TIDMRPT
RNS Number : 7459K
Regal Petroleum PLC
26 September 2016
26 September 2016
REGAL PETROLEUM PLC
2016 INTERIM RESULTS
Regal Petroleum plc (the "Company", and with its subsidiaries,
the "Group"), the AIM-quoted (RPT) oil and gas exploration and
production group, today announces its unaudited results for the six
month period ended 30 June 2016.
Principal Developments
Ukraine Operations
* Despite ongoing geopolitical events in Ukraine, the
Group's production operations have continued
relatively normally, although such events have
resulted in volatility and weakening of the Ukrainian
Hryvnia exchange rates and disruption to the gas
sales market and gas sales price
* Average production from the MEX-GOL and SV fields
over the six month period to 30 June 2016 of 167,541
m(3) /d of gas, 42.4 m(3) /d of condensate and 19.8
m(3) /d of LPG (1,395 boepd in aggregate) (1H 2015:
145,009 m(3) /d of gas, 45.0 m(3) /d of condensate
and 20.4 m(3) /d of LPG (1,291 boepd in aggregate))
* During the first half of 2016, the Group purchased
4,627,701 m(3) of "wet" gas and following treatment
of this gas, produced 2,824,773 m(3) of gas, 753 m(3)
of condensate and 6,007 m(3) of LPG (48,408 boe in
aggregate)
* Commenced drilling of MEX-109 well in July 2016
Finance
-- Revenue for the six month period to 30 June 2016 of $10.4 million (1H 2015: $10.9 million)
-- Loss for the six month period to 30 June 2016 of $0.9 million (1H 2015: $3.3 million)
-- Cash generated from operations during the period of $3.3 million (1H 2015: $6.6 million)
-- Average realised gas, condensate and LPG prices in Ukraine
for the six month period to 30 June 2016 of $209/Mm(3)
(UAH5,315/Mm(3) ), $42/bbl and $29/bbl respectively (1H 2015:
$277/Mm(3) (UAH5,936/Mm(3) ) gas, $53/bbl condensate and $50/bbl
LPG)
-- Cash and cash equivalents at 30 June 2016 of $20.8 million
(31 December 2015: $19.9 million), with cash and cash equivalents
at 23 September 2016 of $19.5 million, held as to $9.1 million
equivalent in Ukrainian Hryvnia and the balance of $10.4 million
equivalent predominately in US Dollars and Sterling
-- Short-term investments at 30 June 2016 of $12.3 million in
respect of cash deposits held in Ukrainian Hryvnia with Unex Bank,
subsequently utilised after period end to acquire 100% interest in
LLC Prom-Enerho Produkt ("PEP") in a related party transaction with
the Smart Holding Group
Outlook
-- Focus during the second half of 2016 on completing
comprehensive review and re-evaluation study of geology,
geophysics, petroleum engineering and well performance at MEX-GOL
and SV fields
-- Continue to drill MEX-109 well
-- Development planning for PEP asset to include acquisition of
3D seismic and possible new well in 2017
-- Funding of remaining 2016 development programme anticipated
to be from existing cash and cash equivalents and operational
revenues
-- Geopolitical and economic outlook in Ukraine remains
uncertain but some improvements in geopolitical and economic
stability
This announcement contains inside information.
For further information, please contact:
Regal Petroleum plc Tel: 020 3427
3550
Keith Henry, Chairman
Sergei Glazunov, Finance Director
Strand Hanson Limited Tel: 020 7409
3494
Rory Murphy / Richard Tulloch
Citigate Dewe Rogerson Tel: 020 7638
9571
Martin Jackson / Shabnam Bashir
Philip Frank, PhD Geology, Chartered Geologist, FGS, PESGB,
consultant to the Company, has reviewed and approved the technical
information contained within this press release in his capacity as
a qualified person, as required under the AIM Rules for
Companies.
Definitions
AAPG American Association of Petroleum
Geologists
bbl barrel
boe barrels of oil equivalent
boepd barrels of oil equivalent per
day
LPG liquefied petroleum gas
m(3) cubic metres
m(3)/d cubic metres per day
Mm(3) thousand cubic metres
MMboe million barrels of oil equivalent
MMm(3) millions of cubic metres
Mtonne thousands of tonnes
NPV net present value of cash flows
discounted at 15.38%
% per cent
tonnes/d tonnes per day
scf standard cubic feet measured at
14.7 pounds per square inch and
60 degrees Fahrenheit
SPE Society of Petroleum Engineers
SPEE Society of Petroleum Evaluation
Engineers
$ United States Dollar
UAH Ukrainian Hryvnia
WPC World Petroleum Council
The SPE/WPC/AAPG/SPEE Petroleum Resources Management System
document, which includes definitions of Reserves and Contingent
Resources categorisations, can be viewed at:-
www.spe.org/spe-app/spe/industry/reserves/prms.htm
Chairman's Review
The Group is continuing with the development of its
Mekhediviska-Golotvshinska ("MEX-GOL") and Svyrydivske ("SV") gas
and condensate fields in north-eastern Ukraine, which are held
under 100% owned and operated production licences.
The major events that have taken place in Ukraine since late
2013, including the change of Government, civil unrest and military
conflict in the east of the country, have meant that there has been
a great deal of uncertainty about the political, fiscal and
economic outlook in Ukraine.
Nevertheless, the Group's operational activities have continued
to be relatively unaffected by the ongoing events in Ukraine, and
the Group has been able to produce relatively normally at its
MEX-GOL and SV fields. However, the continuing geopolitical
situation has resulted in significant volatility and weakening of
the Ukrainian Hryvnia exchange rates, uncertainty in the gas sales
price, the temporary imposition of significant increases in subsoil
taxes (now reversed) and disruption to the gas supply market over
the 2014/2015 winter period. These continuing uncertainties have
made it difficult to commit to major capital investment and caused
delays to the further development of the MEX-GOL and SV fields.
There has also been a degree of volatility and weakness in the
gas price in Ukraine, due not only to the geopolitical situation
but also the fall in European gas prices during recent months. The
prevailing industrial gas price in Ukraine, which is set in
Ukrainian Hryvnia, was broadly related to the US Dollar denominated
imported price of gas, but with effect from 1 October 2015, the
Ukrainian Government enacted legislation to deregulate the gas
supply market. The implementation of this new legislation has
resulted in the market gas price now broadly correlating to the
imported gas price.
As regards the Group's financial performance in the six months
ended 30 June 2016, a loss of $0.9 million (1H 2015: $3.3 million
loss) was made, mainly due to lower realised hydrocarbon prices.
Cash generated from operations during the period was positive at
$3.3 million (1H 2015: $6.6 million).
Since early 2014, the Ukrainian Hryvnia has devalued
significantly against the US Dollar, falling from UAH8.3/$1.00 on 1
January 2014 to UAH24.85/$1.00 on 30 June 2016, which resulted in
substantial foreign exchange translation losses for the Group over
that period, and in turn adversely impacted the carrying value of
the MEX-GOL and SV asset due to the translation of two of the
Group's subsidiaries from their functional currency of Ukrainian
Hryvnia to the Group's presentation currency of US Dollars.
However, in the first half of 2016, the exchange rate between the
Ukrainian Hryvnia and the US Dollar has been reasonably stable
averaging UAH25.47/$1.00 during the period (rate as at 30 June
2015: UAH21.0/$1.00).
As a result of the significant devaluation of the Ukrainian
Hryvnia since early 2014, the National Bank of Ukraine has imposed
comprehensive restrictions on the purchase of foreign currency and
the remittance of funds outside Ukraine. These restrictions, and
the many other economic issues in Ukraine, have put great strain on
the Ukrainian banking system, with increasing risks to the capital
strength, liquidity and creditworthiness of a number of banks.
Due to these banking restrictions, the Group is unable to remit
funds outside Ukraine, which has resulted in the Group's cash
holdings and short-term investments in Ukrainian Hryvnia remaining
at high levels during the period. In light of the stresses in the
banking sector in Ukraine, further details of which are set out
under the heading Risks relating to the Ukrainian banking sector in
the Operational Environment, Principal Risks and Uncertainties
section below, the Group has taken steps to diversify its banking
arrangements between a number of banks in Ukraine.
However, during the first half of 2016, the Group held a
significant proportion of its Ukrainian Hryvnia cash deposits in
PJSC Unex Bank ("Unex Bank"), which is part of the PJSC
Smart-Holding Group (the "Smart Holding Group"), which is
ultimately controlled by Mr Vadim Novinskiy, who also controls an
indirect majority shareholding in the Group. As a result, Unex Bank
is a related party to the Group.
Given the situation in Ukraine and its impact on the banking
sector, in May 2015 the Group obtained a guarantee from Pelidona
Services Limited (the "Guarantee") and a share pledge over a 100%
interest in LLC Prom-Enerho Produkt ("PEP") (the "Pledge"), which
were companies within the Smart Holding Group, in support of the
Group's cash deposits in Unex Bank. As a result of a reassessment
of the risks and limited liquidity associated with these cash
deposits, the Group reclassified such cash deposits as short-term
investments (with a carrying value equal to the cash deposits)
rather than cash or cash equivalents in the Group's financial
statements for the year ended 31 December 2015. Such cash deposits
amounted to $12.3 million (held in Ukrainian Hryvnia) as at 30 June
2016. At the end of February 2016, the duration of the Guarantee
and Pledge was extended until the end of August 2016.
Acquisition of LLC Prom-Enerho Produkt
As announced on 5 July 2016, as a result of ongoing discussions
between the Group and the Smart Holding Group regarding the funds
deposited with Unex Bank, on 4 July 2016, the Group acquired a 100%
shareholding interest in PEP for a cash consideration of UAH305
million (approximately $12.3 million as at that date) to be paid as
to (a) UAH165 million (approximately $6.7 million as at that date)
by way of initial consideration, and as to (b) UAH140 million
(approximately $5.6 million as at that date) by way of deferred
consideration to be paid on satisfaction of certain conditions
subsequent relating to, inter alia, discharge of certain guarantees
and sureties given by PEP and discharge of certain debts owing by
and/or to PEP, with all such consideration to be paid entirely from
the Group's cash balances in Unex Bank. Following the completion of
the acquisition of PEP and the satisfaction of such conditions
subsequent, the Pledge and Guarantee were discharged. As at the
date of this announcement, no material cash balances are held by
the Group in Unex Bank.
PEP is a Ukrainian incorporated company, which holds a
production licence over the Vasyschevskoye ("VAS") gas and
condensate field, which also includes the Vvdenska ("VVD")
prospect, located in the Dnieper-Donets basin in the north-east of
Ukraine. The production licence was granted in August 2012 with a
duration of 20 years, and is in respect of a 100% interest in the
licence.
PEP's audited financial statements for the year ended 31
December 2015 show that PEP's net assets as at 31 December 2015
were UAH113.2 million (approximately $4.7 million as at that date)
and net profits after tax for the year ended 31 December 2015 were
UAH34.6 million (approximately $1.4 million as at that date). As at
30 June 2016, PEP had cash of approximately UAH15.9 million
(approximately $0.6 million as at that date) and debt of
approximately UAH27.8 million (approximately $1.1 million as at
that date) owed to a Smart Holding Group company, which the Group
assumed and agreed to pay down by the end of December 2016.
As part of the acquisition process, the Group commissioned an
independent assessment of the VAS gas and condensate field and the
VVD prospect by Synergy (GB) Limited, which assessed the remaining
Reserves and Contingent Resources at the VAS field and the
Prospective Resources at the VVD prospect as at 1 January 2016 (the
"Report") as set out below. The Report accords with the March 2007
SPE/WPC/AAPG/SPEE Petroleum Resources Management System standard
for classification and reporting.
The Report estimates the remaining Reserves as at 1 January 2016
in the VAS field as follows:-
Proved Proved + Probable Proved + Probable
(1P) (2P) + Possible
(3P)
------------- ------------ ------------------ ------------------
Gas 91.5 MMm(3) 251.5 MMm(3) 448.6 MMm(3)
------------- ------------ ------------------ ------------------
Condensate 6.90 Mtonne 19.0 Mtonne 33.82 Mtonne
------------- ------------ ------------------ ------------------
Total 0.66 MMboe 1.80 MMboe 3.21 MMboe
------------- ------------ ------------------ ------------------
The Report estimates the Contingent Resources as at 1 January
2016 in the VAS field as follows:-
Contingent Contingent Contingent
Resources (1C) Resources (2C) Resources
(3C)
------------- ---------------- ---------------- -------------
Gas 153.0 MMm(3) 280.3 MMm(3) 515.4 MMm(3)
------------- ---------------- ---------------- -------------
Condensate 6.3 Mm(3) 11.4 Mm(3) 20.7 Mm(3)
------------- ---------------- ---------------- -------------
Total 158.6 MMm(3) 294.5 MMm(3) 538.0 MMm(3)
------------- ---------------- ---------------- -------------
The Report estimates the Prospective Resources as at 1 January
2016 in the VVD field as follows:-
Low Best High Mean
-------------- ------------- -------- -------- --------
Gas and 1,078.9 2,582.6 1,234.7
Condensate 441.8 MMm(3) MMm(3) MMm(3) MMm(3)
-------------- ------------- -------- -------- --------
The NPV of the 2P Reserves for the VAS field is estimated in the
Report at UAH343.9 million. The Report is consistent with the
proposed field development plans for the VAS field, which comprise
continued production from the existing three wells and the drilling
of one additional well to recover the 2P and 3P Reserves. The
additional well is estimated to cost US$5.9 million. The estimates
of Contingent Resources in the Report are based on the drilling of
one further additional well.
Operations and Production
Average daily production from the MEX-GOL and SV fields for the
six month period ended 30 June 2016 was 167,541 m(3) /d of gas,
42.4 m(3) /d of condensate and 19.8 m(3) /d of LPG (1,395 boepd in
aggregate), which was higher compared to the first half of 2015
predominately due to the commencement of production from the SV-6
well in late November 2015, which boosted gas production levels (1H
2015: 145,009 m(3) /d of gas, 45.0 m(3) /d of condensate and 20.4
m(3) /d of LPG (1,291 boepd in aggregate)).
The average daily production from the MEX-GOL and SV fields for
the period from 1 July 2016 to 22 September 2016 was 153,256 m(3)/d
of gas, 42.8 m(3)/d of condensate and 18.5 m(3)/d of LPG, which
equates to a combined total oil equivalent of 1,302 boepd. The
average daily production from the VAS field for the period from 4
July 2016 to 22 September 2016 was 77,369 m(3) /d of gas and 6.1
m(3)/d of condensate (521 boepd in aggregate).
Since early July 2015, the Group has been purchasing "wet" gas
from Pryrodni Resursy, the operator of the adjacent Lutsenky field,
and treating such "wet" gas through the Group's gas processing
facilities to strip out and sell the liquids. This operation
produces additional income and improves the utilisation of the
Group's gas processing facilities. In the first half of 2016, the
Group purchased 4,627,701 m(3) of "wet" gas and following treatment
of this gas, produced 2,824,773 m(3) of gas, 753 m(3) of condensate
and 6,007 m(3) of LPG (48,408 boe in aggregate).
The MEX-109 well was spudded at the end of July 2016 and is
targeting the Visean reservoirs ("B-Sands") in the MEX-GOL field.
The well has a target depth of 5,250 metres, with drilling
operations scheduled to be completed in March 2017 and, subject to
successful testing, production hook-up by the end of the second
quarter of 2017. As at 22 September 2016, the well was drilling at
a depth of 2,916 metres.
The geopolitical situation, the volatility and weakness in the
gas price and the Ukrainian Hryvnia, and the fiscal and economic
uncertainty in Ukraine since the end of 2013, have meant that the
Group considered it necessary to reduce its capital investment
programme at the MEX-GOL and SV fields. The programme during the
first half of 2016 was limited to improvements to the Group's gas
processing facilities and pipeline network and performing remedial
work on existing wells. In addition, the Group engaged P.D.F
Limited to undertake a comprehensive review and re-evaluation study
of the geology, geophysics, petroleum engineering and well
performance at the MEX-GOL and SV fields,
Business Review and Outlook
The instability in Ukraine over recent times has meant that
planning for the further development of the MEX-GOL and SV fields
has been substantially disrupted, and the various political,
economic and fiscal uncertainties have made budgeting and
commitment to capital investment problematic. However, the slowly
improving geopolitical and economic climate in Ukraine is cause for
some optimism and the Group is now stepping up its planning for the
further development of the MEX-GOL and SV fields. In addition, the
Group is planning its development programme for the PEP asset,
which should include the acquisition of new 3D seismic over the
2016/2017 winter period and the possible drilling of a new well in
the VAS field later in 2017.
At the MEX-GOL and SV fields during the remainder of 2016, we
plan to complete the comprehensive review and re-evaluation study
by P.D.F Limited, which we anticipate will greatly assist in the
future development of the fields, as well as continuing the
drilling of the MEX-109 well, the possible workover of the GOL-2
well, the installation of additional compression equipment,
continued investment in the gas processing facilities and pipeline
network, and performing remedial work on existing wells.
It is hoped that the situation in Ukraine will continue to
improve over the coming months, allowing better visibility on the
political and economic outlook and in turn assisting with the
Group's development planning for its Ukrainian assets.
In conclusion, on behalf of the Board, I would like to thank our
staff for the continued dedication and support they have shown over
the period.
Keith Henry
Executive Chairman
23 September 2016
Finance Review
The Group's loss for the period ended 30 June 2016 was $0.9
million (1H 2015: $3.3 million loss). Revenue in the first half of
2016, derived from the sale of the Group's Ukrainian gas,
condensate and LPG production, was lower at $10.4 million (1H 2015:
$10.9 million) primarily due to lower realised hydrocarbon
prices.
Cash generated from operations during the period was $3.3
million (1H 2015: $6.6 million), which was substantially lower due
to lower hydrocarbon prices.
For the six month period ended 30 June 2016, the average
realised gas, condensate and LPG prices were $209/Mm(3)
(UAH5,315/Mm(3) ), $42/bbl and $29/bbl respectively (1H 2015:
$277/Mm(3) (UAH5,936/Mm(3) ) gas, $53/bbl condensate and $50/bbl
LPG).
During the period from 1 July 2016 to 22 September 2016, the
average realised gas, condensate and LPG prices were $201/Mm(3)
(UAH5,083/Mm(3) ), $56/bbl and $64/bbl respectively. The current
realised gas price is $201/Mm(3) (UAH5,197/Mm(3) ).
The gas supply market in Ukraine was regulated and gas prices
were generally benchmarked against the industrial gas price set by
the National Commission for State Energy and Public Utilities
Regulation which was broadly related to the price of imported gas.
However, with effect from 1 October 2015, the Ukrainian Government
introduced legislation to deregulate the gas supply market in
Ukraine. Since then the market price for gas has broadly correlated
to the price of imported gas, which has trended lower during recent
months, reflecting the decrease in European gas prices. In
addition, declines in industrial consumption resulting from the
economic issues in Ukraine have contributed to weakness in demand
and gas price in the gas supply market.
During the period from August 2014 to the end of 2015, the
Ukrainian Government introduced emergency fiscal measures which
significantly increased the subsoil taxes payable on gas and
condensate production in Ukraine. However, with effect from 1
January 2016, the subsoil taxes on gas production reverted to
substantially the same levels that were in effect prior to the
introduction of the temporary increases. The new subsoil tax rates
are 29% for gas produced from deposits at depths above 5,000 metres
and 14% for gas produced from deposits below 5,000 metres, and 45%
for condensate produced from deposits above 5,000 metres and 21%
for condensate produced from deposits below 5,000 metres.
Cost of sales for the six month period ended 30 June 2016 was
lower at $8.2 million (1H 2015: $9.4 million), mainly due to
exchange rate fluctuations.
Administrative expenses for the period were higher at $2.4
million (1H 2015: $2.0 million), primarily due to expenditure on
consultants related to the acquisition of PEP.
The tax charge for the six month period ended 30 June 2016 of
$1.2 million (1H 2015: $3.8 million) comprises a current tax charge
of $0.7 million (1H 2015: $0.6 million) and a deferred tax charge
of $0.5 million (1H 2015: $3.2 million).
The Group has recognised a deferred tax asset of $13.6 million
at 30 June 2016 (30 June 2015: $14.1 million). This comprises a
deferred tax asset of $3.6 million (30 June 2015: $4.5 million) in
relation to UK tax losses carried forward, and $10.0 million (30
June 2015: $9.6 million) relating to the Group's MEX-GOL and SV
asset in Ukraine, which is recognised on the tax effect of
temporary timing differences between the carrying value of such
asset and its tax base, following its impairment in 2013. The
reduction in the deferred tax asset in the first half of 2016 is
primarily due to a decrease of forecasted taxable income for the
following 5 years caused by impairment of the loans receivable and
weakening of Euro against the US Dollar.
Capital investment of $0.4 million predominately reflects
investment in the Group's oil and gas development and production
asset for the year (1H 2015: $1.2 million). Capital investment was
lower in the period as a result of the reduction in the field
development programme due to the geopolitical and economic
uncertainty in Ukraine. However, prepayments of $2.7 million
relating to drilling costs of the MEX-109 well and consulting costs
of the re-evaluation study of the MEX-GOL and SV fields will
significantly increase capital additions in the second half of
2016.
Cash and cash equivalents held at 30 June 2016 were $20.8
million (31 December 2015: $19.9 million). The Group's cash and
cash equivalents balance at 23 September 2016 was $19.5 million,
held as to $9.1 million equivalent in Ukrainian Hryvnia and the
balance of $10.4 million equivalent predominantly in US Dollars and
Sterling.
As a result of the significant devaluation of the Ukrainian
Hryvnia since early 2014, the National Bank of Ukraine, among other
measures, imposed comprehensive restrictions on the purchase of
foreign currency and on the remittance of funds outside Ukraine.
These restrictions, and the many other economic issues in Ukraine,
have put great strain on the Ukrainian banking system, with
increasing risks in the capital strength, liquidity and
creditworthiness of a large number of local banks, and very high
rates in the wholesale and overnight markets. In addition, there
have been significant deposit outflows from the banking system and
widespread restructuring of bank clients' maturing liabilities. As
a result of recommendations from the International Monetary Fund,
significant reforms to the Ukrainian banking sector are being
implemented, which are intended to strengthen the capitalisation of
the Ukrainian banks.
The deterioration in the banking sector in Ukraine has caused
the Group to take steps to diversify its banking arrangements
between a number of banks in Ukraine. These measures are designed
to spread the risks associated with each bank's creditworthiness,
but the Ukrainian banking sector remains weakly capitalised and so
the risks associated with the banks in Ukraine remain significant,
including in relation to the banks with which the Group operates
bank accounts. In addition, the severe banking restrictions
referred to above, have meant that the Group is unable to remit
funds outside Ukraine and as a result, the Group's cash holdings of
Ukrainian Hryvnia in Ukraine remained at a high level during the
period. Further details are set out in the Operational Environment,
Principal Risks and Uncertainties section.
During the period, the Group held bank accounts in Ukraine with
Unex Bank which is indirectly controlled by Mr V Novinskiy, who
also controls a majority shareholding in the Group. As a result,
Unex Bank is a related party to the Group. At 30 June 2016, the
Group had cash deposits of $12.3 million (held in Ukrainian
Hryvnia) in Unex Bank. Such cash deposits were recorded in the
financial statements of the Group as short-term investments (with a
carrying value equal to the cash deposits), rather than cash or
cash equivalents due to the limited liquidity of the asset. On 4
July 2016, in a related party transaction, the Group acquired a
100% interest in PEP from the Smart Holding Group, utilising
substantially all of the Group's cash deposits in Unex Bank. As at
the date of this announcement, no material cash balances are now
held by the Group in Unex Bank.
Cash from operations has funded the capital investment during
the year, and the Group's current cash position and positive
operating cash flow are the sources from which the Group expects to
fund the development programmes for its assets in the remainder of
2016.
The ongoing situation in Ukraine has resulted in a significant
devaluation of the Ukrainian Hryvnia against the US Dollar,
continued devaluation of which may affect the carrying value of the
Group's assets in the future.
Operational Environment, Principal Risks and Uncertainties
The Group has a risk evaluation methodology in place to assist
in the review of the risks across all material aspects of its
business. This methodology highlights technical, operational,
external and fiduciary risks and assesses the level of risk and
potential consequences. It is periodically presented to the Audit
Committee and the Board for review, to bring to their attention
potential concerns and, where possible, propose mitigating actions.
Key risks recognised are detailed below:-
Risks relating to Ukraine
The Ukrainian economy is currently characterised by high
political and economic risks. As a developing economy, in addition
to the impact of local political and economic instability,
Ukraine's economy is vulnerable to market downturns and economic
slowdowns elsewhere in the world.
Since late 2013, the political situation in Ukraine has
experienced significant instability with numerous protests and
ongoing political uncertainty that has led to a deterioration of
the State's finances, volatility of financial markets, illiquidity
on capital markets, high inflation and a substantial depreciation
of the Ukrainian Hryvnia against major foreign currencies. This
caused the ratings of Ukrainian sovereign debt to be downgraded by
international rating agencies, but in late 2015, the ratings
improved following the restructuring of part of Ukraine's sovereign
debt. During 2015, Ukraine's GDP decreased by 10.4% and annual
inflation rose to 43.3% (2014: GDP decreased 6.8%; inflation
increased by approximately 25%). However, there was an improvement
in the official inflation rate during the first half of 2016 to
approximately 5%.
As a result of protests in late 2013 and early 2014, there was a
change in the President and Government of Ukraine, which led to a
deterioration in relations with Russia. In late February 2014,
Russian troops occupied Crimea, and in April and May 2014,
pro-Russian groups in the Donetsk and Lugansk regions demanded
autonomy from Ukraine, which led to armed conflict with Ukrainian
Government forces. In February 2015, a ceasefire agreement was
negotiated, and although there has continued to be sporadic
fighting, this ceasefire has largely held.
The Group has no assets in Crimea or the areas of conflict in
the east of Ukraine, nor do its operations rely on sales or costs
incurred there.
The conflict in the region has put further pressure on relations
between Ukraine and Russia, and the political tensions have had an
adverse effect on the Ukrainian financial markets, hampering the
ability of Ukrainian companies and banks to obtain funding from the
international capital and debt markets.
On 1 January 2016, the agreement on the free trade area between
Ukraine and the EU came into force. The Russian Government reacted
to this event by implementing a trading embargo on many key
Ukrainian export products. In response, the Ukrainian Government
implemented similar measures against Russian products.
Since the beginning of 2014, the Ukrainian Hryvnia has devalued
significantly against major world currencies, including against the
US Dollar, where it has fallen from UAH8.3/$1.00 on 1 January 2014
to UAH24.85/$1.00 on 30 June 2016. However, in the first half of
2016, the exchange rate between the Ukrainian Hryvnia and the US
Dollar has been reasonably stable averaging UAH25.47/$1.00 during
the period. As a result of such devaluation, significant external
financing is required to maintain the country's economic stability.
The National Bank of Ukraine, among other measures, has imposed
severe restrictions on the processing of client payments by banks,
on the purchase of foreign currency on the inter-bank market and on
the remittance of funds outside Ukraine. The Ukrainian banking
system is fragile due to its weak levels of capital, its weakening
asset quality caused by the economic situation, currency
depreciation, and the general economic situation in Ukraine.
The Ukrainian Government has continued to work with the United
States, European Union and International Monetary Fund in order to
maintain financing and avoid defaulting on its loans. On 11 March
2015, a funding package from the International Monetary Fund
amounting to $17.5 billion over a four year period was agreed. The
terms of this new funding package stipulated a number of fiscal and
economic reforms, including reforms in the banking and energy
sectors. During 2015, Ukraine received the first and second
tranches under the funding programme of $5 billion and $1.7 billion
respectively, and on 16 September 2016 a further tranche of $1.0
billion was released with another tranche of $1.3 billion scheduled
for November 2016. In October 2015, Ukraine reached an agreement
with the majority of its creditors for the restructuring of part of
the national external debt in the amount of $15 billion. The
restructuring extends the maturities of the restructured debt to
2019-2027, fixing annual interest rates at 7.75% and includes the
exchange of 20% of the debt into GDP warrants at a par value of
$2.9 billion. However, there remains a significant portion of
outstanding debt for which a restructuring was not agreed. Further
disbursements of International Monetary Fund tranches depend on the
implementation of Ukrainian Government reforms, and other economic,
legal and political factors.
The final resolution and the effects of the political and
economic situation in Ukraine are difficult to predict but they are
likely to continue to have severe effects on the Ukrainian
economy.
These events have not materially affected the Group's production
operations to date, but the ongoing instability is disrupting the
Group's development and operational planning for its assets.
Furthermore, the political, fiscal and economic instability has
impacted the Group's normal business activities, and increased the
risks relating to its business operations, financial status, access
to secure banking facilities and maintenance of its Ukrainian
production licences.
The Ukrainian Government is keen to develop the country's
domestic production of hydrocarbons since Ukraine imports the
majority of its gas. While this should put the Group in a
well-placed position, as experienced previously, there are
significant risks to carrying out business in the country. It is
considered that the involvement of Energees Management Limited, as
a major shareholder with extensive experience in Ukraine, has
helped to mitigate such risks.
Going concern risk
The Group is exposed to risks relating to Ukraine as well as
production, hydrocarbon price and other risks, as detailed in this
Operational Environment, Principal Risks and Uncertainties section.
In view of this, the Group prepares monthly cash flow forecasts
which take into account the risks facing the business, to assess
its ability to meet its obligations as they fall due, taking into
account the risks of variances in revenues.
Having reviewed the financial statements, budgets and forward
plans (including sensitivity analysis), the latest operational
results, the risks outlined herein, and having taken into account
the Group's cash holdings, the current and recent practice of
contracting for drilling services on a fixed-price basis, the
absence of long term contractual arrangements relating to drilling,
the assessment of well results prior to entering into firm
commitments for future drilling operations and the lower committed
expenditure in Ukraine, the Directors continue to believe that the
Group is able to manage its business risks successfully despite the
current uncertain political and economic outlook. The Directors
have a reasonable expectation that the Group has adequate resources
to continue in operational existence for the foreseeable future
regarded as at least 12 months from the date of signing of the
Group's financial statements. Therefore they continue to adopt the
going concern basis of accounting in preparing the financial
statements.
Production risks
Producing gas and condensate reservoirs are generally
characterised by declining production rates which vary depending
upon reservoir characteristics and other factors. Future production
of the Group's gas and condensate reserves, and therefore the
Group's cash flow and income, are highly dependent on the Group's
success in operating existing producing wells, drilling new
production wells and efficiently developing and exploiting any
reserves, and finding or acquiring additional reserves. The Group
may not be able to develop, find or acquire reserves at acceptable
costs. The experience gained from drilling undertaken to date
highlights such risks as the Group targets the appraisal and
production of these hydrocarbons.
Risks relating to further development and operation of the
Group's gas and condensate fields in Ukraine
The planned development and operation of the Group's gas and
condensate fields in Ukraine is susceptible to appraisal,
development and operational risk. This could include, but is not
restricted to, delays in delivery of equipment in Ukraine, failure
of key equipment, lower than expected production from wells that
are currently producing, or new wells that are brought on-stream,
problematic wells and complex geology which is difficult to drill
or interpret. The generation of significant operational cash is
dependent on the successful delivery and completion of the
development and operation of the fields. These risks have been
demonstrated by the previous downgrade in the Group's remaining
reserves which resulted in the reduction in the value in use, and
consequent impairment loss relating to the Group's MEX-GOL and SV
asset in Ukraine. Furthermore, the optimisation of the Group's
assets is dependent on maintaining constructive relationships
between all business stakeholders.
Exposure to credit, liquidity and cash flow risk
The Group does not currently have any loans outstanding. Local
customers are managed in Ukraine and their financial position, the
Group's past experience and other factors are evaluated. Internal
financial projections are regularly made based on the latest
estimates available, and various scenarios are run to assess the
robustness of the liquidity of the Group. The Group currently holds
sufficient cash and cash equivalents for the anticipated short to
medium term needs of the business. Whilst much of the future
capital requirement is expected to be derived from operational cash
generated from production, including from wells yet to be drilled,
there is a risk that in the longer term insufficient operational
cash is generated, or that additional funding, should the need
arise, cannot be secured.
Risks relating to the Ukrainian banking sector
The instability in Ukraine has led to a significant
deterioration of Ukraine's finances, volatility in financial
markets, illiquidity on capital markets and a substantial
depreciation of the Ukrainian Hryvnia against major foreign
currencies. As a result, significant external financing is required
to maintain the country's economic stability. The National Bank of
Ukraine, amongst other measures, has imposed comprehensive
restrictions on the processing of client payments by banks, on the
purchase of foreign currency on the inter-bank market and on the
remittance of funds outside Ukraine, with particular restrictions
on operations with foreign currency including temporary bans on the
payment of dividends in foreign currency and the early repayment of
debts to non-residents and the mandatory sale of 65% (reduced
during the period from 75%) of revenue in foreign currency. These
measures and the many other economic issues in Ukraine have put
great strain on the Ukrainian banking system, with increasing risks
in the capital strength, liquidity and creditworthiness of a
number of banks, and very high rates in the wholesale and
overnight markets. In addition, there have been significant deposit
outflows from the banking system and widespread restructuring of
bank clients' maturing liabilities.
The new funding package to Ukraine, approved by the
International Monetary Fund in March 2015, required significant
reforms to the Ukrainian banking sector, which are now being
implemented. The reforms are being overseen by the National Bank of
Ukraine and involve all banks being inspected and assessed, with
particular emphasis on lending to a bank's related parties. The
inspections are designed to enable the National Bank to assess the
financial strength and liquidity of the banks in Ukraine, and may
lead to the National Bank imposing remedial measures, ranging from
the imposition of requirements for a bank to bolster its capital
strength, requirements for a bank to reduce its exposure to related
party lending, the appointment of an administrator to manage the
priority of payments by a bank, or in the most extreme cases, the
liquidation of a bank.
In light of the deterioration in the banking sector in Ukraine,
the Group has taken steps to diversify its banking arrangements
between a number of banks in Ukraine. These measures are designed
to spread the risks associated with each bank's creditworthiness,
but the Ukrainian banking sector remains weakly capitalised and so
the risks associated with the banks in Ukraine remain
significant.
In addition, the severe banking restrictions referred to above,
have meant that the Group is unable to remit funds outside Ukraine,
which has resulted in the Group's cash holdings of Ukrainian
Hryvnia in Ukraine remaining at a high level during the period.
The creditworthiness and potential risks relating to the
majority of banks in Ukraine are regularly reviewed by the Group,
but the ongoing geopolitical and economic events in Ukraine have
significantly weakened the Ukrainian banking sector and so the
risks associated with the banks in Ukraine remain significant,
including in relation to the banks with which the Group operates
bank accounts.
Currency risk
The Group's main activities are (i) investment into the
development of the Group's Ukrainian gas and condensate asset; (ii)
the production and sale of gas, condensate and LPG; and (iii) the
continued exploration for further hydrocarbon reserves.
The Group receives sales proceeds in Ukrainian Hryvnia, and the
majority of the capital expenditure costs for the 2016 investment
programme will be incurred in Ukrainian Hryvnia, thus revenue and
costs are largely matched. As with all currencies, the value of the
Ukrainian Hryvnia is subject to foreign exchange fluctuations, but
as the Ukrainian Hryvnia does not benefit from the range of
currency hedging instruments which are available in more developed
economies, the Group had previously adopted a policy that, where
possible, funds not required for use in Ukraine be retained on
deposit in the United Kingdom, principally in US Dollars. However,
the severe banking restrictions, referred to above, on the purchase
of foreign currency and the remittance of funds outside Ukraine
have meant that the Group has been unable to follow this policy,
and as a result, the Group's cash holdings of Ukrainian Hryvnia in
Ukraine have remained at a high level during the period.
Furthermore, since the beginning of 2014, the Ukrainian Hryvnia
has significantly devalued against major world currencies,
including against the US Dollar, where it has fallen from
UAH8.3/$1.00 on 1 January 2014 to UAH24.85/$1.00 on 30 June 2016.
As at 23 September 2016, the Ukrainian Hryvnia was trading at
UAH25.92/$1.00. In response, the National Bank of Ukraine, among
other measures, has imposed severe restrictions on the processing
of client payments by banks, on the purchase of foreign currency on
the inter-bank market and on the remittance of funds outside
Ukraine, with particular restrictions on operations with foreign
currency including temporary bans on the payment of dividends in
foreign currency and the early repayment of debts to non-residents
and the mandatory sale of 65% (reduced during the period from 75%)
of revenue in foreign currency. In addition, the events in Ukraine
over recent years, as outlined above in "Risks relating to
Ukraine", are likely to continue to impact the valuation of the
Ukrainian Hryvnia against major world currencies. Further
devaluation of the Ukrainian Hryvnia against the US Dollar will
affect the carrying value of the Group's assets.
Ukraine Production Licences
The Group operates in a region where the right to production can
be challenged by State and non-State parties. During 2010, this
manifested itself in the form of a Ministry Order instructing the
Group to suspend all operations and production from its MEX-GOL and
SV production licences, which was not resolved until mid-2011. In
2013, new rules relating to the updating of production licences led
to further challenges being raised by the Ukrainian authorities to
the production licences held by independent oil and gas producers
in Ukraine, including the Group, which may result in requirements
for remediation work, financial penalties and/or the suspension of
such licences, which, in turn, may adversely affect the Group's
operations and financial position. All such challenges affecting
the Group have thus far been successfully defended through the
Ukrainian legal system. However, the business environment is such
that these type of challenges may arise at any time in relation to
the Group's operations, licence history, compliance with licence
commitments and/or local regulations. The Group endeavours to
ensure compliance with commitments and regulations via Group
procedures and controls or, where this is not immediately feasible
for practical or logistical considerations, seeks to enter into
dialogue with the relevant Government bodies with a view to
agreeing a reasonable time frame for achieving compliance or an
alternative, mutually agreeable course of action.
The Group's production licences for the MEX-GOL and SV field
currently expire in 2024. However, in the estimation of its
reserves, it is assumed that the field development will continue
until the end of the field's economic life in 2036, and a
consequent assumption is made that licence extensions will be
granted in accordance with current Ukrainian legislation. Despite
such legislation, it is possible that licence extensions will not
be granted, which would affect the achievement of full economic
field development and consequently the carrying value of the
Group's MEX-GOL and SV asset in the future.
Hydrocarbon price risk
The Group derives its revenue principally from the sale of its
Ukrainian gas, condensate and LPG production. These revenues are
subject to commodity price volatility and political influence. A
prolonged period of low gas, condensate and LPG prices may impact
the Group's ability to maintain its long-term investment programme
with a consequent effect on growth rate which in turn may impact
the share price or any shareholder returns. Lower gas, condensate
and LPG prices may not only decrease the Group's revenues per unit,
but may also reduce the amount of gas, condensate and LPG which the
Group can produce economically, as would increases in costs
associated with hydrocarbon production, such as subsoil taxes and
royalties.
There has been a degree of volatility and weakness in gas prices
in Ukraine during the first half of 2016, arising from the
geo-political situation in Ukraine during the period, as well as
reflecting a global decline in oil commodity prices. During 2015,
the Ukrainian Government implemented a number of reforms to the
internal gas market in Ukraine and with effect from 1 October 2015,
the gas supply market was deregulated. Since then, the market price
for gas has generally correlated to the price of imported gas,
which has decreased in recent months, reflecting the decline in
European gas prices.
The overall economics of the Group's key assets (being the net
present value of the future cash flows from its Ukrainian projects)
are far more sensitive to long term gas, condensate and LPG prices
than short term price volatility. However, short term volatility
does affect liquidity risk, as, in the early stage of the projects,
income from production revenues is offset by capital
investment.
Production based taxes
At the end of July 2014, the Ukrainian Government approved
emergency fiscal measures designed to assist in alleviating the
fiscal and economic pressures affecting the economy of Ukraine.
These imposed significant increases to the subsoil tax rates
payable on gas and condensate production. The measures were imposed
for the limited period from 1 August 2014 to 31 December 2014, but
due to the continuing fiscal and economic pressures affecting the
economy of Ukraine, these measures were extended until the end of
2015. With effect from 1 January 2016, the subsoil tax rates
relating to gas production reverted to substantially the same
levels as prior to the temporary increases, but it is possible that
similar significant increases to subsoil tax rates may be
implemented in the future.
Industry risks
The Group's ability to execute its strategy is subject to risks
which are generally associated with the oil and gas industry. For
example, the Group's ability to pursue and develop its projects and
development programmes depends on a number of uncertainties,
including the availability of capital, seasonal conditions,
regulatory approvals, gas, oil, condensate and LPG prices,
development costs and drilling success. As a result of these
uncertainties, it is unknown whether potential drilling locations
identified on proposed projects will ever be drilled or whether
these or any other potential drilling locations will be able to
produce gas, oil or condensate. In addition, drilling activities
are subject to many risks, including the risk that commercially
productive reservoirs will not be discovered. Drilling for
hydrocarbons can be unprofitable, not only due to dry holes, but
also as a result of productive wells that do not produce
sufficiently to be economic. In addition, drilling and production
operations are highly technical and complex activities and may be
curtailed, delayed or cancelled as a result of a variety of
factors. Furthermore, whilst the Group is committed to maintaining
the highest standards of health, safety, environmental and security
in its operational activities, hydrocarbon drilling and production
operations carry inherent risks, which in the event of an incident
may significantly affect the operational, production, financial
and/or business activities of the Group.
Financial Markets and Economic Outlook
The performance of the Group will be influenced by global
economic conditions and, in particular, the conditions prevailing
in the United Kingdom and Ukraine. The economies in these regions
have been subject to volatile pressures during the period, with the
global economy having experienced a long period of difficulties,
and more particularly the recent events that have occurred in
Ukraine. If these events continue, worsen or recur, the Group may
be exposed to increased counterparty risk as a result of business
failures in Ukraine or elsewhere and will continue to be exposed if
counterparties fail or are unable to meet their obligations to the
Group. The precise nature of all the risks and uncertainties the
Group faces as a result of these risks cannot be predicted and many
of these are outside of the Group's control.
Risks relating to key personnel
The Group has a relatively small team of executives and senior
management. Whilst this is sufficient for a group of this nature,
there is a dependency risk relating to the loss of key
individuals.
Condensed Interim Consolidated Income Statement
6 months 6 months 12 months
ended ended ended
30 Jun 30 Jun 31 Dec
16 15 15
(unaudited) (unaudited) (audited)
Note $000 $000 $000
Revenue 3 10,433 10,933 23,438
Cost of sales (8,237) (9,412) (19,779)
------------------------------- ----- ------------ ------------ ----------
Gross profit 2,196 1,521 3,659
Administrative expenses (2,402) (2,016) (4,006)
Other operating gains
and losses (net) 4 37 17 66
Operating loss (169) (478) (281)
Interest income 476 968 1,981
Finance costs (28) (14) (26)
Other gains and losses
(net) 42 5 (73)
Profit on ordinary activities
before taxation 321 481 1,601
Income tax expense 5 (1,197) (3,777) (2,581)
------------------------------- ----- ------------ ------------ ----------
Loss for the period (876) (3,296) (980)
------------------------------- ----- ------------ ------------ ----------
Loss per ordinary share
(cents)
Basic and diluted 6 (0.3c) (1.0c) (0.3c)
------------------------------- ----- ------------ ------------ ----------
The Notes set out below are an integral part of these condensed
interim consolidated financial statements.
Condensed Interim Consolidated Statement of Comprehensive
Income
6 months 6 months 12 months
ended ended ended
30 Jun 30 Jun 31 Dec
16 15 15
(unaudited) (unaudited) (audited)
$000 $000 $000
Loss for the period (876) (3,296) (980)
Items that may be subsequently
reclassified to profit or
loss:
Equity - foreign currency
translation (1,741) (17,607) (24,767)
Items that will not be subsequently
reclassified to profit or
loss:
Remeasurements of post-employment
benefit obligations - - (71)
------------------------------------- ------------ ------------ ----------
Total other comprehensive
expense (1,741) (17,607) (24,838)
Total comprehensive expense
for the period (2,617) (20,903) (25,818)
------------------------------------- ------------ ------------ ----------
The Notes set out below are an integral part of these condensed
interim consolidated financial statements.
Condensed Interim Consolidated Balance Sheet
30 Jun 31 Dec
16 15
(unaudited) (audited)
Note $000 $000
Assets
Non-current assets
Intangible assets 73 63
Property, plant and
equipment 7 14,135 18,503
Corporation tax receivable 233 200
Deferred tax asset 5 13,618 14,433
28,059 33,199
Current assets
Inventories 9 1,314 1,458
Trade and other receivables 8 4,055 2,055
Other short-term investments 11 12,333 13,067
Cash and cash equivalents 11 20,763 19,920
------------------------------- ----- ------------ -----------
38,465 36,500
Total assets 66,524 69,699
------------------------------- ----- ------------ -----------
Liabilities
Current liabilities
Trade and other payables (1,134) (1,521)
Corporation tax payable (325) (592)
------------------------------- ----- ------------ -----------
(1,459) (2,113)
------------------------------- ----- ------------ -----------
Net current assets 37,006 34,387
------------------------------- ----- ------------ -----------
Non-current liabilities
Provision for decommissioning 10 (933) (831)
Defined benefit liability (158) (164)
(1,091) (995)
Total liabilities (2,550) (3,108)
------------------------------- ----- ------------ -----------
Net assets 63,974 66,591
------------------------------- ----- ------------ -----------
Equity
Called up share capital 28,115 28,115
Share premium account 555,090 555,090
Foreign exchange reserve (95,525) (93,784)
Other reserves 4,273 4,273
Accumulated losses (427,979) (427,103)
------------------------------- ----- ------------ -----------
Total equity 63,974 66,591
------------------------------- ----- ------------ -----------
The Notes set out below are an integral part of these condensed
interim consolidated financial statements.
Condensed Interim Consolidated Statement of Changes in
Equity
Called up Share Foreign
share premium Merger Capital exchange Accumulated
capital account reserve contributions reserve* losses Total equity
$000 $000 $000 $000 $000 $000 $000
As at 1
January 2016
(audited) 28,115 555,090 (3,204) 7,477 (93,784) (427,103) 66,591
Loss for the
period (876) (876)
Other
comprehensive
expense
- exchange
differences - (1,741) (1,741)
--------------- ------------- ------------- --------- -------------- ------------- -------------- -------------
Total
comprehensive
expense - - (1,741) (876) (2,617)
As at 30 June
2016
(unaudited) 28,115 555,090 (3,204) 7,477 (95,525) (427,979) 63,974
--------------- ------------- ------------- --------- -------------- ------------- -------------- -------------
Called up Share Foreign
share premium Merger Capital exchange Accumulated
capital account reserve contributions reserve* losses Total equity
$000 $000 $000 $000 $000 $000 $000
As at 1
January 2015
(audited) 28,115 555,090 (3,204) 7,477 (69,017) (426,052) 92,409
Loss for the
period - (3,296) (3,296)
Other
comprehensive
expense
- Exchange
differences - (17,607) (17,607)
--------------- ------------- ------------- --------- -------------- ------------- -------------- -------------
Total
comprehensive
expense (17,607) (3,296) (20,903)
As at 30 June
2015
(unaudited) 28,115 555,090 (3,204) 7,477 (86,624) (429,348) 71,506
--------------- ------------- ------------- --------- -------------- ------------- -------------- -------------
* Predominantly as result of exchange differences on
retranslation, where the subsidiaries functional currency is not US
Dollar
The Notes set out below are an integral part of these condensed
interim consolidated financial statements.
Condensed Interim Consolidated Cash Flow Statement
6 months ended 6 months ended 12 months ended
30 Jun 16 30 Jun 15 31 Dec 15
(unaudited) (unaudited) (audited)
Note $000 $000 $000
Operating activities
Cash generated from operations 12 3,809 5,956 8,795
Taxation paid (978) (346) (679)
Interest received 495 968 1,956
------------------------------------------------------ ----- --------------- --------------- ----------------
Net cash inflow from operating activities 3,326 6,578 10,072
------------------------------------------------------ ----- --------------- --------------- ----------------
Investing activities
Purchase of property, plant and equipment (2,494) (967) (2,150)
Purchase of intangible assets (23) (4) (4)
Proceeds from sale of property, plant and equipment 11 13 5
Other short-term investments 241 (14,457) (13,067)
Net cash outflow from investing activities (2,265) (15,415) (15,216)
------------------------------------------------------ ----- --------------- --------------- ----------------
Net increase/(decrease) in cash and cash equivalents 1,061 (8,837) (5,144)
Cash and cash equivalents at beginning of period 19,920 31,836 31,836
Effect of foreign exchange rate changes (218) (4,054) (6,772)
Cash and cash equivalents at end of period 20,763 18,945 19,920
------------------------------------------------------ ----- --------------- --------------- ----------------
The Notes set out below are an integral part of these condensed
interim consolidated financial statements.
Notes to the condensed consolidated financial statements
1. Operating Environment
Regal Petroleum plc (the "Company") and its subsidiaries
(together the "Group") is a gas, condensate and LPG production
group.
Regal Petroleum plc is a company quoted on the AIM Market of
London Stock Exchange plc and incorporated in England and Wales
under the Companies Act 2006. The Company's registered office is at
16 Old Queen Street, London SW1H 9HP, United Kingdom and its
registered number is 4462555.
As of 30 June 2016 and 2015, the Company's immediate parent
company was Energees Management Limited, which is 100% owned by
Pelidona Services Limited, which is 100% owned by Lovitia
Investments Ltd, which is 100% owned by Mr V Novinskiy.
Accordingly, the Company was ultimately controlled by Mr V
Novinskiy.
The Group's gas, condensate and LPG extraction and production
facilities are located in Ukraine. The ongoing political and
economic instability in Ukraine, which commenced in late 2013, has
led to a deterioration of Ukrainian State finances, volatility of
financial markets, illiquidity on capital markets, higher inflation
and a depreciation of the national currency against major foreign
currencies and has continued in the first half of 2016.
In March 2014, various events in Crimea led to the accession of
the Republic of Crimea to the Russian Federation. Further, in 2014
armed separatist forces obtained control over parts of the Donetsk
and Lugansk regions in eastern Ukraine. The relationships between
Ukraine and the Russian Federation worsened and remained strained.
On 1 January 2016, the agreement on the free trade area between
Ukraine and the EU came into force. The Russian government reacted
to this event by implementing a trading embargo on many key
Ukrainian export products. In response, the Ukrainian government
implemented similar measures against Russian products.
As at 23 September 2016, the official National Bank of Ukraine
exchange rate of the Ukrainian Hryvnia to the US Dollar was
UAH25.92/$1.00, compared to UAH24.85/$1.00 as at 30 June 2016 (31
December 2015: UAH24.00/$1.00).
To constrain devaluation of the Ukrainian Hryvnia in recent
years, the National Bank of Ukraine has imposed a number of
restrictions on operations with foreign currency including: a
temporary restriction on payment of dividends in foreign currency;
a temporary ban on early repayment of debts to non-residents;
mandatory sale of 65% (reduced during the period from 75%) of
revenue in foreign currency and other restrictions on cash and
non-cash operations. The National Bank of Ukraine prolonged these
restrictions several times during 2015 and the restrictions are
continuing at the date of this announcement.
Further details of these risks relating to Ukraine, can be found
within the Operational Environment, Principal Risks and
Uncertainties section earlier in this announcement.
The condensed interim consolidated financial statements for the
six month period ended 30 June 2016 have been prepared in
accordance with International Accounting Standard 34 'Interim
Financial Reporting' as adopted by the European Union. The
condensed interim financial statements should be read in
conjunction with the annual consolidated financial statements for
the year ended 31 December 2015, which have been prepared in
accordance with International Financial Reporting Standards
(hereinafter "IFRSs") as adopted by the European Union.
For the reasons outlined in the Operational Environment,
Principal Risks and Uncertainties section of this announcement, the
Directors have a reasonable expectation that the Group has adequate
resources to continue in operational existence for the foreseeable
future regarded as at least 12 months from the date of this
announcement. Accordingly, the going concern basis has been adopted
in preparing these condensed interim consolidated financial
statements for the period ended 30 June 2016. The use of this basis
of accounting takes into consideration the Company's and the
Group's current and forecast financing position, and included an
assessment of the impact of the reclassification of the cash held
in Unex Bank and further related party acquisition (Note 15) which
is historically profitable.
These condensed interim consolidated financial statements do not
comprise statutory accounts within the meaning of section 434 of
the Companies Act 2006. Statutory accounts for the year ended 31
December 2015 were approved by the Board of Directors on 31 May
2016 and subsequently filed with the Registrar of Companies. The
Auditor's Report on those accounts was not qualified, did not
contain any statement under section 498 of the Companies Act 2006,
but did contain an emphasis of matter in respect to the continuing
political and economic uncertainties in Ukraine.
The Auditor has carried out a review of the interim condensed
consolidated financial statements for the six month period ended 30
June 2016 and its report is shown at the end of this
announcement.
2. Accounting Policies
The accounting policies and methods of computation and
presentation used are consistent with those used in the Group's
Annual Report and Financial Statements for the year ended 31
December 2015 with the exception of the following new or revised
standards and interpretations:
-- IAS 1, 'Presentation of financial statements', amended to
clarify guidance on materiality and aggregation, the presentation
of subtotals, the structure of financial statements and the
disclosure of accounting policies.
-- Annual improvements to IFRSs 2012-2014 Cycle, improves and
amends existing standards, basis of conclusions and guidance, and
includes changes to:
- IFRS 7,'Financial instruments: Disclosures', amended to (i)
add guidance on whether an arrangement to service a financial asset
which has been transferred constitutes continuing involvement, and
(ii) clarify that the additional disclosure required by the
amendments to IFRS 7, 'Disclosure - Offsetting financial assets and
financial liabilities', is not specifically required for interim
periods, unless required by IAS 34.
- IAS 19,'Employee benefits', amended to clarify guidance on
discount rates for post-employment benefit obligations.
- IAS 34,'Interim financial reporting', amended to (i) clarify
what is meant by "information disclosed elsewhere in the interim
financial report" and (ii) require a cross reference to the
location of that information.
These amendments to IFRSs are effective for the year beginning
on/after 1 January 2016. The adoption of these amendments did not
have any impact on the current period or any prior period and is
not likely to affect future periods.
Estimates
The preparation of the condensed interim consolidated financial
statements requires management to make judgements, estimates and
assumptions that affect the application of accounting policies and
the reported amounts of assets and liabilities, income and
expenses. Actual results may differ from these estimates.
In preparing these condensed interim consolidated financial
statements, the significant judgements made by management in
applying the Group's accounting policies and the key sources of
estimation uncertainty were the same as those that applied to the
consolidated financial statements for the year ended 31 December
2015.
Other Short-term Investments
Other short-term investments include current accounts and
deposits held at banks, which do not meet cash and cash equivalents
definition. Other short-term investments are measured initially at
fair value and subsequently carried at amortised cost using the
effective interest method.
Reclassification of expenses
For the six month period ended 30 June 2015 and for the year
ended 31 December 2015, the Group reclassified expenses related to
changes in the VAT provision and other operating costs, such as
recovery of assets and rental income, from other gains and losses
(net) to other operating gains and losses (net). The Group believes
that the change provides reliable and more relevant information. In
accordance with IAS 8, the change has been made
retrospectively.
3. Segmental Information
In line with the Group's internal reporting framework and
management structure, the key strategic and operating decisions are
made by the Board of Directors, who review internal monthly
management reports, budgets and forecast information as part of
this process. Accordingly, the Board of Directors is deemed to be
the Chief Operating Decision Maker within the Group.
The Group's only class of business activity is oil and gas
exploration, development and production. The Group's operations are
located in Ukraine, with its head office in the United Kingdom.
These geographical regions are the basis on which the Group reports
its segment information. The segment results as presented represent
operating (loss) / profit before depreciation and amortisation.
6 months ended 30 June 16 (unaudited)
Ukraine United Kingdom Total
$000 $000 $000
Revenue
Gas sales 6,971 6,971
Condensate sales 2,211 2,211
Liquefied Petroleum Gas sales 1,251 1,251
------------------------------- -------- --------------- --------
Total revenue 10,433 10,433
Segment result 5,225 (1,296) 3,929
Depreciation and amortisation (4,098)
------------------------------- -------- --------------- --------
Operating loss (169)
------------------------------- -------- --------------- --------
Segment assets 47,893 18,631 66,524
Capital additions* 393 393
There are no inter-segment sales within the Group and all
products are sold in the geographical region in which they are
produced. The Group is not significantly impacted by
seasonality.
6 months ended 30 June 15
Ukraine United Kingdom Total
$000 $000 $000
Revenue
Gas sales 7,396 7,396
Condensate sales 2,695 2,695
Liquefied Petroleum Gas sales 842 842
------------------------------- -------- --------------- --------
Total revenue 10,933 10,933
Segment result 4,266 (911) 3,355
Depreciation and amortisation (3,833)
------------------------------- -------- --------------- --------
Operating loss (478)
------------------------------- -------- --------------- --------
Segment assets 56,068 18,355 74,423
Capital additions* 1,186 1,186
12 months ended 31 December 15 (audited)
Ukraine United Kingdom Total
2015 2015 2015
$000 $000 $000
Revenue
Gas sales 14,784 14,784
Condensate sales 5,622 5,622
Liquefied Petroleum Gas sales 3,032 3,032
------------------------------ ------- -------------- -------
Total revenue 23,438 23,438
Segment result 9,247 (1,858) 7,389
Depreciation and amortisation (7,670)
Operating loss (281)
Segment assets 52,340 17,359 69,699
Capital additions* 2,279 2,279
*Comprises additions to property, plant and equipment (Note
7).
4. Other Operating Gains and Losses (net)
6 months ended 6 months ended 12 months ended
30 Jun 16 30 Jun 15 31 Dec 15
(unaudited) (unaudited) (audited)
$000 $000 $000
Reversal of impairment of VAT receivables and related balances - 335 225
Gain on sales of current assets - - 165
Rental income 20 6 15
(Loss)/income from write off/recovery of non-current assets - (333) (333)
Other operating (expense)/income (net) 17 9 (6)
---------------------------------------------------------------- --------------- --------------- ----------------
37 17 66
---------------------------------------------------------------- --------------- --------------- ----------------
Other operating gains and losses (net) for the six month ended
30 June 2015 and year ended 31 December 2015 include income from
the reversal of the provision on VAT receivables of $335,000
related to Regal Petroleum Corporation Limited. Since the VAT
receivable mostly relates to capital expenditures, in prior periods
it was uncertain whether the amount provided for would be offset
against VAT payable on future sales. In 2015, the provision for VAT
receivable was reversed as the Group was able to offset its VAT
receivable balance against VAT payable.
In addition, other operating gains and losses (net) for the six
month ended 30 June 2015 and the year ended 31 December 2015
include expenses of $333,000 relating to the write-off of
preparatory works in respect of wells SV-67 and MEX-122 located on
the SV and MEX-GOL gas and condensate fields. The decision to abort
these drilling projects was made in 2015 following reconsideration
of the chances of success of these wells, and the associated costs
were written off in the 2015 year.
5. Taxation
The income tax charge of $1,197,000 for the six month period
ended 30 June 2016 relates to a urrent tax charge of $717,000 and a
deferred tax charge of $480,000 (six month period ended 30 June
2015: current tax charge of $613,000 and deferred tax charge of
$3,164,000).
The movement in the period was as follows:
6 months ended 6 months ended 12 months ended
30 Jun 16 30 Jun 15 31 Dec 15
(unaudited) (unaudited) (audited)
$000 $000 $000
Deferred tax recognised on tax losses
At beginning of period 4,470 7,861 7,861
Charged to Income Statement - current period (818) (3,381) (3,391)
At end of period 3,652 4,480 4,470
---------------------------------------------- --------------- --------------- ----------------
Deferred tax recognised relating to development and production asset
At beginning of period 9,963 12,552 12,552
Credited to Income Statement - current period 338 217 (267)
Credited to Income Statement - prior period - - 2,371
Effect of exchange difference (335) (3,131) (4,693)
----------------------------------------------------------------------
At end of period 9,966 9,638 9,963
---------------------------------------------------------------------- ------ --------- ---------
Taxes on income in the interim periods are accrued using the tax
rate that would be applicable to the expected total annual profit
or loss.
At 30 June 2016, the Group recognised a deferred tax asset of
$3,652,000 in relation to UK tax losses carried forward (31
December 2015: $4,470,000). There was a further $90 million (31
December 2015: $73 million) of unrecognised UK tax losses carried
forward for which no deferred tax asset has been recognised. These
losses can be carried forward indefinitely, subject to certain
rules regarding capital transactions and changes in the trade of
the Company. The Directors consider it appropriate to recognise
deferred tax assets resulting from accumulated tax losses at 30
June 2016 to the extent that it is probable that there will be
sufficient future taxable profits.
The deferred tax asset relating to the Group's MEX-GOL and SV
asset at 30 June 2016 of $9,966,000 (31 December 2015: $9,963,000)
was recognised on the tax effect of the temporary differences
between the carrying value of the Group's MEX-GOL and SV asset in
Ukraine, and its tax base. This is deemed recoverable on the
projected future profits generated by the Group's operations in
Ukraine, which are based on the current field development plan.
UK Corporation tax change
A change to the UK corporation tax rate was announced in the
Chancellor's Budget on 16 March 2016. The change announced is to
reduce the main tax rate to 17% from 1 April 2020. Changes to
reduce the UK corporation tax rate to 19% from 1 April 2017 and to
18% from 1 April 2020 were substantively enacted on 26 October
2015. Changes to reduce the UK corporation tax rate to 17% from 1
April 2020 were substantially enacted on 6 September 2016. However,
as the change to 17% had not been substantially enacted at the
balance sheet date, its effects are not included in these condensed
financial statements. The overall effect of that change, if it had
applied to the deferred tax balance at the balance sheet date,
would be to reduce the deferred tax asset by an additional $598,000
and increase the tax expense for the period by $598,000.
6. (Loss)/Earnings per Share
The calculation of basic and diluted loss per ordinary share has
been based on the loss for the six month period ended 30 June 2016
and 320,637,836 ordinary shares (six month period ended 30 June
2015: 320,637,836), being the average number of shares in issue for
the period. There are no dilutive instruments.
7. Property, Plant and Equipment
6 months ended 30 Jun 16 12 months ended 31 Dec 15
(unaudited) (audited)
------------------------------------------- ---------------------------------------------
Development and Other Development and Production Other
Production assets fixed assets fixed
Ukraine assets Total Ukraine assets Total
Group $000 $000 $000 $000 $000 $000
Cost
At beginning of the
period 99,254 719 99,973 148,254 984 149,238
Additions 299 94 393 2,199 80 2,279
Change in
decommissioning
provision 101 101 640 640
Disposals (34) (14) (48) (857) (21) (878)
Exchange differences (3,410) (32) (3,442) (50,982) (324) (51,306)
At end of the period 96,210 767 96,977 99,254 719 99,973
Accumulated depreciation
and impairment
At beginning of the
period 81,114 356 81,470 113,514 457 113,971
Charge for the period 4,058 29 4,087 7,599 59 7,658
Disposals (5) (5) (430) (15) (445)
Exchange differences (2,704) (6) (2,710) (39,569) (145) (39,714)
At end of the period 82,468 374 82,842 81,114 356 81,470
Net book value at the
beginning of the period 18,140 363 18,503 34,740 527 35,267
-------------------------- ------------------------- ------- ------- -------------------------- ------- --------
Net book value at end of
the period 3,742 393 14,135 18,140 363 18,503
-------------------------- ------------------------- ------- ------- -------------------------- ------- --------
At 30 June 2016, the Group performed an assessment of external
and internal indicators to ascertain whether there was any
indication of potential impairment. As part of this assessment, the
assumptions used in the impairment testing undertaken as at 31
December 2015, which was completed for the Group's financial
statements in May 2016, were reviewed and it was noted that no
significant changes had occurred to the assumptions to which the
value of the Group's development and production assets are most
sensitive. Based on the analysis performed, the Group concluded
that no external or internal impairment indicators existed as at 30
June 2016, and accordingly no impairment testing was required as at
that date.
8. Trade and Other Receivables
30 Jun 16 31 Dec 15
(unaudited) (audited)
$000 $000
Prepayments and accrued income 2,790 193
VAT receivable 872 616
Trade receivables 203 1,005
Other receivables 190 241
4,055 2,055
Due to the short-term nature of the current trade and other
receivables, their carrying amount is assumed to be the same as
their fair value. None of the Group's trade receivables are past
due or impaired. All trade receivables are considered to be of high
credit quality.
No impairment provision was charged against trade and other
receivables during the six month period ended 30 June 2016.
As at 30 June 2016, prepayments and accrued income included
prepayments for fixed and intangible assets in the amount of
$2,176,000 related to the drilling of the MEX-109 well and $491,000
related to the re-evaluation study of the MEX-GOV and SV fields
being performed by P.D.F. Limited.
The current VAT receivable in respect of the Group includes
$787,000 (31 December 2015: $616,000) relating to capital
expenditure in Ukraine which is expected to be recovered via an
offset against VAT payable on future sales in that country. The
Group expects to offset the total amount of VAT receivable at 30
June 2016 during the 2016 year, and therefore no VAT receivable was
included within non-current trade and other receivables. The Group
is satisfied that all such amounts are fully recoverable.
9. Inventories
30 Jun 16 31 Dec 15
(unaudited) (audited)
$000 $000
Materials 1,212 1,337
Condensate stock 102 121
1,314 1,458
Inventories consist of spare parts that were not assigned to any
new wells as at 30 June 2016 or are available for sale, together
with production raw materials and produced condensate and LPG held
at the processing facility prior to sale.
All inventories are measured at the lower of cost or net
realisable value. There was no write down of materials inventory as
at 30 June 2016.
10. Provision for Decommissioning
The non-current provision of $933,000 (31 December 2015:
$831,000) represents a provision for the decommissioning of the
Group's MEX-GOL and SV production facilities, including site
restoration. It is based on the net present value of the Group's
estimated liability, and these costs are expected to be incurred by
2036 (31 December 2015: by 2036). The Group's MEX-GOL and SV
licences currently expire in 2024, but are assumed to be extended
until 2036 to reflect the economic life of the field. However, if
the costs were to be incurred at the licences' current expiry date
in 2024, the provision for decommissioning at 30 June 2016 would be
$1,997,000 (31 December 2015: $1,908,000). None of the provision
was utilised during the reporting period (2015: none).
11. Financial Instruments
The Group held the following financial instruments at 30 June
2016. The fair value of the financial instruments is not materially
different to the book value.
30 Jun 16 31 Dec 15
(unaudited) (audited)
$000 $000
Financial assets
Cash and cash equivalents 20,763 19,920
Other short-term investments 12,333 13,067
Trade and other receivables 246 1,074
-----------
33,342 34,061
Financial Liabilities
Trade and other payables 10 2
Accruals 346 242
-----------
356 244
All assets and liabilities of the Group where fair value is
disclosed are of level 2 value hierarchy and valued using current
cost accounting techniques.
At 30 June 2016, the Group held cash and cash equivalents in the
following currencies:
30 Jun 16 31 Dec 15
(unaudited) (audited)
$000 $000
US Dollars 10,617 11,619
Ukrainian Hryvnia 9,852 7,612
British Pounds 273 596
Euros 19 91
Canadian Dollars 2 2
------------------- ------------- -----------
20,763 19,920
------------------- ------------- -----------
12. Reconciliation of Operating Loss to Operating Cash Flow
6 months ended 6 months ended 12 months ended
30 Jun 16 30 Jun 15 31 Dec 15
(unaudited) (unaudited) (audited)
$000 $000 $000
Operating loss (169) (478) (281)
Depreciation, amortisation and impairment charges 4,098 3,833 7,670
Gain on sales of current assets, net - - (165)
(Gain)/loss from write off of non-current assets (4) 333 333
Movement in provisions (1) 2 (50)
Reversal of impairment of VAT receivables and related balances - (335) (225)
Decrease/(increase) in inventory 90 (192) 45
Decrease in receivables 89 2,087 1,260
(Increase)/decrease in payables (294) 706 208
---------------------------------------------------------------- --------------- --------------- ------------------
Cash generated from operations 3,809 5,956 8,795
---------------------------------------------------------------- --------------- --------------- ------------------
13. Capital Commitments
Amounts contracted in relation to the Group's 2016 investment
programme at the MEX-GOL and SV gas and condensate fields in
Ukraine, but not provided for in the condensed interim consolidated
financial statements at 30 June 2016, were $5,735,000, the majority
of which were denominated in Ukrainian Hryvnia (31 December 2015:
$319,000).
14. Related Party Disclosures
Key management personnel of the Group are considered to comprise
only the Directors. Remuneration of the Directors for the six month
period ended 30 June 2016 was $361,000 (six month period ended 30
June 2015: $392,000).
During the period, Group companies entered into the following
transactions with related parties which are not members of the
Group:
6 months ended 6 months ended 12 months ended
30 Jun 16 30 Jun 15 31 Dec 15
(unaudited) (unaudited) (audited)
$000 $000 $000
Sale of goods/services 59 38 469
Purchase of goods/services 49 44 120
Amounts owed by related partied 47 8 57
Amounts owed to related parties 10 9 9
--------------------------------- --------------- --------------- ----------------
All related party transactions were with subsidiaries of the
ultimate Parent Company, and primarily relate to the rental of
office facilities and a vehicle and the sale of equipment. The
amounts outstanding were unsecured and will be settled in cash.
As of 30 June 2016 and 2015, the Company's immediate parent
company was Energees Management Limited, which is 100% owned by
Pelidona Services Limited, which is 100% owned by Lovitia
Investments Ltd, which is 100% owned by Mr V Novinskiy.
Accordingly, the Company was ultimately controlled by Mr V
Novinskiy.
The Group operates bank accounts in Ukraine with a related party
bank, Unex Bank, which is ultimately controlled by Mr V Novinskiy.
There were the following transactions and balances with Unex Bank
during the period:
6 months ended 6 months ended 12 months ended
30 Jun 16 30 Jun 15 31 Dec 15
(unaudited) (unaudited) (audited)
$000 $000 $000
Interest income 309 905 1,829
Bank charges 4 4 3
Other short-term investments 12,333 14,457 13,067
At the date of this report, none of the Company's controlling
parties prepares consolidated financial statements available for
public use.
15. Post Balance Sheet Events
Acquisition of LLC Prom-Enerho Produkt
On 4 July 2016, the Group acquired a 100% shareholding interest
in PEP from the Smart Holding Group for a cash consideration of
UAH305 million (approximately $12.3 million as at that date) to be
paid as to (a) UAH165 million (approximately $6.7 million as at
that date) by way of initial consideration and as to (b) UAH140
million (approximately $5.6 million as at that date) by way of
deferred consideration to be paid on satisfaction of certain
conditions subsequent relating to, inter alia, discharge of certain
guarantees and sureties given by PEP and discharge of certain debts
owing by and/or to PEP, with all such consideration to be paid
entirely from the Group's cash deposits in Unex Bank. Following the
completion of the acquisition of PEP and the satisfaction of such
conditions subsequent, the Pledge and Guarantee were discharged. As
the vendor was the Smart Holding Group, this acquisition was
classed as a related party transaction under the AIM Rules for
Companies.
PEP is a Ukrainian incorporated company, which holds a
production licence over the Vasyschevskoye gas and condensate
field, which also includes the Vvdenska prospect, located in the
Dnieper-Donets basin in the north-east of Ukraine. The production
licence was granted in August 2012 with a duration of 20 years, and
is in respect of a 100% interest in the licence.
PEP's audited financial statements for the year ended 31
December 2015 show that PEP's net assets as at 31 December 2015
were UAH113.2 million (approximately $4.7 million as at that date)
and net profits after tax for the year ended 31 December 2015 were
UAH34.6 million (approximately $1.4 million as at that date). As at
30 June 2016, PEP had cash of approximately UAH15.9 million
(approximately $0.6 million as at that date) and debt of
approximately UAH27.8 million (approximately $1.1 million as at
that date) owed to a Smart Holding Group company, which the Group
assumed and agreed to pay down by the end of December 2016.
Further details of the acquisition of PEP can be found earlier
in this announcement and in the Company's announcement dated 5 July
2016.
For the six month period ended 30 June 2016, administrative
expenses of the Group include consulting, valuation and legal fees
in amount of $472,000 relating to the acquisition of PEP.
The determination of the appropriate accounting treatment for
the acquisition of PEP has not been completed as at the date of
this announcement, and it is intended to finalise such treatment
for the financial statements for the year ended 31 December
2016.
Drilling of MEX-109 well
On 28 July 2016, the Company announced the spudding of the
MEX-109 well at its MEX-GOL and SV fields. The well has a target
depth of 5,250 metres, with drilling operations scheduled to be
completed in March 2017 and subject to successful testing,
production hook-up by the end of the second quarter of 2017. The
well is targeting the Visean reservoirs ("B-Sands").
Tax Litigation
During 2010 - 2016, the Group has been in dispute with the
Ukrainian tax authorities in respect of VAT receivable on imported
leased equipment, with a disputed liability of up to UAH8,487,219
($327,000) inclusive of penalties and other associated costs. There
is a level of ambiguity in the interpretation of the relevant tax
legislation, and the position adopted by the Group has been
challenged by the Ukrainian tax authorities, which has led to legal
proceedings to resolve the issue. As at 30 June 2016, the Group had
been successful in three court cases in respect of this dispute in
ourts of different levels. Accordingly, no liability has been
recognised in these interim condensed consolidated financial
statements for the six months ended 30 June 2016 (31 December 2015:
nil).
On 20 September 2016, a hearing was held in the Supreme Court of
Ukraine of an appeal of the Ukrainian tax authorities against the
decision of the Higher Administrative Court of Ukraine, in which
the appeal of the Ukrainian tax authorities was upheld. As a result
of this appeal decision, all decisions of the lower courts were
cancelled, and the case was remitted to the first instance court
for a new trial. The Company is currently assessing the possible
outcome of these legal proceedings and the level of risk based on
the decision the Supreme Court of Ukraine.
Independent review report to Regal Petroleum plc
Report on the condensed set of the interim consolidated
financial statements
Our conclusion
We have reviewed Regal Petroleum plc's condensed set of the
interim consolidated financial statements (the "interim financial
statements") in the half-yearly financial report of Regal Petroleum
plc for the 6 month period ended 30 June 2016. Based on our review,
nothing has come to our attention that causes us to believe that
the interim financial statements are not prepared, in all material
respects, in accordance with International Accounting Standard 34,
'Interim Financial Reporting', as adopted by the European Union and
the AIM Rules for Companies.
What we have reviewed
The interim financial statements comprise:
- the Condensed Interim Consolidated Balance Sheet as at 30 June 2016;
- the Condensed Interim Consolidated Income Statement and
Condensed Interim Consolidated Statement of Comprehensive Income
for the period then ended;
- the Condensed Interim Consolidated Statement of Cash Flows for the period then ended;
- the Condensed Interim Consolidated Statement of Changes in
Equity for the period then ended; and
- the explanatory notes to the interim financial statements.
The interim financial statements included in the half-yearly
financial report have been prepared in accordance with
International Accounting Standard 34, 'Interim Financial
Reporting', as adopted by the European Union and the AIM Rules for
Companies.
As disclosed in note 1 to the interim financial statements, the
financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Group is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The half-yearly financial report, including the interim
financial statements, is the responsibility of, and has been
approved by, the Directors. The Directors are responsible for
preparing the half-yearly financial report in accordance with the
AIM Rules for Companies which require that the financial
information must be presented and prepared in a form consistent
with that which will be adopted in the Company's annual financial
statements.
Our responsibility is to express a conclusion on the interim
financial statements in the half-yearly financial report based on
our review. This report, including the conclusion, has been
prepared for and only for the Company for the purpose of complying
with the AIM Rules for Companies and for no other purpose. We do
not, in giving this conclusion, accept or assume responsibility for
any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, 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 (UK and
Ireland) 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.
We have read the other information contained in the half-yearly
financial report and considered whether it contains any apparent
misstatements or material inconsistencies with the information in
the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
23 September 2016
This information is provided by RNS
The company news service from the London Stock Exchange
END
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