CADOGAN ENERGY SOLUTIONS PLC
Annual Results for
the year ended 31 December 2022
The Board of Cadogan Petroleum plc, (“Cadogan” or “the
Company”), is pleased to announce the Company’s annual results for
the year ended 31 December 2022.
Key Financial Highlights of 2022:
§ Loss for the year: $1.6 million
(2021: loss of $5.1 million)
§ Average realized price[1]: $73.4/boe (2021: $55.7/boe)
§ Gross revenues[2]: $8.5 million (2021: $8.8
million)
§ G&A[3]: $3.4
million (2021: $3.7
million)
§ Loss per share: 0.6 cents (2021:
loss of 2.1 cents)
§ Cash at year end: $13.9 million
(2021: $15.0 million)
Key Operational Highlights of 2022:
§ Production: 117,793 bbl (2021: 127,662 bbl), a 8% decrease
year-on-year
§ Gas trading profit is nil million (2021: profit of
$0.6 million)
§ No LTI/TRI[4]
§ ISO 14001 and 45001 certifications were re-validated by
respective authority for one year.
Group overview
In 2022, the Group continued to maintain exploration and
production assets, and to operate an oil services business in
Ukraine. Cadogan’s assets are
concentrated in the West of the country. The oil services business
focuses on workover operations, civil works services and other
services to satisfy Cadogan
intra-group operational needs.
Our business model
We aim to increase value through:
§ Maintaining a robust balance sheet, monetising the remaining
value of our Ukrainian assets and supplementing E&P cash flow
with revenues from gas trading and oil services
§ Pursuing farm-out to progress investments in Ukrainian
license
§ Diversify Cadogan’s portfolio, both geographically and
operationally
Ukraine
2022 has been extremely challenging for Cadogan due to the invasion of Ukraine by Russia and its direct and derived consequences
on the operational activities in the Country.
West
Ukraine
The Group continued to produce oil from its production Blazhiv
license located in the West of Ukraine. In March
2022, the production was suspended for 3 weeks and was
resumed after securing the employees, the assets, the financial
transactions, and the sales process. In the second half of 2022,
there have been several production stoppages due to the reduction
of crude oil consumption by oil refineries caused mainly by the
Russian air strikes or by power outage due to similar strikes on
electricity infrastructure. As a result, the average net daily
production in 2022 was 323 bbl, which is 8% below the production of
the previous year.
In 2020, Usenco Nadra filed two claims with the Kyiv
Administrative Court to acknowledge inaction of the State Service
of Geology (SGS) as unlawful, in particular their refusal to issue
the Bitlyanska 20-year exploration and development license in the
regulatory period and requested the Court to carry out commercial
activities, at the area, effective from December 2019. This decision was taken by the
subsoil controlling authority notwithstanding that Cadogan had fulfilled all license obligations,
obtained all regulatory approvals and timely submitted the
application on 19 August 2019, well
ahead the license expiry date of 23 December
2019 and the new regulatory framework. After the rejection
of its claims in February 2022,
Usenco Nadra exercised its right for appeal against this decision.
In 2022, the Appeal Court and further on the Supreme Court did not
take into consideration the Company’s arguments regarding the
Bitlyanska license award approval and rejected the claims.
East
Ukraine
In 2020, LLC AstroInvest-Energy, a fully owned subsidiary of
Cadogan, introduced a claim
against the State fiscal authority regarding additional tax
assessment and related penalties. The Company won in the Court of
First Instance and in the Court of Appeal. The State fiscal
authority filed an appeal with the Supreme Court. In September 2022, the Supreme Court cancelled all
decisions of the State fiscal authority and issued a decision in
favor of the position defended by Cadogan.
Subsidiary businesses
Due to high market volatility caused by military escalation in
Ukraine, no trading activities
were conducted in 2022.
Astroservice LLC, the oil services subsidiary, continued to
support Blazhiv license wells’ operations.
Italy
The Group owns a 90% interest in Exploenergy s.r.l., an Italian
company, which has filed applications for two exploration licenses
(Reno Centese and Corzano), located in the Po Valley region
(Northern Italy).
In February 2019, the Italian
Parliament approved a moratorium of 18 months in the award of new
licenses and a 25-fold increase of license fees. Exploenergy
subsequently reduced its activity to the minimum required to fulfil
its statutory obligations. It has also identified areas which can
be voluntarily released in order to mitigate the impact of higher
fees, when licenses are awarded, with a minimum impact on their
exploration potential.
In 2020, the moratorium was extended. In February 2022, the Plan for the Sustainable
Energy Transition of Suitable Areas (“PITESAI”) was approved by the
Ministry for Environmental Transition. It delivers a new framework
for the possible resumption of exploration and production
activities on land and at sea. Exploenergy was notified in 2022
that its projects (Reno Centese and Corsano) were located in
compatible areas identified by the PITESAI. The Company is
currently in the qualification process as gas operator.
In February 2019, the Group
entered in a 2-year loan agreement with Proger Management &
Partners Srl (“PMP”) with an option which Cadogan could exercise, with no obligation, to
get a 33% equity interest in Proger Ingegneria Srl which in turn
held at 31 December 2020 a 75.95%
equity interest in Proger Spa. Proger is an Italian engineering
company providing services in Italy and in different international
areas.
Cadogan did not exercise the
Call Option. In February 2021,
Cadogan notified PMP that
according to the Loan Agreement, the Maturity Date occurred on
25 February 2021, and as the Call
Option was not exercised, PMP must fulfill the payment of
EUR 14,857,350, being the
reimbursement of the Loan in terms of principal and the accumulated
interest at this Maturity Date. PMP is in default since
25 February 2021. End of March 2021, PMP requested an arbitration to have
the Loan Agreement recognized as an equity investment contract,
which is rejected by Cadogan as
the terms of the Loan Agreement are clear and include the right to
repayment at maturity if the Call Option is not exercised.
The Arbitration proceeding ended in July 2022.
The Arbitral Committee:
- Rejected Proger’s principal
claim, and declared that the Loan Agreement is valid and
effective,
- Deemed to qualify the Call
Option as a preliminary contract under condition, but
- Rejected Proger’s claim ex art.
2932 Italian Civil Code, stating that it is impossible to give an
award producing the same effects of a final contract ex art. 2932
Italian Civil Code,
- This because of the duties
established by the rules of the London Regulatory Authority and
because of the need, possibly by both parties, to comply with the
due proceedings before the formalization of the entry of
Cadogan into the capital of Proger
Ingegneria,
- Subordinated the stipulation of
the final contract to the precedent completion of the proceeding
and bureaucratic process as per the British rules, stating that,
otherwise,
- There is the obligation on
Proger Ingegneria to return the money received under the Loan
Agreement.
Strategic Report
The Strategic Report has been prepared in accordance with
Section 414A of the Companies Act 2006 (the “Act”) and presented
hereunder. Its purpose is to inform stakeholders and help them
assess how the Directors have performed their legal duty under
Section 172 of the Act to promote the success of the Company.
Section 172 Statement
The Company’s section 172 statement is presented on page 35 and
37 and forms part of this strategic report.
Principal activity and status of the
Company
The Company is registered as a public limited company
(registration number 05718406) in England and Wales. Its principal activity is oil and gas
exploration, development and production; the Company also conducts
gas trading and provides services. In November 2022, the shareholders approved the
change of name and the strategy to expand its activities along the
energy value chain to new forms of energy with a reduced impact on
the environment.
The Company’s shares have a standard listing on the Official
List of the UK Listing Authority and are traded on the Main Market
of the London Stock Exchange.
Key performance indicators
The Group monitors its performance through five key performance
indicators (“KPIs”):
- to increase oil, gas and
condensate production measured on the number of barrels of oil
equivalent produced per day (“boepd”);
- to decrease administrative
expenses;
- to increase the Group’s basic
earnings per share;
- to maintain no lost time
incidents; and
- to grow geographically and
operationally diversify the portfolio.
The Group’s performance in 2022 against these KPI’s is set out
in the table below, together with the prior year performance
data.
|
Unit |
2022 |
2021 |
2022
vs 2021 |
|
|
|
|
|
Average production
(working interest basis) 1 |
boepd |
323 |
350 |
(8)% |
Overhead
(G&A) |
$ million |
(3.4) |
(3.7) |
(7)% |
Basic loss per share
2 |
cents |
(0.6) |
(2.1) |
(71)% |
Lost time incidents
3 |
incidents |
- |
- |
- |
Geographic
diversification |
new assets |
- |
- |
- |
1. Average production is calculated as
the average daily production during the year
2. Basic (loss)/profit per ordinary
share is calculated by dividing the net (loss)/profit for the year
attributable to equity holders of the parent company by the
weighted average number of ordinary shares during the year
3. Lost time incidents relate to the
number of injuries where an employee/contractor is injured and has
time off work (IOGP classification)
Chairman’s Statement
2022 was the most dramatic year in the independent history of
Ukraine. The full-scale invasion
of the Russian army has brought severe destructions and huge
suffering. All the Board stands in solidarity with the Ukrainian
population in their fight for freedom.
The safety of our people is our highest priority. The Group is
taking all possible actions to preserve the safety of its employees
and meet their needs.
2022 will remain another challenging year. From the very first
days of the war and onwards Cadogan has immediately implemented required
actions that have allowed to protect our staff and keep the Group’s
activities ongoing. The effectiveness of these measures and the
dedication of everyone have been essential to mitigate the negative
consequences of the war. Moreover, the Group is proud to report
zero fatalities, injuries among its staff since the beginning of
the invasion.
For the existing operations in Ukraine, Cadogan continue to be committed to the
territory and the communities where we operate and has fully
financed social programs commitment for 2022 as agreed before with
the Lviv Regional Administration and the local communities.
Realizing the importance of unstoppable oil production to satisfy
increased Ukrainian’s demand - Cadogan has put maximum efforts to achieve
this target. Despite all the difficulties imposed by the war
situation, Cadogan stands
confidently on its feet and continues to work.
During 2022, the oil and gas markets of Ukraine witnessed severe volatility which was
not correlated with world’s trends. The oil prices have changed
unpredictably and in different directions during the year. The
quick response of the Group and the measures that were put in place
have allowed the Group to mitigate the operational and the economic
challenges.
Despite all these challenges, the Group was able to improve its
fundamentals and operate at high industry standards. This was
possible thanks to the commitment of all with a competent and
strong management. The Board remains focused on maximizing value
from our assets and on our strategy based on the future
diversification of our activities towards sectors providing lower
impacts on environment.
Michel Meeus
Non-Independent Non-Executive Chairman
27 April 2023
Chief Executive’s Review
Due to the situation of war resulting from the Russian invasion
of Ukraine, 2022 has been a highly
challenging year. The Company had to adapt its activities to
operate in war reality and contingencies. After securing our
employees, our assets, our procedures and our sales transactions,
Cadogan was able to operate but
under severe constraints, temporary operations shut-down, staff
relocation, supply and trade chains changes. The consequences of
this war on inflation, on consumption and on availability of the
needed energy infrastructure have led to extreme oil price
volatility. The martial law imposed by the Ukrainian government
introduced additional constraints on the financial transactions,
the mobilisation of employees, the increase of taxation on natural
gas production and ended with additional risks.
This situation has led to adapt and transform all the processes
of Cadogan to align to the maximum
of flexibility and efficiency given the high uncertainty even on
the short-term.
While in 2021 Ukraine had witnessed some signs of recovery for
the oil & gas industry as well as slow progress towards
modernization of its oil & gas legislative framework, the
Russian aggression in 2022 has pushed down all these efforts. The
Russian invasion and bombing have naturally affected the oil and
gas production in the Country. Oil refineries as well as energy
infrastructure have been severely damaged. Despite this situation,
Cadogan managed to safely operate
with zero fatalities and injuries among the staff.
In March 2022, the Company staff
was relocated from Kiev to the
safe areas and continued operating remotely. On-field personnel
ensured continuity of wells’ operations with the maximum of safety
and efficiency. The Company also faced a new risk with the
mobilization of employees decided by the Ukrainian government. For
the time being, 4 employees have been mobilized since the beginning
of the martial law in March 2022.
With this martial law, war period restrictions have been
implemented, including financial ones. At the same time, the
Parliament increased taxation on natural gas production.
These unprecedented constraints encountered with Covid-19 during
2020 and 2021 and during 2022 with the war in Ukraine, have delayed the implementation of
Cadogan’s strategy. In November 2022,
following the approval of the shareholders, Cadogan Petroleum Plc
became Cadogan Energy Solutions Plc, with the intention to expand
its activities along the energy value chain, beyond current
activities in the oil and gas sector, to new forms of energy with a
reduced impact on the environment. This reflects Cadogan’s
mission to be a diversified group in energy with the will to make
investments offering energy solutions and alternative services with
a lower environmental impact.
Against this challenging background, Cadogan’s operational
activities performed as following:
· a 8% decrease in production, from 127,662
bbl in 2021 to 117,793 bbl bbl in 2022;
· a 7% decrease of overhead (G&A), from
$3.7 million in 2021 to $3.4 million in 2022;
· a robust balance sheet, with $13.9 million of net cash, kept mostly in the UK
banks;
· another year without LTIs’;
· the Supreme Court positive decision in
favour of Cadogan in the tax
litigation case.
Core operations
Cadogan has continued to safely
produce from its Blazhiv field in the West of Ukraine. Oil production has decreased by 8%
compared to the previous year. This decrease was due to several
production stoppages caused by the reduction of crude oil treatment
capacities in oil refineries, as a consequence of the Russian
direct air strikes and by power outage due to similar strikes of
electricity infrastructure.
Regarding the Bitlyanska 20-year exploration and development
license, Usenco Nadra filed two claims in 2020 against the absence
of decision of the State Geological Service (SGS) in the regulatory
due timeframe at this moment, and the further rejection of the
application on the basis of a new regulatory framework that took
effect on 25 February 2020. In
February 2022, these claims were
rejected by the Administrative Court. Further in 2022, Usenco Nadra
exercised its right for appeal against this decision. The Kyiv
Appeal Court and further on the Supreme Court did not take into
consideration the Company’s arguments and rejected the claims. This
decision will not have a financial impact as Bitlyanska license had
been totally impaired in the previous year.
High operational standards of the Group have been confirmed
again by zero LTI or TRI, with a total over 1,570,000 manhours
since the last incident, and re-validation off ISO 14001 &
45001 certifications by respective authority for the one year.
In Italy, the Plan for the
Sustainable Energy Transition of Suitable Areas (“PITESAI”) was
approved by the Ministry for Environmental Transition. It delivers
a new framework for the possible resumption of exploration and
production activities on land and at sea. Exploenergy was notified
in 2022 that its projects (Reno Centese and Corsano) were located
in compatible areas identified by the PITESAI. The Company is
currently in the qualification process as gas operator.
Non E&P operations
The Company continues to monitor the gas markets in Europe and Ukraine, but in light of the extreme
volatilities the Company followed its prudent and low risk trading
strategy and did not perform gas trading operations during
2022.
The oil services activities were used primarily to serve the
Group’s wells’ operations.
Proger
In February 2019, Cadogan used part of its cash (euros 13.385 million) to enter into a 2-year Loan
Agreement with Proger Managers & Partners, together with a Call
Option Agreement which could be exercised by Cadogan, with no obligation, between
September 2019 and February 2021, and subject to shareholders’
approval, into a 33 % equity interest in Proger Ingegneria which in
turn held, a 75.95% equity interest in Proger as at 31 December 2020, and a 96.48% equity interest in
Proger as at 31 December 2021.
As at 25 February 2021, being the
Maturity Date, the Call Option was not exercised by Cadogan and accordingly to its previous
notification Cadogan demanded
repayment of the Loan together with the accumulated interest which
in total amounted Euro 14,857,350.
After five business days, PMP was in default and asked for an
additional term that ended on 19 March
2021. The terms of the Loan Agreement provide for an
additional default interest of 2%. End of March 2021, PMP contested the default situation
and the obligation to reimburse and asked for an Arbitration
according to the said Loan Agreement to get the Loan Agreement
recognised as an equity investment contract. Cadogan consider PMP’s arguments as groundless
and consider that they are intended to delay PMP reimbursement
obligations. The Arbitration proceeding ended in July 2022.
The Arbitral Committee:
- Rejected Proger’s principal
claim, and declared that the Loan Agreement is valid and
effective,
- Deemed to qualify the Call
Option as a preliminary contract under condition, but
- Rejected Proger’s claim ex art.
2932 Italian Civil Code, stating that it is impossible to give an
award producing the same effects of a final contract ex art. 2932
Italian Civil Code,
- This because of the duties
established by the rules of the London Regulatory Authority and
because of the need, possibly by both parties, to comply with the
due proceedings before the formalization of the entry of
Cadogan into the capital of Proger
Ingegneria,
- Subordinated the stipulation of
the final contract to the precedent completion of the proceeding
and bureaucratic process as per the British rules, stating that,
otherwise,
- There is the obligation on
Proger Ingegneria to return the money received under the Loan
Agreement.
Proger refused to apply the requirements of the award and thus,
Proger must reimburse the amount covered by the Loan Agreement plus
interest accrued in the meantime.
Outlook
The current situation in Ukraine is imposing continuous difficulties
and tremendous challenges on our operating activities in 2023. The
Company is expecting another challenging year and is seeking to
mitigate these constraints through a number of options and
solutions.
Cadogan will also study
different options to minimize its CO2 emissions deriving from its
current operating oil and gas activities.
Regarding the Loan provided to Proger in February 2019, Cadogan will continue to engage all necessary
legal actions to protect its interests and recover the cumulated
amount due by Proger.
Despite all these constraints, Cadogan will pursue its strategy aiming to
diversify its activities and invest in sectors with a lower impact
on environment.
This strategy is totally aligned with the Climate Change
requirements for sustainability of Cadogan’s activities.
Fady Khallouf
Chief Executive Officer
27 April 2023
Operations Review
Overview
At 31 December 2022, the Group
held working interests in one conventional gas, condensate and oil
exploration and production license in the west of Ukraine.
Summary of the Group’s licenses (as at 31 December
2022) |
Working
interest (%) |
License |
Expiry |
License type |
99.8 |
Blazhiv |
November 2039 |
Production |
West
Ukraine
E&P activity remained focused on maintaining its license and
safely and efficiently producing from the existing wells as well as
implementing non-invasive production enhancement scenarios within
the Blazhiv oil field.
Blazhivska license
During 2022, the average gross oil production rated at 323bpd,
which is 8% lower than in 2021 (350bpd). In March 2022 production was suspended for 3 weeks
and was resumed after securing the employees, the assets, the
financial transactions and the sales process. In the second half of
2022, there have been several production stoppages due to the
reduction of crude oil consumption by oil refineries caused mainly
by the Russian strikes or by power outage due to similar strikes of
electricity infrastructure. For the purpose of geological
construction precision of Blazhiv oil field and Monastyretska fold
and also identification of new perspective structures within the
license area boundary, Cadogan has
launched analyses for data reprocessing and reinterpretation of old
2D seismic data at the end of 2021. The Company completed studies
and received the required data for field skeleton structural and
tectonic modelling.
Bitlyanska license
Usenco Nadra filed to the State Geological Service an
application for a 20-year production license 5 months ahead of the
license expiry date of 23 December
2019. The Company secured approval of the Environmental
Impact Assessment study by the Ministry of Ecology, the approval of
the Reserves Report by the State Commission of Reserves and the
approval of the license award by the Lviv Regional Council. Given
the delay in awarding the new license beyond the regular timeline
provided by legislation, the Company filed two claims with the
Administrative Court to challenge the non-granting of the 20-year
production license by the Licensing Authority. During 2021 the
claims were not considered by the Court due to delays caused by the
Covid-19 pandemic. In February 2022,
the Company received information from the public register that its
claim was rejected by the Court of 1st instance. Despite
the restrictions imposed by the martial law in Ukraine, Usenco Nadra exercised its right for
appeal against this decision and submitted an appeal. In 2022, the
Kyiv Administrative Court and further on the Supreme Court have not
taken into consideration the Company’s arguments regarding the
Bitlyanska license award approval and rejected the claims.
Gas trading
In light of these extreme volatilities during the war the
Company, following its prudent and low risk trading strategy,
decided to monitor the appropriate time for resuming trading
activity.
Service
The Group continued to provide services through its wholly owned
subsidiary Astroservice LLC. The provided services were primarily
focused on serving intra-group operational needs in wells’
re-entry/ repairs and stimulation operations, well surveys and
field on-site activities. In the context of the prevailing
situation in Ukraine, the services
segment was dedicated totally to supporting the Group’s production
activities. Starting from 2022, production entities activities and
service entity activities will be presented solely as Exploration
and Production segment result.
Other events
After an inspection conducted by Ukraine’s tax authorities in
September 2019, Astroinvest Energy
LLC was notified of a tax claim related to the historic costs for
the liquidation of wells on the Zagoryanska license. The tax
authorities notified Astroinvest Energy LLC that they considered
non-deductible the recoverable VAT, totalling $3.6 million, that had subsequently been used to
offset output VAT. They additionally considered that the
subsidiary’s tax losses carry forward of $15.3 million should be reduced (note 22). In
2019, Astroinvest Energy LLC filed a claim against the tax
authority’s decision. The Court of First Instance and the Court of
Appeal decided in favour of the position of Cadogan, but the tax authorities filed an
appeal with the Supreme Court. In September
2022, the Supreme Court cancelled all decisions of the
fiscal authority and issued a decision in favor of the position
defended by Cadogan.
Financial Review
Overview
In 2022, the Group had no trading operations and its oil
production decreased by 8%. The average realized oil price
increased by 32% and supported the Group revenue on the same level
as previous year. The Group’s operating divisions delivered a
profit of $2.9 million (2021: profit
of $1.8 million excluding the
impairment of oil and gas assets).
The E&P business positively contributed to the financial
results of the Group, due to the increase in oil prices. The
average realized oil price increased by 32% from $55.7 to $73.4 per
barrel. The trading business was not active during 2022.
Cash position decreased to $13.9
million as at 31 December 2022
compared to $15.0 million as at
31 December 2021.
Income statement
Revenues from production increased from $7.0 million in 2021 to $8.5 million in 2022. This result has been
achieved, despite the decrease in production volumes, due to an
increase in oil average realized prices by 32%. E&P costs of
sales increased from $5.3 million in
2021 to $5.6 million in 2022. These
include production royalties and taxes, fees paid for the rented
wells, depreciations, depletion of producing wells, direct staff
costs and other costs for exploration and development. Overall, in
2022, E&P made a positive contribution of $2.9 million (2021: $1.8
million) to gross profit.
The gas trading business had no activities during 2022 (2021:
Revenue of $1.8 million).
Administrative expenses (“G&A”) remained contained with a
decrease of 7% compared to year 2021, note 8.
Balance sheet
The Property Plant & Equipment (PP&E) balance was
$6.6 million at 31 December 2022 (2021: $9.6 million). It primarily represents the
carrying value of the assets invested and engaged in Blazhiv
license. The E&E and PP&E are held by Ukrainian
subsidiaries with functional currency Ukrainian Hryvna. The
Ukrainian Hryvna was devaluated by 34% as at 31 December 2022 compared to 31 December 2021, generating a movement in the
E&E and PP&E value presented in the US Dollar.
Trade and other receivables of $0.3
million (2021: $0.2 million)
include $0.1 million of recoverable
VAT (2021: $0.1 million), which is
expected to be recovered through production activities, and
$0.2 million (2021: $0.1 million) of other receivables.
Inventories slightly increased from $0.2
million to $0.3 million
principally due to the increase of crude oil in the stock.
The Proger loan was held at amortised cost at $15.8 million (2021: $16.7
million). Refer to the Chief Executive’s Report for further
details together with note 4(d) and 27.
The $1.4 million of trade and
other payables as at 31 December 2022
(2021: $1.5 million) consist of
$0.6 million (2021: $0.6 million) of accrued expenses and
$0.8 million (2021: $0.9 million) of other creditors.
Provisions include $0.4 million
(2021: $0.3 million) of long-term and
current provisions for decommissioning costs which represents the
present value of costs that are expected to be incurred in 2039 for
producing assets, when the license will expire, and current
provision for the decommissioning costs of Bitlyanska license.
Net cash decreased to $13.9
million at 31 December 2022
compared to $15.0 million at
31 December 2021. This was mostly due
to negative operating cashflow and forex effect of Hryvna and EURO
nominated cash accounts.
Cash flow statement
The Consolidated Cash Flow Statement on page 77 shows operating
cash inflow before movements in working capital of $0.2 million (2021: outflow of $0.4 million), which represents mostly cash
generated by the E&P net of corporate expenses.
Related party transactions
Related party transactions are set out in note 29 to the
Consolidated Financial Statements.
Treasury
The Group continually monitors its exposure to currency risk. It
maintains a portfolio of cash mainly in US dollars (“USD”) and Euro
held primarily in the UK. Production revenues from the sale of
hydrocarbons are received in Hryvna, the local currency in
Ukraine. Since the martial law
established in February 2022 in
Ukraine, the cash generated in
Ukraine must be kept in Hryvna in
Ukraine.
Risks and uncertainties
There are several potential risks and uncertainties that could
have a material impact on the Group’s long-term performance and
could cause the results to differ materially from expected and
historical results. Executive management review the potential risks
and then classify them as having a high impact if above
$5 million, medium impact if above
$1 million but below $5 million, and low impact if below $1 million. They also assess the likelihood of
these risks occurring. Risk mitigation factors are reviewed and
documented based on the level and likelihood of occurrence. The
Audit Committee reviews the risk register and monitors the
implementation of risk mitigation procedures via Executive
management, who are carrying out a robust assessment of the
principal risks facing the Group, including those potentially
threatening its business model, future performance, solvency and
liquidity.
The Group has analysed the following categories as key
risks:
Risk |
Mitigation |
War risks |
|
Since Spring 2021,
Russia has gradually increased the concentration of military
equipment, weapons and troops near the Ukrainian borders. On 24
February 2022, the Russian troops attacked Ukraine and invaded its
territory. Severe fights have been engaged in Kyiv, and several
other main cities like Kharkiv, Mariupol, Kherson, Sumy and
Chernihiv
Missile attacks and bombing are used by the Russian troops to
destroy infrastructures and facilities even in the western cities,
like Lviv. Cyber-attacks have increased. Given the unpredictability
of the issue of this war, a full-scale invasion of Ukraine or a
much longer duration of this war could have material impacts on the
Group’s operations and on its human, industrial and financial
resources. |
Anticipating the
beginning of the war, the Group put in place, since the beginning
of February 2022, emergency procedures communicated to all
employees on the different sites in Ukraine with an Emergency
Committee communicating every day. Safety measures have been
dispatched with a remote working organization. Specific measures
have been put in place for the operations on site. In case of need,
specific measures were put in place to suspend the operations of
the Blazhiv field wells, with technical measures for
decommissioning and temporary conservation of the wells. The
transmission and internet connection systems have been secured with
a satellite connection. IT security has been reinforced. From
February 2022 till June 2022, the salaries were paid in
anticipation to mitigate the risk of a shutdown of the banking
system. The Group is monitoring the situation daily and taking
appropriate action to ensure the safety and the essential needs of
its employees. |
Operational risks |
|
Health, Safety and Environment
(“HSE”) |
|
The oil and gas industry by its
nature conducts activities, which can cause health, safety and
environmental incidents. Serious incidents can have not only a
financial impact but can also damage the Group’s reputation and the
opportunity to undertake further projects. |
The Group maintains a
HSE management system in place and demands that management, staff
and contractors adhere to it. The system ensures that the Group
meets Ukrainian legislative standards and for the CO2 emissions the
British standards and achieves international standards to the
maximum extent possible.
Management systems and processes have been certified as ISO 14001
and ISO 45001 compliant. |
Covid-19 |
|
The Group’s operations are in
Ukraine with a Parent Company located in the United Kingdom. These
locations are suffering from increasing levels of Covid-19
infection and in due course there may be increasing
disruption. This may include potential impacts through
illness amongst our workforce, supply chain and sales channel
disruption and the wider impact of economic disruption on commodity
prices. The national and local governments in each of our operating
locations are recommending or implementing increasingly severe
restrictions in order to manage the situation. |
To manage and where
possible mitigate the risk of personnel infection with the virus
for our employees, special measures have been applied. These
include administrative personnel remote working, strict sanitary
and hygienic procedures and personal protection, rotation of field
personnel by company cars, constant medical supervision during the
work shift, regular sanitation of cars, offices and facilities. The
covid-19 treatment package has been included into the staff medical
insurance coverage. We continue to monitor the situation closely
and will respond accordingly as the position develops. To prevent
the spread of covid-19, the Company continued strictly maintaining
administrative and healthcare measures to provide safe working
conditions for its employees as well as ensuring reasonable
vaccination level. |
Climate
change |
|
After the
Paris Agreement (COP 21) the international community is committed
to reduce greenhouse gas emissions to slow down the climate change
and contain its effects. Countries may impose moratorium on E&P
activities or enact tight limits to emissions level, which may
curtail production. Shareholders may also request that the Company
adopt stringent targets in terms of emissions reduction.
|
A
moratorium on domestic production is deemed highly unlikely in
Ukraine given the country’s need for affordable energy. Such risks
exist in Italy, but the Group’s exposure there is limited.
Management strives to reduce emissions in everything the Group does
and has started implementing alternatives to offset and/or mitigate
emissions. In 2023, the Group will review its administrative and
operational process to identify the areas of further improvement in
the limitation of its environmental impact. For the future, Cadogan
is going to diversify its activities by investing in new activities
with a lower impact on environment. |
Drilling and
Work-Over operations |
|
The technical difficulty of drilling
or re-entering wells in the Group’s locations and equipment
limitations can result in the unsuccessful completion of the
well. |
The incorporation of detailed
sub-surface analysis into a robustly engineered well design and
work programme, with appropriate procurement procedures and
competent on-site management, aims to minimise risk. Only certified
personnel are hired to operate on the rig floor. Contractor’s
access to the operational sites is allowed only after control of
staff qualification and check-up of appropriate technical condition
of the equipment and machinery |
Production and
maintenance |
|
There is a risk that production or
transportation facilities could fail due to non-adequate
maintenance, control or poor performance of the Group’s
suppliers. |
All plants are operated
and maintained at standards above the Ukrainian minimum legal
requirements. Operative staff are experienced and receive
supplemental training to ensure that facilities are properly
operated and maintained. When not in use the facilities are
properly kept under conservation and routinely monitored.
Service providers are rigorously reviewed at the tender stage and
are monitored during the contract period.
|
Sub-surface risks |
|
The success of the business relies
on accurate and detailed analysis of the sub-surface. This can be
impacted by poor quality data, either historic or recently
gathered, and limited coverage. Certain information provided by
external sources may not be accurate. |
All externally provided
and historic data is rigorously examined and discarded when
appropriate. New data acquisition is considered, and appropriate
programmes implemented, but historic data can be reviewed and
reprocessed to improve the overall knowledge base. Agreements with
qualified local and international contractors have been entered
into to supplement and broaden the pool of expertise available to
the Company. |
Data can be misinterpreted leading
to the construction of inaccurate models and subsequent plans. |
All analytical outcomes
are challenged internally and peer reviewed. Analysis is
performed using modern geological software. |
The area available for
drilling operations is limited due to logistics, infrastructures
and moratorium. This increases the risk for setting optimum well
coordinates. |
Bottom hole locations are always
checked for their operational feasibility, well trajectory, rig
type, and verified on updated sub-surface models. They are rejected
if deemed to be too risky. |
The Group may not be successful in
proving commercial production from its licenses and consequently
the carrying values of the Group’s oil and gas assets may have to
be impaired. |
The Group performs, on
an annual basis, a review of its oil and gas assets, impairs if
necessary, and considers whether to commission a review from a
third party or a Competent Person’s Report (“CPR”) from an
independent qualified contractor depending on the
circumstances. |
Financial risks |
|
The Group is at risk
from changes in the economic environment both in Ukraine and
globally, which can cause foreign exchange movements, changes in
the rate of inflation and interest rates and lead to credit risk in
relation to the Group’s key counterparties.
The martial law in Ukraine forbids the transfer of cash outside of
Ukraine. The cash held in Ukraine must be held in the local
currency (Hryvna).
The decrease of the value of the Hryvna is a major risk on the cash
held by the Group in Ukraine. Since the martial law in Ukraine,
there is an obligation to keep the cash held by Cadogan in Ukraine
in Hryvna with period restrictions for transfers out of the
Country.
In February 2019, Cadogan entered into a 2-year Loan Agreement
(Euros 13.385 million) with Proger Management & Partners with a
Call Option that could be exercised by Cadogan, between September
2019 and February 2021, with no obligation, allowing a 33 % equity
interest in Proger Ingegneria. This represented a key transaction
and element of the Group balance sheet. At 25 February 2021, being
the Maturity Date, Cadogan did not exercise its Call Option and PMP
must reimburse EUR 14,857,350. End of March 2021, PMP did not
reimburse and asked for an arbitration to get the Loan Agreement
recognized as an equity investment contract. |
Revenues in Ukraine are
received in UAH and expenditure is made in UAH.
The Group continues to hold most of its cash reserves in the UK
mostly in USD and Euro. Cash reserves are placed with leading
financial institutions, which are approved by the Audit Committee.
Before the war in Ukraine, foreign exchange risk was considered a
normal and acceptable business exposure and the Group did not hedge
against this risk for its E&P operations. The Group is
currently analysing different options.
The terms of the agreement are clear and include the right to
repayment at maturity if the Call Option is not exercised. As
security for the reimbursement of the loan, Cadogan benefits from a
pledge over the shares held by Proger Managers & Partners in
Proger Ingegneria. In addition to that, Cadogan is engaging all the
necessary actions in the Arbitration process and more generally the
adequate legal actions to protect the interests of the Company and
all of its stakeholders. The investigation is closed. On July
28th, 2022, the Arbitration Committee delivered an award
rejecting Proger’s request, established that the Loan Agreement was
valid and effective, and indicated the conditions precedent for the
completion of any transaction with Proger Ingegneria. In case of
non-completion, Proger must reimburse Cadogan according to the Loan
Agreement.
Refer to note 27 to the Consolidated Financial Statements for
detail on financial risks. |
The Group is at risk that
counterparties will default on their contractual obligations
resulting in a financial loss to the Group. |
Procedures are in place
to scrutinize new counterparties via a Know Your Customer (“KYC”)
process, which covers their solvency. In addition, when trading
gas, the Group seeks to reduce the risk of customer non-performance
by limiting the title transfer to product until the payment is
received, prepaying only to known credible suppliers. |
The Group is at risk that
fluctuations in gas prices will have a negative result for the
trading operations resulting in a financial loss to the Group. |
The Group mostly enters
back-to-back transactions where the price is known at the time of
committing to purchase and sell the product. Sometimes the Group
takes exposure to open inventory positions when justified by the
market conditions in Ukraine, which is supported by analysis of the
specific transactions, market trends and models of the gas prices
and foreign exchange rate trends. |
Country risks |
|
Legislative changes may
bring unexpected risk and create delays in securing licenses or
ultimately prevent licenses and license renewals /conversions from
being secured. |
Compliance procedures,
monitoring and appropriate dialogue with the relevant authorities
are maintained to minimize the risk. In all cases, deployment of
capital in Ukraine is limited and investments are kept at the level
required to fulfil license obligations. |
Other risks |
|
The Group's success
depends upon skilled management as well as technical and
administrative staff. The loss of service of critical members from
the Group's team could have an adverse effect on the business. |
The Group periodically reviews the
compensation and contract terms of its staff in order to remain a
competitive employer in the markets where it operates. |
The Group is at risk of
underestimating the risk and complexity associated with the entry
into new countries. |
The Group applies
rigorous screening criteria in order to evaluate potential
investment opportunities. It also seeks input from independent and
qualified experts when deemed necessary. Additionally, the required
rate of return is adjusted to the perceived level of risk. |
Local
communities and stakeholders may cause delays to the project
execution and postpone activities. |
The
Group maintains a transparent and open dialogue with authorities
and stakeholders (i) to identify their needs and propose solutions
which address them as well as (ii) to illustrate the activities
which it intends to conduct and the measures to mitigate their
impact. Local needs and protection of the environment are always
taken into consideration when designing mitigation measures, which
may go beyond the legislative minimum requirement.
The Group devotes the highest level of attention and engage
qualified consultants to prepare the Environmental Impact
Assessment studies and to attend public hearings, both introduced
in Ukraine in 2019. |
Statement of Reserves and
Resources
In 2022, the company conducted routine rig-less production
support activities at the Blazhiv-1, Blazhiv-3 and
Blazhiv-Monastyrets-3 and Blazhiv-10 wells to maintain sustainable
production using sucker rod pumping systems.
Summary of
Reserves1
at 31 December 2022
|
|
|
Mmboe |
Proved, Probable and Possible
Reserves at 1 January 2022 |
|
|
4.06 |
Production |
|
|
0.12 |
|
|
|
|
Proved, Probable
and Possible Reserves at 31 December 2022 |
|
|
3.94 |
1 The study was conducted in 2016 by Brend Vik.
In addition to the tabled reserves, Cadogan has 0.6 million boe of contingent
resources associated with the Blazhiv license.
Corporate Responsibility
Under Section 414C of the Companies Act 2006 (the “Act”), the
Board is required to disclose information about environmental
matters, employees, human rights and community issues, including
information about any policies it has in relation to these matters
and the effectiveness of these policies.
Being sustainable in our activities means conducting our
business with respect for the environment and for the communities
hosting us, with the aim of increasing the benefit and value to our
stakeholders. We recognize that this is a key element to be
competitive and to maintain our license to operate.
The Board recognizes that the protection of the health and
safety of its employees, the communities and the environment in
which it operates is not just an obligation but is part of the
personal ethics and beliefs of management and staff. These are the
key drivers for a sustainable development of the Company’s
activity. Cadogan Petroleum, its management and employees are
committed to continuously improve Health, Safety and Environment
(HSE) performance; follow our Code of Ethics and apply, in
conducting our operations, internationally recognized best
practices and standards.
Our activities are carried out in accordance with a policy
manual, endorsed by the Board, which has been disseminated to all
staff. The manual includes a Working with Integrity policy and
policies on business conduct and ethics, anti-bribery, the
acceptance of gifts and hospitality and whistleblowing. Such
policies are subject to regular review.
In August 2018, Cadogan Ukraine
LLC obtained ISO 14001 and ISO 45001 certifications for the
following scope: “Supervision, coordination, management support,
control in the field of oil and gas on-shore exploration and
production.” This provides formal recognition of the process
embedded in the Company and demonstrates the commitment and efforts
delivered by our employees and management. It is considered a
baseline to continue with the efforts to improve the way we conduct
the business.
The Board believes that health and safety procedures, and
training across the Group should be in line with best practice in
the oil and gas sector. Accordingly, it has set up a committee to
review and agree on the health and safety initiatives for the
Company and to report back to the Board on the progress of these
initiatives. Management regularly reports to the Board on HSE and
key safety and environmental issues, which are discussed at the
Executive Management level. The report of the Health, Safety and
Environment Committee can be found on page 39 to 40.
The General Director of Cadogan Ukraine is the acting Chairman
of the HSE Committee and is supported in his role by Cadogan
Ukraine’s HSE Manager. In accordance with the ISO 14001 and ISO
45001, his role is to ensure that the Group continuously develops
suitable procedures, that operational management and their teams
incorporate them into daily operations and that the HSE management
has the necessary level of autonomy and authority to discharge
their duties effectively and efficiently.
Health, safety and environment
2022 was extremely challenging due to the Russian invasion of
Ukraine and the resulting
subsequent war. Cadogan applied
measures to mitigate the risk personnel injuries and loss of well
control. Kiev office personnel
have been relocated to the safe regions of Ukraine, on-field staff as well as all offices
have been equipped with satellite means of communication,
established internal emergency committee that coordinated the work
and liaising with company management of the daily basis. Three
employees have been mobilized to the army during 2022.
Also the HSE management daily monitors health status of the
personnel in terms of covid-19.
The Group has implemented an integrated HSE management system in
accordance with the ISO requirements. The system aims to ensure
that a safe and environmentally friendly/protection culture is
embedded in the organization with a focus on the local community
involvement. The HSE management system ensures that both Ukrainian
and international standards are met, with the Ukrainian HSE
legislation requirements taken as an absolute minimum. All the
Group’s local operating companies actively participate in the
process. ISO 14001 and ISO 45001 certification were re-validated by
the respective authority in August
2022 for a new term.
A proactive approach based on a detailed induction process and
near miss reporting has been in place throughout 2022 to prevent
incidents. Staff training on HSE matters and discussions on near
miss reporting are recognized as the key factors to continuously
improve. In-house training is provided to help staff meet
international standards and follow best practice. The process
enacted by the certification, enhances attention to training on
risk assessments, emergency response, incident prevention,
reporting and investigation, as well as emergency drills regularly
run-on operations’ sites and offices. This process is essential to
ensure that international best practices and standards are
maintained to comply with, or exceed, those required by Ukrainian
legislation, and to promote continuous improvement.
The Board monitors the main Key Performance Indicators (lost
time incidents, mileage driven, training received, CO2 emissions)
as business parameters. The Board has benchmarked safety
performance against the HSE performance index measured and
published annually by the International Association of Oil and Gas
Producers. In 2022, the Group recorded over 154,000 man-hours
worked with no incidents and over 1,570,000 hours have been worked
since the last injury in February
2016.
During 2022 the Group continued to monitor its greenhouse gas
emissions and collect statistical data relating to the consumption
of electricity, industrial water and fuel consumption by cars,
plants and other work sites, recording a continuous improvement in
the efficient use of resources.
Employees
Wellness and professional development are part of the Company’s
sustainable development policy and wherever possible, local staff
are recruited. The Group’s activity in Ukraine is entirely managed by local staff.
Qualified local contractors are engaged to supplement the required
expertise when and to the extent it is necessary.
Procedures are in place to ensure that recruitment is undertaken
on an open, transparent and fair basis with no discrimination
against applicants. Each operating company has its own Human
Resources function to ensure that the Group’s employment policies
are properly implemented and followed. The Group’s Human Resources
policy covers key areas such as equal opportunities, wages,
overtime and non-discrimination. As required by Ukrainian
legislation, Collective Agreements are in place with the Group’s
Ukrainian subsidiary companies, which outline agreed level of staff
benefits and other safeguards for employees.
All staff are aware of the Group’s grievance procedures. All
employees have access to health insurance provided by the Group to
ensure that all employees have access to adequate medical
facilities.
Each employee’s training needs are assessed on an individual
basis to ensure that their skills are adequate to support the
Group’s operations, and to help them to develop.
Diversity
The Board recognizes the benefits and importance of diversity
(gender, ethnic, age, sex, disability, educational and professional
backgrounds, etc.) and strives to apply diversity values across the
business. We endeavour to employ a skilled workforce that
reflects the demographic of the jurisdictions in which we
operate. The board will review the existing policies and
intends to develop a diversity policy.
Gender diversity
The Board of Directors of the Company comprised of five
Directors as of 31 December 2022. The
appointment of any new Director is made based on merit. See pages
23 and 24 for more information on the composition of the Board.
As at 31 December 2022, the
Company comprised a total of 75 persons, as follows:
|
Male |
Female |
Non-executive directors |
3 |
1 |
Executive directors |
1 |
- |
Management, other than Executive
directors |
7 |
2 |
Other employees |
41 |
20 |
Total |
52 |
23 |
Human rights
Cadogan’s commitment to the fundamental principles of human
rights is embedded in our HSE policies and throughout our business
processes. We promote the core principles of human rights
pronounced in the UN Universal Declaration of Human Rights and our
support for these principles is embedded throughout our Code of
Conduct, our employment practices and our relationships with
suppliers and partners wherever we do business.
Community
The Group’s activities are carried out in rural areas of
Ukraine and the Board is aware of
its responsibilities to the local communities in which it operates
and from which some of the employees are recruited. In our
operational sites, management work with the local councils to
ensure that the impact of operations is as low as practicable by
putting in place measures to mitigate their effect. Projects
undertaken include improvement of the road infrastructure in the
area, which provides easier access to the operational sites while
at the same time minimizing inconvenience for the local population
and allowing improved road communications in the local communities,
especially during winter season or harsh weather conditions.
Specific community activities are undertaken for the direct benefit
of local communities. All activities are followed and supervised by
managers who are given specific responsibility for such tasks.
The Group’s companies in the Ukraine see themselves as part of the
community and are involved and offer practical help and support.
All these activities are run in accordance with our “Working with
Integrity” policy and procedures. The recruitment of local staff
generates additional income for areas that otherwise are
predominantly dependent on the agricultural sector.
The enactment in 2018 of a new legislation which introduces
Environmental Impact Assessment studies and public hearings as part
of the license’s award/renewal processes was anticipated
effectively by the Group. The Group is complying with these
requirements, building on the recognized competence of its people
and advisors as well as on the good communication and relations
established with local communities.
Cadogan is committed to the
territory and the communities where it operates and has fully
financed social programs commitment for 2022 as per signed
Memorandum between the Company, Lviv Regional Administration and
local communities in 2019.
In 2022, the Group’s operating locations were subject to
continuous controlling levels of COVID-19 infection and normal
working patterns have been disrupted. The Group is following all
the recommendations and provides comprehensive measures inside the
Group to restrict COVID-19 infection and spread.
Approval
The Strategic Report was approved by the Board of Directors on
27 April 2023 and signed by order of
the Board by:
Ben Harber
Company Secretary
27 April 2023
Board of Directors
Current
directors
Michel Meeùs, 70, Belgian
Non-Independent non-executive Chairman
Mr Meeùs was appointed as a Non-executive Director on
23 June 2014. Mr. Meeùs was former
Chairman of the Board of Directors of Theolia, an independent
international developer and operator of wind energy projects. Since
2007, he has been a director within the Alcogroup SA Company (which
gathers the ethanol production units of the Group), as well as
within some of its subsidiaries. Before joining Alcogroup, Mr Meeùs
carved out a career in the financial sector, at Chase Manhattan
Bank in Brussels and London, then at Security Pacific Bank in
London, then finally at Electra
Kingsway Private Equity in London.
Mr Meeus is currently Chairman of the Remuneration and
Nomination Committees.
Fady Khallouf, 62, French
Chief Executive Officer
Fady Khallouf was appointed as Director and CEO on 15 November 2019. He has a 35-year experience in
the energy, the environment, the engineering and the infrastructure
sectors. He has previously held the position of CEO and CFO of
FUTUREN (Renewable Energy, listed on Euronext Paris) where he
achieved the restructuring and the turnaround of the group. Prior
to that, he was the CEO of Tecnimont group (Petrochemicals and Oil
& Gas), the Vice-President Strategy and Development of
EDISON group (Electricity and Gas,
E&P), the Head of M&A of EDF group (Energy). Fady Khallouf
had beforehand held various management positions at ENGIE (Energy),
Suez (Environmental Services), and DUMEZ (Construction and
Infrastructures).
Lilia
Jolibois, 58, American
Independent non-Executive Director
Lilia Jolibois was appointed as
Director on 15 November 2019. She is
currently a member of three Boards: Cadogan Petroleum Plc, INSEAD
Foundation, and CARA (UK and Wales). She is also a Venture and CEO Advisor
at Loyal Venture Capital, a global VC fund. Her career spans
Merrill Lynch Investment Banking, Sara
Lee, and Lafarge in the USA
and Europe. At Lafarge Group, Ms.
Jolibois served in numerous positions in finance, strategy,
business development, CEO and Chair of the Board for Lafarge Cement
and Gypsum in Ukraine, and SVP and
Chief Marketing-Sales-Supply Chain Officer for Lafarge Aggregates,
Asphalt & Paving.
Lilia is currently Chairman of the Company’s Audit Committee and
a member of the Remuneration and Nomination Committees.
Jacques
Mahaux, 71, Belgian
Non-Executive Director
Jacques Mahaux was appointed as
Director on 15 November 2019. He has
held various executive and directorship positions in Group Crédit
Agricole in Luxembourg, CA
Indosuez, Indosuez Bank and various Luxembourg and Swiss Holding companies active
in industrial sectors. Previously he acted as an Attorney at Law at
the Brussels Bar.
Mr Mahaux is currently a member of the Audit, Remuneration and
Nomination Committees.
Gilbert
Lehmann, 77, French
Senior Independent Non-Executive Director
Mr Lehmann was appointed to the Board on 18 November 2011. He was an adviser to the
Executive Board of Areva, the French nuclear energy business,
having previously been its Deputy Chief Executive Officer
responsible for finance. He is also a former Chief Financial
Officer and deputy CEO of Framatone, the predecessor to Areva, and
was CFO of Sogee, part of the Rothschild Group. Mr Lehmann was also
Deputy Chairman and Chairman of the Audit Committee of Eramet, the
French minerals and alloy business. He is Deputy Chairman and Audit
Committee Chairman of Assystem SA, the French engineering and
innovation consultancy. He was Chairman of ST Microelectronics NV,
one of the world’s largest semiconductor companies, from 2007 to
2009, and stepped down as Vice Chairman in 2011.
Mr Lehmann is currently a member of the Remuneration and
Nomination Committees.
Report of the Directors
Directors
The Directors in office during the year and to the date of this
report are as shown below:
Non-Executive
Directors
Executive Director
Michel Meeus (Chairman)
Fady
Khallouf
Gilbert Lehmann
Lilia Jolibois
Jacques Mahaux
Directors’ re-election
The Board has decided previously that all Directors are subject
to annual election by shareholders, in accordance with industry
best practice and as such, all Directors will be seeking
re-election at the Annual General Meeting to be held on
23rd June 2023.
The biographies of the Directors in office at the date of this
report are shown on pages 23and 24.
Appointment and replacement of
Directors
The Company’s Articles of Association allow the Board to appoint
any individual willing to act as a Director either to fill a
vacancy or act as an additional Director. The appointee may hold
office only until the next annual general meeting of the Company
whereupon his or her election will be proposed to the
shareholders.
The Company’s Articles of Association prescribe that there shall
be no fewer than three Directors and no more than fifteen.
Directors’ interests in shares
The beneficial interests of the Directors in office at
31 December 2022 and their connected
persons in the Ordinary shares of the Company at 31 December 2022 are set out below.
Director |
|
|
Number of
Shares |
Michel Meeus |
|
|
26,000,000 |
Fady Khallouf |
|
|
10,425,455 |
Gilbert Lehmann |
|
|
- |
Lilia Jolibois |
|
|
- |
Jacques Mahaux |
|
|
- |
Conflicts of Interest
The Company has procedures in place for managing conflicts of
interest. Should a director become aware that they, or any of their
connected parties, have an interest in an existing or proposed
transaction with the Company, its subsidiaries or any matters to be
discussed at meetings, they are required to formally notify the
Board in writing or at the next Board meeting. In accordance with
the Companies Act 2006 and the Company’s Articles of Association,
the Board may authorize any potential or actual conflict of
interest that may otherwise involve any of the directors breaching
his or her duty to avoid conflicts of interest. All potential and
actual conflicts approved by the Board are recorded in register of
conflicts, which is reviewed by the Board at each Board
meeting.
Directors’ indemnities and
insurance
The Company’s Articles of Association provide that, subject to
the provisions of the Companies Act 2006, all Directors of the
Company are indemnified by the Company in respect of any liability
incurred in connection with their duties, powers or office. Save
for such indemnity provisions, there are no qualifying third-party
indemnity provisions. In addition, the Company continues to
maintain Directors’ and Officers’ Liability Insurance for all
Directors who served during the year.
Powers of Directors
The Directors are responsible for the management of the business
and may exercise all powers of the Company subject to UK
legislation and the Company’s Articles of Association, which
includes powers to issue or buy back the Company’s shares given by
special resolution. The authorities to issue and buy back shares,
granted at the 2022 Annual General Meeting, remains unused.
Dividends
The Directors do not recommend payment of a dividend for the
year ended 31 December 2022 (2021:
nil).
Principal activity and status
The Company is registered as a public limited company
(registration number 05718406) in England and Wales. The principal activity and business of
the Company is oil and gas exploration, development and
production.
Subsequent events
In April 2023, SE Usenco Ukraine
(a Cadogan subsidiary in
Ukraine) completed the acquisition
of the 5% share interest of Usenco Nadra LLC that were not yet
owned by the Company. As a result, SE Usenco Ukraine consolidates
now 100% of Usenco Nadra LLC in its ownership.
This acquisition will allow the Company to further optimize its
operating structure in Ukraine and
be more cost effective at Blazhiv field.
Structure of share capital
The authorized share capital of the Company is currently
£30,000,000 divided into 1,000,000,000 Ordinary shares of
3 pence each. The number of shares in
issue as at 31 December 2022 was
244,128,487 Ordinary shares (each with one vote) with a nominal
value of £7,323,854.61. The total number of voting rights in the
Company is 244,128,421. The Companies (Acquisition of Own Shares)
(Treasury Shares) Regulations 2003 allow companies to hold shares
in treasury rather than cancel them. Following the consolidation of
the issued capital of the Company on 10 June
2008, there were 66 residual Ordinary shares, which were
transferred to treasury. No dividends may be paid on shares whilst
held in treasury and no voting rights attached to shares held in
treasury.
Rights and obligations of Ordinary
shares
In accordance with applicable laws and the Company’s Articles of
Association, holders of Ordinary shares are entitled to:
· receive shareholder documentation including
the notice of any general meeting;
· attend, speak and exercise voting rights at
general meetings, either in person or by proxy; and
· a dividend where declared and paid out of
profits available for such purposes. On a return of capital on a
winding up, holders of Ordinary shares are entitled to participate
in such a return.
Exercise of rights of shares in
employee share schemes
None of the share awards under the Company’s incentive
arrangements are held in trust on behalf of the beneficiaries.
Agreements between shareholders
The Board is unaware of any agreements between shareholders,
which may restrict the transfer of securities or voting rights.
Restrictions on voting deadlines
The notice of any general meeting of the Company shall specify
the deadline for exercising voting rights and appointing a proxy or
proxies to vote at a general meeting. To accurately reflect the
views of shareholders, where applicable it is the Company’s policy
at present to take all resolutions at any general meeting on a
poll. Following the meeting, the results of the poll are released
to the market via a regulatory news service and published on the
Company’s website.
Substantial shareholdings
As at 31 December 2022 and
19 April 2023, being the last
practicable date, the Company had been notified of the following
interests in voting rights attached to the Company’s shares:
|
31 December 2022 |
19 April 2023 |
Major
shareholder |
Number
of shares held |
% of
total voting rights |
Number
of shares held |
% of
total voting rights |
SPQR Capital Holdings
SA |
67,298,498 |
27.57 |
67,298,498 |
27.57 |
Mr Michel Meeus |
26,000,000 |
10.65 |
26,000,000 |
10.65 |
Ms Veronique
Salik |
17,959,000 |
7.36 |
17,959,000 |
7.36 |
Devola SA |
17,409,000 |
7.13 |
17,409,000 |
7.13 |
CA Indosuez Wealth
Management |
15,966,620 |
6.54 |
15,966,620 |
6.54 |
Kellet Overseas
Inc. |
14,002,696 |
5.74 |
14,002,696 |
5.74 |
Mr Fady Khallouf |
10,425,455 |
4.27 |
10,425,455 |
4.27 |
Mr Pierre Salik |
7,950,000 |
3.26 |
7,950,000 |
3.26 |
Cynderella
International SA |
7,657,886 |
3.14 |
7,657,886 |
3.14 |
Amendment of the Company’s Articles of
Association
The Company’s Articles of Association may only be amended by way
of a special resolution of shareholders.
Disclosure of information to
auditor
As required by section 418 of the Companies Act 2006, each of
the Directors as at 27 April 2023
confirms that:
(a) so far as the Director is aware, there is no relevant audit
information of which the Company’s auditor is unaware; and
(b) the Director has taken all the steps that he ought to have
taken as a Director in order to make himself aware of any relevant
audit information and to establish that the Company’s auditor is
aware of that information.
Going concern
The Group’s business activities, together with the factors
likely to affect its future development, performance and position,
are set out on pages 14 to 18.
Having considered the Company’s financial position and its
principal risks and uncertainties, including uncertainties
regarding the war in Ukraine and
the assessment of potential risks associated with Covid-19
including a) restrictions applied by governments, illness amongst
our workforce and disruption to supply chain and sales channels;
and b) market volatility in respect of commodity prices associated
with Covid-19 in addition to geopolitical factors, the Directors
have a reasonable expectation that the Company and the Group have
adequate resources to continue in operational existence for the
foreseeable future. Accordingly, they continue to adopt the going
concern basis in preparing the Consolidated and Company Financial
Statements. For further detail please refer to the detailed
discussion of the assumptions outlined in note 3(b) to the
Consolidated Financial Statements.
Reporting year
The reporting year coincides with the Company's fiscal year,
which is 1 January 2022 to
31 December 2022.
Financial risk management objectives
and policies
The Company’s financial risk management objectives and policies
including its policy for managing its exposure of the Company to
price risk, credit risk, liquidity risk and cash flow risk.
Management co-ordinates access to domestic and international
financial markets and monitors and manages the financial risks
relating to the operations of the Group in Ukraine through internal risks reports, which
analyse exposures by degree and magnitude of risks. These risks
include commodity price risks, foreign currency risk, credit risk,
liquidity risk and cash flow interest rate risk. The Group does not
enter into or trade financial instruments, including derivative
financial instruments, for speculative purposes.
Outlook
Future developments in the business of the Company are presented
on pages 5 to 9.
Change of control – significant
agreements
The Company has no significant agreements containing provisions,
which allow a counterparty to alter and amend the terms of the
agreement following a change of control of the Company.
Should a change in control occur then certain Executive
directors are entitled to a payment of salary and benefits for a
period of six months.
Streamlined energy and carbon
reporting
This section contains information on greenhouse gas (“GHG”)
emissions required by the Companies Act 2006 (Strategic Report and
Directors' Report).
Methodology
The principal methodology used to calculate the emissions is
drawn from the ‘Environmental Reporting Guidelines: including
mandatory greenhouse gas emissions reporting guidance (June 2013)’,
issued by the Department for Environment, Food and Rural Affairs
(“DEFRA”) and DEFRA GHG conversion factors for company reporting
were utilised to calculate the CO2 equivalent of emissions from
various sources (2018 update). Also, the used methodology was also
updated based on methods proposed by DNV GL and in of GHG emissions
Inventory referring to the following guidelines and international
standards.
The Company has reported on all the emission sources required
under the Regulations.
The Company does not have responsibility for any emission
sources that are not included in its consolidated statement.
Consolidation approach and
organisation boundary
An operational control approach was used to define the Company's
organisational boundary and responsibility for GHG emissions. All
material emission sources within this boundary have been reported
upon, in line with the requirements of the Regulations.
Scope of reported emissions
Emissions data from the sources within Scope 1 and Scope 2 of
the Company's operational boundaries is detailed below. This
includes direct emissions from assets that fall within the
Company’s organisational boundaries (Scope 1 emissions), as well as
indirect emissions from energy consumption, such as purchased
electricity and heating (Scope 2 emissions).
Scope 1 emissions in 2022 increased compared to the previous
year (14,631 tons in 2022 vs 13,063 tons in 2021). This was caused
by the increase of the gas factor in the produced oil.
Conversely, Scope 2 emissions decreased in 2022 (124 tons in
2022 vs 137 tons in 2021), as a result of the processes started in
2016 to improve the efficiency of the structure, logistic and
facilities. Total emissions in 2022 were 14,755 tons versus the
13,200 tons of 2021.
Intensity ratio
In order to express the GHG emissions in relation to a
quantifiable factor associated with the Company's activities,
wellhead production of crude oil and natural gas has been chosen as
the normalisation factor for calculating the intensity ratio. This
will allow comparison of the Company’s performance over time, as
well as with other companies in the Company’s peer group.
The intensity ratio for E&P operations (same reporting
perimeter) increased to 125,26 tons CO2e/Kboe in 2022 vs
103,4 tons CO2e/Kboe in 2021.
Total greenhouse gas emissions data for the year from 1 January
to 31 December
CO2 emissions level increase was caused by the
increase of associated gas volume recovered during oil production.
Another factor impacted emissions level growing was increase of
methane in CO2 level in the gas composition as detected by
bottomhole sampling oil analyses executed during the last
hydrodynamic surveys of Blazhiv wells. The Company has planned
repetition survey and sampling in 2023 to reconcile the data as
well as different technological scenario for reducing emissions to
the atmosphere.
Greenhouse gas emissions source |
E&P |
2022 |
2021 |
Scope 1 |
|
|
Direct
emissions, including combustion of fuel and operation of
facilities
(tonnes of CO2 equivalent) |
14,631 |
13,063 |
Scope 2 |
|
|
Indirect emissions
from energy consumption, such as electricity and heating purchased
for own use (tonnes of CO2 equivalent) |
124 |
137 |
Total (Scope 1
& 2) |
14,755 |
13,200 |
Normalisation
factor |
|
|
Barrels of oil
equivalent, net |
117,793 |
127,662 |
Intensity
ratio |
|
|
Emissions reported above normalised
to tonnes of CO2e per total wellhead production of crude
oil, condensates and natural gas, in thousands of Barrels of Oil
Equivalent, net |
125,26 |
103,4 |
Energy consumption
The Company started in 2020 to monitor energy consumption in
KwH.
|
2022 |
2021 |
%
change |
KwH |
KwH |
2022
– 2021 |
Ukraine |
575,876 |
572,890 |
0,5% |
Energy consumption in the UK is immaterial.
Task force on climate-related
financial disclosures (‘TCFD’)
Climate change remains one of the Group’s principal risks with
governance over climate-related transition and physical risks
provided at the Board and operational levels. The Board has
ultimate accountability for ensuring Cadogan maintains sound climate risk
management and internal control systems. The Board is ultimately
accountable for Cadogan’s strategic response to climate change and
the energy transition. Directors are responsible for ensuring they
remain sufficiently informed of climate related risks to
Cadogan and the broader energy
sector.
TCFD related disclosures
Governance |
Describe the Board’s oversight of
climate-related risks and opportunities. |
p.14-18 |
|
Describe Management’s role in
assessing and managing climate-related risks and
opportunities. |
|
Strategy |
Describe the climate-related risks
and opportunities the organisation has identified over the short,
medium and long term. |
p.5-9 |
|
Describe the impact of
climate-related risks and opportunities on the organisation’s
businesses, strategy and financial planning |
|
Risk
management |
Describe the organisation’s
processes for identifying and assessing climate-related risks. |
p.20-21 |
|
Describe the organisation’s
processes for managing climate-related risks. |
|
|
Describe how processes for
identifying, assessing and managing climate-related risks are
integrated into the organisation’s overall risk management. |
|
Metrics and targets |
Disclose the metrics used by the
organisation to assess climate-related risks and opportunities, in
line with its strategy and risk management process |
p.27-28 |
|
Disclose Scope 1 and Scope
2greenhouse gas (GHG) emissions. |
p.28-29 |
|
Describe the targets used by the
organisation to manage climate-related risks, opportunities, and
performances against targets. |
|
2023 Annual General Meeting
The 2023 Annual General Meeting (“AGM”) of the Company provides
an opportunity to communicate with shareholders and the Board
welcomes their participation. Board members constantly strive to
engage with shareholders on strategy, governance and a number of
other issues.
The Board looks forward to welcoming shareholders to the
AGM. The AGM notice will be issued to shareholders well in
advance of the meeting with notes to provide an explanation of all
resolutions to be put to the AGM. In addition, shareholder
information will be enclosed as usual with the AGM notice to
facilitate voting and feedback in the usual way.
The Chairman of the Board and the members of its committees will
be available to answer shareholder questions at the AGM. All
relevant shareholder information including the annual report for
2022 and any other announcements will be published on our website –
www.cadoganenergysolutions.com.
This Report of Directors comprising pages 25 to 30 has been
approved by the Board and signed by the order of the Board by:
Ben Harber
Company Secretary
27 April 2023
Corporate Governance Statement
As a Company listed on the standard segment of the London Stock
Exchange it is not required to apply a specific corporate
governance code and, given its size, has elected not to do so.
However, the Board of the Company is committed to the highest
standards of corporate governance and believe that the 2018 UK
Corporate Governance Code (“the Code”) issued by the Financial
Reporting Council (“FRC”) provides a suitable benchmark for the
Company’s corporate governance framework. This Statement outlines
how Cadogan Energy Solutions plc (“Cadogan” or the “Company”) has
applied the relevant principles of the Code and complied with its
provisions.
This Statement outlines how Cadogan Energy Solutions plc
(“Cadogan” or the “Company”) has applied the relevant principles of
the Code and complied with its provisions.
During the year under review, the Company complied with all the
provisions of the Code, other than the exceptions noted below or
elsewhere in this statement:
· Provision 5 (Workforce Engagement): Given
the size of the business, the Board does not consider it
appropriate to adopt the suggested methods outlined within the UK
Corporate Governance Code 2018 to engage with its employees given
the size of the Company. Employee engagement continues to be
undertaken by senior management and any issues are escalated to the
Board through the Chief Executive Officer. The Board believes that
the arrangements in place are effective but will continue to keep
this under review.
· Provision 9 (regarding the independence
criteria of the Chair on appointment): Under the 2018 Corporate
Governance Code, the Company’s Chair, Mr Michel Meeùs, is not considered to be
independent given the size of his shareholding in the Company.
Despite this, the Board considers Mr Meeùs to be independent in
character, mindset and judgement.
· Provision 21 (Board Evaluation): Given the
size of the Board it was felt that a board evaluation would not
provide added value however the Board will continue to assess this
provision periodically.
· Provision 24 (Audit Committee Composition):
Given the size of the Board, the Audit Committee does not totally
consist of independent non-executive directors. Ms Lilia Jolibois, Independent non-executive
director, chairs the Audit Committee whilst Mr Jacques Mahaux, non-executive director, is a
member of the Audit Committee.
· Provision 32 (Remuneration Committee
Composition): Given the size of the Board, the Remuneration
Committee does not totally consist of independent non-executive
directors. The Remuneration Committee consists of Mr Michel Meeùs, Ms. Lilia
Jolibois, Mr Jacques Mahaux
and Mr Gilbert Lehmann.
Board Leadership and Company
Purpose
The Board provides leadership and oversight, and its role is to
ensure the long-term success of the Company by implementing the
Company’s strategy and business plan, overseeing its affairs, and
providing constructive challenge to management as they do this. In
addition to this, the Board oversees financial matters, governance,
internal controls and risk management. The purpose of the Board is
to:
· monitor Group activities to see that
sustainable value is being created;
· evaluate business strategies and monitor
their implementation;
· monitor and review the performance of
management;
· provide accountability to shareholders
through appropriate reporting and regulatory compliance;
· understand and ensure the management of
operational business and financial risks to which the Group is
exposed; and
· ensure that the financial controls and
systems of risk management are robust and defensible
The Board comprises a Non-Independent non-executive Chairman,
Chief Executive Officer, two Independent Non-Executive Directors
and a non-executive Director. The Board has appointed Mr Lehmann as
the Senior Independent Director.
The biographical details for each of the Directors and their
membership of Committees are incorporated into this report by
reference and appear on pages 23 to 24.
The formal schedule of matters reserved for the Board’s decision
is available on the Company’s website.
The Board recognises the importance of building strong
relationships with stakeholders and understanding their views in
order to help the Company deliver its strategy and promote the
development of the business over the long-term. The Board is
committed to having effective engagement with its stakeholders. Our
section 172 statement can be found on pages 35 to 36 which
summarises the Board’s engagement with the Company’s main
stakeholders and some examples of how their views have been taken
into account in the Board’s decision-making.
The Company seeks to ensure that it always acts lawfully,
ethically and with integrity. The Company has in place the
following policies which the Board reviews periodically:
· Code of Business Conduct and Ethics
· Anti-Bribery Policy
· Share Dealing Code
· Disclosure Policy
· Health, Safety and Environmental
policies.
The Company has procedures in place for managing conflicts of
interest. Should a director become aware that they, or any of their
connected parties, have an interest in an existing or proposed
transaction with the Company, its subsidiaries or any matters to be
discussed at meetings, they are required to formally notify the
Board in writing or at the next Board meeting. In accordance with
the Companies Act 2006 and the Company’s Articles of Association,
the Board may authorize any potential or actual conflict of
interest that may otherwise involve any of the directors breaching
his or her duty to avoid conflicts of interest. All potential and
actual conflicts approved by the Board are recorded in register of
conflicts, which is reviewed by the Board at each Board
meeting.
Directors’ declarations of interests is a regular Board agenda
item. A register of directors’ interests (including any actual or
potential conflicts of interest) is maintained and reviewed
regularly to ensure all details are kept up to date. Authorisation
is sought prior to a director taking on a new appointment or if any
new conflicts or potential conflicts arise. New Directors are
required to declare any conflicts, or potential conflicts, of
interest to the Board at the first Board meeting after his or her
appointment. The Board believes that the procedures established to
deal with conflicts of interest are operating effectively.
Division of Responsibilities
The Directors possess a wide range of skills, knowledge and
experience relevant to the strategy of the Company, including
financial, legal, governance, regulatory and industry experience as
well as the ability to provide constructive challenge to the views
and actions of executive management in meeting agreed strategic
goals and objectives.
The roles and responsibilities of the Chairman and Chief
Executive Officer are separate with a clear and formal division of
each individual’s responsibilities, which has been agreed and
documented by the Board.
The Non-Executive Directors bring an independent view to the
Board’s discussions and the development of its strategy. Their
range of experience ensures that management’s performance in
achieving the business goals are challenged appropriately. Two
Non-Executive Directors, Ms Lilia
Jolibois, and Mr Gilbert
Lehmann are considered by the Board to be independent. Mr
Gilbert Lehmann, Senior Independent
non-executive Director, has served on the Board for longer than 9
years since his appointment, the board is of the view that he
retains his independent judgement and continues to make a valuable
contribution to the board.
Mr Michel Meeus, who is a
significant shareholder and Mr Jacques
Mahaux are not considered independent as defined within the
UK Corporate Governance Code 2018, however the Board believes they
are independent in character and judgement and free from
relationships or circumstances that could affect their
judgement.
The Board has access to the advice of the company secretary.
Composition, Succession and
Evaluation
The Company has established a nomination committee which leads
the process for Board appointments by identifying and nominating
candidates for the approval of the Board to fill Board vacancies
and making recommendations to the Board on Board’s composition and
balance. The Company’s Nomination Committee Report can be found on
page 41.
Under the Company’s Articles of Association, all Directors must
seek re-election by members at least once every three years.
However, the Board has agreed that all Directors will be subject to
annual election by shareholders in line with Corporate Governance
best practice. Accordingly, all members of the Board will be
standing for re-election at the 2023 Annual General Meeting due to
be held on 23rd June
2023.
All Directors continue to be effective and have sufficient time
available to perform their duties. The letters of appointment for
the Non-Executive Directors are available for review at the
Registered Office and prior to the Annual General Meeting. Each of
the Non-Executive Directors independently ensures that they update
their skills and knowledge sufficiently to enable them to fulfil
their duties appropriately.
The Chairman, in conjunction with the Company Secretary, plans
the programme for the Board during the year. While no formal
structured continuing professional development program has been
established for the non-executive Directors, every effort is made
to ensure that they are fully briefed before Board meetings on the
Company’s business. The agenda for Board and Committee meetings are
considered by the relevant Chairman and issued with supporting
papers during the week preceding the meeting. For each Board
meeting, the Directors receive a Board pack including management
accounts, briefing papers on commercial and operational matters and
major capital projects including acquisitions. The Board also
receives briefings from key management on specific issues.
Audit, Risk and Internal Control
The Board has delegated certain responsibilities to its
committees including its audit committee. The Company’s Audit
Committee Report can be found on pages 37 to 38.
The role of the Audit Committee is to monitor the integrity of
the Company’s financial reporting, to review the Company’s internal
control and risk management systems and to oversee the relationship
with the Group’s external auditors. The Audit Committee focuses
particularly on compliance with legal requirements, accounting
standards and the rules of the Financial Services Authority. The
Audit Committee will meet at least three times a year with further
meetings that are determined by the committee. Any member of the
committee or the external auditors may request any additional
meetings they consider necessary.
The Directors are responsible for the Group’s system of internal
control and for maintaining and reviewing its effectiveness. The
Group’s systems and controls are designed to safeguard the Group’s
assets and to ensure the reliability of information used both
within the business and for publication. The Board has delegated
responsibility for the monitoring and review of the Group’s
internal controls to the Audit Committee.
Systems are designed to manage, rather than eliminate the risk
of failure to achieve business objectives and can provide only
reasonable, and not absolute assurance against material
misstatement or loss.
The key features of the Group’s internal control and risk
management systems that ensure the accuracy and reliability of
financial reporting include clearly defined lines of accountability
and delegation of authority, policies and procedures that cover
financial planning and reporting, preparing consolidated financial
statements, capital expenditure, project governance and information
security.
The key features of the internal control systems, which operated
during 2022 and up to the date of signing the Financial Statements
are documented in the Group’s Corporate Governance Policy Manual
and Finance Manual. These manuals and policies have been circulated
and adopted throughout the Group throughout the period.
Day-to-day responsibility for the management and operations of
the business has been delegated to the Chief Executive Officer and
senior management. Certain specific administrative functions are
controlled centrally. Taxation and treasury functions report to the
Group Director of Finance who reports directly to the Chief
Executive Officer.
The legal function for Ukraine’s related assets and activities
is managed by the General Counsel, who reports to the General
Director of Cadogan Ukraine. The Health, Safety and Environment
functions report to the Chairman of the HSE Committee, the HSE
Committee Report can be found on pages 39 to 40. The Group does not
have an internal audit function. Due to the small scale of the
Group’s operations at present, the Board does not feel that it is
appropriate or economically viable to have an internal audit
function in place, however this will be kept under review by the
Audit Committee on an annual basis.
The Board has reviewed internal controls and risk management
processes, in place from the start of the year to the date of
approval of this report. During the course of its review the Board
did not identify nor were advised of any failings or weaknesses
which it has deemed to be significant.
A summary of the principal risks facing the Company and the
mitigating actions in place are contained on pages 14 to 18 of the
annual report.
The Company’s going concern is contained on pages 27 to 28 of
the annual report.
Further information on the work undertaken by the Committee
during the year can be found on pages 37 to 38 of the annual
report.
Remuneration
The Board has established a Remuneration Committee and the
Company’s Remuneration Committee Report can be found on pages 43 to
63 of the annual report.
The role of the Remuneration Committee is to determine and agree
with the Board the broad policy for the remuneration of executives
and Senior Managers as designated, as well as for setting the
specific remuneration packages, including pension rights and any
compensation payments of all executive Directors and the Chairman.
The Company’s remuneration policies and practices are designed to
support its long-term strategy and promote the long-term
sustainable success of the Company.
Attendance at Meetings
Six Board meetings took place during 2022. The attendance of
those Directors in place at the year end at Board and Committee
meetings during the year was as follows:
|
Board |
Audit
Committee |
Nomination
Committee |
Remuneration
Committee |
No. Held |
6 |
2 |
0 * |
1 |
No. Attended: |
|
|
|
|
M Meeus |
6 |
n/a |
0 |
1 |
F Khallouf |
6 |
n/a |
n/a |
n/a |
L Jolibois |
6 |
2 |
0 |
1 |
G Lehmann |
6 |
n/a |
0 |
1 |
J Mahaux |
6 |
2 |
0 |
1 |
*There was no meeting of the Nomination Committee held during
2022.
Responsibilities and membership of
Board Committees
The Board has agreed written terms of reference for the
Nomination Committee, Remuneration Committee, Audit Committee and
HSE committee. The terms of reference for the Board Committees are
published on the Company’s website, www.cadoganenergysolutions.com,
and are also available from the Company Secretary at the Registered
Office. A review of the Committees including their membership and
activities of all Board Committees is provided on pages 37 to
42.
Relations with shareholders
The Chairman and Executive Directors of the Company have a
regular dialogue with analysts and substantial shareholders. The
outcome of these discussions is reported to the Board at quarterly
meetings and discussed in detail. Mr Lehmann, as the Senior
Independent Director, is available to meet with shareholders who
have questions that they feel would be inappropriate to raise via
the Chairman or Executive Directors.
The Annual General Meeting is used as an opportunity to
communicate with all shareholders. In addition, financial results
are posted on the Company’s website,
www.cadoganenergysolutions.com, as soon as they are announced. The
Notice of the Annual General Meeting is also contained on the
Company’s website, www.cadoganenergysolutions.com. It is intended
that the Chairmen of the Nomination, Audit and Remuneration
Committees will be present at the Annual General Meeting. The
results of all resolutions will be published on the Company’s
website, www.cadoganenergysolutions.com.
Directors’ section 172 statement
The disclosure describes how the Directors have regard to the
matters set out in section 172(1)(a) to (f) and forms the
Directors’ statement required under section 414CZA of The Companies
Act 2006. This new reporting requirement is made in accordance with
the new corporate governance requirements identified in The
Companies (Miscellaneous Reporting) Regulations 2018.
The matters set out in section 172(1) (a) to (f) are that a
Director must act in the way they consider, in good faith, would be
most likely to promote the success of the Company for the benefit
of its members as a whole, and in doing so have regard (amongst
other matters) to:
(a) the likely consequences of any decision in the long
term;
(b) the interests of the Company’s employees;
(c) the need to foster the Company’s business relationships with
suppliers, customers and others;
(d) the impact of the Company’s operations on the community and
the environment;
(e) the desirability of the Company maintaining a reputation for
high standards of business conduct; and
(f) the need to act fairly between members of the Company.
Being sustainable in our activities means conducting our
business with respect for the environment and for the communities
hosting us, with the aim of increasing the benefit and value to our
stakeholders. We recognize that this is a key element to be
competitive and to maintain our licence to operate.
Further details of how the Directors have regard to the issues,
factors and stakeholders considered relevant in complying with S
172 (1) (a)-(f), the methods used to engage with stakeholders and
the effect on the Group’s decision making can be found throughout
the annual report and in particular pages 34 (which outlines how
the Company engages with its stakeholders), pages 20 to 22 (which
contains Cadogan’s corporate responsibility statement) pages 28 to
30 (which contains the Company’s report on greenhouse gas
emissions) and page 35 (which outlines the ways in which the
Company engages with its shareholders).
The Group has implemented an integrated HSE management system
aiming to ensure a safe and environmentally friendly culture in the
organization (pages 20 to 22). However, regarding the environmental
sustainability of the Group’s activities, the Directors are fully
aware of the need to direct future development in new activities
with a lower impact on environment (CEO outlook page 9, 28).
When assessing the Proger Loan, the Directors carefully
considered the issues and decisions with their impact on the Group
and all its stakeholders (pages 8, 9, 16, 17).
The Board has a formal schedule of matters specifically reserved
for its decision, including approval of acquisitions and disposals,
major capital projects, financial results, Board appointments,
dividend recommendations, material contracts and Group strategy.
For each Board meeting, the Directors receive a Board pack
including management accounts, briefing papers on commercial and
operational matters and major capital projects including
acquisitions. The Board also receives briefings from key management
on specific issues.
In particular, as a consequence of the invasion of Ukraine by Russia in February
2022, and the war situation prevailing in Ukraine the Board discussed the current
situation and its consequences on the security of the employees,
the organization of the operations in Ukraine and the potential impacts on its
human, financial and operational assets. The Group has been able to
implement immediately emergency procedures with safety and
protection measures communicated to all employees and put in place
for every location. Specific measures have been put in place for
the operations on site to ensure the human, the industrial and the
environmental safety. The Group is monitoring the situation daily
and taking appropriate action to ensure the safety and essential
needs of its employees.
Board Committee Reports
Audit Committee Report
The Audit Committee is appointed by the Board, on the
recommendation of the Nomination Committee, from the Non-Executive
Directors of the Group. The Audit Committee’s terms of reference
are reviewed annually by the Audit Committee and any changes are
then referred to the Board for approval. The terms of reference of
the Committee are published on the Company’s website,
www.cadoganenergysolutions.com, and are also available from the
Company Secretary at the Registered Office. Two members constitute
a quorum.
Responsibilities
§ To monitor the integrity of the annual and interim financial
statements, the accompanying reports to shareholders, and
announcements regarding the Group’s results;
§ To review and monitor the effectiveness and integrity of the
Group’s financial reporting and internal financial controls;
§ To review the effectiveness of the process for identifying,
assessing and reporting all significant business risks and the
management of those risks by the Group;
§ To oversee the Group’s relations with the external auditor and
to make recommendations to the Board, for approval by shareholders,
on the appointment and removal of the external auditor;
§ To consider whether an internal audit function is appropriate
to enable the Audit Committee to meet its objectives; and
§ To review the Group’s arrangements by which staff of the Group
may, in confidence, raise concerns about possible improprieties in
matters of financial reporting or other matters.
Governance
Ms Jolibois and Mr Mahaux are both members of the Audit
Committee. The Audit Committee is chaired by Ms Jolibois who had
relevant financial experience within a major European company as
well as holding several non-executive roles in major international
entities.
At the invitation of the Audit Committee, the Group Director of
Finance and external auditor regularly attend meetings. The Company
Secretary attends all meetings of the Audit Committee.
The Audit Committee also meets the external auditor without
management being present.
Activities of the Audit Committee
During the year, the Audit Committee discharged its
responsibilities as follows:
Assessment of the effectiveness of the
external auditor
The Committee has assessed the effectiveness of the external
audit process. They did this by:
§ Reviewing the 2022 external audit plan;
§ Discussing the results of the audit including the auditor’s
views on material accounting issues and key judgements and
estimates, and their audit report;
§ Considering the robustness of the audit process;
§ Reviewing the quality of the service and people provided to
undertake the audit; and
§ Considering their independence and objectivity.
Financial statements
The Audit Committee examined the Group’s consolidated and
Company’s financial statements and, prior to recommending them to
the Board, considered:
· the appropriateness of the accounting
policies adopted;
· reviewed critical judgements, estimates and
underlying assumptions; and
· assessed whether the financial statements
are fair, balanced and understandable.
Going concern
After making enquiries and considering the uncertainties
described on pages 14 to 18, the Committee has a reasonable
expectation that the Company and the Group has adequate resources
to continue in operational existence for the foreseeable future and
consider the going concern basis of accounting to be appropriate.
For further detail including the assessment of the impact of
Covid-19 and the basis for the conclusion, please refer to the
detailed discussion of the assumptions outlined in note 3 (b) to
the Consolidated Financial Statements.
Internal controls and risk
management
The Audit Committee reviews and monitors financial and control
issues throughout the Group including the Group’s key risks and the
approach for dealing with them. Further information on the risks
and uncertainties facing the Group are detailed on pages 100 to 103
and in note 27 to the financial statements.
External auditor
The Audit Committee is responsible for recommending to the
Board, for approval by the shareholders, the appointment of the
external auditor.
The Audit Committee considers the scope and materiality for the
audit work, approves the audit fee, and reviews the results of the
external auditor’s work. Following the conclusion of each year’s
audit, it considers the effectiveness of the external auditor
during the process. An assessment of the effectiveness of the audit
process was made, considering reports from the auditor on its
internal quality procedures. The Committee reviewed and approved
the terms and scope of the audit engagement, the audit plan and the
results of the audit with the external auditor, including the scope
of services associated with audit-related regulatory reporting
services. Additionally, auditor independence and objectivity were
assessed, considering the auditor’s confirmation that its
independence is not impaired, the overall extent of non-audit
services provided by the external auditor and the past service of
the auditor.
A breakdown of the non-audit fees is disclosed in note 11 to the
Consolidated Financial Statements. The Audit Committee has reviewed
the nature, level and timing of these services in the course of the
year and is confident that the objectivity and independence of the
auditor are not impaired by the reason of such non-audit work.
Internal audit
The Audit Committee considers annually the need for an internal
audit function and believes that, due to the size of the Group and
its current stage of development, an internal audit function will
be of little benefit to the Group.
Whistleblowing
The Group’s whistleblowing policy encourages employees to report
suspected wrongdoing and sets out the procedures employees must
follow when raising concerns. The policy, which was implemented
during 2008 is reviewed periodically. The Group’s policies on
anti-bribery, the acceptance of gifts and hospitality, and business
conduct and ethics are circulated to staff as part of a combined
manual on induction with changes regularly communicated.
Overview
As a result of its work during the year, the Audit Committee has
concluded that it has acted in accordance with its terms of
reference and has ensured the independence and objectivity of the
external auditor.
The Chairman of the Audit Committee will be available at the
Annual General Meeting to answer any questions about the work of
the Audit Committee.
Lilia Jolibois
Chairman of the Audit Committee
27 April 2023
Health, Safety and Environment
Committee Report
The Health, Safety and Environment Committee (the ”HSE
Committee”) is appointed by the Board, on the recommendation of the
Nomination Committee. The HSE Committee’s terms of reference are
reviewed annually by the Committee and any changes are then
referred to the Board for approval. The terms of reference of the
Committee are published on the Company’s website,
www.cadoganenergysolutions.com, and are also available from the
Company Secretary at the Registered Office. Two members constitute
a quorum, one of whom must be a Director.
Governance
The Committee is chaired by Mr Andrey Bilyi (Cadogan
Ukraine General Director) as acting Head of the HSE Committee and
its other member is Ms Snizhana Buryak (HSE Manager). The CEO
attends meetings of the HSE Committee as necessary. During 2022,
the HSE Committee held four meetings to monitor the HSE risks and
activities across the business, following which actions were
identified for the continuous improvement of the various processes
and the mitigation of risk.
Responsibilities
· To regularly maintain and implement the
continuous improvement of the HSE Management System with the aim of
improving the Company’s performances;
· To manage and mitigate the risks of
personnel infection with covid-19 virus. Work-out respective
administrative and healthcare measures to provide safe working
conditions for the employees. Prevent the spread of covid-19 as
well as ensuring staff reasonable vaccination level.
· Assessments of the risks to employees,
contractors, customers, partners, and any other people who could be
affected by the Company’s activities with the aim of reducing the
global risk of the Company and increasing its level of
acceptability;
· Evaluate the effectiveness of the Group’s
policies and systems for identifying and managing health, safety
and environmental risks within the Group’s operation;
· Assess the policies and systems within the
Group for ensuring compliance with health, safety and environmental
regulatory requirements;
· Assess the performance of the Group with
regard to the impact of health, safety, environmental and community
relations decisions and actions upon employees, communities and
other third parties and also assess the impact of such decisions
and actions on the reputation of the Group and make recommendations
to the Board on areas for improvement;
· On behalf of the Board, receive reports from
management concerning any fatalities and serious accidents within
the Group and actions taken by management as a result of such
fatalities or serious accidents;
· Evaluate and oversee, on behalf of the
Board, the quality and integrity of any reporting to external
stakeholders concerning health, safety, environmental and community
relations issues; and
· Where it deems it appropriate to do so,
appoint an independent auditor to review performance with regard to
health, safety, environmental and community relations matters and
review any strategies and action plans developed by management in
response to issues raised and, where appropriate, make
recommendations to the Board concerning the same.
Activities of the Health, Safety and
Environment Committee
The HSE Committee in discharging its duties reviewed and
considered the following:
· Company activities execution and control
over contractors services execution in line with company policies
and HSE procedures
· Monthly statistics and reports on the
activity were regularly distributed to the CEO, Management and to
the members of the committee;
· Ensured that the implementation of new
legislation and requirements were punctually followed-up and
promptly updated;
· Compliance with HSE regulatory requirements
was ensured through discussion of the results of inspections, both
internal inspections and those carried out by the Authorities. The
results of the inspections and drills were analysed and commented
to assess the need for corrective actions and/or training
initiatives;
· A standing item was included on the agenda
at every meeting to monitor monthly HSE performance, key indicators
and statistics allowing the HSE Committee to assess the Company’s
performance by analysing any lost-time incidents, near misses, HSE
training and other indicators;
· Interaction with contractors, Authorities,
local communities and other stakeholders were discussed among other
HSE activities;
· Compliance to ISO 14001 and ISO 45001 has
been proved by the authorized third party auditor. Also the Company
had its entire data calculation process as well as emissions
measurement system re-validated by a different independent
third party.
· Ensuring all the Observation and Actions
requested by the Certification Body have been implemented
Overview
The Company’s HSE Management System and the Guidelines and
Procedures have been updated to fit with the ISO requirements and
are adequate for the proper execution of the Company’s
operations.
As a result of its work during the year, the HSE Committee has
concluded that it has acted in accordance with its terms of
reference.
Nomination Committee Report
The Board delegates some of its duties to the Nomination
Committee and appoints the members of the Nomination Committee
which are non-executive Directors of the Group. The membership of
the Committee is reviewed annually and any changes to its
composition are referred to the Board for approval. The terms of
reference of the Nomination Committee are published on the
Company’s website, www.cadoganenergysolutions.com, and are
available from the Company Secretary at the Registered Office. Two
members constitute a quorum.
Governance
Mr. Michel Meeus (Remuneration
and Nomination Committee Chairman), Ms. Lilia Jolibois, Mr. Jacques Mahaux and Mr. Gilbert Lehmann (Non-Executive Directors) are
the members of the Nomination Committee. The Company Secretary
attends all meetings of the Nomination Committee.
Responsibilities
· To regularly review the structure, size and
composition (including the skills, knowledge and experience)
required of the Board compared to its current position and make
recommendations to the Board with regard to any changes;
· Be responsible for identifying and
nominating candidates to fill Board vacancies as and when they
arise, for the Board’s approval;
· Before appointments are made by the Board,
evaluate the balance of skills, knowledge, experience and diversity
(gender, ethnic, age, sex, disability, educational and professional
backgrounds, etc.) on the Board and, in the light of this
evaluation, prepare a description of the role and capabilities
required for a particular appointment; and
· In identifying suitable candidates, the
Nomination Committee shall use open advertising or the services of
external advisers to facilitate the search and consider candidates
from a wide range of backgrounds on merit, ensuring that appointees
have enough time available to devote to the position.
The Nomination Committee shall also make recommendations to the
Board concerning:
· Formulating plans for succession for both
executive and non-executive Directors and in particular for the key
roles of Chairman and Chief Executive Officer;
· Membership of the Audit and Remuneration
Committees, in consultation with the Chairmen of those
committees;
· The reappointment of any non-executive
Director at the conclusion of their specified term of office,
having given due regard to their performance and ability to
continue to contribute to the Board in the light of the knowledge,
skills and experience required; and
· The re-election by shareholders of any
Director having due regard to their performance and ability to
continue to contribute to the Board in the light of the knowledge,
skills and experience required.
Any matters relating to the continuation in office of any
Director at any time including the suspension or termination of
service of an executive Director as an employee of the Company
subject to the provisions of the law and their service
contract.
Michel Meeus
Nomination Committee Chairman
27 April 2023
Remuneration Committee
Statement from the Chairman
I am pleased to present the Annual Report on Remuneration for
the year ended 31 December 2022.
Cadogan’s Remuneration Policy was approved as proposed by the
shareholders at the Annual General Meeting of June 25, 2021 and is attached at the end of the
Annual Report on Remuneration. The Remuneration Committee is not
proposing to make any changes to the existing Policy however in
line with industry best practice and the three-year Policy cycle
the Company will be seeking shareholder approval at this year’s
AGM.
The key elements of the Remuneration Policy are:
· A better long-term alignment of the
executives’ remuneration with the interests of the
shareholders;
· A material reduction in the maximum
remuneration level for the Executive Directors, both in terms of
annual bonus and of long-term incentive (performance share
plan);
· The payment of at least 50% of the Annual
Bonus in shares with the remaining 50% to be paid in cash or shares
at the discretion of the Remuneration Committee. Shares will be
priced for this award based on their market value at closing on the
Business Day prior to the Subscription Date;
· The introduction of claw-back and
malus provisions on both bonuses and share awards; and
· The expectation that the Executive Directors
build a substantial shareholding position in the company through
their mandate.
Michel Meeus
Chairman of the Remuneration Committee
27 April 2023
ANNUAL REPORT ON REMUNERATION 2022
Remuneration Committee Report
The Remuneration Committee is committed to principles of
accountability and transparency to ensure that remuneration
arrangements demonstrate a clear link between reward and
performance.
Governance
The Remuneration Committee is appointed by the Board from the
non-executive Directors of the Company. The Remuneration
Committee’s terms of reference are reviewed annually by the
Remuneration Committee and any changes are then referred to the
Board for approval. The terms of reference of the Remuneration
Committee are published on the Company’s website,
www.cadoganenergysolutions.com, and are also available from the
Company Secretary at the Registered Office.
The Remuneration Committee consists of Mr. Michel Meeus, Ms. Lilia
Jolibois, Mr. Jacques Mahaux
and Mr. Gilbert Lehmann. At the
discretion of the Remuneration Committee, the Chief Executive
Officer is invited to attend meetings when appropriate but is not
present when his own remuneration is being discussed. None of the
directors are involved in deciding their own remuneration. The
Company Secretary attends the meetings of the Remuneration
Committee.
Responsibilities
In summary, the Remuneration Committee’s responsibilities, as
set out in its terms of reference, are as follows:
§ To determine and agree with the Board the policy for the
remuneration of the executive Directors, the Company Secretary and
other members of executive management as appropriate;
§ To consider the design, award levels, performance measures and
targets for any annual or long-term incentives and approve any
payments made and awards vesting under such schemes;
§ Within the terms of the agreed remuneration policy, to
determine the total individual remuneration package of each
executive Director and other senior executives including bonuses,
incentive payments and share options or other share awards; and
§ To ensure that contractual terms on termination, and any
payments made, are fair to the individual and the Company, that
failure is not rewarded and that the duty to mitigate loss is fully
recognised.
Overview
The Chairman and Executive Directors of the Company have a
regular dialogue with analysts and substantial shareholders, which
includes the subject of Directors’ Remuneration. The outcome of
these discussions is reported to the Board and discussed in detail
both there and during meetings of the Remuneration Committee.
As a result of its work during the year, the Remuneration
Committee has concluded that it has acted in accordance with its
terms of reference. The chairman of the Remuneration Committee will
be available at the Annual General Meeting to answer any questions
about the work of the Committee.
Remuneration consultants
The Remuneration Committee did not take any advice from external
remuneration consultants, with the exception of the review
undertaken of the Remuneration Report.
Single total figure of remuneration
for executive and non-executive directors (audited)
|
Salary
and fees |
Taxable benefit[5] |
Contributions to pension schemes |
Annual
bonus |
Total |
|
$ |
$ |
$ |
$ |
$ |
Executive Director |
|
|
|
|
|
|
|
|
|
2022 |
2021 |
2022 |
2021 |
2022 |
2021 |
2022 |
2021 |
2022 |
2021 |
F Khallouf |
479,720 |
519,926 |
29,486 |
30,173 |
75,035 |
78,619 |
- |
- |
584,241 |
628,717 |
Non-executive Directors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
M Meeus |
89,000 |
89,000 |
- |
- |
- |
- |
- |
- |
89,000 |
89,000 |
L Jolibois |
48,000 |
48,000 |
- |
- |
- |
- |
- |
- |
48,000 |
48,000 |
J Mahaux |
43,000 |
43,000 |
- |
- |
- |
- |
- |
- |
43,000 |
43,000 |
G Lehmann |
38,000 |
38,000 |
- |
- |
- |
- |
- |
- |
38,000 |
38,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Fixed Remuneration |
Total
Variable Remuneration |
|
$ |
$ |
|
2022 |
2021 |
2022 |
2021 |
Executive Director |
584,241 |
628,717 |
- |
- |
Non-executive Directors |
218,000 |
218,000 |
- |
- |
Notes to the table
Mr Fady Khallouf
Mr Khallouf was appointed as Chief Executive Officer on
15 November 2019. Mr Khallouf’s
salary is €440,000 per annum.
KPIs
The CEO is subject to a performance-related, bonus scheme
built around a scorecard with a set of challenging KPI’s aligned
with the company strategy. Given the current situation in
Ukraine and any potential future
difficulties for the Company Mr Fady Khallouf had requested that
any annual performance related bonus to be considered and paid by
the Remuneration Committee during 2023, in respect of the financial
year ended 31st December
2022, be waived.
Benefits
Benefits may be provided to the executive directors, in the form
of private medical insurance and life assurance.
The Chairman and Non-Executive
Directors
As mentioned above, fees for non-Executive Directors were
reduced by 20 percent on 15th January 2020 with effect from 15th
November 2019. The fees are as
follows: the Chairman’s fee at $89,000 and the fee for acting as a non-executive
Director at $38,000 with an
additional $10,000 for acting as
Chairman of the Audit Committee and an additional $5,000 for a committee membership.
Scheme interests awarded during the
financial year (audited)
There were no scheme interests awarded during the year.
Payments to past directors
(audited)
In 2022 there were no payments to past directors.
Payments for loss of office
(audited)
No notice period was either worked or paid.
Directors’ interests in shares
(audited)
The beneficial interests of the Directors in office as at
31 December 2022 and their connected
persons in the Ordinary shares of the Company at 31 December 2022 are set out below.
Shares as at 31 December |
|
2022 |
2021 |
Michel Meeus |
|
26,000,000 |
26,000,000 |
Fady Khallouf |
|
10,425,455 |
10,425,455 |
Gilbert Lehmann |
|
- |
- |
Lilia Jolibois |
|
- |
- |
Jacques Mahaux |
|
- |
- |
There were no changes in the Directors shareholding at
31 December 2022 compared to
31 December 2021.
The Company does not currently operate formal shareholding
guidelines. Whilst there is no specified level, the Company expects
that under the new Remuneration Policy, the Executive Director will
continue to build up a significant shareholding position in the
Company during his mandate.
The Company’s performance
The graph below highlights the Company’s total shareholder
return (“TSR”) performance for the last twelve years compared to
the FTSE All Share Oil & Gas Producers index. This index has
been selected on the basis that it represents a sector specific
group, which is an appropriate group for the Company to compare
itself against, and has been retained ever since, primarily for
continuity purposes TSR is the return from a share or index based
on share price movements and notional reinvestment of declared
dividends.
Historic Remuneration of Chief
Executive
|
Salary |
Taxable
benefits |
Annual
bonus |
Long-term
incentives |
Pension |
Loss of
office |
Total |
|
$ |
$ |
$ |
$ |
$ |
$ |
$ |
2009 |
422,533 |
- |
284,552 |
- |
- |
- |
707,085 |
2010 |
547,067 |
- |
- |
- |
- |
- |
547,067 |
2011 |
669,185 |
- |
- |
- |
- |
- |
669,185 |
2012 |
511,459 |
- |
- |
- |
31,966 |
126,808 |
670,233 |
2013 |
384,941 |
- |
- |
- |
- |
- |
384,941 |
2014 |
405,433 |
20,734 |
- |
- |
- |
- |
426,167 |
2015 |
432,409[6] |
15,987 |
243,132 |
- |
- |
- |
691,528 |
2016 |
487,080 |
15,353 |
210,504[7] |
- |
- |
- |
712,937 |
2017 |
497,288 |
27,273 |
126,992 |
- |
- |
- |
651,553 |
2018 |
521,664 |
39,838 |
201,872 |
- |
- |
- |
763,374 |
2019 |
492,581 |
45,453 |
495,109[8] |
- |
- |
- |
1,033,143 |
2020 |
517,389 |
59,294 |
- |
- |
58,300 |
- |
634,983 |
2021 |
535,999 |
30,173 |
- |
- |
78,619 |
- |
644,791 |
2022 |
479,720 |
29,486 |
- |
- |
75,035 |
- |
584,241 |
In 2022, the Remuneration Committee, after consultation with the
CEO, have decided to postpone any variable performance related
bonus for year ended 2022 given the impact of Covid-19 and
volatility in oil and gas prices.
The annual bonus received by the CEO as a percentage of the
maximum opportunity is presented in the following table.
Year |
CEO |
CEO single figure
of total remuneration $ |
Annual bonus
pay-out against maximum opportunity % |
2022 |
Mr. Khallouf |
584,241 |
- |
2021 |
Mr. Khallouf |
644,791 |
- |
2020 |
Mr. Khallouf |
634,983 |
- |
2019 |
Mr.
Khallouf[9] |
444,465 |
- |
|
Mr. Michelotti |
588,678 |
10 |
2018 |
Mr. Michelotti |
763,374 |
32 |
2017 |
Mr. Michelotti |
651,553 |
12 |
2016 |
Mr. Michelotti |
712,937 |
22[10] |
2015 |
Mr. Michelotti |
502,021 |
27[11] |
Mr. des Pallieres |
189,507 |
- |
2014 |
Mr. des Pallieres |
426,167 |
- |
2013 |
Mr. des Pallieres |
384,941 |
- |
2012 |
Mr. des Pallieres |
389,935 |
- |
Mr. Barron |
280,298[12] |
- |
2011 |
Mr. des
Pallieres[13] |
273,201 |
- |
Mr. Barron |
395,984 |
- |
2010 |
Mr. Barron |
547,067 |
- |
2009 |
Mr.
Barron[14] |
707,085 |
67 |
Percentage change in the remuneration
of the Chief Executive
The following table shows the percentage change in the
remuneration of the Chief Executive in 2022 and 2021 compared to
that of all employees within the Group.
|
|
|
|
|
2022 |
2021 |
Average |
|
|
|
|
|
$’000 |
$’000 |
change, % |
Base
salary |
CEO |
|
480 |
536 |
-8% |
|
|
|
All
employees[1] |
1,897 |
1,978 |
-4% |
Taxable
benefits |
CEO |
|
104 |
108 |
-3% |
|
|
|
All
employees |
125 |
126 |
-1% |
Annual
Bonus |
CEO |
|
- |
- |
- |
|
|
|
All
employees |
- |
- |
- |
Total |
|
|
CEO |
584 |
628 |
-7% |
|
|
|
All
employees |
2,022 |
2,104 |
-4% |
[1] All employees mean all employees of the Group, including CEO
and other Directors (note 12, page 92).
In 2022 none of the directors participated in long-term
incentives.
In 2022 there was no increase in executive and non-executive
directors' salary in base currency. The difference in pay
represents the change in exchange rate between the base currency
and USD as a reporting currency.
Percentage change in Non-Executive
director remuneration
|
Michel
Meeus |
All
employees |
|
2022
$’000 |
2021
$’000 |
%
change
2022 - 2021 |
%
change
2022 – 2021 |
Base salary/fees |
89,000 |
89,000 |
- |
-4% |
Taxable benefits (including
pensions) |
- |
- |
- |
-1% |
Annual bonus |
- |
- |
- |
0% |
Total |
89,000 |
89,000 |
- |
-4% |
|
Lilia
Jolibois |
All
employees |
|
2022
$’000 |
2021
$’000 |
%
change
2022 - 2021 |
%
change
2022 - 2021 |
Base salary/fees |
48,000 |
48,000 |
- |
-4% |
Taxable benefits (including
pensions) |
- |
- |
- |
-1% |
Annual bonus |
- |
- |
- |
0% |
Total |
48,000 |
48,000 |
- |
-4% |
|
Jacques Mahaux |
All
employees |
|
2022
$’000 |
2021
$’000 |
%
change
2022 - 2021 |
%
change
2022 - 2021 |
Base salary/fees |
43,000 |
43,000 |
- |
-4% |
Taxable benefits (including
pensions) |
- |
- |
- |
-1% |
Annual bonus |
- |
- |
- |
0% |
Total |
43,000 |
43,000 |
- |
-4% |
|
Gilbert Lehmann |
All
employees |
|
2022
$’000 |
2021
$’000 |
%
change
2022 - 2021 |
%
change
2022 - 2021 |
Base salary/fees |
38,000 |
38,000 |
- |
-4% |
Taxable benefits (including
pensions) |
- |
- |
- |
-1% |
Annual bonus |
- |
- |
- |
0% |
Total |
38,000 |
38,000 |
- |
-4% |
Relative importance of spend on
pay
The table below compares shareholder distributions (i.e.
dividends and share buybacks) and total employee pay expenditure of
the Group for the financial years ended 31 December 2021and
31 December 2022.
|
2022
$’000 |
2021
$’000 |
Year-on-year change,
% |
All-employee remuneration |
2,022 |
2, 104 |
-4% |
Distributions to shareholders |
- |
- |
- |
Shareholder voting at the Annual
General Meeting
The Directors’ Remuneration Policy was approved by shareholders
at the Annual General Meeting held on 25
June 2021 and remains unchanged. The Remuneration Policy can
be found on the Group’s website and at pages 50 to 63 of this
Annual Report on Remuneration. The votes cast by proxy were as
follows:
Directors’ Remuneration
Policy |
Number of
votes |
|
% of
votes cast |
For |
100,135,172 |
|
82.19 |
Against |
21,693,116 |
|
17.81 |
Total votes cast |
121,828,288 |
|
100.00 |
Number of votes withheld |
0 |
|
|
The Directors’ Annual Report on Remuneration is approved by
shareholders at each Annual General Meeting. A summary of the votes
cast by proxy in 2022 and 2021 were as follows:
|
2022 |
2021 |
Director’s
Annual Report on Remuneration |
Number of votes |
% of
votes cast |
Number of votes |
|
% of
votes cast |
For |
83,255,878 |
91.89 |
100,135,172 |
|
82.19 |
Against |
7,348,465 |
8.11 |
21,693,116 |
|
17.81 |
Total votes
cast |
90,604,343 |
|
121,828,288 |
|
100.00 |
Number of votes
withheld |
5,234 |
|
0 |
|
|
Implementation of Remuneration Policy
in 2022
The performance related elements of remuneration remain
unchanged and will be built around a scorecard with a set of KPI’s
aligned with the Group strategy. The Remuneration Policy can be
found on the Group’s website and at pages 50 to 63 of this Annual
Report on Remuneration.
Approval
The Directors’ Annual Report on Remuneration was approved by the
Board on 27 April 2023 and signed on
its behalf by:
Michel Meeus
Chairman
27 April 2023
Directors’ Remuneration Policy
§ Introduction
This Directors’ Remuneration Policy (the “Policy”) contains the
information required to be set out as the directors’ remuneration
policy for the purposes of The Large and Medium-sized Companies and
Groups (Accounts and Reports) (Amendment) Regulations 2013.
The Policy was approved by shareholders at the 2021 AGM of the
Company. The Remuneration Committee is not proposing to make any
changes to the existing Policy however in line with industry best
practice and the three-year Policy cycle the Company will be
seeking shareholder approval at this year’s AGM. The effective date
of this Policy is the date on which the Policy is approved by
shareholders.
The Policy applies in respect of all executive officers
appointed to the Board of Directors (“executive directors”) and
non-executive directors. Other senior executives may be subject to
the Policy, including in relation to annual bonus and shares
incentive arrangements in particular if and to the extent that the
Remuneration Committee determines it is appropriate.
The Remuneration Committee will keep the Policy under review to
ensure that it continues to promote the long-term success of the
Company by giving the Company its best opportunity of delivering on
the business strategy. It is the Remuneration Committee’s intention
that the Policy be put to shareholders for approval every three
years unless there is a need for the Policy to be approved at an
earlier date.
The Company aims to provide sufficient flexibility in the Policy
for unanticipated changes in compensation practices and business
conditions to ensure the Remuneration Committee has appropriate
discretion to retain its top executives who perform. The
Remuneration Committee reserves the right to approve any payments
that may be outside the terms of this Policy, where the terms of
that payment were agreed before the Policy came into effect, or
before the individual became a director of the Company.
Maximum caps are provided to comply with the required
legislation and should not be taken to indicate an intent to make
payments at that level. The maximum caps are valid at the time that
the relevant employment agreement or appointment letter is entered
into and the caps may be adjusted to take into account fluctuations
in exchange rates.
§ Remuneration policy table: executive directors
Component |
Purpose and link to strategy |
Maximum opportunity |
Operation and performance measures |
Salary and Fees |
To provide fixed remuneration at an
appropriate level, to attract and retain directors as part of the
overall compensation package. |
The maximum annual base
combined salary and fees for executive directors is
€440,000[16].
The Remuneration Committee will consider the factors set out under
the "Operation" column when determining the appropriate level of
base salary within the formal Policy maximum. |
Salary is paid on a
monthly basis.
The Remuneration Committee takes into account a number of factors
when setting salaries including:
§ scope and difficulty of the role;
§ skills and experience of the individual;
§ salary levels for similar roles within the international
industry; and
§ pay and conditions elsewhere in the Group.Salaries are reviewed
on an annual basis, but are not necessarily increased at each
review.
No performance measures. |
Annual Bonus |
To incentivise and reward the
achievement of individual and business objectives which are key to
the delivery of the Company's business strategy. |
The maximum award is 125% of
combined base salary and fees. |
The payment of any
bonus is at the discretion of the Board with reference to the
performance year.
§ The Remuneration Committee sets, in advance, a scorecard with a
set of Key Performance Indicators ("KPIs") aligned with the
Company's strategy. The measures and the relative weightings are
substantiated by the Remuneration Committee and aim to be
stretching and to support the Company's business strategy.
Measures are related to Company financial performance, operational
performance and the Company’s health and safety record. In general
relative weightings of each KPI are expected not to exceed 50% and
not to be less than 10%.
§ The Remuneration Committee retains the flexibility to determine
and, if it considers appropriate, change the KPIs and weightings of
the KPIs based on the outcome of its annual review. The
Remuneration Committee may also adjust KPIs during the year to take
account of material events, such as (without limitation) material
corporate events, changes in responsibilities of an individual and/
or currency exchange rates. Any such changes will be within the
overall target and maximum payouts approved in the policy.
§ The KPI targets and specific weightings in the scorecard are
defined annually early in the year, once the budget has been
approved. A summary of the KPI targets, weightings for the KPIs and
how far the KPIs are met will be included retrospectively each year
in the Implementation Report for the year.
§ All bonuses that may become payable are subject to malus and
clawback provisions in the event of material financial misstatement
of the Company or fraud or material misconduct on the part of the
executive, as explained further below.
§ 50% of the bonuses that may become payable must be applied to
subscribe for or acquire shares in the Company (after the deduction
of any income tax and/ or employee social security contributions
payable). The Company is proposing to adopt and operate a Deferred
Bonus Plan as a framework plan for the delivery of shares to
executives, which may be satisfied by the issue of new shares or
transfer of existing or treasury shares.
§ The Remuneration Committee will determine whether the remainder
of the bonus shall be paid in cash or must be applied to subscribe
for or acquire shares (after the deduction of any income tax and/
or employee social security contributions payable). In making
its determination as to how the remainder of the bonus shall be
paid, the Remuneration Committee may take into account:
profitability of the Company; the executive's shareholding as
measured against any Company shareholding guidelines; potential
liabilities of the recipients to income tax and social security
contributions, among other things. Additional shares representing
the value of dividends payable on the deferred shares may be
paid.
§ The Remuneration Committee may impose holding periods of up to
three years on any of the shares delivered pursuant to the annual
bonus plan.
§ There are no prescribed minimum levels of performance in the
annual bonus structure and so it is possible that no bonus award
would be made. |
Share Incentive Arrangements |
To incentivise, retain and reward
eligible employees and align their interests with those of the
shareholders of the Company. |
Awards can be made under the PSP
with a value of up to a maximum of 200% of base salary and fees or
300% in exceptional circumstances. |
The Company has adopted
and operates the 2018 Performance Share Plan ("PSP") to replace the
2008 Performance Share Plan. The PSP offers the opportunity to earn
shares in the Company subject to the achievement of stretching but
realistic performance conditions. Performance conditions will be a
main feature of the PSP.
The PSP will be administered by the Remuneration Committee.
§ Awards can be made under the PSP at the direction of the
Remuneration Committee within the policy maximum in the form of
contingent share awards.
§ PSP awards will have a minimum vesting period of 3 years and, for
directors, the PSP awards have a further holding period of 2 years
following the end of the vesting period (subject to any number of
shares that may need to be sold to meet any income tax and employee
social security contributions due on vesting).
§ The Remuneration Committee will develop clear KPIs that aim to
align directors with Company strategy over time periods in excess
of one financial year. Any performance measures and targets used
for share incentive awards during 2019 will be relevant and
stretching in line with the overall strategy of the Company.
§ The Remuneration Committee may adjust or change the PSP measures,
targets and weightings for new awards under the PSP to ensure
continued alignment with Company strategy.
§ PSP awards are subject to malus and clawback in the event of
material financial misstatement of the Company or fraud or material
misconduct on the part of the executive.
§ Upon vesting of an award, the award holder must pay the nominal
value in respect of each share that vests.
§ PSP Awards will normally lapse where the award holder ceases
employment with the Company before vesting. PSP Awards will
not lapse and will vest immediately if the award holder is
considered to be a Good Leaver (leaves due to death or disability)
subject to the Remuneration Committee being satisfied that
performance conditions have been satisfied or are likely to be
satisfied as at the end of the relevant performance period. In
other circumstances, the Remuneration Committee may determine that
awards will not lapse and will continue to vest at their normal
vesting date, subject to pro-ration to reflect the period of
service during the performance period and performance conditions.
The Remuneration Committee has residuary discretions to disapply
pro ration and bring forward the date of vesting.
§ In the event of a change of control of the Company, if the
acquiring company agrees, awards will be exchanged for equivalent
awards over shares in the acquiring company and continue to vest
according to the original vesting schedule. If the acquiring
company does not agree to exchange the awards, the awards will vest
at the Committee's absolute discretion. Awards that vest will be
subject to time pro-ration and performance conditions.
§ Benefits under the PSP will not be pensionable.
§ The PSP Plan Limits are set out at Note 2.4 below.
|
Pension |
To provide a retirement benefit that
will foster loyalty and retain experienced executive
directors. |
Any pension benefits will be set at
an appropriate level in line with market practice, and in no event
will the contributions paid by the Company exceed 15% of combined
base salary and fees. |
No performance measures. |
Benefits |
To provide a market competitive
level of benefits to executive directors. |
Any benefits will be set at an
appropriate level in line with market practice, and in no event
will the value of the benefits exceed 15% of combined base salary
and fees. |
§ The executive
directors are entitled to private medical insurance and life
assurance cover (of four times the combined salary and fee) and
directors' and officers' liability insurance.
§ The Remuneration Committee may decide to provide other benefits
commensurate with the market. Such benefits may include (for
instance) company car or allowance, physical examinations and
medical support, professional advice, assistance with filling out
tax returns and occasional minor benefits. A tax equalisation
payment may be paid to an executive director if any part of the
remuneration of the executive director becomes subject to double
taxation. Tax gross ups may be paid, where appropriate. The Company
does not, at present, provide other taxable benefits to the
executive directors.
§ Executive directors are reimbursed for reasonable business
expenses incurred in the course of carrying out their duties.
§ No performance measures. |
Notes to the executive directors'
remuneration policy table
The Remuneration Committee's philosophy is that remuneration
arrangements should be appropriately positioned to support the
Group's business strategy over the longer term and the creation of
value for shareholders. In this context the following key
principles are considered to be important:
- remuneration
arrangements should align executive and employee interests with
those of shareholders;
- remuneration
arrangements should help retain key executives and employees;
and
- remuneration
arrangements should incentivise executives to achieve short, medium
and long-term business targets which represent value creation for
shareholders. Targets should relate to the Group's performance in
terms of overall revenue and profit and the executive's own
performance. Exceptional rewards should only be delivered if there
are exceptional returns.
The Remuneration Committee reserves the right to make any
remuneration payments (including satisfying awards of variable
remuneration) and payments for loss of office notwithstanding that
they are not in line with the Policy set out above, where the terms
of that payment were agreed before the Policy came into effect, or
before the individual became a director of the Company (provided
the payment was not in consideration for the individual becoming a
director).
§ Performance measures and targets
(a) Annual
Bonus
The performance measures for executive directors comprise of
financial measures and business goals linked to the Company's
strategy, which could include financial and non-financial measures.
The business goals are tailored to reflect each executive
director's role and responsibilities during the year. The
performance measures are chosen to enable the Remuneration
Committee to review the Company's and the individual's performance
against the Company's business strategy and appropriately
incentivise and reward the executive directors.
Annual bonus targets are set by the Remuneration Committee each
year. They are stretching but realistic targets which reflect the
most important areas of strategic focus for the Company. The
factors taken into consideration when setting targets include the
Company's Key Performance Indicators (which are determined annually
by the Remuneration Committee), and the extent to which they are
under the control or influence of the executive whose remuneration
is being determined.
Performance is measured over the financial year against the
measures and targets set according to the scorecard. The
Remuneration Committee retains the right to exercise its judgement
to adjust the bonus outcome for an individual to ensure the outcome
reflects any other aspects of the Company's performance that become
relevant during the financial year.
The Remuneration Committee used Company operational and
financial performances and safety as performance measures for the
2020 scorecard. For years following 2020, the structure of the
annual bonus scorecard will be reviewed by the Remuneration
Committee.
2022 Annual bonus scorecard measures
for executive director
40% weighting |
50% weighting |
Operational performance, such as production, sales, geographical
diversification, and starting new projects. |
Company
financial performance, including cash targets and profit
targets. |
10% weighting |
Indicators of health
and safety to promote the effective risk management of the
Company. |
(b) Share
Plans
The Remuneration Committee will make the vesting of a Plan award
conditional upon the satisfaction of stretching but realistic
performance conditions. These conditions are meant to achieve a
long-term alignment of the executives’ remuneration with the
interest of the shareholders.
EBITDA growth, increase of P1 reserves (in millions boe), and
changes to the free cash-flow are the key KPIs to be used by the
Remuneration Committee and will be measured over time periods of
three financial years. The performance measures are chosen to align
the performance of participants with the attainment of financial
performance targets over the vesting period of the award. The
targets are set by the Remuneration Committee by reference to the
Company's strategy and business plan and the results achieved at
the time of the vest are determined by the Remuneration
Committee.
Under the PSP plan rules, the Board may vary a performance
target where it considers that any performance target to which an
award is subject is no longer a true or fair measure of the
participant's performance, provided that the Board must act fairly
and reasonably and that the new performance target is materially no
more difficult and no less difficult to satisfy than the original
performance target.
§ Malus and clawback (applicable to bonuses and share
awards)
The Remuneration Committee has the discretion to reduce the
bonus before payment or require the executive director to pay back
shares or a cash amount in the event of material financial
misstatement of the Company or fraud or material misconduct on the
part of the executive. The amount that may be clawed back on any
such event is limited to the value of the bonus, taking into
account the cash paid and the shares delivered to the executive,
taking the value of the shares at the time of the clawback, less
any income tax or employee social security contributions paid on
the bonuses.
§ Share ownership guidelines for executives
The Remuneration Committee is planning to implement share
ownership guidelines for executive directors to further align the
interests of the executive directors with those of shareholders.
The share ownership guidelines will include an expectation that
executive directors build up their shareholding to 200% of base
salary over a period of five years from the later of: the date of
adoption of this policy and the date of appointment. Once the
shareholding guideline is reached, executive directors would be
expected to maintain it. The intention would be for the
shareholding guideline to be reached through the retention of
vested shares from share plans (e.g. the deferred share element of
the annual bonus and shares vested under the PSP). As such, the
Remuneration Committee's discretion may be used to increase the
proportion of an annual bonus to be delivered in shares to assist
the executive director in meeting this guideline. The deferred
share mechanism in the annual bonus and the design of the PSP will
assist executive directors in reaching the guidelines. Executive
directors will not be expected to top up their shareholding with
personal acquisitions of Company shares outside the usual share
plans described in the Policy. The Remuneration Committee will
monitor the executive directors' shareholdings and may adjust the
guideline in special individual and Company circumstances, for
example in the case of a share price fall.
§ PSP Plan Limits
The PSP may operate over new issue shares, treasury shares or
shares purchased in the market. In any ten-calendar year period,
the Company may not issue (or grant rights to issue) more than:
(a) 10% of
the issued ordinary share capital of the Company under the Plan and
any other employee share plan adopted by the Company; and
(b) 5% of
the issued ordinary share capital of the Company under the Plan and
any other executive share plan adopted by the Company.
Treasury shares will count as new issue shares for the purposes
of these limits unless institutional investors decide that they
need not count. These limits do not include rights to shares which
have been renounced, released, lapsed or otherwise become incapable
of vesting, awards that the Remuneration Committee determines after
grant to be satisfied by the transfer of existing shares and shares
allocated to satisfy bonuses (including pursuant to the Deferred
Bonus Plan).
§ Remuneration throughout the Group
Differences in the Company's pay policy for executive directors
from that applying to employees within the Group generally reflect
the appropriate market rate for the individual executive roles.
§ Remuneration policy table: non-executive directors
Component |
Purpose and link to strategy |
Maximum opportunity |
Operation and performance measures |
Fees |
To provide an
appropriate reward to attract and retain high-calibre individuals
with the relevant
skills, knowledge and experience to progress the Company
strategy. |
§ The maximum annual fees paid to
non-executive directors is £50,000 for a non-executive director
role, and £100,000 for the role of Chairman. An additional £10,000
will be paid to the individual acting as Chairman of the Audit
Committee. |
Non-executive directors
receive a standard annual fee, which is paid on a quarterly basis
in arrears.
Additional fees may also be paid to recognise the additional work
performed by members of any committees set up by the Board, and for
the role of chair of a committee.
Fees are reviewed on an annual basis, but are not necessarily
increased at each review. Fees are set at a rate that takes into
account:
§ market practice for comparative roles;
§ the financial results of the Company;
§ the time commitment and duties involved; and
§ the requirement to attract and retain the quality of individuals
required by the Company.
The remuneration of the non-executive directors is a matter for the
Board to consider and decide upon.
There are no performance measures related to non-executive
directors' fees. |
Notes to the Policy Table
The payment policy for non-executive directors is to pay a rate
which will secure persons of a suitable calibre. The remuneration
of the non-executive directors is determined by the Board. External
benchmarking data and specialist advisers are used when setting
fees, which will be reviewed at appropriate intervals. The maximum
caps are valid at the time that the relevant appointment letter is
entered into and the caps may be adjusted to take into account
fluctuations in exchange rates.
Expenses reasonably and wholly incurred in the performance of
the role of non-executive director of the Company may be reimbursed
or paid for directly by the Company, as appropriate, and may
include any tax due on the expense.
The non-executive directors' fees are non-pensionable. The
non-executive directors have not to date been eligible to
participate in any incentive plans (such as bonuses or share
plans); however, the Board considers that it may be appropriate in
the future to enable such participation, subject to suitably
stretching performance thresholds.
Non-executive directors may receive professional advice in
respect of their duties with the Company which will be paid for by
the Company. They will be covered by the Company's insurance policy
for directors.
§ Recruitment
The Company's policy on the recruitment of directors is to pay a
fair remuneration package for the role being undertaken and the
experience of the individual being recruited. The Remuneration
Committee will consider all relevant factors, which include the
abilities of the individual, their existing remuneration package,
market practice, and the existing arrangements for the Company's
current directors.
The Remuneration Committee will determine that any arrangements
offered are in the best interests of the Company and shareholders
and will endeavour to pay no more than is necessary.
The Remuneration Committee intends that the components of
remuneration set out in the policy tables, and the approach to the
components as set out in the policy tables, will be equally
applicable to new recruits, i.e. salary, annual bonus, share plan
awards, pension and benefits for executive directors, and fees for
non-executive directors. However, the Company acknowledges that
additional flexibility may be required to ensure the Company is in
the best position to recruit the best candidate for any vacant
roles and, as such, a buy-out arrangement may be required.
§ Flexibility
The salary and compensation package designed for a new recruit
may be higher or lower than that applying for existing directors.
The Remuneration Committee may decide to appoint a new executive
director to the Board at a lower than typical salary, such that
larger and more frequent salary increases may then be awarded over
a period of time to reflect the individual's growth in experience
within the role.
Remuneration will normally not exceed those set out in the
policy table above. However, to ensure that the Company can
sufficiently compete with its competitors, the Remuneration
Committee considers it important that the recruitment policy has
sufficient flexibility in order to attract and appropriately
remunerate the high-performing individuals that the Company
requires to achieve its strategy. As such, the Remuneration
Committee reserves discretion to provide a buy-out arrangement and
benefits (such as a sign-on bonus and additional share awards) in
addition to those set out in the policy table (or mentioned in this
section) where the Remuneration Committee considers it reasonable
and necessary to do so in order to secure an external appointment
(see below for more detail in relation to buy-out
arrangements).
§ Buy-out arrangements
The Remuneration Committee retains the discretion to enter into
buy-out arrangements to compensate new hires for incentive awards
forfeited in joining the Company. The Remuneration Committee will
use its discretion in awarding and setting any such compensation,
which will be decided on a case-by-case basis and likely on an
estimated like-for-like basis. In deciding the appropriate type and
quantum of compensation to replace existing awards, the
Remuneration Committee will take into account all relevant factors,
including the type of award being forfeited, the likelihood of any
performance measures attached to the forfeited award being met, and
the proportion of the vesting period remaining. The Remuneration
Committee will appropriately discount the compensation payable to
take account of any uncertainties over the likely vesting of the
forfeited award to ensure that the Company does not, in the view of
the Remuneration Committee, pay in excess of what is reasonable or
necessary.
Compensation for awards forfeited may take the form of a bonus
payment or a share award. For the avoidance of doubt, the maximum
amounts of compensation contained in the policy table will not
apply to such buy-out arrangements. The Company has not placed a
maximum value on the compensation that can be paid under this
section, as it does not believe it would be in shareholders'
interests to set any expectations for prospective candidates
regarding such awards.
§ Payments for loss of office
Any compensation payable in the event that the employment of an
executive director is terminated will be determined in accordance
the terms of the employment contract between the Company and the
executive, as well as the relevant rules of any share plan and this
Policy, and in accordance with the prevailing best practice.
The Remuneration Committee will consider a variety of factors
when considering leaving arrangements for an executive director and
exercising any discretions it has in this regard, including (but
not limited to) individual and business performance during office,
the reason for leaving, and any other relevant circumstances (for
example, ill health).
In addition to any payment that the Remuneration Committee may
decide to make, the Remuneration Committee reserves discretion as
it considers appropriate to:
(a) pay an
annual bonus for the year of departure;
(b)
continue providing any benefits for a period of time; and
(c)
provide outplacement services.
Non-executive directors are subject to one month notice periods
prior to termination of service and are not entitled to any
compensation on termination save for accrued fees as at the date of
termination and reimbursement of any expenses properly incurred
prior to that date.
§ Share plan awards
The treatment of any share award on termination will be governed
by the PSP rules.
Under the PSP, outstanding share awards held by an individual
who ceases to be a director or employee of the Company will lapse,
unless the cessation is due to death, illness, injury or
disability, redundancy, retirement, the Company ceasing to be a
member of the Group or the transfer of an undertaking or part of an
undertaking to a person who is not a member of the Group, or the
Board exercises its discretion otherwise.
Under the PSP, the Board has discretion to decide the period of
time for which the award will continue, and whether any unvested
award shall be treated as vesting on the date of cessation of
employment or in accordance with the original vesting schedule, in
both cases have regard to the extent to which the performance
targets have been satisfied prior to the date of cessation.
For executive directors, the vesting period will be set by the
Remuneration Committee with a minimum three-year period. The
Remuneration Committee will (unless the vesting period is set as a
period equal to or longer than five years) impose a holding period
on shares (or awards) so that the executive is not able to sell the
shares that the executive director acquires through the PSP until
the fifth anniversary of the date of the award. The
holding period will not apply to the number of shares equivalent in
value to the amount required by the Company or the executive
director to fund any income tax and employee social security
contributions due on the vesting of the awards or otherwise in
connection with the awards.
§ Executive director employment agreements
This section contains the key employment terms and conditions of
the executive directors that could impact on their remuneration or
loss of office payments.
The Company's policy on employment agreements is that executive
directors' agreements should be terminable by either the Company or
the director on not more than six months' notice. The employment
agreements contain provision for early termination, among other
things, in the event of a breach by the executive but make no
provision for any termination benefits except in the event of a
change of control of the Company, where the executive becomes
entitled to a lump sum equal to 24 months' base salary plus
benefits plus (if any), bonus received on termination by the
Company. The employment agreements contain restrictive covenants
for a period of 12 months following termination of the agreement.
Details of employment agreements in place as at the date of this
report are set out below:
Director |
Current agreement start date |
Notice period |
F Khallouf |
15 November 2019 |
Six months |
Directors' employment agreements are available for inspection at
the Company's registered office in London.
§ Non-executive directors' letters of appointment
This section contains the key terms of the appointments of
non-executive directors that could impact on their
remuneration.
Typically, the non-executive directors are appointed by letter
of appointment for an initial term of three years which may be
extended. All non-executive directors are subject to annual
re-election by the Company's shareholders and their appointments
may be terminated earlier with one month's prior written notice (or
with immediate effect, in the case of specific serious
circumstances such as fraud or dishonesty). On termination of
appointment, non-executive directors are usually only entitled to
accrued fees as at the date of termination together with
reimbursement of any expenses properly incurred prior to that date
and the company has no obligation to pay further compensation when
the appointment terminates. Non-executive directors' letters of
appointment are available for inspection at the Company's
registered office in London.
Non-executive Director |
Current agreement start date |
Term |
Michel Meeus |
25 June 2021 |
Two years |
Lilia Jolibois |
24 June 2022 |
Two years |
Jacques Mahaux |
24 June 2022 |
Two years |
Gilbert Lehmann |
25 June 2021 |
Two years |
§ Illustration of the Remuneration Policy
The bar charts below show the levels of remuneration that the
CEO could earn over the coming year under the Policy.
CEO: minimum and
maximum remuneration
The bar chart shows future possible maximum remuneration.
Pension entitlements were provided in 2022.
§ Consideration of shareholder views
The Chairman and executive directors of the Company have a
regular dialogue with analysts and substantial shareholders, which
includes the subject of directors' remuneration. The outcome of
these discussions is reported to the Board and discussed in detail
both there and during meetings of the Remuneration Committee.
The Remuneration Committee will take into account the results of
the shareholder vote on remuneration matters when making future
remuneration decisions. The Remuneration Committee remains mindful
of shareholder views when evaluating and setting ongoing
remuneration strategy.
§ Consideration of employment conditions within the
Group
When determining remuneration levels for its executive
directors, the Board considers the pay and employment conditions of
employees across the Group. The Remuneration Committee will be
mindful of average salary increases awarded across the Group when
reviewing the remuneration packages of the executive directors.
§ Minor changes
The Remuneration Committee may make, without the need for
shareholder approval, minor amendments to the Policy for
regulatory, exchange control, tax or administrative purposes or to
take account of changes in legislation.
Statement of Directors’
Responsibilities in respect of the Annual Report and the Financial
Statements
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable law and
regulation.
Company law requires the directors to prepare financial
statements for each financial year. Under that law the directors
have prepared the group and company financial statements in
accordance with UK-adopted international accounting standards. In
preparing the Company and Group’s financial statements, IAS
Regulation requires that Directors:
§ properly select and apply accounting policies;
§ make judgements and accounting estimates that are reasonable
and prudent;
§ present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
§ state whether applicable UK-adopted international accounting
standards have been followed, subject to any material departures
disclosed and explained in the financial statements;
§ 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 Company’s and Group’s financial position and
financial performance; and
§ make an assessment of the Company’s and Group’s ability to
continue as a going concern, prepare the financial statements on
the going concern basis unless it is inappropriate to presume that
the Company and Group will continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company and
Group’s transactions and disclose with reasonable accuracy at any
time the financial position of the Company and Group and enable
them to ensure that the financial statements comply with the
Companies Act 2006. 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. Under
applicable law and regulations, the Directors are also responsible
for preparing a Strategic Report, Report of the Directors, Annual
Report on Remuneration, Directors’ Remuneration Policy and
Corporate Governance Statement that comply with that law and those
regulations. The Directors are responsible for the maintenance and
integrity of the corporate and financial information and statements
included on the Company’s website, www.cadoganenergysolutions.com.
Legislation in the United Kingdom
governing the preparation and dissemination of the financial
statements may differ from legislation in other jurisdictions. The
directors' responsibility also extends to the ongoing integrity of
the financial statements contained therein.
Responsibility Statement of the
Directors in respect of the Annual Report
We confirm to the best of our knowledge:
(1) the financial statements, prepared in accordance with
International Financial Reporting Standards in conformity with the
requirements of the Companies Act 2006, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the Company and the undertakings included in the consolidation
as a whole; and
(2) the Annual Report, includes a fair review of the development
and performance of the business and the position of the Company and
the undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and
uncertainties that they face; and
(3) the annual report and the financial statements, taken as a
whole, are fair, balanced and understandable, and provide the
information necessary for the shareholders to assess the Group’s
position, performance, business model and strategy.
On behalf of the Board
Michel Meeus
Chairman
27 April 2023
INDEPENDENT AUDITOR’S REPORT TO THE
MEMBERS OF CADOGAN ENERGY
SOLUTIONS PLC (FORMERLY CADOGAN
PETROLEUM PLC)
Qualified Opinion
We have audited the financial statements of Cadogan Energy
Solutions Plc (the Company) and its subsidiaries (the Group) for
the year ended 31 December 2022 which
comprise the consolidated income statement, the consolidated
statement of comprehensive income, the consolidated balance sheet,
the consolidated cash flow statement, the consolidated statement of
changes in equity, the company balance sheet, the company cash flow
statement, the company statement of changes in equity, the notes to
the consolidated financial statements and the notes to the company
financial statements, including significant accounting policies.
The financial reporting framework that has been applied in their
preparation is applicable law and UK adopted international
accounting standards and, as regards the Parent company financial
statements, as applied in accordance with the provisions of the
Companies Act 2006.
In our opinion, except for the effect of the matter described in
the Basis for qualified opinion paragraph below:
· the financial statements give a
true and fair view of the state of the Group’s and of the Parent
company’s affairs as at 31 December
2022 and of the group’s loss for the year then ended;
· the Group financial statements
have been properly prepared in accordance with UK adopted
international accounting standards;
· the Parent Company financial
statements have been properly prepared in accordance with UK
adopted international accounting standards and as applied in
accordance with the provisions of the Companies Act 2006; and
· the financial statements have
been prepared in accordance with the requirements of the Companies
Act 2006.
Basis for qualified opinion
In February 2019, the Group
advanced a Euro 13,385,000 loan to
Proger Managers & Partners Srl (“PMP”), a privately owned
Italian company whose only asset is a 72.92% interest in Proger
Ingegneria Srl (“Proger Ingegneria”), a privately owned company
which itself held a 67.91% participating interest in Proger S.P.A
(“Proger”) at the date of the loan was advanced.
The loan carries an entitlement to interest at a rate of 5.5%
per year, payable at maturity (which is 24 months after the
execution date of February 2019 and
assuming that the call option described below was not exercised).
The principal of the loan is secured by a pledge over PMP’s current
participating interest in Proger Ingegneria Srl, up to a maximum
guaranteed amount of Euro
13,385,000.
Through the Agreement, the Group was granted a call option to
acquire, at its sole discretion, a 33% participating interest in
Proger Ingegneria; the exercise of the option would have given
Cadogan, through Cadogan Petroleum
Holdings BV, an indirect 25% interest in Proger. The call option
was granted at no additional cost and could be exercised at any
time between the 6th and 24th months following the execution date
of the loan agreement.
The call option was not exercised within the relevant timeframe
(February 2021) and consequently in
accordance with the loan agreement the principal amount and any
accrued interest became repayable in full. At that date the Group
reclassified the asset from a financial asset held at fair value
through profit and loss to a financial asset held at amortised
cost.
In March 2021, PMP requested
arbitration to have the loan agreement recognised as an equity
investment contract. In July 2022,
the Arbitra Camera in Rome decided
to reject the main claim of PMP to recognise the loan as an equity
investment.
As part of our risk assessment we considered the recoverability
of the loan note (page 100, note 27) to be a key audit matter, and
in respect of this matter we:
· made enquiries of management and
the Audit Committee regarding the structure of the transaction and
the latest status of legal proceedings;
· obtained and reviewed the
original loan documents including the call option agreement;
· obtained loan working papers and
reviewed the accounting entries;
· met with management to obtain an
understanding of their assessment of the recoverable amount of the
loan and why management believes no impairment of the carrying
value of the loan note is required ;
· discussed with management their
understanding of the process of assessing recoverability of the
loan note;
· requested and received
information from Cadogan legal
advisors on the current legal status and legal proceedings;
· based on available information
to us we critically assessed the ability of the counterparty to
repay the amounts due; and
· reviewed the disclosures in
relation to financial instruments including the accounting policy,
critical judgments and estimates and financial instrument
disclosures.
Based on the procedures performed above we were unable to obtain
sufficient, appropriate audit evidence regarding the recoverability
of the loan note, and accordingly we were also unable to obtain
sufficient appropriate audit evidence to enable us to conclude
whether the carrying value of the loan note is materially
accurate.
In addition, the predecessor auditor was not able to obtain
sufficient, appropriate audit evidence as to whether the carrying
value of the loan note was materially accurate as at 31 December 2021 and as a result the audit
opinion for the year ended 31 December
2021 was also qualified in respect of this issue.
Consequently, we were unable to determine what impact this may have
on the loss of the group for the year ended 31 December 2022.
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
Auditor’s Responsibilities for the audit of the financial
statements section of our report. We are independent of the Group
in accordance with the ethical requirements that are relevant to
our audit of the financial statements in the UK, including the
FRC’s Ethical Standard as applied to listed public interest
entities, and we have fulfilled our other ethical responsibilities
in accordance with these requirements. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide
a basis for our qualified opinion. Our audit opinion is consistent
with the additional report to the audit committee.
Our approach to the audit
We tailored the scope of our audit to ensure we performed
sufficient work to be able to express an opinion on the financial
statements as a whole, taking into account the structure of the
Group and the Company, its environment, including the group’s
system of internal control, and assessing the risks of material
misstatement in the financial statements. We also addressed
the risk of management override of internal controls, including
assessing whether there was evidence of bias by the directors that
may have represented a risk of material misstatement.
The significant majority of the Group’s operations are located
in the Ukraine and account for
100% of the Group’s revenue. We instructed a component audit team
in the Ukraine to perform a full
scope audit of the Ukrainian sub-group. In our assessment the group
comprises five significant components together with the Ukrainian
sub-group. The audit of the Ukrainian sub-group was performed by
Crowe Erfolg in the Ukraine under
the supervision and direction of the Group audit engagement team,
as described in more detail below. The remaining significant
components of the Group namely Cadogan Energy Solutions Plc,
Cadogan Petroleum Holdings Limited, Cadogan Petroleum Holdings
B.V., and Zagoryanska Petroleum B.V. were audited by the Group
audit engagement team.
Our involvement
with the component auditors
As part of our supervision and direction of the component audit
team, we determined the level of involvement needed in order to be
able to conclude whether sufficient appropriate audit evidence has
been obtained in respect of the Ukraine sub group as a basis for our opinion
on the Group financial statements as a whole. Our involvement with
the component auditors included the following:
· We issued detailed Group
reporting instructions to the component auditor, which included the
significant areas to be covered by the audit (including areas that
were considered to be key audit matters as detailed below) and set
out the information required to be reported to the Group audit
team.
· Due to the travel restrictions
resulting from the ongoing war in the Ukraine, the Group audit engagement partner
and senior members of the Group audit engagement team were unable
to visit the Ukraine to meet with
component management and the component audit team during the audit.
Accordingly, we performed a remote review of the component audit
files in the Ukraine using
appropriate technologies and held regular calls and video
conferences with component management during the audit.
· The Group audit team performed
reviews of relevant working papers and undertook additional
procedures where necessary in respect of the significant risk areas
that represented Key Audit Matters for the group.
Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) we identified, including those which had the greatest effect
on: the overall audit strategy, the allocation of resources in the
audit; and directing the efforts of the engagement team. These
matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters.
In addition to the matter described in the basis for qualified
opinion section, we have determined the matters described below to
be the key audit matters to be communicated in our report.
Key Audit Matters |
How our scope addressed this
matter |
|
|
Valuation of
development and production assets
Refer to page 85 (Accounting policy) and 95 (note 17 Property,
plant and equipment).
As at 31 December 2022 the Group held development and production
assets with a carrying value of $6.4m (2021: $9.3m).
Management has performed an impairment review of development and
production assets and concluded that no impairment is required.
The assessment of the recoverable value of the development and
production assets
required judgments and estimates by management regarding the inputs
applied in the models including future oil and gas prices,
production and reserves, operating and development costs and
discount rates.
The carrying value of the Group’s development and production assets
were therefore considered to be a key audit matter. |
• We critically assessed management’s
impairment assessment which was based on the value in use model
(ViU).
• We challenged the key judgements and
estimates made by management, including forecast oil prices,
production levels..
• We critically assessed management’s
assumptions in estimating the discount rates.
• We held discussions with operational
management to evaluate the basis for forecast decreases in
production associated with well stimulation activities, considered
the historical impact of such activities and evaluated the extent
to which appropriate costs were included in the forecasts.
• We performed sensitivity analysis on the
impairment models to establish the impact of possible changes of
key assumptions.
Based on our work performed we consider there is no material
difference between the carrying value of these assets and their
recoverable amounts. |
Our application of materiality
The scope of our audit was influenced by our application of
materiality. We set certain quantitative thresholds for
materiality. These, together with qualitative considerations,
helped us to determine the scope of our audit, the nature, timing
and extent of our audit procedures, both individually and in
aggregate on the financial statements as a whole. Based on our
professional judgement, we determined materiality for the financial
statements as follows:
|
The Group |
The Company |
Overall group materiality |
$725,000 |
$400,000 |
Basis of determining materiality |
2.0% of total assets |
2.0% of total assets restricted to $400,000. |
Rationale for the benchmark
applied |
When determining
materiality, we determine an appropriate percentage of our chosen
benchmark, with the choice of an appropriate benchmark as our
starting point. We determined that an asset based measure of
materiality is appropriate as the Group and the Company holds
significant cash and loan balances and its principal activity is
the exploration and development of oil and gas assets. As a result
we concluded that the asset base is a key financial metric for
users of financial statements. |
Performance materiality |
$362,500 |
$200,000 |
Basis for performance materiality |
We use performance
materiality to reduce to an appropriately low level the probability
that the aggregate of uncorrected and undetected misstatements
exceeds overall materiality. Specifically, we use performance
materiality in determining the scope of our audit and the nature
and extent of our testing of account balances, classes of
transactions and disclosures, for example in determining sample
sizes.
Our performance materiality was 50% of overall materiality,
amounting to £362,500) for the Group financial statements and
$200,000 for the Company financial statements.
When considering the level at which to set performance materiality,
we considered a number of factors, including the risk assessment
and aggregation risk, and the effectiveness of controls and our
knowledge of the business. |
We agreed with the Board and Audit Committee that we would
report to them misstatements identified during the audit greater
than 5% of overall materiality. We also agreed to report
differences below this threshold that, in our view, warranted
reporting on qualitative grounds.
Conclusions relating to going
concern
In auditing the financial statements, we have concluded that the
directors’ use of the going concern basis of accounting in the
preparation of the financial statements is appropriate. Our
evaluation of the directors’ assessment of the Group’s and the
Parent Company’ ability to continue to adopt the going concern
basis of accounting included:
· Review of management’s going
concern assessment paper and the cash flow forecast prepared by
management and approved by the Board.
· We critically assessed the going
concern paper and the forecast taking into account key assumptions
and various scenarios prepared by management and the impact they
would have on the group’s ability to continue operating on going
concern basis.
· We performed sensitivity
assessments over the key assumptions in the forecast to assess the
impact of severe unlikely downside scenarios, and extending these
beyond the 12 months from the date of approval these financial
statements to assess the group’s ability to continue as a going
concern.
· As part of our sensitivity
assessment of the forecast and scenario forecast for the period to
April 2024 we critically assessed the
level of headroom available and the assumptions including,
potential geopolitical impacts, oil production, oil prices,
operating expenditure and capital expenditure. In doing so we
compared production forecasts to historical trends and considered
the oil price assumptions against consensus market prices and
historical discount levels between Brent oil prices and the local
market. We compared forecast costs with historical expenditure.
· We reviewed the adequacy of the
disclosures in the financial statements in respect of going concern
against the requirements of UK-adopted international accounting
standards.
Based on the work we have performed, we have not identified any
material uncertainties relating to events or conditions that,
individually or collectively, may cast significant doubt on the
Group’s and Parent company's ability to continue as a going concern
for a period of at least twelve months from when the financial
statements are authorised for issue.
Our responsibilities and the responsibilities of the directors
with respect to going concern are described in the relevant
sections of this report.
Emphasis of Matter
We draw attention to Note 3 (b) on page 80 to the financial
statements which describes the uncertainty related to the outcome
of the ongoing war in Ukraine. The
Group have included various scenarios that take into account the
ongoing war in its cash flow projections. However, due to the
unpredictable outcome, length, scale and extent of the conflict its
impact on the Group and the Company cannot be predicted with any
certainty. Our opinion is not modified in respect of this
matter.
Other information
The other information comprises the information included in the
annual report, other than the financial statements and our
auditor’s report thereon. The directors are responsible for the
other information contained within the annual report. Our opinion
on the financial statements does not cover the other information
and, except to the extent otherwise explicitly stated in our
report, we do not express any form of assurance conclusion
thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
course of the audit or otherwise appears to be materially
misstated. If we identify such material inconsistencies or apparent
material misstatements, we are required to determine whether there
is a material misstatement in the financial statements themselves.
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.
As described in the basis for qualified opinion section of our
report, our audit opinion is qualified because we were unable to
obtain sufficient appropriate audit evidence in respect of certain
loan receivables. We have concluded that where the other
information refers to these receivables or to related balances or
classes of transactions it may also be materially misstated for the
same reason.
Opinions on other matters prescribed
by the Companies Act 2006
In our opinion the part of the directors’ remuneration report to
be audited has been properly prepared in accordance with the
Companies Act 2006.
Except for the possible effect of the matter described in the
basis for the qualified opinion section of our report, in our
opinion, based on the work undertaken in the course of the
audit:
· the information given in the
Strategic report and the Directors’ report for the financial year
for which the financial statements are prepared is consistent with
the financial statements; and
· the Strategic report and the
Directors’ report have been prepared in accordance with applicable
legal requirements.
Matters on which we are required to
report by exception
Except for the possible effect of the matter described in the
basis for the qualified opinion section of our report, in the light
of the knowledge and understanding of the Group and the Parent
Company and its environment obtained in the course of the audit, we
have not identified material misstatements in the Strategic report
or the Directors’ report.
In respect solely of the limitation on our work relating to
certain loan receivables, described above:
· we have not received all the
information and explanations we require for our audit; and
· we were unable to determine
whether adequate accounting records have been kept by the Parent
Company
We have nothing to report in respect of the following matters
where the Companies Act 2006 requires us to report to you if, in
our opinion:
· returns adequate for our audit
have not been received from branches not visited by us; or
· the Parent Company financial
statements and the part of the Directors’ remuneration report to be
audited are not in agreement with the accounting records and
returns; or
· certain disclosures of
Directors’ remuneration specified by law are not made; or
· a corporate governance statement
has not been prepared by the Parent Company.
Responsibilities of directors
As explained more fully in the statement of directors’
responsibilities set out on page 64, the directors are responsible
for the preparation of the financial statements and for being
satisfied that they give a true and fair view, and for such
internal control as the directors determine is necessary to enable
the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the group’s and the Parent company’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 the directors either intend to liquidate the
Group or the Parent Company or to cease operations, or have no
realistic alternative but to do so.
Auditor’s Responsibilities for the
audit of the financial statements
Our objectives are to obtain reasonable assurance about whether
the 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 (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities is available on
the FRC’s website at
https://www.frc.org.uk/auditors/auditor-assurance/auditor-s-responsibilities-for-the-audit-of-the-fi/description-of-the-auditor's-responsibilities-for
Explanation as to what extent the
audit was considered capable of detecting irregularities, including
fraud
Irregularities, including fraud, are instances of non-compliance
with laws and regulations. We design procedures in line with our
responsibilities, outlined above, to detect material misstatements
in respect of irregularities, including fraud. The extent to which
our procedures are capable of detecting irregularities, including
fraud is detailed below.
The objectives of our audit in respect of fraud, are; to
identify and assess the risks of material misstatement of the
financial statements due to fraud; to obtain sufficient appropriate
audit evidence regarding the assessed risks of material
misstatement due to fraud, through designing and implementing
appropriate responses to those assessed risks; and to respond
appropriately to instances of fraud or suspected fraud identified
during the audit. However, the primary responsibility for the
prevention and detection of fraud rests with both management and
those charged with governance of the company.
Based on our understanding of the Group and its operations, we
identified the principal risks of non-compliance with laws and
regulations related to the UK and Ukrainian tax legislation,
employment and health and safety regulations, licensing regulations
and we considered the extent to which non-compliance might have a
material effect on the financial statements. We also considered
those laws and regulations that have a direct impact on the
financial statements such as the Companies Act 2006 and Listing
Rules.
· We obtained an understanding of
how the Group and Company complies with these requirements by
discussions with management and those charged with governance;
· Based on this understanding, we
designed specific appropriate audit procedures to identify
instances of non-compliance with laws and regulations. This
included making enquiries of management and those charged with
governance and obtaining additional corroborative evidence as
required;
· We inquired of management and
those charged with governance as to any known instances of
non-compliance or suspected non-compliance with laws and
regulations;
· We held calls and discussions
with external legal advisers representing the Group to enquire
about known non-compliance with laws and regulations;
· We performed a review of
external press releases;
· We assessed the risk of material
misstatement of the financial statements, including the risk of
material misstatement due to fraud and how it might occur, by
holding discussions with management and those charged with
governance.
· We challenged assumptions and
judgements made by management in relation to the estimates made in
respect of development and production assets; and
· Identifying and testing journal
entries, in particular any journal entries posted with unusual
account combinations, and unusual users.
There are inherent limitations in the audit procedures described
above. We are less likely to become aware of instances of
non-compliance with laws and regulations that are not closely
related to events and transactions reflected in the financial
statements. Also, the risk of not detecting a material misstatement
due to fraud is higher than the risk of not detecting one resulting
from error, as fraud may involve deliberate concealment by, for
example, forgery or intentional misrepresentations, or through
collusion.
Other matters which we are required to
address
We were appointed by the Board of Directors on 17 February 2023 to audit the financial
statements for the period ended 31 December
2022. Our total uninterrupted period of engagement is 1
year, covering the period ended 31 December
2022 to 28 April 2023.
The non-audit services prohibited by the FRC’s Ethical Standard
were not provided to the Group or the Parent Company and we remain
independent of the Group and the Parent Company in conducting our
audit.
Our audit opinion is consistent with the additional report to
the audit committee.
Use of our report
This report is made solely to the company’s members, as a body,
in accordance with Chapter 3 of Part 16 of the Companies Act 2006.
Our audit work has been undertaken for no purpose other than to
draw to the attention of the company’s members those matters which
we are required to include in an auditor’s report addressed to
them. To the fullest extent permitted by law, we do not accept or
assume responsibility to any party other than the company and
company’s members as a body, for our work, for this report, or for
the opinions we have formed.
Signature
27 April 2023
Matthew Banton (Senior
Statutory Auditor)
for and on behalf of Moore Kingston Smith LLP, Statutory
Auditor
6th Floor
9 Appold Street
London
EC2A 2AP
Consolidated Income
Statement
For the year ended 31 December 2022 |
Notes |
2022
$’000 |
2021
$’000 |
CONTINUING OPERATIONS |
|
|
|
Revenues |
6 |
8,472 |
8,793 |
Cost of sales |
7 |
(5,553) |
(6,372) |
Gross profit |
|
2,919 |
2,421 |
|
|
|
|
|
|
|
|
Administrative
expenses |
8 |
(3,441) |
(3,712) |
Impairment of gas and
oil assets |
16 |
(269) |
(2,474) |
Impairment of other assets |
9 |
(27) |
(994) |
Reversal of impairment of other
assets |
9 |
20 |
20 |
Other operating expenses, net |
10 |
(3) |
(18) |
Net foreign exchange
(losses)/gain |
|
(1,131) |
(1,591) |
Operating loss |
|
(1,932) |
(6,348) |
|
|
|
|
Finance income, net |
13 |
372 |
1,250 |
Loss before tax |
|
(1,560) |
(5,098) |
|
|
|
|
Taxation |
14 |
- |
- |
Loss for the year |
|
(1,560) |
(5,098) |
|
|
|
|
Attributable to: |
|
|
|
Owners of the Company |
|
(1,562) |
(5,070) |
Non-controlling interest |
|
2 |
(28) |
|
|
(1,560) |
(5,098) |
|
|
|
|
Loss per Ordinary share |
|
Cents |
Cents |
Basic and diluted |
15 |
(0.6) |
(2.1) |
|
|
|
|
Consolidated
Statement of Comprehensive Income
For the year ended 31 December 2022 |
|
|
2022
$’000 |
2021
$’000 |
|
|
|
|
|
Loss for the year |
|
|
(1,560) |
(5,098) |
|
|
|
|
|
Other comprehensive
(loss)/profit |
|
|
|
|
Items that may be reclassified subsequently to profit or loss: |
|
|
Unrealised currency translation
differences |
|
|
(3,287) |
466 |
Other comprehensive
(loss)/profit |
|
|
(3,287) |
466 |
|
|
|
|
|
Total comprehensive (loss)/profit
for the year |
|
|
(4,847) |
(4,632) |
|
|
|
|
|
Attributable to: |
|
|
|
|
Owners of the Company |
|
|
(4,849) |
(4,604) |
Non-controlling interest |
|
|
2 |
(28) |
|
|
|
(4,847) |
(4,632) |
Consolidated Balance Sheet
As at 31 December 2022 |
Notes |
2022
$’000 |
2021
$’000 |
ASSETS |
|
|
|
Non-current
assets |
|
|
|
Intangible exploration
and evaluation assets |
16 |
- |
- |
Property, plant and
equipment |
17 |
6,633 |
9,598 |
Right-of-use
assets |
23 |
108 |
200 |
Deferred tax
asset |
22 |
319 |
431 |
|
|
7,060 |
10,229 |
Current
assets |
|
|
|
Inventories |
19 |
295 |
177 |
Trade and other
receivables |
20 |
318 |
218 |
Loan receivable at
amortised cost |
27 |
15,825 |
16,724 |
Cash |
21 |
13,934 |
15,011 |
|
|
30,372 |
32,130 |
Total
assets |
|
37,432 |
42,359 |
|
|
|
|
LIABILITIES |
|
|
|
Non-current
liabilities |
|
|
|
Long-term lease
liability |
23 |
(28) |
(104) |
Provisions |
25 |
(261) |
(300) |
|
|
(289) |
(404) |
Current
liabilities |
|
|
|
Trade and other
payables |
24 |
(1,401) |
(1,479) |
Short-term lease
liability |
23 |
(79) |
(102) |
Current
provisions |
25 |
(136) |
- |
|
|
(1,616) |
(1,581) |
Total
liabilities |
|
(1,905) |
(1,985) |
|
|
|
|
NET ASSETS |
|
35,527 |
40,374 |
|
|
|
|
EQUITY |
|
|
|
Share capital |
26 |
13,832 |
13,832 |
Share premium |
|
514 |
514 |
Retained earnings |
|
184,331 |
185,893 |
Cumulative translation
reserves |
|
(164,976) |
(161,689) |
Other reserves |
|
1,589 |
1,589 |
Equity attributable
to owners of the Company |
|
35,290 |
40,139 |
|
|
|
|
Non-controlling
interest |
|
237 |
235 |
TOTAL
EQUITY |
|
35,527 |
40,374 |
|
|
|
|
The consolidated financial statements of Cadogan Energy Solutions
plc, registered in England and
Wales no. 05718406, were approved
by the Board of Directors and authorised for issue on 27 April 2023. They were signed on its behalf
by:
Fady Khallouf
Chief Executive Officer
27 April 2023
The notes on pages 79 to 111 form an integral part of these
financial statements.
Consolidated Statement of Changes in Equity
For the year ended 31 December 2022 |
|
|
|
|
|
|
|
Share
capital
$’000 |
|
Retained earnings
$’000 |
Cumulative
translation
reserves
$’000 |
|
|
Non-controlling
interest
$’000 |
Total
$’000 |
|
Share
premium account
$’000 |
Other
reserves
$’000 |
Equity attributable to owners of the Company |
|
As at 1 January
2021 |
13,832 |
514 |
190,963 |
(162,155) |
1,589 |
44,743 |
263 |
45,006 |
|
Net loss for the
year |
- |
- |
(5,070) |
- |
- |
(5,070) |
(28) |
(5,098) |
|
Other comprehensive
profit |
- |
- |
- |
466 |
- |
466 |
- |
466 |
|
Total comprehensive
loss for the year |
- |
- |
(5,070) |
466 |
- |
(4,604) |
(28) |
(4,632) |
|
As at 1 January
2022 |
13,832 |
514 |
185,893 |
(161,689) |
1,589 |
40,139 |
235 |
40,374 |
|
Net loss for the
year |
- |
- |
(1,562) |
- |
- |
(1,562) |
2 |
(1,560) |
|
Other comprehensive
loss |
- |
- |
- |
(3,287) |
- |
(3,287) |
- |
(3,287) |
|
Total comprehensive
loss for the year |
- |
- |
(1,562) |
(3,287) |
- |
(4,849) |
2 |
(4,847) |
|
As at 31 December
2022 |
13,832 |
514 |
184,331 |
(164,976) |
1,589 |
35,290 |
237 |
35,527 |
|
|
|
|
|
|
|
|
|
|
|
Consolidated Cash Flow Statement
For the year ended 31 December 2022 |
Note |
2022
$’000 |
2021
$’000 |
Operating loss |
|
(1,932) |
(6,348) |
Adjustments for: |
|
|
|
Depreciation and depletion of property, plant and equipment |
17,23 |
764 |
889 |
Impairment
of oil and gas assets |
16 |
269 |
2,474 |
(Reversal
of impairment)/impairment of inventories |
9 |
(20) |
994 |
Impairment
of receivables |
9 |
16 |
- |
Impairment/(reversal of impairment) of VAT recoverable |
9 |
11 |
(21) |
Effect of
foreign exchange rate changes |
|
1,131 |
1,591 |
Operating cash inflow/(outflow) before movements in working
capital |
|
239 |
(421) |
(Increase)/decrease in inventories |
|
(155) |
1,049 |
(Increase)/decrease in receivables |
|
(946) |
1,526 |
(Increase)/decrease in payables |
|
(197) |
(28) |
Cash
generated by operations |
|
(1,059) |
2,126 |
Interest
received |
|
185 |
68 |
Net
cash (outflow) /inflow from operating activities |
|
|
(874) |
2,194 |
Investing activities |
|
|
|
|
Purchases
of property, plant and equipment |
|
|
(93) |
(150) |
Purchases
of intangible exploration and evaluation assets |
|
|
- |
(9) |
Interest
received |
|
|
97 |
8 |
Net
cash used in investing activities |
|
|
4 |
(151) |
|
|
|
|
|
Net
(decrease)/increase in cash |
|
|
(870) |
2,043 |
Effect of
foreign exchange rate changes |
|
|
(207) |
(285) |
Cash at
beginning of year |
|
|
15,011 |
13,253 |
Cash at end of
year |
|
|
13,934 |
15,011 |
|
|
|
|
|
|
|
|
|
Notes to the Consolidated Financial
Statements
For the year ended 31 December 2022
1. General
information
Cadogan Energy Solutions plc (the “Company”, together with its
subsidiaries the “Group”), is registered in England and Wales under the Companies Act 2006. The
address of the registered office is 6th Floor, 60 Gracechurch
Street, London EC3V 0HR.
The Group principal activity has been up to now oil and gas
exploration, development and production; the Group also conducts
gas trading and provides services to other E&P operators. The
strategy of the Group is to expand its activities along the energy
value chain, beyond current activities to new forms of energy with
a reduced impact on the environment.
The Company’s shares have a standard listing on the Official
List of the UK Listing Authority and are traded on the Main Market
of the London Stock Exchange.
2. Adoption of new and
revised Standards
New IFRS accounting standards,
amendments and interpretations effective from 1 January 2022
The disclosed policies have been applied consistently by the
Group for both the current and previous financial year with the
exception of the new standards adopted.
The IFRS financial information has been drawn up on the basis of
accounting policies consistent with those applied in the financial
statements for the year to 31 December
2021, except for the following:
(a) COVID-19-related Rent Concessions beyond
30 June 2021 - Amendments to IFRS
16;
(b) Amendment to IFRS 16 Leases:
COVID-19-Related Rent Concessions beyond 30
June 2022
(c) Amendments to IAS 37 Provisions, Contingent
Liabilities and Contingent Assets: Onerous Contracts — Cost of
Fulfilling a Contract
(d) Amendments to IFRS 3 Business Combinations: Reference
to the Conceptual Framework
(e) Annual Improvements to IFRS Standards 2018–2020
The application of the above standards has had no impact on the
disclosures or the amounts recognised in the Group's consolidated
financial statements.
New IFRS accounting standards,
amendments and interpretations not yet effective
Below is a list of new and revised IFRSs that are not yet
mandatorily effective (but allow early application) for the year
ending 31 December 2022 and have not
been early adopted by the Group. These standards are not expected
to have a material impact on the Group in the future reporting
periods and on foreseeable future transactions.
IFRS
accounting standards |
Effective periods
beginning on or after |
Amendments to IFRS 17
Insurance contracts: Initial Application of IFRS 17 and IFRS 9 –
Comparative Information |
01 January 2023 |
Classification of
Liabilities as Current or Non-current - Amendments to IAS 1 |
01 January 2023 |
IFRS 17, 'Insurance
contracts' |
01 January 2023 |
Disclosure of
Accounting Policies - Amendments to IAS 1 and IFRS Practice
Statement 2 |
01 January 2023 |
Definition of
Accounting Estimates - Amendments to IAS 8 |
01 January 2023 |
Amendments to IFRS 16
Leases: Lease Liability in a Sale and Leaseback |
01 January 2024 |
Deferred Tax related
to Assets and Liabilities arising from a Single Transaction -
Amendments to IAS 12 |
01 January 2023 |
3.
Significant accounting policies
(a) Basis of
accounting
The financial statements have been prepared in accordance with
international accounting standards in conformity with the
requirements of the Companies Act 2006 and in accordance with
international financial reporting standards as adopted by the UK
pursuant to Regulation (EC) No 1606/2002 as it applies in the
European Union.
The financial statements have been prepared on the historical
cost convention basis.
The principal accounting policies adopted are set out below:
(b) Going
concern
The Group’s cash balance at 31 December
2022 was $13.9 million (2021:
$15.0 million). The Directors believe
that the funds available at the date of the issue of these
financial statements are sufficient for the Group to manage its
business risks and planned investments successfully.
The Directors’ have carried out a robust assessment of the
principal risks facing the Group.
The Group’s forecasts and projections, taking into account
reasonably possible changes in trading activities, operational
performance, flow rates for commercial production and the price of
hydrocarbons sold to Ukrainian customers, show that there are
reasonable expectations that the Group will be able to operate on
funds currently held and those generated internally, for the
foreseeable future.
Notwithstanding the Group’s current financial performance and
position, the Board are cognisant of the actual risks related to
the war situation in Ukraine. The
Board has considered possible reverse stress case scenarios for the
impact on the Group’s operations, financial position and forecasts.
Whilst the potential future impacts of the invasion of
Ukraine by Russia are unknown, the Board has considered
operational disruption that may be caused by the factors such as a)
restrictions applied by governments, illness amongst our workforce
and disruption to supply chain and sales channels; b) market
volatility in respect of commodity prices associated in addition to
military and geopolitical factors.
In addition to sensitivities that reflect future expectations
regarding country, commodity price and currency risks that the
Group may encounter reverse stress tests have been run to reflect
possible negative effects of the war in Ukraine. The Group’s forecasts demonstrate
that owing to its cash resources the Group is able to meet its
operating cash flow requirements and commitments whilst maintaining
significant liquidity for a period of at least the next 12 months
allowing for sustained reductions in commodity prices and extended
and severe disruption to operations should such a scenario
occur.
After making enquiries and considering the uncertainties
described above, the Directors have a reasonable expectation that
the Company and the Group have adequate resources to continue in
operational existence for the foreseeable future and consider the
going concern basis of accounting to be appropriate and, thus, they
continue to adopt the going concern basis of accounting in
preparing the annual financial statements.
(c) Basis of consolidation
The consolidated financial statements incorporate the financial
statements of the Company and entities controlled by the Company
(its subsidiaries) made up to 31 December each year. IFRS 10
defines control to be investor control over an investee when it is
exposed, or has rights, to variable returns from its involvement
with the investee and has the ability to control those returns
through its power over the investee. The results of subsidiaries
disposed of during the year are included in the consolidated income
statement from the effective date of acquisition or up to the
effective date of disposal, as appropriate. Where necessary,
adjustments are made to the financial statements of subsidiaries to
bring accounting policies used into line with those used by the
Group. All intra-group transactions, balances, income and expenses
are eliminated on consolidation.
3. Significant
accounting policies (continued)
(c) Basis of
consolidation (continued)
Non-controlling interests in subsidiaries are identified
separately from the Group’s equity therein. Those interests of
non-controlling shareholders that are present ownership interests
entitling their holders to a proportionate share of net assets upon
liquidation may be initially measured at fair value or at the
non-controlling interests’ proportionate share of the fair value of
the acquiree’s identifiable net assets. The choice of measurement
is made on an acquisition-by-acquisition basis. Other
non-controlling interests are initially measured at fair value.
Subsequent to acquisition, the carrying amount of
non-controlling interests is the amount of those interests at
initial recognition plus the non-controlling interests’ share of
subsequent changes in equity. Total comprehensive income is
attributed to non-controlling interests even if this results in the
non-controlling interests having a deficit balance.
Changes in the Group’s interests in subsidiaries that do not
result in a loss of control are accounted for as equity
transactions. The carrying amount of the Group’s interests and the
non-controlling interests are adjusted to reflect the changes in
their relative interests in the subsidiaries. Any difference
between the amount by which the non-controlling interests are
adjusted and the fair value of the consideration paid or received
is recognised directly in equity and attributed to the owners of
the Company.
(d) Investments in joint
ventures
Financial statements of equity-accounted entities are prepared
for the same reporting year as the Group. The Group assesses
investments in equity-accounted entities for impairment whenever
events or changes in circumstances indicate that the carrying value
may not be recoverable. In doing so, the Group applies the criteria
of IFRS 6 ‘Exploration for and evaluation of mineral resources’ as
the joint venture holds exploration phase assets. If any such
indication of impairment exists, the carrying amount of the
investment is compared with its recoverable amount, being the
higher of its fair value less costs of disposal and value in use.
If the carrying amount exceeds the recoverable amount, the
investment is written down to its recoverable amount.
The Group ceases to use the equity method of accounting from the
date on which it no longer has joint control over the joint venture
or significant influence over the associate, or when the interest
becomes classified as an asset held for sale.
(e) Revenue
recognition
Revenue from contracts with customers is recognized when or as
the Group satisfies a performance obligation by transferring a
promised good or service to a customer. A good or service is
transferred when the customer obtains control of that good or
service. Revenue is measured based on measurement principles of
IFRS 15 and represents amounts receivable for hydrocarbon products
and services provided in the normal course of business, net of
value added tax (‘VAT’) and other sales-related taxes, excluding
royalties on production. Royalties on production are recorded
within cost of sales.
The crude oil produced by the upstream operations is sold to
external customers. Revenue from the sale of crude oil is
recognised at the point in time when control of the product is
transferred to the customer, which is typically when goods are
despatched, and title has passed. The Group despatches oil at the
production point (EXW incoterms) therefore the Group has no
transportation and shipping costs associated with the transfer of
the product to the customer.
The Group’s sales of crude oil are priced based on the
consideration specified in contracts with customers based on a
conducted tender result on the opened tender platform. Invoices are
typically paid at the day of product despatch.
3. Significant accounting policies
(continued)
E&P and Trading business
segments
The transfer of control of hydrocarbons usually coincides with
title passing to the customer and the customer taking physical
possession as the product passes a physical point such as a
designated point in the pipeline for the sale of gas or loading
point in the case of oil. The Group principally satisfies its
performance obligations at a point in time.
To the extent that revenue arises from test production during an
evaluation programme, an amount is credited to evaluation costs and
charged to cost of sales, to reflect a zero-net margin.
Interest income is accrued on a time basis, by reference to the
principal outstanding and at the effective interest rate
applicable, which is the rate that exactly discounts estimated
future cash receipts through the expected life of the financial
asset to that asset’s net carrying amount on initial
recognition.
(f) Foreign
currencies
The functional currency of the Group’s Ukrainian operations is
Ukrainian Hryvnia. The functional currency of the Group’s UK
subsidiaries and the parent company is US Dollar.
In preparing the financial statements of the individual
companies, transactions in currencies other than the functional
currency of each Group company (‘foreign currencies’) are recorded
in the functional currency at the rates of exchange prevailing on
the dates of the transactions. At each balance sheet date, monetary
assets and liabilities that are denominated in foreign currencies
are retranslated into the functional currency at the rates
prevailing on the balance sheet date. Non-monetary assets and
liabilities carried at fair value that are denominated in foreign
currencies are translated at the rates prevailing at the date when
the fair value was determined. Non-monetary items that are measured
in terms of historical cost in a foreign currency are not
retranslated. Foreign exchange differences on cash are recognized
in operating profit or loss in the period in which they arise.
Exchange differences are recognized in the profit or loss in the
period in which they arise except for exchange differences on
monetary items receivable from or payable to a foreign operation
for which settlement is neither planned nor likely to occur. This
forms part of the net investment in a foreign operation, which is
recognized in the foreign currency translation reserve and in
profit or loss on disposal of the net investment.
For the purpose of presenting consolidated financial statements,
the results and financial position of each entity of the Group,
where the functional currency is not the US dollar, are translated
into US dollars as follows:
i.
assets and liabilities of the Group’s foreign operations are
translated at the closing rate on the balance sheet date;
ii.
income and expenses are translated at the average exchange rates
for the period, where it approximates to actual rates. In other
cases, if exchange rates fluctuate significantly during that
period, the exchange rates at the date of the transactions are
used; and
iii.
all resulting exchange differences arising, if any, are recognized
in other comprehensive income and accumulated equity (attributed to
non-controlling interests as appropriate), transferred to the
Group’s translation reserve. Such translation differences are
recognized as income or as expenses in the period in which the
operation is disposed of.
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.
|
|
The
relevant exchange rates used were as follows: |
|
Year
ended 31 December 2022 |
Year
ended 31 December 2021 |
|
|
GBP/USD |
EURO/USD |
USD/UAH |
GBP/USD |
EURO/USD |
USD/UAH |
|
Closing rate |
1.2104 |
1.0708 |
37.0663 |
1.3514 |
1.1344 |
27.5776 |
|
Average rate |
1.2372 |
1.0539 |
32.4569 |
1.3761 |
1.1847 |
27.5112 |
|
|
|
|
|
|
|
|
|
3. Significant accounting policies
(continued)
(g) Taxation
The tax expense represents the sum of the tax currently payable
and deferred tax.
The tax currently payable is based on taxable profit for the
year. Taxable profit differs from net profit as reported in the
consolidated income statement because it excludes items of income
or expense that are taxable or deductible in other years and it
further excludes items that are never taxable or deductible. The
Group’s liability for current tax is calculated using tax rates
that have been enacted or substantively enacted by the balance
sheet date.
Deferred tax is the tax expected to be payable or recoverable on
differences between the carrying amounts of assets and liabilities
in the financial statements and the corresponding tax bases used in
the computation of taxable profit. This is accounted for using the
balance sheet liability method. Deferred tax liabilities are
generally recognized for all taxable temporary differences and
deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which
deductible temporary differences can be utilised. Such assets and
liabilities are not recognized if the temporary difference arises
from the initial recognition of goodwill or from the initial
recognition (other than in a business combination) of other assets
and liabilities in a transaction that affects neither the taxable
profit nor the accounting profit. Deferred tax liabilities are
recognized for taxable temporary differences arising on investments
in subsidiaries and associates, and interests in joint ventures,
except where the Group is able to control the reversal of the
temporary difference and it is probable that the temporary
difference will not reverse in the foreseeable future.
The carrying amount of deferred tax assets is reviewed at each
balance sheet date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered. Deferred tax is
calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset is realized.
Deferred tax is charged or credited in the income statement, except
when it relates to items charged or credited in other comprehensive
income, in which case the deferred tax is also dealt with in other
comprehensive income.
Deferred tax assets and liabilities are offset when there is a
legally enforceable right to set off current tax assets against
current tax liabilities and when they relate to income taxes levied
by the same taxation authority and the Group intends to settle its
current tax assets and liabilities on a net basis.
In case of the uncertainty of the tax treatment, the Group
assess, whether it is probable or not, that the tax treatment will
be accepted, and to determine the value, the Group use the most
likely amount or the expected value in determining taxable profit
(tax loss), tax bases, unused tax losses, unused tax credits and
tax rates.
(h) Other property,
plant and equipment
Property, plant and equipment (‘PP&E’) are carried at cost
less accumulated depreciation and any recognized impairment loss.
Depreciation and amortization is charged so as to write-off the
cost or valuation of assets, other than land, over their estimated
useful lives, using the straight-line method, on the following
bases:
Other
PP&E
10% to 30%
The gain or loss arising on the disposal or retirement of an
asset is determined as the difference between the sales proceeds
and the carrying amount of the asset and is recognized in
income.
(i) Intangible
exploration and evaluation assets
The Group applies the modified full cost method of accounting
for intangible exploration and evaluation (‘E&E’) expenditure,
which complies with requirements set out in IFRS 6 Exploration
for and Evaluation of Mineral Resources. Under the modified
full cost method of accounting, expenditure made on exploring for
and evaluating oil and gas properties is accumulated and initially
capitalized as an intangible asset, by reference to
3. Significant accounting policies
(continued)
(i) Intangible exploration and
evaluation assets (continued)
appropriate cost centres being the appropriate oil or gas
property. E&E assets are then assessed for impairment on a
geographical cost pool basis, which are assessed at the level of
individual licences.
E&E assets comprise costs of (i) E&E activities which
are in progress at the balance sheet date, but where the existence
of commercial reserves has yet to be determined (ii) E&E
expenditure which, whilst representing part of the E&E
activities associated with adding to the commercial reserves of an
established cost pool, did not result in the discovery of
commercial reserves.
Costs incurred prior to having obtained the legal rights to
explore an area are expensed directly to the income statement as
incurred.
Exploration and Evaluation costs
E&E expenditure is initially capitalized as an E&E
asset. Payments to acquire the legal right to explore, costs of
technical services and studies, seismic acquisition, exploratory
drilling and testing are also capitalized as intangible E&E
assets.
Tangible assets used in E&E activities (such as the Group’s
vehicles, drilling rigs, seismic equipment and other property,
plant and equipment) are normally classified as PP&E. However,
to the extent that such assets are consumed in developing an
intangible E&E asset, the amount reflecting that consumption is
recorded as part of the cost of the intangible asset. Such
intangible costs include directly attributable overheads, including
the depreciation of PP&E items utilised in E&E activities,
together with the cost of other materials consumed during the
exploration and evaluation phases.
E&E assets are not amortized prior to the conclusion of
appraisal activities.
Treatment of E&E assets at
conclusion of appraisal activities
Intangible E&E assets related to each exploration property
are carried forward, until the existence (or otherwise) of
commercial reserves has been determined. If commercial reserves
have been discovered, the related E&E assets are assessed for
impairment on individual assets basis as set out below and any
impairment loss is recognized in the income statement. Upon
approval of a development programme, the carrying value, after any
impairment loss, of the relevant E&E assets is reclassified to
the development and production assets within PP&E.
Intangible E&E assets which relate to E&E activities
that are determined not to have resulted in the discovery of
commercial reserves remain capitalized as intangible E&E assets
at cost less accumulated amortization, subject to meeting a
pool-wide impairment test in accordance with the accounting policy
for impairment of E&E assets set out below.
Impairment of E&E assets
E&E assets are assessed for impairment when facts and
circumstances suggest that the carrying amount may exceed its
recoverable amount. Such indicators include, but are not limited to
those situations outlined in paragraph 20 of IFRS 6 Exploration
for and Evaluation of Mineral Resources such as, a) license
expiry during year or in the near future and will not likely to be
renewed; b) expenditure on E&E activity neither budgeted nor
planned; c) commercial quantities of mineral resources have been
discovered; and d) sufficient data exist to indicate that carrying
amount of E&E asset is unlikely to be recovered in full from
successful development or sale.
Where there are indications of impairment, the E&E assets
concerned are tested for impairment. Where the E&E assets
concerned fall within the scope of an established full cost pool,
which are not larger than an operating segment, they are tested for
impairment together with all development and production assets
associated with that cost pool, as a single cash generating
unit.
3. Significant accounting policies
(continued)
The aggregate carrying value of the relevant assets is compared
against the expected recoverable amount of the pool, generally by
reference to the present value of the future net cash flows
expected to be derived from production of commercial reserves from
that pool. Where the assets fall into an area that does not have an
established pool or if there are no producing assets to cover the
unsuccessful exploration and evaluation costs, those assets would
fail the impairment test and be written off to the income statement
in full.
Impairment losses are recognized in the income statement and are
separately disclosed.
(j) Development and production
assets
Development and production assets are accumulated 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 transferred from intangible E&E assets.
The cost of development and production assets comprises the cost
of acquisitions and purchases of such assets, directly attributable
overheads, finance costs capitalized, and the cost of recognizing
provisions for future restoration and decommissioning.
Depreciation of producing assets
Depreciation is calculated on the net book values of producing
assets on a field-by-field basis using the unit of production
method. The unit of production method refers to the ratio of
production in the reporting year as a proportion of the Proved and
Probable Reserves of the relevant field based on assessments of
internal geologists utilising the most recent Competent Person
Report and subsequent drilling and exploration, taking into account
future development expenditures necessary to bring those Reserves
into production.
Producing assets are generally grouped with other assets that
are dedicated to serving the same Reserves for depreciation
purposes, but are depreciated separately from producing assets that
serve other Reserves.
(k) Impairment of development and
production assets and other property, plant and equipment
At each balance sheet date, the Group reviews the carrying
amounts of its PP&E to determine whether there is any
indication that those assets have suffered an impairment loss. If
any such indication exists, the recoverable amount of the asset is
estimated in order to determine the extent of the impairment loss
(if any). Where the asset does not generate cash flows that are
independent from other assets, the Group estimates the recoverable
amount of the cash-generating unit to which the asset belongs. The
recoverable amount is the higher of fair value less costs to sell
and value in use. 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 for which the
estimates of future cash flows have not been adjusted. In
determining fair value less cost to sell, the estimated future cash
flows are discounted to their present value using a post-tax
discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset for which the
estimates of future cash flows have not been adjusted. Such
cash flows include relevant development expenditure that a market
participant would reasonably be expected to undertake.
If the recoverable amount of an asset (or cash-generating unit)
is estimated to be less than its carrying amount, the carrying
amount of the asset (cash-generating unit) is reduced to its
recoverable amount. An impairment loss is recognised as an expense
immediately.
Where an impairment loss subsequently reverses, the carrying
amount of the asset (cash-generating unit) is increased to the
revised estimate of its recoverable amount, but so that the
increased carrying amount does not exceed the carrying amount that
would have been determined had no impairment loss been recognised
for the asset (cash-generating unit) in prior years. A reversal of
an impairment loss is recognized as income immediately.
(l)
Inventories
Oil and gas stock and spare parts are stated at the lower of
cost and net realisable value. Costs comprise direct materials and,
where applicable, direct labour costs and those overheads that have
been incurred in bringing the inventories to their present location
and condition. Cost is allocated using the weighted average method.
Net realisable value represents the estimated selling price less
all estimated costs of completion and costs to be incurred in
marketing, selling and distribution.
(m) Financial instruments
Financial assets and financial liabilities are recognized in the
consolidated statement of financial position when the Group becomes
party to the contractual provisions of the instrument.
Loan classified at amortised cost
Loan is measured at the amount recognised at initial recognition
minus principal repayments, plus or minus the cumulative
amortization of any difference between that initial amount and the
maturity amount, and any loss allowance. Interest income is
calculated using the effective interest method and is recognised in
profit and loss. Changes in fair value are recognised in profit and
loss when the asset is derecognised or reclassified. In accordance
with IFRS 9, the loan is measured at amortised cost. The Group
applies the simplified approach to providing for expected credit
losses (ECL) prescribed by IFRS 9, which permits the use of the
lifetime expected loss provision for the loan. Expected credit
losses are assessed on a forward-looking basis. The loss allowance
is measured at initial recognition and throughout its life at an
amount equal to lifetime ECL. Any impairment is recognized in the
income statement.
Trade and other payables
Payables are initially measured at fair value, net of
transaction costs and are subsequently measured at amortized cost
using the effective interest method.
Trade and other receivables
Trade and other receivables are recognized initially at their
transaction price in accordance with IFRS 9 and are subsequently
measured at amortised cost. The Group applies the simplified
approach to providing for expected credit losses (ECL) prescribed
by IFRS 9, which permits the use of the lifetime expected loss
provision for all trade receivables. Expected credit losses are
assessed on a forward-looking basis. The loss allowance is measured
at initial recognition and throughout its life at an amount equal
to lifetime ECL. Any impairment is recognized in the income
statement.
Cash
Cash comprise cash on hand and on-demand deposits. Deposits are
recorded as cash and cash equivalents when they have a maturity of
less than 90 days at inception.
(n) Provisions
Provisions are recognized when the Group has a present
obligation (legal or constructive) as a result of a past event, it
is probable that the Group will be required to settle that
obligation and a reliable estimate can be made of the amount of the
obligation. The amount recognized as a provision is the best
estimate of the consideration required to settle the present
obligation at the balance sheet date, taking into account the risks
and uncertainties surrounding the obligation. When a provision is
measured using the cash flows estimated to settle the present
obligation, its carrying amount is the present value of those cash
flows.
(o)
Decommissioning
A provision for decommissioning is recognized in full when the
related facilities are installed. The decommissioning provision is
calculated as the net present value of the Group’s share of the
expenditure expected to be incurred at the end of the producing
life of each field in the removal and decommissioning of the
production, storage and transportation facilities currently in
place. The cost of recognizing the decommissioning provision is
included as part of the cost of the relevant asset and is thus
charged to the income statement on a unit of production basis in
accordance with the Group’s policy for depletion and depreciation
of tangible non-current assets. Period charges for changes in the
net present value of the decommissioning provision arising from
discounting are included within finance costs.
(p)
Leases
At inception of a contract, the Group assesses whether a
contract is, or contains, a lease based on whether the contract
conveys the right to control the use of an identified asset for a
period of time in exchange for consideration. Service agreements
for equipment on the working sites are not considered leases as,
based upon an assessment of the terms and nature of their
contractual arrangements, the contracts do not convey the right to
control the use of an identified asset.
The right-of-use asset is initially measured based on the
initial amount of the lease liability adjusted for any lease
payments made at or before the commencement date, plus any initial
direct costs incurred and an estimate of costs to dismantle and
remove the underlying asset or to restore the underlying asset or
the site on which it is located, less any lease incentives
received.
The asset is depreciated to the earlier of the end of the useful
life of the right-of-use asset or the lease term using the
straight-line method as this most closely reflects the expected
pattern of consumption of the future economic benefits. The lease
term includes periods covered by an option to extend if the Group
is reasonably certain to exercise that option. In addition, the
right-of-use asset is periodically reduced by impairment losses, if
any, and adjusted for certain remeasurements of the lease
liability.
The lease liability is initially measured at the present value
of the lease payments that are not paid at the commencement date,
discounted using the interest rate implicit in the lease or, if
that rate cannot be readily determined, the incremental borrowing
rate. The lease liability is measured at amortized cost using the
effective interest method. It is remeasured when there is a change
in future lease payments arising from a change in an index or rate,
if there is a change in the Group’s estimate of the amount expected
to be payable under a residual value guarantee, or if the Group
changes its assessment of whether it will exercise a purchase,
extension or termination option. When the lease liability is
remeasured in this way, a corresponding adjustment is made to the
carrying amount of the right-of-use asset, or the effect is
recorded in profit or loss if the carrying amount of the
right-of-use asset has been reduced to zero.
The Group elected to apply the practical expedient not to
recognise right-of-use assets and lease liabilities for short-term
leases that have a lease term of 12 months or less and leases of
low-value assets. The Group also made use of the practical
expedient to not recognize a right-of-use asset or a lease
liability for leases for which the lease term ends within 12 months
of the date of initial application.
The lease payments associated with these leases are recognized
as an expense on a straight-line basis over the lease term.
4. Critical accounting
judgements and key sources of estimation uncertainty
In the application of the Group’s accounting policies, which are
described in note 3, the Directors are required to make judgements,
estimates and assumptions about the carrying amounts of the assets
and liabilities that are not readily apparent from other sources.
The estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant.
Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognized in
the period in which the estimate is revised if the revision affects
only that period or in the period of the revision and future
periods if the revision affects both the current and future
periods.
The following are the critical judgements and estimates that the
Directors have made in the process of applying the Group’s
accounting policies and that have the most significant effect on
the amounts recognized in the financial statements.
Critical judgements and estimates
(a) Impairment indicator assessment
for E&E assets
Cadogan had fully complied with
legislative requirements and submitted its application for a
20-year exploration and production license 5 months before its
expiry on 23 December 2019. A
decision on the award was expected to be provided by State
Geological Service of Ukraine
before 19 January 2020, since all
other intermediary approvals had been secured in line with the
applicable legislation requirements. Given the delay in granting of
the new license beyond the regular timeline provided by legislation
in Ukraine, Cadogan has launched a claim before the
Administrative Court to challenge the non-granting of the 20-year
production license by the Licensing Authority.
In 2022, the claims of Usenco Nadra have been rejected by the
Court of 1st Instance, the Court of Appeal and the
Supreme Court.
(b) Impairment of
PP&E
Management assesses its development and production assets for
impairment indicators and if indicators of impairment are
identified performs an impairment test. Management performed an
impairment assessment using a discounted cash flow model which
required estimates including forecast oil prices, reserves and
production, costs and discount rates (note 17).
(c) Recoverability and
measurement of VAT
Judgment is required in assessing the recoverability of VAT
assets and the extent to which historical impairment provisions
remain appropriate, particularly noting the recent recoveries
against historically impaired VAT. In forming this assessment, the
Group considers the nature and age of the VAT, the likelihood of
eligible future supplies to VAT, the pattern of recoveries and
risks and uncertainties associated with the operating environment
(note 9).
(d) Proger Loan
recoverability
The recoverability of the carrying value of loan from PMP
represents a significant accounting judgment. In making their
assessment over estimated recoverability of the loan, management
considered the latest outcome of arbitration, assessment of the
security provided by the pledge over shares, and the delay in the
recovery of the expected amount. As a result, management concluded
that $15.8 million represents its
best estimate of recoverable amount as at 31
December 2022 (2021: $16,7
million). For further detail please refer to the note
27.
(e) Well services and rental
agreements
The Group’s well rental arrangements in Ukraine for oil and gas extraction activities
are outside of the scope of IFRS 16. Judgment was required in
forming this assessment, based on analysis of the scope of IFRS 16
and the nature of the well rental arrangements. This assessment
focused on the extent to which the rental agreements provided
access to sub-surface well structures to extract hydrocarbons
versus surface level infrastructure for the transport and
processing of extracted hydrocarbons.
(f) Deferred tax
assets
Deferred tax assets and liabilities require management judgement
in determining the amounts to be recognised. In particular,
significant judgement is used when assessing the extent to which
deferred tax assets should be recognised, with consideration given
to the timing and level of future taxable income in the relevant
tax jurisdiction.
5. Segment information
Segment information is presented on the basis of management’s
perspective and relates to the parts of the Group that are defined
as operating segments. Operating segments are identified on the
basis of internal reports provided to the Group’s chief operating
decision maker (“CODM”). The Group has identified its senior
management team as its CODM and the internal reports used by the
senior management team to oversee operations and make decisions on
allocating resources serve as the basis of information presented.
These internal reports are prepared on the same basis as these
consolidated financial statements.
Segment information is analysed on the basis of the type of
activity, products sold, or services provided. The majority of the
Group’s operations and all Group’s revenues are located within
Ukraine. Segment information is
analysed on the basis of the types of goods supplied by the Group’s
operating divisions. The Group’s reportable segments under IFRS 8
are therefore as follows:
Exploration and Production
§ E&P activities on the exploration and production licences
for natural gas, oil and condensate.
Trading
§ Import of natural gas from European countries; and
§ Local purchase and sales of natural gas operations with
physical delivery of natural gas.
The accounting policies of the reportable segments are the same
as the Group’s accounting policies described in note 3. Sales
between segments are carried out at rates considered to approximate
market prices. The segment result represents operating profit under
IFRS before unallocated corporate expenses. Unallocated corporate
expenses include management remuneration, representative expenses
and expenses incurred in respect of the maintenance of office
premises. This is the measure reported to the CODM for the purposes
of resource allocation and assessment of segment performance. The
Group does not present information on segment assets and
liabilities as the CODM does not review such information for
decision-making purposes.
As at 31 December 2022 and for the
year then ended the Group’s segmental information was as
follows:
|
Exploration and
Production |
Trading |
Consolidated |
|
$’000 |
$’000 |
$’000 |
Sales of hydrocarbons |
8,465 |
- |
8,465 |
Other revenue |
7 |
- |
7 |
Sales between segments |
- |
- |
- |
Total revenue |
8,472 |
- |
8,472 |
Cost of sales |
(5,553) |
- |
(5,553) |
Administrative expenses |
(450) |
(125) |
(575) |
Impairment of oil and gas
assets |
(269) |
- |
(269) |
Other operating expenses, net |
(3) |
- |
(3) |
Impairment of other assets |
(16) |
(11) |
(27) |
Reversal of impairment of other
assets |
20 |
- |
20 |
Finance income (1) |
185 |
- |
185 |
Segment results |
2,386 |
(136) |
2,250 |
Unallocated administrative
expenses |
|
|
(2,866) |
Other finance income, net |
|
|
187 |
Net foreign exchange loss |
|
|
(1,131) |
Loss before tax |
|
|
(1,560) |
(1) Net
finance income includes $185 thousand
of interest on cash deposits used for operations.
As at 31 December 2021 and for the
year then ended the Group’s segmental information was as
follows:
|
Exploration and
Production |
Trading |
Consolidated |
|
$’000 |
$’000 |
$’000 |
Sales of hydrocarbons |
7,017 |
1,769 |
8,786 |
Other revenue |
7 |
- |
7 |
Sales between segments |
- |
- |
- |
Total revenue |
7,024 |
1,769 |
8,793 |
Cost of sales |
(5,268) |
(1,104) |
(6,372) |
Administrative expenses |
(487) |
(145) |
(632) |
Other operating costs |
(35) |
- |
(35) |
Impairment of other assets |
(974) |
- |
(974) |
Impairment of oil and gas
assets |
(2,474) |
- |
(2,474) |
Finance income (2) |
- |
68 |
68 |
Segment results |
(2,214) |
588 |
(1,626) |
Unallocated administrative
expenses |
- |
- |
(3,080) |
Other income, net(3) |
- |
- |
1,199 |
Net foreign exchange loss |
- |
- |
(1,591) |
Loss before tax |
- |
- |
(5,098) |
(2) Net
finance income includes $68 thousand
of interest on cash deposits used for trading.
(3)
Includes interest on loan of $1,225
thousand
.
Fixed assets related to Exploration and Production segment are
disclosed in the note 17.
6. Revenue
|
2022
$’000 |
2021
$’000 |
Sale of hydrocarbons (exploration
and production) – point in time |
8,472 |
7,024 |
Sale of hydrocarbons (trading) –
point in time |
- |
1,769 |
Total |
8,472 |
8,793 |
Revenue is generated in Ukraine. Refer to note 3 (e) for details of
the performance obligations. Service revenue and associated
contract assets and liabilities are immaterial.
Information about major customers
80% of exploration and production business segment revenue arose
from sales to five largest customers. Three of them contributed for
more than 10% of the total revenue of the exploration and
production business segment revenue for the year ended 31 December 2022.
65% of prior year exploration and production business segment
revenue arose from sales to four largest customers. Each of them
contributed for more than 10% of the total revenue of the
exploration and production business segment revenue for the year
ended 31 December 2021.
Trading segment revenue for the year ended 31 December 2021 of $1.8
million arose from sales to the Group’s four customers.
7. Cost of sales
|
2022 |
2021 |
|
$’000 |
$’000 |
Subsoil tax |
3,522 |
3,061 |
Natural Gas cost
(Inventory) |
- |
1,101 |
Well rent |
789 |
745 |
Depreciation |
536 |
751 |
Staff cost |
245 |
260 |
Materials
(Inventory) |
143 |
129 |
Machinery
services |
111 |
68 |
Electricity |
67 |
55 |
Security services |
65 |
77 |
Other expenses |
75 |
125 |
Total |
5,553 |
6,372 |
8. Administrative
expenses
|
|
|
2022
$’000 |
2021
$’000 |
Staff |
|
|
1,774 |
1,897 |
Professional fees |
|
|
872 |
827 |
Depreciation |
|
|
217 |
251 |
Insurance |
|
|
215 |
350 |
IT and communication |
|
|
62 |
68 |
Cars and travel |
|
|
61 |
75 |
Office costs including utilities and
maintenance |
|
|
51 |
73 |
Bank charges |
|
|
34 |
43 |
Other |
|
|
155 |
128 |
Total |
|
3,441 |
3,712 |
9. Reversal of
impairment/(impairment) of other assets
|
|
|
2022
$’000 |
2021
$’000 |
Inventory |
|
|
20 |
- |
Other receivables |
|
|
- |
20 |
Reversal of impairment of other
assets |
|
|
20 |
20 |
$1.0 million (2021: $1.3 million) of historical VAT receivables
remain impaired. Refer to Note 4 and 20.
|
|
|
2022
$’000 |
2021
$’000 |
Inventories |
|
|
- |
(994) |
Other receivables |
|
|
(16) |
- |
VAT recoverable |
|
|
(11) |
- |
Impairment of other
assets |
|
(27) |
(994) |
10.
Other operating expenses, net
|
|
|
2022
$’000 |
2021
$’000 |
Other expenses |
|
|
(3) |
(18) |
Total |
|
(3) |
(18) |
11. Auditor’s
remuneration
The analysis of auditor’s remuneration is as follows:
|
2022
$’000 |
2021
$’000 |
Audit fees |
|
|
Fees payable to the Company’s
auditor and their associates for the audit of the Company’s annual
accounts |
192 |
156 |
Fees payable to the Company’s
auditor and their associates for other services to the Group: |
|
|
- The audit of the Company’s
subsidiaries |
8 |
8 |
Total audit fees |
200 |
164 |
|
|
|
Non-audit fees |
|
|
- Review of regulatory
communications |
- |
- |
Non-audit fees |
- |
- |
Audit fees for 2022, of $200
thousand, refer to Moore Kingstone Smith for the audit of
group accounts and subsidiaries as of and for the year ended
31 December 2022.
12. Staff costs
The average monthly number of employees (including Executive
Directors) was:
|
2022
Number |
2021
Number |
Executive Director |
1 |
1 |
Other employees |
74 |
77 |
Total |
75 |
78 |
|
|
|
Total number of employees at 31
December |
75 |
78 |
|
|
|
|
$’000 |
$’000 |
Their aggregate remuneration
comprised: |
|
|
Wages and salaries |
1,596 |
1,671 |
Social security costs |
301 |
307 |
Annual bonus |
- |
- |
Charge for bonus granted in
shares |
- |
- |
Total |
1,897 |
1,978 |
13.
Finance income/(costs), net
|
2022
$’000 |
2021
$’000 |
Interest on loan (note 27) |
38 |
1,225 |
Investment revenue |
97 |
8 |
Interest income on cash deposits in
Ukraine |
185 |
68 |
Change in provision (note 25) |
93 |
- |
Total interest income on
financial assets |
413 |
1,301 |
|
|
|
Interest on lease |
(18) |
(28) |
Unwinding of discount on
decommissioning provision (note 25) |
(23) |
(23) |
Total |
372 |
1,250 |
14.
Tax
|
2022
$’000 |
2021
$’000 |
Current tax |
- |
- |
Deferred tax |
- |
- |
Total |
- |
- |
The Group’s operations are conducted primarily outside the UK,
namely in Ukraine. The most
appropriate tax rate for the Group is therefore considered to be 18
% (2021: 18%), the rate of profit tax in Ukraine, which is the primary source of
revenue for the Group. Taxation for other jurisdictions is
calculated at the rates prevailing in the respective
jurisdictions.
The taxation charge for the year can be reconciled to the
profit/(loss) per the income statement as follows:
|
2022
$’000 |
2022
% |
2021
$’000 |
2021
% |
(Loss)/profit before tax |
(1,560) |
100 |
(5,098) |
100 |
Tax credit at Ukraine corporation
tax rate of 18% (2021: 18%) |
(281) |
18 |
(918) |
18 |
Permanent
differences |
(1,361) |
87 |
(920) |
20 |
Unrecognized tax losses generated in
the year |
1,682 |
(108) |
1,969 |
(41) |
Effect of different tax rates |
(40) |
3 |
(131) |
3 |
|
- |
- |
- |
- |
Adjustments recognized
in the current year in relation
with the current tax of prior years |
- |
- |
- |
- |
Income tax (benefit)/expense
recognized in profit or loss |
- |
- |
- |
- |
Permanent differences mostly represent items, including
provisions, accruals and impairments related to taxation in
Ukraine, these are items not
deductible in tax computations.
15. Loss
per Ordinary share
Loss attributable to owners of
the Company |
2022
$’000 |
2021
$’000 |
Loss for the purposes
of basic loss per share being net loss attributable to owners of
the Company |
(1,562) |
(5,070) |
Number of shares |
Number
‘000 |
Number
‘000 |
Weighted average number of Ordinary
shares used in calculation of earnings per share: |
|
|
Basic |
244,128 |
244,128 |
Diluted |
244,128 |
244,128 |
|
Cent |
Cent |
Loss per Ordinary share |
|
|
Basic and diluted |
(0.6) |
(2.1) |
Basic loss per Ordinary share is calculated by dividing the net
loss for the year attributable to owners of the Company by the
weighted average number of Ordinary shares outstanding during the
year. The calculation of the basic loss per share is based on the
following data:
In 2022 and 2021 the Group generated a loss and therefore there
is no difference between basic and diluted EPS.
16.
Intangible exploration and evaluation assets
Cost |
|
$’000 |
At 1 January 2021 |
|
16,211 |
Additions |
|
- |
Disposals |
|
- |
Change in estimate of
decommissioning assets (note 25) |
|
25 |
Exchange differences |
|
465 |
At 1 January 2022 |
|
16,701 |
Additions |
|
- |
Disposals |
|
(5,878) |
Change in estimate of
decommissioning assets (note 25) |
|
269 |
Exchange differences |
|
(3,577) |
At 31 December 2022 |
|
7,515 |
|
|
|
Impairment |
|
|
At 1 January
2021 |
|
13,830 |
Disposals |
|
2,474 |
Exchange
differences |
|
397 |
At 1 January
2022 |
|
16,701 |
Addition |
|
- |
Disposals |
|
(5,878) |
Impairment |
|
269 |
Exchange
differences |
|
(3,577) |
At 31 December
2022 |
|
7,515 |
|
|
|
Carrying
amount |
|
|
At 31 December
2022 |
|
- |
At 31 December
2021 |
|
- |
Disposal of $5.8 million relates
to E&E assets impaired in previous years. Company was analysing
on possibility to realise any benefits from those assets. In 2022,
based on the conducted analysis management decided to dispose those
assets from the balance sheet.
The carrying amount of E&E assets at 31 December 2022 relates to the Bitlyanska
license.
Usenco Nadra has fully complied with legislative requirements
and submitted its application for a 20-year exploration and
production license 5 months before its expiry on 23 December 2019. A decision on the award was
expected to be provided by State Geological Service of Ukraine before 19
January 2020, since all other intermediary approvals had
been secured in line with the applicable legislation requirements.
Given the delay to granting of the new license beyond the regular
timeline provided by legislation in the Ukraine, Cadogan filed a claim before the
Administrative Court to challenge the non-granting of the 20-year
production license by the Licensing Authority.
After the rejection of its claims, in February 2022, the Company exercised its right
for appeal. The Appeal Court and further on the Supreme Court
rejected all the Company’s claims.
Cadogan has fully impaired the
Bitlyanska license.
17.
Property, plant and equipment
Cost |
Development
and
production assets
$’000 |
Other
$’000 |
Total
$’000 |
At 1 January
2021 |
14,018 |
2,853 |
16,871 |
Additions |
127 |
23 |
150 |
Change in estimate of
decommissioning assets (note 25) |
22 |
- |
22 |
Disposal |
(2) |
(27) |
(29) |
Exchange
differences |
402 |
81 |
483 |
At 1 January
2022 |
14,567 |
2,930 |
17,497 |
Additions |
71 |
30 |
101 |
Change in estimate of
decommissioning assets (note 25) |
- |
- |
- |
Disposal |
(701) |
(7) |
(708) |
Exchange
differences |
(3,651) |
(753) |
(4,404) |
At 31 December
2022 |
10,286 |
2,200 |
12,486 |
|
|
|
|
Accumulated
depreciation and impairment |
|
|
|
At 1 January
2021 |
4,499 |
2,409 |
6,908 |
Charge for the
year |
647 |
150 |
797 |
Disposals |
- |
(2) |
(2) |
Exchange
differences |
127 |
69 |
196 |
At 1 January
2022 |
5,273 |
2,626 |
7,899 |
Charge for the
year |
604 |
68 |
672 |
Disposals |
(693) |
(7) |
(700) |
Exchange
differences |
(1,338) |
(680) |
(2,018) |
At 31 December
2022 |
3,846 |
2,007 |
5,853 |
|
|
|
|
Carrying
amount |
|
|
|
At 31 December
2022 |
6,440 |
193 |
6,633 |
At 31 December
2021 |
9,294 |
304 |
9,598 |
Other property, plant and equipment include fixtures and
fittings for the development and production activities.
The carrying amount of development and production assets at
31 December 2022 of $6.4 million relates to the Blazhiv license.
Depreciation includes $0.6 million
for the Blazhiv license.
Management has performed an impairment review of Development and
production assets based on the underlying discounted cash flow
forecasts. The impairment review supported the conclusion that no
impairment was applicable. Key assumptions used in the impairment
assessment were: future oil prices which were assumed at a constant
$408 (2021: $401), real per tonne; a production forecast with
a natural decline; estimated reserves and a discount rate of 25%,
nominal.
Sensitivity analysis for the Development and production
assets
Any impairment is dependent on judgement used in determining the
most appropriate basis for the assumptions and estimates made by
management, particularly in relation to the key assumptions
described above. Sensitivity analysis to potential changes in key
assumptions to reach break-even has been provided below:
Change in the
assumptions to be break-even |
|
Oil price |
(17%) |
Oil production
volumes |
(25%) |
Discount rate |
36% |
18.
Subsidiaries
The Company had investments in the following subsidiary
undertakings at 31 December 2022:
Name |
Country of
incorporation
and operation |
Proportion
of voting
interest % |
Activity |
Registered office |
Directly held |
|
|
|
|
Cadogan Petroleum Holdings Ltd |
UK |
100 |
Holding company |
6th Floor 60 Gracechurch Street,
London, United Kingdom, EC3V 0HR |
Indirectly held |
|
|
|
|
Cadogan Petroleum Holdings BV |
Netherlands |
100 |
Holding company |
Hoogoorddreef 15, 1101 BA
Amsterdam |
Cadogan Bitlyanske BV |
Netherlands |
100 |
Holding company |
Hoogoorddreef 15, 1101 BA
Amsterdam |
Zagoryanska Petroleum BV |
Netherlands |
100 |
Holding company |
Hoogoorddreef 15, 1101 BA
Amsterdam |
LLC Cadogan Ukraine |
Ukraine |
100 |
Holding company |
48/50a, Zhylyanska Street, Kyiv,
Ukraine |
LLC Astro Gas |
Ukraine |
100 |
Dormant |
5a, Pogrebnyak Street, ap. 2,
Zinkiv, Poltava region, Ukraine, 38100 |
LLC Astroinvest-Energy |
Ukraine |
100 |
Trading |
5a, Pogrebnyak Street, ap. 2,
Zinkiv, Poltava region, Ukraine, 38100 |
SE USENCO Ukraine |
Ukraine |
100 |
Production |
8, Mitskevycha sq.,Lviv,
Ukraine,79000 |
LLC USENCO Nadra |
Ukraine |
95 |
Production |
9a, Karpenka-Karoho str., Sambir,
Lviv region, Ukraine |
LLC Astro-Service |
Ukraine |
100 |
Service Company |
3 Petro Kozlaniuk str, Kolomyia,
Ukraine |
Exploenergy s.r.l. |
Italy |
90 |
Exploration |
Via Adige 17, San Donato Milanese_
Milano, CAP 20097, Italy |
There were no changes to the Group structure during 2022.
19.
Inventories
|
|
2022
$’000 |
2021
$’000 |
Natural gas |
|
45 |
- |
Crude oil |
|
182 |
101 |
Other inventories |
|
1,184 |
1,599 |
Impairment
provision |
|
(1,116) |
(1,523) |
Carrying
amount |
|
295 |
177 |
The impairment provision at 31 December
2022 and 2021 is made so as to reduce the carrying value of
the inventories to the net realizable value.
20.
Trade and other receivables
|
|
2022
$’000 |
2021
$’000 |
Trade receivables |
|
166 |
38 |
VAT recoverable |
|
77 |
64 |
Prepayments |
|
60 |
89 |
Other receivables |
|
15 |
27 |
|
|
318 |
218 |
The Group considers that the carrying value of receivables
approximates their fair value.
VAT recoverable is presented net of the cumulative provision of
$1.0 million (2021: $1.3 million) against Ukrainian VAT receivable
that has been recognized as at 31 December
2022. VAT recoverable relates to the oil production and gas
trading operations and is expected to be recovered through the gas
and oil sales VAT.
21.
Notes supporting statement of cash flows
Cash at 31 December 2022 of
$13.9 million (2021: $15.0 million) comprise cash held by the Group.
Ukrainian subsidiaries of the Group hold $3.6 million as at 31
December 2022.
With the start of the Russian invasion into Ukraine on 24 February
2022, the Ukrainian government introduced Martial Law affecting, among others, aspects
relating to lending agreements, foreign exchange and currency
controls and banking activities. As a result of the introduced
Martial Law, the National Bank of
Ukraine (“NBU”) has introduced
significant currency and capital control restrictions in
Ukraine. These measures are
affecting the Group in terms of its cross-border payments to be
made, which are restricted and may be carried out only in
exceptional cases specified in the amendments to the resolution No.
18. Based on the regulations, Ukrainian subsidiaries of the Group
are not able to pay dividends to the parent Company but are able to
use the cash in normal course of business.
The Directors consider that the carrying amount of these assets
approximates to their fair value. There were no cash transactions
from financing activities for the year 2022.
22.
Deferred tax
The following are the major deferred tax liabilities and assets
recognised by the Group and movements thereon during the current
and prior reporting period:
|
Temporary
differences
$’000 |
Asset at 1 January 2021 |
419 |
Deferred
tax benefit |
- |
Exchange
differences |
12 |
Asset at 1 January 2022 |
431 |
Deferred tax
benefit |
- |
Exchange differences |
(112) |
Asset at 31 December
2022 |
319 |
At 31 December 2022, the Group had
the following unused tax losses available for offset against future
taxable profits:
|
|
|
2022
$’000 |
2021
$’000 |
UK |
|
|
17,541 |
19,949 |
Ukraine |
|
|
43,138 |
50,782 |
|
|
|
60,679 |
70,731 |
Deferred tax assets have been recognized in respect of those tax
losses where there is sufficient certainty that profit will be
available in future periods against which they can be utilized. The
Group’s unused tax losses of $17.5
million (2021: $19.9 million)
relating to losses incurred in the UK are available to shelter
future non-trading profits arising within the Company. These losses
are not subject to a time restriction on expiry. No deferred tax
asset is recorded.
Unused tax losses incurred by Ukraine subsidiaries amount to $43.1 million (2021: $50.8
million). Under general tax law provisions, these losses may
be carried forward indefinitely to be offset against any type of
taxable income arising from the same company. Tax losses may not be
surrendered from one Ukraine
subsidiary to another. The deferred tax asset recorded is expected
to be utilized based on forecasts and relates to oil production
subsidiaries which are generating taxable profits in the
foreseeable future.
23.
Lease liabilities
The Group recognized right-of-use assets and lease liabilities
based on rental contract for a rent of Kyiv office with maturity date end of
February 2024 which was entered into
in the period. The Group initially recognized right-of-use assets
of $292 thousand as of 31 December 2020. Right-of-use assets are
depreciated over the useful life of the underlying asset.
Depreciation of $92 thousand is
recognized for the year 2022 and represented as a part of other
administrative expenses. Carrying value of right-of-use assets is
$108 thousand as of 31 December 2022.
The following table sets out a maturity analysis of lease
liability, showing the undiscounted lease payments to be paid after
the reporting date.
|
2022
$’000 |
2021
$’000 |
2022 |
- |
110 |
2023 |
99 |
118 |
2024 |
20 |
20 |
Less: unearned
interest |
(12) |
(42) |
Lease liabilities |
107 |
206 |
|
2022
$’000 |
2021
$’000 |
Analysed
as: |
|
|
Current |
79 |
102 |
Non-current |
28 |
104 |
Lease
liabilities |
107 |
206 |
24.
Trade and other payables
|
2022
$’000 |
2021
$’000 |
Accruals |
281 |
194 |
Trade creditors |
569 |
481 |
Prepayments
received |
32 |
17 |
Other payables |
519 |
787 |
|
1,401 |
1,479 |
Trade creditors and accruals principally comprise amounts
outstanding for ongoing costs. The average credit period taken for
trade purchases is 30 days (2021: 29 days). The Group has financial
risk management policies to ensure that all payables are paid
within the credit timeframe.
Other payables include unused vacation reserve provision of
$0.37 million (2021: $0.34 million), subsoil tax payables of
$0.13 million (2021: $0.35) and other payables of $0.02 million (2021: $0.1).
The Directors consider that the carrying amount of trade and
other payables approximates to their fair value. No interest is
generally charged on outstanding balances.
25. Provisions
The provisions at 31 December 2022
comprise of $0.4 million (2021:
$0.3 million) of decommissioning
provision.
Decommissioning
|
$’000 |
At 1 January 2021 |
223 |
Change in estimate (note 16 and
17) |
25 |
Additional provisions recognized in
the period |
- |
Utilization of provision on impaired
oil and gas assets |
- |
Unwinding of discount on
decommissioning provision (note 13) |
22 |
Exchange differences |
30 |
At 1 January 2022 |
300 |
Change in estimate: exploration and
evaluation assets (note 16) |
269 |
Change in estimate: development and
production assets |
(93) |
Additional provisions recognized in
the period |
- |
Utilization of provision on impaired
oil and gas assets |
- |
Unwinding of discount on
decommissioning provision (note 13) |
23 |
Exchange differences |
(102) |
At 31 December 2022 |
397 |
|
$’000 |
At 1 January 2021 |
223 |
Non-current |
300 |
Current |
- |
At 1 January 2022 |
300 |
Non-current |
261 |
Current |
136 |
At 31 December 2022 |
397 |
In accordance with the Group’s environmental policy and
applicable legal requirements as of 31st December 2022, the Group intends to restore the
sites it is working on after completing the exploration or
development activities.
Provision for the decommissioning and site restoration used by
development and production assets has been decreased by
$93 thousand due to change in
discounting rate used for the provision calculation (2022: 21%;
2021: 9%). The change in the provision has been recognised as other
financial income/(loss) for the year together with unwinding of
discount on decommissioning provision.
A long-term provision of $0.26
million (2021: $0.3 million)
has been made for decommissioning costs for Borynya-3 well, which
is expected to be incurred in 2024, and Blazhiv-10 well, which is
to be incurred at the end of Blazhiv licenses period as a result of
the demobilization of gas and oil facilities and respective site
restoration. Current provision of $0.14
million (2021: nil) has been made for decommissioning costs,
which are expected to be incurred in 2023 as a result of the
demobilization of gas and oil facilities and respective site
restoration on Bitlyanska license.
26. Share
capital
Authorised and issued equity share
capital
|
2022 |
2021 |
|
Number
(‘000) |
$’000 |
Number
(‘000) |
$’000 |
Authorized
Ordinary shares of £0.03 each |
1,000,000 |
57,713 |
1,000,000 |
57,713 |
Issued
Ordinary shares of £0.03 each |
244,128 |
13,832 |
244,128 |
13,832 |
Authorized but unissued share capital of £30 million has been
translated into US dollars at the historic exchange rate of the
issued share capital. The Company has one class of Ordinary shares,
which carry no right to fixed income.
Issued equity share capital
|
|
Ordinary shares
of £0.03 |
At 31 December
2020 |
|
|
244,128,487 |
Issued during
year |
|
|
- |
At 31 December
2021 |
|
|
244,128,487 |
Issued during
year |
|
|
- |
At 31 December
2022 |
|
|
244,128,487 |
27. Financial instruments
Capital risk management
The Group manages its capital to ensure that entities in the
Group will be able to continue as a going concern, while maximising
the return to shareholders.
The capital resources of the Group consist of cash arising from
equity attributable to owners of the Company, comprising issued
capital, reserves and retained earnings as disclosed in the
Consolidated Statement of Changes in Equity.
Externally imposed capital
requirement
The Group is not subject to externally imposed capital
requirements.
Categories of financial
instruments
|
2022
$’000 |
2021
$’000 |
Financial assets (includes cash) |
|
|
Loan
provided at amortised cost |
15,825 |
16,724 |
Cash |
|
13,934 |
15,011 |
|
Other receivables –
amortized cost |
|
181 |
154 |
|
|
29,940 |
31,889 |
Financial liabilities – measured at fair value |
|
|
Trade
creditors |
569 |
498 |
Lease
liabilities |
107 |
206 |
Accruals |
281 |
194 |
Other
payables |
519 |
787 |
|
1,476 |
1,685 |
|
|
|
|
|
|
|
Financial assets at
fair value through profit and loss
$’000 |
Financial
assets
at amortised cost
$’000 |
As at 1 January 2021 |
16,812 |
- |
Reclassification from FVPL to
AC |
(16,812) |
16,812 |
Addition |
|
1,225 |
Exchange differences |
|
(1,313) |
As at 31 December 2021 |
|
16,724 |
The Proger loan is recorded at management’s best estimate of
recoverable amount as set out in note 4(d) although management have
not been able to undertake a valuation exercise under the income
method based on Proger’s underlying cash flows or market-based
method which would incorporate relevant recent financial
information on the investee or its prospects.
The Group has applied a level 3 valuation under IFRS as inputs
to the valuation have included assessment of the cash repayments
anticipated under the loan terms at maturity, delayed by the
arbitration process requested by PMP (the Borrower), historical
financial information for the periods prior to 2020 and assessment
of the security provided by the pledge over shares together with
the impact of the Covid-19 on the activity of Proger. As a result,
$ 16.8 million was determined as the
best estimate of fair value as at 31
December 2020, being equal to anticipated receipts and
timing thereof discounted at an estimated market rate of interest
of 7.8%.
In February 2021, Cadogan notified PMP that according to the
Loan Agreement, the Maturity Date occurred on 25 February 2021. As the Call Option was not
exercised, PMP must fulfil the payment of EUR 14,857,350, being the reimbursement of the
Loan in terms of principal and the accumulated interest. PMP is in
default since 25 February 2021. In
case of default payment, the terms of the agreement provide for the
application of an increased interest rate on the amount of the
debt.
Since the Call Option was not exercised before the Maturity Date
and the asset is held within a business model whose objective is to
hold assets in order to collect contractual cash flows, the Loan
provided was reclassified from ‘Financial assets at fair value
through profit and loss’ to ‘Financial assets at amortized
cost’.
$’000 |
As at 1 January
2021 |
16,812 |
Movement in amortised
at cost |
1,225 |
Exchange
differences |
(1,313) |
As at 1 January
2022 |
16,724 |
Movement in amortised
at cost |
38 |
Exchange
differences |
(937) |
As at 31 December
2022 |
15,825 |
The Group considers that the carrying amount of financial
instruments approximates their fair value.
Financial risk management
objectives
Management co-ordinates access to domestic and international
financial markets and monitors and manages the financial risks
relating to the operations of the Group in Ukraine through internal risks reports, which
analyse exposures by degree and magnitude of risks. These risks
include commodity price risks, foreign currency risk, credit risk,
liquidity risk and cash flow interest rate risk. The Group does not
enter into or trade financial instruments, including derivative
financial instruments, for speculative purposes.
The Audit Committee of the Board reviews and monitors risks
faced by the Group at meetings held throughout the year.
Interest rate risk
Interest rate risk arises from the possibility that changes in
interest rates will affect the value of the financial instruments.
The Group is not exposed to interest rate risk because entities of
the Group borrow funds at fixed interest rates.
Commodity price risk
The commodity price risk related to Ukrainian gas and condensate
prices and prices for crude oil are the Group’s most significant
market risk exposures. World prices for gas and crude oil are
characterised by significant fluctuations that are determined by
the global balance of supply and demand and worldwide political
developments, including actions taken by the Organization of
Petroleum Exporting Countries.
The Group does not hedge market risk resulting from fluctuations
in gas, condensate and oil prices, and holds no financial
instruments, which are sensitive to commodity price risk.
Foreign exchange risk and foreign
currency risk management
The Group holds a large portion of its monetary assets in the US
Dollars and Euro, mitigating the exchange risk between the US
Dollars and Euro and monetary liability in the US Dollars.
Sensitivity analysis is represented below based on 10% exchange
rate deviation:
|
As at
31 December 2022 |
Change in EURO/USD exchange rate |
|
$’000 |
+10% |
-10% |
|
|
|
|
Cash positions |
13,934 |
222 |
(222) |
Loan receivable at
amortised cost |
15,825 |
1,582 |
(1,582) |
Net assets |
35,527 |
1,804 |
(1,804) |
|
|
|
|
Inflation risk management
Inflation in Ukraine and in the
international market for oil and gas may affect the Group’s cost
for equipment and supplies. The Directors will proceed with the
Group’s practices of keeping deposits in US dollar accounts until
funds are needed and selling its production in the spot market to
enable the Group to manage the risk of inflation.
Credit risk management
Credit risk refers to the risk that counterparty will default on
its contractual obligations resulting in financial loss to the
Group. The Group’s credit management process includes the
assessment, monitoring and reporting of counterparty exposure on a
regular basis. Credit risk with respect to receivables is mitigated
by active and continuous monitoring the credit quality of its
counterparties through internal reviews and assessment. There was
no material past due receivables as at year end.
The Group makes allowances for expected credit losses on
receivables in accordance with its accounting policy.
The credit risk on liquid funds (cash) is considered to be
limited because the counterparties are financial institutions with
high and good credit ratings, assigned by international
credit-rating agencies in the UK and Ukraine respectively.
The carrying amount of financial assets recorded in the
financial statements represents the Group’s maximum exposure to
credit risk.
Liquidity risk management
Ultimate responsibility for liquidity risk management rests with
the Board of Directors, which has built an appropriate liquidity
risk management framework for the management of the Group’s short,
medium and long-term funding and liquidity management requirements.
The Group manages liquidity risk by maintaining adequate cash
reserves and by continuously monitoring forecast and actual cash
flows.
The following tables sets out details of the expected
contractual maturity of financial liabilities.
|
Within
3 months |
3 months to 1
year |
More than 1
year |
Total |
|
$’000 |
$’000 |
$’000 |
$’000 |
At 31 December 2021 |
|
|
|
|
Trade and other
payables
Lease liability |
1,479
- |
-
110 |
-
138 |
1,479
248 |
At 31 December 2022 |
|
|
|
|
Trade and other
payables
Lease liability |
1,401
- |
-
99 |
-
20 |
1,401
119 |
28.
Commitments and contingencies
Licence contingent liability
The Group has working interests in Blazhiv license to conduct
its exploration and development activities in Ukraine. The license is not held any
obligation on a settlement of exploration activities within its
term.
Tax contingent liabilities
The Group assesses its liabilities and contingencies for all tax
years open for audit by UK, Netherlands and Ukraine tax authorities based upon the latest
information available. Where management concludes that it is not
probable that a particular tax treatment is accepted, a provision
is recorded based on the most likely amount or the expected value
of the tax treatment when determining taxable profit (tax loss),
tax bases, unused tax losses, unused tax credits and tax rates. The
decision should be based on which method provides better
predictions of the resolution of the uncertainty. Inherent
uncertainties exist in estimates of tax contingencies due to
complexities of interpretation and changes in tax laws.
Whilst the Group believes it has adequately provided for the
outcome of these matters, certain periods are under audit by the
UK, Netherlands and Ukraine tax authorities, and therefore future
results may include favourable or unfavourable adjustments to these
estimated tax liabilities in the period the assessments are made or
resolved. The final outcome of tax examinations may result in a
materially different outcome than assumed in the tax
liabilities.
29. Related party transactions
All transactions between the Company and its subsidiaries, which
are related parties, have been eliminated on consolidation and are
not disclosed in this note.
In February 2019, the Group
entered in a 2-year loan agreement with Proger Management &
Partners Srl with an option to convert it into a direct 33% equity
interest in Proger Ingegneria. At that time, Mr Michelotti was a
non-executive Director of Proger Ingegneria Srl and Proger Spa, and
CEO of Cadogan Petroleum PLC. Mr Michelotti did not participate to
the voting for the approval of the loan agreement at the Board of
Cadogan.
Directors’ remuneration
The remuneration of the Directors, who are the key management
personnel of the Group, is set out below in aggregate for each of
the categories specified in IAS 24 Related Party
Disclosures. Further information about the remuneration of
individual Directors is provided in the audited part of the Annual
Report on Remuneration 2022 on page 43.
|
Purchase of services |
Amounts owing |
|
2022
$’000 |
2021
$’000 |
2022
$’000 |
2021
$’000 |
|
|
Directors’
remuneration |
693 |
754 |
83 |
- |
|
|
Social contribution on
Directors’ remuneration |
72 |
126 |
- |
- |
|
|
The total remuneration of the highest paid Director was
$0.5 million in the year (2021:
$0.5 million).
No guarantees have been given or received and no provisions have
been made for doubtful debts in respect of the amounts owed by
related parties.
30.
Events after the balance sheet date
In April 2023, SE Usenco
Ukraine (a Cadogan subsidiary in
Ukraine) completed the acquisition
of the 5% minority interest of Usenco Nadra LLC. As a result, SE
Usenco Ukraine consolidates now 100% of Usenco Nadra LLC in its
ownership.
This acquisition will allow the Company to further optimize its
operating structure in Ukraine and
be more cost effective at Blazhiv field.
PJSC Ukrnafta, the largest oil company in Ukraine, and Cadogan have signed the extension of Blazhiv-3
and Blazhiv-Monastyrets-3 wells’ lease contracts for a 5-year
period (the past term was 3 years). The signature of this lease
extension ahead the expiry period will allow to avoid a production
stoppage and secure profit inflows for both parties during this
unprecedented severe and challenging context which Ukraine is facing now.
Company Balance Sheet
As at 31 December 2022 |
Notes |
2022
$’000 |
2021
$’000 |
ASSETS |
|
|
|
Non-current
assets |
|
|
|
Receivables from
subsidiaries |
34 |
35,918 |
36,769 |
|
|
35,918 |
36,769 |
Current
assets |
|
|
|
Trade and other
receivables |
34 |
- |
3 |
Cash |
34 |
2,391 |
3,857 |
|
|
2,391 |
3,860 |
Total
assets |
|
38,309 |
40,629 |
|
|
|
|
LIABILITIES |
|
|
|
Current
liabilities |
|
|
|
Trade and other
payables |
35 |
(337) |
(255) |
|
|
(337) |
(255) |
Total
liabilities |
|
(337) |
(255) |
|
|
|
|
Net assets |
|
37,972 |
40,374 |
|
|
|
|
EQUITY |
|
|
|
Share capital |
36 |
13,832 |
13,832 |
Share premium |
|
514 |
514 |
Retained
earnings[17] |
|
132,345 |
134,747 |
Cumulative translation
reserves |
37 |
(108,719) |
(108,719) |
Total
equity |
|
37,972 |
40,374 |
As permitted by section 408 of the Act, the Company has elected
not to present its profit and loss account for the year.
The financial statements of Cadogan Petroleum plc, registered in
England and Wales no. 05718406, were approved by the Board
of Directors and authorized for issue on 27
April 2023.
They were signed on its behalf by:
Fady Khallouf
Chief Executive Officer
27 April 2023
The notes on pages 108 to 111 form part of these financial
statements.
Company Cash Flow Statement
For the year ended 31 December 2022 |
2022
$’000 |
2021
$’000 |
Operating activities
Profit/(loss) for the year |
(2,402) |
(3,746) |
Adjustments for:
Interest received
Impairment of receivables from subsidiaries
Effect of foreign exchange rate changes
Movement in provisions |
(4)
-
1,053
(11) |
-
665
1,451
58 |
Operating cash outflows before movements in working
capital |
(1,364) |
(1,572) |
Decrease/(Increase) in receivables |
2 |
(4) |
Increase/(Decrease) in payables |
99 |
(38) |
Cash
used in operations |
(1,263) |
(1,614) |
Income
taxes paid |
- |
- |
Net cash outflow
from operating activities |
|
(1,263) |
(1,614) |
Investing activities |
|
|
|
Interest received |
|
4 |
- |
Net cash generated
in investing activities |
|
4 |
- |
|
|
|
|
|
|
|
|
Net decrease in
cash |
|
(1,259) |
(1,614) |
Effect of foreign
exchange rate changes |
|
(207) |
(288) |
Cash at beginning of
year |
|
3,857 |
5,759 |
Cash at end of
year |
|
2,391 |
3,857 |
|
|
|
|
|
Company Statement of Changes in Equity
For the year ended 31 December 2022 |
Share
capital
$’000 |
Share
premium account
$’000 |
Retained earnings
$’000 |
Other Reserve
$’000 |
Cumulative translation reserves
$’000 |
Total
$’000 |
As at 1 January
2021 |
13,832 |
514 |
138,493 |
- |
(108,719) |
44,120 |
Net loss for the
year |
- |
- |
(3,746) |
- |
- |
(3,746) |
Total comprehensive
loss for the year |
- |
- |
(3,746) |
- |
- |
(3,746) |
Issue of ordinary
shares |
- |
- |
- |
- |
- |
- |
As at 1 January
2022 |
13,832 |
514 |
134,747 |
- |
(108,719) |
40,374 |
Net income for the
year |
- |
- |
(2,402) |
- |
- |
(2,402) |
Total comprehensive
income for the year |
- |
- |
(2,402) |
- |
- |
(2,402) |
As at 31 December
2022 |
13,832 |
514 |
132,345 |
- |
(108,719) |
37,972 |
|
|
|
|
|
|
|
Notes to the Company Financial
Statement
For the year ended 31 December 2022
31. Significant accounting
policies
The separate financial statements of the Company are presented
as required by the Companies Act 2006 (the “Act”). As permitted by
the Act, the separate financial statements have been prepared in
accordance with International Financial Reporting Standards
(“IFRSs”) adopted by the UK.
The financial statements have been prepared on the historical
cost basis. The principal accounting policies adopted are the same
as those set out in note 3 to the Consolidated Financial Statements
except as noted below.
As permitted by section 408 of the Act, the Company has elected
not to present its profit and loss account for the year. Cadogan
Energy Solutions plc reports a loss for the financial year ended
31 December 2022 of $2.4 million (2021: loss $3.7 million).
Investments
Investments in subsidiaries are stated at cost less, where
appropriate, provisions for impairment.
Receivables from subsidiaries
Loans to subsidiary undertakings are subject to IFRS 9’s new
expected credit loss model. As all intercompany loans are repayable
on demand, the loan is considered to be in stage 3 of the IFRS 9
ECL model on the basis the subsidiary does not have enough liquid
assets in order to repay the loans if demanded. Lifetime ECLs are
determined using all relevant, reasonable and supportable
historical, current and forward-looking information that provides
evidence about the risk that the subsidiaries will default on the
loan and the amount of losses that would arise as a result of that
default. Analysis indicated that the Company will fully recover the
carrying value of the loans (net of historic credit loss
provisions) so no additional ECL has been recognised in the current
period.
Critical accounting judgements and key
sources of estimation uncertainty
The Company’s financial statements, and in particular its
investments in and receivables from subsidiaries, are affected by
certain of the critical accounting judgements and key sources of
estimation uncertainty.
The critical estimates and judgments referred to application of
the expected credit loss model to intercompany receivables (note
33). Management determined that the interest free on demand loans
were required to be assessed on the lifetime expected credit loss
approach and assessed scenarios considering risks of loss events
and the amounts which could be realised on the loans. In
doing so, consideration was given to factors such as the cash held
by subsidiaries and the underlying forecasts of the Group’s
divisions and their incorporation of prospective risks and
uncertainties.
32. Auditor’s remuneration
The auditor’s remuneration for audit and other services is
disclosed in note 11 to the Consolidated Financial Statements.
33. Investments
The Company’s subsidiaries are disclosed in note 18 to the
Consolidated Financial Statements. The investments in subsidiaries
are all stated at cost less any provision for impairment.
34. Financial
assets
The Company’s principal financial assets are bank balances and
cash and receivables from related parties none of which are past
due. The Directors consider that the carrying amount of receivables
from related parties approximates to their fair value.
34. Financial assets
(continued)
Receivables from subsidiaries
At the balance sheet date gross amounts receivable from the
fellow Group companies were $349.1
million (2021: $350 million).
The Company did not recognise additional expected credit loss
provisions in relation to receivables from subsidiaries in 2022
(2021: $0.7 million). The accumulated
provision on receivables at 31 December
2022 was $313.2 million (2021:
$312.2 million). The carrying value
of the receivables from the fellow Group companies at 31 December 2022 was $35.9
million (2021: $36.8 million).
Receivables from subsidiaries are interest free and repayable on
demand. There are no past due receivables. The receivables are
classified as non-current based on the expected timing of receipt
notwithstanding their terms.
Cash
Cash comprises cash held by the Company and short-term bank
deposits with an original maturity of three months or less. The
carrying value of these assets approximates to their fair
value.
35. Financial
liabilities
Trade and other payables
|
|
2022
$’000 |
2021
$’000 |
Accruals |
|
141 |
174 |
Unused vacation
provision |
|
85 |
63 |
Amounts owing to
Directors |
|
82 |
- |
Trade creditors |
|
29 |
18 |
|
|
337 |
255 |
Trade payables principally comprise amounts outstanding for
trade purchases and ongoing costs. The average credit period taken
for trade purchases is 29 days (2021: 30 days).
Unused vacation provision of $85
thousand accrued for CEO of the Company (2021: $63 thousand).
The Directors consider that the carrying amount of trade and
other payables approximates to their fair value. No interest is
charged on balances outstanding.
36. Share
capital
The Company’s share capital is disclosed in note 26 to the
Consolidated Financial Statements.
37. Cumulative
translation reserve
The directors decided to change the functional currency of the
Company from sterling to US dollars with effect from 1 January 2016. The effect of a change in
functional currency is accounted for prospectively. In other words,
the Company translates all items into the US dollar using the
exchange rate at the date of the change. The resulting translated
amounts for non-monetary items are treated as their historical
cost. Exchange differences arising from the translation of an
operation previously recognised in other comprehensive income in
accordance with paragraphs 32 and 39(c) IAS 21 “Foreign
Currency” are not reclassified from equity to profit or loss
until the disposal of the operation.
38. Financial instruments
The Company manages its capital to ensure that it is able to
continue as a going concern while maximising the return to
shareholders. Refer to note 27 for the Group’s overall strategy and
financial risk management objectives.
The capital resources of the Company consist of cash arising
from equity, comprising issued capital, reserves and retained
earnings.
Categories of financial
instruments
|
2022
$’000 |
2021
$’000 |
Financial assets –
measured at amortised cost |
|
|
Cash |
2,391 |
3,857 |
Amounts due from
subsidiaries |
35,918 |
36,769 |
|
38,309 |
40,626 |
Financial
liabilities – measured at fair value |
|
|
Trade creditors |
(196) |
(81) |
|
(196) |
(81) |
Interest rate risk
All financial liabilities held by the Company are non-interest
bearing. As the Company has no committed borrowings, the Company is
not exposed to any significant risks associated with fluctuations
in interest rates.
Credit risk
Credit risk refers to the risk that counterparty will default on
its contractual obligations resulting in financial loss to the
Company. For cash, the Company only transacts with entities that
are rated equivalent to investment grade and above. Other financial
assets consist of amounts receivable from related parties.
The Company’s credit risk on liquid funds is limited because the
counterparties are banks with high credit ratings assigned by
international credit-rating agencies.
The carrying amount of financial assets recorded in the Company
financial statements, which is net of any impairment losses,
represents the Company’s maximum exposure to credit risk.
Liquidity risk management
Ultimate responsibility for liquidity risk management rests with
the Board of Directors, which has built an appropriate liquidity
risk management framework for the management of the Company’s
short, medium and long-term funding and liquidity management
requirements. The Company maintains adequate reserves, by
continuously monitoring forecast and actual cash flows.
The Company’s financial liabilities are not significant and
therefore no maturity analysis has been presented.
Foreign exchange risk and foreign
currency risk management
The Company holds a large portion of its monetary assets in the
US Dollars and Euro, mitigating the exchange risk between the US
Dollars and Euro and monetary liability in the US Dollars. More
information on the foreign exchange risk and foreign currency risk
management is disclosed in note 27 to the Consolidated Financial
Statements.
39. Related parties
Amounts due from subsidiaries
The Company has entered into a number of unsecured related party
transactions with its subsidiary undertakings. The most significant
transactions carried out between the Company and its subsidiary
undertakings are mainly for short and long-term financing. Amounts
owed from these entities are detailed below:
|
2022
$’000 |
2021
$’000 |
Cadogan Petroleum
Holdings Limited |
35,918 |
36,769 |
|
35,918 |
36,769 |
Refer to note 34 for details on the Company’s receivables due
from subsidiaries.
The remuneration of the Directors, who are the key management
personnel of the Group, is set out below in aggregate for each of
the categories specified in IAS 24 Related Party
Disclosures. In 2022 there were no other employees in the
Company. Further information about the remuneration of individual
Directors is provided in the audited part of the Annual Report on
Remuneration 2022 on pages 43 to 49.
|
Purchase of services |
Amounts owing |
|
2022
$’000 |
2021
$’000 |
2022
$’000 |
2021
$’000 |
|
|
Directors’
remuneration |
693 |
754 |
83 |
- |
|
|
Social contribution on
Directors’ remuneration |
72 |
126 |
- |
- |
|
|
The total remuneration of the highest paid Director was
$0.5 million in the year (2021:
$0.6 million).
40. Events after the balance sheet
date
Events after the balance sheet date are disclosed in note 30 to
the Consolidated Financial Statements.
Glossary
IFRSs
International Financial Reporting Standards
JAA
Joint activity agreement
UAH
Ukrainian hryvnia
GBP
Great Britain pounds
$
United States dollars
bbl
Barrel
boe
Barrel of oil equivalent
mmboe
Million barrels of oil equivalent
mboe
Thousand barrels of oil equivalent
mboepd
Thousand barrels of oil equivalent per day
boepd
Barrels of oil equivalent per day
bcf
Billion cubic feet
mmcm
Million cubic metres
mcm
Thousand cubic metres
Reserves
Those quantities of petroleum anticipated to be commercially
recoverable by application of development projects to known
accumulations from a given date forward under defined conditions.
Reserves include proved, probable and possible reserve
categories.
Proved Reserves
Those
additional Reserves which analysis of geoscience and engineering
data can be estimated with reasonable certainty to be commercially
recoverable, from a given date forward, from reservoirs and under
defined economic conditions, operating methods and government
regulations.
Probable Reserves Those
additional Reserves which analysis of geoscience and engineering
data indicate are less likely to be recovered than proved Resources
but more certain to be recovered than possible Reserves.
Possible Reserves
Those additional Reserves which analysis of geoscience and
engineering data indicate are less likely to be recoverable than
probable Reserves.
Contingent Resources Those quantities of petroleum estimated, as
of a given date, to be potentially recoverable from known
accumulations by application of development projects, but which are
not currently considered to be commercially recoverable due to one
or more contingencies.
Prospective Resources Those quantities of petroleum which are
estimated as of a given date to be potentially recoverable from
undiscovered accumulations.
P1
Proved Reserves
P2
Probable Reserves
P3
Possible Reserves
1P
Proved Reserves
2P
Proved plus Probable Reserves
3P
Proved plus Probable plus Possible Reserves
Workover
The process of performing major maintenance or remedial treatment
of an existing oil or gas well
E&E /
E&P
Exploration and Evaluation / Exploration and Production
LTI
Lost
time incidents
Shareholder Information
Enquiries relating to the following administrative matters
should be addressed to the Company’s registrars: Link Group, 10th
Floor, Central Square, 29 Wellington Street, Leeds LS1 4DL.
Telephone: 0371 664 0300. Calls are charged at the standard
geographic rate and will vary by provider. Calls outside the
United Kingdom will be charged at
the applicable international rate. Lines are open between 09:00 –
17:30, Monday to Friday excluding public holidays in England and Wales.
§ Loss of share certificates.
§ Notification of change of address.
§ Transfers of shares to another person.
§ Amalgamation of accounts: if you receive more than one copy of
the Annual Financial Report, you may wish to amalgamate your
accounts on the share register.
You can access your shareholding details and a range of other
services at the Shareholder Portal www.signalshares.com.
Information concerning the day-to-day movement of the share
price of the Company can be found on the Group’s website
www.cadoganpetroleum.com or that of the London Stock exchange
www.prices.londonstockexchange.com.
Unsolicited mail
As the Company’s share register is, by law, open to public
inspection, shareholders may receive unsolicited mail from
organisations that use it as a mailing list. To reduce the amount
of unsolicited mail you receive, contact: The Mailing Preference
Service, FREEPOST 22, London W1E
7EZ. Telephone: 0845 703 4599. Website: www.mpsonline.org.uk.
Financial calendar 2022/2023
Annual General
Meeting
June 2023
Half Yearly results
announced
September 2022
Annual results
announced
April 2023
Investor relations
Enquiries to: info@cadoganpetroleum.com
Registered office
Shakespeare Martineau LLP,
6th Floor, 60 Gracechurch Street, London EC3V 0HR
Registered in England and
Wales no. 05718406
Ukraine
48/50A Zhylyanska Street
Business center “Prime”, 8th floor
01033 Kyiv
Ukraine
Email: info@cadoganpetroleum.com
Tel: +38 044 594 58
70
Fax: +38 044 594 58
71
www.cadoganenergysolutions.com
References to page numbers throughout this announcement relates
to the page numbers within the Annual Report of the Company for the
year ended 31st December 2022. In addition all graphs and
graphics have been removed for the purposes of the
announcement.
[1] Average realized price is calculated as total revenue from
oil sales for the period divided by total volume of sold oil for
the period
[2] Gross revenues of $8.5 million
(2021: $8.8 million) included nil
(2021: $1.8 million) from trading of
natural gas, $8.5 million (2021:
$7.0 million) from exploration and
production
[3] Administrative expenses (“G&A”)
[4] LTI: Lost Time Incidents; TRI: Total Recordable
Incidents
[5] Taxable benefits include insurance provided to the executive
and leased car.
[6] 2015 CEO’s salary is the sum of Mr. des Pallieres' salary
for the period January to June and of Mr. Michelotti's salary for
the period July to December.
[7] In relation to performance in 2016 and 2015, the CEO used
the entire amount of the bonus to buy at market price newly issued
company shares on 22 September
2017.
[8] 2019 Annual bonus is a sum of Mr Michelotti’s bonus of
$112,140 and welcome bonus for Mr
Khallouf equivalent in value of 5,500,000 ordinary shares based on
share’s price of £0.0525. Welcome bonus for Mr Khallouf was
provided in May 2020 based on share’s
price of £0.03. Respective correction of the bonus reserve
equivalent to $185 thousand was
recognised through share premium account in 2020.
[9] Includes a welcome bonus for Mr Khallouf equivalent in value
of 5,500,000 ordinary shares based on share’s price of £0.0525.
[10] Mr Michelotti undertook to use the entire bonus to buy
company’s share at market price in order to leave the Company cash
neutral.
[11] Year-end performance-based bonus was an alternative to an
up-front sign-on bonus. Mr Michelotti use the entire bonus to buy
company’s share at market price on 22
September 2017.
[12] $280,298 paid as fees,
pension and loss of office.
[13] From 1 August, 2011.
[14] From 19 March 2009.
[15] All employees mean all employees of the Group, including
CEO and other Directors (note 12, page 92).
[16] Please note that the salary of the CEO for 2022 remain at
€440,000.
[17] Included in retained earnings, loss for the financial
year ended 31 December 2022 was
$2.4 million (2021: profit
$3.7 million).