RNS Number : 9648C
Petroneft Resources PLC
21 June 2019
 

21 June 2019

PetroNeft Resources plc

("PetroNeft" or the "Group" or the "Company")

2018 Final Results

PetroNeft (AIM: PTR) owner and operator of Licences 61 and 67, Tomsk Oblast, Russian Federation, is pleased to report its final results for the year ended 31 December 2018.

Highlights

·    C-4 well at Cheremshanskoye produced about 450 bopd on test

·    Gross production at Licence 61 in 2018 was 713,603 barrels of oil or an average of 1,955 bopd

While this represents a reduction in production it is ahead of expectations due to continued good performance of horizontal wells at South Arbuzovskoye

·    64.2 mmbbls total proved and probable (2P) reserves net to PetroNeft

 

For further information, contact:

David Sturt, CEO, PetroNeft Resources plc          

+971 55 191 9808

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

+353 1 679 6363

Henry Fitzgerald-O'Connor, Canaccord Genuity Limited (Joint Broker)   

+44 207 523 8000

Joe Heron / Douglas Keatinge, Murray Consultants

+353 1 498 0300

 

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

Forward Looking Statements

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

 

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

 

Chairman's Statement

 

2018 was a year of significant change for our Company which saw the retirement of our Chief Executive Officer Dennis Francis in November 2018.

 

Dennis was a founder of PetroNeft in 2004 and oversaw its growth from a private company to a public company listed on the London AIM and Dublin ESM stock exchanges. In that time period the Company evolved from an explorer to an established production company employing over 170 people in the Tomsk Region of Russia. In 2016 Mr. Francis received a Certificate of honour from the Subsurface Management Department for the Tomsk Region (TomskNedra) for significant contributions to the development of mineral resources in the Tomsk Region.

 

In early 2019 the Company announced the appointment of David Sturt as the new Chief Executive Officer. David had been a Non-Executive Director of the Company since 2016 and brings over 35 years of international experience in the upstream oil and gas industry gained working on projects in Europe, CIS, Africa, South America and SE Asia.

 

In the period between Dennis' retirement and David commencing as CEO, Karl Johnson, our Vice President of Operations assumed the role of Interim CEO.

 

I would like to thank Dennis for his many years of dedicated service to PetroNeft and to thank Karl for his work as Interim CEO. I would also like to sincerely welcome David to his new position.

 

I would also like to thank Paul Dowling for his long service with the Company, first as CFO and Director and then as CFO on a consultancy basis following his departure from the Board in 2016. At the end of 2018, Paul elected to end his full-time consultancy contract, but continues to provide his services on a part-time basis to assist the Company in certain matters.

 

Operations

The existing production wells at Licence 61 generally performed well during 2018, with a slower than expected natural decline.  No new wells were drilled on Licence 61 in 2018.

 

At Licence 67 we drilled the C-4 appraisal well in conjunction with our Joint Venture partner, Arawak Energy. Oil was tested across two zones in the Upper Jurassic horizon and we achieved combined open hole test rates of 399 bfpd. We also encountered oil pay in the Lower Jurassic horizon, however, the reservoir was of lower quality. A subsequent cased hole test achieved a rate of 450 bopd. We are pleased with the result of the C-4 well, which enabled us to receive State Reserves committee (GKZ) approval for C1 + C2 reserves of 2.5 Mtons for the Cheremshanskoye Oil Field, equivalent to 2P reserves of  approximately 19.26 mmbbls and we believe that potential exists for significant upward revision to these figures in the future.

 

2019 outlook

The geo-political and investment climate for Russia, as with other emerging markets, remains challenging. This has resulted in a significant difference between the market capitalization of the company and the long-term value of its assets and reserves. We are committed to narrowing that gap and are actively examining all available options to do so.

 

The Company, in conjunction with its 50/50 Joint Venture partners, Oil India and Arawak Energy has engaged financial advisers to evaluate the possible sale of Licence 61 and/or Licence 67. While there is no certainty that any transaction will be completed, we have seen an encouraging level of interest from a range of well-financed industry players. We continue to evaluate the exploration, appraisal and development potential for both licence areas to ensure that, if we receive bids for either licence area which appropriately value the asset, we will be able to make an informed decision on whether or not to sell.

 

 

 

 

 

 

 

 

 

 

 

Reserves

The table below contains the details of the oil reserves of the Company and highlights the large potential of the Sibkrayevskoye oil field and the potential upside that could be achieved from prospects such as Emtorskaya, which lies north of Lineynoye.

 

Ryder Scott Estimated Reserves in Oil Fields (net to PetroNeft)

 

Oil Field Name

Proved

Proved & Probable

Proved, Probable & Possible

 
 

Licence 61

1P mmbo

2P mmbo

3P mmbo

 

Lineynoye

6.6

12.5

15.6

 

Tungolskoye

0.3

2.8

3.6

 

Kondrashevskoye

0.7

1.3

1.6

 

Arbuzovskoye

1.2

3.8

5.0

 

Sibkrayevskoye

5.8

29.4

29.4

 

North Varyakhskoye

0.2

0.4

0.5

 

 

14.8

50.2

55.7

 

Licence 67

 

 

 

 

Ledovoye

1.5

14.0

17.4

 

Total net to PetroNeft

16.3

64.2

73.1

 

·    Licence 61 as at 31 December 2018 (Ryder Scott report as at 1 January 2016, adjusted for 2016, 2017 and 2018 production).

·    Reserves reflect just PetroNeft's 50% share of reserves for each licence.

·    All oil in discovered fields is in the Upper Jurassic section.

·    Reserves were determined in accordance with the Society of Petroleum Engineers ("SPE") Petroleum Resources Management System ("PRMS") rules.

 

Review of PetroNeft loss for the year

The loss after taxation for the year was US$7,561,762 (2017: US$3,239,041). The loss included the share of joint venture's net loss in WorldAce Investments of US$6,339,613 (2017: US$4,285,833) which rose mainly due to the write-off of wells at Tungolskoye and the share of joint venture's net loss in Russian BD Holdings B.V. of US$508,757 (2017: US$381,654).

 

 

 

 

 

2018

 

2017

 

 

US$'000

 

US$'000

Continuing operations

 

 

 

 

Revenue

 

1,767

 

1,713

Cost of sales

 

(1,560)

 

(1,550)

Gross profit

 

207

 

163

Administrative expenses

 

(1,390)

 

(1,403)

Exchange (loss)/gain on intra-Group loans

 

(123)

 

52

Operating loss

 

(1,306)

 

(1,188)

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

 

(6,340)

 

(4,286)

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

 

(508)

 

(382)

Finance revenue

 

966

 

3,511

Finance costs

 

(117)

 

-

Loss for the year for continuing operations before taxation

 

(7,305)

 

(2,345)

Income tax expense

 

(257)

 

(894)

Loss for the year

 

(7,562)

 

(3,239)

 

Revenue

Revenue in 2018 and 2017 includes income as operator of both licences and the revenue of PetroNeft's wholly owned subsidiary, Granite Construction, in respect of construction services provided in relation to both joint ventures.

 

Income of PetroNeft Group as Operator of Licence 61 and Licence 67

PetroNeft performs the role of operator for both the licence 61 and 67 joint ventures. This means that PetroNeft employees and management are responsible for the day to day running of both Licences. Major strategic and financial decisions relating to the Licences require unanimous approval by both shareholders in the respective joint venture agreements.

 

As operator, PetroNeft is entitled to charge certain administrative, management and technical costs to the joint ventures. The costs associated with this revenue are included in cost of sales.

 

In 2018 PetroNeft Group charged a total of US$0.85 million (2017: US$0.85 million) to the joint ventures in respect of management services. PetroNeft also owns a small construction company, Granite Construction, which carries out ad hoc construction projects such as well pads and on-site accommodation on both Licences as well as maintaining the winter road network each year. In 2018 Granite Construction charged the WorldAce Group US$0.92 million (2017: US$0.86 million) in respect of these services.

 

Administrative expenditure was in line with last year. In 2017 the Company implemented a cost cutting program across the Group and the Directors and management agreed to reduce and defer significant portions of their remuneration; as at 31 December 2018 a total of US$934,041 (2017: US$824,080) had been deferred by the Directors and senior management - see Note 14 for details.

 

Finance Revenue

Most of the finance revenue relates to interest receivable on loans to joint ventures. During 2018 PetroNeft recognised interest income of US$3,686,372 (2017: US$3,238,839) on its loans to WorldAce Group and US$387,687 (2017: US$270,773) on its loans to Russian BD Holdings B.V. As a result of early adoption of amendments to IAS 28 in respect of Long-term Interest in Associates and Joint Ventures the Group recognised a loss allowance of US$3,109,501 given the uncertainties relating to WorldAce The allowance was set against Finance Revenue.

 

 

Finance Costs

Finance costs relate to interest payable on loan from Petrogrand AB. The Company agreed a secured loan facility of up to US$2m with Petrogrand AB in January 2018. This loan facility was fully drawn down in 2018. For more details see Note 14.

 

Key Financial Metrics - WorldAce Group

Because of the equity method of consolidation that applies to PetroNeft's interest in WorldAce, it is difficult to extract meaningful metrics from the PetroNeft consolidated income statement. Therefore, the metrics below are an extraction from the audited financial statements of the WorldAce Group and give an indication as to the performance of Licence 61:

 

 

 

WorldAce Group

 

WorldAce Group

 

 

2018

 

2017

 

 

US$'000

 

US$'000

Continuing operations

 

 

 

 

Revenue

 

31,370

 

27,637

Cost of sales

 

(27,773)

 

(25,273)

Gross profit

 

3,597

 

2,364

Administrative expenses

 

(3,122)

 

(3,093)

Operating profit/(loss)

 

475

 

(729)

Write-off of oil and gas properties

 

(4,096)

 

-

Write-off of exploration and evaluation assets

 

(5)

 

(26)

Finance revenue

 

129

 

66

Finance costs

 

(9,183)

 

(7,883)

Loss for the year for continuing operations before taxation

 

(12,680)

 

(8,572)

Income tax

 

-

 

-

Loss for the year

 

(12,680)

 

(8,572)

PetroNeft's 50% share

 

(6,340)

 

(4,286)

 

Net Loss - WorldAce Group                              

PetroNeft's share of the net loss of WorldAce Group for the full year increased to US$6.3 million from US$4.3 million in 2017. The increase in the loss for the year before taxation can be attributed to the write-off of the cost of some non-performing wells.  Of the US$9.0 million in interest payable by WorldAce, US$3.7 million is payable to PetroNeft.

 

Revenue, Cost of Sales and Gross Margin - WorldAce Group

Gross Revenue from oil sales was US$31.4 million for the year (2017: US$27.6 million). Cost of sales includes depreciation of US$2.3 million (2017: US$2.6 million), which was lower mainly due to lower production. The gross margin improved during the year due to improved oil prices. Operating costs per barrel (cost of sales excluding depreciation and Mineral Extraction Tax) were higher at US$10.68 (2017: US$10.36 per barrel) due to lower production. We would expect the gross margin to improve in future periods as our facilities and field operations are fully staffed and can handle additional production from the Sibkrayevskoye oil field once it comes online. We produced 713,603 barrels of oil (2017: 816,476 barrels) in the year and sold 706,395 barrels of oil (2017: 822,388 barrels) achieving an average oil price of US$44 per barrel (2017: US$35 per barrel). All oil was sold on the domestic market in Russia.

 

Finance Costs - WorldAce Group

Gross Finance costs of US$9.2 million (2017: US$7.9 million) mainly relates to interest on loans from PetroNeft and Oil India.

 

 

 

Current and Future Funding of PetroNeft Group

In previous Annual Reports we outlined that PetroNeft expected to start receiving interest due on its shareholder loans to WorldAce in 2017 once the development of the Sibkrayeskoye oil field in Licence 61 was up and running. The S-374 appraisal well drilled in 2016 at the Sibkrayevskoye oil field, to assess the true extent of the field 10km to the south of existing wells, did not encounter commercial hydrocarbons. The result of this well has led to the postponement of the commencement of the development of the Sibkrayevskoye oil field. As a consequence of this, the date by which PetroNeft expects to start receiving interest due on its shareholder loans to WorldAce has been delayed until 2020 at the earliest.

 

The success of the S-375 well in 2017 has led to a period of extended testing at Sibkrayevskoye and we are currently refining and re-evaluating the development program. However, significant funding is required to develop the Sibkrayevskoye oil field.

 

While there were consolidated net current liabilities at the year-end of US$2.8m (2017: US$1.1m), the Company has implemented a cost cutting program across the Group and the Directors and management have agreed to reduce and defer significant portions of their remuneration. Note 14 outlines the amounts owed to the Board and management in this regard.

 

In January 2018 the Company agreed a secured loan facility for up to US$2 million with Swedish company Petrogrand AB ("Petrogrand"). The loan was due to mature on 31 December 2018, however, in March 2019 the Company agreed an increase in the facility by US$500,000 to US$2.5 million and a revised maturity date of 15 December 2019 (which may be extended by mutual consent of the parties). The revised terms include the potential entitlement to bonus payments of US$2.5 million per Licence if either or both Licence 61 or Licence 67 are sold before 31 December 2020. Discussions on a further supplementary financing for ongoing general corporate purposes are well advanced and the Company expects to update shareholders in the near future.

 

As previously announced the Company has engaged a financial advisor with the aim to test the market for both of its licences. This process is ongoing and the level of interest and the calibre of companies in the process to date is encouraging. Over the past twelve months the asset acquisition market in Russia has seen increased activity, especially for the larger domestic companies. This gives management reason for optimism about a positive outcome. It is expected that both loan facilities would be repaid from the proceeds of sale of one of the Licences.

 

The ability to re-finance the Petrogrand loan represents a material uncertainty that may cast significant doubt upon the Group's and the Company's ability to continue as a going concern as described in Note 2 to the Preliminary Financial Statements.

 

Summary

2018 saw the drilling of a successful well at the Cheremshanskoye oil field in Licence 67 which has led to additional reserves being approved in Russia. The retirement of Dennis Francis was also a major event in 2018, however I am confident that David Sturt, thanks to his knowledge and experience, will focus on creating shareholder value whether through exploration, appraisal, development or sale of assets.

 

Our industry is continuing to experience unstable times but we have valuable future development targets at West Lineynoye, Cheremshanskoye and Sibkrayevskoye that can be profitable at a wide range of oil prices.

 

Annual Report and AGM

The annual report will be mailed to shareholders and published on the Company's website (www.petroneft.com) on 28 June 2019. The AGM will be held in Dublin on 20 September 2019.

 

Finally, I know that I speak for all the Directors, management and staff of the Group in giving sincere thanks to our shareholders, both old and new, for your continued support throughout the past year.

 

David Golder

Non-Executive Chairman

 

 

 

Consolidated Income Statement

For the year ended 31 December 2018

 

 

 

 

2018

 

2017

 

Note

 

US$

 

US$

Continuing operations

 

 

 

 

 

Revenue

 

 

1,767,074

 

1,712,574

Cost of sales

 

 

(1,559,982)

 

(1,550,119)

Gross profit

 

 

207,092

 

162,455

 

 

 

 

 

 

Administrative expenses

 

 

(1,389,582)

 

(1,402,867)

Exchange (loss)/gain on intra-Group loans

 

 

(123,235)

 

52,093

Operating loss

 

 

(1,305,725)

 

(1,188,319)

 

 

 

 

 

 

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

 

 

(6,339,613)

 

(4,285,833)

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

 

 

(508,757)

 

(381,654)

Finance revenue

 

 

966,039

 

3,510,435

Finance costs

 

 

(116,825)

 

-

 

Loss for the year for continuing operations before taxation

 

 

(7,304,881)

 

(2,345,371)

 

 

 

 

 

 

Income tax expense

 

 

(256,881)

 

(893,670)

 

 

 

 

 

 

Loss for the year attributable to equity holders of the Parent

 

 

(7,561,762)

 

(3,239,041)

 

 

 

 

 

 

Loss per share attributable to ordinary equity holders of the Parent

 

 

 

 

 

Basic and diluted - US dollar cent

4

 

(1.07)

 

(0.46)

 

 

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2018

 

 

 

 

2018

 

2017

 

 

 

US$

 

US$

Loss for the year attributable to equity holders of the Parent

 

 

(7,561,762)

 

(3,239,041)

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

 

 

 

 

 

Currency translation adjustments - subsidiaries

 

 

102,440

 

(37,190)

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

 

 

(8,456,256)

 

2,551,042

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

 

 

(15,915,578)

 

(725,189)

 

 

 

 

Consolidated Balance Sheet

As at 31 December 2018

 

 

 

2018

 

2017

 

Note

US$

US$

Assets

 

 

 

Non-current Assets

 

 

 

Property, plant and equipment

5

38,296

88,202

Equity-accounted investment in joint ventures - WorldAce Investments Limited

6

-

-

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

7

-

-

Financial assets at amortised cost

8

35,525,743

49,439,502

 

 

35,564,039

49,527,704

Current Assets

 

 

 

Inventories

9

6,547

21,908

Trade and other receivables

10

249,280

587,601

Cash and cash equivalents

11

801,938

9,389

 

 

1,057,765

618,898

Total Assets

 

 

36,621,804

 

50,146,602

 

 

 

 

 

 

Equity and Liabilities

 

 

 

Capital and Reserves

 

 

 

Called up share capital

12

9,429,182

9,429,182

Share premium account

 

140,912,898

140,912,898

Share-based payments reserve

 

6,796,540

6,796,540

Retained loss

 

(91,003,253)

(83,441,491)

Currency translation reserve

 

(36,958,374)

(28,604,558)

Other reserves

 

336,000

336,000

Equity attributable to equity holders of the Parent

 

29,512,993

45,428,571

 

 

 

 

Non-current Liabilities

 

 

 

Deferred tax liability

 

3,219,203

3,001,617

 

 

3,219,203

3,001,617

Current Liabilities

 

 

 

Interest-bearing loans and borrowings

 

2,116,825

-

Trade and other payables

13

1,772,783

1,716,414

 

 

3,889,608

1,716,414

Total Liabilities

 

7,108,811

4,718,031

Total Equity and Liabilities

 

 

36,621,804

 

50,146,602

 

 

 

 

 

Consolidated Statement of Changes in Equity

For the year ended 31 December 2018

 

 

 

Called up share capital

 

Share premium account

 

Share-based payment and other reserves

 

Currency translation reserve

 

Retained loss

 

Total

 

US$

 

US$

 

US$

 

US$

 

US$

 

US$

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2017

9,429,182

 

140,912,898

 

7,132,540

 

(31,118,410)

 

(80,202,450)

 

46,153,760

Loss for the year

-

 

-

 

-

 

-

 

(3,239,041)

 

(3,239,041)

Currency translation adjustments - subsidiaries

-

 

-

 

-

 

(37,190)

 

-

 

(37,190)

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

-

 

-

 

-

 

2,551,042

 

-

 

2,551,042

Total comprehensive loss for the year

-

 

-

 

-

 

2,513,852

 

(3,239,041)

 

(725,189)

At 31 December 2017

9,429,182

 

140,912,898

 

7,132,540

 

(28,604,558)

 

(83,441,491)

 

45,428,571

 

 

 

 

 

 

 

 

 

 

 

 

At 1 January 2018

9,429,182

 

140,912,898

 

7,132,540

 

(28,604,558)

 

(83,441,491)

 

45,428,571

Loss for the year

-

 

-

 

-

 

-

 

(7,561,762)

 

(7,561,762)

Currency translation adjustments - subsidiaries

-

 

-

 

-

 

102,440

 

-

 

102,440

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

-

 

-

 

-

 

(8,456,256)

 

-

 

(8,456,256)

Total comprehensive loss for the year

-

 

-

 

-

 

(8,353,816)

 

(7,561,762)

 

(15,915,578)

At 31 December 2018

9,429,182

 

140,912,898

 

7,132,540

 

(36,958,374)

 

(91,003,253)

 

29,512,993

 

Consolidated Cash Flow Statement

For the year ended 31 December 2018

 

 

 

 

2018

 

2017

 

 

 

US$

 

US$

Operating activities

 

 

 

 

 

Loss before taxation

 

 

(7,304,881)

 

(2,345,371)

Adjustment to reconcile loss before tax to net cash flows

 

 

 

 

 

Non-cash

 

 

 

 

 

Depreciation

 

 

38,936

 

62,748

Share of loss in joint ventures

 

 

6,848,370

 

4,667,487

Finance revenue

 

 

(966,039)

 

(3,510,435)

Finance costs

 

 

116,825

 

-

Working capital adjustments

 

 

 

 

 

Decrease in trade and other receivables

 

 

276,593

 

294,434

Decrease in inventories

 

 

12,960

 

7,066

Increase in trade and other payables

 

 

192,955

 

555,937

Income tax paid

 

 

(30,034)

 

(9,783)

Net cash flows used in operating activities

 

 

(814,315)

 

(277,917)

Investing activities

 

 

 

 

 

Loan facilities advanced to joint venture undertakings

 

(392,000)

 

(40,000)

Interest received

 

 

1,481

 

823

Net cash used in investing activities

 

 

(390,519)

 

(39,177)

Financing activities

 

 

 

 

 

Proceeds from loan facilities

 

 

2,000,000

 

-

Net cash received from financing activities

 

 

2,000,000

 

-

Net increase/(decrease) in cash and cash equivalents

 

795,166

 

(317,094)

Translation adjustment

 

 

(2,617)

 

6,865

Cash and cash equivalents at the beginning of the year

 

9,389

 

319,618

Cash and cash equivalents at the end of the year

11

 

801,938

 

9,389

 

 

 

 

Notes to the Preliminary Financial Statements

For the year ended 31 December 2018

 

1.         Basis of Accounting and Presentation of Financial Information

While the financial information included in this announcement has been prepared in accordance with the Group's accounting policies under International Financial Reporting Standards ("IFRS") as adopted by the European Union, this announcement does not itself contain sufficient information to comply with IFRS. The Company is distributing the full financial statements that comply with IFRS on 28 June 2019.

 

The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2018 or 2017 but is derived from those accounts. Statutory accounts for 2017 have been delivered to the Registrar of Companies and those for 2018 will be delivered following the Company's annual general meeting. The auditors havemade reports under Section 391 of the Irish Companies Act, 2014 in respect of 2017. Their report was unmodified but did draw attention to the material uncertainty relating to going concern. The 2018 audited financial statements will be distributed to shareholders on 28 June 2019.

 

Adoption of IFRS and International Financial Reporting Interpretations Committee (IFRIC) interpretations

A number of amendments to IFRS (principally the introduction of IFRS 9 ''Financial instruments'' and IFRS 15 ''Revenue from Contracts with Customers'') became effective for, and have been applied in preparing, these Financial Statements. The introduction of these amendments on 1 January 2018 did not result in material changes to the results or financial position of the Group. An early adoption of amendments to IAS 28 in respect of Long-term Interest in Associates and Joint Ventures the Group resulted to recognised a loss allowance of US$3,109,501 given the uncertainties relating to WorldAce. Full details of the approach taken to the introduction of the new standards and the impact of adoption will be provided in the full financial statements that comply with IFRS which will be distributed to shareholders on 28 June 2019.

 

2.         Going Concern

As described in the Chairman's Statement on page 6 PetroNeft agreed an extension of the loan facility and an increase by US$500,000 up to US$2.5 million with Swedish company Petrogrand AB (in March 2019). The loan matures on 15 December 2019 and is secured by way of a floating charge on the assets of PetroNeft.  The original loan facility was used for general corporate purposes and to finance the drilling programme in 2018.  The increase is being used for general corporate purposes. This loan facility has provided time and space for a more long-term financing solution to be put in place. Discussions on a further supplementary financing for ongoing general corporate purposes are well advanced and the Company expects to update shareholders in the near future.

 

The Group has analysed its cash flow requirements through to 30 June 2020 in detail. The cash flows are highly dependent on the successful re-financing of the Petrogrand loan and on future production rates and oil prices achieved in its joint-venture undertaking, WorldAce Investments Limited. Should the Petrogrand loan not be re-financed the Group will need additional funding in order to continue as a going concern.

 

The Group has put in place cost saving measures and the Board and management have agreed to reduce and defer significant portions of their remuneration. Note 14 outlines the amounts owed to the Board and management in this regard.

 

In 2018 the Company, in conjunction with its joint venture partners engaged financial advisers to evaluate the disposal of Licence 61 and/or Licence 67. While there remains significant uncertainty that any transaction will be completed, the Company has seen interest from a range of well-financed industry players.  The result of the C-4 well which was drilled during 2018 has generated additional interest. The Company has signed non-disclosure agreements and opened data rooms in relation to the potential sale or farmout of both Licence 61 and 67. As there are delaying factors, including regulatory requirements, around transferring licences and in a share for share type transaction, the timeframe to close such a successful transaction could be at least six months following binding agreement between the parties.  The Board is confident that one of these options will bring a solution.

 

 

 

 

2.         Going Concern (continued)

The above circumstances represent material uncertainties that may cast significant doubt upon the Group and the Company's ability to continue as a going concern. Nevertheless, after making enquiries, and considering the uncertainties described above, the Directors are confident that the Group and the Company will have adequate resources to continue in operational existence for the foreseeable future. For these reasons, they continue to adopt the going concern basis in preparing the annual report and accounts.

 

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

 

3.         Segment information

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

 

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

 

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

 

Geographical segments

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

 

4.          Loss per Ordinary Share

Basic loss per Ordinary Share amounts are calculated by dividing net loss for the year attributable to ordinary equity holders of the Parent by the weighted average number of Ordinary Shares outstanding during the year. Basic and diluted earnings per Ordinary Share are the same as the potential Ordinary Shares are anti-dilutive.

 

 

 

2018

 

2017

 

Numerator

 

US$

 

US$

 

Loss attributable to equity shareholders of the Parent for basic and diluted loss

 

(7,561,762)

 

(3,239,041)

 

 

 

(7,561,762)

 

(3,239,041)

 

Denominator

 

 

 

 

 

Weighted average number of Ordinary Shares for basic and diluted earnings per Ordinary Share

 

             707,245,906

 

707,245,906

 

Diluted weighted average number of shares

 

707,245,906

 

707,245,906

 

 

 

 

 

 

 

Loss per share:

 

 

 

 

 

Basic and diluted - US dollar cent

 

(1.07)

 

(0.46)

 

The Company has instruments in issue that could potentially dilute basic earnings per Ordinary Share in the future, but are not included in the calculation for the reasons outlined below:

 

 

 

·    Employee Share Options - These potential Ordinary Shares are anti-dilutive for the years ended 31 December 2018 and 2017.

 

 

5.

Property, Plant and Equipment

 

 

 

 

 

 

 

 

 

Group

 

 

Plant and machinery

 

 

 

 

US$

 

Cost

 

 

 

 

At 1 January 2017

 

 

945,868

 

Translation adjustment

 

 

47,060

 

At 1 January 2018

 

 

992,928

 

Disposals

 

 

(324)

 

Translation adjustment

 

 

(152,799)

 

At 31 December 2018

 

 

839,805

 

 

 

 

 

 

Depreciation

 

 

 

 

At 1 January 2017

 

 

802,402

 

Charge for the year

 

 

62,748

 

Translation adjustment

 

 

39,576

 

At 1 January 2018

 

 

904,726

 

Charge for the year

 

 

38,936

 

Disposals

 

 

(324)

 

Translation adjustment

 

 

(141,829)

 

At 31 December 2018

 

 

801,509

 

 

 

 

 

 

Carrying amount

 

 

 

 

At 31 December 2018

 

 

38,296

 

At 31 December 2017

 

 

88,202

 

 

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

 

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

 

 

 

 

 

Share of net assets

 

 

 

 

US$

 

 

 

 

 

 

At 1 January 2017

 

 

-

 

Elimination of unrealised profit on intra-Group transactions

 

 

(27,336)

 

Share of net loss of joint venture for the year

 

 

(4,285,833)

 

Translation adjustment

 

 

2,356,702

 

Credited against loans receivable from WorldAce Investments Limited (Note 8)

 

 

1,956,467

 

At 1 January 2018

 

 

-

 

Elimination of unrealised profit on intra-Group transactions

 

 

(1,174)

 

Share of net loss of joint venture for the year

 

 

(6,339,613)

 

Translation adjustment

 

 

(7,760,793)

 

Credited against loans receivable from WorldAce Investments Limited (Note 8)

 

 

14,101,580

 

At 31 December 2018

 

 

-

 

The balance sheet position of WorldAce Investments Limited shows net liabilities of US$57,974,076 (2017: US$29,773,264) following a loss in the year of US$12,679,226 (2017: US$8,571,665) together with a negative currency translation adjustment of US$15,521,586 (2017: positive US$4,713,403). PetroNeft's 50% share is included above and results in a negative carrying value of US$24,304,633 (2017: US$10,203,053). Therefore, the share of net assets is reduced to Nil and, in accordance with IAS 28 Investments in Associates and Joint Ventures, the amount of US$24,304,633 (2017: US$10,203,053) is deducted from other assets associated with the joint venture on the Balance Sheet which are the loans receivable from WorldAce Investments (see Note 8).

 

 

 

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

 

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

 

 

 

 

 

50% Share of WorldAce Group

 

 

 

 

2018

 

2017

 

 

 

 

US$

 

US$

 

Continuing operations

 

 

 

 

 

 

Revenue

 

 

15,684,984

 

13,818,415

 

Cost of sales

 

 

(13,886,409)

 

(12,636,469)

 

Gross profit

 

 

1,798,575

 

1,181,946

 

Administrative expenses

 

 

(1,560,913)

 

(1,546,643)

 

Operating profit/(loss)

 

 

237,662

 

(364,697)

 

Write-off of oil and gas properties

 

 

(2,048,038)

 

-

 

Write-off of exploration and evaluation assets

 

 

(2,346)

 

(13,051)

 

Finance revenue

 

 

64,712

 

33,176

 

Finance costs

 

 

(4,591,603)

 

(3,941,261)

 

Loss for the year for continuing operations before taxation

 

 

(6,339,613)

 

(4,285,833)

 

Income tax expense

 

 

-

 

-

 

Loss for the year

 

 

(6,339,613)

 

(4,285,833)

 

 

 

 

 

 

 

 

Loss for the year

 

 

(6,339,613)

 

(4,285,833)

 

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

 

 

 

 

 

 

Currency translation adjustments

 

 

(7,760,793)

 

2,356,702

 

Total comprehensive loss for the year

 

 

(14,100,406)

 

(1,929,131)

 

Finance costs mainly relate to interest on shareholder loans from Oil India International B.V. and PetroNeft. The details of gross interest accrued on loans to PetroNeft are disclosed in Note 14 Related party disclosures.

 

The currency translation adjustment results from the movement of the Russian Rouble during the year. All Russian Rouble carrying values in Stimul-T, the 100% subsidiary of WorldAce are converted to US Dollars at each period end. The resulting gain or loss is recognised through other comprehensive income and transferred to the currency translation reserve. The Russian Rouble depreciated against the US Dollar during the year from RUB57.86:US$1 at 31 December 2017 to RUB69.47:US$1 at 31 December 2018.

 

 

 

 

 

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

 

 

 

 

 

50% Share of WorldAce Group

 

 

 

 

2018

 

2017

 

 

 

 

US$

 

US$

 

Non-current Assets

 

 

 

 

 

 

Oil and gas properties

 

 

29,786,687

 

39,312,150

 

Property, plant and equipment

 

 

128,111

 

184,027

 

Exploration and evaluation assets

 

 

7,804,586

 

9,321,748

 

Assets under construction

 

 

562,307

 

824,992

 

 

 

 

38,281,691

 

49,642,917

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

Inventories

 

 

848,776

 

605,240

 

Trade and other receivables

 

 

380,156

 

282,925

 

Cash and cash equivalents

 

 

225,846

 

68,613

 

 

 

 

1,454,778

 

956,778

 

 

 

 

 

 

 

 

Total Assets

 

 

39,736,469

 

50,599,695

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-current Liabilities

 

 

 

 

 

 

Provisions

 

 

(573,540)

 

(658,513)

 

Interest-bearing loans and borrowings

 

 

(65,682,097)

 

(61,435,277)

 

 

 

 

(66,255,637)

 

(62,093,790)

 

Current Liabilities

 

 

 

 

 

 

Interest-bearing loans and borrowings

 

 

(974,793)

 

(715,405)

 

Trade and other payables

 

 

(1,493,077)

 

(2,677,132)

 

 

 

 

(2,467,870)

 

(3,392,537)

 

Total Liabilities

 

 

(68,723,507)

 

(65,486,327)

 

 

 

 

 

 

 

 

Net Liabilities

 

 

(28,987,038)

 

(14,886,632)

 

Interest-bearing loans and borrowings are shareholder loans from Oil India International B.V. and PetroNeft. The details of loans due to PetroNeft are disclosed in Note 14 Related party disclosures.

 

 

Capital commitments

 

 

 

 

2018

 

2017

 

 

 

 

US$

 

US$

 

Details of capital commitments at the balance sheet date are as follows:

 

 

 Contracted for but not provided in the financial statements

 

 

 

 

60,710

 

466,114

 

 

 

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

 

 

Future minimum rentals payable under non-cancellable operating leases at the balance sheet date are as follows:

 

 

 

 

 

 

 

 

 

 

 

2018

 

2017

 

 

 

 

US$

 

US$

 

 

 

 

 

 

 

 

Within one year

 

 

76,971

 

65,570

 

After one year but not more than five years

 

 

333,355

 

244,391

 

More than five years

 

 

513,455

 

421,508

 

 

 

 

923,781

 

731,469

 

The above capital commitments in the joint venture are incurred jointly with Oil India International B.V. The Group has a 50% share of these commitments.

 

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

 

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

 

 

 

 

 

Share of net assets

 

 

 

 

US$

 

 

 

 

 

 

At 1 January 2017

 

 

-

 

Share of net loss of joint venture for the year

 

 

(381,654)

 

Translation adjustment

 

 

194,339

 

Credited against loans receivable from Russian BD Holdings BV (Note 8)

 

 

187,315

 

At 1 January 2018

 

 

-

 

Elimination of unrealised profit on intra-Group transactions

 

 

(12,117)

 

Share of net loss of joint venture for the year

 

 

(508,757)

 

Translation adjustment

 

 

(695,463)

 

Credited against loans receivable from Russian BD Holdings BV (Note 8)

 

 

1,216,337

 

At 31 December 2018

 

 

-


The balance sheet position of Russian BD Holdings B.V. shows net liabilities of US$3,848,446 (2017: US$1,440,006) following a loss in the year of US$1,017,514 (2017: US$763,308) together with a negative currency translation of US$1,390,926 (2017: positive US$388,678). PetroNeft's 50% share is included above and results in a negative carrying value of US$1,936,340 (2017: US$720,003). Therefore, the share of net assets is reduced to Nil and, in accordance with IAS 28 Investments in Associates and Joint Ventures, the amount of US$1,936,340 (2017: US$720,003) is deducted from other assets associated with the joint venture on the Balance Sheet which are the loans receivable from Russian BD Holdings B.V. (Note 8).

 

 

 

 

 

 

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

 

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

 

 

 

 

 

50% Share of Russian BD Holdings B.V. Group

 

 

 

 

2018

 

2017

 

 

 

 

US$

 

US$

 

Revenue

 

 

-

 

-

 

Cost of sales

 

 

-

 

-

 

Gross profit

 

 

-

 

-

 

Administrative expenses

 

 

(104,256)

 

(94,626)

 

Operating loss

 

 

(104,256)

 

(94,626)

 

Finance revenue

 

 

520

 

259

 

Finance costs

 

 

(405,021)

 

(287,287)

 

Loss for the year for continuing operations before taxation

 

 

(508,757)

 

(381,654)

 

 

 

 

 

 

 

 

Taxation

 

 

-

 

-

 

 

 

 

 

 

 

 

Loss for the year

 

 

(508,757)

 

(381,654)

 

 

 

 

 

 

 

 

Loss for the year

 

 

(508,757)

 

(381,654)

 

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

 

 

 

 

 

 

Currency translation adjustments

 

 

(695,463)

 

194,339

 

Total comprehensive loss for the year

 

 

(1,204,220)

 

(187,315)

 

Finance costs comprise of interest on shareholder loans from Belgrave Naftogas B.V. and PetroNeft. The details of gross interest accrued on loans to PetroNeft are disclosed in Note 14 Related party disclosures.

 

 

 

 

 

50% Share of Russian BD Holdings B.V. Group

 

 

 

 

2018

 

2017

 

 

 

 

US$

 

US$

 

Non-current assets

 

 

4,993,522

 

4,370,482

 

Current assets

 

 

238,093

 

12,048

 

Total assets

 

 

5,231,615

 

4,382,530

 

 

 

 

 

 

 

 

Non-current liabilities

 

 

(6,393,622)

 

(4,981,608)

 

Current liabilities

 

 

(762,216)

 

(120,925)

 

Total liabilities

 

 

(7,155,838)

 

(5,102,533)

 

 

 

 

 

 

 

 

Net Liabilities

 

 

(1,924,223)

 

(720,003)

 

 

 

 

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

 

 

Future minimum rentals payable under non-cancellable operating leases at the balance sheet date are as follows:

 

 

 

 

 

 

 

 

 

 

 

2018

 

2017

 

 

 

 

 

US$

 

US$

 

 

 

 

 

 

 

 

 

 

Within one year

 

 

3,939

 

2,194

 

 

After one year but not more than five years

 

 

18,840

 

8,775

 

 

More than five years

 

 

52,006

 

26,416

 

 

 

 

 

74,785

 

37,385

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital commitments

 

 

 

 

2018

 

2017

 

 

 

 

US$

 

US$

 

Details of capital commitments at the balance sheet date are as follows:

 

 

 Contracted for but not provided in the financial statements

 

 

 

 

78,406

 

-

 

 

8.

Financial assets at amortised cost

 

 

 

 

 

 

 

 

 

 

 

2018

 

2017

 

 

 

US$

US$

 

 

 

 

 

 

Loans to WorldAce Investments Limited (Note 14)

 

59,161,041

55,474,668

 

Less: accumulated share of WorldAce Investments Limited losses (Note 6)

(24,304,633)

(10,203,053)

 

Loss allowance

(3,109,501)

-

 

 

 

31,746,907

45,271,615

 

Loans to Russian BD Holdings B.V. (Note 14)

 

5,715,176

4,887,890

 

Less: accumulated share of Russian BD Holdings B.V. losses (Note 7)

(1,936,340)

(720,003)

 

 

 

3,778,836

4,167,887

 

 

 

 

35,525,743

 

49,439,502

 

 

 

 

 

The Company has granted a loan facility to its joint venture undertaking WorldAce Investments Limited of up to US$45 million. This loan facility is US$ denominated and unsecured. Interest currently accrues on the loan at USD LIBOR plus 6.0% but the Company has agreed not to seek payment of interest until 2020 at the earliest. The loan is set to mature on 31 December 2025. As at 31 December 2018 the loan was fully drawn down. The realisation of financial assets of $31.7m in respect of WorldAce is dependent on the continued successful development of economic reserves which is subject to a number of uncertainties including the ability to raise finance, future rates of oil production and future international oil prices to continue to successfully generate revenue from the assets or the monetisation of the asset through a sale or farmout.

 

 

 

8.            Financial assets at amortised cost (continued)

 

The loan from the Company to Russian BD Holdings B.V. is repayable on demand. Interest currently accrues on the loan at USD LIBOR plus 5.0% per annum. The group drilled the Cheremshanskoye No. 4 well in 2018.  The board believe that the successful well has great potential as it tested oil at 450 bopd and has demonstrated the potential of Licence 67. 

 

The realisation of financial assets of US$3.8m in respect of Russian BD Holdings B.V. is ultimately dependent on the successful development of reserves as outlined above in relation to Cheremshanskoye, which is subject to a number of uncertainties including the ability to finance the well development and bringing the assets to economic maturity and profitability or the monetisation of the asset through a sale or farmout. 

 

9.

Inventories

 

 

 

 

 

 

 

2018

 

2017

 

 

 

US$

 

US$

 

Materials

 

                           6,547

 

                     21,908

 

 

 

 

6,547

 

21,908

 

10.

Trade and other receivables

 

 

 

 

 

 

 

 

 

 

 

 

 

2018

 

2017

 

 

 

US$

 

US$

 

Receivable from joint ventures (Note 14)

 

                      170,627

 

                   503,527

 

Prepayments

 

17,883

 

61,359

 

Advances to contractors

 

758

 

1,676

 

Other receivables

 

                  60,012

 

21,039

 

 

 

249,280

 

587,601

             

              Other receivables are non-interest-bearing and are normally settled on 60-day terms. Amounts owed by subsidiary undertakings are interest-bearing. Interest is charged at 10%.

 

11.

Cash and Cash Equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

Group

 

 

2018

 

2017

 

 

 

 

US$

 

US$

 

Cash at bank

 

 

                      801,938

 

9,389

 

 

 

 

                      801,938

 

9,389

 

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

 

 

 

 

12.     Share capital

 

 

 

2018

 

2017

 

 

 

 

 

 

 

 

 

Authorised

 

 

 

 

 

 

 

 

1,000,000,000 (2017: 1,000,000,000) Ordinary Shares of €0.01 each 

 

 

10,000,000

 

10,000,000

 

 

 

 

 

 

10,000,000

 

10,000,000

 

 

Allotted, called up and fully paid equity

 

 

Number of Ordinary Shares

 

Called up share capital US$

 

At 1 January 2017

 

 

707,245,906

 

9,429,182

 

At 1 January 2018

 

 

707,245,906

 

9,429,182

 

At 31 December 2018

 

 

707,245,906

 

9,429,182

 

 

13.

Trade and other payables

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2018

 

2017

 

 

 

 

US$

 

US$

 

 

Trade payables

 

                      428,734

 

                      570,476

 

 

Trade payables to joint ventures (Note 14)

 

104,115

 

                 212,442

 

 

Corporation tax

 

55,016

 

                   54,898

 

 

Other taxes and social insurance costs

 

42,918

 

83,305

 

 

Accruals and other payables

 

1,142,000

 

795,293

 

 

 

 

1,772,783

 

              1,716,414

 

 

 

 

 

 

 

 

                             

              The Directors consider that the carrying amount of trade and other payables approximates their fair value. Trade and other payables are non-interest-bearing and are normally settled on 60-day terms. Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs.

 

 

 

14.       Related party disclosures

 

Transactions with joint ventures

PetroNeft Resources plc had the following transactions with its joint ventures during the years ended 31 December 2018 and 2017:

 

 

Group

 

 

Russian BD Holdings BV Group

 

WorldAce Investments Limited Group

 

 

 

 

US$

 

US$

 

 

 

 

 

 

 

 

Receivable by PetroNeft Group at 1 January 2017

 

 

4,080,882

 

44,444,591

 

Advanced during the year

 

 

360,251

 

-

 

Transactions during the year

 

 

142,086

 

1,798,417

 

Interest accrued in the year

 

 

270,773

 

3,238,839

 

Payments for services made during the year

 

 

(480,723)

 

(2,019,374)

 

Share of joint venture's translation adjustment

 

 

(187,315)

 

(1,956,467)

 

Translation adjustment

 

 

32,962

 

5,665

 

At 1 January 2018

 

 

4,218,916

 

45,511,671

 

Advanced during the year

 

 

439,600

 

-

 

Transactions during the year

 

 

315,053

 

1,551,260

 

Interest accrued in the year

 

 

387,686

 

3,686,373

 

Payments for services made during the year

 

 

(309,505)

 

(1,758,280)

 

Share of joint venture's translation adjustment

 

 

(1,216,337)

 

(14,101,580)

 

Translation adjustment

 

 

(16,419)

 

(6,682)

 

At 31 December 2018

 

 

3,818,994

 

34,882,762

 

 

 

 

 

 

 

 

Balance at 31 December 2017 comprised of:

 

 

 

 

 

 

Loans receivable (Note 8)

 

 

4,167,887

 

45,271,615

 

Trade and other receivables

 

 

51,029

 

452,498

 

Trade Payables

 

 

-

 

(212,442)

 

 

 

 

4,218,916

 

45,511,671

 

Balance at 31 December 2018 comprised of:

 

 

 

 

 

 

Loans receivable (Note 8)

 

 

3,778,836

 

34,856,408

 

Trade and other receivables

 

 

40,158

 

130,469

 

Trade and other payables

 

 

-

 

(104,115)

 

 

 

 

3,818,994

 

34,882,762

 

 

 

 

14.      Related party disclosures (continued)

 

Remuneration of key management

Key management comprise the Directors, the Vice Presidents of Business Development and Operations of the Company and the consulting fees paid to HGR Consulting Limited for the services of the CFO. Their remuneration and fees during the year were as follows:

 

 

 Remuneration of key management

 

 

2018

 

2017

 

 

 

 

US$

 

US$

 

 

 

 

 

 

 

 

Compensation of key management

 

 

1,064,724

 

1,103,224

 

Contributions to defined contribution pension plan

 

 

48,947

 

52,693

 

Consulting fees (HGR Consulting - see below)

 

 

324,115

 

304,556

 

 

 

 

1,437,786

 

1,460,473

 

The following amounts, which are included in the above, were owed to key management and former CEO Dennis Francis at 31 December 2018 and 2017:

 

Remuneration, fees and expenses due to Directors who were in office during the year

 

 

607,468

 

424,564

 

Remuneration due to other key management

 

 

133,354

 

122,946

 

Consulting fees (HGR Consulting - see below)

 

 

193,219

 

276,570

 

 

 

 

934,041

 

824,080

 

Details of transactions between the Group and other related parties are disclosed below.

 

Transactions with HGR Consulting Limited

    Paul Dowling, Secretary and Chief Financial Officer of PetroNeft (until 31 January 2019), provided his services through HGR Consulting Limited ("HGR") from May 2016. Services provided by HGR during 2018 amounted to US$324,115 (2017: US$304,556). An amount of US$193,219 was owed to HGR at 31 December 2018 (2017: US$276,570).

 

Transactions with Petrogrand AB

Petrogrand AB is a related party by virtue of Maxim Korobov, a director of PetroNeft, being a significant shareholder of Petrogrand AB. In 2018 the Company agreed a loan facility for up to US$2m with Petrogrand AB. The loan facility is secured by way of a floating charge on the assets of the Company, carries an interest of US$ Libor plus 9% and has the original maturity date of 31 December 2018. This loan facility was fully drawn down in 2018. In March 2019, the parties have agreed an increase in the facility by US$500,000 and a revised maturity date of 15 December 2019. Further detail is contained in Note 15. The following are the details of this transaction in 2018:

 

 

Petrogrand AB

 

 

2018

 

 

US$

Loan facility maximum amount

 

                      2,000,000

Loan drawdowns during the year

 

2,000,000

Interest accrued but not yet paid

 

116,825

Amount due to Petrogrand AB at 31 December

 

2,116,825

 

In 2018 Granite Construction LLC (100% subsidiary of PetroNeft) purchased tubing from Petrogrand Exploration and Production (100% subsidiary of Petrogrand AB) for US$97,458. The amount due was fully paid in 2018.

 

 

 

15.       Important Events after the Balance Sheet Date

 

In January 2018 PetroNeft agreed a loan facility for up to US$2 million with Swedish company Petrogrand AB ("Petrogrand") secured on the assets of PetroNeft. The loan facility was fully drawn down in 2018 and was used to finance the drilling of the successful C-4 well and for general corporate purposes. In March 2019 the parties have agreed an increase in the facility by US$500,000 to US$2.5 million and a revised maturity date of 15 December 2019 (which may be extended by mutual consent of the parties). The revised terms include the potential entitlement to bonus payments of US$2.5 million per Licence if either or both Licence 61 or Licence 67 are sold before 31 December 2020.

 

16.       Board approval

 

This announcement was approved by the Board of Directors of PetroNeft Resources plc on 20 June 2019.


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