is used by several fields in order to process production for sale.
Reversals of impairment
(iv)
An impairment loss is reversed to the extent that the factors giving rise to the impairment charge are no longer prevalent. An
impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would
have been determined, net of depletion, depreciation or amortisation, if no impairment loss had been recognised.
Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual profit or
loss.
Inventories
2.12
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 finished goods comprises direct materials and, where applicable, direct labour plus attributable overheads
based on a normal level of activity and other costs associated in bringing inventories to their present location and condition, but
excludes borrowing costs. Lower value items of materials and supplies are written off directly to profit or loss.
Financial instruments
2.13
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument
of another entity. Financial assets and financial liabilities are recognised when, and only when, the Group becomes a party to
the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction
costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets
and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or
financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets
or financial liabilities at fair value through profit or loss are recognised immediately in the statement of comprehensive income.
Financial assets
(a)
The Group classifies its financial assets into one of the following categories: financial assets at fair value through profit or loss and
loans and receivables.
Regular purchases of financial assets are recognised on the trade date. Management determines the classification of its financial
assets at initial recognition depending on the purpose for which the financial assets were acquired and, where allowed and
appropriate, re-evaluates this designation at every reporting date. The accounting policies adopted for each category are:
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon
initial recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for
the purpose of selling in the near term, or if they are part of a portfolio of identified financial instruments that are managed together
and for which there is evidence of a recent pattern of short-term profit-taking.
Financial assets may be designated at initial recognition at fair value through profit or loss if the following criteria are met:
•
•
The designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring
the assets or recognising gains or losses on them on a different basis; or
The assets are part of a group of financial assets which are managed and their performance is evaluated on a fair value
basis, in accordance with a documented risk management strategy and information about the group of financial assets is
provided internally on that basis to the key management personnel.
Subsequent to initial recognition, the financial assets included in this category are measured at fair value, with changes in fair
value recognised in the statement of comprehensive income. Fair value is determined by reference to active market transactions
or using a valuation technique where no active market exists. Fair value gains or losses do not include any dividend or interest
earned on these financial assets. Dividend and interest income is recognised on an accruals basis.
Other receivables
Other receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.
They are initially measured at fair value and subsequently measured at amortised cost using the effective interest method, less
any impairment losses. Amortised cost is calculated taking into account any discount or premium on acquisition and includes fees
that are an integral part of the effective interest rate and transaction cost.
Impairment losses on other receivables are provided for when objective evidence is received that the Group will not be able
to collect amounts due to it in accordance with the original terms of the receivables. The amount of the loss is measured as
the difference between the asset’s carrying amount and the present value of estimated future cash flows, excluding future credit
losses that have not been incurred, discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate
computed at initial recognition). The amount of the loss is recognised in the statement of comprehensive income for the period in
which the impairment occurs.
Objective evidence of impairment of individual financial assets includes observable data that comes to the attention of the Group
about one or more of the following loss events:
•
•
•
•
Significant financial difficulty of the debtor;
A breach of contract, such as default or delinquency in interest or principal payments;
It becoming probable that the debtor will enter bankruptcy or other financial reorganisation; and
Significant changes in the technological, market, economic or legal environment that have an adverse effect on
the debtor.
Loss events in respect of a group of financial assets include observable data indicating that there is a measurable decrease in the
estimated future cash flows from the group of financial assets. Such observable data includes but is not limited to adverse changes in
the payment status of debtors in the group, and national or local economic conditions that correlate with defaults on the assets in the
group.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event
occurring after the impairment was recognised, the previously recognised impairment loss is reversed to the extent that it does not
result in a carrying amount of the financial asset exceeding what the amortised cost would have been had the impairment not been
recognised at the date the impairment is reversed.
The amount of the reversal is recognised in OCI in the period in which the reversal occurs.
Financial liabilities and equity
(b)
Financial liabilities and equity instruments issued by the Group are classified according to the substance of the contractual
arrangements entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that
evidences a residual interest in the assets of the Group after deducting all of its liabilities. The accounting policies adopted in respect
of financial liabilities and equity instruments are set out below.
Other financial liabilities
Other financial liabilities include trade and other payables and are recognised initially at fair value and subsequently measured at
amortised cost, using the effective interest method.
Equity instruments
Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.
Derecognition
(c)
Financial assets are derecognised when the rights to receive cash flows from the assets expire, or the financial assets are transferred
and the Group has transferred substantially all the risks and rewards of ownership of the financial assets. On derecognition of a
financial asset, the difference between the asset’s carrying amount and the sum of the consideration received and the cumulative
gain or loss that had been recognised directly in equity is recognised in the statement of comprehensive income.
For financial liabilities, they are removed from the balance sheet when the obligation specified in the relevant contract is discharged,
cancelled or expires. The difference between the carrying amount of the financial liability derecognised and the consideration paid is
recognised in the statement of comprehensive income.
2.14 Cash and cash equivalents
Cash and short-term deposits in the statement of financial 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 insignificant risk of changes in value. For the purpose of the consolidated
statement of cash flows, cash and cash equivalents consist of cash and short-term deposits, as defined 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 profit 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 finance costs in the statement of profit or loss.
Provisions
2.16
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, and it is
probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate of the amount of
the obligation can be made. Where the time value of money is material, provisions are stated at the present value of the expenditure
expected to settle the obligation.
All provisions are reviewed at each reporting date and adjusted to reflect the current best estimate.
Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably,
the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible
obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future uncertain events not
wholly within the control of the Group are also disclosed as contingent liabilities unless the probability of outflow of economic benefits
is remote.
34 Zoltav Resources Inc. Annual Report 2016
Zoltav Resources Inc. Annual Report 2016
35
NOTES TOACCOUNTSFINANCIALINFORMATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016 (in ‘000s of Russian rubles, unless otherwise stated)
A provision for decommissioning is made for the cost of decommissioning assets at the time when the obligation to decommission
arises. Such provision represents the estimated discounted liability for costs which are expected to be incurred in removing
production facilities and site restoration at the end of the producing life of each field. A corresponding item of property, plant and
equipment is also created at an amount equal to the provision. This is subsequently depreciated as part of the capital costs of
the production facilities. Any change in the present value of the estimated expenditure attributable to changes in the estimates of
the cash flow or the current estimate of the discount rate used are reflected as an adjustment to the provision and the property,
plant and equipment. The unwinding of the discount is recognised as a finance cost.
Provisions for environmental restoration, restructuring costs and legal claims are recognised when: the group has a present
legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle
the obligation; and the amount has been reliably estimated. Restructuring provisions comprise lease termination penalties and
employee termination payments. Provisions are not recognised for future operating losses.
Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by
considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any
one item included in the same class of obligations may be small.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax
rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in
the provision due to passage of time is recognised as interest expense.
Share capital, share premium and capital reserves
2.17
Ordinary shares are classified as equity. Share capital is determined using the nominal value of shares that have been issued.
Any transaction costs associated with the issuing of shares are deducted from the share premium (net of any related income tax
benefit) to the extent they are incremental costs directly attributable to the equity transaction. Any discount on the issue of ordinary
shares is deducted from the share premium account.
The share premium is recognized on the difference between the par value of a share and its selling price.
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 tax assets and liabilities relate to income taxes levied by the same taxation
authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net
basis.
Employee benefits
Retirement benefit schemes
2.21
(a)
No pension contributions were payable in the year. The Group participated only in defined contribution pension schemes and paid
contributions to independently administered funds on a mandatory or contractual basis. The assets of these schemes are held
separately from those of the Group in independently administered funds. The retirement benefit schemes are generally funded by
payments from employees and by the relevant company. The Group has no further payment obligations once the contributions
have been paid. The contributions are recognised as an employee benefit expense on an accruals basis.
(b)
The Group operates equity-settled share-based compensation plans to remunerate its Directors and key management.
Share-based employee compensation
All services received in exchange for the grant of any share-based compensation are measured at their fair values. These
are indirectly determined by reference to the fair value of the share options and warrants awarded. Their value is appraised at
the grant date and excludes the impact of any non-market vesting conditions.
All share-based compensation is ultimately recognised as an expense in the statement of comprehensive income unless it
qualifies for recognition as an asset, with a corresponding credit to the 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.
The capital reserve brought forward arose on the disposal of all the subsidiaries to its former holding company (Crosby Capital
Limited), reverse acquisition of Crosby Capital Limited and on a group reorganization during the years ended 31 December 2010,
31 December 2004 and 31 December 2000 respectively.
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 the employee share-
based compensation reserve will be transferred out with any excess being recorded as share premium.
2.18 Revenue recognition
Revenue, which is the fair value of consideration received or receivable, is recognised when it is probable that economic benefits
will flow to the Group and when the revenue can be measured reliably. Revenue is shown net of value added tax, returns, rebates
and discounts and after eliminating sales within the Group. The following criteria must also be met before revenue is recognised:
(i)
Revenue from the sale of oil, gas, and condensate is recognised when the title passes to the customer.
Sale of goods
(ii)
Interest income is recognised on a time-proportion basis using the effective interest method.
Interest income
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 field in
question. MET is a production based tax (as opposed to income) and is accrued as a tax on production and recorded within cost of
sales.
2.20 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 the 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 financial statements. However, deferred income tax is not accounted
for if it arises from the initial recognition of an asset or liability in a transaction other than a business combination that at the time of
the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws)
that have been enacted or substantively enacted by the end of the reporting period and are expected to apply when the related
deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which
the temporary differences can be utilised.
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 retained earnings or accumulated losses.
Bonus plans
(c)
The Group 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.
Valuations of share options or warrants granted
e)
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 Group the existing
model will not always necessarily provide a reliable single measure of the fair value of the share options. Details of the inputs are
set out in Note 20 to the financial statements.
Critical accounting estimates and judgements
3.
The preparation of consolidated financial statements in conformity with IFRS 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 estimates are revised and in any future years affected. The estimates and assumptions that have a
significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are
discussed below:
Income taxes
3.1
The Group is subject to income and other taxes. Significant judgement is required in determining the provision for income tax
and other taxes due to the complexity of tax legislation of the Russian Federation. The taxation system in the Russian Federation
continues to evolve and is characterised by frequent changes in legislation, as well as official pronouncements and court decisions
which are sometimes contradictory and subject to varying interpretation by different tax authorities. Taxes are subject to review
and investigation by a number of authorities which have the authority to impose severe fines, penalties and interest charges.
A tax year remains open for review by the tax authorities during the three subsequent calendar years; however, under certain
circumstances a tax year may remain open longer.
36 Zoltav Resources Inc. Annual Report 2016
Zoltav Resources Inc. Annual Report 2016
37
NOTES TOACCOUNTSFINANCIALINFORMATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016 (in ‘000s of Russian rubles, unless otherwise stated)
Deferred tax assets are recognised to the extent that it is probable for each subsidiary to generate enough taxable profits to
utilise deferred income tax recognised. Significant management judgement is required to determine the amount of deferred tax
assets recognised, based upon the likely timing and the level of future taxable profits. Management prepares cash-flow forecasts
to support the recoverability of deferred tax assets. Cash flow models are based on a number of assumptions relating to oil
prices, operating expenses, production volumes, etc. These assumptions are consistent with those used by independent reserve
engineers. Management also takes into account uncertainties related to future activities of the subsidiaries and going concern
considerations. When significant uncertainties exist, deferred tax losses are not recognised even if the recoverability of these is
supported by cash flow forecasts. Refer to further details in Note 23.
Provision for decommissioning and environmental restoration
3.2
This provision is significantly affected by changes in technology, laws and regulations which may affect the actual cost of
decommissioning and environmental restoration to be incurred at a future date. The estimate is also impacted by the discount
rates used in the provisioning calculations. The discount rates used are the Russian government bond rates.
Under the current levels of enforcement of existing legislation, management believes there are no significant liabilities in addition
to amounts which are already accrued and which would have a material adverse effect on the financial position of the Group.
The Group’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 Group is obliged to decommission wells, dismantle equipment, restore the sites and perform
other related activities. The Group’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 Group using the present value of the estimated
future costs of decommissioning of these assets. The discount rate is reviewed at each reporting date and reflects risk free rate.
The Group adjusts specific cash flows 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
field, the Group performs an impairment test in relation to costs capitalised. Where reserves are determined in sufficient quantity to
justify development, the associated assets are transferred to property, plant and equipment. Until the conclusion of the exploration
phase, there can be no certainty that commercial reserves exist. Where commercial reserves are determined not to exist,
capitalised E&E expenditure is expensed.
Development and production
(b)
When the fields enter the production phase, the recoverable amounts of cash-generating units and individual assets will be
determined based on the higher of value-in-use calculations and fair values less costs to sell. These calculations will require
the use of estimates and assumptions. It is reasonably possible that the oil price assumption may change which may then impact
the estimated life of the field and may then require a material adjustment to the carrying value of long-term assets.
The Group monitors internal and external indicators of impairment relating to its tangible and intangible assets. There were no
such indicators of possible impairment identified during the reporting years covered by these consolidated financial statements.
Evaluation of reserves and resources
3.4
Estimates of proved reserves are used in determining the depletion and amortization charge for the period and assessing whether
any impairment charge or reversal of impairment is required for development and producing assets. As of 31 December 2016,
2015 and 2014 proved reserves were estimated by reference to an independent international oil and gas engineering firm report
dated 22 May 2014, by reference to available geological and engineering data, and only include volumes for which access to
market is assured with reasonable certainty.
When the fields enter the development and production phase, estimates of reserves are inherently imprecise, require the
application of judgments and are subject to regular revision, either upward or downward, based on new information such as from
the drilling of additional wells and changes in economic factors, including product prices, contract terms or development plans.
Changes to the Group’s estimates of proved reserves affect prospectively the amounts of the depletion and amortization charge,
decommissioning assets and provisions where changes in reserve estimates cause the estimated useful lives of assets to be
revised.
Depletion is provided for based on the production profile on a field by field basis, which may exceed the existing licence period.
Licence extensions are generally awarded by the license authorities in Russia as a matter of course, provided that production
plans demonstrate that additional time is required to economically produce at the field and that the development and production
requirements of the initial license grant have been met.
Sub-soil licences
3.5
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 2016, there are no non-compliance issues that will have an adverse
effect on the financial position or operating results of the Group.
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 specific to that
asset or liability.
Other receivables
4.1
The fair value of other receivables is estimated as the present value of future cash flows, discounted at the market rate of interest
at the reporting date. This fair value is determined for disclosure purposes.
Non-derivative financial liabilities
4.2
Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest
cash flows, discounted at the market rate of interest at the reporting date. Fair value of the non-derivative financial assets is
disclosed in Note 4.3 to the financial statements.
Assets and liabilities not measured at fair value but for which fair value is disclosed
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:
31 December 2016
31 December 2015
(Restated)
31 December 2014
(Restated)
Fair value
Carrying
value
Fair value
Carrying
value
Fair value
Carrying
value
172,294
172,294
172,294
172,294
149,264
149,264
149,264
149,264
145,203
145,203
145,203
145,203
1,855,173
1,859,949
2,214,541
2,218,549
2,391,882
2,378,380
Financial assets
Trade and other receivables
Total assets
Financial liabilities
Borrowings
Trade and other payables
Other non-current payables
129,379
57,758
129,379
57,874
214,858
214,858
116,657
116,657
-
-
-
-
Total liabilities
2,042,310
2,047,202
2,429,399
2,433,407
2,508,539
2,495,037
The fair values of borrowings and other non-current payables are based on cash flows discounted using a market rate. For
borrowings: a rate of 11,93% (31 December 2015: 12.07%, 31 December 2014: 12.15%), for other long-term payables: a rate of
8.26%. The fair values are 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 Group’s operations in Russia.
Revenue is primarily from the sale of four products:
Gas sales
Oil sales
Condensate sales
Sulphur sales
Total sales
2016
1,708,103
137,982
136,968
6,377
1,989,430
2015
(Restated)
1,370,182
187,369
139,725
–
1,697,276
All gas sales are to one customer, Gazprom Mezhregiongaz Saratov LLC, under a long-term contract effective until 31 December
2020 with terms reviewed annually. Condensate, oil and sulphur are sold to regional buyers. The sales of all products are
denominated in RUB.
38 Zoltav Resources Inc. Annual Report 2016
Zoltav Resources Inc. Annual Report 2016
39
NOTES TOACCOUNTSFINANCIALINFORMATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016 (in ‘000s of Russian rubles, 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 benefits to operations personnel
Other
Total cost of sales
7.
Operating, administrative and selling expenses
Wages and salaries including director’s fee
Accountancy, legal and consulting services
Rent expense
Audit services
Office expenses
Insurance
Computers and software
Travelling
Other
Total operating, administrative, selling expense
8.
Employee benefit expenses (including directors’ remuneration)
Salaries and other employee benefits
Total
2016
340,918
340,918
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
2016
Employees
83
184
267
2016
406,499
404,684
108,238
95,310
39,750
21,204
16,812
62,790
2015
(Restated)
388,521
366,824
124,460
114,467
65,967
21,584
19,657
70,666
1,155,287
1,172,146
2016
215,868
39,023
13,691
9,848
3,187
2,888
2,218
1,996
10,627
299,346
2015
(Restated)
282,479
87,693
17,129
26,420
4,999
8,351
7,498
9,692
37,672
481,933
2015
(Restated)
426,596
426,596
2015
Employees
92
206
298
9.
Other income and expenses
Change in decommissioning and environmental restoration
provision
Penalties received
Other income
Loss on disposal of construction in progress and other prop-
erty, plant and equipment
Write-off of accounts receivable and other current assets
Penalties paid
Net foreign exchange difference
Loss on financial assets at fair value through profit or loss
Charitable contributions
Bank charges
Other
Other expenses
10.
Finance income and finance costs
Finance income
Interest on bank deposits
Total finance income
Finance costs
Interest on borrowings
Unwinding of the discount on decommissioning and
environmental restoration provision (Note 22)
Unwinding of the discount on recognition non-current
payables to suppliers
Total finance costs
2016
34,076
15,000
49,076
(86,624)
(26,986)
(11,810)
(7,982)
(4,020)
(3,122)
(1,034)
(1,282)
(142,860)
2016
24,409
24,409
(228,538)
(35,898)
(3,549)
(267,985)
2015
(Restated)
60,854
-
60,854
(15,614)
(6,357)
-
(12,419)
-
-
(959)
(56)
(35,405)
2015
(Restated)
51,631
51,631
(261,814)
(73,515)
-
(335,329)
40
Zoltav Resources Inc. Annual Report 2016
Zoltav Resources Inc. Annual Report 2016
41
NOTES TOACCOUNTSFINANCIALINFORMATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016 (in ‘000s of Russian rubles, unless otherwise stated)
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.
Profit/(loss) before income tax
Theoretical tax (charge)/benefit at applicable income tax
rate of 20% (2015: 20%)
Effect of different foreign tax rates
Effect of unrecognized tax loss
Tax effect of expenses not deductible for tax purposes
Total income tax expense
The Group’s income was subject to tax at the following tax rates:
The Russian Federation
The Republic of Cyprus
Cayman Islands
2016
(105)
(100,231)
(100,336)
2016
197,437
(39,467)
(27,357)
(21,422)
(12,090)
(100,336)
2016
20.0%
12.5%
0%
2015
(Restated)
-
(31,606)
(31,606)
2015
(Restated)
(215,052)
43,010
(63,658)
(6,462)
(4,496)
(31,606)
2015
20.0%
12.5%
0%
The Group is subject to Cayman income tax, otherwise the majority of the Group’s operations are located in the Russian
Federation. Thus 20% tax rate is used for theoretical tax charge calculations.
12.
Exploration and evaluation assets
Sub-soil
licences
Drilling,
seismic and
other costs
Decommissioning
asset
Construction
work in
progress
Total
2,051,181
2,536,354
127,650
6,132
4,721,317
43,785
6,096
-
19,861
-
-
-
-
183
(6,096)
63,829
-
(94,780)
-
(94,780)
2,101,062
2,556,215
32,870
219
4,690,366
86,962
23,478
-
-
(1,217)
-
-
-
(11,275)
21,595
-
-
-
110,440
(1,217)
(11,275)
219
4,788,314
Balance at 31 December 2016
2,188,024
2,578,476
Balance at 1 January 2015
(restated)
Additions
Reclassification
Change in the estimates of
decommissioning provision
Balance at 31 December 2015
(restated)
Additions
Transfer to property, plant and
equipment
Change in the estimates of
decommissioning provision
Exchange difference
In management’s opinion, as at 31 December 2016 there were no non-compliance issues in respect of the licences that would
have an adverse effect on the financial position or the operating results of the Group.
As of 31 December 2016 management performed impairment analysis of exploration and evaluation assets. As of result of this
analysis the recoverable amount of exploration and evaluation assets significantly increased their carrying amount. Accordingly as
of 31 December 2016 no impairment of exploration and evaluation assets was recognized.
13.
Property, plant and equipment
Cost at 1 January 2015 (restated)
Additions
Reclassification
Transfer to Inventory
Disposals
Change in estimates of the decommissioning
provision
Oil and
gas
assets
4,439,969
161,502
122,668
-
(21,444)
(159,767)
Motor
vehicles
14,908
2,337
-
-
-
-
Cost at 31 December 2015 (restated)
4,542,928
17,245
Additions
Reclassification
Transfer from exploration and evaluation assets
Transfer to Inventory
Disposals
Change in estimates of the decommissioning
provision
93,761
205,009
1,217
-
(15,540)
(1,913)
-
-
-
-
-
-
Other
equipment and
furniture
Construction
work in
progress
Total
4,745,452
266,888
-
(2,444)
(22,258)
282,811
103,049
(122,668)
(2,444)
(761)
(2,161)
(161,928)
257,826
281,460
(205,009)
-
(2,902)
(78,131)
4,825,710
375,465
-
1,217
(2,902)
(93,671)
(3,320)
(5,233)
7,764
-
-
-
(53)
-
7,711
244
-
-
-
-
-
Cost at 31 December 2016
4,825,462
17,245
7,955
249,924
5,100,586
Accumulated depreciation and impairment
Balance at 1 January 2015 (restated)
Depreciation and depletion
Disposals
Balance at 31 December 2015 (restated)
Depreciation and depletion
Disposals
(118,256)
(362,124)
6,583
(473,797)
(401,790)
7,047
(1,181)
(8,294)
-
(9,475)
(6,641)
-
(3,657)
(572)
61
(4,168)
(508)
-
Balance at 31 December 2016
(868,540)
(16,116)
(4,676)
-
-
-
-
-
-
-
(123,094)
(370,990)
6,644
(487,440)
(408,939)
7,047
(889,332)
Net book value at 1 January 2015
(restated)
4,321,714
13,727
Net book value at 31 December 2015
(restated)
4,069,131
Net book value at 31 December 2016
3,956,922
7,770
1,129
4,107
3,543
3,279
282,811
4,622,359
257,826
4,338,270
249,924
4,211,254
14.
Inventories
Natural gas and hydrocarbon liquids
(at lower of cost and net realisable value)
Materials and supplies (at cost)
Total inventories
31 December 2016
31 December 2015
(Restated)
31 December 2014
(Restated)
6,047
12,783
18,830
1,968
7,798
9,766
2,025
16,146
18,171
42 Zoltav Resources Inc. Annual Report 2016
Zoltav Resources Inc. Annual Report 2016
43
NOTES TOACCOUNTSFINANCIALINFORMATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016 (in ‘000s of Russian rubles, unless otherwise stated)
15.
Trade and other receivables and other current non-financial assets
Trade receivables, gross
Other accounts receivable, gross
Allowance for doubtful accounts
Total trade and other receivables
Prepayments
VAT receivable
Other taxes prepaid
Total other current non-financial assets
31 December 2016
31 December 2015
(Restated)
31 December 2014
(Restated)
169,915
2,379
-
172,294
12,783
2,403
-
15,186
145,053
4,227
(16)
149,264
30,101
8,527
437
39,065
141,321
3,882
-
145,203
25,484
5,795
113
31,392
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.
As of 31 December 2016 trade and other receivables of 172,294 were neither past due nor impaired (31 December 2015:
149,264; 31 December 2014: 145,203). As of 31 December 2015, trade and other accounts receivable of 16 were individually
impaired and an impairment provision was recognised.
16.
Cash and cash equivalents consist of cash at bank and the majority of cash held is denominated in RUB.
Cash and cash equivalents
The Group’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 2016, 2015 and 2014
Number of ordinary shares
Nominal
value, USD’000
Nominal value,
RUB’000
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
1,708,672
970,218
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 Company’s statutory financial statements prepared in accordance with International Financial
Reporting Standards. No dividends were declared or paid in 2016, 2015 and 2014.
Earnings/(loss) per share
19.
Basic earnings/(loss) per share is calculated by dividing the profit/(loss) attributable to owners of the Company by the weighted
average number of ordinary shares in issue during the year.
Diluted earnings/(loss) per share are calculated by adjusting the weighted average number of ordinary shares outstanding to
assume conversion of all dilutive potential ordinary shares. As of 31 December 2016 the Company has share options as dilutive
potential ordinary shares. As of 31 December 2015 share options and warrants gave antidilution effect on loss per share.
Earnings/(loss) attributable to owners of the Company − Basic and diluted
2016
97,101
2015
(Restated)
(246,658)
Number of Shares
Number of Shares
Weighted average number of shares for calculating basic loss per share
Effect of dilutive potential ordinary shares − share options
141,955,386
1,952,500
141,955,386
-
Weighted average number of shares for calculating diluted earnings /
(loss) per share
143,907,886
141,955,386
Basic earnings/(loss) per share
Diluted earnings/(loss) per share
RUB
0.68
0.67
RUB
(1.74)
(1.74)
Share-based payments
Share options
20.
20.1
At 31 December 2016, the Company had a total of 1,952,500 outstanding share options (2015: 1,952,500). No movements in
share options 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.
31 December 2016
31 December 2015
31 December 2014
Grant date
Number
Option
exercise price
(pence)
Option
exercise price
(pence)
Number
11 January 2005
23 March 2006
23 February 2007
11 January 2008
31 October 2012
-
-
-
202,500
1,750,000
1,952,500
-
-
-
445
20
-
-
-
202,500
1,750,000
1,952,500
No share options were granted during the year ended 31 December 2016.
-
-
-
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
44 Zoltav Resources Inc. Annual Report 2016
Zoltav Resources Inc. Annual Report 2016
45
NOTES TOACCOUNTSFINANCIALINFORMATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016 (in ‘000s of Russian rubles, unless otherwise stated)
Initial share options
20.2
The Company adopted an employee Share Option Scheme on 4 March 2005 (the “Share Option Scheme”) in order to incentivise
key management and staff at that time. The following share options were granted to former employees and directors of the
Company under the Initial Share Option Scheme adopted on 4 March 2005 (“Initial Share Options”) and are still in existence:
Outstanding at 1 January
Expired
Outstanding at 31 December
2016
2015
Weighted
average exercise
price (pence)
445
-
445
Number
202,500
-
202,500
Weighted
average exercise
price (pence)
445
-
445
Number
367,500
(165,000)
202,500
Share options granted under the Initial Share Option scheme were exercisable as follows:
•
•
•
The first 30% of the options between the first and tenth anniversary of the grant date;
The next 30% of the options between the second and tenth anniversary of the grant date; and
The remaining options between the third and tenth anniversary of the grant date.
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 grant date. 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 is applied to the granting 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.
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 grant date. 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
2016
2015
Weighted
average exercise
price (pence)
20
-
-
-
20
Number
1,750,000
-
-
-
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 formula, at the grant date. The fair value determined at the grant date of the equity-settled share-
based payments is expensed on a straight-line basis over the vesting period, based on the Company’s estimate of shares that will
eventually vest. The options vested immediately.
The Black-Scholes formula is the option pricing model applied to the grant of share options in respect of calculating the fair values.
Key inputs to the model are as follows:
Share options
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)
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.
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 became 527,500.
515,000 warrants were exercised during the year ended 31 December 2014. During 2015 the remaining 12,500 outstanding
warrants expired.
21.
Borrowings
Non-revolving credit facility as at 1 January
Including current liability
Interest accrued
Interest paid
Repayment
Non-revolving credit facility, as at 31 December
Including current liability
2016
2,218,549
373,378
228,538
(227,138)
(360,000)
1,859,949
311,160
2015
(Resatated)
2,378,380
180,027
261,814
(241,645)
(180,000)
2,218,549
373,378
In 2014, the Group entered into non-revolving credit facility agreement No. 5878 with Sberbank of Russia OJSC with a maximum
facility amount of 2,400,000. The facility was drawn down in full in 2014. The maturity date is 30 April 2021, being the 7-year
anniversary of the facility entered into. The Group is obliged to repay the principal amount of the loan in 24 tranches commencing
on 11 May 2015 and on a quarterly basis from then on with a final repayment tranche payable on the maturity date. In 2016 the
Group repaid 360,000 (2015: 180,000). The interest rate is 10.98% per annum. Sberbank may unilaterally amend the interest
rate in the event of increases in the refinancing rate of the Central Bank of Russia. The Group paid an upfront commission on
the facility of 1% of the facility amount (24,000) and there is a drawdown charge of 0.25% per year on the balance of the facility
not drawn by the Group within the established timeframe. The Group has the option to prepay the loan in whole or in part at any
time, subject to the payment of a fee. The Group 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 Group signed an amendment altering covenants. The Group is in compliance with all covenants as of 31 December
2016, 2015 and 2014. The loan is secured by the Group, such security being granted pursuant to various pledge and mortgage
deeds entered into by the Group on or about the date of the Sberbank Facility. The carrying value of property, plant and equipment
pledged as of 31 December 2016 amounted to 2,901,916 (2015: 3,103,133; 2014: 3,304,306).
The outstanding amount of the facility as of 31 December 2016 was 1,860,000. The credit facility debt is measured at amortised
cost, using the effective interest method.
46 Zoltav Resources Inc. Annual Report 2016
Zoltav Resources Inc. Annual Report 2016
47
NOTES TOACCOUNTSFINANCIALINFORMATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016 (in ‘000s of Russian rubles, unless otherwise stated)
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 expected to be incurred at the end of the production lives of the gas and oil fields,
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
Provision as at 31 December
2016
358,000
15,839
35,898
(50,584)
359,153
2015
(Restated)
599,096
2,951
73,515
(317,562)
358,000
This provision has been created based on the Group’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 reflect market
conditions at the relevant time. Furthermore, the timing is likely to depend on when the fields cease to produce at economically
viable rates. This in turn will depend upon future oil prices and future operating costs, which are inherently uncertain.
The provision reflects two liabilities: one is to dismantle the property, plant and equipment assets and the other is to restore
the environment. The decommissioning part of the provision is reversed when an oil well is abandoned and corresponding
capitalised costs are expensed. The environmental part of the provision is reversed when the expenses on restoration are actually
incurred.
The provision is reversed 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 completed.
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 inflation rates. The Group reviews quarterly the application of inflation
rates used for the provision estimation. The inflation rate used in the estimation of the provision as of 31 December 2016 was
5.8% in 2017, decreasing to 4.0% in 2036 (in 2015: 7.4% in 2016, decreasing to 5.3% in 2036; in 2014 the flat rate of 11.4% was
applied based on historical data) based on the forecast of the Economist Intelligence. The discount rates used to determine the
decommissioning and environmental restoration provision are based on Russian government bond rates.
23.
Movements in temporary differences during the year:
Deferred tax liabilities
Decommissioning provision
Other current assets and liabilities
Tax loss carry-forwards
Deferred tax assets
Exploration and evaluation assets
Property, plant and equipment
Borrowings
Deferred tax liabilities
Net deferred tax liabilities
31 December
2016
44,368
9,540
299,067
352,975
(576,443)
(208,178)
(2,242)
(786,863)
(433,888)
Recognised in profit
or loss
31 December 2015
(Restated)
2,023
(4,599)
(18,046)
(20,622)
(15,525)
(65,195)
1,111
(79,609)
(100,231)
42,345
14,139
317,113
373,597
(560,918)
(142,983)
(3,353)
(707,254)
(333,657)
Decommissioning provision
Other current assets and liabilities
Tax loss carry-forwards
Deferred tax assets
Exploration and evaluation assets
Property, plant and equipment
Borrowings
Deferred tax liabilities
Net deferred tax liabilities
31 December 2015
(Resated)
Recognised in profit
or loss (Restated)
31 December 2014
(Restated)
42,345
14,139
317,113
373,597
(560,918)
(142,983)
(3,353)
(707,254)
(333,657)
(31,354)
6,150
64,625
39,421
(410)
(71,596)
979
(71,027)
(31,606)
73,699
7,989
252,488
334,176
(560,508)
(71,387)
(4,332)
(636,227)
(302,051)
Deferred income tax assets are not recognised for tax losses mainly carried forward for SibGeCo to the extent that the utilisation
of the related tax benefit through future taxable profits is not probable. The Group has not recognised deferred income tax assets
of 482,631 (2015: 461,209; 2014: 454,747). The Group has tax losses that are available indefinitely for offsetting against future
taxable profits of the companies in which the losses arose.
Management assessed that the deferred tax assets will be fully offset against future taxable profits in 2020-2026.
24.
Other taxes payable
VAT payable
Property tax
Mineral extraction tax
Other taxes payable
Total
25.
Trade and other payables
Current trade payables
Non-current other payables
Accrued expenses
Payables to employees
Total
31 December 2016
31 December 2015
(Restated)
31 December 2014
(Restated)
67,769
35,647
4,711
10,373
118,500
45,770
32,433
2,697
9,766
90,666
45,907
5,232
5,457
7,370
63,966
31 December 2016
31 December 2015
(Restated)
31 December 2014
(Restated)
93,143
57,874
28,851
7,385
187,253
146,676
-
34,246
33,936
214,858
57,192
-
58,396
1,069
116,657
48 Zoltav Resources Inc. Annual Report 2016
Zoltav Resources Inc. Annual Report 2016
49
NOTES TOACCOUNTSFINANCIALINFORMATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016 (in ‘000s of Russian rubles, unless otherwise stated)
Operating leases
26.
Operating lease payments are mainly rentals by the Group of land, office space and equipment required for use on a temporary
basis. Leases are normally signed on a short term basis of one to two years with options to extend.
Lease payments under operating leases recognised in the consolidated statement of comprehensive income for the year
amounted to 32,953 (2015: 20,248).
At the reporting date the Group’s outstanding commitments for future minimum lease payments under non-cancellable leases fall
due as follows:
Within one year
In two to five years
More than five years
Total
31 December 2016
31 December 2015
(Restated)
31 December 2014
(Restated)
1,094
1,444
6,135
8,673
6,632
1,312
5,976
13,920
3,769
1,238
5,907
10,914
Financial instruments and financial risk management
27.
Overview of the Group’s financial risk management
The Group has exposure to the following risks from its use of financial instruments:
Liquidity risk;
•
• Market risk;
Credit risk;
•
This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and
processes for measuring and managing risk, and the Group’s management of capital. Further quantitative disclosures are included
throughout this consolidated financial statements.
The Group’s risk management policies deal with identifying and analysing the risks faced by the Group, setting appropriate risk
limits and controls, and monitoring risks and adherence to limits. Risk management policies and systems are reviewed regularly
to reflect changes in market conditions and the Group’s activities. The Group, through its internal policies, aims to develop a
disciplined and constructive control environment in which all employees understand their roles and obligations.
Liquidity risk
27.1
Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group monitors
the risk of cash shortfalls by means of current liquidity planning. The Group’s approach to managing liquidity is to ensure, as far
as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions,
without incurring unacceptable losses or risking damage to the Group’s reputation. This approach is used to analyse payment
dates associated with financial assets, and also to forecast cash flows from operating activities. The contractual maturities of
financial liabilities are presented including estimated interest payments.
The Group’s current liabilities exceed current assets at 31 December 2016 by 58,475. Starting from 2017 the Group budgeted
flat sales together with further reduction of administrative and operating expenses. Management is currently working out a plan
to perform all the plant maintenance within one full stop during four days, which will increase the production and cash inflow from
operating activities.
During 2016 geologists and field development team elaborated changes to capital investments plan with potential to avoid
the investment activities outflow amounted to 133,000. For additional liquidity risk mitigation, in April 2017 the Group obtained
preferential term sheet for 100,000 limit credit line with Sberbank.
With all the above the Group management considers the liquidity risk as low.
Contractual amount
Less than 1 year
1-5 years
Over 5 years
Financial liabilities as at
31 December 2016
Borrowings
Trade and other payables
Total
2,357,003
211,068
2,568,071
487,329
129,379
616,708
1,124,968
-
1,124,968
744,706
81,689
826,395
Financial liabilities as at
31 December 2015 (restated)
Borrowings
Trade and other payables
Total
Financial liabilities as at
31 December 2014 (restated)
Borrowings
Trade and other payables
Total
Contractual amount
Less than 1 year
1-5 years
Over 5 years
2,940,525
214,858
3,155,383
583,499
214,858
798,357
941,717
-
941,717
1,415,309
-
1,415,309
Contractual amount
Less than 1 year
1-5 years
Over 5 years
3,376,343
116,657
3,493,000
435,834
116,657
552,491
1,070,835
1,869,674
-
-
1,070,835
1,869,674
27.2 Market risk
Market risk includes interest risk and foreign currency exchange rate risk.
(a)
The Group has exposure to interest risk since Diall Alliance entered into a non-revolving credit facility agreement with Sberbank
and, according to the terms of the agreement, Sberbank may unilaterally amend the interest rate in the event of increases in
refinancing rates of the Central Bank of Russia. Sberbank had not amended the interest rate by the reporting date.
Interest risk
Foreign currency exchange rate risk and the effect of translation to the presentational currency
(b)
The Group does not have any significant exposure to foreign currency risk, as no significant sales, purchases or borrowings are
denominated in a currency other than the functional currency.
The Group’s operations are carried in the Russian Federation, where all of its revenue, costs and financing from both Sberbank
and intra-group lending are denominated in RUB. As a result there is no exposure at the operating subsidiary level to foreign
currency exchange risk movements.
27.3 Credit risk
Credit risk arises principally from the Group’s financial investments, trade and other receivables and cash and cash equivalents.
It is the risk that the value of the Group’s investments will not be recovered and the risk that the counterparty fails to discharge its
obligation in respect of the Group’s trade and other receivables and cash balances. The maximum exposure to credit risk equals
the carrying value of these items in the financial statements.
The Group is largely dependent on one customer (Gazprom Mezhregiongaz Saratov LLC) for a significant portion of revenues.
Gazprom Mezhregiongaz Saratov LLC accounted for 85.9% and 80.7%, of the Group’s total revenue in 2016 and 2015
respectively. The loss or the insolvency of this customer for any reason, or reduced sales of the Group’s principal product, could
significantly reduce the Group’s ongoing revenue and/or profitability, and could materially and adversely affect the Group’s
financial condition. The credit rating assigned to Gazprom by Standard & Poor’s is BB+. To manage credit risk and exposure to the
loss of the key customer, the Group has 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 related to cash and cash equivalents is reduced by placing funds with banks with acceptable credit ratings.
To limit exposure to credit risk on cash and cash equivalents management’s policy is to hold cash and cash equivalents in
reputable financial institutions. During 2016 cash was held mainly with Sberbank (rating Ba2.ru, Moody’s).
Ba2.ru, Moody’s
Other
Total cash and cash equivalents
31 December 2016
31 December 2015
(Restated)
31 December 2014
(Restated)
291,683
2,571
294,254
422,865
5,685
428,550
522,584
79,043
601,627
50 Zoltav Resources Inc. Annual Report 2016
Zoltav Resources Inc. Annual Report 2016
51
NOTES TOACCOUNTSFINANCIALINFORMATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2016 (in ‘000s of Russian rubles, unless otherwise stated)
Capital management
The Group considers its capital and reserves attributable to equity shareholders to be the Group’s capital. In managing its capital,
the Group’s primary long-term objective is to provide a return for its equity shareholders through capital growth. Going forward, the
Group may seek additional investment funds and also maintain a gearing ratio that balances risks and returns at an acceptable
level, while maintaining a sufficient funding base to enable the Group to meet its working capital needs. Details of the Group’s
capital are disclosed in the statement of changes in equity.
There have been no other significant changes to management’s objectives, policies or processes in the year, nor has there been
any change in what the Group considers to be capital.
The Group companies are in compliance with externally imposed capital requirements as of 31 December 2016, 2015 and 2014.
Commitments and contingencies
28.
28.1 Capital commitments
Capital expenditure contracted for at 31 December 2016 but not yet incurred was 249,723, net of VAT (2015: 15,291, net of VAT,
2014: 37,769, net of VAT).
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 Group’s insurance currently includes cover for damage to or loss of
assets, third-party liability coverage (including employer’s liability insurance) and directors and officers liability insurance, in each
case subject to excesses, exclusions and limitations. However, there can be no assurance that such insurance will be adequate
to cover losses or exposure to liability, or that the Group will continue to be able to obtain insurance to cover such risks. Until
the Group obtains adequate insurance coverage there is a risk that the loss or destruction of certain assets could have a material
adverse effect on the Group’s operations and financial position.
Litigation
28.3
The Group has been involved in a number of court proceedings (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 operations, financial position or cash flows of the Group and which have not been
accrued or disclosed in these financial statements.
Taxation contingencies
28.4
Russian tax legislation which was enacted or substantively enacted by the end of the reporting period is subject to varying
interpretations when applied to the transactions and activities of the Group. Consequently, tax positions taken by management
and formal documentation supporting the tax positions may be successfully challenged by relevant authorities. Russian tax
administration is gradually tightening, including a higher risk of review of tax transactions without a clear business purpose or with
tax non-compliant counterparties. Fiscal periods remain open to review by the authorities in respect of taxes for three calendar
years preceding the year of review. Under certain circumstances reviews may cover longer periods. As Russian tax legislation
does not provide definitive guidance in certain areas, the Group adopts, from time to time, interpretations of such uncertain areas
that reduce the overall tax rate of the Group. While management currently estimates that the tax positions and interpretations that
it has taken can probably be sustained, there is a possible risk that outflow of resources will be required should such tax positions
and interpretations be challenged by the relevant authorities. The impact of any such challenge cannot be reliably estimated;
however, it may be material to the financial position and/or the overall operations of the Group.
The taxation system in the Russian Federation continues to evolve and is characterised by frequent changes in legislation, as
well as official pronouncements and court decisions which are sometimes contradictory and subject to varying interpretation
by different tax authorities. Taxes are subject to review and investigation by a number of authorities which have the authority to
impose severe fines, penalties and interest charges. Recent events within the Russian Federation suggest that the tax authorities
are taking a more assertive and substance-based position in their interpretation and enforcement of tax legislation.
These circumstances may create tax risks in the Russian Federation that are substantially more significant than in other countries.
Management believes that it has provided adequately for tax liabilities based on its interpretations of applicable Russian tax
legislation, official pronouncements and court decisions. However, the interpretations of the relevant authorities could differ and
the impact on these consolidated financial statements if the authorities were successful in enforcing their interpretations could be
significant.
28.5 Environmental matters
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
stance of government authorities is continually being reconsidered. The Group periodically evaluates its obligations related
thereto. The outcome of environmental liabilities under proposed or future legislation, or as a result of stricter interpretation and
enforcement of existing legislation, cannot reasonably be estimated at present, but could be material.
Under the current levels of enforcement of existing legislation, management believes there are no significant liabilities in addition
to amounts already accrued as a part of the decommissioning provision and which would have a material adverse effect on the
financial position of the Group.
29.
During 2016 and 2015 there were no operations with related parties, except for key management remuneration.
Related party transactions
The remuneration of key management comprised of salary and bonuses in the amount 57,175 (2015: 101,225).
Availability of annual report and financial statements and General Meeting
30.
Copies of the Group’s annual report and consolidated financial statements will be sent to Registered Shareholders but may not be
sent to holders of Depository Interests. The annual report and financial statements will be available for inspection at the Group’s
registered office and may also be viewed on the Group’s website at: www.zoltav.com. Notice of a General Meeting will be sent to
shareholders in due course.
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
52 Zoltav Resources Inc. Annual Report 2016
Zoltav Resources Inc. Annual Report 2016
53
NOTES TOACCOUNTSFINANCIALINFORMATION
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