CADOGAN PETROLEUM PLC ANNUAL FINANCIAL REPORT 2020

CADOGAN PETROLEUM PLC

Contents

OVERVIEW

Summary of 2020

1

Group Overview

2

STRATEGIC REPORT

5

Chairman's Statement

6

Chief Executive's Review

7

Operations Review

11

Financial Review

13

Risks and Uncertainties

15

Summary of Reserves and Resources

19

Corporate Responsibility

20

CORPORATE GOVERNANCE

Board of Directors

23

Report of the Directors

25

Corporate Governance Statement

31

Board Committee Reports

31

Annual Report on Remuneration 2020

42

FINANCIAL STATEMENTS

Statement of Directors' Responsibilities

64

Independent Auditor's Report

66

Financial Statements of Cadogan Petroleum plc

Consolidated Income Statement

76

Consolidated Statement of Comprehensive Income

77

Consolidated Balance Sheet

78

Consolidated Cash Flow Statement

79

Consolidated Statement of Changes in Equity

80

Notes to the Consolidated Financial Statements

81

Company Balance Sheet

110

Company Cash Flow Statement

111

Company Statement of Changes in Equity

112

Notes to the Company Financial Statements

113

GLOSSARY

117

SHAREHOLDER INFORMATION

118

CADOGAN PETROLEUM PLC

Summary of 2020

Key Financial Highlights of 2020:

  • Loss for the year: $1.0 million (2019: loss of $2.1 million)
  • Average realized price: $32.9/boe (2019: $47.2/boe)
  • Gross revenues1: $5.1 million (2019: $5.9 million)
  • G&A2: $3.8 million (2019: $5.7 million)
  • Loss per share: 0.4 cents (2019: loss of 0.9 cents)
  • Cash at year end: $13.3 million (2019: $12.8 million)

Key Operational Highlights of 2020:

  • Production: 106,398 bbl (2019: 104,816 boe), a 1.5% increase year-on-year
  • Gas trading profit of $0.6 million (2019: loss of $2.0 million)
  • Services business loss of $0.05 million (2019: loss of $0.01 million), net of services provided to the group3
  • No LTI/TRIs'4
  • ISO 14001 and ISO 45001 certifications validated by annual audit
  • Extension of the Blazhiv-3 and Blazhiv-Monastyrets-3 wells lease agreements for a new 3-year term
  • Introduction of a claim before the Kyiv Administrative Court against the State Service of Geology and Subsoil of Ukraine due to the non-granting of the Bitlyanska license

Other

During 2020, Cadogan managed a difficult relationship with Proger Managers & Partners Srl ("PMP")_ a privately owned Italian company whose only interest is a 72.92% participation in Proger Ingegneria Srl ("Proger Ingegneria"), a privately owned company which has a 75.95% participating interest in Proger Spa ("Proger")_ to get recognized and implemented its rights for nomination of representatives and access to information deriving from the 2-year Loan Agreement and the Call Option Agreement. The Call Option was not exercised and the Company notified PMP for the Loan reimbursement at the Maturity Date, 25 February 2021. According to the Loan Agreement, PMP is in default for the non-reimbursement of EUR 14,857,350 being the principal and the accumulated interest. End of March 2021, PMP requested an arbitration to have the Loan Agreement recognised as an equity investment contract, which is rejected by Cadogan as the terms of the agreement are clear and include the right to repayment at maturity if the Call Option is not exercised.

  1. Gross revenues of $5.1 million (2019: $5.9 million) included $1.6 million (2019: $0.9 million) from trading of natural gas, $3.5 million (2019: $4.9 million) from exploration and production
  2. Administrative expenses ("G&A")
  3. Astroservice LLC used its rig for the workover campaign on the Blazhiv license
  4. LTI: Lost Time Incidents; TRI: Total Recordable Incidents

1

CADOGAN PETROLEUM PLC

Group overview (continued)

The Group has continued to maintain exploration and production assets, to conduct gas trading operations and to operate an oil services business in Ukraine. Cadogan's assets are concentrated in the West of the country, far away from the zone of military confrontation with Russia. Gas trading includes the import of gas from Slovakia, Hungary and Poland and local purchase and sales with physical delivery of natural gas. The oil services business focuses on workover operations, civil works services and other services provided to Exploration and Production ("E&P") companies in Ukraine.

Our business model

We aim to increase value through:

  • Maintaining a robust balance sheet, monetizing the remaining value of our Ukrainian assets and supplementing E&P cash flow with revenues from gas trading and oil services
  • Pursuing farm-out to progress investments in Ukrainian licenses
  • Sourcing additional assets to diversify Cadogan's portfolio, both geographically and operationally

The gas trading and the services business optimize the use of existing available resources, such as cash as working capital for trading and equipment and competences for the services business and continue to contribute to the Group's goal of being cash neutral, while actively searching for value accretive opportunities.

Ukraine

West Ukraine

The Group continued to produce oil from its 20-year production Blazhiv license located in the West Ukraine. The average net production in 2020 was 291 bbl, a 1.5% increase over the production of the previous year. This production result was achieved despite the heavy impact of covid-19 pandemic and 5.5 months shutdown of Blazhiv-3 and Blazhiv-Monasterets-3 wells due to the expiry of the lease contracts with PJSC Ukrnafta. Production from the wells was resumed after the agreements have been extended for a 3-year term on 19 June 2020.

In March 2020, after a deep and complete analysis performed with external legal advisors, Usenco Nadra filed a claim with the Kyiv Administrative Court to acknowledge inaction of the State Service of Geology (SGS) as unlawful, particularly their refusal to issue the Bitlyanska 20-year exploration and development license. In May 2020, the Company was informed by SGS of the rejection of its application on the basis of the new regulatory framework that took effect on 25 February 2020. This decision was taken by the subsoil controlling authority notwithstanding that Cadogan has fulfilled all license obligations, obtained all regulatory approvals and timely submitted on 19 August 2019 well ahead the license expiry date of 23 December 2019 and the new regulatory framework.

In August 2020, the Company filed a second claim to expand the scope of the first claim and requested the Court to grant the right to carry out commercial activities on Bitlyanska field effective from 20 December 2019.

East Ukraine

The Pirkovska exploration license expired in October 2015. Astrogaz filed in due time an application for a new exploration and production license, but the Licensing Authority returned it 6 times for different reasons, the legal ground of which appeared to be doubtful. Despite the efforts of the Company and its reply in due time to each of the comments, the license was not awarded, and the 3-year period for conversion, given to the applicant by law, expired in October 2018. In 2019, Astrogaz launched a litigation before the Administrative Court against the Licensing Authority for non-granting of the license. The Court of First Instance, in its decision of October 2020, has partly satisfied the claim and confirmed inaction of the Licensing Authority and obliged it to review the application. Astrogaz introduced a claim before the Court of Appeal proposing license award approval. In February 2021, the Court of Appeal rejected Astrogaz claim. In March 2021, the Company filed an appeal with the Supreme Court. In April 2021, the Supreme Court opened cassation proceeding. The Company has not received details of the date of the hearing as yet.

2

CADOGAN PETROLEUM PLC

Group overview (continued)

In 2020, LLC AstroInvest-Energy, a fully owned subsidiary of Cadogan, introduced a claim against the State fiscal authority regarding additional tax assessment and penalties. The Company won in the Court of First Instance and in the Court of Appeal. The State fiscal authority filed an appeal with the Supreme Court.

Subsidiary businesses

Notwithstanding extreme volatility in the gas market caused by the impact of Covid-19 pandemic, consequent reduced gas consumption and excess of gas storage in EU and Ukraine at historical levels as well as an extraordinary drop of prices, Cadogan has successfully sold 9.575 million m3 of gas during the price peaking in 2020. The remaining 7.5 million m3 of gas was kept and sold in the beginning of 2021.

Finally, the Group continued providing oil services through its wholly owned subsidiary Astroservice LLC. Substantial resources of the company have been engaged to support Blazhiv license wells' operations.

3

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Cadogan Petroleum plc published this content on 06 May 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 06 May 2021 07:24:04 UTC.