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Regulatory Story
Company Petroneft Resources PLC
TIDM PTR
Headline Interim Results
Released 07:00 30-Sep-2019
Number 0494O07

RNS Number : 0494O
Petroneft Resources PLC
30 September 2019
 


PetroNeft Resources plc

September 29, 2019

PetroNeft Resources plc ("PetroNeft" or the "Company")

2019 Interim Results 

PetroNeft (AIM: PTR) an oil & gas exploration and production company operating in the Tomsk Oblast, Russian Federation, and 50% owner and operator of Licences 61 and 67 is pleased to report its results for the 6 months ended 30 June 2019.

Highlights 

 

·      Gross production from Licence 61 in H1 2019 was 1,755bopd (877.5bopd net to Petroneft)

 

·      Achieved approval from GKZ (Russian State Reserves Board) for 19.26mmbbls of C1 + C2 reserves as a result of the drilling of the C-4 well on the Cheremshanskoye field in 2018. This is a key milestone as it enables the company to start looking at development options for the field. 

 

·      Upgraded the technical/operational function of the company bringing in people from the region who have experience with other operators successfully developing similar assets.

 

·      Rigorous data collection across our producing assets; this has involved re-interpreting all seismic data, collecting pressure and injectivity measurements at key wells. The company is using this improved understanding to plan a production optimisation program to start this coming winter.

 

·      Successfully re-negotiated the terms of the Petrogrand loan extending the repayment term by almost a year and increasing the facility to $2.5M.

 

·      Succeeded in strengthening the company's balance sheet by placing $1.3M in a convertible loan with a combination of new and existing investors.

 

·      Focus on cost optimisation; we have closed the Houston office, downsized the Dublin office, sold off peripheral assets and reduced staff numbers in the Tomsk office.

 

·      Appointment of David Sturt as the new CEO from 24th March.

 

David Golder, Chairman of PetroNeft Resources plc, commented: 

"The first half of 2019 has been a busy time. The company has continued with the process started in 2018 to test the market whilst at the same time working on a twin track strategy to see how we may improve production and reserves at low cost to increase shareholder value. These approaches are mutually supportive as improvement in production and or reserves, is likely to increase attractiveness and interest in our assets in any sale process.

The appointment of David Sturt has brought a new rigour and energy to the process of reviewing and challenging all elements of our strategies, successfully raised capital to stabilise the financial outlook of the business and set cost effective and value-orientated plans in place for each of our key assets for next winter and beyond. The CEO statement is included in the 2019 First Half and provides in-depth overview of his initiatives and their early results.

 

Whilst the company faces many challenges, we are working on building a strong platform for growth in value to shareholders.



 

 

For further information, contact: 

David Sturt, CEO, PetroNeft Resources plc

+971 55 1919 808

John Frain/Brian Garrahy, Davy (NOMAD and Joint Broker)

+353 1 679 6363

Joe Heron / Douglas Keatinge, Murray Consultants

+353 1 498 0300

 

The information contained in this announcement has been reviewed and verified by Mr. David Sturt, Chief Executive Officer and Executive Director of PetroNeft, for the purposes of the Guidance Note for Mining and Oil & Gas Companies issued by the London Stock Exchange in June 2009. Mr. Sturt holds a B.Sc. Degree in Earth Sciences from Kingston University and an MSc. in Exploration Geophysics from The University of Leeds. He is a member of the Petroleum Exploration Society Great Britain and has over 35 years' experience in oil and gas exploration and development.

 

Forward Looking Statements 

This report contains forward-looking statements. These statements relate to the Group's future prospects, developments and business strategies. Forward-looking statements are identified by their use of terms and phrases such as 'believe', 'could', 'envisage', 'potential', 'estimate', 'expect', 'may', 'will' or the negative of those, variations or comparable expressions, including references to assumptions.

The forward-looking statements in this report are based on current expectations and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by those statements. These forward-looking statements speak only as at the date of these financial statement

Glossary

 

bopd

Barrels of oil per day

mmbbls

Million barrels

C1 + C2

Russian State Reserves C1 + C2, equivalent to 2P (Proven and Probable)

 

 


 

Chairman's Statement

 

Dear Shareholder,

 

I am pleased to report on the activities of the Group for the six months to 30th June 2019 and at the same time provide an update on our plans for the future. The first six months of the year have been a busy time for the company with the following achievements:  

 

·      Achieved approval from GKZ (Russian State Reserves Board) for 19.26Mbbls of C1 + C2 reserves as a result of the drilling of the C-4 well on the Cheremshanskoye field in 2018. This is a key milestone as it enables the company to start looking at development options for the field.  

 

 

·      Upgraded the technical/operational function of the company bringing in people from the region who have experience with other operators successfully developing similar assets.

 

·      Rigorous data collection across our producing assets; this has involved re-interpreting all seismic data, collecting pressure and injectivity measurements at key wells. The company is using this improved understanding to plan a production optimisation program to start this coming winter.

 

·      Successfully re-negotiated the terms of the Petrogrand loan extending the repayment term by almost a year and increasing the facility to $2.5M.

 

·      Succeeded in strengthening the company's balance sheet by placing $1.3M in a convertible loan with a combination of new and existing investors.

 

·      Focus on cost optimisation; we have closed the Houston office, downsized the Dublin office, sold off peripheral assets and reduced staff numbers in the Tomsk office.

 

·      Appointment of David Sturt as the new CEO from 24th March.

 

Achieving value for Shareholders

 The Company in conjunction with its 50/50 joint venture partners (Oil India on Licence 61 and Arawak Energy on Licence 67), engaged a financial advisor in 2018 with the aim being to test the market for the possible disposal of either or both of our assets. Whilst we remain encouraged by the interest we are seeing, however we recognize that the process is taking time.

 

As this process has continued, we have been working on a twin track strategy to see how we may improve both production and reserves at low cost to increase shareholder value. These approaches are mutually supportive as improvement in production and or reserves, is likely to increase attractiveness and interest in our assets in any sale process.

 

Throughout this process the company has and will continue to keep a tight control on costs to ensure that we are using our limited resources in the optimum way. 

As part of our cost cutting measures we have also had to take the difficult decision of ending our relationship with our joint broker Canaccord Genuity Limited. We have worked together for many years and they have always provided a valuable service, particularly within the London market, however in the short term we have to deploy our capital into operations. 

Finance

As detailed in the 2018 Annual Report the Company's finances continue to require close attention.  The US$2m Petrogrand loan agreed in January 2018 matured on 31 December 2018. The company was able to agree an extension to 15th December 2019 and simultaneously negotiate an increase in the facility to $2.5m. This loan was fully drawn at 30th June.

 

In addition to the Petrogrand facility, the company successfully placed a $1.3M convertible loan facility with a small group of existing and new investors. The terms of the facility are an interest rate of 8% above LIBOR with repayment due by 31st December 2020. Up to 65% of the loan amount can be converted into shares in the company at an equivalent price of US$0.01547 (1.547 cents). The borrower can elect to convert at any time up to 31st December 2020 or on the sale of one or both licences.


 

Outlook

Since his appointment in March, David Sturt has brought a new rigour and energy to the process of reviewing and challenging all elements of our strategies, successfully raised capital to stabilise the financial outlook of the business and set cost effective and value-orientated plans in place for each of our key assets for next winter and beyond. The CEO statement which follows will provide in-depth overview of his initiatives and their early results.

 

Whilst the company faces many challenges, we are working on building a strong platform for growth in value to shareholders.

 

David Golder

Non-Executive Chairman


 

Chief Executive Officers Report 

 

To support our twin track strategy, we have conducted a thorough technical/operational review of our assets with the aim of identifying potential areas for further development, we are pleased to provide the following update:   

 

·      Production from licence 61 is currently averaging 1,550 bopd and is relatively stable taking into account natural decline combined with an ongoing data collection program required for licence compliance and to improve our understanding of the fields.

 

·      Extensive review of our producing fields has highlighted the opportunity to optimize water injection and potentially reduce produced water from key wells. This review has so far included seismic re-interpretation, measuring water injectivity on our water injection wells, carrying out tracer surveys, and down hole pressure readings. Based on the results of this work, a well intervention program is being developed.

 

·      Potential development opportunities have been identified at the Lineynoye field through a horizontal development drilling program targeting the western part of the field where production since 2012 has remained stable.

 

·      Opportunity to optimize development drilling on the Sibkrayevskoye field by firstly utilizing 3D seismic to target future locations for horizontal wells.

 

·      De risk the highly attractive Emtorskaya prospect (Ryder Scott estimate 75 mmbls 2P reserves) through combination of well re-entry and 3D seismic programs.

 

·      Activity on licence 67 has been quiet since the successful drilling of the C-4 well in 2018. We are now looking at ways to initiate production on this licence through a well reentry program on both the Cheremshanskoye and Ledovoye fields. 

 

·      Reducing costs across the company is of major importance. In the field we continue to look for ways to further optimize costs and are currently working on projects such as construction of a mini refinery to significantly reduce the need to purchase fuel for power generation.

 

Production and Sales for the period

Gross production at Licence 61 in the six months to 30 June 2019 averaged 1,755 bopd, which represents a smaller than anticipated production decline from the same period in 2018 (2,135 bopd).  We sold 315,358 (gross) barrels of oil in the six months to 30 June 2019 (H1 2018: 382,656 bbls) and achieved an average Russian Domestic oil price of $42.50 (H1 2018: $44.39). This softer oil price and reduced production led to reduced operating cash flows for the Licence 61 joint venture.

 

Licence 61 Gross Production

H1-2019

Q2-2019

Q1-2019

H1-2018

FY-2018

Total gross production

317,620

147,186

170,434

386,482

713,603

Gross bopd

1,755

1,617

1,894

2,135

1,955

PetroNeft 50% share bopd

877

809

947

1,068

978

 

 

 


 

Review of PetroNeft loss for the period

The loss for the period was US$2.0m (H1 2018: US$1.2m). The loss includes PetroNeft's share of the losses on the joint ventures relating to Licences 61 and 67 of US$2.9m and US$0.35m respectively (H1 2018: US$1.9m and US$0.2m). The loss relating to the Licence 61 joint venture is discussed in more detail below. Finance revenue of US$2.2m (H1 2018: US$2.0m) relates primarily to interest receivable on loans to the joint ventures.

 PetroNeft Key Financial Metrics


Unaudited


Audited



6 months ended 30 June 2019


6 months ended 30 June 2018


Year ended 31 December 2018



US$


US$


US$

Continuing operations







Revenue


831


1,093


1,767

Cost of sales


(383)


(881)


(1,560)

Gross profit


448


212


207

Administrative expenses


(775)


(612)


(1,390)

Exchange gain on intra-Group loans


55


(57)


(123)

Operating loss


(272)


(457)


(1,306)

Share of joint venture's net loss - WorldAce Investments Limited


(2,873)


(1,920)


(6,340)

Share of joint venture's net loss - Russian BD Holdings B.V.


(349)


(231)


(509)

Finance revenue


2,164


1,973


967

Finance costs


(139)


(48)


(117)

Loss for the period for continuing operations before taxation


(1,469)


(683)


(7,305)

Income tax expense


(536)


(510)


(257)

Loss for the period


(2,005)


(1,193)


(7,562)

 

 

 

 



 

 

Licence 61 joint venture - WorldAce Group

The metrics below are an extraction from the financial statements of the WorldAce Group which demonstrate the performance of Licence 61:



Unaudited


Audited

 



WorldAce Group


WorldAce Group


WorldAce Group



6 months ended 30 June 2019


6 months ended 30 June 2018


Year ended 31 December 2018



US$'000


US$'000


US$'000

Continuing operations







Revenue


13,478


17,090


31,370

Cost of sales


(13,393)


(15,078)


(27,773)

Gross profit


85


2,012


3,597

Administrative expenses


(1,042)


(1,432)


(3,122)

Operating loss


(957)


580


475

Loss on disposal of oil and gas properties


-


-


(4,096)

Write-off of exploration and evaluation assets


-


-


(5)

Finance revenue


32


48


129

Finance costs


(4,821)


(4,467)


(9,183)

Loss for the period for continuing operations before taxation


(5,746)


(3,839)


(12,680)

Income tax


-


-


-

Loss for the period for continuing operations before taxation


(5,746)


(3,839)


(12,680)

PetroNeft's 50% share


(2,873)


(1,920)


(6,340)

 

 

WorldAce Group Analysis


Unaudited


Audited



6 months ended 30 June 2019


6 months ended 30 June 2018


Year ended 31 December 2018



US$'000


US$'000


US$'000

Revenue







Oil sales


13,402


16,987


31,182

Other sales


76


103


188

Total revenue


13,478


17,090


31,370

PetroNeft's 50% share


6,739


8,545


15,685








Cost of Sales







Mineral Extraction Tax


8,247


9,491


17,775

Pipeline tariff


1,353


1,602


3,020

Staff costs


1,020


1,014


1,805

Depreciation and amortisation


805


1,451


2,457

Other cost of sales


1,968


1,520


2,716

Total cost of sales


13,393


15,078


27,773

PetroNeft's 50% share


6,697


7,539


13,887

 

 

The detailed Income Statement and Balance Sheet of WorldAce Investments Limited is disclosed at note 10 to these condensed financial statements. Lower production and oil prices in H1 2019 have weakened the margin in 2019 as compared to the same period last year. This led to an operating loss in the L-61 joint venture of US$957k compared to an operating profit in the same period last year of US$580k.

 

David Sturt

Chief Executive Officer


 

Interim Condensed Consolidated Income Statement

For the 6 months ended 30 June 2019

 




Unaudited


Audited




6 months ended 30 June 2019


6 months ended 30 June 2018


Year ended 31 December 2018

 Continuing operations

Note


US$


US$


US$

Revenue


830,613


1,092,673


1,767,074

Cost of sales



(383,296)


(880,771)


1,559,982

Gross profit



447,317


211,902


207,092

Administrative expenses



(775,302)


(612,369)


1,389,582

Exchange gain/(loss) on intra-Group loans



54,542


(56,726)


123,235

Operating loss



(273,443)


(457,193)


(1,305,725)

Share of joint venture's net loss - WorldAce Investments Limited

10


(2,873,286)


(1,919,878)


(6,339,613)

Share of joint venture's net loss - Russian BD Holdings B.V.

11


(349,384)


(230,178)


(508,757)

Finance revenue

6


2,164,301


1,972,866


966,039

Finance costs

7


(138,560)


(48,256)


(116,825)

Loss for the period for continuing operations before taxation



(1,470,372)


(682,639)


(7,304,881)









Income tax expense



(536,461)


(510,381)


(256,881)

Loss for the period attributable to equity holders of the Parent



(2,006,833)


(1,193,020)


(7,561,762)









Loss per share attributable to ordinary equity holders of the Parent








Basic and diluted - US dollar cent



(0.28)


(0.17)


(1.07)









Interim Condensed Consolidated Statement of Comprehensive Income



For the 6 months ended 30 June 2019










Unaudited


Audited




6 months ended 30 June 2019


6 months ended 30 June 2018


Year ended 31 December 2018




US$


US$


US$

Loss for the period attributable to equity holders of the Parent



(2,006,833)


(1,193,020)


(7,561,762)

Other comprehensive income to be reclassified to profit or loss in subsequent periods:








Currency translation adjustments - subsidiaries


(63,916)


46,256


102,440

Share of joint ventures' other comprehensive income - foreign exchange translation differences



4,226,227


(4,030,342)


(8,456,256)

Total comprehensive loss for the period attributable to equity holders of the Parent



2,155,478

 


(5,177,106)


(15,915,578)



 

 

Interim Condensed Consolidated Balance Sheet

As at 30 June 2019

 




Unaudited


Audited




30 June 2019



Note


US$


US$

Assets






Non-current Assets






Property, plant and equipment

9


31,242


38,296

Equity-accounted investment in joint ventures - WorldAce Investments Limited

10


-


-

Equity-accounted investment in joint ventures - Russian BD Holdings B.V.

11


-


-

Financial assets - loans and receivables

12


39,170,077


35,525,743




39,201,319


35,564,039

Current Assets






Inventories

13


12,924


6,547

Trade and other receivables

14


721,352


249,280

Cash and cash equivalents

15


194,501


801,938




928,777


1,057,765

Total Assets



40,130,096


36,621,804







Equity and Liabilities






Capital and Reserves






Called up share capital

 16


9,585,965


9,429,182

Share premium account



141,006,709


140,912,898

Share-based payments reserve



6,796,540


6,796,540

Retained loss



(93,010,086)


(91,003,253)

Currency translation reserve



(32,796,063)


(36,958,374)

Other reserves



336,000


336,000

Equity attributable to equity holders of the Parent


31,919,065


29,512,993







Non-current Liabilities






Deferred tax liability



3,769,707


3,219,203




3,769,707


3,219,203

Current Liabilities






Interest-bearing loans and borrowings

17


2,755,384


2,116,825

Trade and other payables

18


1,685,940


1,772,783




4,441,324


3,889,608

Total Liabilities



8,211,031


7,108,811

Total Equity and Liabilities



40,130,096


36,621,804








Interim Condensed Consolidated Statement of Changes in Equity

For the 6 months ended 30 June 2019

 


Called up share capital


Share premium account


Share-based payment and other reserves


Currency translation reserve


Retained loss


Total


US$


US$


US$


US$


US$


US$













At 1 January 2018

9,429,182


140,912,898


7,132,540


(28,604,558)


(83,441,491)


45,428,571

Loss for the year

-


-


-


-


(7,561,762)


(7,561,762)

Currency translation adjustments - subsidiaries

-


-


-


102,440


-


102,440

Share of joint ventures' other comprehensive income - foreign exchange translation differences

-


-


-


(8,456,256)


-


(8,456,256)

Total comprehensive profit for the year

-


-


-


(8,353,816)


(7,561,762)


(15,915,578)

At 31 December 2018

9,429,182


140,912,898


7,132,540


(36,958,374)


(91,003,253)


29,512,993













At 1 January 2019

9,429,182


140,912,898


7,132,540


(36,958,374)


(91,003,253)


29,512,993

Loss for the period

-


-


-


-


(2,006,833)


(2,006,833)

Currency translation adjustments - subsidiaries

-


-


-


(63,916)


-


(63,916)

Share of joint ventures' other comprehensive income - foreign exchange translation differences

-


-


-


4,226,227


-


4,226,227

Total comprehensive loss for the period

-


-


-


4,153,370


(2,006,833)


2,154,478

New share capital subscribed

156,783


93,811








250,594

At 30 June 2019

9,585,965


141,006,709


7,132,540


(32,796,063)


(93,010,086)


31,919,065


Interim Condensed Consolidated Cash Flow Statement

For the 6 months ended 30 June 2019

 




Unaudited


Audited




6 months ended 30 June 2019


6 months ended 30 June 2018


Year ended 31 December 2017




US$


US$


US$

Operating activities








Loss before taxation



(1,470,372)


(682,639)


(7,304,881)

Adjustment to reconcile loss before tax to net cash flows








Non-cash








Depreciation



11,858


25,745


38,936

Share of loss in joint ventures



3,222,670


2,150,056


6,848,370

Finance revenue

6


(2,164,301)


(1,972,866)


(966,039)

Finance costs

7


138,560


48,256


116,825

Working capital adjustments








(Increase)/decrease in trade and other receivables


(195,657)


103,454


276,593

(Increase)/decrease in inventories



(6,376)


(78,204)


12,960

Increase/(decrease) in trade and other payables


132,755


(140,482)


192,955

Income tax paid



(13,847)


(29,953)


(30,034)

 Net cash flows used in operating activities



(344,710)


(576,633)


(814,315)

Investing activities








Purchase of property, plant and equipment


-





Loan facilities advanced to joint venture undertakings

(765,000)


(392,000)


(392,000)

Interest received



2,022


685


1,481

 Net cash (used in)/received from investing activities



(762,978)


(391,315)


(390,519)

 Financing activities








 Proceeds from loan facilities



500,000


1,000,000


2,000,000

 Net cash received from financing activities


500,000


1,000,000


2,000,000

 Net increase/(decrease) in cash and cash equivalents



(607,688)


32,052


795,166

 Translation adjustment



251


(1,063)


(2,617)

 Cash and cash equivalents at the beginning of the period



801,938


9,389


9,389

 Cash and cash equivalents at the end of the period

15


194,501


40,378


801,938


Notes to the Interim Condensed Consolidated Financial Statements

For the 6 months ended 30 June 2019

 

1.         Corporate Information

The interim condensed consolidated financial statements of the Group for the six months ended 30 June 2019 were authorised for issue in accordance with a resolution of the Directors on 27 September 2019.

 

PetroNeft Resources plc ('PetroNeft, 'the Company', or together with its subsidiaries and joint ventures, 'the Group') is a public limited company incorporated in the Republic of Ireland with a company registration number 408101. The Company is listed on the Alternative Investment Market ('AIM') of the London Stock Exchange and the Enterprise Securities Market ('ESM') of the Irish Stock Exchange. The address of the registered office and the business address in Ireland is 20 Holles Street, Dublin 2. The Company is domiciled in the Republic of Ireland.

 

The principal activities of the Group are oil and gas exploration, development and production. 

 

2.         Going Concern

As described in the 2018 Annual Report PetroNeft agreed a US$2 million loan facility with Swedish Company Petrogrand AB. The loan was initially repayable on 31 December 2018. The Company successfully managed to negotiate an extension to the loan term to 15th December 2019 and at the same time the facility was increased to $2.5M. This money has been used to finance ongoing operations including the drilling of the C4 well. The successful C-4 well has broadened the options available to the Company in this regard.

 

The Group has analysed its cash flow requirements through to 31 December 2019 in detail. The cash flow includes estimates for a number of key variables including, the timing of cash flows of expenditure and management of working capital, including significant deferral and reduction in remuneration of Directors and key management which has been in place since October 2017. The Directors believe that the Group's cash flow forecasts represent the best estimate of the actual cash flows over the forecast period at the date of approval of the financial statements. The cash flow is stress tested to assess the adverse effect arising from reasonable changes in circumstance. The cash flow projections for the period to 31 December 2019 indicate that, provided the Petrogrand loan is re-financed or extended before the maturity date and the deferral and reduction of remuneration of Directors and key management continues the Company will have sufficient cash resources to meet its obligations as they fall due.

 

The Company's obligation to amend, extend or otherwise re-finance the Petrogrand loan prior to the maturity date on 15th December 2019 represents a material uncertainty that may cast significant doubt upon the Group and the Company's ability to continue as a going concern. Nevertheless, after making enquiries, and considering the uncertainty described above, the Directors are confident that the Group and the Company will have adequate resources to continue in operational existence for the foreseeable future. For these reasons, they continue to adopt the going concern basis in preparing these accounts.

 

Accordingly, these financial statements do not include any adjustments to the carrying amount or classification of assets and liabilities that would result if the Group or Company was unable to continue as a going concern.

 

 3.        Accounting Policies

 

3.1       Basis of Preparation

The interim condensed consolidated financial statements for the six months ended 30 June 2019 have been prepared in accordance with IAS 34 Interim Financial Reporting.

 

The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Group's annual financial statements as at 31 December 2018 which are available on the Group's website - www.petroneft.com.

 

The interim condensed consolidated financial statements are presented in US dollars ("US$").


 

 

3.2       Significant Accounting Policies

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2018.

 

4.         Segment information

At present the Group has one reportable operating segment, which is oil exploration and production through its joint venture undertakings. As a result, there are no further disclosures required in respect of the Group's reporting segment.

 

The risk and returns of the Group's operations are primarily determined by the nature of the activities that the Group engages in, rather than the geographical location of these operations.  This is reflected by the Group's organisational structure and the Group's internal financial reporting systems.

 

Management monitors and evaluates the operating results for the purpose of making decisions consistently with how it determines operating profit or loss in the consolidated financial statements.

 

Geographical segments

Although the joint venture undertakings WorldAce Investments Limited and Russian BD Holdings B.V. are domiciled in Cyprus and the Netherlands, the underlying businesses and assets are in Russia. Substantially all of the Group's sales and capital expenditures are in Russia.

 

5.

Revenue



Unaudited


Audited





6 months ended 30 June 2019


6 months ended 30 June 2018


Year ended 31 December 2018





US$


US$


US$


Revenue









Management Services



                        316,001


                    431,619


                      846,860


Construction Services



                        514,612


                    661,054


                      920,214





                        830,613


                 1,092,673


                   1,767,074



 

               

6.

Finance revenue



Unaudited


Audited





6 months ended 30 June 2019


6 months ended 30 June 2018


Year ended 31 December 2018





US$


US$


US$











Bank interest receivable



2,022


685


1,481


Interest receivable on loans to Joint Ventures



2,162,279


1,972,181


964,558





2,164,301


1,972,866


966,039

 

7.

Finance costs



Unaudited


Audited





6 months ended 30 June 2019


6 months ended 30 June 2018


Year ended 31 December 2018





US$


US$


US$











Interest on loans



138,560


48,256


116,825





138,560


48,256


116,825

 

 

8.

Income tax












Unaudited


Audited





6 months ended 30 June 2019


6 months ended 30 June 2018


Year ended 31 December 2018





US$


US$


US$


Current income tax









Current income tax charge



(14,043)


15,425


12,523


Total current income tax



(14,043)


15,425


12,523











Deferred tax









Relating to origination and reversal of temporary differences



550,504


494,956


244,358


Total deferred tax



550,504


494,956


244,358


Income tax expense reported in the Consolidated Income Statement



536,461


510,381


256,881

 



 








9.

Property, Plant and Equipment












Plant and







machinery







US$


Cost







At 1 January 2018





992,928


Disposals





(324)


Translation adjustment





(152,799)


At 1 January 2019





839,805


Additions





-


Translation adjustment





77,951


At 30 June 2019





917,756









Depreciation







At 1 January 2018





904,726


Charge for the year





38,936


Disposals





(324)


Translation adjustment





(141,829)


At 1 January 2019





801,509


Charge for the year





11,858


Translation adjustment





73,147


At 30 June 2019





886,514









Net book values







At 30 June 2019





31,242


At 31 December 2018





38,296








 

 

10.        Equity-accounted Investment in Joint Venture - WorldAce Investments Limited

 

PetroNeft Resources plc has a 50% interest in WorldAce Investments Limited, a jointly controlled entity which holds 100% of LLC Stimul-T, an entity involved in oil and gas exploration and the registered holder of Licence 61. The interest in this joint venture is accounted for using the equity accounting method. WorldAce Investments Limited is incorporated in Cyprus and carries out its activities, through LLC Stimul-T, in Russia.





Share of net assets





US$







At 1 January 2018



-


Elimination of unrealised profit on intra-Group transactions



(1,174)


Share of net loss of joint venture for the year



(6,339,613)


Translation adjustment



(7,760,793)


Credited against loans receivable from WorldAce Investments Limited



14,101,580


At 1 January 2019



-


Share of net loss of joint venture for the period



(2,873,286)


Translation adjustment



3,805,212


Debited against loans receivable from WorldAce Investments Limited



(931,926)


At 30 June 2019



-

 

10.        Equity-accounted Investment in Joint Venture - WorldAce Investments Limited (continued)

 

The balance sheet position of WorldAce Investments Limited shows net liabilities of US$56,110,244 following a loss in the period of US$5,746,601 together with a positive currency translation adjustment of US$7,610,436. PetroNeft's 50% share is included above and results in a negative carrying value of US$23,372,709. Therefore, the share of net assets is reduced to Nil and, in accordance with IAS 28 Investments in Associates and Joint Ventures, the amount of US$23,372,709 is deducted from other assets associated with the joint venture on the Balance Sheet which are the loans receivable from WorldAce Investments (see Note 12).

 

Additional financial information in respect of PetroNeft's 50% interest in the equity-accounted joint venture entity is disclosed below:





50% Share of WorldAce Group





Unaudited


Audited





6 months ended 30 June 2019


6 months ended 30 June 2018


Year ended 31 December 2018





US$


US$


US$











Continuing operations









Revenue



6,738,835


8,545,032


15,684,984


Cost of sales



(6,696,307)


(7,539,017)


(13,886,409)


Gross profit



42,528


1,006,015


1,798,575


Administrative expenses



(520,925)


(716,069)


(1,560,913)


Operating loss



(478,397)


289,946


237,662


Loss on disposal of oil and gas properties



-


-


(2,048,038)


Write-off of exploration and evaluation assets



-


-


(2,346)


Finance revenue



15,807


23,921


64,712


Finance costs



(2,410,709)


(2,233,745)


(4,591,603)


Loss for the period for continuing operations before taxation



(2,873,299)


(1,919,878)


(6,339,613)


Income tax expense



-


-


-


Loss for the period



(2,873,299)


(1,919,878)


(6,339,613)











Loss for the period



(2,873,299)


(1,919,878)


(6,339,613)


Other comprehensive income to be reclassified to profit or loss in subsequent periods:









Currency translation adjustments



3,805,218


(3,706,547)


(7,760,793)


Total comprehensive loss for the period



931,919


(5,626,425)


(14,100,406)










Finance costs mainly relate to interest on shareholder loans from Oil India International B.V. and PetroNeft.

 

The currency translation adjustment results from the revaluation of the Russian Rouble during the period. All Russian Rouble carrying values in Stimul-T, the 100% subsidiary of WorldAce are converted to US Dollars at each period end. The resulting gain or loss is recognised through other comprehensive income and transferred to the currency translation reserve. The Russian Rouble strengthened against the US Dollar during the period from RUB69.5:US$1 at 31 December 2018 to RUB63.1:US$1 at 30 June 2019.

 

 

 

 

10.        Equity-accounted Investment in Joint Venture - WorldAce Investments Limited (continued)





50% Share of WorldAce Group





Unaudited


Audited





30 June 2019


31 December 2018





US$


US$


Non-current Assets







Oil and gas properties



32,447,658


29,786,687


Property, plant and equipment



108,879


128,111


Exploration and evaluation assets



8,605,042


7,804,586


Assets under construction



627,739


562,307





41,789,318


38,281,691









Current Assets







Inventories



1,505,594


848,776


Trade and other receivables



511,791


380,156


Cash and cash equivalents



26,329


225,846





2,043,714


1,454,778









Total Assets



43,833,032


39,736,469
















Non-current Liabilities







Provisions



(681,592)


(573,540)


Interest-bearing loans and borrowings



(67,978,353)


(65,682,097)





(68,659,945)


(66,255,637)


Current Liabilities







Interest-bearing loans and borrowings



(1,041,048)


(974,793)


Trade and other payables



(2,187,161)


(1,493,077)





(3,228,209)


(2,467,870)


Total Liabilities



(71,888,154)


(68,723,507)









Net Liabilities



(28,055,122)


(28,987,038)








Interest-bearing loans and borrowings are shareholder loans from Oil India International B.V. and PetroNeft.

 

 



 

 

11.       Equity-accounted Investment in Joint Venture - Russian BD Holdings B.V.

 

PetroNeft Resources plc has a 50% interest in Russian BD Holdings B.V., a jointly controlled entity which holds 100% of LLC Lineynoye, an entity involved in oil and gas exploration and the registered holder of Licence 67. The interest in this joint venture is accounted for using the equity accounting method. Russian BD Holdings B.V. is incorporated in the Netherlands and carries out its activities, through LLC Lineynoye, in Russia.

 





Share of net assets





US$







At 1 January 2018



-





(12,117)


Share of net loss of joint venture for the year



(508,757)


Translation adjustment



(695,463)


Credited against loans receivable from Russian BD Holdings BV



1,216,337


At 1 January 2019



-


Share of net loss of joint venture for the period



(349,384)


Translation adjustment



421,015


Debited against loans receivable from Russian BD Holdings BV



(71,631)


At 30 June 2019



-

 

The balance sheet position of Russian BD Holdings B.V. shows net liabilities of US$3,711,198 following a loss in the period of US$697,960 together with a positive currency translation adjustment of US$842,030. PetroNeft's 50% share is included above and results in a negative carrying value of US$1,864,711. Therefore, the share of net assets is reduced to Nil and, in accordance with IAS 28 Investments in Associates and Joint Ventures, the amount of US$1,864,711 is deducted from other assets associated with the joint venture on the Balance Sheet which are the loans receivable from Russian BD Holdings B.V. (Note 12).

 

 

 



 

 

11.       Equity-accounted Investment in Joint Venture - Russian BD Holdings B.V. (continued)

 

Additional financial information in respect of PetroNeft's 50% interest in the equity-accounted joint venture entity is disclosed below:




50% Share of Russian BD Holdings B.V.




Unaudited


Audited




6 months ended 30 June 2019


6 months ended 30 June 2018


Year ended 31 December 2018




US$


US$


US$

Revenue



-


-


-

Cost of sales



-


-


-

Gross profit



-


-


-

Administrative expenses



(101,462)


(42,993)


(104,256)

Operating loss



(101,462)


(42,993)


(104,256)

Finance revenue



290


360


520

Finance costs



(248,010)


(187,545)


(405,021)

Loss for the period for continuing operations before taxation



(349,182)


(230,178)


(508,757)









Taxation



203


-


-









Loss for the period



(348,979)


(230,178)










Loss for the period



(348,979)


(230,178)


(508,757)

Other comprehensive income to be reclassified to profit or loss in subsequent periods:








Currency translation adjustments



421,015


109,246


(695,463)

Total comprehensive loss for the period



72,036


(120,932)


(1,204,220)

 

 

Finance costs comprise of interest on shareholder loans from Belgrave Naftogas B.V. and PetroNeft.

 





Unaudited


Audited





30 June 2019


31 December 2018





US$


US$


Non-current assets



5,506,962


4,993,522


Current assets



65,450


238,093


Total assets



5,572,412


5,231,615









Non-current liabilities



(6,885,117)


(6,393,622)


Current liabilities



(542,894)


(762,216)


Total liabilities



(7,428,011)


(7,155,838)









Net Liabilities



(1,855,599)


(1,924,223)

 

 

 



 

 

12.

Financial assets - loans and receivables










Unaudited


Audited





30 June 2019


31 December 2018





US$


US$









Loans to WorldAce Investments Limited


61,101,145


59,161,041


Loss allowance



(3,109,501)


(3,109,501)


Less: share of WorldAce Investments Limited loss (Note 10)

(23,372,709)


(24,304,633)





34,618,935


31,746,907


Loans to Russian BD Holdings B.V.


6,418,862


5,715,176


Less: share of Russian BD Holdings B.V. loss (Note 11)

(1,864,711)


(1,936,340)





4,554,151


3,778,836





39,173,086


35,525,743

 

The Company has granted a loan facility to its joint venture undertaking WorldAce Investments Limited of up to US$45 million. This loan facility is US$ denominated and unsecured. Interest currently accrues on the loan at USD LIBOR plus 6.0% but the Company has agreed not to seek payment of interest until 2020 at the earliest. The loan is set to mature on 31 December 2025. As at 30 June 2019 the loan was fully drawn down. The loan from the Company to Russian BD Holdings is repayable on demand. Interest currently accrues on the loan at LIBOR plus 5.0% per annum.

 

13.

Inventories



Unaudited


Audited





30 June 2019


31 December 2018





US$


US$


Materials



                          12,924


                         6,547





12,924


6,547








14.

Trade and other receivables



Unaudited


Audited





30 June 2019


31 December 2018





US$


US$


Other receivables



                          26,697


                       60,012


Receivable from jointly controlled entity



                        632,509


                    170,627


Advances to contractors



                             2,215


                            758


Prepayments



                          59,931


                       17,883





721,352


249,280








              Other receivables are non-interest-bearing and are normally settled on 60-day terms.

 



 

 

15.

Cash and Cash Equivalents










Unaudited


Audited





30 June 2019


31 December 2018





US$


US$


Cash at bank and in hand



                        194,501


                    801,938





                        194,501


801,938








              Bank deposits earn interest at floating rates based on daily deposit rates. Short-term deposits are made for varying periods of between one day and one month depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates.

 

16.

Share Capital - Group and Company











Allotted, called up and fully paid equity



Number of Ordinary Shares


Called up share capital US$


At 1 January 2018



707,245,906


9,429,182


At 1 January 2019



707,245,906


9,429,182


New share capital subscribed



13,884,594


156,783


At 30 June 2019



721,130,500


9,585,965

 

                In April 2019 the Company issued 13,884,594 Ordinary Shares in settlement of liabilities to David Sturt and Dennis Francis. Details were provided to shareholders in a regulatory news announcement on 16 April 2019.

 

17.

Loans and Borrowings













Unaudited

Audited


Group and Company

Effective interest rate


Contractual maturity date


30 June 2019

31 December 2018



%




US$

US$


Interest-bearing








Current liabilities








Petrogrand AB

11.56%


15-Dec-19


2,755,384

2,116,825


Total current liabilities





2,755,384

2,116,825


Total loans and borrowings





2,755,384

2,116,825










Contractual undiscounted liability





2,755,384

2,116,825

 

 


Changes in financial liabilities arising from financing activities:

 






Unaudited


Audited



6 months ended 30 June 2018


6 months ended 30 June 2018


Year ended 31 December 2018



US$


US$


US$


At 1 January

2,116,825


-


-


Cash flows - loan drawdowns

500,000


1,000,000


2,000,000


Interest accrued but not yet paid

138,559


48,256


116,825


At period end

                      2,755,384


1,048,256


2,116,825

 

Petrogrand AB is a related party of the Company because Pavel Tetyakov, VP of Business Development of PetroNeft, is CEO of Petrogrand AB, Swedish company. In addition, Maxim Korobov, a significant shareholder and Non-Executive Director of Petroneft is also a major shareholder of Petrogrand AB.

 



 

 

18.

Trade and other payables










Unaudited


Audited





30 June 2019


31 December 2018





US$


US$


Trade payables



                        403,887


                    428,734


Trade payables to jointly controlled entity



                        143,404


                    104,115


Corporation tax



                          55,212


                       55,016


Other taxes and social welfare costs



                          48,663


                       42,918


Accruals and other payables



                     1,034,774


                 1,142,000





                     1,685,940


                 1,772,783








              The Directors consider that the carrying amount of trade and other payables approximates their fair value.

 

              Trade and other payables are non-interest-bearing and are normally settled on 60-day terms.

 

              Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs.

 

 

19.       Important Events after the Balance Sheet Date

 

There were no important events since the balance sheet date.

 

 

20.       Board approval

 

This announcement was approved by the Board of Directors of PetroNeft Resources plc on 27 September 2019.

 


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