TIDMZOL
RNS Number : 2375O
Zoltav Resources Inc
30 September 2019
30 September 2019
Zoltav Resources Inc.
("Zoltav" or the "Company")
Half Year Report for the Six Months Ended 30 June 2019
Zoltav (AIM: ZOL), the Russia-focused oil and gas exploration
and production company, announces results for the six months ended
30 June 2019.
Financial Summary
-- Revenues declined by 24% to RUB 632 million (USD 9.7 million)
(H1 2018: RUB 831 million (USD 14 million))
-- Total cost of sales was 2% lower at RUB 533.9 million (USD
8.2 million) (H1 2018: RUB 547 million (USD 9.22 million))
-- Operational and G&A costs increased by 57% to RUB 133.7
million (USD 2.05 million) (H1 2018: RUB 88 million (USD 1.48
million)), mostly driven by hiring experienced senior geotechnical,
buying licences for geological software and hiring new senior
management
-- Operating profit dropped by 45% to RUB 105 million (USD 1.61
million) (H1 2018: RUB 191 million (USD 3.22 million))
-- Zoltav generated RUB 170 million (USD 1.61 million) of losses
before tax (H1 2018: RUB 101 million or USD 1.73 million profit
before tax)
-- Net cash generated from operating activities decreased by 49%
to RUB 193 million (USD 2.96 million) (H1 2018: RUB 377 million
(USD 6.35 million))
-- Total cash at the end of the period was RUB 330 million (USD
5.23 million) (H1 2018: RUB 315 million (USD 5.02 million))
Note: USD comparisons are provided in the above Financial
Summary for illustrative purposes only and are calculated using an
exchange rate of:
H1 2019: 1 USD = 65.1218 RUB
As at 30 June 2019: 1 USD = 63.0756 RUB
H1 2018: 1 USD = 58.3529 RUB
As at 30 June 2018: 1 USD = 57.6002 RUB
As at 30 December 2018: 1 USD = 69.4706 RUB
Operational Summary - Bortovoy Licence
-- Natural production decline from existing well stock on the
west Bortovoy fields was steeper in H1 2019 than in preceding
periods
-- Average net daily production (sold to customers) in H1 2019 was:
o 26 mmcf/d (0.74 mmcm/d) of gas (H1 2018: 34.9 mmcf/d (0.99
mmcm/d))
o 207 bbls/d (26 t/d) of oil and condensate (H1 2018: 335 bbls/d
(46 t/d))
-- Overall in H1 2019, Zoltav produced:
o 4.7 bcf (632 mmcm) of gas or 0.7 mmboe (107 mtoe) (H1 2018:
6.3 bcf (179 mmcm) or 1.1 mmboe (144 mtoe))
o 37,389 bbls (4763 t) of oil and condensate: (H1 2018: 60,558
bbls (7,714 t))
-- Western Gas Plant continued to be operated efficiently with no shutdowns
-- One of two propane compressors was shut between March and
June 2019 due to a technical deficiency causing the dew point to
drop and decreased output of condensate from natural gas in the
amount of 3,925 bbls (500 t)
-- Development programme is currently underway to reverse
production decline during Q1 2020, including:
o Zhdanovskoye Well 103 was spudded in May 2019 and put on
production post period-end at the end of August 2019
o Karpenskoye Well 5D was spudded post period-end in September
2019 and is anticipated to be put on production in December
2019
-- RUB 250 million capital commitment (RUB 137 million during H1
2019) towards a feasibility study on the East Bortovoy fields,
anticipated to be completed by year-end
o Includes a RUB 100 million budget overrun due to technical
condition encountered in Nepriyakhinskoye Well 1
o Preliminary evaluation continues to indicate that connecting
the eastern fields to the existing Western Gas Plant is the most
favourable option
Lea Verny, Independent Non-executive Chairman, commented:
"The development programme aimed at reversing the production
decline from the West Bortovoy fields during Q1 2020 continued to
advance throughout the period. Long-term development plans remain
focused on connecting East Bortovoy fields to the Western Gas
Plant. The work programme feeding into the technical and economic
feasibility study being conducted on this opportunity continued
throughout the period under review."
Enquiries:
Zoltav Resources Inc. Tel. +44 (0)20 7390
Lea Verny, Non-executive Chairman 0234
(via Vigo Communications)
SP Angel Corporate Finance LLP (Nomad Tel. +44 (0)20 3470
and Joint Broker) 0470
John Mackay / Jeff Keating / Soltan Tagiev
Panmure Gordon (Joint Broker) Tel. +44 (0)20 7886
Charles Lesser / James Stearns 2500
Vigo Communications Tel. +44 (0)20 7390
Ben Simons / Simon Woods 0234
zoltav@vigocomms.com
Market Abuse Regulation (MAR) Disclosure
Certain information contained in this announcement would have
been deemed inside information for the purposes of Article 7 of
Regulation (EU) No 596/2014 until the release of this
announcement.
About Zoltav
Zoltav is an oil and gas exploration and production company
focused on Russia.
Zoltav holds the Bortovoy Licence in the Saratov region of South
Western Russia, a 3,215 sq km area along the northern margin of the
Pre-Caspian basin, one of the largest hydrocarbon basins in the
CIS.
The Bortovoy Licence contains a number of productive gas fields
in the west of the Licence, a processing plant and significant
exploration prospectivity. It holds proven plus probable reserves
under the Society of Petroleum Engineers' Petroleum Resources
Management System of 750 bcf of gas and 3.8 mmbbls of oil and
condensate.
In 2018, Zoltav produced 12.0 bcf (341 mmcm) of gas or 2.0 mmboe
(274 mtoe) and 66,558 bbls (7,715 t) of oil and condensate.
The Company is currently evaluating strategies to commercialise
the eastern fields of the Bortovoy Licence.
For further information on Zoltav, or to sign up for our news
alert service, visit: www.zoltav.com.
Glossary
bbl Barrel
bbls Barrels
bbls/d Barrels per day
bcf Billion cubic feet
bcm Billion cubic metres
boepd Barrels of oil equivalent per
day
CPR Competent Person's Report
mcf Thousand cubic feet
mcm Thousand cubic metres
mmboe Million barrels of oil equivalent
mmcf Million cubic feet
mmcf/d Million cubic feet per day
mmcm Million cubic metres
mmcm/d Million cubic metres per day
mtoe Thousand tonnes of oil equivalent
PRMS Petroleum Resources Management
System
t Tonnes
t/d Tonnes per day
toepd Tonnes of oil equivalent per
day
Chairman's statement
Natural production decline from the existing well stock on the
west Bortovoy fields was steeper in the first half of 2019 than in
preceding periods. The western fields produced 25% less gas and 38%
less oil and liquids in the period compared to the first half of
2018.
As a result of the current production profile of the western
fields, revenues declined by 24% to RUB 632 million in the period
(H1 2018: RUB 831 million), with EBITDA reducing by 74% to RUB 106
million (H1 2018: RUB 411 million) as the Company continued to
invest heavily in asset development programmes in the west and east
of the licence. This resulted in a net loss for the period of RUB
170 million (H1 2018: RUB 72 net profit).
The development programme aimed at reversing the production
decline from the West Bortovoy fields during Q1 2020 continued to
advance throughout the period. The first sidetrack well in the
programme was spudded in May 2019 and was completed successfully
and put on production at the end of August 2019. The second
sidetrack well was spudded in September 2019 and is anticipated to
be put on production in December 2019.
Long-term development plans remain focused on connecting East
Bortovoy fields to the Western Gas Plant. The work programme
feeding into the technical and economic feasibility study being
conducted on this opportunity continued throughout the period under
review, with the seventh re-entry in the eight well programme
completing at the end of June 2019.
The Company has committed substantial capital - RUB 250 million
to date (RUB 137 million during H1 2019) - towards this detailed
feasibility study, including a RUB 100 million budget overrun due
to the technical condition encountered in Nepriyakhinskoye Well 1 -
the final well re-entry and evaluation in the programme, which is
ongoing. The feasibility study is anticipated to be completed by
year-end.
Lea Verny
Non-executive Chairman
30 September 2019
Review of operations
Production
Production through Zoltav's Western Gas Plant on the Bortovoy
Licence, Saratov, averaged 4,552 boepd (621 toepd) during H1 2019,
a 26% decline when compared to 6,151 boepd (839 toepd) in H1 2018.
The natural production decline from existing well stock was steeper
in the first half of 2019 than in preceding periods.
Average net daily production (sold to customers) during H1 2019
was 26 mmcf/d (0.74 mmcm/d) of gas and 207 bbls/d (26 t/d) of oil
and condensate (H1 2018: 34.9 mmcf/d (0.99 mmcm/d) of gas and 335
bbls/d (43 t/d) of oil and condensate).
Overall in H1 2019, the Company produced:
- Natural gas: 4.7 bcf (632 mmcm) or 0.7 mmboe (107 mtoe) (H1
2018: 6.3 bcf (179 mmcm) or 1.1 mmboe (144 mtoe)
- Oil and condensate: 37,389 bbls (4,763 t) (H1 2018: 60,558 bbls (7,715 t))
The Western Gas Plant continued to be operated efficiently
throughout H1 2019 with no shutdowns. The current well stock
producing from the two currently producing Permian fields
(Zhdanovskoye and Karpenskoye) consists of twelve gas wells and one
oil well working via artificial lift (Karpenskoye Well 17 was
stopped in February 2019). The well stock is in natural production
decline. One of two propane compressors was shut during March 2019
due to a technical deficiency identified during routine maintenance
works. The compressor was returned to full operation at the end of
June 2019 following delivery of the necessary parts from abroad.
The issue caused the dew point to drop and decreased output of
condensate from natural gas in the amount of 3,925 bbls (500
t).
Management currently estimates that total gas production for the
2019 full year will be in the region of 10.6 bcf (300 mmcm) (2018:
12.0 bcf (341 mmcm)).
Development
Bortovoy
A development programme is underway aimed at reversing the
production decline in the western fields.
Zhdanovskoye Well 103 (with a 500 m horizontal ending) was
spudded in May 2019 as the first well in a programme of sidetracks
on existing well stock. The well was completed successfully and put
on production at the end of August 2019, with a starting daily flow
rate of 8.6 mmcf/d (0.25 mmcm/d) and a stable daily flow rate of
2.8 mmcf/d (0.08 mmcm/d) of gas with an 8 mm choke. The well was
drilled with a 529.6 m horizontal section, the majority of which is
within the collector. Management believes that most of the gas and
oil is currently being produced from a high permeability fracture
and therefore that the production profile of the well can be
significantly improved following stimulation. However, further
evaluation of the fracture will need to be undertaken prior to
stimulation in order to mitigate the risks of water production.
The next well in the programme is Karpenskoye Well 5D which was
spudded in September 2019 and is anticipated to be put on
production in November 2019. The combination of these wells is
anticipated to add at least 11 mmcf/d (0.3 mmcm/d) of gas and 3%
more daily condensate production.
With the anticipated contribution from a third sidetrack well to
be drilled early next year, management continues to target Q1 2020
for a reversal of the currently declining production trend, with a
current 2020 full year estimate of 12.7 bcf (360 mmcm) of gas.
However, based on production dynamics and updated geological and
hydrodynamic models, management does not anticipate that it will be
possible to utilise the Western Gas Plant's full 18.3 bcf (520
mmcm) annual capacity without connecting new fields to the
plant.
The Company has committed RUB 250 million to date (RUB 137
during H1 2019) towards a feasibility study on the East Bortovoy
fields, including a RUB 100 million budget overrun due mainly to
the technical condition encountered in Nepriyakhinskoye Well 1 -
the final well re-entry and evaluation in the programme.
At 4,610 m, Nepriyakhinskoye Well 1 is one of the few deep
exploration wells on Bortovoy and it requires a heavy, 140 tonne
rig for workovers. Unlike other wells re-entered in the programme
which were Soviet wells, Nepriyakhinskoye Well 1 was a re-entry of
a 2010 exploration well. Despite this, the technical condition of
the well was worse than anticipated. The well encountered metallic
debris left from previous operations which were not logged and also
failed to test key intervals as a result of being unable to
definitively isolate upper intervals. As a consequence, the
geologists are unable to confirm the Nepriyakhinskoye reserves with
adequate certainty from these operations without first repairing
the well in a subsequent operation in the future and isolating all
intervals previously perforated when the well was drilled in 2010
in order to test the well.
The feasibility study on East Bortovoy is anticipated to be
completed by year-end and includes:
-- re-processing and re-interpretation of all available seismic materials on the eastern fields;
-- eight well re-entries on the Pavlovskoye, Lipovskoye and Nepriyakhinskoye fields;
-- borehole perforations, well flow tests and geophysical studies;
-- 218 km of pipeline designs and cost estimates; and
-- multiple scenarios and simulations of potential production
profiles in order to optimise system design and cost estimates.
Preliminary evaluation continues to indicate that connecting the
eastern fields to the existing Western Gas Plant, and expanding the
plant's annual capacity by up to 73% to 31.8 bcf (900 mmcm) at the
same time or later, is the most favourable option among others.
Koltogor
The Koltogor Licences in the Khantiy Mansisk Autonomous Okrug,
Western Siberia are not currently a focus of investment, however,
management continues to seek out potential routes to monetise these
licences.
Group Reserves under PRMS as per latest report of DeGolyer and
MacNaughton (May 2014):
Proved and
Proved Probable probable Possible
Bortovoy Licence
Gas bcf 352.9 396.8 749.7 640.0
Oil & liquids mmbbls 2.0 1.8 3.8 2.4
Gas, oil and liquids mmboe 62.0 69.2 131.2 111.2
Koltogor Licences
Gas bcf 0.5 23.5 24.0 55.7
Oil mmbbls 1.6 73.5 75.1 174.0
Total mmboe 1.7 77.5 79.2 183.5
Total
Gas bcf 353.4 420.3 773.7 695.7
Oil & liquids mmbbls 3.6 75.3 78.9 176.4
Gas, oil and liquids mmboe 63.7 146.7 210.4 294.7
Management considers the optimum time for commissioning a
further reserve evaluation under PRMS would be after the connection
of the easternmost Nepryakhinskoye field to the Western Gas Plant,
should a final investment decision be taken in due course to do
this.
Note on conversion rates
Tonnes of crude oil produced are translated into barrels using
conversion rates reflecting oil density from each of the fields.
Crude oil and liquid hydrocarbons expressed in barrels are
translated from tonnes using a conversion rate of 7.85 barrels per
tonne. Translations of cubic feet to cubic metres are made at the
rate of 35.3 cubic feet per cubic metre. Translations of barrels of
crude oil and liquid hydrocarbons into barrels of oil equivalent
("boe") are made at the rate of 1 barrel per boe and of cubic feet
into boe at the rate of 290 cubic feet per boe.
Financial review
Revenue
The Group's revenues in H1 2019 decreased by 24% to RUB 632
million, compared to RUB 831 million in H1 2018.
82.6% of revenues were derived from gas sold to Mezhregiongaz, a
Gazprom subsidiary, at the transfer point on entry to the Central
Asia - Centre gas pipeline system. The gas prices are fixed in a
contract with Mezhregiongaz and are subject to indexation. The
Russian Government approved a 3.4% gas price increase and
accordingly the Company signed an addendum to its contract with
Mezhregiongaz resulting in an average price increase to RUB 3,857
per mcm compared to RUB 3,730 per mcm in H1 2018.
The remaining revenue was from oil and condensate sold directly
at the Western Gas Plant through a tender process to a small number
of different buyers. Oil and condensate prices were RUB 2,804/bbl
(RUB 22,015/t) in H1 2019 compared to RUB 2,624/bbl (RUB 20,595/t)
in H1 2018.
Cost of sales and G&A costs
The Group's operational and G&A costs increased by 52% to
RUB 133.7 million (H1 2018: RUB 88.2 million), mostly driven by
hiring senior geotechnical personnel, buying licences for
geological software and hiring new senior management.
Total cost of sales was RUB 533.9 million (H1 2018: RUB 546.8
million). This comprised RUB 134 million of mineral extraction tax
(H1 2018: RUB 179 million), RUB 211 million of depreciation and
depletion of assets (H1 2018: RUB 220 million) and RUB 189 million
of other cost of sales (H1 2018: RUB 148 million).
Other expenses increased heavily to RUB 71 million (H1 2018: RUB
7 million).
Operating profit
Zoltav dropped to an operating loss for H1 2019 of RUB 105
million, compared to operating profit of RUB 191 million in H1
2018.
EBITDA decreased by 74% to RUB 106 million (H1 2018: RUB
411).
Finance costs of RUB 75 million (H1 2018: RUB 93 million) are
mainly represented by decreased interest on the refinanced debt of
RUB 1.32 billion with PromSvyazbank.
Profit before tax
Zoltav generated RUB 170 million of losses before tax, compared
to profit before tax of RUB 101 million in H1 2018.
Taxation
Production based tax for the period was RUB 134 million (H1
2018: RUB 179 million) which is recognised in the cost of sales.
The MET tax formula is based on multi-component gas composition,
average gas prices and reservoir complexity and maturity. The
effective MET rate applicable for the period is remained flat of
RUB 27/mcf or RUB 956/mcm (H1 2018: RUB 27/mcf or RUB 949/mcm).
The income tax charge for the period was RUB 11 million (H1
2018: RUB 71 million as tax asset).
Net loss
The Company's financial result dropped significantly to a net
loss of RUB 170 million (H1 2018: net profit of RUB 101
million.
Cash
Net cash generated from operating activities was RUB 193 million
(H1 2018: RUB 377 million).
The Bortovoy Licence operating subsidiary, Diall Alliance,
successfully serviced its credit facility with PJSC Sberbank and
repaid a further RUB 144 million of the principal amount and
refinanced the whole debt with Promsvyazbank on 13 May 2019 with
the following terms:
-- RUB 1.32 billion limit and
-- a floating rate of Russian Central Bank rate + 1.6%
-- a six-month grace period (aligned with the Company's West
Bortovoy drilling schedule) on principal repayment
The loan facility contains a technical covenant requiring 75
mmcm of natural gas production a quarter. The covenant doesn't
contain any penalties and provides legal grounds for the bank to
have a formal discussion with the Company's management.
The Company breached the production covenant for Q2 and Q3 of
2019 due to the delay of the drilling programme. The bank accepted
the Company's explanation on the covenant breach, has provided a
waiver for Q2 2019, and will provide a waiver for Q3 2019 upon the
period end and statements review. The Zoltav management team does
not foresee a covenant breach in Q4 2019 and also expects
Karpenskoye Well 5D to commence production in November 2019.
Total cash at the end of the period was RUB 330 million (H1
2018: RUB 260 million).
Kirill Suetov
Chief Financial Officer
30 September 2019
Interim condensed consolidated statement of comprehensive income
for the six months ended 30 June 2019
(in '000s of Russian rubles, unless otherwise stated)
Six months ended 30 June Six months ended 30 June
2019 2018
Note (unaudited) (unaudited)
----- ------------------------- -------------------------
Revenue from contracts with customers 3 624,418 830,574
Cost of sales (533,865) (546,756)
------------------------- -------------------------
Gross profit 90,553 283,818
Administrative and selling expenses (133,160) (88,236)
Other income 9,398 2,774
Other expenses (71,236) (7,346)
------------------------- -------------------------
Operating (loss)/ profit (104,445) 191,010
Impairment of exploration and evaluation assets - (6,483)
Finance income 7,723 9,304
Finance costs (75,892) (92,740)
------------------------- -------------------------
(Loss)/ profit before tax (172,614) 101,091
Income tax benefit/ (expense) 4 12,086 (29,483)
------------------------- -------------------------
(Loss)/ profit for the period attributable to owners of
the parent being total comprehensive
(loss)/ income (160,528) 71,608
========================= =========================
RUB RUB
------------------------- -------------------------
(Loss)/ earnings per share attributable to owners
of the parent
Basic 9 (1.13) 0.50
Diluted 9 (1.13) 0.50
Kirill Suetov
Chief Financial Officer
30 September 2019
Interim condensed consolidated statement of financial position
as at 30 June 2019
(in '000s of Russian rubles, unless otherwise stated)
As at 30 June As at 31 December
Note 2019 (unaudited) 2018
----- ------------------ ------------------
Assets
Non-current assets
Exploration and evaluation assets 5 3,637,308 3,477,513
Property, plant and equipment 6 3,580,254 3,666,836
Right-of-use assets 7 25,338 -
------------------ ------------------
Total non-current assets 7,242,900 7,144,349
------------------ ------------------
Current assets
Inventories 21,312 23,469
Trade and other receivables 95,427 176,498
Other current non-financial assets 21,932 14,389
Cash and cash equivalents 13.3 330,213 260,636
------------------ ------------------
Total current assets 468,884 474,992
------------------ ------------------
Total assets 7,711,784 7,619,341
================== ==================
Equity and liabilities
Share capital 8 970,218 970,218
Share premium 5,498,009 5,498,009
Other reserves 1,343,566 1,343,566
Accumulated losses (2,610,781) (2,450,253)
------------------ ------------------
Total equity 5,201,012 5,361,540
------------------ ------------------
Non-current liabilities
Borrowings 11 - 692,498
Decommission provision 12 501,930 390,428
Other payables 70,879 68,081
Lease liabilities 22,459 -
Deferred tax liabilities 298,242 316,329
------------------ ------------------
Total non-current liabilities 893,510 1,467,336
------------------ ------------------
Current liabilities
Borrowings 11 1,329,583 570,400
Trade and other payables 200,483 97,405
Contract liabilities 671 7,274
Other taxes payables 58,633 96,281
Lease liabilities 3,393 -
Income tax payable 24,499 19,105
------------------ ------------------
Total current liabilities 1,617,262 790,465
------------------ ------------------
Total liabilities 2,510,772 2,257,801
------------------ ------------------
Total equity and liabilities 7,711,784 7,619,341
================== ==================
Interim condensed consolidated statement of cash flows for the
six months ended 30 June 2019
(in '000s of Russian rubles, unless otherwise stated)
Six months ended 30 June Six months ended 30 June
2019 2018
Note (unaudited) (unaudited)
----- ------------------------- -------------------------
Cash flows from operating activities
(Loss)/ profit before tax (172,614) 101,091
Adjustments for:
Depreciation and depletion 6 217,335 222,593
Impairment of exploration and evaluation assets 5 - 6,482
Finance costs 75,892 92,740
Finance income (7,723) (9,304)
Loss on disposal of property, plant and equipment, net
of income from sale of property, plant
and equipment 28,287 237
Expected credit loss 616 4,721
Change in the estimates of decommissioning and
environmental restoration provision 38,639 (1,931)
Other income and expenses 460 (1,235)
------------------------- -------------------------
Operating cash inflows before working capital changes 180,892 415,394
Decrease /(Increase) in inventories 2,918 (9,040)
Change in trade and other receivables and other current
non-financial assets 71,867 14,052
Decrease in trade and other payables and contract
liabilities 11,626 359
Change in other tax payables (37,648) 23,003
------------------------- -------------------------
Net cash from operating activities before income tax and
interests 229,655 443,768
Interest received 8,768 8,984
Interest paid 11 (52,294) (75,408)
Income tax paid (607) (7)
------------------------- -------------------------
Net cash from operating activities 185,522 377,334
------------------------- -------------------------
Cash flows from investing activities
Proceeds from sale of property, plant and equipment 193 2,257
Capital expenditure on exploration and evaluation
activities (114,095) (144,265)
Purchase of property, plant and equipment (62,493) (57,855)
------------------------- -------------------------
Net cash used in investing activities (176,395) (199,863)
------------------------- -------------------------
Cash flows from financing activities
Repayment of lease liabilities principal amount (1,399)
Finance lease payments (173)
Proceeds from borrowings 11 1,320,000 -
Repayment of borrowings 11 (1,257,548) (150,000)
------------------------- -------------------------
Net cash flows from/ (used in) financing activities 61,053 (150,173)
------------------------- -------------------------
Net increase in cash and cash equivalents 70,180 27,301
Net foreign exchange difference (603) 447
Cash and cash equivalents at the beginning of the period 260,636 286,754
------------------------- -------------------------
Cash and cash equivalents at the end of the period 330,213 314,502
========================= =========================
Interim condensed consolidated statement of changes in equity
for the six months ended 30 June 2019
(in '000s of Russian rubles, unless otherwise stated)
Attributable to owners of the Parent
----------------------------------------------------------------------------
Employee
share-based
Share Share Capital compensa-tion Accumulated Total
Note capital premium reserve reserve losses equity
------ --------- ---------- ---------- --------------- ------------ ----------
At 1 January
2018 970,218 5,498,009 1,343,566 22,606 (2,562,988) 5,271,411
Employee share-based
compensation - - - (22,606) 22,606 -
--------- ---------- ---------- --------------- ------------ ----------
Transactions
with owners - - - (22,606) 22,606 -
Profit for the
period - - - - 71,608 71,608
--------- ---------- ---------- --------------- ------------ ----------
Total comprehensive
income - - - - 71,608 71,608
--------- ---------- ---------- --------------- ------------ ----------
At 30 June 2018
(unaudited) 970,218 5,498,009 1,343,566 - (2,468,774) 5,343,019
========= ========== ========== =============== ============ ==========
At 1 January
2019 970,218 5,498,009 1,343,566 - (2,450,253) 5,361,540
Loss for the
period - - - - (160,528) (160,528)
--------- ---------- ---------- --------------- ------------ ----------
Total comprehensive
loss - - - - (160,528) (160,528)
--------- ---------- ---------- --------------- ------------ ----------
At 30 June 2019
(unaudited) 970,218 5,498,009 1,343,566 - (2,610,781) 5,201,012
========= ========== ========== =============== ============ ==========
Notes to the interim condensed consolidated financial
statements
(in '000s of Russian rubles, unless otherwise stated)
1. Background
1.1 The Company and its operations
Zoltav Group (the Group) comprises Zoltav Resources Inc. (the
Company), together with its subsidiaries:
Share of the Company in a
subsidiary as of 30 June 2019
Name Place of incorporation Function and 31 December 2018
----------------------------------- ------------------------ -------------------- ---------------------------------
CenGeo Holdings Limited
(hereinafter "CenGeo Holdings") Cyprus Holding company 100%
CJSC SibGeCo (hereinafter
"SibGeCo") Russia Operating company 100%
Royal Atlantic Energy (Cyprus)
Limited (hereinafter "Royal") Cyprus Holding company 100%
Diall Alliance LLC (hereinafter
"Diall") Russia Operating company 100%
Zoltav Resource LLC Russia Management company 100%
The Company was incorporated in the Cayman Islands on 18
November 2003. The principal activities of the Company and its
subsidiaries is the acquisition, exploration, development and
production of hydrocarbons in the Russian Federation. The Company's
shares are listed on the Alternative Investment Market of the
London Stock Exchange.
1.2 Russian business environment
The Group's operations are primarily located in the Russian
Federation.
Russia continues economic reforms and development of its legal,
tax and regulatory frameworks as required by a market economy. The
future stability of the Russian economy is largely dependent upon
these reforms and developments and the effectiveness of economic,
financial and monetary measures undertaken by the government.
The Russian economy has been negatively impacted by sanctions
imposed on Russia by a number of countries. The Rouble interest
rates remained high. The combination of the above resulted in
reduced access to capital, a higher cost of capital and uncertainty
regarding economic growth, which could negatively affect the
Group's future financial position, results of operations and
business prospects. Management believes it is taking appropriate
measures to support the sustainability of the Group's business in
the current circumstances.
2. Accounting policy
2.1 Basis of preparation
These interim condensed consolidated financial statements have
been prepared in accordance with International Accounting Standard
("IAS") 34 "Interim Financial Reporting", as adopted by the
European Union. Accordingly, these interim condensed consolidated
financial statements do not include all the information and
disclosures required for a complete set of financial statements,
and should be read in conjunction with the Group's annual
consolidated financial statements for the year ended 31 December
2018, which were prepared in accordance with International
Financial Reporting Standards, as adopted by the European
Union.
Operating results for the six-month period ended 30 June 2019
are not necessarily indicative of the results that may be expected
for the year ending 31 December 2019.
2.2 Going concern
The consolidated financial statements have been prepared on a
going concern basis as the Directors have concluded that the Group
will continue to have access to sufficient funds in order to meet
its obligations as they fall due for at least the foreseeable
future as explained further in the Directors Report. The Group's
current liabilities exceed current assets by 1,148,378 as at 30
June 2019. For mitigation factors, please, see Note 13.1.
2.3 Disclosure of impact of new and future accounting
standards
Adoption of new and amended standards
In the preparation of these consolidated financial statements,
the Group followed the same accounting policies and methods of
computation as compared with those applied previously, except for
the adoption of new standards and interpretations and revision of
the existing standards as of 1 January 2019. The Group has not
early adopted any other standard, interpretation or amendment that
has been issued but is not yet effective.
Effective
for annual
periods beginning
New/revised standards and Interpretations adopted as on
of 1 January 2019 or after
-------------------------------------------------------- -------------------
1 January
IFRS 16 Leases 2019
Amendments to IFRS 9: Prepayment Features with Negative 1 January
Compensation 2019
1 January
IFRIC 23 Uncertainty over Income Tax Treatments 2019
Amendments to IAS 28: Long-term Interests in Associates 1 January
and Joint Ventures 2019
Amendments to IAS 19: Plan Amendment, Curtailment or 1 January
Settlement 2019
1 January
Annual improvements to IFRSs 2015-2017 cycle 2019
Except for IFRS 16 new standards and amendments applied for the
first time in 2019 did not have a material impact on the
consolidated financial statements of the Group.
IFRS 16 Leases
IFRS 16 was issued in January 2016 and it replaces IAS 17
Leases, IFRIC 4 Determining whether an Arrangement Contains a
Lease, SIC-15 Operating Leases - Incentives and SIC-27 Evaluating
the Substance of Transactions Involving the Legal Form of a Lease.
IFRS 16 sets out the principles for the recognition, measurement,
presentation and disclosure of leases and requires lessees to
account for all leases under a single on-balance sheet model
similar to the accounting for finance leases under IAS 17. The
standard includes two recognition exemptions for lessees - leases
of 'low--value' assets (e.g., personal computers) and short-term
leases (i.e., leases with a lease term of 12 months or less). At
the commencement date of a lease, a lessee recognises a liability
to make lease payments (i.e., the lease liability) and an asset
representing the right to use the underlying asset during the lease
term (i.e., the right-of-use asset). Lessees is required to
separately recognise the interest expense on the lease liability
and the depreciation expense on the right-of-use asset.
Lessees is also required to remeasure the lease liability upon
the occurrence of certain events (e.g., a change in the lease term,
a change in future lease payments resulting from a change in an
index or rate used to determine those payments). The lessee
generally recognises the amount of the remeasurement of the lease
liability as an adjustment to the right-of-use asset.
IFRS 16 is effective for annual periods beginning on or after 1
January 2019. The Group adopted IFRS 16 using the modified
retrospective approach. Under this approach the comparatives are
not be restated. Lease liabilities and right of-use assets were
recognised at the date of transition to IFRS 16. Modified
retrospective approach assumes recognition of lease liability
discounted using incremental borrowing rate at the date of
transition. The Group elected to measure right-of-use assets on
lease-by-lease basis at an amount equaled to liability (adjusted
for accruals and prepayments).
The Group elected to apply the standard to contracts that were
previously identified as leases applying IAS 17 and IFRIC 4. The
Group will therefore not apply the standard to contracts that were
not previously identified as containing a lease applying IAS 17 and
IFRIC 4.
The Group elected to use the exemptions proposed by the
standard:
-- On lease contracts for which the lease terms ends within 12
months as of the date of initial application;
-- On lease contracts for which the underlying asset is of low value;
-- On initial application initial direct costs will be excluded
from the measurement of the right-of-use asset;
-- For all classes of underlying assets each lease component and
any associated non-lease components will be accounted as a single
lease component.
The effect of adoption of IFRS 16 as at 1 January 2019
(increase/(decrease)) is as follows:
As at
1 January
2019
-----------
Assets
Property, plant and equipment (right-of-use
assets) 13,576
Liabilities
Lease liabilities (non-current) 12,554
Lease liabilities (current) 1,022
2.4 Segment reporting
Segment reporting follows the Group's internal reporting
structure.
Operating segments are defined as components of the Group where
separate financial information is available and reported regularly
to the chief operating decision maker ("CODM"), which is determined
to be the Board of Directors of the Company. The Board of Directors
decides how to allocate resources and assesses operational and
financial performance using the information provided.
The CODM receives monthly IFRS-based financial information for
the Group and its development and production entities. The Group
has other entities that engage as either head office or in a
corporate capacity, or as holding companies. Management has
concluded that, due to the application of aggregation criteria,
separate financial information for segments is not required. No
geographic segmental information is presented, as all of the
companies' operating activities are based in the Russian
Federation.
Management has therefore determined that the operations of the
Group comprise one operating segment and the Group operates in only
one geographic area - the Russian Federation.
2.5 Foreign currency translation
a) Functional and presentation currency
The functional currency of the Group entities is the Russian
ruble ("RUB"), the currency of the primary economic environment in
which the Group operates.
The presentation currency is RUB, which the Board considers more
representative for users of these consolidated financial statements
to better assess the performance of the Group.
b) Transactions and balances
Transactions in foreign currencies are initially recorded by the
Group's entities at their respective functional currency spot rates
at the date the transaction first qualifies for recognition.
Monetary assets and liabilities denominated in foreign
currencies are translated at the functional currency spot rates of
exchange at the reporting date.
Differences arising on the settlement or translation of monetary
items are recognised in profit or loss.
Non-monetary items that are measured in terms of historical cost
in a foreign currency are translated using the exchange rates at
the dates of the initial transactions.
c) Group companies
Loans between Group entities and related foreign exchange gains
or losses are eliminated upon consolidation.
Any goodwill arising on the acquisition of a foreign operation
and any fair value adjustments to the carrying amounts of assets
and liabilities on the acquisition are treated as assets and
liabilities of foreign operation and translated at the spot rate of
exchange at the reporting date.
The period-end exchange rates and the average exchange rates for
the respective reporting periods are indicated below.
30 June 31 December
2019 2018
-------- ------------
RUB/USD as at reporting date 63.0756 69.4706
2019 2018
-------- ------------
RUB/USD average for the six months ended
30 June 65.3384 59.3536
2.6 Assets and liabilities not measured at fair value but for
which fair value is disclosed
Fair values analysed by level in the fair value hierarchy of
assets and liabilities of the Group not measured at fair value are
as follows:
30 June 2019 31 December 2018
---------------------------------- -----------------------
Fair value Carrying Carrying
(unaudited) value (unaudited) Fair value value
------------- ------------------- ----------- ----------
Financial assets
Trade and other receivables 95,427 95,427 176,498 176,498
------------- ------------------- ----------- ----------
Total assets 95,427 95,427 176,498 176,498
============= =================== =========== ==========
Financial liabilities
Borrowings 1,331,893 1,329,583 1,270,477 1,262,898
Trade and other payables 200,483 200,483 97,405 97,405
Other non-current
payables 71,544 70,879 68,679 68,081
------------- ------------------- ----------- ----------
Total liabilities 1,604,591 1,601,616 1,443,835 1,435,658
============= =================== =========== ==========
The fair value of borrowings and other non-current payables is
based on cash flows discounted using a market rate of 9.39% (2018:
9.33%). The fair values of borrowings and other non-current
payables are within level 2 of the fair value hierarchy. The fair
value of trade and other receivables is within level 3
hierarchy.
3 Revenue from contracts with customers
The Group's operations comprise one class of business being oil
and gas exploration, development and production and all revenues
are from one geographic region, the Saratov Region in the Russian
Federation. Companies incorporated outside of Russia provide
support to the operations in Russia.
Revenue from contracts with customers comprises sale of the
following products:
Six months ended 30 June
----------------------------
2019 2018
(unaudited) (unaudited)
------------- -------------
Gas sales 515,679 667,498
Condensate sales 49,502 73,695
Oil sales 55,354 85,184
Sulphur sales 3,883 4,197
Total revenue from contracts with customers 624,418 830,574
============= =============
All gas sales are made to one customer, Gazprom Mezhregiongaz
Saratov LLC, under a long-term contract effective until 31 December
2020 with terms reviewed annually. Condensate and oil are sold to
local buyers. The sales of all products are denominated in RUB.
4 Income tax benefit/ (expense)
The tax charge for the period comprises:
Six months ended 30 June
----------------------------
2019 2018
(unaudited) (unaudited)
------------- -------------
Deferred tax expense 18,087 (29,476)
Current tax expense (607) (7)
Tax risk provisions (5,394) -
------------- -------------
Total income tax benefit/ (expense) 12,086 (29,483)
============= =============
Reconciliation between theoretical and actual taxation charge is
provided below.
Six months ended 30 June
------------------------------------
2019 (unaudited) 2018 (unaudited)
----------------- -----------------
(Loss) / Profit before income tax (172,614) 101,091
----------------- -----------------
Theoretical tax benefit /(charge) at applicable
income tax rate of 20% (2018: 20%) 34,523 (20,218)
Effect of different foreign tax rates (2,144) (2,511)
Effect of unrecognised deferred tax assets (9,888) (3,695)
Tax effect of expenses not deductible for
tax purposes (5,011) (3,059)
Tax risk provisions (5,394) -
----------------- -----------------
Total income tax benefit/ (expense) 12,086 (29,483)
================= =================
The Group's income was subject to tax at the following tax
rates:
Six months Six months
ended 30 ended 30
June 2019 June 2018
----------- -----------
The Russian Federation 20.0% 20.0%
The Republic of Cyprus 12.5% 12.5%
Cayman Islands 0% 0%
The Group is subject to Cayman income tax, otherwise the
majority of the Group's operations are located in the Russian
Federation. Thus 20% tax rate is used for theoretical tax charge
calculations.
5 Exploration and evaluation assets
Exploration and evaluation works
Sub-soil capitalised, including
licences seismic works Total
Balance at 1 January 2018 1,037,728 2,221,625 3,259,353
Additions 7,484 150,743 158,227
Change in the estimates of decommissioning
provision - (1,416) (1,416)
Impairment (7,593) 1,111 (6,482)
Balance at 30 June 2018 (unaudited) 1,037,619 2,372,063 3,409,682
========== ============================================= ==========
Balance at 1 January 2019 1,037,510 2,440,003 3,477,513
Additions - 151,679 151,679
Transfer from property, plant and equipment - 6,604 6,604
Change in the estimates of decommissioning
provision - 2,450 2,450
Amortization (109) (829) (938)
---------- --------------------------------------------- ----------
Balance at 30 June 2019 (unaudited) 1,037,401 2,599,907 3,637,308
========== ============================================= ==========
dditions during 2018 are mostly represented by seismic works at
North Mokrousovskoye field
and capital part of feasibility study on the East of
Bortovoy.
In management's opinion, as at 30 June 2019 there were no
non-compliance issues in respect of the licences that would have an
adverse effect on the financial position or the operating results
of the Group.
Impairment
In 2017 the Group revised its investment strategy with a primary
focus on exploration and further development of the Deep Devonian
on the Bortovoy gas field. As a result, the forecasted amount of
investments in the development of the Koltogor oil field cannot be
confirmed. Accordingly, the probability of the Koltogor oil field
developments becomes uncertain. The Group recognised an impairment
loss of the total book value of exploration and evaluation assets
of the Koltogor oil field as of 31 December 2017. As of 30 June
2019 the uncertainty regarding Koltogor oil field development is
still in place.
6 Property, plant and equipment
Construction
Oil and Motor Other equipment work in
gas assets vehicles and furniture progress Total
------------ ---------- ---------------- ------------- ------------
Cost at 1 January 2018 5,202,044 18,075 7,963 68,582 5,296,664
Additions 5,972 773 1,240 47,294 55,279
Reclassification 25,893 - - (25,893) -
Transfer to exploration
and evaluation assets - - - - -
Transfer to current
assets - - - (7,572) (7,572)
Change in the estimates
of decommissioning
provision (2,775) - - - (2,775)
Disposals (4,941) (3,301) - (22) (8,264)
------------ ---------- ---------------- ------------- ------------
Cost at 30 June 2018
(unaudited) 5,226,193 15,547 9,203 82,389 5,333,332
Cost at 1 January 2019 5,303,261 16,886 9,821 61,221 5,391,189
Additions 4,001 3,104 417 102,844 110,366
Reclassification 8,690 - - (8,690) -
Transfer to exploration
and evaluation assets - - - (6,604) (6,604)
Transfer to current
assets - - - (1,226) (1,226)
Change in the estimates
of decommissioning
provision 53,846 - - - 53,846
Disposals (55,089) (144) - - (55,233)
Cost at 30 June 2019
(unaudited) 5,314,709 19,846 10,238 147,545 5,492,338
------------ ---------- ---------------- ------------- ------------
Accumulated depreciation,
depletion and impairment
Balance at 1 January
2018 (1,268,777) (15,488) (5,097) - (1,289,362)
Depreciation and depletion (221,066) (1,307) (220) - (222,593)
Disposals 2,469 3,301 - - 5,770
------------ ---------- ---------------- ------------- ------------
Balance at 30 June
2018 (unaudited) (1,487,374) (13,494) (5,317) - (1,506,185)
Balance at 1 January
2019 (1,704,913) (14,032) (5,408) - (1,724,353)
Depreciation and depletion (212,237) (1,845) (402) - (214,484)
Disposals 26,609 144 - - 26,753
Balance at 30 June
2019 (unaudited) (1,890,541) (15,733) (5,810) - (1,912,084)
------------ ---------- ---------------- ------------- ------------
Net book value at 1
January 2018 3,933,267 2,587 2,866 68,582 4,007,302
============ ========== ================ ============= ============
Net book value at 30
June 2018 (unaudited) 3,738,819 2,053 3,886 82,389 3,827,147
============ ========== ================ ============= ============
Net book value at 1
January 2019 3,598,348 2,854 4,413 61,221 3,666,836
============ ========== ================ ============= ============
Net book value at 30
June 2019(unaudited) 3,424,168 4,113 4,428 147,545 3,580,254
============ ========== ================ ============= ============
7 Right-of-use assets
Buildings Other Total right-of-use Lease liability
---------- ------ ------------------- ----------------
Balance at 1 January
2019 13,576 - 13,576 13,576
Additions 8,949 4,726 13,675 13,675
Depreciation (1,519) (394) (1,913) -
Interest expense - - - 1,221
Payment - - - (2,620)
Balance at 30 June
2019 (unaudited) 21,006 4,332 25,338 25,852
---------- ------ ------------------- ----------------
Including short-term
lease liability (unaudited) 3,393
8 Share capital
Number of
At 30 December 2019, 31 December ordinary Nominal value, Nominal value,
2017 shares USD'000 RUB'000
---------------------------------- ------------ --------------- ---------------
Authorised (par value of USD
0.20 each) 250,000,000 50,000 1,708,672
Issued and fully paid (par value
of USD 0.20 each) 141,955,386 28,391 970,218
9 Earnings per share
Basic earnings per share is calculated by dividing the profit
attributable to owners of the Company by the weighted average
number of ordinary shares in issue during the period.
Diluted earnings per share is calculated by adjusting the
weighted average number of ordinary shares outstanding to assume
conversion of all dilutive potential ordinary shares. The Company
had no dilutive instruments during six months 2019 and had share
options and warrants as dilutive potential ordinary shares during
six months 2018.
Six months ended 30 June
----------------------------
2019 2018
(unaudited) (unaudited)
------------- -------------
(Loss) /Profit attributable to owners of
the Company -
Basic and diluted (160,528) 71,608
Number of Number of
shares shares
------------ ------------
Weighted average number of shares for calculating
basic earnings per share 141,955,386 141,955,386
Antidilutive potential ordinary shares -
share options - 12,375
Weighted average number of shares for calculating
diluted earnings per share 141,955,386 141,967,761
RUB RUB
------- -----
Basic (loss)/earnings per share (1.13) 0.50
Diluted (loss)/earnings per share (1.13) 0.50
10 Share-based payments
At 30 June 2019, the Company had no outstanding share options
(at 31 December 2018: 0 share options), as initial share options
amounting 22,606 expired on 11 January 2018.
11 Borrowings
2019 2018
------------ ----------
Non-revolving credit facility with Sberbank PJSC - liability, as at 1 January 1,262,898 1,562,186
Including current liability 570,400 309,172
Interest accrued 40,352 75,184
Interest paid (45,702) (75,408)
Repayment (1,257,548) (150,000)
Non-revolving credit facility Sberbank PJSC, as at 30 June (unaudited) - 1,411,962
============ ==========
Including current liability - 439,127
In June 2019 the loan facility with Sberbank PJSC was fully
repaid using the new facility from Promsvyasbank PJSC.
The Group signed a credit line agreement with Promsvyasbank PJSC
("the Bank") on 13 May 2019. Credit line limit is 1,320,000.
Interest rate equals Russian Key rate plus margin 1.6%. Payment
terms depend on the amount of credit line used, final payment is no
later than 29 April 2024. The loan is secured by the Group. The
carrying value of property, plant and equipment pledged as of 30
June 2019 amounted to RUB 600.4 million , the pledge has been
signed on September 26.
The new loan facility contains a technical covenant requiring 75
mmcm of natural gas production each quarter. This covenant doesn't
contain any penalties and provides legal grounds for the Bank to
have a formal discussion with the Group's management and, as the
most negative consequence, to demand for immediate repayment of
total loan liability.
The Group breached production covenant for the second and the
third quarters of 2019. That is why the Group reclassified the
long-term part of the loan liability which amounted to 1,104,000 to
short-term loans as of 30 June 2019. The breach was caused by the
delay in the drilling program, which lead to decrease in gas
production. The Bank accepted the Group's explanation on the
covenant breach and has provided a waiver for the second quarter of
2019 stating that the breach, occurred in second quarter, will not
lead to ahead-of-schedule demand for the loan repayment. The
management of the Group believes that, since the Bank has provided
the waiver for the second quarter of 2019, the Group will achieve
the agreement with the Bank regarding the waiver for the third
quarter of 2019 as well upon period end and statements review. The
Group does not expect the covenant breach in the fourth quarter of
2019 as well 5D in Karpenskoe field shall be starting production in
November 2019.
2019 2018
---------- -----
Credit facility with Promsvyazbank PJSC - liability, as at 1 January - -
Including current liability - -
Interest accrued 14,954 -
Interest paid (5,371) -
Proceeds 1,320,000 -
Credit facility Promsvyazbank PJSC - liability, as at 30 June (unaudited) 1,329,583 -
========== =====
Including current liability 1,329,583
12 Decommission provision
The decommissioning and environmental restoration provision
represents the net present value of the estimated future
obligations for abandonment and site restoration costs which are
expected to be incurred at the end of the production lives of the
gas and oil fields which is estimated to be within 20 years.
2019 2018
-------- --------
Provision as at 1 January 390,428 386,152
Additions - 2,538
Unwinding of discount 16,567 14,556
Change in estimate of decommissioning and environmental restoration provision 94,935 (6,122)
Provision as at 30 June (unaudited) 501,930 397,124
======== ========
This provision has been created based on the Group's internal
estimates. Assumptions based on the current economic environment
have been made which the directors believe are a reasonable basis
upon which to estimate the future liability. These estimates are
reviewed regularly to take into account any material changes to the
assumptions. However, actual decommissioning costs will ultimately
depend upon future market prices for the necessary dismantlement
works required, which will reflect market conditions at the
relevant time. Furthermore, the timing is likely to depend on when
the fields cease to produce at economically viable rates. This in
turn will depend upon future oil prices and future operating costs,
which are inherently uncertain.
The provision reflects two liabilities: one is to dismantle the
property, plant and equipment assets and the other is to restore
the environment. The decommissioning part of the provision is
reversed when an oil well is abandoned and corresponding
capitalised costs are expensed. The environmental part of the
provision is reversed when the expenses on restoration are actually
incurred.
The provision is reversed when the corresponding capitalised
costs directly attributable to an exploration and evaluation asset
are expensed as it is determined that a commercial discovery has
not been achieved and the restoration of the corresponding
environment has been completed.
The Group reviews the application of inflation rates used for
the provision estimation each half-year end. The inflation rate
used in the estimation of the provision as of 30 June 2019 was 4.7%
in 2019, decreasing to 4% in 2036 (as of 31 December 2018: 5.28% in
2018, decreasing to 3.64% in 2036). The discount rates used to
determine the decommissioning and environmental restoration
provision are based on Russian government bond rates. As of 30 June
2019, the discount rate varies from 7.41% to 7.5% (as of 31
December 2018: from 8.72% to 8.75%) depending on the expected
period of abandonment and site restoration for each gas and oil
fields.
13 Financial instruments and financial risk management
The Group has exposure to the following risks from its use of
financial instruments:
-- Liquidity risk;
-- Market risk;
-- Credit risk.
This note presents information about the Group's exposure to
each of the above risks, the Group's objectives, policies and
processes for measuring and managing risk, and the Group's
management of capital. Further quantitative disclosures are
included throughout these consolidated financial statements.
The Group's risk management policies deal with identifying and
analysing the risks faced by the Group, setting appropriate risk
limits and controls, and monitoring risks and adherence to limits.
Risk management policies and systems are reviewed regularly to
reflect changes in market conditions and the Group's activities.
The Group, through its internal policies, aims to develop a
disciplined and constructive control environment in which all
employees understand their roles and obligations.
13.1 Liquidity risk
Liquidity risk is the risk that the Group will not be able to
meet its financial obligations as they fall due. The Group monitors
the risk of cash shortfalls by means of current liquidity planning.
The Group's approach to managing liquidity is to ensure, as far as
possible, that it will always have sufficient liquidity to meet its
liabilities when due, under both normal and stressed conditions,
without incurring unacceptable losses or risking damage to the
Group's reputation. This approach is used to analyse payment dates
associated with financial assets, and also to forecast cash flows
from operating activities. The contractual maturities of financial
liabilities are presented including estimated interest
payments.
The Group's current liabilities exceed current assets by
1,148,378 as at 30 June 2019. The Group plans to cover liquidity
gap by cash inflows from operating activity in 2019. As described
in note 11 in May 2019 the Group refinanced its loan obligation
from Sberbank PJSC and received additional financing.
13.2 Market risk
Market risk includes interest risk and foreign currency exchange
rate risk.
a) Interest risk
The Group has exposure to interest risk since the Group's
subsidiary, Diall Alliance LLC, entered into a non-revolving credit
facility agreement with Sberbank and, according to the terms of the
agreement, Sberbank may unilaterally amend the interest rate in the
event of increases in refinancing rates of the Central Bank of
Russia.
b) Foreign currency exchange rate risk
The Group does not have any significant exposure to foreign
currency risk, as no significant sales, purchases or borrowings are
denominated in a currency other than the functional currency.
The Group's operations are carried in the Russian Federation,
where all of its revenue, costs and financing from both Sberbank
and intra-group lending are denominated in RUB. As a result there
is no exposure at the operating subsidiary level to foreign
currency exchange risk movements.
13.3 Credit risk
Credit risk is the risk that a counterparty will not meet its
obligations under a financial instrument or customer contract,
leading to a financial loss. The Group is exposed to credit risk
from its operating activities (primarily trade receivables) and
from its financing activities, including deposits with banks and
financial institutions, foreign exchange transactions and other
financial instruments.
Customer credit risk is managed by each business unit subject to
the Group's established policy, procedures and control relating to
customer credit risk management. Credit quality of a customer is
assessed based on a credit rating scorecard and individual credit
limits are defined in accordance with this assessment. Outstanding
customer receivables are regularly monitored
The Group is largely dependent on one customer (Gazprom
Mezhregiongaz Saratov LLC) for a significant portion of revenues.
Gazprom Mezhregiongaz Saratov LLC accounted for 81.6% and 80.4% of
the Group's total revenue during the first six months of 2019 and
2018 respectively. The loss or the insolvency of this customer for
any reason, or reduced sales of the Group's principal product,
could significantly reduce the Group's ongoing revenue and/or
profitability, and could materially and adversely affect the
Group's financial condition. The credit rating assigned to Gazprom
by Standard & Poor's is BBB-. To manage credit risk and
exposure to the loss of the key customer, the Group has entered
into a long-term contract with Gazprom Mezhregiongaz Saratov LLC,
effective till 31 December 2020. As for the smaller customers, the
Group imposes minimum credit standards that the customers must meet
before and during the sales transaction process.
An impairment analysis is performed at each reporting date using
a provision matrix to measure expected credit losses. The provision
rates are based on days past due for groupings of various customer
segments with similar loss patterns (i.e., by product type,
customer type and rating). The calculation reflects the
probability-weighted outcome, the time value of money and
reasonable and supportable information that is available at the
reporting date about past events, current conditions and forecasts
of future economic conditions. Generally, trade receivables are
written-off if past due for more than one year and are not subject
to enforcement activity. The Group does not hold collateral as
security.
Credit risk related to cash and cash equivalents is reduced by
placing funds with banks with acceptable credit ratings.
To limit exposure to credit risk on cash and cash equivalents
management's policy is to hold cash and cash equivalents in
reputable financial institutions. During the first six months of
2019 cash was held mainly with Promsvyasbank PJSC, Bank DOM.RF and
Sberbank.
To limit exposure to credit risk on cash and cash equivalents
management's policy is to hold cash and cash equivalents in
reputable financial institutions.
30 June 2019
31 December
(unaudited 2018
------------- ------------
Ba3.ru, Moody's 209,972 49
ruBBB, Expert RA 114,000 50,000
Ba 3.ru, Moody's 1,517 10,945
Ba1.ru, Moody's 47 191,251
Other 4,677 8,391
------------- ------------
Total cash and cash equivalents 330,213 260,636
============= ============
Capital management
The Group considers its capital and reserves attributable to
equity shareholders to be the Group's capital. In managing its
capital, the Group's primary long-term objective is to provide a
return for its equity shareholders through capital growth. Going
forward, the Group may seek additional investment funds and also
maintain a gearing ratio that balances risks and returns at an
acceptable level, while maintaining a sufficient funding base to
enable the Group to meet its working capital needs. Details of the
Group's capital are disclosed in the interim statement of changes
in equity.
There have been no significant changes to management's
objectives, policies or processes in the period, nor has there been
any change in what the Group considers to be capital.
The Group companies are in compliance with externally imposed
capital requirements as of 30 June 2019 and 31 December 2018.
14 Commitments and contingencies
14.1 Capital commitments
Capital expenditure contracted for at the end of the reporting
period but not yet incurred at 30 June 2019 was 230,766, net of VAT
(31 December 2018: 29,984, net of VAT).
14.2 Insurance
The insurance industry in the Russian Federation is in a
developing state and many forms of insurance protection common in
other parts of the world are not generally available. The Group's
insurance currently includes cover for damage to or loss of assets,
third-party liability coverage (including employer's liability
insurance), in each case subject to excesses, exclusions and
limitations. However, there can be no assurance that such insurance
will be adequate to cover losses or exposure to liability, or that
the Group will continue to be able to obtain insurance to cover
such risks. Until the Group obtains adequate insurance coverage
there is a risk that the loss or destruction of certain assets
could have a material adverse effect on the Group's operations and
financial position.
14.3 Litigation
The Group has been involved in a number of court proceedings
(both as a plaintiff and as a defendant) arising in the normal
course of business. In the opinion of management there are no
current legal proceedings or other claims outstanding which could
have a material adverse effect on the results of operations,
financial position or cash flows of the Group and which have not
been accrued or disclosed in these financial statements.
No provision for litigations was accrued as at 31 December 2018
or 30 June 2019.
14.4 Taxation
Russian tax, currency and customs law allows for various
interpretations and is subject to frequent changes. Management's
interpretation of legislation as applied to the Group's
transactions and activities may be challenged by regional or
federal authorities.
The Group operates in a number of foreign jurisdictions besides
Russian Federation. The Group includes companies established
outside the Russian Federation that are subject to taxation at
rates and in accordance with the laws of jurisdictions in which the
companies of the Group are recognised as tax residents. Tax
liabilities of foreign companies of the Group are determined on the
basis that foreign companies of the Group are not tax residents of
the Russian Federation, nor do they have a permanent representative
office in the Russian Federation and are therefore not subject to
income tax under Russian law, except for income tax deductions at
the source.
In 2019, there was further implementation of mechanisms aimed at
avoiding tax evasion using low-tax jurisdictions and aggressive tax
planning structures. In particular, these changes included the
definition of the concept of beneficial ownership, the tax
residence of legal entities at the place of actual activities, as
well as the approach to taxation of controlled foreign companies in
the Russian Federation. In addition, since 2019, the total VAT rate
is increased to 20%.
The Russian tax authorities continue to actively cooperate with
the tax authorities of foreign countries in the international
exchange of tax information, which makes the activities of
companies on an international scale more transparent and requires
detailed study in terms of confirming the economic purpose of the
organization of the international structure in the framework of tax
control procedures.
These changes and recent trends in applying and interpreting
certain provisions of Russian tax law indicate that the tax
authorities may take a tougher stance in interpreting legislation
and reviewing tax returns. The tax authorities may thus challenge
transactions and accounting methods that they have never challenged
before. As a result, significant taxes, penalties and fines may be
accrued. It is not possible to determine the amounts of
constructive claims or evaluate the probability of a negative
outcome. Tax audits may cover a period of three calendar years
immediately preceding the audited year. Under certain
circumstances, the tax authorities may review earlier tax
periods.
In addition, tax authorities have the right to charge additional
tax liabilities and penalties on the basis of the rules established
by transfer pricing legislation, if the price/profitability in
controlled transactions differs from the market level. The list of
controlled transactions mainly includes transactions concluded
between related parties. Requirements for tax control of prices and
preparation of transfer pricing documentation apply to cross-border
transactions between related parties (without applying any
threshold), individual transactions in the field of foreign trade
in goods of world exchange trade and transactions with companies
located in low-tax jurisdictions, as well as transactions between
related parties in the domestic market in some cases.
Tax authorities may carry out a price/profitability check in
controlled transactions and, in case of disagreement with the
prices applied by the Group in these transactions, may additionally
charge additional tax liabilities if the Group is unable to justify
the market nature of pricing in these transactions by providing
transfer pricing documentation (national documentation) in
accordance with the requirements of the legislation.
Management believes that it has provided adequately for tax
liabilities based on its interpretations of applicable tax
legislation, official pronouncements and court decisions. However,
the interpretations of the relevant authorities could differ and
the impact on these consolidated financial statements if the
authorities were successful in enforcing their interpretations
could be significant.
14.5 Environmental matters
The Group's operations are in the upstream oil and gas industry
in the Russian Federation and its activities may have an impact on
the environment. The enforcement of environmental regulations in
the Russian Federation is evolving and the enforcement stance of
government authorities is continually being reconsidered. The Group
periodically evaluates its obligations related thereto. The outcome
of environmental liabilities under proposed or future legislation,
or as a result of stricter interpretation and enforcement of
existing legislation, cannot reasonably be estimated at present,
but could be material.
Under the current levels of enforcement of existing legislation,
management believes there are no significant liabilities in
addition to amounts already accrued as a part of the
decommissioning provision and which would have a material adverse
effect on the financial position or results of the Group.
15 Related party transactions
During the period there were no operations with related parties,
except for key management remunerations. Key management comprises
members of the Board of Directors.
The remuneration of key management comprised of salary and
bonuses in the amount 4,253 (6 months 2018: 4,207) resulting from
the reduction of Company's and Zoltav Resources LLC's Board of
Directors members' remuneration.
16 Events after the reporting date
There were no events after the reporting date that require
disclosures in the Group's interim condensed consolidated financial
statements.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR BRGDCRBXBGCG
(END) Dow Jones Newswires
September 30, 2019 13:21 ET (17:21 GMT)
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