TIDMZOL
RNS Number : 9291B
Zoltav Resources Inc
26 September 2018
26 September 2018
Zoltav Resources Inc.
("Zoltav" or the "Company")
Half Year Report for the Six Months Ended 30 June 2018
Zoltav (AIM: ZOL), the Russia-focused oil and gas exploration
and production company, announces results for the six months ended
30 June 2018. The Company's continued focus on operational
efficiency enabled it to generate a 4% increase in net profit to
RUB 72 million (USD 1.21 million).
Financial Highlights
-- Revenues from production decreased, as anticipated, by 10% to
RUB 831 million (USD 14 million) (H1 2017: RUB 924 million or USD
15.93 million)
-- Operational efficiencies helped to restrict the negative
impact on EBITDA to just 2% at RUB 411 million (USD 6.92 million)
(H1 2017: RUB 420 million or USD 7.24 million)
-- Operational and G&A costs decreased by 18% to RUB 88
million (USD 1.48 million) (H1 2017: RUB 108 million or USD 1.86
million)
-- Total cost of sales decreased by 6% to RUB 547 million (USD
9.22 million) (H1 2017: RUB 585 million or USD 10.09 million)
-- Operating profit decreased by 5% to RUB 191 million (USD 3.22
million) (H1 2017: RUB 202 million or USD 3.48 million)
-- Profit before tax increased by 2% to RUB 101 million (USD 1.7
million) (H1 2017: RUB 99 million or USD 1.71 million)
-- Cash generated from operating activities increased by 2% to
RUB 377 million (USD 6.35 million) (H1 2017: RUB 370 or USD 6.38
million)
-- Reduced credit facility with Sberbank by RUB 150 million (USD
2.39 million) of the principal amount (RUB 1,410 million or USD
22.47 million at 30 June 2018) - in line with all covenants
-- Total cash at period end was RUB 315 million (USD 5.02
million) (at 31 December 2017: RUB 348 million or USD 6.04
million)
Operational Highlights - Bortovoy Licence
-- Average net daily production decreased by 18% to 6,151 boe/d
(829 toe/d) (H1 2017: 7,480 boe/d (1,021 toe/d))
-- Overall in H1 2018, the Company produced:
- Natural gas: 6.3 bcf (179 mmcm) (H1 2017: 7.7 bcf (218 mmcm))
- Oil and condensate: 60,558 bbls (7,715 t) (H1 2017: 68,713 bbls (8,753 t))
-- New geotechnical team, led by former Bashneft and TNK-BP
technical executive Yuri Krasnevsky, appointed in May 2018
- Following the re-interpretation of existing seismic data, the
geotechnical team is focused on delivering a low-risk strategy to
reduce the production decline from Permian fields and, in due
course, to bring the Western Gas Plant back up to capacity
Exploration Programme Update
-- New geotechnical team has reviewed 3D seismic programme and
concluded that 341 sq km of data acquired to date over
Mokrousovskoye block will be sufficient to allow for the
positioning of a Devonian exploration well towards the end of Q1
2019
- Final interpretation of 3D seismic now expected to be completed in mid-Q1 2019
- Long-term objectives to prove and commercialise potential of
the Devonian structures on West Bortovoy and to develop East
Bortovoy
Note: USD comparisons are provided in the above Financial
Highlights for illustrative purposes only and are calculated using
an exchange rate of:
As at 30 June 2018: 1 USD = 62.7565 RUB
H1 2018: 1 USD = 59.3536 RUB
As at 31 December 2017: 1 USD = 57.6002 RUB
H1 2017: 1 USD = 57.9862 RUB
Net production is the volume actually sold to customers. It
comprises all extracted hydrocarbons, less own consumption and
losses. The Company uses net production volumes throughout the
half-year 2018 report instead of previously used total extracted
volumes.
Lea Verny, Independent Non-executive Chairman, commented:
"I am pleased to report that Zoltav delivered a 4% increase in
net profit for the first half of 2018 to RUB 72 million (USD 1.21
million). This performance was achieved as a result of our team's
continued dedication to operational efficiency and in spite of the
anticipated decline in production revenues from the Permian fields
on West Bortovoy.
"A new geotechnical team, led by former Bashneft and TNK-BP
technical executive Yuri Krasnevsky, was appointed in May 2018.
Their mandate is to execute an exploration programme targeting the
deeper structures on West Bortovoy, to enhance output from existing
and new well stock producing from the shallower Permian structures
and, in the longer term, to devise a strategy to commercialise East
Bortovoy. We are delighted as we believe we have been able to
attract one of the best geotechnical teams in the country to the
project.
"We look forward to sharing over the coming months insights from
the seismic interpretation programme as we prepare for a busy work
programme in 2019."
Contacts:
Zoltav Resources Inc. Tel. +44 (0)20 7390
0234
Lea Verny, Non-executive Chairman (via Vigo Communications)
SP Angel Corporate Finance LLP (Nomad Tel. +44 (0)20 3470
and Joint Broker) 0470
John Mackay / Jeff Keating / Soltan
Tagiev
Panmure Gordon (Joint Broker) Tel. +44 (0)20 7886
2500
Adam James
Vigo Communications Tel. +44 (0)20 7390
0234
Ben Simons / Kate Rogucheva zoltav@vigocomms.com
Market Abuse Regulation (MAR) Disclosure
Certain information contained in this announcement would have
been deemed inside information for the purposes of Article 7 of
Regulation (EU) No 596/2014 until the release of this
announcement.
About Zoltav
Zoltav is an oil and gas exploration and production company
focused on Russia.
Zoltav holds the Bortovoy Licence in the Saratov region of South
Western Russia, a 3,215 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 of gas and 3.8
mmbbls of oil and condensate. In 2017, the Bortovoy Licence
produced 14.8 bcf of natural gas and 122,962 bbls of oil and
condensate for sale (approximately 2.6 mmboe in total).
An exploration programme is underway on the Bortovoy Licence to
assess the resource potential of the deeper Carbonian and Devonian
structures.
Zoltav also holds the Koltogor E&P Licence, a 528 square
kilometre area in the Khantiy-Mansisk Autonomous Okrug of Western
Siberia. Development activities on the Koltogor Licences are
currently on hold.
For further information on Zoltav or to sign up for our news
alert service visit: www.zoltav.com.
Half year 2018 report and unaudited interim condensed
consolidated financial statements for the six months ended 30 June
2018
Chairman's statement
I am pleased to report that Zoltav delivered a 4% increase in
net profit for the first half of 2018 to RUB 72 million (H1 2017:
RUB 69 million). This performance was achieved as a result of our
team's dedication to operational efficiency and in spite of the
anticipated decline in production revenues from the Permian fields
in West Bortovoy.
Whilst gas production declined by 18%, and oil and condensate
production declined by 12%, this was offset by higher commodity
prices, resulting in revenues decreasing by 10% in the period to
RUB 831 million (H1 2017: RUB 924 million). Operational
efficiencies enabled the Company to restrict the negative impact on
EBITDA to just 2% at RUB 411 million (H1 2017: RUB 420
million).
The Company anticipated the decline in production since the
drilling programme in the Permian fields on West Bortovoy was
suspended in 2017 pending the interpretation of 3D seismic data.
However, gas production in H1 2018 declined at a slower rate than
predicted, primarily because Zhdanovskoye Well 8, which was
anticipated to be shut down over the summer due to water intrusion,
remains in production.
A new geotechnical team, led by former Bashneft and TNK-BP
technical executive Yuri Krasnevsky, was appointed in May 2018 and
was fully staffed and operational in June 2018. Their mandate is
three-fold: to execute an exploration programme targeting the
deeper structures in West Bortovoy; to enhance output from existing
and new well stock producing from the shallower Permian structures;
and, in the longer term, to devise a strategy to commercialise East
Bortovoy. We are delighted as we believe we have been able to
attract one of the best geotechnical teams in the country to the
project.
The geotechnical team has undertaken a technical review of the
3D seismic acquisition programme which began in 2017 and has
concluded that the 341 sq km of data acquired to date over the
North Mokrous area of the Mokrousovskoye block in West Bortovoy
will be sufficient to allow for the positioning of an exploration
well targeting a prospective field in the Middle Devonian horizon
at approximately 4,200-4,500 m true vertical depth (TVD). The
Company will therefore not be required to commit further capital to
the seismic acquisition programme prior to the drilling of an
exploration well. While the timing of the exploration well remains
on schedule to be drilled towards the end of Q1 2019, as a result
of the technical review, the final interpretation of the seismic
data is now expected to be completed in mid-Q1 2019.
Following the re-interpretation of existing seismic data over
the Permian fields in West Bortovoy, the new geotechnical team is
focused on delivering a low-risk strategy to reduce the production
decline from these fields and, ultimately, to bring production back
up to the Western Gas Plant's capacity. The review of operations
that follows summarises the work programmes which are designed to
achieve these objectives.
I would like to commend the team in Saratov for their continued
commitment to operational excellence, which included a record
maintenance shutdown of the Western Gas Plant of just 48 hours.
We look forward to sharing over the coming months insights from
the seismic interpretation programme as we prepare for a busy work
programme in 2019.
Lea Verny
Non-executive Chairman
25 September 2018
Review of operations
Production
Production from Zoltav's Western Gas Plant at Bortovoy averaged
6,151 boepd (829 toepd) during H1 2018, an 18% decline when
compared to 7,480 boepd (1,021 toepd) in H1 2017.
Average daily production during H1 2018 was 34.9 mmcf/d (0.99
mmcm/d) of gas and 335 bbls/d (43 T/d) of oil and condensate (H1
2017: 42.6 mmcf (1.2 mmcm/d) of gas and 380 bbls/d (48 T/d) of oil
and condensate).
Overall in H1 2018, the Company produced(1) :
- Natural gas: 6,317 mmcf (179 mmcm) (H1 2017: 7,711 mmcf (218
mmcm))
- Oil and condensate: 66,558 bbls (7,715 t) (H1 2017: 68,713
bbls (8,753 t))
The current well stock producing from the Permian fields
consists of eleven gas wells and two oil wells working via
artificial lift. The well stock is in natural production decline.
Following the re-interpretation of existing seismic data, the new
geotechnical team is focused on delivering a low-risk strategy to
reduce the production decline from these fields and, in due course,
to bring the Western Gas Plant back up to capacity. The
geotechnical team is also carrying out hydrodynamic studies,
including flow testing, on seven wells in order to be able to make
more precise production forecasts and plan well stimulations.
Development
Bortovoy
The near-term work programme includes carrying out well
stimulations on ten wells by the end of the year with the objective
of generating an additional 6 mmcf/d (170 mcm/d) of gas. The
Company has installed a new well-head compressor on the Karpenskoye
field facility in order to help achieve greater pressure
equilibrium and therefore to optimise gas production rates. The
compressor is currently going through the startup and commissioning
phase. The Company expects to begin to see the benefits from this
near-term work programme before the end of this year.
In the medium-term, the work programme envisages drilling
sidetracks on existing wells (two gas wells on the Zhdanovskoye
field and one oil well on the Karpenskoye field); and connecting
three Soviet wells (one re-entry and two sidetracks) to the Western
Gas Plant via a new pipeline. If successful, the medium-term
objective is to return the Western Gas Plant to full capacity.
Long-term plans are focused on proving and commercialising the
potential of the deeper Devonian structures on West Bortovoy and
the development of East Bortovoy.
Each programme comprises projects which are subject to the
decision of the investment committee which takes into account a
range of factors including but not limited to estimated production
profiles, CAPEX evaluations and risk assessments. At present, three
wells are approved for workover.
Koltogor
The Koltogor Licences in the Khantiy Mansisk Autonomous Okrug,
Western Siberia are not currently a focus of investment. The
Company continues to monitor the activities of the Bazhen
Technology Centre, launched by Gazprom Neft in 2017, which is
focusing on the development of independent skills and technologies
for the cost-effective development of hydrocarbons in the Bazhenov
formation.
(1) Net production is the volume actually sold to customers. It
comprises all extracted hydrocarbons, less own consumption and
losses. The Company uses net production volumes throughout the
half-year 2018 report instead of previously used total extracted
volumes.
Group Reserves under PRMS as per latest report of DeGolyer and
MacNaughton (May 2014):
Proved and
Proved Probable probable Possible
Bortovoy Licence
Gas bcf 352.9 396.8 749.7 640.0
Oil & liquids mmbbls 2.0 1.8 3.8 2.4
Gas, oil and liquids mmboe 62.0 69.2 131.2 111.2
Koltogor Licences
Gas bcf 0.5 23.5 24.0 55.7
Oil mmbbls 1.6 73.5 75.1 174.0
Total mmboe 1.7 77.5 79.2 183.5
Total
Gas bcf 353.4 420.3 773.7 695.7
Oil & liquids mmbbls 3.6 75.3 78.9 176.4
Gas, oil and liquids mmboe 63.7 146.7 210.4 294.7
The Company is planning a re-evaluation of reserves under PRMS
following completion of the exploration programme currently ongoing
on the Bortovoy Licence.
Note on conversion rates
Tonnes of crude oil produced are translated into barrels using
conversion rates reflecting oil density from each of the fields.
Crude oil and liquid hydrocarbons expressed in barrels are
translated from tonnes using a conversion rate of 7.85 barrels per
tonne. Translations of cubic feet to cubic metres are made at the
rate of 35.3 cubic feet per cubic metre. Translations of barrels of
crude oil and liquid hydrocarbons into barrels of oil equivalent
("boe") are made at the rate of 1 barrel per boe and of cubic feet
into boe at the rate of 290 cubic feet per boe.
Financial review
The effect of recurring optimisation initiatives and new
cost-cutting initiatives enabled Zoltav to generate RUB 72 million
of net profit in the first half of 2018. EBITDA slightly decreased
by 2% to RUB 411 million, but net cash from operations increased by
2% to RUB 377 million.
Revenue
The Group's revenues in H1 2018 decreased by 10% to RUB 831
million, compared to RUB 924 million in H1 2017.
Approximately 80% 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. The Russian Government approved a 3.4% gas price
increase from 21 August 2018 and accordingly the Company signed an
addendum to its contract with Mezhregiongaz.
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. Favourable market prices during 2018 and a
diversified portfolio of buyers positively impacted average oil and
condensate prices which were RUB 2,624/bbl (RUB 20,600/t) in H1
2018 compared to RUB 2,000/bbl (RUB 15,800/t) in H1 2017.
Cost of sales and G&A costs
The Group's operational and G&A costs decreased by 18% to
RUB 88 million (H1 2017: RUB 108 million), mostly driven by
maintenance optimisation and chemicals usage efficiency (mostly
methanol).
Total cost of sales was RUB 547 million (H1 2017: RUB 585
million). This comprised RUB 179 million of mineral extraction tax
(H1 2017: RUB 192 million), RUB 220 million of depreciation and
depletion of assets (H1 2017: RUB 218 million) and RUB 148 million
of other cost of sales (H1 2017: RUB 175 million).
Other expenses, mainly comprising offshore expenses, decreased
by 78% to RUB 7 million (H1 2017: RUB 33 million).
Operating profit
Zoltav achieved an operating profit for H1 2018 of RUB 191
million, compared to RUB 202 million in H1 2017.
Finance costs of RUB 93 million (H1 2017: RUB 117 million) are
mainly represented by interest on the remaining RUB 1,410 million
Sberbank facility.
Profit before tax
Zoltav generated RUB 101 million of profit before tax, compared
to RUB 99 million in H1 2017.
Taxation
Production based tax for the period was RUB 179 million (H1
2017: RUB 192 million) which is recognised in the cost of sales.
The MET tax formula is based on multi-component gas composition,
average gas prices and reservoir complexity and maturity. The
effective MET rate applicable for the period slightly increased due
to gas price growth to RUB 27/mcf or RUB 949/mcm (H1 2017: RUB
24/mcf or RUB 838/mcm).
The income tax charge for the year was RUB 29.4 million (H1
2017: RUB 30.0 million).
Net profit
The net profit recorded was RUB 72 million compared to RUB 69
million in H1 2017 due to the positive impact of operating
efficiencies.
Cash
Net cash generated from operating activities was RUB 377 million
(H1 2017: RUB 370 million).
The operating subsidiary, Diall Alliance, successfully serviced
its credit facility with PJSC Sberbank and repaid a further RUB 150
million of the principal amount (RUB 1,560 million at 31 December
2017) according to its schedule. The Company remains in line with
the covenants of its credit facility agreement, is benefitting from
lower interest rates and is actively negotiating refinance
terms.
Total cash at the end of the period was RUB 315 million.
Kirill Suetov
Chief Financial Officer
25 September 2018
Statement of Directors' responsibilities
The Directors confirm that, to the best of their knowledge,
these condensed consolidated interim financial statements have been
prepared in accordance with IAS 34 as adopted by the European
Union, and that the interim management report includes a fair
review of the information required by the Disclosure and
Transparency rules 4.2.7R and 4.2.8R, namely:
- an indication of important events that have occurred in the
first six months and their impact on the condensed consolidated
financial statements, and description of the principal risks and
uncertainties for the remaining six months of the financial year;
and
- material related party transactions in the first six months
and any material changes in related party transactions described in
the Last Annual report.
A list of Directors is maintained on the Zoltav Resources Inc.
website: www.zoltav.com.
For and on behalf of the Board:
Lea Verny
Non-executive Chairman
25 September 2018
Report on Review of Interim Financial Information
To the Shareholders and Board of Directors of
Zoltav Resources Inc.
Introduction
We have reviewed the accompanying interim condensed consolidated
financial statements of Zoltav Resources Inc. and its subsidiaries,
which comprise the interim condensed consolidated statement of
financial position as at 30 June 2018, interim condensed
consolidated statement of comprehensive income, interim condensed
consolidated statement of changes in equity and interim condensed
consolidated statement of cash flows for the six-month period then
ended, and notes to the interim consolidated financial statements,
including a summary of significant accounting policies (interim
financial information). Management of Zoltav Resources Inc. is
responsible for the preparation and presentation of this interim
financial information in accordance with IAS 34, Interim Financial
Reporting. Our responsibility is to express a conclusion on this
interim financial information based on our review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements 2410, Review of Interim Financial
Information Performed by the Independent Auditor of the Entity. A
review of interim financial information consists of making
inquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit
conducted in accordance with International Standards on Auditing
and consequently does not enable us to obtain assurance that we
would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit
opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the accompanying interim financial
information is not prepared, in all material respects, in
accordance with IAS 34, Interim Financial Reporting.
T.L. Okolotina
Partner
Ernst & Young LLC
25 September 2018
Interim condensed consolidated statement of comprehensive income
for the six months ended 30 June 2018 (in '000s of Russian rubles,
unless otherwise stated)
Six months ended 30 June Six months ended 30 June
Note 2018 2017
(unaudited) (unaudited)
Revenue 3 830,574 924,450
Cost of sales
Mineral extraction tax (178,998) (192,212)
Depreciation and depletion (219,739) (217,809)
Other cost of sales (148,019) (175,412)
Total cost of sales (546,756) (585,433)
Gross profit 283,818 339,017
Operating, administrative and selling expenses (88,236) (108,094)
Other income 2,774 4,000
Other expenses (7,346) (33,010)
Operating profit 191,010 201,913
Impairment of exploration and evaluation assets (6,482) -
Finance income 9,303 13,674
Finance costs (92,740) (116,549)
Profit before tax 101,091 99,038
Income tax expense 4 (29,483) (30,043)
Profit for the period attributable to owners of the
parent being total comprehensive income 71,608 68,995
RUB RUB
Earnings per share attributable to owners of the parent
Basic 8 0.50 0.49
Diluted 8 0.50 0.48
Kirill Suetov
Chief Financial Officer
25 September 2018
Interim condensed consolidated statement of financial position
as at 30 June 2018 (in '000s of Russian rubles, unless otherwise
stated)
Note As at
30 June As at 31 December
2018 (unaudited) 2017
Assets
Non-current assets
Exploration and evaluation assets 5 3,409,682 3,259,353
Property, plant and equipment 6 3,827,147 4,007,302
Total non-current assets 7,236,829 7,266,655
Current assets
Inventories 30,794 20,877
Trade and other receivables 131,601 152,574
Other current non-financial assets 13,919 11,400
Cash and cash equivalents 12.3 314,502 286,754
Total current assets 490,816 471,605
Total assets 7,727,645 7,738,260
Equity and liabilities
Share capital 7 970,218 970,218
Share premium 5,498,009 5,498,009
Other reserves 1,343,566 1,366,172
Accumulated losses (2,468,774) (2,562,988)
Total equity 5,343,019 5,271,411
Non-current liabilities
Borrowings 10 972,835 1,253,014
Provisions 11 397,124 386,152
Other payables 65,350 62,771
Deferred tax liabilities 300,312 270,836
Total non-current liabilities 1,735,621 1,972,773
Current liabilities
Borrowings 10 439,127 309,172
Finance lease liability 806 1,666
Other taxes payable 112,384 89,381
Trade and other payables 96,688 93,857
Total current liabilities 649,005 494,076
Total liabilities 2,384,626 2,466,849
Total equity and liabilities 7,727,645 7,738,260
Interim condensed consolidated statement of cash flows for the
six months ended 30 June 2018
(in '000s of Russian rubles, unless otherwise stated)
Note Six months ended 30 June Six months ended 30 June
2018 2017
(unaudited) (unaudited)
Cash flows from operating activities
Profit before tax 101,091 99,038
Adjustments for:
Depreciation and depletion 6 222,593 218,620
Impairment of exploration and evaluation assets 5 6,482 -
Finance costs 92,740 116,549
Finance income (9,303) (13,674)
Loss on disposal of property, plant and equipment, net
of income from sale of property, plant
and equipment 237 19,202
Expected credit loss 4,721 -
Change in the estimates of decommissioning and
environmental restoration provision (1,931) 445
Other income and expenses (1,236) 3,306
Operating cash inflows before working capital changes 415,394 443,486
(Increase)/decrease in inventories (9,040) 7,619
Change in trade and other receivables and other current
non-financial assets 14,052 16,771
Decrease in trade and other payables 359 (17,614)
Increase in other taxes payables 23,003 3,574
Net cash from operating activities before tax and
interests paid 443,768 453,836
Interest received 8,984 14,254
Interest paid 10 (75,408) (98,442)
Income tax paid (7) (46)
Net cash flows from operating activities 377,337 369,602
Cash flows from investing activities
Proceeds from sale of property, plant and equipment 2,257 5,830
Capital expenditure on exploration and evaluation
activities (144,265) (8,317)
Purchase of property, plant and equipment (57,855) (163,700)
Net cash used in investing activities (199,863) (166,187)
Cash flows from financing activities
Repayment of obligations under finance leases (173) -
Repayment of borrowings 10 (150,000) (150,000)
Net cash used in financing activities (150,173) (150,000)
Net change in cash and cash equivalents 27,301 53,415
Net foreign exchange difference 447 99
Cash and cash equivalents at the beginning of the period 286,754 294,254
Cash and cash equivalents at the end of the period 314,502 347,768
Interim condensed consolidated statement of changes in equity
for the six months ended 30 June 2018 (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 2017 970,218 5,498,009 1,343,566 85,775 (1,356,179) 6,541,389
Profit for the
period - - - - 68,995 68,995
Total comprehensive
income - - - - 68,995 68,995
At 30 June 2017
(unaudited) 970,218 5,498,009 1,343,566 85,775 (1,287,184) 6,610,384
At 1 January 2018 970,218 5,498,009 1,343,566 22,606 (2,562,988) 5,271,411
Employee share-based
compensation 9 - - - (22,606) 22,606 -
Transactions with
owners - - - (22,606) 22,606 -
Profit for the
period - - - - 71,608 71,608
Total comprehensive
income - - - - 71,608 71,608
At 30 June 2018
(unaudited) 970,218 5,498,009 1,343,566 - (2,468,774) 5,343,019
Note: the accompanying notes are an integral part of these
interim condensed consolidated financial statements.
Notes to the interim condensed consolidated financial statements
(in '000s of Russian rubles, unless otherwise stated)
1. Background
1.1 The Company and its operations
Zoltav Group (the Group) comprises Zoltav Resources Inc. (the
Company), together with its subsidiaries:
Share of the Group in a
subsidiary as of
30 June 2018 and
Name Place of incorporation Function 31 December 2017
---------------------------------- ------------------------ -------------------- ----------------------------------
CenGeo Holdings Limited
(hereinafter "CenGeo Holdings") Cyprus Holding company 100%
CJSC SibGeCo (hereinafter
"SibGeCo") Russia Operating company 100%
Royal Atlantic Energy (Cyprus)
Limited (hereinafter "Royal") Cyprus Holding company 100%
Diall Alliance LLC (hereinafter
"Diall") Russia Operating company 100%
Zoltav Resource LLC Russia Management company 100%
The Company was incorporated in the Cayman Islands on 18
November 2003. The principal activities of the Company and its
subsidiaries is the acquisition, exploration, development and
production of hydrocarbons in the Russian Federation. The Company's
shares are listed on the Alternative Investment Market of the
London Stock Exchange.
1.2 Russian business environment
The Group's operations are primarily located in the Russian
Federation.
The Russian Federation displays certain characteristics of an
emerging market. Its economy is particularly sensitive to oil and
gas prices. The legal, tax and regulatory frameworks continue to
develop and are subject to frequent changes and varying
interpretations. The economy is negatively impacted by oil price
fluctuations, ongoing political tension in the region and
international sanctions against certain Russian companies and
individuals. The financial markets continue to be volatile.
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
These interim condensed consolidated financial statements have
been prepared in accordance with International Accounting Standard
("IAS") 34 "Interim Financial Reporting", as adopted by the
European Union. Accordingly, these interim condensed consolidated
financial statements do not include all the information and
disclosures required for a complete set of financial statements,
and should be read in conjunction with the Group's annual
consolidated financial statements for the year ended 31 December
2017, which were prepared in accordance with International
Financial Reporting Standards, as adopted by the European
Union.
Operating results for the six-month period ended 30 June 2018
are not necessarily indicative of the results that may be expected
for the year ending 31 December 2018.
2.2 Going concern
The consolidated financial statements have been prepared on a
going concern basis as the Directors have concluded that the Group
will continue to have access to sufficient funds in order to meet
its obligations as they fall due for at least the foreseeable
future as explained further in the Directors Report. The Group's
current liabilities exceed current assets by 158,189 as at 30 June
2018. For mitigation factors, please, see Note 12.1.
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 previously, except for
the adoption of new standards and interpretations and revision of
the existing standards as of 1 January 2018. The Group has not
early adopted any other standard, interpretation or amendment that
has been issued but is not yet effective.
Effective
for annual
periods beginning
New/revised standards and Interpretations adopted as on
of 1 January 2018 or after
------------------------------------------------------------- -------------------
1 January
Amendments to IAS 40 - Transfers of Investment Property 2018
Amendments to IFRS 4 - Applying IFRS 9 Financial Instruments 1 January
with IFRS 4 Insurance Contracts 2018
1 January
Annual improvements to IFRSs 2014-2016 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 Contracts with 1 January
Customers 2018
IFRIC 22 Foreign Currency Transactions and Advance 1 January
Consideration 2018
Amendments to IFRS 2 - Classification and Measurement 1 January
of Share-based Payment Transactions 2018
IFRS 9 Financial Instruments: Classification and Measurement
a) Classification
Loans as well as trade receivables are held to collect
contractual cash flows and are expected to give rise to cash flows
representing solely payments of principal and interest. The Group
analysed the contractual cash flow characteristics of those
instruments and concluded that they meet the criteria for amortised
cost measurement under IFRS 9. Therefore, reclassification for
these instruments is not required.
b) Impairment
IFRS 9 requires the Group to now use an expected credit loss
model for its trade receivables measured at amortised cost and cash
in banks, either on a 12-month or lifetime basis. The Group expects
to apply the simplified approach and record lifetime expected
losses on all trade receivables measured at amortised cost. Given
the short-term nature of these assets, these changes had no
significant impact.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 was issued in May 2014 and establishes a new five-step
model that will apply to revenue arising from contracts with
customers. Under IFRS 15 revenue is recognised at an amount that
reflects the consideration to which an entity expects to be
entitled in exchange for transferring goods or services to a
customer.
The principles in IFRS 15 provide a more structured approach to
measuring and recognising revenue. The new revenue standard is
applicable to all entities and will supersede all current revenue
recognition requirements under IFRS. Either a full or modified
retrospective application is required for annual periods beginning
on or after 1 January 2018 with early adoption permitted. Given the
basic terms of revenue contracts, reliable customers and absence of
significant finance component in sales, the Group assessed that the
impact of IFRS 15 was not significant.
Other new standards and amendments applied for the first time in
2018 did not have a significant impact on the consolidated
financial statements of the Group.
b) New accounting pronouncements
A number of new and amended standards were not effective as of
30 June 2018 and have not been applied in these consolidated
financial statements.
Effective for
annual periods
Standards issued but not yet effective in the beginning on
European Union or after
-------------------------------------------------------- ----------------
IFRS 16 Leases 1 January 2019
Amendments to IFRS 9: Prepayment Features with
Negative Compensation 1 January 2019
Annual improvements to IFRSs 2015-2017 cycle 1 January 2019*
IFRS 17 Insurance Contracts 1 January 2021*
IFRIC 23 Uncertainty over Income Tax Treatments 1 January 2019*
Amendments to IAS 28: Long-term Interests in Associates
and Joint Ventures 1 January 2019*
Amendments to IAS 19: Plan Amendment, Curtailment
or Settlement 1 January 2019*
Amendments to References to the Conceptual Framework
in IFRS Standards 1 January 2020*
* Subject to EU endorsement.
IFRS 16 Leases
IFRS 16 was issued in January 2016 and it replaces IAS 17
Leases, IFRIC 4 Determining whether an Arrangement contains a
Lease, SIC-15 Operating Leases - Incentives and SIC-27 Evaluating
the Substance of Transactions Involving the Legal Form of a Lease.
IFRS 16 sets out the principles for the recognition, measurement,
presentation and disclosure of leases and requires lessees to
account for all leases under a single on-balance sheet model
similar to the accounting for finance leases under IAS 17.
IFRS 16 is effective for annual periods beginning on or after 1
January 2019. Early application is permitted, but not before an
entity applies IFRS 15. A lessee can choose to apply the standard
using either a full retrospective or a modified retrospective
approach. The standard's transition provisions permit certain
reliefs.
In 2018, the Group will continue to assess the potential effect
of IFRS 16 on its financial statements.
From application of the other standards issued but not yet
effective the Group expects no effect on its consolidated financial
statements.
2.4 Segment reporting
The management of the Company analyses the segment information
based on IFRS numbers. As of 30 June 2018 the Company has one
segment - revenue from gas and oil products sales - which generates
all of its revenues. The segment has all of its assets located 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. Segment financial indicators are considered based on
EBITDA and net profit results. During the first six months of 2018
the Company generated 80.4% of its revenue from Gazprom
Mezhregiongaz Saratov LLC (2017: 85.4%).
2.5 Foreign currency translation
a) Functional and presentation currency
The functional currency of the Group entities is the Russian
ruble ("RUB"), the currency of the primary economic environment in
which the Group operates.
The presentation currency is RUB, which the Board considers more
representative for users of these consolidated financial statements
to better assess the performance of the Group.
b) Transactions and balances
Transactions in foreign currencies are initially recorded by the
Group's entities at their respective functional currency spot rates
at the date the transaction first qualifies for recognition.
Monetary assets and liabilities denominated in foreign
currencies are translated at the functional currency spot rates of
exchange at the reporting date.
Differences arising on the settlement or translation of monetary
items are recognised in profit or loss.
Non-monetary items that are measured in terms of historical cost
in a foreign currency are translated using the exchange rates at
the dates of the initial transactions.
c) Group companies
Loans between Group entities and related foreign exchange gains
or losses are eliminated upon consolidation.
Any goodwill arising on the acquisition of a foreign operation
and any fair value adjustments to the carrying amounts of assets
and liabilities on the acquisition are treated as assets and
liabilities of foreign operation and translated at the spot rate of
exchange at the reporting date.
The period-end exchange rates and the average exchange rates for
the respective reporting periods are indicated below.
31 December
30 June 2018 2017
RUB/USD as at reporting date 62.7565 57.6002
2018 2017
RUB/USD average for the six months
ended 30 June 59.3536 57.9862
2.6 Assets and liabilities not measured at fair value but for
which fair value is disclosed
Fair values analysed by level in the fair value hierarchy of
assets and liabilities of the Group not measured at fair value are
as follows:
30 June 2018 31 December 2017
Fair value Carrying Carrying
(unaudited) value (unaudited) Fair value value
Financial assets
Trade and other receivables 131,601 131,601 152,574 152,574
Total assets 131,601 131,601 152,574 152,574
Financial liabilities
Borrowings 1,444,252 1,411,962 1,614,108 1,562,186
Trade and other payables 96,688 96,688 93,857 93,857
Obligation under
finance leasing 806 806 1,666 1,666
Other non-current
payables 65,455 65,350 63,328 62,771
Total liabilities 1,607,201 1,574,806 1,772,959 1,720,480
The fair value of borrowings and other non-current payables is
based on cash flows discounted using a market rate of 8.62% (2016:
9.34%). The fair values of borrowings and other non-current
payables are within level 2 of the fair value hierarchy. The fair
value of trade and other receivables is within level 3
hierarchy.
3. Revenue
The Group's operations comprise one class of business being oil
and gas exploration, development and production and all revenues
are from one geographic region, the Saratov Region in the Russian
Federation. Companies incorporated outside of Russia provide
support to the operations in Russia. The Group has concluded that
revenue should be recognised at the point in time when control of
the asset is transferred to the customer.
Revenue is primarily from the sale of three products:
Six months ended 30 June
2018 2017
(unaudited) (unaudited)
------------- -------------
Gas sales 667,498 784,255
Oil sales 85,184 66,275
Condensate sales 73,695 72,116
Sulphur sales 4,197 1,804
------------- -------------
Total sales 830,574 924,450
============= =============
All gas sales are made to one customer, Gazprom Mezhregiongaz
Saratov LLC, under a long-term contract effective until 31 December
2020 with terms reviewed annually. Condensate and oil are sold to
local buyers. The sales of all products are denominated in RUB.
4. Income Tax
The Group calculates the period income tax expense using the tax
rate that would be applicable to the expected total annual
earnings. The major components of income tax expense in the interim
condensed consolidated statement of comprehensive income are:
Six months ended 30 June
2018 2017
(unaudited) (unaudited)
------------- -------------
Deferred tax expense 29,476 29,997
Current tax expense 7 46
------------- -------------
Total 29,483 30,043
============= =============
Origination and reversal of temporary differences in the period
mainly relates to the property, plant and equipment, exploration
and evaluation assets and provisions.
Reconciliation between expected and actual taxation charge is
provided below:
Six months ended 30 June
2018 (unaudited) 2017 (unaudited)
Profit before income tax 101,091 99,038
Theoretical tax charge at applicable income
tax rate of 20% (20,218) (19,808)
Effect of different foreign tax rates (2,511) (4,545)
Effect of unrecognised tax loss (3,695) (4,584)
Tax effect of expenses not deductible for
tax purposes (3,059) (1,106)
Total income tax expense (29,483) (30,043)
The Group's income was subject to tax at the following tax
rates:
Six months Six months
ended 30 ended 30
June 2018 June 2017
----------- -----------
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.
The effective tax rate changed due to a decrease of expenses of
Zoltav Resources Inc., which are subject to 0% tax rate.
5. Exploration and evaluation assets
Exploration and evaluation works
Sub-soil capitalised, including
licences seismic works Total
Balance at 1 January 2017 2,188,024 2,600,290 4,788,314
Additions 7,298 85,085 92,383
Transfer to property, plant and equipment - - -
Change in the estimates of decommissioning
provision - 1,785 1,785
Balance at 30 June 2017 (unaudited) 2,195,322 2,687,160 4,882,482
Balance at 1 January 2018 1,037,728 2,221,625 3,259,353
Additions 7,484 150,743 158,227
Transfer from property, plant and equipment - - -
Change in the estimates of decommissioning
provision - (1,416) (1,416)
Impairment (7,593) 1,111 (6,482)
Balance at 30 June 2018 (unaudited) 1,037,619 2,372,063 3,409,682
The additions during the first six months of 2018 and the first
six months of 2017 are mostly represented by seismic works on the
Mokrousovskoye block.
In management's opinion, as at 30 June 2018 there were no
non-compliance issues in respect of the licences that would have an
adverse effect on the financial position or the operating results
of the Group.
Impairment
In 2017 the Group revised its investment strategy with a primary
focus on exploration and further development of the deeper Devonian
structures on the Bortovoy Licence. As a result, the forecasted
amount of investment in the development of the Koltogor Licences
cannot be confirmed. Accordingly, the probability of the
development of the Koltogor Licences becomes uncertain. The Group
recognised an impairment loss of the total book value of
exploration and evaluation assets of the Koltogor Licences as of 31
December 2017. As of 30 June 2018 no changes in the Group's plans
regarding the Bortovoy Licence occurred. Additions made in 2018
related to the Koltogor Licences (licence payments) were
impaired.
6. Property, plant and equipment
Construction
Oil and Motor Other equipment work in
gas assets vehicles and furniture progress Total
Cost at 1 January 2017 4,825,462 17,245 7,955 249,924 5,100,586
Additions 9,162 3,742 82 112,677 125,663
Reclassification 260,404 - - (260,404) -
Transfer from exploration - - - - -
and evaluation assets
Transfer to inventory (947) - - (2,591) (3,538)
Change in the estimates
of decommissioning provision 2,261 - - 15 2,276
Disposals (27,963) (6,616) - (6,034) (40,613)
Cost at 30 June 2017
(unaudited) 5,068,379 14,371 8,037 93,587 5,184,374
Cost at 1 January 2018 5,202,044 18,075 7,963 68,582 5,296,664
Additions 5,972 773 1,240 47,294 55,279
Reclassification 25,893 - - (25,893) -
Transfer from exploration - - - - -
and evaluation assets
Transfer to current
assets - - - (7,572) (7,572)
Change in the estimates
of decommissioning provision (2,775) - - - (2,775)
Disposals (4,941) (3,301) - (22) (8,264)
Cost at 30 June 2018
(unaudited) 5,226,193 15,547 9,203 82,389 5,333,332
Accumulated depreciation
and impairment
Balance at 1 January
2017 (868,540) (16,116) (4,676) - (889,332)
Depreciation and depletion (215,534) (2,809) (277) - (218,620)
Disposals 9,878 5,703 - - 15,581
Balance at 30 June 2017
(unaudited) (1,074,196) (13,222) (4,953) - (1,092,371)
Balance at 1 January
2018 (1,268,777) (15,488) (5,097) - (1,289,362)
Depreciation and depletion (221,066) (1,307) (220) - (222,593)
Disposals 2,469 3,301 - - 5,770
Balance at 30 June 2018
(unaudited) (1,487,374) (13,494) (5,317) - (1,506,185)
Net book value at 1
January 2017 3,956,922 1,129 3,279 249,924 4,211,254
Net book value at 30
June 2017 (unaudited) 3,994,183 1,149 3,084 93,587 4,092,003
Net book value at 1
January 2018 3,933,267 2,587 2,866 68,582 4,007,302
Net book value at 30
June 2018 (unaudited) 3,738,819 2,053 3,886 82,389 3,827,147
7. Share capital
Number of
At 30 June 2018, 31 December ordinary Nominal value, Nominal value,
2017 shares USD'000 RUB'000
---------------------------------- ------------ --------------- ---------------
Authorised (par value of USD
0.20 each) 250,000,000 50,000 1,708,672
Issued and fully paid (par value
of USD 0.20 each) 141,955,386 28,391 970,218
8. Earnings per share
Basic earnings per share is calculated by dividing the profit
attributable to owners of the Company by the weighted average
number of ordinary shares in issue during the year.
Diluted earnings per share is calculated by adjusting the
weighted average number of ordinary shares outstanding to assume
conversion of all dilutive potential ordinary shares. The Company
has share options and warrants as dilutive potential ordinary
shares.
Six months ended 30
June
2018 2017
(unaudited) (unaudited)
------------- -------------
Profit attributable to owners of the Company
-
Basic and diluted 71,608 68,995
Number of Number of
shares shares
------------- -------------
Weighted average number of shares for calculating
basic earnings per share 141,955,386 141,955,386
Effect of dilutive potential ordinary shares
- share options 12,375 1,952,500
Weighted average number of shares for calculating
diluted earnings per share 141,967,761 143,907,886
RUB (unaudited) RUB (unaudited)
---------------- ----------------
Basic earnings per share 0.50 0.49
Diluted earnings per share 0.50 0.48
9. Share-based payments
At 30 June 2018, the Company had no outstanding share options
(31 December 2017: 202,500), as initial share options amounting to
22,606 expired on 11 January 2018.
Options which are lapsed or cancelled prior to their exercise
date are deleted from the register of outstanding options.
10. Borrowings
2018 2017
----------- -----------
Non-revolving credit facility - current liability, as at 1 January 1,562,186 1,859,949
Including current liability 309,172 311,160
Interest accrued 75,184 99,244
Interest paid (75,408) (98,442)
Repayment (150,000) (150,000)
Non-revolving credit facility, as at 30 June (unaudited) 1,411,962 1,710,751
=========== ===========
Including current liability 439,127 309,774
In 2014, the Group entered into a non-revolving credit facility
agreement with Sberbank of Russia OJSC with a maximum facility
amount of 2,400,000. The contractual currency is RUB. 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. The interest rate is fixed and contracted as 10.98% per
annum. In October 2017 the Group concluded an additional agreement,
where the interest rate was resettled as 10.73% per annum. In
February 2018 the Group concluded an additional agreement, where
the interest rate was resettled as 9.71% 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. The Group was in compliance with all covenants as of
30 June 2018 and 31 December 2017. 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 30 June 2018 amounted to 2,673,497 (31
December 2017: 2,775,473).
The outstanding principal amount of the facility as of 30 June
2018 was 1,410,000 (31 December 2017: 1,560,000). The credit
facility debt is measured at amortised cost, using the effective
interest method.
Additionally, the Group entered into a 100,000 revolving loan
facility on 13 December 2017. The interest is 10.5% for disbursed
amounts and 0.5% for the remaining part of the limit. The maturity
date is 12 December 2018. There were no drawings during the six
months ended 30 June 2018.
11. 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 which are
expected to be incurred at the end of the production lives of the
gas and oil fields which is estimated to be within 20 years.
2018 2017
--------- ---------
Provision as at 1 January 386,152 359,153
Additions 2,538 -
Unwinding of discount 14,556 14,927
Change in estimate of decommissioning and environmental restoration provision (6,122) 4,506
Provision as at 30 June (unaudited) 397,124 378,586
========= =========
This provision has been created based on the Group's internal
estimates. Assumptions based on the current economic environment
have been made which the directors believe are a reasonable basis
upon which to estimate the future liability. These estimates are
reviewed regularly to take into account any material changes to the
assumptions. However, actual decommissioning costs will ultimately
depend upon future market prices for the necessary dismantlement
works required, which will reflect market conditions at the
relevant time. Furthermore, the timing is likely to depend on when
the fields cease to produce at economically viable rates. This in
turn will depend upon future oil prices and future operating costs,
which are inherently uncertain.
The provision reflects two liabilities: one is to dismantle the
property, plant and equipment assets and the other is to restore
the environment. The decommissioning part of the provision is
reversed when an oil well is abandoned and corresponding
capitalised costs are expensed. The environmental part of the
provision is reversed when the expenses on restoration are actually
incurred.
The provision is reversed when the corresponding capitalised
costs directly attributable to an exploration and evaluation asset
are expensed as it is determined that a commercial discovery has
not been achieved and the restoration of the corresponding
environment has been completed.
The Group reviews the application of inflation rates used for
the provision estimation each half-year end. The inflation rate
used in the estimation of the provision as of 30 June 2018 was 4%
in 2018, decreasing to 3.64% in 2036 (as of 31 December 2017: 3.77%
in 2017, decreasing to 3.64% in 2036). The discount rates used to
determine the decommissioning and environmental restoration
provision are based on Russian government bond rates. As of 30 June
2018 discount rate varies from 7.74% to 7.79% (as of 31 December
2017: from 7.62% to 7.79%) depending on expected period of
abandonment and site restoration for each gas and oil fields.
12. Financial instruments and financial risk management
The Group has exposure to the following risks from its use of
financial instruments:
-- Liquidity risk;
-- Market risk;
-- Credit risk.
This note presents information about the Group's exposure to
each of the above risks, the Group's objectives, policies and
processes for measuring and managing risk, and the Group's
management of capital. Further quantitative disclosures are
included throughout this consolidated financial statement.
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.
12.1 Liquidity risk
Liquidity risk is the risk that the Group will not be able to
meet its financial obligations as they fall due. The Group monitors
the risk of cash shortfalls by means of current liquidity planning.
The Group's approach to managing liquidity is to ensure, as far as
possible, that it will always have sufficient liquidity to meet its
liabilities when due, under both normal and stressed conditions,
without incurring unacceptable losses or risking damage to the
Group's reputation. This approach is used to analyse payment dates
associated with financial assets, and also to forecast cash flows
from operating activities. The contractual maturities of financial
liabilities are presented including estimated interest
payments.
The Group's current liabilities exceed current assets by 158,189
as at 30 June 2018. The Group plans to cover liquidity gap by cash
inflows from operating activity in 2018. For additional liquidity
risk mitigation as of 30 June 2018 the Group has unused borrowing
facility in the amount of 100,000.
With all the above the Group management considers the liquidity
risk as low.
The table below summarises the maturity profile of the Group's
financial liabilities based on contractual undiscounted
payments:
Contractual amount Less than 1-3 years Over
1 year 3 years
Financial liabilities as at 30 June 2018 (unaudited)
Borrowings 1,619,638 552,952 1,066,686 -
Trade and other payables 178,377 96,688 81,689 -
Obligations under finance lease 806 806 - -
Total 1,798,821 650,446 1,148,375 -
Contractual amount Less than 1-3 years Over
1 year 3 years
Financial liabilities as at 31 December 2017
Borrowings 1,871,795 452,638 1,282,464 136,693
Trade and other payables 175,546 93,857 - 81,689
Obligations under finance lease 1,666 1,666 - -
Total 2,049,007 548,161 1,282,464 218,382
12.2 Market risk
Market risk includes interest risk and foreign currency exchange
rate risk.
a) Interest risk
The Group has exposure to interest risk since the Group's
subsidiary, Diall Alliance LLC, entered into a non-revolving credit
facility agreement with Sberbank and, according to the terms of the
agreement, Sberbank may unilaterally amend the interest rate in the
event of increases in refinancing rates of the Central Bank of
Russia. While Sberbank actually decreased the interest rate to
9.71% from 10.73% on 16 February 2018.
b) Foreign currency exchange rate risk
The Group does not have any significant exposure to foreign
currency risk, as no significant sales, purchases or borrowings are
denominated in a currency other than the functional currency.
The Group's operations are carried in the Russian Federation,
where all of its revenue, costs and financing from both Sberbank
and intra-group lending are denominated in RUB. As a result there
is no exposure at the operating subsidiary level to foreign
currency exchange risk movements.
12.3 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 80.4% and 84.8%, of
the Group's total revenue during the first six months of 2018 and
2017, respectively. The loss or the insolvency of this customer for
any reason, or reduced sales of the Group's principal product,
could significantly reduce the Group's ongoing revenue and/or
profitability, and could materially and adversely affect the
Group's financial condition. The credit rating assigned to Gazprom
by Standard & Poor's is BBB-. To manage credit risk and
exposure to the loss of the key customer, the Group has entered
into a long-term contract with Gazprom Mezhregiongaz Saratov LLC,
effective through 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 the first six months of
2018 cash was held mainly with Sberbank and Bank Rossiysky
Capital.
To limit exposure to credit risk on cash and cash equivalents
management's policy is to hold cash and cash equivalents in
reputable financial institutions.
30 June 2018 31 December
2017
(unaudited)
ruBBB-, Expert RA 216,000 115,000
Ba2.ru, Moody's 89,595 163,328
Ba1.ru, Moody's 168 -
Ba3.ru, Moody's - 105
Other 8,739 8,321
Total cash and cash equivalents 314,502 286,754
12.4 Capital management
The Group considers its capital and reserves attributable to
equity shareholders to be the Group's capital. In managing its
capital, the Group's primary long-term objective is to provide a
return for its equity shareholders through capital growth. Going
forward, the Group may seek additional investment funds and also
maintain a gearing ratio that balances risks and returns at an
acceptable level, while maintaining a sufficient funding base to
enable the Group to meet its working capital needs. Details of the
Group's capital are disclosed in the interim statement of changes
in equity.
There have been no significant changes to management's
objectives, policies or processes in the period, nor has there been
any change in what the Group considers to be capital.
The Group companies are in compliance with externally imposed
capital requirements as of 30 June 2018 and 31 December 2017.
13. Commitments and contingencies
13.1 Capital commitments
Capital expenditure contracted for at the end of the reporting
period but not yet incurred at 30 June 2018 was 48,420, net of VAT
(31 December 2017: 483,042, net of VAT).
13.2 Insurance
The insurance industry in the Russian Federation is in a
developing state and many forms of insurance protection common in
other parts of the world are not generally available. The Group's
insurance currently includes cover for damage to or loss of assets,
third-party liability coverage (including employer's liability
insurance), in each case subject to excesses, exclusions and
limitations. However, there can be no assurance that such insurance
will be adequate to cover losses or exposure to liability, or that
the Group will continue to be able to obtain insurance to cover
such risks. Until the Group obtains adequate insurance coverage
there is a risk that the loss or destruction of certain assets
could have a material adverse effect on the Group's operations and
financial position.
13.3 Litigation
The Group has been involved in a number of court proceedings
(both as a plaintiff and as a defendant) arising in the normal
course of business. In the opinion of management there are no
current legal proceedings or other claims outstanding which could
have a material adverse effect on the results of operations,
financial position or cash flows of the Group and which have not
been accrued or disclosed in these financial statements.
No provision for litigations was accrued as at 31 December 2017
or 30 June 2018.
13.4 Taxation contingencies
Russian tax, currency and customs law allows for various
interpretations and is subject to frequent changes. Management's
interpretation of legislation as applied to the Company's
transactions and activities may be challenged by regional or
federal authorities.
The Group operates in a number of foreign jurisdictions besides
Russian Federation. The Group includes companies established
outside the Russian Federation that are subject to taxation at
rates and in accordance with the laws of jurisdictions in which the
companies of the Group are recognised as tax residents. Tax
liabilities of foreign companies of the Group are determined on the
basis that foreign companies of the Group are not tax residents of
the Russian Federation, nor do they have a permanent representative
office in the Russian Federation and are therefore not subject to
income tax under Russian law, except for income tax deductions at
the source.
In 2018, there was further implementation of mechanisms aimed at
avoiding tax evasion using low-tax jurisdictions and aggressive tax
planning structures. In particular, these changes included the
definition of the concept of beneficial ownership, the tax
residence of legal entities at the place of actual activities, as
well as the approach to taxation of controlled foreign companies in
the Russian Federation.
In addition, the concept of tax benefits for all taxes levied on
the territory of the Russian Federation was legislatively
established, with a focus on the presence of a business objective
in the conduct of business operations, as well as confirmation of
the fulfilment of obligations under the agreements concluded by the
parties to the contract, or by the person to whom these obligations
were transferred under a contract or law. This adjustment
significantly changes the concept of recognising the fact that
taxpayers receive unreasonable tax benefits, which will have a
significant impact on the prevailing judicial practice. At the same
time, the practical mechanism for applying this rule has not yet
been fully resolved, and judicial practice on the changes
introduced is not formed.
These changes and recent trends in applying and interpreting
certain provisions of Russian tax law indicate that the tax
authorities may take a tougher stance in interpreting legislation
and reviewing tax returns. The tax authorities may thus challenge
transactions and accounting methods that they have never challenged
before. As a result, significant taxes, penalties and fines may be
accrued. It is not possible to determine the amounts of
constructive claims or evaluate the probability of a negative
outcome. Tax audits may cover a period of three calendar years
immediately preceding the audited year. Under certain
circumstances, the tax authorities may review earlier tax
periods.
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.
13.5 Environmental matters
The Group's operations are in the upstream oil and gas industry
in the Russian Federation and its activities may have an impact on
the environment. The enforcement of environmental regulations in
the Russian Federation is evolving and the enforcement stance of
government authorities is continually being reconsidered. The Group
periodically evaluates its obligations related thereto. The outcome
of environmental liabilities under proposed or future legislation,
or as a result of stricter interpretation and enforcement of
existing legislation, cannot reasonably be estimated at present,
but could be material.
Under the current levels of enforcement of existing legislation,
management believes there are no significant liabilities in
addition to amounts already accrued as a part of the
decommissioning provision and which would have a material adverse
effect on the financial position or results of the Group.
14. Related party transactions
During the period there were no operations with related parties,
except for key management remunerations.
The remuneration of key management comprised of salary and
bonuses in the amount 4,207 (first six months of 2017: 13,585).
15. Events after the reporting date
There were no events after the reporting date that require
disclosures in the Group's interim condensed consolidated financial
statements.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR BCGDCBUDBGIU
(END) Dow Jones Newswires
September 26, 2018 02:01 ET (06:01 GMT)
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