TIDMZOL
RNS Number : 4622D
Zoltav Resources Inc
27 April 2017
Embargoed: 0700hrs 27 April 2017
Zoltav Resources Inc.
("Zoltav" or the "Company")
Final Results for the Year Ended 31 December 2016
Zoltav (AIM:ZOL), the Russia-focused oil and gas exploration and
production company, announces final results for the year ended 31
December 2016 showing a 17% increase in revenues and the Company's
first annual net profit. The Company has adopted RUB as its
reporting currency going forward, reflecting its currency of
operation.
Financial Highlights
-- Revenues from production increased by 17% to RUB 1,989
million (USD 29.7 million) (2015: RUB 1,697 million or USD 28.1
million)
-- Zoltav delivered its first annual net profit of RUB 97
million (USD 1.4 million) (2015: RUB 247 million loss or USD 4.0
million loss)
-- Operating profit increased 539% to RUB 441 million (USD 6.6
million) (2015: RUB 69 million or USD 1.1 million)
-- Total cost of sales reduced by 1.5% to RUB 1,155 million (USD
17.2 million) (2015: RUB 1,172 million or USD 19.5 million)
-- Significant reduction in G&A costs of 38% to RUB 299
million (USD 4.5 million) (2015: RUB 482 million or USD 7.9
million), mostly driven by staff reduction and optimisation of
consultancy and administrative fees
-- Reduced borrowings further through repayment of RUB 360
million of PJSC Sberbank debt (USD 5.4 million) reducing the
principal amount to RUB 1,860 million (USD 30.7 million) at 31
December 2016
-- Net cash generated from operating activities increased by
151% to RUB 719 million (USD 10.7 million) (2015: RUB 286 million
or USD 4.3 million)
-- Cash and cash equivalents at 31 December 2016 of RUB 294
million (USD 4.8 million) (31 December 2015: RUB 429 million or USD
5.9 million)
-- The Group has sufficient liquidity to fund its investment
programme on the Western Fields at Bortovoy and its development
plans at Koltogor at least through to the end of 2018
Operational Highlights - Bortovoy Licence
-- Zoltav operated the Western Gas Plant at Bortovoy at an
increased capacity of 9,137 boe/d (1,296 toe/d) (2015: 8,853 boe/d
(1,256 toe/d))
o Average daily gas production increased by 2.4% to 47.7 mmcf/d
(1.35 mmcm/d) (2015: 46.6 mmcf/d (1.32 mmcm/d))
-- Further operational performance enhancements achieved
including efficient and continuous working of gas compressors and
optimisation of current well stock production regime
-- Commenced 3D seismic programme in September 2016 over
Devonian structure in North Mokrousovskoye field - interpretation
expected to be completed in Q3 2017
-- Zhdanovskoye Wells 19 and 103 were put into operation in
early September 2016, two months ahead of schedule, providing an
additional combined 386.2 mmcf (10.94 mmcm) of gas volume
-- Zhdanovskoye Well 108 completed in January 2017 in line with
the Company's strategy to maintain full plant capacity
Operational Highlights - Koltogor Licences
-- Rosnedra, the federal government body, confirmed the
discovery of the West Koltogor oil field on Koltogor Exploration
Licence 10 and issued an E&P licence covering that area through
to March 2036
-- The Company is currently considering different options for
the commercialisation of the Koltogor assets including
partnerships
Corporate Highlights
-- Changes to board composition during 2016 and post year-end:
o Alastair Ferguson (Executive Chairman), Stephen Lowden (Senior
Independent Non-executive Director) and Andrey Komarov (Executive
Director) did not stand for re-election at the 2016 AGM (Andrey
Komarov continues in an executive management position)
o Lea Verny appointed as Independent Non-executive Director on
22 December 2016 and subsequently as Independent Non-executive
Chairman on 22 March 2017
-- Kirill Suetov appointed as Group Director of Finance on 1 January 2017
Lea Verny, Independent Non-executive Chairman, commented:
"The continuing efforts to generate operational efficiencies at
the Western Gas Plant and to reduce costs across the Group have
resulted in an outstanding set of financial results which show a
17% increase in revenues to RUB 1,989 million (USD 29.7 million)
(2015: RUB 1,697 million or USD 28.1 million) and the Company's
first annual net profit of RUB 97 million (USD 1.4 million) (2015:
RUB 247 million loss or USD 4.0 million loss).
"Our focus continues to be on both maintaining full plant
capacity through the implementation of optimal production
enhancement activities to increase economic effectiveness; and on
generating the maximum value from our existing assets, where there
is scope to significantly increase our reserves."
The full annual report is available to download from the
investor relations section of the Company's website at
www.zoltav.com.
Enquiries:
Zoltav Resources Inc. Tel. +44 (0)20 7830 9704
Lea Verny, Non-executive Chairman (via Vigo Communications)
SP Angel Corporate Finance Tel. +44 (0)20 3470 0470
LLP (Nomad and Joint Broker)
John Mackay, Jeff Keating,
Soltan Tagiev
Panmure Gordon (Joint Broker) Tel. +44 (0)20 7886 2500
Adam James or Tom Salvesen
Vigo Communications Tel. +44 (0)20 7830 9704
Patrick d'Ancona or Ben Simons zoltav@vigocomms.com
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 square kilometre 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,
a processing plant and significant exploration prospectivity. It
holds Proved plus Probable reserves of 750 bcf (21.3 bcm) of gas
and 3.8 mmbbls (484 mT) of oil and condensate. In 2016, the
Bortovoy Licence produced approximately 3.3 mmboe (450 mToe).
Zoltav also holds the Koltogor E&P Licence, a 528 square
kilometre area in the Khantiy-Mansisk Autonomous Okrug of Western
Siberia, one of Russian's most prolific oil producing regions. The
Koltogor E&P Licence contains the Koltogor oil field with
Proved plus Probable reserves of 79.2 mmboe (10.8 mToe).
Additionally, Zoltav holds Koltogor E&P Licence 10, a 167
square kilometre area due west of the Koltogor E&P Licence,
containing the West Koltogor oil field.
For further information on Zoltav or to sign up for our news
alert service visit: www.zoltav.com.
Financial Report
Chairman's statement
Notwithstanding the challenging economics of the oil and gas
industry throughout 2016, I am pleased to present an outstanding
set of financial results for Zoltav which show a 17% increase in
revenues to RUB 1,989 million (2015: RUB 1,697 million) and the
Company's first annual net profit of RUB 97 million (2015: RUB 247
million loss). This is derived from a 3% increase in daily
production compared to 2015 and a significant reduction of almost
6% in the production cost per barrel of oil equivalent. The Company
has elected to adopt RUB as its reporting currency going forward,
consistent with Zoltav's currency of operation.
Our Western Gas Plant was operated at an increased capacity of
9,137 boe/d (1,296 toe/d) compared to 8,853 boe/d (1,256 toe/d) in
2015. Cost cutting initiatives enabled the Company to increase
EBITDA margin from 26% to 43% and maintain a positive operating
cash flow throughout the period.
Our focus continues to be on maintaining full plant capacity
through the implementation of optimal production enhancement
activities to increase economic effectiveness. We have undertaken
an extensive programme of cost optimisation at Bortovoy, which we
believe will produce further benefits in the current year and
beyond.
Zoltav is developing an appraisal strategy to capitalise on the
Devonian structure in both the undeveloped Western fields and in
the Eastern fields of the Bortovoy Licence. The interpretation of
3D seismic data currently being acquired will enable the Company to
develop its drilling strategy to target the Devonian structure.
At Koltogor, we completed a number of exploration-related tasks.
In particular, as a result of the work undertaken to open up the
West Koltogor oil field on Koltogor Exploration Licence 10, we were
able to convert this in March 2016 into an Exploration and
Production Licence valid through to March 2036. We will, in the
future, look to bring a partner into Koltogor to assist in its
commercialisation.
Zoltav's strategic objective remains that of generating the
maximum value from our existing assets, where there is scope to
significantly increase our reserves. We will achieve this through
the generation of further efficiencies and through exploration,
appraisal and development activities.
We look forward to communicating more regular operational
updates and key milestones and results as we achieve them.
Lea Verny
Non-executive Chairman
26 April 2017
Review of operations
Bortovoy Licence
Zoltav operated the Western Gas Plant at an increased capacity
throughout 2016 of 9,137 boe/d (1,296 toe/d) compared to 8,853
boe/d (1,256 toe/d) in 2015. This represented an increase of
approximately 3% compared to 2015. A number of factors contributed
to this strong performance including:
-- the efficient and continuous working of gas compressors; and
-- the optimisation of the current well stock production regime.
A preliminary assessment of the Devonian structure within the
North Mokrousovskoye field enabled the Company to commission a 3D
seismic programme in September 2016. As of the end of 2016, 120 sq
km. were completed (out of 200 sq km) with a delay arising due to
bad weather conditions and inaccessibility of the seismic area. The
seismic interpretation is expected to be completed in Q3 2017.
Production
Average daily production from the Western Gas Plant during 2016
was 47.7 mmcf/d (1.35 mmcm/d) of gas and 487 bbls/d (62 T/d) of oil
and condensate comparing to 46.6 mmcf/d (1.32 mmcm/d) and 587
bbls/d (75 T/d) in 2015.
In April 2016, Karpenskoye Well 117 was completed at an
unstimulated rate of 3.9 mmcf/d (0.11 mmcm/d). Higher than expected
water cut prevented Zoltav from stimulating the well by applying
acid treatment, thus limiting its production rate. In order to
balance the projected decline, in July 2016, the Company
successfully acid treated the Zhanovskoye Well 107 (which was
hooked-up to the Western Gas Plant in December 2015), enabling it
to produce an additional 1.13 mmcf/d (0.032 mmcm/d) of gas.
To further offset the negative effect of Karpenskoye Well 117's
underperformance, the Zhdanovskoye Wells 19 and 103 were put into
operation in early September, two months ahead of schedule,
providing an additional combined 386.2 mmcf (10.94 mmcm) of gas
volume.
Development drilling and other well activity
The Zhdanovskoye Well 108 completed in January 2017 in line with
the Company's strategy to maintain full plant capacity.
Koltogor Licences
As a result of opening up the West Koltogor oil field on
Koltogor Exploration Licence 10, the Company applied to Rosnedra
for an Exploration and Production Licence and was granted approval
in March 2016 for the licence now valid through March 2036.
The Company is currently considering different options for the
commercialisation of the Koltogor assets including
partnerships.
Group Reserves under PRMS as per latest report of DeGolyer and
MacNaughton (May 2014):
Proved
Proved Probable and 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
Financial review
Management's continued focus on profit generation from the
Western Gas Plant at Bortovoy, combined with Group cost
optimisation, enabled Zoltav to generate RUB 441 million of
operating profit in 2016. EBITDA increased by 94% and reached RUB
846 million allowing the Company to generate its first annual net
profit of RUB 97 million.
Revenue
The Group's RUB revenues in 2016 increased by 17% to RUB 1,989
million, compared to RUB 1,697 million in 2015.
86% of revenue was 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. We
anticipate that an increase of 2% in gas price indexation will be
approved by the Russian Government in June 2017 which will
subsequently benefit the Company.
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. The Company is considering alternative
channels to increase liquids realisations such as exporting to
Baltic countries, commodity exchanges and electronic b2b
platforms.
Cost of sales and G&A costs
Total cost of sales was RUB 1,155 million (2015: RUB 1,172
million). This comprised RUB 406 million of production based taxes
(2015: RUB 389 million), RUB 405 million of depreciation and
depletion of assets (2015: RUB 367 million) and RUB 344 million of
other cost of sales (2015: RUB 417 million). Other cost of sales
comprised operating expenses from the Bortovoy operating company,
Diall Alliance, which fell by 17% primarily due to a cost
optimisation programme including staff reduction, fewer well
workovers required, materially more efficient purchasing of
methanol fluids and fewer equipment repairs due to one-off
maintenance expenditures in 2015.
The Group's G&A costs decreased by 38% to RUB 299 million
(2015: RUB 482 million), mostly driven by staff reduction and
optimisation of consultancy and administrative fees.
Operating profit
Zoltav achieved an operating profit for 2016 of RUB 441 million,
compared to RUB 69 million in 2015.
Finance costs of RUB 268 million are mainly represented by
interest on the RUB 1,860 million Sberbank facility.
Profit before tax
Zoltav generated RUB 197 million of profit before tax, compared
to a loss of RUB 215 million in 2015.
Taxation
The production based tax for the period was RUB 406 million
(2015: RUB 389 million) which is recognised in the cost of sales.
The new gas mineral extraction ("MET") formula was implemented from
1 July 2014. This formula is based on multi-component gas
composition, average gas prices and reservoir complexity and
maturity. As a result of these changes the effective MET rate
applicable for the period was flat at RUB 18.3/mcf or RUB 645/mcm
(2015: RUB 17.8/mcf or RUB 627/mcm).
In addition to production taxes the Group was subject to a 2.2
per cent property tax which is based on the net book value of
Russian assets calculated for property tax purposes. Property tax
on the major part of the Bortovoy operating company's assets,
including the Western Gas Plant, is paid at a reduced tax rate of
0.1 per cent as a part of tax incentive for regional investment
projects.
The income tax charge for the year was RUB 100 million (2015:
RUB 32 million) and represents mostly deferred tax expense. There
was a significant deferred tax charge increase due to the usage of
tax loss carry-forwards and the net book value differences between
IFRS and statutory accounting standards relating to PPE and E&E
assets.
Net profit
Zoltav generated its first annual net profit of RUB 97 million,
compared to a net loss of RUB 247 million in 2015.
Cash
Net cash generated from operating activities was RUB 719 million
(2015: RUB 286 million).
Diall Alliance successfully serviced its credit facility from
PJSC Sberbank and repaid a further RUB 360 million of the principal
amount (RUB 1,860 million at 31 December 2016) according to its
schedule. The Company remains in line with the covenants of its
credit facility agreement.
The Group has sufficient liquidity to fund its investment
programme on the Western Fields at Bortovoy and its development
plans at Koltogor at least through to the end of 2018.
Total cash at the end of the period was RUB 294 million.
Kirill Suetov
Director of Finance
26 April 2017
Independent auditors' report
To the Shareholders and Board of Directors of Zoltav Resources
Inc.
Opinion
We have audited the consolidated financial statements of Zoltav
Resources Inc. and its subsidiaries (the Group), which comprise the
consolidated statement of financial position as at 31 December
2016, and the consolidated statement of comprehensive income,
consolidated statement of changes in equity and consolidated
statement of cash flows for 2016, and notes to the consolidated
financial statements, including a summary of significant accounting
policies.
In our opinion, the accompanying consolidated financial
statements present fairly, in all material respects, the financial
position of the Group as at 31 December 2016 and its financial
performance and its cash flows for 2016 in accordance with
International Financial Reporting Standards (IFRSs).
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (ISAs). Our responsibilities under those
standards are further described in the Auditor's responsibilities
for the audit of the consolidated financial statements section of
our report. We are independent of the Group in accordance with the
International Ethics Standards Board for Accountants' Code of
Ethics for Professional Accountants (IESBA Code) together with the
ethical requirements that are relevant to our audit of the
consolidated financial statements in the Russian Federation, and we
have fulfilled our other ethical responsibilities in accordance
with these requirements and the IESBA Code. We believe that the
audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
Other matter
The consolidated financial statements of Zoltav Resources Inc.
for the year ended 31 December 2014 were audited by another auditor
who expressed an unmodified opinion on those statements on 23 April
2015.
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the
consolidated financial statements of the current period. These
matters were addressed in the context of our audit of the
consolidated financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these
matters. For each matter below, our description of how our audit
addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the
Auditor's responsibilities for the audit of the consolidated
financial statements section of our report, including in relation
to these matters. Accordingly, our audit included the performance
of procedures designed to respond to our assessment of the risks of
material misstatement of the consolidated financial statements. The
results of our audit procedures, including the procedures performed
to address the matters below, provide the basis for our audit
opinion on the accompanying consolidated financial statements.
Assessing exploration and evaluation assets for impairment
We considered this matter to be one of most significance in our
audit due to the high level of subjectivity in respect of
assumptions underlying the impairment analysis and the significant
judgements and estimates made by management. In addition, the
absence of significant exploration activity at Koltogor oil field
during 2015 and 2016 and the combination of uncertainty regarding
sources of financing of Koltogor oil field development, future oil
prices and inflation forecasts in the Russian Federation affects
the Group's plans to complete exploration and evaluation and start
commercial production.
We assessed the assumptions including forecasted oil and gas
prices, planned mineral extraction tax, inflation rate projections
and discount rate as well as methodology used by the Group. We
analyzed sources of financing of Koltogor oil field development,
which are being considered by the management. We also verified the
mathematical accuracy of the model and sensitivity to changes in
key estimates.
Information on assessing exploration and evaluation assets for
impairment is disclosed in Note 12 to the consolidated financial
statements.
Decommissioning and environmental restoration provision
The calculation of decommissioning and environmental restoration
provision requires significant judgement management because of the
inherent complexity in estimating future costs therefore this
matter is considered to be one of most significance in our
audit.
Our procedures on the decommissioning provision included
assessing management's methodology by comparing it to common
industry practices. We assessed key assumptions and compared them
to available market information from industry studies and benchmark
data such as recent oil price quotes, discount rates and inflation
forecasts.
Information about decommissioning and environmental restoration
provision is disclosed in Note 22 to the consolidated financial
statements. A description of the accounting policy and key
judgements and estimates is included in Note 3.2 to the
consolidated financial statements.
Other information included in Zoltav Resources Inc. Annual
Report for 2016
Other information consists of the information included in Zoltav
Resources Inc. Annual Report for 2016, other than the consolidated
financial statements and our auditor's report thereon. Management
is responsible for the other information.
Our opinion on the consolidated financial statements does not
cover the other information and we do not express any form of
assurance conclusion thereon.
In connection with our audit of the consolidated financial
statements, our responsibility is to read the other information
and, in doing so, consider whether the other information is
materially inconsistent with the consolidated financial statements
or our knowledge obtained in the audit or otherwise appears to be
materially misstated. If, based on the work we have performed, we
conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing
to report in this regard.
Responsibilities of management and the Audit Committee for the
consolidated financial statements
Management is responsible for the preparation and fair
presentation of the consolidated financial statements in accordance
with IFRSs, and for such internal control as management determines
is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to
fraud or error.
In preparing the consolidated financial statements, management
is responsible for assessing the Group's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless
management either intends to liquidate the Group or to cease
operations, or has no realistic alternative but to do so.
The Audit Committee is responsible for overseeing the Group's
financial reporting process.
Auditor's responsibilities for the audit of the consolidated
financial statements
Our objectives are to obtain reasonable assurance about whether
the consolidated financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue
an auditor's report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs will always detect a material
misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these
consolidated financial statements.
As part of an audit in accordance with ISAs, we exercise
professional judgment and maintain professional skepticism
throughout the audit. We also:
Identify and assess the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide
a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal
control.
Obtain an understanding of internal control relevant to the
audit in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Group's internal control.
Evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures made
by management.
Conclude on the appropriateness of management's use of the going
concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events
or conditions that may cast significant doubt on the Group's
ability to continue as a going concern. If we conclude that a
material uncertainty exists, we are required to draw attention in
our auditor's report to the related disclosures in the consolidated
financial statements or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence
obtained up to the date of our auditor's report. However, future
events or conditions may cause the Group to cease to continue as a
going concern.
Evaluate the overall presentation, structure and content of the
consolidated financial statements, including the disclosures, and
whether the consolidated financial statements represent the
underlying transactions and events in a manner that achieves fair
presentation.
Obtain sufficient appropriate audit evidence regarding the
financial information of the entities or business activities within
the Group to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and
performance of the group audit. We remain solely responsible for
our audit opinion.
We communicate with the Audit Committee regarding, among other
matters, the planned scope and timing of the audit and significant
audit findings, including any significant deficiencies in internal
control that we identify during our audit.
We also provide the Audit Committee with a statement that we
have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and
other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
From the matters communicated with Audit Committee, we determine
those matters that were of most significance in the audit of the
consolidated financial statements of the current period and are
therefore the key audit matters. We describe these matters in our
auditor's report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare
circumstances, we determine that a matter should not be
communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public
interest benefits of such communication.
The partner in charge of the audit resulting in this independent
auditor's report is T.L. Okolotina.
T.L. OKOLOTINA
Partner
Ernst & Young LLC
26 April 2017
Details of the audited entity
Name: Zoltav Resources Inc.
Record made in the Registar of Companies, Cayman Islands on 18
November 2003, Registration Number 130605.
Address: PO Box 10008, Willow House, Cricket Square, Grand
Cayman KY1-1001, Cayman Islands.
Details of the auditor
Name: Ernst & Young LLC
Record made in the State Register of Legal Entities on 5
December 2002, State Registration Number 1027739707203.
Address: Russia 115035, Moscow, Sadovnicheskaya naberezhnaya,
77, building 1.
Ernst & Young LLC is a member of Self-regulated organization
of auditors "Russian Union of auditors" (Association) ("SRO RUA").
Ernst & Young LLC is included in the control copy of the
register of auditors and audit organizations, main registration
number 11603050648.
Consolidated statement of comprehensive income for the year
ended 31 December 2016
(in '000s of Russian rubles, unless otherwise stated)
2015
Note 2016 (Restated)*
----- ------------ -------------
Revenue 5 1,989,430 1,697,276
------------ -------------
Cost of sales
Mineral extraction tax (406,499) (388,521)
Depreciation and depletion (404,684) (366,824)
Other cost of sales (344,104) (416,801)
------------ -------------
Total cost of sales 6 (1,155,287) (1,172,146)
------------ -------------
Gross profit 834,143 525,130
Operating, administrative and selling expenses 7 (299,346) (481,933)
Other income 9 49,076 60,854
Other expenses 9 (142,860) (35,405)
Operating profit 441,013 68,646
Finance income 10 24,409 51,631
Finance costs 10 (267,985) (335,329)
------------ -------------
Profit/(loss) before tax 197,437 (215,052)
Income tax expense 11 (100,336) (31,606)
------------ -------------
Profit/(loss) for the year attributable to owners of the parent 97,101 (246,658)
============ =============
19 RUB RUB
------------ -------------
Earnings/(loss) per share attributable to owners of the parent
Basic 0.68 (1.74)
Diluted 0.67 (1.74)
* The amounts shown here do not correspond to the consolidated
financial statements for the year ended 31 December 2015 due to
change in presentation currency as described in Note 2.8.
Consolidated statement of financial position as at 31 December
2016
(in '000s of Russian rubles, unless otherwise stated)
31 December
31 December
2015 2014
31 December
Note 2016 (Restated)* (Restated)*
----- ------------ ------------- -------------
Assets
Non-current assets
Exploration and evaluation
assets 12 4,788,314 4,690,366 4,721,317
Property, plant and
equipment 13 4,211,254 4,338,270 4,622,359
------------ ------------- -------------
Total non-current
assets 8,999,568 9,028,636 9,343,676
------------ ------------- -------------
Current assets
Inventories 14 18,830 9,766 18,171
Trade and other receivables 15 172,294 149,264 145,203
Other current non-financial
assets 15 15,186 39,065 31,392
Financial assets
at fair value through
profit or loss - 4,737 11,027
Cash and cash equivalents 16 294,254 428,550 601,627
------------ ------------- -------------
Total current assets 500,564 631,382 807,420
------------ ------------- -------------
Total assets 9,500,132 9,660,018 10,151,096
============ ============= =============
Equity and liabilities
Share capital 17 970,218 970,218 970,218
Share premium 5,498,009 5,498,009 5,498,009
Other reserves 1,429,341 1,429,341 1,448,144
Accumulated losses (1,356,179) (1,453,280) (1,225,425)
Total equity 6,541,389 6,444,288 6,690,946
------------ ------------- -------------
Non-current liabilities
Borrowings 21 1,548,789 1,845,171 2,198,353
Provisions 22 359,153 358,000 599,096
Other payables 24 57,874 - -
Deferred tax liabilities 23 433,888 333,657 302,051
------------ ------------- -------------
Total non-current
liabilities 2,399,704 2,536,828 3,099,500
------------ ------------- -------------
Current liabilities
Borrowings 21 311,160 373,378 180,027
Other taxes payable 24 118,500 90,666 63,966
Trade and other payables 25 129,379 214,858 116,657
------------ ------------- -------------
Total current liabilities 559,039 678,902 360,650
------------ ------------- -------------
Total liabilities 2,958,743 3,215,730 3,460,150
------------ ------------- -------------
Total equity and
liabilities 9,500,132 9,660,018 10,151,096
============ ============= =============
The consolidated financial statements were approved by the Board
of Directors and authorised for issue on 26 April 2017.
* The amounts shown here do not correspond to the consolidated
financial statements for the year ended 31 December 2015 due to
change in presentation currency as described in Note 2.8.
Consolidated statement of cash flows for the year ended 31
December 2016
(in '000s of Russian rubles, unless otherwise stated)
2015
Note 2016 (Restated)*
----- ---------- -------------
Cash flows from operating activities
Profit/(loss) before tax 197,437 (215,052)
Adjustments for:
Depreciation and depletion 406,972 370,990
Finance costs 267,985 335,329
Finance income (24,409) (51,631)
Other income (34,076) (60,854)
Other expenses 126,894 34,446
---------- -------------
Operating cash inflows before working capital changes 940,803 413,228
(Increase)/decrease in inventory (6,162) 8,405
Increase in trade and other receivables (19,022) (11,734)
(Decrease)/increase in trade and other payables (22,298) 38,468
Increase in other taxes payables 27,834 26,700
---------- -------------
Net cash from operating activities before tax and interests paid 921,155 475,067
Interest received 25,158 52,488
Interest paid 21 (227,138) (241,645)
Income tax paid (105) -
---------- -------------
Net cash flows from operating activities 719,070 285,910
---------- -------------
Cash flows from investing activities
Capital expenditure on exploration and evaluation activities (56,048) (63,829)
Purchase of property, plant and equipment (436,416) (228,486)
Net cash used in investing activities (492,464) (292,315)
---------- -------------
Cash flows from financing activities
Repayment of borrowings 21 (360,000) (180,000)
Net cash used in financing activities (360,000) (180,000)
---------- -------------
Net decrease in cash and cash equivalents (133,394) (186,405)
Net foreign exchange difference (902) 13,328
Cash and cash equivalents at the beginning of the year 428,550 601,627
---------- -------------
Cash and cash equivalents at the end of the year 16 294,254 428,550
========== =============
* The amounts shown here do not correspond to the consolidated
financial statements for the year ended 31 December 2015 due to
change in presentation currency as described in Note 2.8.
Consolidated statement of changes in equity for the year ended
31 December 2016
(in '000s of Russian rubles, unless otherwise stated)
Attributable to owners of the Parent
---------------------------------------------------------------------------
Employee
share-based
Share Share Capital compensation Accumulated Total
Note capital premium reserve reserve losses equity
----- --------- ---------- ---------- -------------- ------------ ----------
At 1 January
2015 (restated*) 970,218 5,498,009 1,343,566 104,578 (1,225,425) 6,690,946
========= ========== ========== ============== ============ ==========
Employee
share-based
compensation 20 - - - (18,803) 18,803 -
--------- ---------- ---------- -------------- ------------ ----------
Transactions
with owners - - - (18,803) 18,803 -
--------- ---------- ---------- -------------- ------------ ----------
Loss for
the year - - - - (246,658) (246,658)
--------- ---------- ---------- -------------- ------------ ----------
Total comprehensive
loss - - - (18,803) (227,855) (246,658)
--------- ---------- ---------- -------------- ------------ ----------
At 31 December
2015 (restated*) 970,218 5,498,009 1,343,566 85,775 (1,453,280) 6,444,288
--------- ---------- ---------- -------------- ------------ ----------
Profit for
the year - - - - 97,101 97,101
--------- ---------- ---------- -------------- ------------ ----------
Total comprehensive
income - - - - 97,101 97,101
--------- ---------- ---------- -------------- ------------ ----------
At 31 December
2016 970,218 5,498,009 1,343,566 85,775 (1,356,179) 6,541,389
========= ========== ========== ============== ============ ==========
* The amounts shown here do not correspond to the consolidated
financial statements for the year ended 31 December 2015 due to
change in presentation currency as described in Note 2.8.
Notes to the consolidated financial statements
1. Background
1.1 The Company and its operations
The Zoltav Group (the "Group") comprises Zoltav Resources Inc.
(the "Company"), together with its subsidiaries:
Share of the Group in subsidiary
-------------------------------------------------------
Place of
Name incorporation Function 31 December 2016 31 December 2015 31 December 2014
------------------- ------------------- ------------------- ----------------- ----------------- -----------------
CenGeo Holdings
Limited
(hereinafter -
"CenGeo Holding
Holdings") Cyprus company 100% 100% 100%
CJSC SibGeCo
(hereinafter -
"SibGeCo") Russia Operating company 100% 100% 100%
Royal Atlantic
Energy (Cyprus)
Limited
(hereinafter - Holding
"Royal") Cyprus company 100% 100% 100%
Diall Alliance LLC
(hereinafter -
"Diall") Russia Operating company 100% 100% 100%
Zoltav Resource
LLC (previously -
Vostok Energy
LLC) Russia Management company 100% 100% 100%
Zoltav Resources
Holdings (Jersey)
Limited Jersey Holding company - 100% 100%
ZRI Services
(UK) Ltd United Kingdom Service company - 100% 100%
Zoltav Resources Holdings (Jersey) Limited and ZRI Services (UK)
Ltd, 100% owned subsidiaries were dissolved via voluntary
strike-off at 19 August 2016 and 20 September 2016,
respectively.
The Company was incorporated in the Cayman Islands on 18
November 2003 which does not prescribe the adoption of any
particular accounting framework. The Board has therefore adopted
International Financial Reporting Standards (IFRS) issued by the
International Accounting Standards Board and as adopted by the
European Union.
The principal activities of the Company and its subsidiaries are
the acquisition, exploration and development of hydrocarbon assets
and the production of hydrocarbons in the Russian Federation. The
Company's shares are listed on the Alternative Investment Market
("AIM") of the London Stock Exchange.
1.2 Russian business environment
The Group's operations are located in the Russian
Federation.
1.3 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 a decline in
oil prices and sanctions imposed on Russia by a number of
countries. The ruble 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. Significant accounting policies
2.1 Basis of preparation
The consolidated financial statements of the Group have been
prepared in accordance with International Financial Reporting
Standards (IFRS), as adopted by the European Union (EU),
International Financial Reporting Interpretations Committee (IFRIC)
interpretations, and the Companies Act 2006 applicable to companies
reporting under IFRS. The consolidated financial statements have
been prepared under the historical cost convention, as modified by
the revaluation of financial assets and financial liabilities
(including derivative instruments) at fair value through profit or
loss.
The preparation of financial statements in conformity with IFRS
requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of
applying the Group's accounting policies. The areas involving a
higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the consolidated
financial statements are disclosed in Note 3.
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. Liquidity risk
is additionally disclosed in Note 27.1.
2.3 Disclosure of impact of new and future accounting
standards
a) 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 in the previous year,
except for the adoption of new standards and interpretations and
revision of the existing standards as of 1 January 2016. The Group
has not early adopted any other standard, interpretation or
amendment that has been issued but is not yet effective.
Although these new standards and amendments applied for the
first time in 2016, they did not have a material impact on the
annual consolidated financial statements of the Group.
Effective
for annual
periods
beginning
New/revised standards and Interpretations on
Adopted in 2016 or after
----------------------------------------------- ------------
Amendments to IFRS 10, IFRS 12 and IAS
28: Investment Entities - Applying the 1 January
Consolidation Exception 2016
Amendments to IAS 27: Equity Method in 1 January
Separate Financial Statements 2016
1 January
Amendments to IAS 1: Disclosure Initiative 2016
Annual improvements to IFRSs 2010-2012 1 February
Cycle 2015
Annual Improvements to IFRSs 2012-2014 1 January
Cycle 2016
Amendments to IAS 16 and IAS 38: Clarification
of Acceptable Methods of Depreciation 1 January
and Amortisation 2016
Amendments to IFRS 11: Accounting for 1 January
Acquisitions of Interests in Joint Operations 2016
Amendments to IAS 16 and IAS 41: Bearer 1 January
Plants 2016
Amendments to IAS 19 - Defined Benefit 1 February
Plans: Employee Contributions 2015
b) New accounting pronouncements
A number of new and amended standards were not effective for the
year ended 31 December 2016 and have not been applied in these
consolidated financial statements.
Effective
for annual
periods
beginning
Standards issued but not yet effective on
in the European Union or after
----------------------------------------------- --------------
1 January
IFRS 14 Regulatory Deferral Accounts 2016*
IAS 7 Disclosure Initiative - Amendments 1 January
to IAS 7 2017*
IAS 12 Recognition of Deferred Tax Assets
for Unrealised Losses - Amendments to 1 January
IAS 12 2017*
Amendments to IAS 40 - Transfers of Investment 1 January
Property 2018*
Amendments to IFRS 4 - Applying IFRS 9
Financial Instruments with IFRS 4 Insurance 1 January
Contracts 2018*
Annual improvements to IFRSs 2014-2016 1 January
Cycle 2018*
1 January
IFRS 9 Financial Instruments 2018
1 January
IFRS 15 Revenue from Contracts with Customers 2018
Clarification to IFRS 15 Revenue from 1 January
Contracts with Customers 2018*
IFRIC 22 Foreign Currency Transactions 1 January
and Advance Consideration 2018*
IFRS 2 Classification and Measurement
of Share-based Payment Transactions - 1 January
Amendments to IFRS 2 2018*
1 January
IFRS 16 Leases 2019*
Amendments to IFRS 10 and IAS 28: Sale Deferred
of Contribution of Assets between on Investor indefinitely
and its Associate or Joint Venture *
* Subject to EU endorsement.
At present the Group is in the process of analysis of the
possible impact of the application of these standards on its
consolidated financial statements. The Group intends to adopt these
standards, if applicable, when they become effective.
2.4 Basis of consolidation
The consolidated financial statements comprise the financial
statements of the Group and its subsidiaries as at 31 December
2016. Control is achieved when the Group is exposed, or has rights,
to variable returns from its involvement with the investee and has
the ability to affect those returns through its power over the
investee.
Specifically, the Group controls an investee if, and only if,
the Group has:
Power over the investee (i.e., existing rights that give it the
current ability to direct the relevant activities of the
investee);
Exposure, or rights, to variable returns from its involvement
with the investee;
The ability to use its power over the investee to affect its
returns.
Generally, there is a presumption that a majority of voting
rights results in control. To support this presumption and when the
Group has less than a majority of the voting or similar rights of
an investee, the Group considers all relevant facts and
circumstances in assessing whether it has power over an investee,
including:
The contractual arrangement(s) with the other vote holders of
the investee;
Rights arising from other contractual arrangements;
The Group's voting rights and potential voting rights.
The Group re-assesses whether or not it controls an investee if
facts and circumstances indicate that there are changes to one or
more of the three elements of control. Consolidation of a
subsidiary begins when the Group obtains control over the
subsidiary and ceases when the Group loses control of the
subsidiary. Assets, liabilities, income and expenses of a
subsidiary acquired or disposed of during the year are included in
the consolidated financial statements from the date the Group gains
control until the date the Group ceases to control the
subsidiary.
When necessary, adjustments are made to the financial statements
of subsidiaries to bring their accounting policies into line with
the Group's accounting policies. All intra-group assets and
liabilities, equity, income, expenses and cash flows relating to
transactions between members of the Group are eliminated in full on
consolidation.
A change in the ownership interest of a subsidiary, without a
loss of control, is accounted for as an equity transaction.
If the Group loses control over a subsidiary, it derecognises
the related assets (including goodwill), liabilities and components
of equity, while any resultant gain or loss is recognised in profit
or loss. Any investment retained is recognised at fair value.
2.5 Acquisitions, asset purchases and disposals
Transactions involving the purchases of an individual field
interest, or a group of field interests, that do not qualify as a
business combination are treated as asset purchases, irrespective
of whether the specific transactions involved the transfer of the
field interests directly or the transfer of an incorporated entity.
Accordingly, no goodwill or deferred tax gross up arises. The
purchase consideration is allocated to the assets and liabilities
purchased on an appropriate basis. Proceeds from the disposal are
applied to the carrying amount of the specific intangible asset or
development and production assets disposed of and any surplus is
recorded as a gain on disposal in the statement of comprehensive
income.
2.6 Business combinations
Business combinations are accounted for using the acquisition
method. The cost of an acquisition is measured as the aggregate of
the consideration transferred, which is measured at acquisition
date fair value, and the amount of any non-controlling interests in
the acquiree. For each business combination, the Group elects
whether to measure the non-controlling interests in the acquiree at
fair value or at the proportionate share of the acquiree's
identifiable net assets. Acquisition-related costs are expensed as
incurred and included in administrative expenses.
When the Group acquires a business, it assesses the financial
assets and liabilities assumed for appropriate classification and
designation in accordance with the contractual terms, economic
circumstances and pertinent conditions as at the acquisition date.
This includes the separation of embedded derivatives in host
contracts by the acquiree.
Any contingent consideration to be transferred by the acquirer
will be recognised at fair value at the acquisition date.
Contingent consideration classified as an asset or liability that
is a financial instrument and within the scope of IAS 39 Financial
Instruments: Recognition and Measurement is measured at fair value
with the changes in fair value recognised in the statement of
profit or loss.
Goodwill is initially measured at cost being the excess of the
aggregate of the consideration transferred and the amount
recognised for non-controlling interests and any previous interest
held over the net identifiable assets acquired and liabilities
assumed. If the fair value of the net assets acquired is in excess
of the aggregate consideration transferred, the Group re-assesses
whether it has correctly identified all of the assets acquired and
all of the liabilities assumed and reviews the procedures used to
measure the amounts to be recognised at the acquisition date. If
the reassessment still results in an excess of the fair value of
net assets acquired over the aggregate consideration transferred,
then the gain is recognised in profit or loss.
After initial recognition, goodwill is measured at cost less any
accumulated impairment losses. For the purpose of impairment
testing, goodwill acquired in a business combination is, from the
acquisition date, allocated to each of the Group's cash-generating
units that are expected to benefit from the combination,
irrespective of whether other assets or liabilities of the acquiree
are assigned to those units.
Where goodwill has been allocated to a cash-generating unit
(CGU) and part of the operation within that unit is disposed of,
the goodwill associated with the disposed operation is included in
the carrying amount of the operation when determining the gain or
loss on disposal. Goodwill disposed in these circumstances is
measured based on the relative values of the disposed operation and
the portion of the cash-generating unit retained.
2.7 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.
2.8 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.
Starting from 1 January 2016, the presentation currency was
changed from US dollar ("USD") to the Russian ruble, which the
Board considers more representative for users of these financial
statements to better assess the performance of the Group.
A change in presentation currency is a change in accounting
policy which is accounted for retrospectively. The financial
information included in the Group's consolidated financial
statements for the year ended 31 December 2015 and 31 December 2014
previously reported in US dollar has been restated into Russian
ruble using the procedures outlined below:
Assets and liabilities for each balance sheet date are
translated at the closing rate at the date of that balance
sheet;
Share capital and other equity components are translated at
historic rates;
Income and expenses are translated at exchange rates at the
dates of the transactions (or at average exchange rates that
approximate the translation using the rate of the actual
transaction dates).
Translation has been performed using the exchange rates set by
the Central Bank of the Russian Federation.
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 with the exception of
monetary items that are designated as part of the hedge of the
Group's net investment of a foreign operation. These are recognised
in statement of comprehensive income ("OCI") until the net
investment is disposed of, at which time the cumulative amount is
reclassified to profit or loss. Tax charges and credits
attributable to exchange differences on those monetary items are
also recorded in OCI.
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. Non-monetary items measured
at fair value in a foreign currency are translated using the
exchange rates at the date when the fair value is determined. The
gain or loss arising on translation of non-monetary items measured
at fair value is treated in line with the recognition of the gain
or loss on the change in fair value of the item (i.e., translation
differences on items whose fair value gain or loss is recognised in
OCI or profit or loss are also recognised in OCI or profit or loss,
respectively).
c) Group companies
Loans between Group entities and related foreign exchange gains
or losses are eliminated upon consolidation. However, where the
loan is between Group entities that have different functional
currencies, the foreign exchange gain or loss cannot be eliminated
in full and is recognized in the consolidated profit or loss,
unless the loan is not expected to be settled in the foreseeable
future and thus forms part of the net investment in foreign
operation. In such a case, the foreign exchange gain or loss is
recognized in other comprehensive income.
Goodwill and fair value adjustments arising on the acquisition
of a foreign entity are treated as assets and liabilities of the
foreign entity and translated at the closing rate. Exchange
differences arising are recognised in other comprehensive
income.
The accounting policies set out below have been applied
consistently to all years presented in the consolidated financial
statements, and have been applied consistently by the Group.
The period-end exchange rates and the average exchange rates for
the respective reporting periods are indicated below.
2016 2015 2014
-------- -------- --------
RUB/USD as at 31 December 60.6569 72.8827 56.2584
RUB/USD average for the year
ended 31 December 67.0349 60.9579 38.4217
2.9 Exploration and evaluation assets
The Company and its subsidiaries apply the successful efforts
method of accounting for Exploration and Evaluation ("E&E")
costs, in accordance with IFRS 6 Exploration for and Evaluation of
Mineral Resources. Costs are accumulated on a field-by-field
basis.
a) Drilling, seismic and other costs
Costs directly associated with an exploration well, including
certain geological and geophysical costs, and exploration and
property leasehold acquisition costs, are capitalised until the
reserves are evaluated. If it is determined that a commercial
discovery has not been achieved, these costs are charged to expense
after the conclusion of appraisal activities. Exploration costs
such as geological and geophysical that are not directly related to
an exploration well are expensed as incurred.
Capital expenditure is recognised as property, plant and
equipment or intangible assets in the financial statements in
accordance with the nature of the expenditure and the stage of
development of the associated field, i.e. exploration, development,
or production. Once commercial reserves are found, exploration and
evaluation assets are tested for impairment and transferred to
development property, plant and equipment or intangible assets. No
depreciation or amortisation is charged during the exploration and
evaluation phase.
b) Sub-soil licences
Costs incurred prior to the award of oil and gas licences,
concessions and other exploration rights are expensed in profit or
loss. Costs incurred on the acquisition of a licence interest are
initially capitalised on a licence by licence basis and are
capitalised within exploration and evaluation assets and held
un-depleted until the exploration phase of the licence is complete
or commercial reserves have been discovered at which time the costs
are transferred to development assets as part of property, plant
and equipment - oil and gas assets.
2.10 Property, plant and equipment
a) Property, plant and equipment - oil and gas assets
Oil and gas assets are stated at cost less accumulated depletion
or accumulated depreciation and, where relevant, impairment
costs.
Expenditure on the construction, installation or completion of
infrastructure facilities such as platforms and pipelines, as well
as on the drilling of development wells into commercially proved
reserves, is capitalised within property, plant and equipment. When
development is completed on a specific field, it is transferred to
producing assets within property, plant and equipment. No
depreciation or amortisation is charged during the development
phase.
Development and production assets are accumulated generally on a
field by field basis and represent the cost of developing the
commercial reserves discovered and bringing them into production,
together with E&E expenditures incurred in finding commercial
reserves and transferred from intangible E&E assets as
described above. The cost of development and production assets also
includes the cost of acquisitions and purchases of such assets,
directly attributable overheads, any costs directly attributable to
bringing the asset into operation, and the cost of recognising
provisions for future restoration and decommissioning, if any.
Major facilities may be capitalised separately if they relate to
more than one field or to the licence area as a whole. Subsequent
expenditure is capitalised only if it either enhances the economic
benefits of the development/production asset or replaces part of
the existing development/ production asset. Any costs remaining
associated with the part replaced are expensed. Directly attributed
overheads are capitalised where they relate to specific exploration
and development activities.
i) Depletion
Oil and gas properties in production, including wells and
directly related pipeline costs, are depreciated using the
unit-of-production method. Sub-soil licences and other licenses
capitalised as part of oil and gas properties in production are
amortised also using the unit-of-production method.
Unit-of-production rates are based on proved reserves of the field
concerned, which are oil, gas and other mineral reserves estimated
to be recovered from existing facilities using current operating
methods. The unit-of-production rate for the amortisation of field
development costs takes into account expenditures incurred to
date.
ii) Depreciation
Major oil and gas facilities that have a shorter useful life
than the lifetime of the related fields are depreciated on a
straight-line basis over the expected useful life of the facility.
Depreciation of items of such assets is calculated using the
straight-line method to allocate their cost to their residual
values over their estimated useful lives:
Buildings and constructions - 15-30 years
Machinery and equipment - 5 years
The asset's residual values and useful lives are reviewed, and
adjusted as appropriate, at the end of each reporting period.
b) Property, plant and equipment - other business and corporate assets
Property, plant and equipment are stated at cost less
accumulated depreciation and impairment losses. The cost of an
asset comprises its purchase price and any directly attributable
costs of bringing asset to the working condition and to the
location for its intended use. Subsequent costs are included in the
asset's carrying amount or recognised as a separate asset, as
appropriate, only when it is probable that future economic benefits
associated with the item will flow to the Group and the cost of the
item can be measured reliably. All other costs, such as repairs and
maintenance are charged to the income statement during the
financial period in which they are incurred.
The gain or loss arising from a retirement or disposal is
determined as the difference between the sales proceeds and the
carrying amount of the assets, and is recognised in the income
statement.
Depreciation is provided on buildings and facilities, motor
vehicles, office equipment and furniture at rates calculated to
write off the cost, less estimated residual value, evenly over the
asset's expected useful life.
For depreciation purposes, useful lives are estimated as
follows:
Other equipment and furniture - 5 years
Motor vehicles - 5 years
2.11 Impairment of non-current assets
i) Impairment indicators
The Group assesses, at each reporting date, whether there is an
indication that an asset may be impaired. If any indication exists,
or when annual impairment testing for an asset is required, the
Group estimates the asset's recoverable amount. An asset's
recoverable amount is the higher of an asset's or CGU's fair value
less costs of disposal and its value in use. The recoverable amount
is determined for an individual asset, unless the asset does not
generate cash inflows that are largely independent of those from
other assets or groups of assets. When the carrying amount of an
asset or CGU exceeds its recoverable amount, the asset is
considered impaired and is written down to its recoverable
amount.
In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of money
and the risks specific to the asset. In determining fair value less
costs of disposal, recent market transactions are taken into
account. If no such transactions can be identified, an appropriate
valuation model is used. These calculations are corroborated by
valuation multiples, quoted share prices for publicly traded
companies or other available fair value indicators.
The Group bases its impairment calculation on detailed budgets
and forecast calculations, which are prepared separately for each
of the Group's CGUs to which the individual assets are allocated.
These budgets and forecast calculations generally cover a period of
five years. A long-term growth rate is calculated and applied to
project future cash flows after the fifth year.
Impairment losses of continuing operations are recognised in the
statement of profit or loss in expense categories consistent with
the function of the impaired asset, except for properties
previously revalued with the revaluation taken to OCI. For such
properties, the impairment is recognised in OCI up to the amount of
any previous revaluation.
For assets excluding goodwill, an assessment is made at each
reporting date to determine whether there is an indication that
previously recognised impairment losses no longer exist or have
decreased. If such indication exists, the Group estimates the
asset's or CGU's recoverable amount. A previously recognised
impairment loss is reversed only if there has been a change in the
assumptions used to determine the asset's recoverable amount since
the last impairment loss was recognised. The reversal is limited so
that the carrying amount of the asset does not exceed its
recoverable amount or the carrying amount that would have been
determined, net of depreciation, had no impairment loss been
recognised for the asset in prior years. Such reversal is
recognized in the statement of profit or loss unless the asset is
carried at a revalued amount, in which case the reversal is treated
as a revaluation increase.
ii) Calculation of recoverable amount
The recoverable amount of assets is the greater of their value
in use and fair value less costs to sell. In assessing value in
use, the estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks
specific to the asset.
iii) Cash generating units
For an asset that does not generate cash inflows largely
independent of those from other assets, the recoverable amount is
determined for the cash generating unit to which the asset belongs.
The Group's cash generating units are the smallest identifiable
groups of assets that generate cash inflows that are largely
independent of the cash inflows from other assets or groups of
assets.
For the purposes of assessing impairment, exploration and
evaluation assets subject to testing are grouped with existing cash
generating units of production fields that are located in the same
geographical region. For development and production assets the cash
generating unit applied for impairment test purposes is generally
the field. For shared infrastructure a number of field interests
may be grouped together where surface infrastructure is used by
several fields in order to process production for sale.
iv) Reversals of impairment
An impairment loss is reversed to the extent that the factors
giving rise to the impairment charge are no longer prevalent. An
impairment loss is reversed only to the extent that the asset's
carrying amount does not exceed the carrying amount that would have
been determined, net of depletion, depreciation or amortisation, if
no impairment loss had been recognised.
Taxes on income in the interim periods are accrued using the tax
rate that would be applicable to expected total annual profit or
loss.
2.12 Inventories
Unsold natural gas and hydrocarbon liquids and sulphur in
storage are stated at the lower of cost of production or net
realisable value. Net realisable value is the estimated selling
price in the ordinary course of business, less the estimated costs
of completion and selling expenses.
Materials and supplies inventories include chemicals necessary
for production activities and spare parts for the maintenance of
production facilities. Materials and supplies inventories are
recorded at cost and are carried at amounts which do not exceed the
expected recoverable amount from use in the normal course of
business. Cost of inventory is determined on a weighted average
basis. Cost of finished goods comprises direct materials and, where
applicable, direct labour plus attributable overheads based on a
normal level of activity and other costs associated in bringing
inventories to their present location and condition, but excludes
borrowing costs. Lower value items of materials and supplies are
written off directly to profit or loss.
2.13 Financial instruments
A financial instrument is any contract that gives rise to a
financial asset of one entity and a financial liability or equity
instrument of another entity. Financial assets and financial
liabilities are recognised when, and only when, the Group becomes a
party to the contractual provisions of the instrument. Financial
assets and financial liabilities are initially measured at fair
value. Transaction costs that are directly attributable to the
acquisition or issue of financial assets and financial liabilities
(other than financial assets and financial liabilities at fair
value through profit or loss) are added to or deducted from the
fair value of the financial assets or financial liabilities, as
appropriate, on initial recognition. Transaction costs directly
attributable to the acquisition of financial assets or financial
liabilities at fair value through profit or loss are recognised
immediately in the statement of comprehensive income.
a) Financial assets
The Group classifies its financial assets into one of the
following categories: financial assets at fair value through profit
or loss and loans and receivables.
Regular purchases of financial assets are recognised on the
trade date. Management determines the classification of its
financial assets at initial recognition depending on the purpose
for which the financial assets were acquired and, where allowed and
appropriate, re-evaluates this designation at every reporting date.
The accounting policies adopted for each category are:
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss include
financial assets held for trading and financial assets designated
upon initial recognition at fair value through profit or loss.
Financial assets are classified as held for trading if they are
acquired for the purpose of selling in the near term, or if they
are part of a portfolio of identified financial instruments that
are managed together and for which there is evidence of a recent
pattern of short-term profit-taking.
Financial assets may be designated at initial recognition at
fair value through profit or loss if the following criteria are
met:
The designation eliminates or significantly reduces the
inconsistent treatment that would otherwise arise from measuring
the assets or recognising gains or losses on them on a different
basis; or
The assets are part of a group of financial assets which are
managed and their performance is evaluated on a fair value basis,
in accordance with a documented risk management strategy and
information about the group of financial assets is provided
internally on that basis to the key management personnel.
Subsequent to initial recognition, the financial assets included
in this category are measured at fair value, with changes in fair
value recognised in the statement of comprehensive income. Fair
value is determined by reference to active market transactions or
using a valuation technique where no active market exists. Fair
value gains or losses do not include any dividend or interest
earned on these financial assets. Dividend and interest income is
recognised on an accruals basis.
Other receivables
Other receivables are non-derivative financial assets with fixed
or determinable payments that are not quoted in an active market.
They are initially measured at fair value and subsequently measured
at amortised cost using the effective interest method, less any
impairment losses. Amortised cost is calculated taking into account
any discount or premium on acquisition and includes fees that are
an integral part of the effective interest rate and transaction
cost.
Impairment losses on other receivables are provided for when
objective evidence is received that the Group will not be able to
collect amounts due to it in accordance with the original terms of
the receivables. The amount of the loss is measured as the
difference between the asset's carrying amount and the present
value of estimated future cash flows, excluding future credit
losses that have not been incurred, discounted at the financial
asset's original effective interest rate (i.e. the effective
interest rate computed at initial recognition). The amount of the
loss is recognised in the statement of comprehensive income for the
period in which the impairment occurs.
Objective evidence of impairment of individual financial assets
includes observable data that comes to the attention of the Group
about one or more of the following loss events:
Significant financial difficulty of the debtor;
A breach of contract, such as default or delinquency in interest
or principal payments;
It becoming probable that the debtor will enter bankruptcy or
other financial reorganisation; and
Significant changes in the technological, market, economic or
legal environment that have an adverse effect on the debtor.
Loss events in respect of a group of financial assets include
observable data indicating that there is a measurable decrease in
the estimated future cash flows from the group of financial assets.
Such observable data includes but is not limited to adverse changes
in the payment status of debtors in the group, and national or
local economic conditions that correlate with defaults on the
assets in the group.
If, in a subsequent period, the amount of the impairment loss
decreases and the decrease can be related objectively to an event
occurring after the impairment was recognised, the previously
recognised impairment loss is reversed to the extent that it does
not result in a carrying amount of the financial asset exceeding
what the amortised cost would have been had the impairment not been
recognised at the date the impairment is reversed.
The amount of the reversal is recognised in OCI in the period in
which the reversal occurs.
b) Financial liabilities and equity
Financial liabilities and equity instruments issued by the Group
are classified according to the substance of the contractual
arrangements entered into and the definitions of a financial
liability and an equity instrument. An equity instrument is any
contract that evidences a residual interest in the assets of the
Group after deducting all of its liabilities. The accounting
policies adopted in respect of financial liabilities and equity
instruments are set out below.
Other financial liabilities
Other financial liabilities include trade and other payables and
are recognised initially at fair value and subsequently measured at
amortised cost, using the effective interest method.
Equity instruments
Equity instruments issued by the Group are recorded at the
proceeds received, net of direct issue costs.
c) Derecognition
Financial assets are derecognised when the rights to receive
cash flows from the assets expire, or the financial assets are
transferred and the Group has transferred substantially all the
risks and rewards of ownership of the financial assets. On
derecognition of a financial asset, the difference between the
asset's carrying amount and the sum of the consideration received
and the cumulative gain or loss that had been recognised directly
in equity is recognised in the statement of comprehensive
income.
For financial liabilities, they are removed from the balance
sheet when the obligation specified in the relevant contract is
discharged, cancelled or expires. The difference between the
carrying amount of the financial liability derecognised and the
consideration paid is recognised in the statement of comprehensive
income.
2.14 Cash and cash equivalents
Cash and short-term deposits in the statement of financial
position comprise cash at banks and on hand and short-term deposits
with a maturity of three months or less, which are subject to an
insignificant risk of changes in value. For the purpose of the
consolidated statement of cash flows, cash and cash equivalents
consist of cash and short-term deposits, as defined above, net of
outstanding bank overdrafts as they are considered an integral part
of the Group's cash management.
2.15 Borrowings
After initial recognition, interest-bearing loans and borrowings
are subsequently measured at amortised cost using the EIR method.
Gains and losses are recognised in profit or loss when the
liabilities are derecognised as well as through the EIR
amortisation process. Amortised cost is calculated by taking into
account any discount or premium on acquisition and fees or costs
that are an integral part of the EIR. The EIR amortisation is
included as finance costs in the statement of profit or loss.
2.16 Provisions
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past event, and
it is probable that an outflow of economic benefits will be
required to settle the obligation and a reliable estimate of the
amount of the obligation can be made. Where the time value of money
is material, provisions are stated at the present value of the
expenditure expected to settle the obligation.
All provisions are reviewed at each reporting date and adjusted
to reflect the current best estimate.
Where it is not probable that an outflow of economic benefits
will be required, or the amount cannot be estimated reliably, the
obligation is disclosed as a contingent liability, unless the
probability of outflow of economic benefits is remote. Possible
obligations, whose existence will only be confirmed by the
occurrence or non-occurrence of one or more future uncertain events
not wholly within the control of the Group are also disclosed as
contingent liabilities unless the probability of outflow of
economic benefits is remote.
A provision for decommissioning is made for the cost of
decommissioning assets at the time when the obligation to
decommission arises. Such provision represents the estimated
discounted liability for costs which are expected to be incurred in
removing production facilities and site restoration at the end of
the producing life of each field. A corresponding item of property,
plant and equipment is also created at an amount equal to the
provision. This is subsequently depreciated as part of the capital
costs of the production facilities. Any change in the present value
of the estimated expenditure attributable to changes in the
estimates of the cash flow or the current estimate of the discount
rate used are reflected as an adjustment to the provision and the
property, plant and equipment. The unwinding of the discount is
recognised as a finance cost.
Provisions for environmental restoration, restructuring costs
and legal claims are recognised when: the group has a present legal
or constructive obligation as a result of past events; it is
probable that an outflow of resources will be required to settle
the obligation; and the amount has been reliably estimated.
Restructuring provisions comprise lease termination penalties and
employee termination payments. Provisions are not recognised for
future operating losses.
Where there are a number of similar obligations, the likelihood
that an outflow will be required in settlement is determined by
considering the class of obligations as a whole. A provision is
recognised even if the likelihood of an outflow with respect to any
one item included in the same class of obligations may be
small.
Provisions are measured at the present value of the expenditures
expected to be required to settle the obligation using a pre-tax
rate that reflects current market assessments of the time value of
money and the risks specific to the obligation. The increase in the
provision due to passage of time is recognised as interest
expense.
2.17 Share capital, share premium and capital reserves
Ordinary shares are classified as equity. Share capital is
determined using the nominal value of shares that have been issued.
Any transaction costs associated with the issuing of shares are
deducted from the share premium (net of any related income tax
benefit) to the extent they are incremental costs directly
attributable to the equity transaction. Any discount on the issue
of ordinary shares is deducted from the share premium account.
The share premium is recognized on the difference between the
par value of a share and its selling price.
The capital reserve brought forward arose on the disposal of all
the subsidiaries to its former holding company (Crosby Capital
Limited), reverse acquisition of Crosby Capital Limited and on a
group reorganization during the years ended 31 December 2010, 31
December 2004 and 31 December 2000 respectively.
2.18 Revenue recognition
Revenue, which is the fair value of consideration received or
receivable, is recognised when it is probable that economic
benefits will flow to the Group and when the revenue can be
measured reliably. Revenue is shown net of value added tax,
returns, rebates and discounts and after eliminating sales within
the Group. The following criteria must also be met before revenue
is recognised:
i) Sale of goods
Revenue from the sale of oil, gas, and condensate is recognised
when the title passes to the customer.
ii) Interest income
Interest income is recognised on a time-proportion basis using
the effective interest method.
2.19 Mineral extraction tax
In the Russian Federation MET is payable on the extraction of
hydrocarbons, including natural gas, crude oil and condensate, and
is levied based on quantities of natural resources extracted
multiplied by the applicable MET rate for the product and field in
question. MET is a production based tax (as opposed to income) and
is accrued as a tax on production and recorded within cost of
sales.
2.20 Current and deferred income tax
The tax expense for the period comprises current and deferred
tax. Tax is recognised in the statement of comprehensive income,
except to the extent that it relates to items recognised in other
comprehensive income or directly in equity. In this case the tax is
also recognized in other comprehensive income or directly in
equity, respectively.
The current income tax charge is calculated on the basis of the
tax laws enacted or substantively enacted at the end of the
reporting period in the countries where the Company's subsidiaries
operate and generate taxable income. Management periodically
evaluates positions taken in tax returns with respect to situations
in which applicable tax regulation is subject to interpretation. It
establishes provisions where appropriate on the basis of amounts
expected to be paid to the tax authorities.
Deferred income tax is recognised, using the liability method,
on temporary differences arising between the tax bases of assets
and liabilities and their carrying amounts in the consolidated
financial statements. However, deferred income tax is not accounted
for if it arises from the initial recognition of an asset or
liability in a transaction other than a business combination that
at the time of the transaction affects neither accounting nor
taxable profit or loss. Deferred income tax is determined using tax
rates (and laws) that have been enacted or substantively enacted by
the end of the reporting period and are expected to apply when the
related deferred income tax asset is realised or the deferred
income tax liability is settled.
Deferred income tax assets are recognised to the extent that it
is probable that future taxable profit will be available against
which the temporary differences can be utilised.
Deferred income tax assets and liabilities are offset when there
is a legally enforceable right to offset current tax assets against
current tax liabilities and when the deferred income tax assets and
liabilities relate to income taxes levied by the same taxation
authority on either the same taxable entity or different taxable
entities where there is an intention to settle the balances on a
net basis.
2.21 Employee benefits
a) Retirement benefit schemes
No pension contributions were payable in the year. The Group
participated only in defined contribution pension schemes and paid
contributions to independently administered funds on a mandatory or
contractual basis. The assets of these schemes are held separately
from those of the Group in independently administered funds. The
retirement benefit schemes are generally funded by payments from
employees and by the relevant company. The Group has no further
payment obligations once the contributions have been paid. The
contributions are recognised as an employee benefit expense on an
accruals basis.
b) Share-based employee compensation
The Group operates equity-settled share-based compensation plans
to remunerate its Directors and key management.
All services received in exchange for the grant of any
share-based compensation are measured at their fair values. These
are indirectly determined by reference to the fair value of the
share options and warrants awarded. Their value is appraised at the
grant date and excludes the impact of any non-market vesting
conditions.
All share-based compensation is ultimately recognised as an
expense in the statement of comprehensive income unless it
qualifies for recognition as an asset, with a corresponding credit
to the employee share-based compensation reserve in equity. If
vesting periods or other vesting conditions apply, the expense is
allocated over the vesting period, based on the best available
estimate of the number of share options expected to vest.
Non-market vesting conditions are included in assumptions about the
number of options that are expected to become exercisable.
Estimates are subsequently revised if there is any indication that
the number of share options expected to vest differs from previous
estimates. No adjustment to expense recognised in prior periods is
made if fewer share options ultimately are exercised than
vested.
Upon exercise of share options or warrants the proceeds received
net of any directly attributable transaction costs up to the
nominal value of the shares issued are allocated to share capital
and the amount previously recognised in the employee share-based
compensation reserve will be transferred out with any excess being
recorded as share premium.
When the share options or warrants have vested and then lapsed,
the amount previously recognised in the employee share-based
compensation reserve is transferred to retained earnings or
accumulated losses.
c) Bonus plans
The Group recognises a liability and an expense for bonuses
where contractually obliged or where there is a past practice that
has created a constructive obligation.
d) Social obligations
Wages, salaries, contributions to the Russian Federation state
pension and social insurance funds, paid annual leave, sick leave
and bonuses are accrued in the year in which the associated
services are rendered by the employees of the Group.
e) Valuations of share options or warrants granted
Estimating fair value for share-based payment transactions
requires determination of the most appropriate valuation model,
which depends on the terms and conditions of the grant. This
estimate also requires determination of the most appropriate inputs
to the valuation model, including the expected life of the share
option or appreciation right, volatility and dividend yield, and
making assumptions about them. The fair value of share options or
warrants granted was calculated using the Black-Scholes Pricing
Model, which requires the input of highly subjective assumptions,
including the volatility of the share price. Because changes in
subjective input assumptions can materially affect the fair value
estimate, in the opinion of the Directors of the Group the existing
model will not always necessarily provide a reliable single measure
of the fair value of the share options. Details of the inputs are
set out in Note 20 to the financial statements.
3. Critical accounting estimates and judgements
The preparation of consolidated financial statements in
conformity with IFRS requires management to make judgements,
estimates and assumptions that affect the application of accounting
policies and the reported amounts of assets, liabilities, income
and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the year
in which the estimates are revised and in any future years
affected. The estimates and assumptions that have a significant
risk of causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year are discussed
below:
3.1 Income taxes
The Group is subject to income and other taxes. Significant
judgement is required in determining the provision for income tax
and other taxes due to the complexity of tax legislation of the
Russian Federation. The taxation system in the Russian Federation
continues to evolve and is characterised by frequent changes in
legislation, as well as official pronouncements and court decisions
which are sometimes contradictory and subject to varying
interpretation by different tax authorities. Taxes are subject to
review and investigation by a number of authorities which have the
authority to impose severe fines, penalties and interest charges. A
tax year remains open for review by the tax authorities during the
three subsequent calendar years; however, under certain
circumstances a tax year may remain open longer.
Deferred tax assets are recognised to the extent that it is
probable for each subsidiary to generate enough taxable profits to
utilise deferred income tax recognised. Significant management
judgement is required to determine the amount of deferred tax
assets recognised, based upon the likely timing and the level of
future taxable profits. Management prepares cash-flow forecasts to
support the recoverability of deferred tax assets. Cash flow models
are based on a number of assumptions relating to oil prices,
operating expenses, production volumes, etc. These assumptions are
consistent with those used by independent reserve engineers.
Management also takes into account uncertainties related to future
activities of the subsidiaries and going concern considerations.
When significant uncertainties exist, deferred tax losses are not
recognised even if the recoverability of these is supported by cash
flow forecasts. Refer to further details in Note 23.
3.2 Provision for decommissioning and environmental
restoration
This provision is significantly affected by changes in
technology, laws and regulations which may affect the actual cost
of decommissioning and environmental restoration to be incurred at
a future date. The estimate is also impacted by the discount rates
used in the provisioning calculations. The discount rates used are
the Russian government bond rates.
Under the current levels of enforcement of existing legislation,
management believes there are no significant liabilities in
addition to amounts which are already accrued and which would have
a material adverse effect on the financial position of the
Group.
The Group's exploration, development and production activities
involve the use of wells, related equipment and operating sites.
Generally, licenses and other regulatory acts require that such
assets be decommissioned upon the completion of production.
According to these requirements, the Group is obliged to
decommission wells, dismantle equipment, restore the sites and
perform other related activities. The Group's estimates of these
obligations are based on current regulatory or license
requirements, as well as actual dismantling and other related
costs. These liabilities are measured by the Group using the
present value of the estimated future costs of decommissioning of
these assets. The discount rate is reviewed at each reporting date
and reflects risk free rate. The Group adjusts specific cash flows
for risk.
3.3 Impairment of assets
a) Exploration and evaluation
An impairment exercise will be performed at the end of the
exploration and evaluation process.
When, at the end of the exploration and evaluation stage,
commercial reserves are determined to exist in respect of a
particular field, the Group performs an impairment test in relation
to costs capitalised. Where reserves are determined in sufficient
quantity to justify development, the associated assets are
transferred to property, plant and equipment. Until the conclusion
of the exploration phase, there can be no certainty that commercial
reserves exist. Where commercial reserves are determined not to
exist, capitalised E&E expenditure is expensed.
b) Development and production
When the fields enter the production phase, the recoverable
amounts of cash-generating units and individual assets will be
determined based on the higher of value-in-use calculations and
fair values less costs to sell. These calculations will require the
use of estimates and assumptions. It is reasonably possible that
the oil price assumption may change which may then impact the
estimated life of the field and may then require a material
adjustment to the carrying value of long-term assets.
The Group monitors internal and external indicators of
impairment relating to its tangible and intangible assets. There
were no such indicators of possible impairment identified during
the reporting years covered by these consolidated financial
statements.
3.4 Evaluation of reserves and resources
Estimates of proved reserves are used in determining the
depletion and amortization charge for the period and assessing
whether any impairment charge or reversal of impairment is required
for development and producing assets. As of 31 December 2016, 2015
and 2014 proved reserves were estimated by reference to an
independent international oil and gas engineering firm report dated
22 May 2014, by reference to available geological and engineering
data, and only include volumes for which access to market is
assured with reasonable certainty.
When the fields enter the development and production phase,
estimates of reserves are inherently imprecise, require the
application of judgments and are subject to regular revision,
either upward or downward, based on new information such as from
the drilling of additional wells and changes in economic factors,
including product prices, contract terms or development plans.
Changes to the Group's estimates of proved reserves affect
prospectively the amounts of the depletion and amortization charge,
decommissioning assets and provisions where changes in reserve
estimates cause the estimated useful lives of assets to be
revised.
Depletion is provided for based on the production profile on a
field by field basis, which may exceed the existing licence period.
Licence extensions are generally awarded by the license authorities
in Russia as a matter of course, provided that production plans
demonstrate that additional time is required to economically
produce at the field and that the development and production
requirements of the initial license grant have been met.
3.5 Sub-soil licences
The Group is subject to periodic reviews of its activities by
governmental authorities in Russia with respect to the requirements
of its sub-soil licences, and seeks amendments to the licences when
supported by the results of ongoing exploration and development
activities. The requirements under the licences are subject to
interpretation and enforcement policies of the relevant
authorities. In management's opinion, as of 31 December 2016, there
are no non-compliance issues that will have an adverse effect on
the financial position or operating results of the Group.
4. Determination of fair value
Fair values have been determined for measurement and/or
disclosure purposes based on the following methods. When
applicable, further information about the assumptions made in
determining fair values is disclosed in the notes specific to that
asset or liability.
4.1 Other receivables
The fair value of other receivables is estimated as the present
value of future cash flows, discounted at the market rate of
interest at the reporting date. This fair value is determined for
disclosure purposes.
4.2 Non-derivative financial liabilities
Fair value, which is determined for disclosure purposes, is
calculated based on the present value of future principal and
interest cash flows, discounted at the market rate of interest at
the reporting date. Fair value of the non-derivative financial
assets is disclosed in Note 4.3 to the financial statements.
4.3 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:
31 December 31 December
2015 2014
31 December
2016 (Restated) (Restated)
---------------------- ---------------------- ----------------------
Fair Carrying Fair Carrying Fair Carrying
value value value value value value
---------- ---------- ---------- ---------- ---------- ----------
Financial
assets
Trade and
other receivables 172,294 172,294 149,264 149,264 145,203 145,203
Total assets 172,294 172,294 149,264 149,264 145,203 145,203
========== ========== ========== ========== ========== ==========
Financial
liabilities
Borrowings 1,855,173 1,859,949 2,214,541 2,218,549 2,391,882 2,378,380
Trade and
other payables 129,379 129,379 214,858 214,858 116,657 116,657
Other non-current
payables 57,758 57,874 - - - -
---------- ---------- ---------- ---------- ---------- ----------
Total liabilities 2,042,310 2,047,202 2,429,399 2,433,407 2,508,539 2,495,037
========== ========== ========== ========== ========== ==========
The fair values of borrowings and other non-current payables are
based on cash flows discounted using a market rate. For borrowings:
a rate of 11.93% (31 December 2015: 12.07%, 31 December 2014:
12.15%), for other long-term payables: a rate of 8.26%. The fair
values are within level 2 of the fair value hierarchy.
5. Revenue
The Group's operations comprise one class of business being oil
and gas exploration, development and production and all revenues
are from one geographical region, Saratov Region in the Russian
Federation. Companies incorporated outside of Russia provide
support to the Group's operations in Russia.
Revenue is primarily from the sale of four products:
2015
2016 (Restated)
---------- ------------
Gas sales 1,708,103 1,370,182
Oil sales 137,982 187,369
Condensate sales 136,968 139,725
Sulphur sales 6,377 -
---------- ------------
Total sales 1,989,430 1,697,276
========== ============
All gas sales are to one customer, Gazprom Mezhregiongaz Saratov
LLC, under a long-term contract effective until 31 December 2020
with terms reviewed annually. Condensate, oil and sulphur are sold
to regional buyers. The sales of all products are denominated in
RUB.
6. Cost of sales
2015
2016 (Restated)
---------- ------------
Mineral extraction tax 406,499 388,521
Depreciation and depletion 404,684 366,824
Wages and salaries 108,238 124,460
Materials and supplies 95,310 114,467
Repair and maintenance 39,750 65,967
Other taxes and royalties 21,204 21,584
Compensation benefits to operating
personnel 16,812 19,657
Other 62,790 70,666
---------- ------------
Total cost of sales 1,155,287 1,172,146
========== ============
7. Operating, administrative and selling expenses
2015
2016 (Restated)
-------- ------------
Wages and salaries including director's
fee 215,868 282,479
Accountancy, legal and consulting
services 39,023 87,693
Rent expense 13,691 17,129
Audit services 9,848 26,420
Office expenses 3,187 4,999
Insurance 2,888 8,351
Computers and software 2,218 7,498
Travelling 1,996 9,692
Other 10,627 37,672
-------- ------------
Total operating, administrative,
selling expense 299,346 481,933
======== ============
8. Employee benefit expenses (including directors'
remuneration)
2015
2016 (Restated)
-------- ------------
Salaries and other employee benefits 340,918 426,596
-------- ------------
Total 340,918 426,596
======== ============
Personnel expenses are included in cost of sales and operating,
administrative and selling expenses.
Average monthly number of employees for the year (including
executive directors):
2016 2015
---------- ----------
Employees Employees
---------- ----------
Administrative 83 92
Operating 184 206
---------- ----------
Total 267 298
========== ==========
9. Other income and expenses
2015
2016 (Restated)
---------- ------------
Change in decommissioning and
environmental restoration provision 34,076 60,854
Penalties received 15,000 -
---------- ------------
Other income 49,076 60,854
========== ============
Loss on disposal of construction
in progress and other property,
plant and equipment (86,624) (15,614)
Write-off of accounts receivable
and other current assets (26,986) (6,357)
Penalties paid (11,810) -
Net foreign exchange difference (7,982) (12,419)
Loss on financial assets at fair
value through profit or loss (4,020) -
Charitable contributions (3,122) -
Bank charges (1,034) (959)
Other (1,282) (56)
---------- ------------
Other expenses (142,860) (35,405)
========== ============
10. Finance income and finance costs
2015
Finance income 2016 (Restated)
---------------------------------------------- ---------- ------------
Interest on bank deposits 24,409 51,631
---------- ------------
Total finance income 24,409 51,631
========== ============
Finance costs
Interest on borrowings (228,538) (261,814)
Unwinding of the discount on decommissioning
and environmental restoration
provision (Note 22) (35,898) (73,515)
Unwinding of the discount on recognition
non-current payables to suppliers (3,549) -
---------- ------------
Total finance costs (267,985) (335,329)
========== ============
11. Income tax expense
The tax charge for the year comprises:
2015
2016 (Restated)
---------- ------------
Current tax expense (105) -
Deferred tax expense (100,231) (31,606)
---------- ------------
Total income tax expense (100,336) (31,606)
========== ============
Reconciliation between expected and actual taxation charge is
provided below.
2015
2016 (Restated)
---------- ------------
Profit/(loss) before income tax 197,437 (215,052)
---------- ------------
Theoretical tax (charge)/benefit
at applicable income tax rate
of 20% (2015: 20%) (39,467) 43,010
Effect of different foreign tax
rates (27,357) (63,658)
Effect of unrecognized tax loss (21,422) (6,462)
Tax effect of expenses not deductible
for tax purposes (12,090) (4,496)
---------- ------------
Total income tax expense (100,336) (31,606)
========== ============
The Group's income was subject to tax at the following tax
rates:
2016 2015
------ ------
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.
12. Exploration and evaluation assets
Drilling,
seismic and other Decommissioning Construction work in
Sub-soil licences costs asset progress Total
------------------ --------------------- ---------------- --------------------- ----------
Balance at 1 January
2015 (restated) 2,051,181 2,536,354 127,650 6,132 4,721,317
Additions 43,785 19,861 - 183 63,829
Reclassification 6,096 - - (6,096) -
Change in estimates
of the
decommissioning
provision - - (94,780) - (94,780)
Balance at 31
December 2015
(restated) 2,101,062 2,556,215 32,870 219 4,690,366
Additions 86,962 23,478 - - 110,440
Transfer to property,
plant and equipment - (1,217) - - (1,217)
Change in estimates
of the
decommissioning
provision - - (11,275) - (11,275)
Balance at 31
December 2016 2,188,024 2,578,476 21,595 219 4,788,314
================== ===================== ================ ===================== ==========
In management's opinion, as at 31 December 2016 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.
As of 31 December 2016 management performed impairment analysis
of exploration and evaluation assets. As of result of this analysis
the recoverable amount of exploration and evaluation assets
significantly increased their carrying amount. Accordingly as of 31
December 2016 no impairment of exploration and evaluation assets
was recognized.
13. Property, plant and equipment
Other Construction
Oil and Motor equipment work in
gas assets vehicles and furniture progress Total
------------ ---------- --------------- ------------- ----------
Cost at 1 January
2015 (restated) 4,439,969 14,908 7,764 282,811 4,745,452
Additions 161,502 2,337 - 103,049 266,888
Reclassification 122,668 - - (122,668) -
Transfer to
Inventory - - - (2,444) (2,444)
Disposals (21,444) - (53) (761) (22,258)
Change in estimates
of the decommissioning
provision (159,767) - - (2,161) (161,928)
Cost at 31
December 2015
(restated) 4,542,928 17,245 7,711 257,826 4,825,710
Additions 93,761 - 244 281,460 375,465
Reclassification 205,009 - - (205,009) -
Transfer from
exploration
and evaluation
assets 1,217 - - - 1,217
Transfer to
Inventory - - - (2,902) (2,902)
Disposals (15,540) - - (78,131) (93,671)
Change in estimates
of the decommissioning
provision (1,913) - - (3,320) (5,233)
Cost at 31
December 2016 4,825,462 17,245 7,955 249,924 5,100,586
------------ ---------- --------------- ------------- ----------
Accumulated
depreciation
and impairment
Balance at
1 January 2015
(restated) (118,256) (1,181) (3,657) - (123,094)
Depreciation
and depletion (362,124) (8,294) (572) - (370,990)
Disposals 6,583 - 61 - 6,644
Balance at
31 December
2015 (restated) (473,797) (9,475) (4,168) - (487,440)
Depreciation
and depletion (401,790) (6,641) (508) - (408,939)
Disposals 7,047 - - - 7,047
Balance at
31 December
2016 (868,540) (16,116) (4,676) - (889,332)
------------ ---------- --------------- ------------- ----------
Net book value
at 1 January
2015 (restated) 4,321,714 13,727 4,107 282,811 4,622,359
============ ========== =============== ============= ==========
Net book value
at 31 December
2015 (restated) 4,069,131 7,770 3,543 257,826 4,338,270
============ ========== =============== ============= ==========
Net book value
at 31 December
2016 3,956,922 1,129 3,279 249,924 4,211,254
============ ========== =============== ============= ==========
14. Inventories
31 December 31 December
2015 2014
31 December
2016 (Restated) (Restated)
------------ ------------ ------------
Natural gas and hydrocarbon
liquids
(at lower of cost and
net realisable value) 6,047 1,968 2,025
Materials and supplies
(at cost) 12,783 7,798 16,146
------------ ------------ ------------
Total inventories 18,830 9,766 18,171
============ ============ ============
15. Trade and other receivables and other current non-financial
assets
31 December 31 December
2015 2014
31 December
2016 (Restated) (Restated)
------------ ------------ ------------
Trade receivables, gross 169,915 145,053 141,321
Other accounts receivable,
gross 2,379 4,227 3,882
Allowance for doubtful
accounts - (16) -
------------ ------------ ------------
Total trade and other
receivables 172,294 149,264 145,203
============ ============ ============
Prepayments 12,783 30,101 25,484
VAT receivable 2,403 8,527 5,795
Other taxes prepaid - 437 113
------------ ------------ ------------
Total other current non-financial
assets 15,186 39,065 31,392
============ ============ ============
Prepayments are advance payments for services to be rendered
within the next twelve months.
Current VAT receivable is expected to be recovered within the
next twelve months.
As of 31 December 2016 trade and other receivables of 172,294
were neither past due nor impaired (31 December 2015: 149,264; 31
December 2014: 145,203). As of 31 December 2015, trade and other
accounts receivable of 16 were individually impaired and an
impairment provision was recognised.
16. Cash and cash equivalents
Cash and cash equivalents consist of cash at bank and the
majority of cash held is denominated in RUB.
The Group's exposure to credit risk and impairment losses
related to cash and cash equivalents are disclosed in Note 27.
17. Share capital
Number Nominal Nominal
At 31 December 2016, of ordinary value, value,
2015 and 2014 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
18. Dividends
In accordance with the relevant legislation applicable to the
Group, the Group's distributable reserves are limited to the
balance of retained earnings as recorded in the Company's statutory
financial statements prepared in accordance with International
Financial Reporting Standards. No dividends were declared or paid
in 2016, 2015 and 2014.
19. Earnings/(loss) per share
Basic earnings/(loss) per share is calculated by dividing the
profit/(loss) attributable to owners of the Company by the weighted
average number of ordinary shares in issue during the year.
Diluted earnings/(loss) per share are calculated by adjusting
the weighted average number of ordinary shares outstanding to
assume conversion of all dilutive potential ordinary shares. As of
31 December 2016 the Company has share options as dilutive
potential ordinary shares. As of 31 December 2015 share options and
warrants gave antidilution effect on loss per share.
2015
2016 (Restated)
------- ------------
Earnings/(loss) attributable to
owners of the Company -
Basic and diluted 97,101 (246,658)
Number Number
of of
shares shares
------------ ------------
Weighted average number of shares
for calculating basic loss per
share 141,955,386 141,955,386
Effect of dilutive potential ordinary
shares - share options 1,952,500 -
Weighted average number of shares
for calculating diluted earnings/(loss)
per share 143,907,886 141,955,386
RUB RUB
----- -------
Basic earnings/(loss) per share 0.68 (1.74)
Diluted earnings/(loss) per share 0.67 (1.74)
20. Share-based payments
20.1 Share options
At 31 December 2016, the Company had a total of 1,952,500
outstanding share options (2015: 1,952,500). No movements in share
options took place during the year.
Options which are lapsed or are cancelled prior to their
exercise date are deleted from the register of outstanding options
and are available for re-use.
31 December 31 December 31 December
2016 2015 2014
---------------------- ---------------------- ----------------------
Option Option Option
exercise exercise exercise
price price price
Grant date Number (pence) Number (pence) Number (pence)
------------- ---------- ---------- ---------- ---------- ---------- ----------
11 January
2005 - - - - 117,500 423
23 March
2006 - - - - 10,000 1,904
23 February
2007 - - - - 7,500 653
11 January
2008 202,500 445 202,500 445 232,500 445
31 October
2012 1,750,000 20 1,750,000 20 1,750,000 20
---------- ---------- ----------
1,952,500 1,952,500 2,117,500
========== ========== ==========
No share options were granted during the year ended 31 December
2016.
20.2 Initial share options
The Company adopted an employee Share Option Scheme on 4 March
2005 (the "Share Option Scheme") in order to incentivise key
management and staff at that time. The following share options were
granted to former employees and directors of the Company under the
Initial Share Option Scheme adopted on 4 March 2005 ("Initial Share
Options") and are still in existence:
2016 2015
------------------------- ---------------------------
Weighted Weighted
average average
exercise exercise
Number price (pence) Number price (pence)
-------- --------------- ---------- ---------------
Outstanding at
1 January 202,500 445 367,500 445
Expired - - (165,000) -
-------- --------------- ---------- ---------------
Outstanding at
31 December 202,500 445 202,500 445
======== =============== ========== ===============
Share options granted under the Initial Share Option Scheme were
exercisable as follows:
The first 30% of the options between the first and tenth
anniversary of the grant date;
The next 30% of the options between the second and tenth
anniversary of the grant date; and
The remaining options between the third and tenth anniversary of
the grant date.
Equity-settled share-based payments are measured at fair value
(excluding the effect of non--market-based vesting conditions) as
determined through use of the binomial option pricing model, at the
grant date. The fair value determined at the grant date of the
equity-settled share-based payments is expensed on a straight-line
basis over the vesting period, based on the Company's estimate of
shares that will eventually vest. The options vested
immediately.
The binomial option pricing model is applied to the granting of
share options in respect of calculating the fair values. Key inputs
to the model are as follows:
Share options
-------------------------------------------------
11 January 23 March 23 February 11 January
2005 2006 2007 2008
----------- --------- ------------ -----------
Share price at
grant 20.75p 93.25p 36.25p 22.25p
Option exercise
price 21.15p 95.20p 32.65p 22.25p
Expected life
of option 10 years 10 years 10 years 10 years
Expected volatility 60-65% 60-65% 60-65% 60-65%
Expected dividend
yield 5.0% 5.0% 5.0% 5.0%
Volatility has been based on the historical trading performance
of the Company and comparable companies. The risk free rate has
been determined based on 10-year government bonds.
20.3 Directors Share Options
Share options granted to certain existing Directors of the
Company on 31 October 2012 ("Directors Share Options") were
exercisable at any time between the commencement of the option
period and third anniversary of the grant date. Share options
granted under this scheme were as follows:
2016 2015
--------------------------- ---------------------------
Weighted Weighted
average average
exercise exercise
Number price (pence) Number price (pence)
---------- --------------- ---------- ---------------
Outstanding at
1 January 1,750,000 20 1,750,000 20
Issued in the
year - - - -
Exercised - - - -
Share consolidation - - - -
---------- --------------- ---------- ---------------
Outstanding at
31 December 1,750,000 20 1,750,000 20
========== =============== ========== ===============
During 2014 the vesting period of the remaining options was
extended from 30 October 2015 to 30 October 2017. Equity-settled
share-based payments are measured at fair value (excluding the
effect of non-market-based vesting conditions) as determined
through use of the Black-Scholes formula, at the grant date. The
fair value determined at the grant date of the equity-settled
share-based payments is expensed on a straight-line basis over the
vesting period, based on the Company's estimate of shares that will
eventually vest. The options vested immediately.
The Black-Scholes formula is the option pricing model applied to
the grant of share options in respect of calculating the fair
values. Key inputs to the model are as follows:
31 October
Share options 2012
------------------------------- -----------
Share price at grant 3.45p
Option exercise price 1.00p
Expected life of option 3 years
Expected volatility 216.1%
Expected dividend yield 0.0%
Risk free rate 0.49%
Fair value per share option 3.342p
Exchange rate used (USD: GBP) 1.62525
Volatility has been based on the Company's trading performance
from 1 January 2011. The risk free rate has been determined based
on 5-year government bonds.
20.4 Warrants
In August 2011, the Company granted 10,550,000 warrants with an
exercise price of 5.0 pence, vesting from 2 August 2011 to 2 August
2014. After share consolidation in 2013 the number of warrants
became 527,500.
515,000 warrants were exercised during the year ended 31
December 2014. During 2015 the remaining 12,500 outstanding
warrants expired.
21. Borrowings
2015
2016 (Restated)
---------- ------------
Non-revolving credit facility as at 1 January 2,218,549 2,378,380
========== ============
Including current liability 373,378 180,027
Interest accrued 228,538 261,814
Interest paid (227,138) (241,645)
Repayment (360,000) (180,000)
Non-revolving credit facility, as at 31 December 1,859,949 2,218,549
========== ============
Including current liability 311,160 373,378
In 2014, the Group entered into non-revolving credit facility
agreement No. 5878 with Sberbank of Russia OJSC with a maximum
facility amount of 2,400,000. The facility was drawn down in full
in 2014. The maturity date is 30 April 2021, being the 7-year
anniversary of the facility entered into. The Group is obliged to
repay the principal amount of the loan in 24 tranches commencing on
11 May 2015 and on a quarterly basis from then on with a final
repayment tranche payable on the maturity date. In 2016 the Group
repaid 360,000 (2015: 180,000). The interest rate is 10.98% per
annum. Sberbank may unilaterally amend the interest rate in the
event of increases in the refinancing rate of the Central Bank of
Russia. The Group paid an upfront commission on the facility of 1%
of the facility amount (24,000) and there is a drawdown charge of
0.25% per year on the balance of the facility not drawn by the
Group within the established timeframe. The Group has the option to
prepay the loan in whole or in part at any time, subject to the
payment of a fee. The Group provided certain warranties and
representations to Sberbank in the agreement. The agreement
contains certain loan covenants and events of default which are
customary for a facility of this type. In December 2015 the Group
signed an amendment altering covenants. The Group is in compliance
with all covenants as of 31 December 2016, 2015 and 2014. The loan
is secured by the Group, such security being granted pursuant to
various pledge and mortgage deeds entered into by the Group on or
about the date of the Sberbank Facility. The carrying value of
property, plant and equipment pledged as of 31 December 2016
amounted to 2,901,916 (2015: 3,103,133; 2014: 3,304,306).
The outstanding amount of the facility as of 31 December 2016
was 1,860,000. The credit facility debt is measured at amortised
cost, using the effective interest method.
22. Decommissioning and environmental restoration provision
The decommissioning and environmental restoration provision
represents the net present value of the estimated future
obligations for abandonment and site restoration costs 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.
2015
2016 (Restated)
--------- ------------
Provision as at 1 January 358,000 599,096
Additions 15,839 2,951
Unwinding of discount 35,898 73,515
Change in estimate of decommissioning and environmental restoration provision (50,584) (317,562)
Provision as at 31 December 359,153 358,000
========= ============
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 decommissioning and environmental restoration provision as
of 31 December 2015 decreased in comparison with 31 December 2014
due to the change in estimate of forecasted inflation rates. The
Group reviews quarterly the application of inflation rates used for
the provision estimation. The inflation rate used in the estimation
of the provision as of 31 December 2016 was 5.8% in 2017,
decreasing to 4.0% in 2036 (in 2015: 7.4% in 2016, decreasing to
5.3% in 2036; in 2014 the flat rate of 11.4% was applied based on
historical data) based on the forecast of the Economist
Intelligence. The discount rates used to determine the
decommissioning and environmental restoration provision are based
on Russian government bond rates.
23. Deferred tax liabilities
Movements in temporary differences during the year:
31 December 2015
31 December 2016 Recognised in profit or loss (Restated)
----------------- ----------------------------- -----------------
Decommissioning provision 44,368 2,023 42,345
Other current assets and liabilities 9,540 (4,599) 14,139
Tax loss carry-forwards 299,067 (18,046) 317,113
----------------- ----------------------------- -----------------
Deferred tax assets 352,975 (20,622) 373,597
----------------- ----------------------------- -----------------
Exploration and evaluation assets (576,443) (15,525) (560,918)
Property, plant and equipment (208,178) (65,195) (142,983)
Borrowings (2,242) 1,111 (3,353)
----------------- ----------------------------- -----------------
Deferred tax liabilities (786,863) (79,609) (707,254)
----------------- ----------------------------- -----------------
Net deferred tax liabilities (433,888) (100,231) (333,657)
================= ============================= =================
31 December 2015 Recognised in profit or loss 31 December 2014
(Restated) (Restated) (Restated)
----------------- ----------------------------- -----------------
Decommissioning provision 42,345 (31,354) 73,699
Other current assets and liabilities 14,139 6,150 7,989
Tax loss carry-forwards 317,113 64,625 252,488
----------------- ----------------------------- -----------------
Deferred tax assets 373,597 39,421 334,176
----------------- ----------------------------- -----------------
Exploration and evaluation assets (560,918) (410) (560,508)
Property, plant and equipment (142,983) (71,596) (71,387)
Borrowings (3,353) 979 (4,332)
----------------- ----------------------------- -----------------
Deferred tax liabilities (707,254) (71,027) (636,227)
----------------- ----------------------------- -----------------
Net deferred tax liabilities (333,657) (31,606) (302,051)
================= ============================= =================
Deferred income tax assets are not recognised for tax losses
mainly carried forward for SibGeCo to the extent that the
utilisation of the related tax benefit through future taxable
profits is not probable. The Group has not recognised deferred
income tax assets of 482,631 (2015: 461,209; 2014: 454,747). The
Group has tax losses that are available indefinitely for offsetting
against future taxable profits of the companies in which the losses
arose.
Management assessed that the deferred tax assets will be fully
offset against future taxable profits in 2020-2026.
24. Other taxes payable
31 December 31 December
2015 2014
31 December
2016 (Restated) (Restated)
------------ ------------ ------------
VAT payable 67,769 45,770 45,907
Mineral extraction tax 35,647 32,433 5,232
Property tax 4,711 2,697 5,457
Other taxes payable 10,373 9,766 7,370
------------ ------------ ------------
Total 118,500 90,666 63,966
============ ============ ============
25. Trade and other payables
31 December 31 December
2015 2014
31 December
2016 (Restated) (Restated)
------------ ------------ ------------
Current trade payables 93,143 146,676 57,192
Non-current other payables 57,874 - -
Accrued expenses 28,851 34,246 58,396
Payables to employees 7,385 33,936 1,069
------------ ------------ ------------
Total 187,253 214,858 116,657
============ ============ ============
26. Operating leases
Operating lease payments are mainly rentals by the Group of
land, office space and equipment required for use on a temporary
basis. Leases are normally signed on a short term basis of one to
two years with options to extend.
Lease payments under operating leases recognised in the
consolidated statement of comprehensive income for the year
amounted to 32,953 (2015: 20,248).
At the reporting date the Group's outstanding commitments for
future minimum lease payments under non-cancellable leases fall due
as follows:
31 December 31 December
2015 2014
31 December
2016 (Restated) (Restated)
------------ ------------ ------------
Within one year 1,094 6,632 3,769
In two to five years 1,444 1,312 1,238
More than five years 6,135 5,976 5,907
------------ ------------ ------------
Total 8,673 13,920 10,914
============ ============ ============
27. Financial instruments and financial risk management
Overview of the Group's 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 this 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.
27.1 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 at 31
December 2016 by 58,475. Starting from 2017 the Group budgeted flat
sales together with further reduction of administrative and
operating expenses. Management is currently working out a plan to
perform all the plant maintenance within one full stop during four
days, which will increase the production and cash inflow from
operating activities.
During 2016 geologists and field development team elaborated
changes to capital investments plan with potential to avoid the
investment activities outflow amounted to 133,000. For additional
liquidity risk mitigation, in April 2017 the Group obtained
preferential term sheet for 100,000 limit credit line with
Sberbank.
With all the above the Group management considers the liquidity
risk as low.
Less than Over
Contractual amount 1 year 1-2 years 2 years
------------------- ---------- ---------- ----------
Financial liabilities as at 31 December 2016
Borrowings 2,357,003 487,329 1,124,968 744,706
Trade and other payables 211,068 129,379 - 81,689
------------------- ---------- ---------- ----------
Total 2,568,071 616,708 1,124,968 826,395
=================== ========== ========== ==========
Less than Over
Contractual amount 1 year 1-2 years 2 years
------------------- ---------- ---------- ----------
Financial liabilities as at 31 December 2015 (restated)
Borrowings 2,940,525 583,499 941,717 1,415,309
Trade and other payables 214,858 214,858 - -
------------------- ---------- ---------- ----------
Total 3,155,383 798,357 941,717 1,415,309
=================== ========== ========== ==========
Less than Over
Contractual amount 1 year 1-2 years 2 years
------------------- ---------- ---------- ----------
Financial liabilities as at 31 December 2014 (restated)
Borrowings 3,376,343 435,834 1,070,835 1,869,674
Trade and other payables 116,657 116,657 - -
------------------- ---------- ---------- ----------
Total 3,493,000 552,491 1,070,835 1,869,674
=================== ========== ========== ==========
27.2 Market risk
Market risk includes interest risk and foreign currency exchange
rate risk.
a) Interest risk
The Group has exposure to interest risk since Diall Alliance
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. Sberbank had not
amended the interest rate by the reporting date.
b) Foreign currency exchange rate risk and the effect of
translation to the presentational currency
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.
27.3 Credit risk
Credit risk arises principally from the Group's financial
investments, trade and other receivables and cash and cash
equivalents. It is the risk that the value of the Group's
investments will not be recovered and the risk that the
counterparty fails to discharge its obligation in respect of the
Group's trade and other receivables and cash balances. The maximum
exposure to credit risk equals the carrying value of these items in
the financial statements.
The Group is largely dependent on one customer (Gazprom
Mezhregiongaz Saratov LLC) for a significant portion of revenues.
Gazprom Mezhregiongaz Saratov LLC accounted for 85.9% and 80.7%, of
the Group's total revenue in 2016 and 2015 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 BB+. 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.
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 2016 cash was held mainly
with Sberbank (rating Ba2.ru, Moody's).
31 December 31 December
2015 2014
31 December
2016 (Restated) (Restated)
------------ ------------ ------------
Ba2.ru, Moody's 291,683 422,865 522,584
Other 2,571 5,685 79,043
------------ ------------ ------------
Total cash and cash equivalents 294,254 428,550 601,627
============ ============ ============
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 statement of changes in
equity.
There have been no other significant changes to management's
objectives, policies or processes in the year, 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 31 December 2016, 2015 and 2014.
28. Commitments and contingencies
28.1 Capital commitments
Capital expenditure contracted for at 31 December 2016 but not
yet incurred was 249,723, net of VAT (2015: 15,291, net of VAT,
2014: 37,769, net of VAT).
28.2 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) and directors and officers 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.
28.3 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.
28.4 Taxation contingencies
Russian tax legislation which was enacted or substantively
enacted by the end of the reporting period is subject to varying
interpretations when applied to the transactions and activities of
the Group. Consequently, tax positions taken by management and
formal documentation supporting the tax positions may be
successfully challenged by relevant authorities. Russian tax
administration is gradually tightening, including a higher risk of
review of tax transactions without a clear business purpose or with
tax non-compliant counterparties. Fiscal periods remain open to
review by the authorities in respect of taxes for three calendar
years preceding the year of review. Under certain circumstances
reviews may cover longer periods. As Russian tax legislation does
not provide definitive guidance in certain areas, the Group adopts,
from time to time, interpretations of such uncertain areas that
reduce the overall tax rate of the Group. While management
currently estimates that the tax positions and interpretations that
it has taken can probably be sustained, there is a possible risk
that outflow of resources will be required should such tax
positions and interpretations be challenged by the relevant
authorities. The impact of any such challenge cannot be reliably
estimated; however, it may be material to the financial position
and/or the overall operations of the Group.
The taxation system in the Russian Federation continues to
evolve and is characterised by frequent changes in legislation, as
well as official pronouncements and court decisions which are
sometimes contradictory and subject to varying interpretation by
different tax authorities. Taxes are subject to review and
investigation by a number of authorities which have the authority
to impose severe fines, penalties and interest charges. Recent
events within the Russian Federation suggest that the tax
authorities are taking a more assertive and substance-based
position in their interpretation and enforcement of tax
legislation.
These circumstances may create tax risks in the Russian
Federation that are substantially more significant than in other
countries. Management believes that it has provided adequately for
tax liabilities based on its interpretations of applicable Russian
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.
28.5 Environmental matters
The Group's operations are in the upstream oil 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 of the Group.
29. Related party transactions
During 2016 and 2015 there were no operations with related
parties, except for key management remuneration.
The remuneration of key management comprised of salary and
bonuses in the amount 57,175 (2015: 101,225).
30. Availability of annual report and financial statements and
General Meeting
Copies of the Group's annual report and consolidated financial
statements will be sent to Registered Shareholders but may not be
sent to holders of Depository Interests. The annual report and
financial statements will be available for inspection at the
Group's registered office and may also be viewed on the Group's
website at: www.zoltav.com. Notice of a General Meeting will be
sent to shareholders in due course.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SEEFMMFWSEFL
(END) Dow Jones Newswires
April 27, 2017 02:00 ET (06:00 GMT)
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