TIDMEXI
RNS Number : 6166P
Exillon Energy Plc
01 September 2017
Exillon Energy plc
Interim results for the first six months of 2017
1 September 2017 - Exillon Energy plc ("Exillon", the "Company"
or the "Group") (EXI.LN), a London Premium listed independent oil
producer with assets in two oil-rich regions of Russia,
Timan-Pechora ("Exillon TP" or "ETP") and West Siberia ("Exillon
WS" or "EWS"), today issues its interim results for the first six
months to 30 June 2017.
Highlights
-- Net profit decreased by 12% to US$19.6 million (US$22.3
million in 1H 2016)
-- EBITDA decreased by 9% to US$34.6 million (US$38.1 million in
1H 2016)
-- EBITDA per barrel increased by 23% to US$17.4 per barrel
(US$14.2 per barrel in 1H 2016)
-- Production decreased by 25%, with the average production for
1H 2017 equivalent to 11,118 bpd
Production
Our oil production decreased by 25% from 2.69 million to 2.01
million barrels equivalent to a decrease from 14,807 bpd to 11,118
bpd compared to 1H 2016, and 14% from 2.33 million to 2.01 million
barrels equivalent to a decrease from 12,652 bpd to 11,118 bpd
compared to 2H 2016.
The decrease in our production is reflecting natural production
decline curve due to the natural depletion; although this did not
result in any impairment of oil and gas properties.
We publish monthly production data, and, therefore, have already
announced details of our production for the period. For reference
the monthly data published during the six month period of 2017 is
summarised below.
Jan Feb March April May June
PLC peak, bpd 12,346 12,228 11,611 11,364 10,962 10,327
PLC average,
bpd 12,069 11,851 11,221 10,881 10,683 10,032
ETP average,
bpd 2,589 2,799 2,726 2,764 2,676 2,302
EWS average,
bpd 9,480 9,052 8,495 8,117 8,007 7,730
Dear Shareholders,
The first six months of 2017 were reasonably successful for
Exillon. Continuous volatility of oil prices and production decline
affected our ability to generate the recurring growth of financial
results for the period, although we still delivered robust
financial performance with positive EBITDA and net profit.
Financial Position and Performance
Our EBITDA decreased by 9% from US$38.1 million to US$34.6
million, with a net profit of US$19.6 million (compared to a net
profit of US$22.3 million in 1H 2016). Although our revenue
slightly increased from US$64.1 million to US$64.4 million, our
netback (which we define as revenue less mineral extraction tax,
export duty and Transneft charges) decreased by 5% from US$52.4
million to US$50.0 million. The growth in our revenue was primarily
a consequence of higher average oil prices during 1H 2017 as
compared to 1H 2016, reflecting the movements in global oil prices.
This was offset by a decrease in our sales volumes, resulting from
the decline in our production. Rising average oil prices led to a
simultaneous significant increase in mineral extraction tax,
despite the ongoing application of certain tax exemptions by
Exillon TP and Exillon WS, with a corresponding decrease in our
netback.
Our EBITDA after allocation of central costs was equivalent to
US$17.4 per barrel compared to US$14.2 per barrel in 1H 2016 and
US$14.0 per barrel in 2H 2016. The indicator was significantly
improved, despite the decrease in absolute values of the indicators
mentioned above. While our netback decreased by 5%, netback per
barrel was equivalent to US$25.2 per barrel compared to US$19.5 per
barrel in 1H 2016 and US$22.0 per barrel in 2H 2016. This
improvement was driven by appreciation of the Russian Rouble, which
enhanced the US dollar equivalent of netback and EBITDA, and by
higher average prices achieved in 1H 2017 as compared to 2016.
76% of our oil production was from Exillon WS and 24% from
Exillon TP. EBITDA per barrel on an operating level (before central
costs) was US$21.2 per barrel in Exillon WS (1H 2016: US$16.2 per
barrel) and US$5.7 per barrel in Exillon TP (1H 2016: US$7.3 per
barrel). The spread in EBITDA per barrel is growing wider between
operating segments due to mineral extraction tax exemption applied
by Exillon WS.
Our financial position remains strong with US$43.5 million of
cash and cash equivalents as at 30 June 2017 (31 December 2016:
US$146.5 million). In March 2017, a term loan of US$100.0 million,
which we took out in March 2012, was fully repaid. In April 2017,
we entered into new facility agreements for an aggregate principal
amount of up to US$206 million. As at 30 June 2017, the outstanding
debt amounted to US$124.6 million. Our net debt position was
US$81.1 million (31 December 2016: outstanding debt of US$7.7
million and net cash position of US$138.8 million).
As of 1 September 2017 our cash and cash equivalents increased
to US$45.1 million resulting in a net debt position of US$79.5
million.
Capital expenditure during the period was US$232.6 million (1H
2016: US$4.8 million), 91% of which was incurred in Exillon WS and
9% in Exillon TP (1H 2016: 84% in Exillon WS and 16% in Exillon
TP). Of this total, US$2.7 million was attributable to drilling,
US$5.2 million to infrastructure and US$224.7 to advance payments
for property, plant and equipment (1H 2016: US$2.0 million was
attributable to drilling, US$2.7 million to infrastructure and
US$0.1 million to seismic data acquisition and interpretation). In
1H 2017, advance payments for property, plant and equipment were
made in relation to drilling of wells and construction of infield
infrastructure under the Group's investment program for the years
2017-2021, which was approved by the Board of Directors.
Drilling Update
During the period we drilled one production and one exploratory
oil well. The drilling was carried out only at Exillon WS and the
drilling results were successful for both wells.
Oil field Well Well Type of Spudded on Drilling Current production,
pad well completed, bpd
days
------------- ----- ----- ------------ ------------- ------------ --------------------
Lumutinskoe 8L 801 Producer 11 June 2017 17 424
------------- ----- ----- ------------ ------------- ------------ --------------------
23 April
Lumutinskoe 8L 803P Exploratory 2017 48 402
------------- ----- ----- ------------ ------------- ------------ --------------------
Dmitry Margelov
Chief Executive Officer
FINANCIAL REVIEW
The interim condensed consolidated financial information of
Exillon Energy plc for the six month period ended 30 June 2017 has
been prepared in accordance with IAS 34 "Interim Financial
Statements". The condensed consolidated financial information and
the relevant notes should be read in conjunction with this review
which has been included to assist in the understanding of the
Group's financial position at 30 June 2017 and financial
performance for the six months then ended.
Revenue
Our revenue for the six months ended 30 June 2017 increased by
0.5% compared to the same period in 2016, reaching US$64.4 million
(1H 2016: US$64.1 million), of which 100% came from domestic sales
of crude oil (1H 2016: US$14.1 million or 22% came from export
sales of crude oil and US$50.0 million or 78% came from domestic
sales of crude oil). This change in revenue is attributable to:
-- a decrease in production leading to a 26% decrease in sales
volumes from 2,683,413 bbl in 1H 2016 to 1,987,146 bbl in 1H
2017;
-- an increase in average commodity prices: we achieved an
average oil price of US$32.4 / bbl for domestic sales (1H 2016:
US$22.8 / bbl). During 1H 2016 we achieved an average oil price of
US$28.9 / bbl for export sales; and
-- Russian Rouble appreciation, which increased the US dollar
equivalent of our revenue. The effective average exchange rate was
70.2583 Russian Roubles to one US dollar (Rouble/US$) in 1H 2016
and 57.9862 Rouble/US$ in 1H 2017.
Operating Results
Cost of sales excluding depreciation and depletion expenses
increased to US$23.0 million (1H 2016: US$16.6 million), despite
the decrease in production by 25% to 2,012,360 bbl (1H 2016:
2,694,875 bbl). The difference between the production volumes and
sales volumes is due to the change in the oil inventory balance
during the period. The major increase occurred in mineral
extraction tax from US$7.1 million in 1H 2016 to US$13.6 million in
1H 2017. It was a combined result of:
-- both operating segments: substantial increase in average
crude oil prices used in the calculation of the tax, the increase
of the base tax rate from 857 Russian Roubles per tonne of crude
oil in 2016 to 919 Russian Roubles per tonne in 2017 and Russian
Rouble appreciation, which increased the US dollar equivalent of
mineral extraction tax;
-- Exillon WS: during both periods Exillon WS applied a 0%
mineral extraction tax rate to the oil produced from a certain oil
reservoir, which includes oil production from the majority of oil
wells located at EWS I and EWS II oil fields. The tax exemption for
this oil reservoir was introduced by Russian legislation in the
second half of 2015 with an effective date from 1 January 2015
(Note 7). In 1H 2017, a 0% tax rate was applied to 1,140,512 bbl or
74% of crude oil produced by Exillon WS out of the total production
of 1,534,306 bbl (1H 2016: a 0% tax rate was applied to 1,766,814
bbl or 84% of crude oil produced by Exillon WS out of the total
production of 2,102,145 bbl). As a result, in Exillon WS the tax
was accrued for 393,794 bbl of crude oil in 1H 2017 as compared to
335,331 bbl 1H 2016, which also contributed to the increase in
mineral extraction tax. In 1H 2017, Exillon WS applied a reducing
factor to the mineral extraction tax rate, which reflects the
specific characteristics of the remaining oil production from the
EWS II oil field (Note
7). This partially offset the increase in mineral extraction tax
from higher taxable production volumes in Exillon WS;
-- Exillon TP: during both periods Exillon TP applied decreasing
factors to the base mineral extraction tax rate, which reflect the
specific characteristics of oil production from the ETP V and ETP
VI oil fields (Note 7). This tax exemption had a similar effect for
both periods, while the decrease in Exillon TP production partially
offset general increasing factors mentioned above.
Depreciation and depletion costs ("DD&A") primarily relate
to the depreciation of proved and probable reserves and other
production and non-production assets. These costs amounted to
US$8.7 million in 1H 2017 compared to US$8.9 million in 1H 2016.
The decrease in DD&A costs was driven by lower production
volumes, which was offset by DD&A charge on the additions to
property, plant and equipment and Russian Rouble appreciation,
since most of DD&A costs are nominated in Russian Roubles.
Selling expenses in 1H 2017 amounted to US$3.1 million (1H 2016:
US$7.5 million) and comprised of transportation services of US$2.5
million and services of Transneft crude oil metering system of
US$0.6 million (1H 2016: export duties of US$3.0 million,
transportation services of US$3.7 million and services of Transneft
crude oil metering system of US$0.8 million). The major decrease
related to export duty as a result of change in our sales mix.
Transportation services included services provided by Transneft and
trucking services from the infield oil filling stations to oil
terminals at Transneft. In 1H 2016, transportation services
provided by Transneft of US$1.6 million related to export sales of
crude oil. While in 1H 2017, transportation services provided by
Transneft of US$0.7 million related to domestic sales of crude oil
in Exillon TP for the period from January to April 2017. During 1H
2016 and the period from May to June 2017 domestic customers of
both operating segments have been paying directly to Transneft for
its transportation services. Exillon TP used Transneft crude oil
metering system services at a cost of US$0.6 million in 1H 2017 as
compared to US$0.8 million in 1H 2016. The decrease is a result of
reduced production volumes. The decrease in Russian Rouble
nominated trucking services to Transneft from US$2.1 million in 1H
2016 to US$1.8 million in 1H 2017 is a result of lower production
volumes partially offset by the appreciation of the Russian Rouble
against US dollar.
Administrative expenses in 1H 2017 (excluding depreciation and
amortisation) amounted to US$3.9 million in comparison to US$2.8
million in 1H 2016, with the main increase attributable to
consulting services.
In 1H 2017 interest income amounted to US$4.3 million (1H 2016:
US$0.8 million) resulting from surplus cash being held on
short-term bank deposits and purchase of short-term
interest-bearing bank bills of exchange.
It should be noted that in accordance with IFRS a foreign
exchange loss of US$3.3 million (1H 2016: US$2.1 million) has been
included in our net profit arising from the revaluation of foreign
currency monetary items (cash and cash equivalents, accounts
receivable and payable, other monetary assets) using the closing
rate at the reporting date. The foreign exchange loss recognised in
1H 2016 was a result of the exchange rate decrease from 72.8827
Rouble/US$ as of 31 December 2015 to 64.2575 Rouble/US$ as of 30
June 2016. During 1H 2016 the foreign exchange loss arising on US
dollar denominated cash held by Russian subsidiaries was offset by
foreign exchange gain attributable to the intercompany loan, which
is expected to be settled to fund repayments of the Group's
external debt and is not considered to be as permanent as equity
(Note 4). The foreign exchange loss in 1H 2017 was mostly
attributable to US dollar nominated cash and cash equivalents held
by Russian subsidiaries and was a consequence of the exchange rate
decrease from 60.6569 Rouble/US$ as of 31 December 2016 to 59.0855
Rouble/US$ as of 30 June 2017. During both periods the exchange
rate experienced substantial volatility: in 1H 2016 it fluctuated
between the highest rate of 83.5913 Rouble/US$ achieved on 22
January 2016 and the lowest rate of 63.7162 Rouble/US$ achieved on
23 June 2016; while in 1H 2017 the highest rate of 60.6569
Rouble/US$ was achieved on 01 January 2017 and the lowest rate of
55.8453 Rouble/US$ was achieved on 26 April 2017. A foreign
exchange gain of US$10.6 million (1H 2016: gain of US$41.2 million)
has been recognised in other comprehensive income as part of the
translation reserve.
As a result of the above, net profit for the first six months of
2017, which includes depreciation costs and foreign exchange
translation effects, amounted to US$19.6 million compared to net
profit of US$22.3 million for the six months ended 30 June
2016.
Financial position
We ended the period with US$43.5 million of cash and cash
equivalents and outstanding borrowings of US$124.6 million (31
December 2016: US$146.5 million and US$7.7 million, respectively).
In March 2017 the loan principal of US$7.7 million has been repaid
in compliance with the repayment schedule, being the last principal
payment under a term loan of US$100.0 million, which we took out in
March 2012. In April 2017, we entered into new facility agreements
and received US$125.0 million. As at 30 June 2017, the entire
outstanding borrowings relate to the long-term portion of the loan
principal. According to the repayment schedule it will be repaid
beyond 12 months after the reporting date.
The additions to the property, plant and equipment of US$232.7
million included US$0.1 million of capitalised interest, US$224.7
million of advance payments for property, plant and equipment with
the remaining amount attributable to the drilling of oil wells and
further development of infield infrastructure in Exillon WS and
Exillon TP. This was partially offset by depreciation and depletion
of US$8.7 million, while the positive effect was enhanced by the
translation difference of US$9.0 million, due to the appreciation
of the Russian Rouble against the US dollar at the reporting
date.
Principal risks and uncertainties
The principal risks and uncertainties affecting the business
activities of the Group are set out on pages 21 to 24 of the
Directors' Report section of the Annual Report for the year ended
31 December 2016, a copy of which is available on the Company's
website at www.exillonenergy.com. The Board continually assesses
and monitors the key risks of the business. The principal risks and
uncertainties that could have a material impact on the Group's
performance over the remainder of the financial year have not
changed from those that were set out in the Group's 2016 Annual
Report.
For reference we summarise below the principal risks and
uncertainties:
-- substantial and/or extended decline in the prices for crude oil;
-- fluctuations in currency exchange rates materially and
adversely affecting our financial results and condition;
-- continued high levels of inflation in Russia;
-- potential significant capital expenditures that may be
required to increase production levels and overall efficiency, and
any inability to finance these and other expenditures;
-- suspension, restriction, termination or lack of extension to
our exploration and production licences issued by the Russian
authorities;
-- potential claims and liabilities under environmental, health,
safety and other laws and regulations;
-- under-development of the Russian legal system and Russian
legislation creating an uncertain environment for investment and
business activity;
-- potential tax audits by the Russian tax authorities,
resulting in additional tax liabilities;
-- frequent changes to Russian tax law and practice;
-- operational risks of drilling and the introduction of new
technology, leading to losses and failure to achieve planned
production targets;
-- drilling, exploration and production risks and hazards which
may prevent us from realising profits resulting in substantial
losses;
-- poor condition of Russian physical infrastructure leading to
disruption of normal business activity;
-- third party provision of some services, including transportation services;
-- transportation of produced crude oil via a single pipeline
system operated by an external provider - Transneft;
-- variable weather conditions at our oil fields which may limit
the production during certain times of the year;
-- intense competition within the oil industry and adverse
effects by global economic conditions;
-- forced liquidation of some companies in the Group as a result of negative net assets;
-- social, political and economic instability in the Russian
Federation leading to a potential material adverse effect on
operations, financial conditions and prospects;
-- crime and corruption hindering the Company's ability to
conduct business effectively leading to a material adverse effect
on our financial condition and results of operations;
-- dependence on senior management personnel and on maintaining
a highly qualified skilled workforce;
-- failure to manage the Company's growth or to execute or integrate acquisitions;
-- changes in the foreign policy of the Russian government and
changes in its key global relationships leading to an adverse
effect on the Russian political and economic environment in
general;
-- potential difficulties in enforcing court decisions and the
discretion of governmental authorities to file and join claims and
enforce court decisions preventing the Group or investors from
obtaining effective redress in court proceedings;
-- foreign and court judgments not being recognised and
enforceable against the Group's Russian subsidiaries;
-- increased presence of the Russian state within the private
sector as a consequence of the international financial crisis and
the resulting downturn in Russian economy. Expropriation or
nationalisation of any of the Group's or subsidiaries' assets
without fair compensation, leading to a material adverse effect on
the Group's business, prospects, financial condition and results of
operations;
-- shareholder liability under Russian legislation leading to
the Company becoming liable for the obligations of its Russian
subsidiaries.
Directors
A full list of Directors is maintained on the Group's website:
www.exillonenergy.com.
Related parties
Related party transactions are disclosed in Note 21.
Statement of directors' responsibilities
The Directors of the Company hereby confirm that to the best of
their knowledge:
(a) the condensed consolidated interim financial statements have
been prepared in accordance with IAS 34; and
(b) the interim management report includes a fair review of the
information required by DTR 4.2.7 (being an indication of important
events that have occurred during the first six months of the
financial year and their impact on the condensed set of financial
statements; and a description of the principal risks and
uncertainties for the remaining six months of the year) and DTR
4.2.8 (being related party transactions that have taken place in
the first six months of the current financial year and that have
materially affected the financial position or performance of the
entity during that period).
On behalf of the Board of Directors of Exillon Energy plc.
Dmitry Margelov
Chief Executive Officer
Disclaimer
This document may contain forward-looking statements concerning
the financial condition and results of operations of the Group.
Forward-looking statements are statements of future expectations
that are based on the management's current expectations and
assumptions and involve known and unknown risks and uncertainties
that could cause actual results, performance or events to differ
materially from those expressed or implied in these statements. No
assurances can be given as to future results, levels of activity
and achievements and actual results, levels of activity and
achievements may differ materially from those expressed or implied
by any forward-looking statements contained in this report. The
Company does not undertake any obligation to update publicly or
revise any forward-looking statement as a result of new
information, future events or other information.
INDEPENT REVIEW REPORT TO Exillon Energy PLC
Introduction
We have been engaged by the Exillon Energy PLC (the "Company")
to review the condensed consolidated set of financial statements in
the half-yearly financial report for the six months ended 30 June
2017 which comprises the interim consolidated statement of
comprehensive income, interim consolidated statement of financial
position, interim consolidated statement of changes in equity,
interim consolidated statement of cash flows and the related notes
1 to 22. 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 condensed consolidated set of financial
statements.
This report is made solely to the Company in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the
Auditing Practices Board. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
Company, for our work, for this report, or for the conclusions we
have formed.
Directors' Responsibilities
The half-yearly financial report 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 Disclosure and Transparency Rules of the United Kingdom's
Financial Conduct Authority.
As disclosed in note 2, the annual consolidated financial
statements of the Company are prepared in accordance with
International Financial Reporting Standards. The condensed
consolidated set of financial statements included in this
half-yearly financial report has been prepared in accordance with
International Accounting Standard 34, "Interim Financial
Reporting".
Our Responsibility
Our responsibility is to express to the Company a conclusion on
the interim condensed consolidated set of financial statements in
the half-yearly financial report based on our review.
Scope of Review
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.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the six months ended 30
June 2017 is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the
European Union and the Disclosure and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
Ernst & Young LLP
London
1 September 2017
INTERIM consolidated statement of comprehensive income
Six months ended 30 June
--------------------------
Note 2017 2016
------------ ------------
Unaudited
--------------------------
$'000 $'000
Revenue 6 64,364 64,071
Cost of sales 7 (31,499) (25,262)
GROSS PROFIT 32,865 38,809
------------ ------------
Selling expenses 8 (3,144) (7,490)
Administrative expenses 9 (4,105) (3,029)
Foreign exchange loss (3,341) (2,066)
Other income 842 1,219
Other expense (501) (365)
OPERATING PROFIT 22,616 27,078
------------ ------------
Finance income 4,254 814
Finance cost (1,096) (1,059)
profit BEFORE INCOME TAX 25,774 26,833
Income tax expense (6,180) (4,505)
------------ ------------
PROFIT FOR THE PERIOD ATTRIBUTABLE
TO OWNERS OF THE PARENT 19,594 22,328
------------ ------------
OTHER COMPREHENSIVE INCOME:
Other comprehensive income to be
reclassified to profit or loss in
subsequent periods:
Exchange differences on translation
of foreign operations 10,773 42,019
Income tax effect (193) (864)
Net other comprehensive income to
be reclassified to profit or loss
in subsequent periods 10,580 41,155
TOTAL COMPREHENSIVE INCOME FOR THE
PERIOD ATTRIBUTABLE TO OWNERS OF
THE PARENT 30,174 63,483
============ ============
Earnings per share (EPS):
Profit for the period attributable
to ordinary equity holders of the
Company
* Basic ($) 10 0.12 0.14
* Diluted ($) 10 0.12 0.14
INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at
-------------------------
Note 30 June 2017 31 December
2016
------------ -----------
Unaudited
$'000 $'000
ASSETS:
Non-current assets:
Property, plant and equipment 11 625,686 392,733
Intangible assets 52 50
Deferred income tax assets 314 328
626,052 393,111
------------ -----------
Current assets:
Inventories 12 3,177 2,488
Trade and other receivables 13 16,262 4,787
Income tax receivable 462 516
Other current assets 14 1,148 738
Cash and cash equivalents 21 43,455 146,529
64,504 155,058
------------ -----------
TOTAL ASSETS 690,556 548,169
============ ===========
LIABILITIES and equity:
Equity attributable to owners
of the parent:
Share capital 18 1 1
Share premium 18 272,116 272,116
Other invested capital 68,536 68,536
Retained earnings 410,631 391,037
Translation reserve (258,745) (269,325)
492,539 462,365
------------ -----------
Non-current liabilities:
Provision for decommissioning 15 11,072 10,351
Deferred income tax liabilities 29,053 28,067
Long-term borrowings 17 124,561 -
164,686 38,418
------------ -----------
Current liabilities:
Trade and other payables 16 24,337 28,840
Other taxes payable 8,485 8,425
Income tax payable 509 2,405
Short-term borrowings 17 - 7,716
33,331 47,386
------------ -----------
TOTAL LIABILITIES AND EQUITY 690,556 548,169
============ ===========
INTERIM consolidated statement of changes in equity
Share Share Other invested Retained Translation Total equity
capital premium capital earnings reserve
-------- -------- -------------- --------- ----------- ------------
$'000 $'000 $'000 $'000 $'000 $'000
Balance at 1 January
2016 1 272,116 68,536 350,526 (333,126) 358,053
======== ======== ============== ========= =========== ============
Comprehensive income
Net profit for the
period - - - 22,328 - 22,328
Other comprehensive
income
Translation difference - - - - 41,155 41,155
-------- -------- -------------- --------- ----------- ------------
Total comprehensive
income - - - 22,328 41,155 63,483
-------- -------- -------------- --------- ----------- ------------
Balance at 30 June
2016 (unaudited) 1 272,116 68,536 372,854 (291,971) 421,536
======== ======== ============== ========= =========== ============
Balance at 1 January
2017 1 272,116 68,536 391,037 (269,325) 462,365
Comprehensive income
Net profit for the
period - - - 19,594 - 19,594
Other comprehensive
income
Translation difference - - - - 10,580 10,580
-------- -------- -------------- --------- ----------- ------------
Total comprehensive
income - - - 19,594 10,580 30,174
-------- -------- -------------- --------- ----------- ------------
Balance at 30 June
2017 (unaudited) 1 272,116 68,536 410,631 (258,745) 492,539
======== ======== ============== ========= =========== ============
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
Six months ended 30 June
--------------------------
Note 2017 2016
------------- -----------
Unaudited
--------------------------
$'000 $'000
CASH FLOWS FROM OPERATING ACTIVITIES:
Profit before income tax 25,774 26,833
Adjustments for:
Depreciation, depletion and amortisation 11 8,659 8,918
Gain on disposal of property, plant
and equipment (43) (7)
Finance income (4,254) (814)
Finance cost 1,096 1,059
Foreign exchange loss 3,341 2,066
Unused vacation accrual 7, 9 146 114
Bad debt expense - 132
Operating cash flow before working
capital changes 34,719 38,301
Changes in working capital:
Increase in inventories (633) (179)
Decrease in trade and other receivables 11 840 32,471
(Decrease)/increase in trade and
other payables (5,317) 8,520
(Decrease)/increase in taxes payable (167) 5,731
------------- -----------
Cash generated from operations 29,442 84,844
------------- -----------
Interest received 4,451 657
Income tax paid (8,224) (5,216)
Net cash generated from operating
activities 25,669 80,285
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (7,842) (4,816)
Interest paid (capitalised portion) (134) (583)
Advance payments for property, plant
and equipment 11 (366,084) -
Refund of advance payments for property,
plant and equipment 11 134,470 -
Proceeds from sale of property, plant
and equipment 128 -
Net cash used in investing activities (239,462) (5,399)
------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of loan 17 (7,692) (15,385)
Interest paid (551) (703)
Proceeds from borrowings 17 125,000 -
Transaction costs on borrowings 17 (515) -
Net cash generated from/(used in)
financing activities 116,242 (16,088)
------------- -----------
NET (DECREASE)/INCREASE IN CASH AND
CASH EQUIVALENTS (97,551) 58,798
Translation difference (5,523) 3,274
Cash and cash equivalents at beginning
of the period 146,529 64,595
Cash and cash equivalents at end
of the period 43,455 126,667
============= ===========
Total interest paid during the six months ended 30 June 2017
comprised $685 thousand (the six months ended 30 June 2016: $1,286
thousand).
notes to INTERIM condensed consolidated financial statements
(UNAUDITED)
1. Background
The principal activity of Exillon Energy plc (the "Company" or
the "Parent") and its subsidiaries (together "the Group") is
exploration, development and production of oil. The Group's
production facilities are based in the Republic of Komi and the
Khanty-Mansiysk Region of the Russian Federation. The Group's
structure is provided in Note 22.
Exillon Energy plc is a public limited company which is listed
on the London Stock Exchange and is incorporated and domiciled in
the Isle of Man. The Company was formed on 27 March 2008. Its
current registered address is First Names House, Victoria Road,
Douglas, Isle of Man, IM2 4DF. (Before 01 August 2017 the
registered address was Fort Anne, South Quay, Douglas, Isle of Man,
IM1 5PD).
As at 30 June 2017, the largest shareholder has an interest of
29.99% (2016: 29.99%) in the Company's outstanding issued share
capital.
The Group's operations are conducted primarily through its
operating segments, Exillon TP and Exillon WS.
2. basis of preparation
This condensed consolidated interim financial information for
the six months ended 30 June 2017 has been prepared in accordance
with International Accounting Standard ("IAS") 34, "Interim
financial reporting". The condensed consolidated interim financial
information should be read in conjunction with the annual financial
statements for the year ended 31 December 2016, which have been
prepared in accordance with International Financial Reporting
Standards ("IFRSs"). The operations carried out by the Group are
not subject to seasonality or cyclical factors.
3. going concern
The principal risks and uncertainties, which are likely to
affect the Group's future development, performance and position
including financial risk factors are set out in paragraph
"Principal risks and uncertainties" above. The Group's forecasts
and projections, taking account of reasonable changes in trading
performance (including oil price), show that the Group can operate
with its current cash holding. The assessment was performed with
consideration of Group's business, budget, cash flow forecast,
trading estimates, contractual arrangements, committed financing
and exposure to contingent liabilities, financial covenant
calculation and the principal risks and uncertainties.
Having considered the above matters, the Directors have a
reasonable expectation that the Group has adequate resources to
continue operational existence and meet its liabilities as they
fall due for the foreseeable future, being at least 12 months from
the date of approval of the condensed consolidated interim
financial statements. For this reason the Directors continue to
adopt the going concern basis of accounting in preparing the
financial statements.
4. ACCOUNTING POLICIES
Accounting policies - the accounting policies applied are
consistent with those of the annual consolidated financial
statements for the year ended 31 December 2016.
During the six months ended 30 June 2017 the Group has not early
adopted any other standard, interpretation or amendment that has
been issued but is not yet effective:
-- IFRS 15 Revenue from Contracts with Customers (effective on or after 1 January 2018)
The new standard removes inconsistencies and weaknesses in
existing revenue recognition standards by providing clear
principles for revenue recognition in a robust framework; provides
a single revenue recognition model which will improve comparability
over a range of industries, companies and geographical boundaries;
and simplifies the preparation of financial statements by reducing
the number of requirements to which preparers must refer. The Group
plans to adopt the new standard on the required effective date. The
Group performed a preliminary assessment of IFRS 15, which is
subject to changes arising from a more detailed ongoing analysis.
Crude oil is sold only on its own in separately identified
contracts with customers, with no bundled package of goods and/or
services. Contracts with customers in which crude oil sale is the
only performance obligation are not expected to have any
significant impact on the Group. The Group expects the revenue
recognition to occur at a point in time when control of the asset
is transferred to the customer, generally on delivery of the goods.
This is consistent with the Group's existing accounting policy for
revenues.
Critical accounting judgments and key sources of estimation
uncertainty:
The preparation of interim 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 expense. Actual
results may differ from these estimates.
In preparing these condensed consolidated interim 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
2016, except for the change in certain major assumptions used in
estimation of decommissioning costs:
Decommissioning costs
Provision for decommissioning represents the present value of
decommissioning costs relating to the Russian Federation oil and
gas interests, which are expected to be incurred in a time period
between 2025 and 2038. These provisions have been created based on
the Group's internal estimates. Assumptions, based on the current
economic environment, have been made which management believe are a
reasonable basis upon which to estimate the future liability. Those
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
decommissioning works required which will reflect market conditions
at the relevant time. Furthermore, the timing of decommissioning is
likely to depend on when the fields cease to produce at
economically viable rates. This in turn will depend upon future oil
and gas prices, which are inherently uncertain.
Major assumptions used in estimation of decommissioning costs
are set out below:
Exillon TP:
-- as at 30 June 2017, undiscounted value of estimated future
cash outflows is estimated at $6,133 thousand (31 December 2016:
$5,951 thousand);
-- expected timing of future cash outflows - the majority of the
expenditure is expected to take place in a range between 2026 and
2038 (2016: between 2026 and 2038);
-- discount rate (based on long-term maturity Russian government
bonds) - 8% per annum (2016: 9%);
-- inflation rate (based on the external analysts' forecasts) - 4% per annum (2016: 4-7%).
If the discount rate had increased by 1% to 9% at 30 June 2017,
the decommissioning liability would have been $441 thousand lower
(31 December 2016: $406 thousand lower).
Exillon WS:
-- as at 30 June 2017, undiscounted value of estimated future
cash outflows is estimated at $11,584 thousand (31 December 2016:
$11,161 thousand);
-- expected timing of future cash outflows - the majority of the
expenditure is expected to take place in 2025 (2016: 2025);
-- discount rate (based on long-term maturity Russian government
bonds) - 8% per annum (2016: 9%);
-- inflation rate (based on the external analysts' forecasts) - 4% per annum (2016: 4-7%).
If the discount rate had increased by 1% to 9% at 30 June 2017,
the decommissioning liability would have been $600 thousand lower
(31 December 2016: $606 thousand lower).
Estimation of oil and gas reserves
Oil and gas reserves are key elements in the Group's investment
decision-making process. They are also an important element in
testing for impairment. Changes in oil and gas reserves,
particularly proved and probable reserves, will affect
unit-of-production depreciation charges in the consolidated
statement of comprehensive income.
Proved oil and gas reserves are the estimated quantities of
crude oil and natural gas which geological and engineering data
demonstrate with reasonable certainty to be recoverable in future
years from known reservoirs under existing economic and operating
conditions, i.e. prices and costs as of the date the estimate is
made. Probable reserves are those additional reserves which
analysis of geoscience and engineering data indicate are less
likely to be recovered than proved reserves but more certain to be
recovered than possible reserves. Estimates of oil and gas reserves
are inherently imprecise, require the application of judgement and
are subject to future revision. Accordingly, financial and
accounting measures (such as depletion charges and provision for
decommissioning) that are based on proved and probable reserves are
also subject to change.
Proved reserves are estimated by reference to available
reservoir and well information. All proved reserves estimates are
subject to revision, either upward or downward, based on new
information, such as from development drilling and production
activities or from changes in economic factors, including product
prices, contract terms or development plans. In general, changes in
the technical maturity of hydrocarbon reserves resulting from new
information becoming available from development and production
activities have tended to be the most significant cause of annual
revisions.
In general, estimates of reserves for undeveloped or partially
developed fields are subject to greater uncertainty over their
future life than estimates of reserves for fields that are
substantially developed and being depleted. As a field goes into
production, the amount of proved reserves will be subject to future
revision once additional information becomes available through, for
example, the drilling of additional wells or the observation of
long-term reservoir performance under producing conditions. As
those fields are further developed, new information may lead to
revisions.
Changes to the Group's estimates of proved and probable reserves
also affect the amount of depletion recorded in the Group's
consolidated financial statements for property, plant and equipment
related to oil and gas production activities. A reduction in proved
and probable reserves will increase depletion charges (assuming
constant production) and reduce profit.
Proved and probable reserve estimates of the Group as of 30 June
2016 were based on the reports prepared by Miller and Lents Ltd,
independent engineering consultants, adjusted by production for the
second half of 2016 and the six months ended 30 June 2017.
As at 30 June 2017, the net carrying amount of oil and gas
properties and related cost of production licence was $298,858
thousand (31 December 2016: $296,163 thousand).
Taxation
The Group is subject to income tax and other taxes. Significant
judgment is required in determining the provision for income tax
and other taxes due to the complexity of the tax legislation
incorporated in the Russian Federation. There are many transactions
and calculations for which the ultimate tax determination is
uncertain. The Group recognises liabilities for anticipated tax
audit matters based on estimates on whether additional tax will be
due. Where the final tax outcome is different from the amounts that
were initially recorded, such differences will impact the amount of
tax and tax provisions in the period in which such determination is
made.
Net investment in foreign operations
Loans issued to foreign subsidiaries, the settlement of which is
neither planned nor likely to occur in the foreseeable future, form
part of the Group's net investment in those subsidiaries. In 2014
the Group transferred $43.0 million from Exillon Finance LLC to
Kayumneft JSC through an intercompany loan. The Group did not
consider that repayment of this intercompany loan was likely to
occur in the foreseeable future. The intercompany loan formed a
part of the Group's net investment in Kayumneft JSC. Foreign
exchange differences on the intercompany loan and the corresponding
tax effect were recognised in other comprehensive income.
In light of continued decline in oil prices and significant
weakening of Russian Rouble leading to the decrease in the Group's
profits, in June 2015 management reassessed the judgement and
determined that this intercompany loan was expected to be settled
to fund repayments of the Group's external debt. During the six
months ended 30 June 2017, a foreign exchange gain of $198 thousand
on the intercompany loan has been recognized in profit or loss (30
June 2016: a foreign exchange gain of $4,046 thousand). The
relevant Group's external debt has been fully repaid in March
2017.
Impairment
The carrying value of the Group's assets can be significantly
affected by change in oil prices. The drastic drop in oil price
during the last quarter of 2014 and its continuous volatility
thereafter have indicated potential impairment of oil and gas
properties. The detailed impairment review analysis was made as of
31 December 2016. For this assessment, oil and gas assets were
grouped into cash-generating units (being the Group's oil fields),
while other property, plant and equipment assets were allocated to
oil fields according to their reserve share in the total portfolio.
The recoverable amount for each cash-generating unit was determined
based on the future cash flows to be obtained from the proved and
probable reserves of the relevant oil field discounted to their
present value. The projection of cash flows was made for the period
covering 2035, being the expected period to extract currently
estimated reserves. With reference to the analysis performed,
management was able to conclude that in each cash-generating unit
the recoverable amount (based on fair value less costs of disposal)
exceeds the carrying amount of the related assets, and therefore
there is no impairment to be recognised as of 30 June 2017 (31
December 2016: nil).
5. OPERATING SEGMENTS
Management has determined the operating segments based on the
reports reviewed by Directors that make the strategic decisions for
the Company, who are deemed to be the chief operating decision
maker (CODM).
Exillon Energy plc manages its business through two operating
segments, Exillon TP and Exillon WS.
-- Exillon TP: upstream business based in the Timan-Pechora
basin in the Komi Republic in the Russian Federation. The revenue
is derived from extraction and sale of crude oil.
-- Exillon WS: upstream business based in Western Siberia in the
Russian Federation. The revenue is derived from extraction and sale
of crude oil.
No operating segments have been aggregated to form the above
reportable operating segments.
Segmental information for the Group for the six months ended 30
June 2017 is presented below:
Exillon TP Exillon WS Unallocated Total
---------- ---------- ----------- ----------
$'000 $'000 $'000 $'000
Gross segment revenue 14,887 49,477 - 64,364
---------- ---------- ----------- ------------
Revenue 14,887 49,477 - 64,364
Mineral extraction tax (7,043) (6,578) - (13,621)
Transportation services
- Transneft (755) - - (755)
Net back 7,089 42,899 - 49,988
---------- ---------- ----------- ------------
EBITDA 2,565 32,581 (573) 34,573
---------- ---------- ----------- ------------
Depreciation and depletion 3,177 5,305 177 8,659
Finance income (547) (3,703) (4) (4,254)
Finance cost 125 971 - 1,096
Operating (loss)/profit (654) 23,912 (642) 22,616
---------- ---------- ----------- ------------
Capital expenditures 21,577 211,006 - 232,583
---------- ---------- ----------- ------------
Segmental information for the Group for the six months ended 30
June 2016 is presented below:
Exillon TP Exillon WS Unallocated Total
---------- ---------- ----------- ----------
$'000 $'000 $'000 $'000
Gross segment revenue 13,211 50,860 - 64,071
---------- ---------- ----------- ------------
Revenue 13,211 50,860 - 64,071
Mineral extraction tax (3,892) (3,187) - (7,079)
Export duties - (2,984) - (2,984)
Transportation services
- Transneft - (1,600) - (1,600)
Net back 9,319 43,089 - 52,408
---------- ---------- ----------- ------------
EBITDA 4,139 34,126 (210) 38,055
---------- ---------- ----------- ------------
Depreciation and depletion 2,735 6,006 177 8,918
Finance income (135) (679) - (814)
Finance cost 97 412 550 1,059
Operating profit 1,192 22,224 3,662 27,078
---------- ---------- ----------- ------------
Capital expenditures 783 4,033 - 4,816
---------- ---------- ----------- ------------
The selling prices between operating segments are on an arm's
length basis in a manner similar to transactions with third
parties. There were no intersegment revenues during the six months
ended 30 June 2016 and 2017.
Unallocated category represents costs of corporate companies
that are managed at the Group level.
Management assesses performance of the operating segments based
on EBITDA which is calculated as follows: operating result plus
depletion and depreciation, plus/minus foreign exchange
gains/(losses) and plus/minus other significant one-off
income/(expenses).
Net back is defined as revenue less direct and indirect
government taxation. The indicator is calculated as revenue mineral
extraction tax, export duty and Transneft transportation
services.
Reconciliation of profit/(loss) before income tax to EBITDA for
the six months ended 30 June 2017 is presented below:
Exillon TP Exillon WS Unallocated Total
---------- ---------- ----------- -------
$'000 $'000 $'000 $'000
Profit/(loss) before
income tax (232) 26,644 (638) 25,774
Finance income (547) (3,703) (4) (4,254)
Finance cost 125 971 - 1,096
Depreciation and depletion 3,177 5,305 177 8,659
Foreign exchange loss/(gain) 55 3,394 (108) 3,341
Gain on disposal of property,
plant and equipment (13) (30) - (43)
EBITDA 2,565 32,581 (573) 34,573
---------- ---------- ----------- -------
Reconciliation of profit before income tax to EBITDA for the six
months ended 30 June 2016 is presented below:
Exillon TP Exillon WS Unallocated Total
---------- ---------- ----------- ------
$'000 $'000 $'000 $'000
Profit before income
tax 1,230 22,491 3,112 26,833
Finance income (135) (679) - (814)
Finance cost 97 412 550 1,059
Depreciation and depletion 2,735 6,006 177 8,918
Foreign exchange loss/(gain) 212 5,903 (4,049) 2,066
Gain on disposal of property,
plant and equipment - (7) - (7)
EBITDA 4,139 34,126 (210) 38,055
---------- ---------- ----------- ------
During the six months ended 30 June 2017 the Group earned
revenues each exceeding 10% of the Group's revenues from four major
customers: $14,879 thousand (attributable to domestic sales
reported by Exillon TP), $8,477 thousand, $8,540 thousand and
$9,437 thousand (attributable to domestic sales reported by Exillon
WS).
During the six months ended 30 June 2016 the Group earned
revenues each exceeding 10% of the Group's revenues from three
major customers: $13,204 thousand (attributable to domestic sales
reported by Exillon TP), $14,077 thousand and $20,111 thousand
(attributable to export and domestic sales reported by Exillon WS,
respectively).
6. revenue
Six months ended 30 June
--------------------------
2017 2016
------------ ------------
$'000 $'000
Domestic sales 64,364 49,994
Export sales - 14,077
Total 64,364 64,071
============ ============
7. cost of sales
Six months ended 30 June
--------------------------
2017 2016
------------ ------------
$'000 $'000
Mineral extraction tax 13,621 7,079
Depreciation and depletion 8,459 8,704
Current repair of property, plant
and equipment 2,791 3,153
Salary and related taxes 2,203 1,914
Operating lease 1,415 1,281
Taxes other than income tax 1,080 1,060
Licence maintenance cost 904 1,231
Materials 866 658
Unused vacation accrual 112 94
Gas flaring penalties 48 88
Total 31,499 25,262
============ ============
During the six months ended 30 June 2016 and 2017, Exillon WS
applied 0% mineral extraction tax rate to the oil produced from a
certain oil reservoir, which includes oil production from the
majority of oil wells located at the EWS I and EWS II oil fields.
The tax exemption for this oil reservoir was introduced in the
second part of 2015 (with effective date from 1 January 2015). The
tax exemption amounted to $18,999 thousand for the first six months
of 2017 and $16,695 thousand for the first six months of 2016.
During the six months ended 30 June 2017, Exillon WS applied a
reducing factor to the mineral extraction tax rate, which reflects
the specific characteristics of the remaining oil production from
the EWS II oil field. The tax exemption amounted to $609 thousand
for the first six months of 2017.
During the six months ended 30 June 2016 and 2017, Exillon TP
applied reducing factors to the mineral extraction tax rate, which
reflect the specific characteristics of oil production from the ETP
V and ETP VI oil fields. The tax exemption amounted to $689
thousand for the first six months of 2017 and $418 thousand for the
first six months of 2016.
8. selling expenses
Six months ended 30 June
--------------------------
2017 2016
------------ ------------
$'000 $'000
Transportation services - trucking
to Transneft 1,771 2,145
Transportation services - Transneft 755 1,600
Crude oil custody transfer metering
system 614 752
Other expenses 4 9
Export duties - 2,984
------------ ------------
Total 3,144 7,490
============ ============
9. administrative expenses
Six months ended 30 June
--------------------------
2017 2016
------------ ------------
$'000 $'000
Salary and related taxes 2,161 1,848
Consulting services 1,010 359
Depreciation and amortisation 200 214
Operating lease 195 155
Banking services 65 59
Communication services 57 54
Software 39 34
Secretary services 36 54
Insurance 36 41
Unused vacation accrual 34 20
Business travel 29 27
Annual fees to LSE and WSE 23 23
Current office maintenance 16 10
Other expenses 204 131
Total 4,105 3,029
============ ============
10. earnings per share
Basic earnings per share ("EPS") is calculated by dividing net
profit for the period attributable to ordinary equity shareholders
of the Company by the weighted average number of ordinary shares
outstanding during the period.
The following reflects the income and adjusted share data used
in the EPS computations:
Six months ended 30 June
--------------------------
2017 2016
------------ ------------
$'000 $'000
Net profit attributable to ordinary
equity shareholders
of the Company 19,594 22,328
Number of shares:
Weighted average number of ordinary
shares 160,315,209 160,315,209
Adjustments for:
- Shares additionally issued
for share awards - -
------------ ------------
Weighted average number of ordinary
shares for diluted earnings per
share 160,315,209 160,315,209
Basic ($) 0.12 0.14
Diluted ($) 0.12 0.14
============ ============
11. Property, plant and equipment
Note Oil and Exploration Buildings Machinery, Construction Total
gas properties and evaluation and construction equipment, in progress
assets transport
and other
--------------- --------------- ----------------- ----------- ------------ ---------
$'000 $'000 $'000 $'000 $'000 $'000
Cost
31 December 2016 361,518 671 78,951 42,828 15,989 499,957
--------------- --------------- ----------------- ----------- ------------ ---------
Additions 149 - - - 232,583 232,732
Transferred from
construction
in progress 86 - - 204 (290) -
Change in estimates 15 (47) - - - - (47)
Disposals (130) - - - (25) (155)
Translation
difference 7,630 18 1,336 672 1,213 10,869
--------------- --------------- ----------------- ----------- ------------ ---------
30 June 2017
(unaudited) 369,206 689 80,287 43,704 249,470 743,356
--------------- --------------- ----------------- ----------- ------------ ---------
Accumulated
depreciation
31 December 2016 (65,355) - (21,693) (20,176) - (107,224)
--------------- --------------- ----------------- ----------- ------------ ---------
-
Charge for the
period (4,028) - (3,078) (1,553) - (8,659)
Disposals 127 - - - - 127
Translation
difference (1,092) - (472) (350) - (1,914)
30 June 2017
(unaudited) (70,348) - (25,243) (22,079) - (117,670)
--------------- --------------- ----------------- ----------- ------------ ---------
Net book value
31 December 2016 296,163 671 57,258 22,652 15,989 392,733
--------------- --------------- ----------------- ----------- ------------ ---------
30 June 2017
(unaudited) 298,858 689 55,044 21,625 249,470 625,686
--------------- --------------- ----------------- ----------- ------------ ---------
Decommissioning costs of $7,116 thousand and $6,942 thousand
were included within oil and gas properties as of 30 June 2017 and
31 December 2016, respectively. Change in estimates relates to the
change in the assumptions used in estimation of decommissioning
costs (Note 4).
Cumulative capitalized borrowing costs of $19,918 thousand and
$19,808 thousand were included within oil and gas properties as of
30 June 2017 and 31 December 2016, respectively. Total borrowing
costs incurred during the six months ended 30 June 2017 period
amounted to $741 thousand, of which $110 thousand were capitalised
(31 December 2016: total borrowing costs amounted to $1,727
thousand of which $541 thousand was capitalised). There is no tax
relief related to the capitalised borrowing costs.
Exploration and evaluation assets as of 30 June 2017 and 31
December 2016 comprise the ETP VII licence acquired in December
2011. Construction in progress relates to the construction of
infield infrastructure and drilling of oil wells commenced in 2016
and 2017.
Additions to construction in progress include $224,741 thousand
of advances issued for the capital construction. All types of
expenses (such as well drilling, construction and development of
infield infrastructure) to be incurred are capitalised in
accordance with the Group accounting policy.
Advance payments for property, plant and equipment include
$128,208 thousand of advances paid and refunded during the six
months ended 30 June 2017. In January-February 2017 the Company
made advance payments for a total amount of $97,774 thousand in
relation to a potential purchase of office buildings. The remaining
amount of $30,434 thousand relates to advance payments for the
drilling of oil wells and further development of infield
infrastructure. The transactions did not proceed and consequently
are not reflected in additions to property, plant and equipment.
The amount of $134,470 thousand was refunded in full in March 2017.
The difference of $6,262 thousand between amounts of advance
payments and refunds relates to translation gain that is part of
other comprehensive income.
Advance payments for property, plant and equipment of $13,135
thousand paid in the period were agreed to be refunded prior to 30
June 2017. These amounts are shown as other receivables (Note 13)
rather than additions to property, plant and equipment, but are
included in investing cash flows. The refund was received after 30
June 2017 and will be shown as a reduction to investing cash flows
in the second half of the year.
In 2015, the Group purchased an aircraft for $10,600 thousand,
which was subsequently leased to an unrelated third party for a
period of ten years at a monthly lease payment of $130 thousand;
with the retained right to use the aircraft for the Company's needs
on commercial payment terms.
Minimum lease payments were as follows:
As at
--------------------------
30 June 2017 31 December
2016
------------- ------------
$'000 $'000
Within one year 1,560 1,560
Two to five years 6,240 6,240
Later than five years 4,290 5,070
Total 12,090 12,870
============ ===========
12. Inventories
As at
--------------------------
30 June 2017 31 December
2016
------------- ------------
$'000 $'000
Crude oil 1,901 1,166
Spare parts 730 731
Chemicals 354 370
Fuel 192 221
Total 3,177 2,488
============ ===========
Inventories included no obsolete or slow-moving items as of 30
June 2017 (31 December 2016: nil).
13. trade and other receivables
As at
--------------------------
30 June 2017 31 December
2016
------------- -----------
$'000 $'000
Trade receivables 427 1,673
Allowance for doubtful debts (32) (31)
------------ -----------
Net trade receivables 395 1,642
Other receivables (net of provision
of $5
thousand (31 December 2016: $5 thousand)) 15,069 2,003
Taxes recoverable 798 947
Interest receivable on bank deposits - 195
Current trade and other receivables 16,262 4,787
============ ===========
Trade receivables are non-interest bearing. In determining the
recoverability of a trade receivable, the Group considers any
change in the credit quality of the trade receivable from the date
credit was initially granted up to the reporting date. Accordingly,
the management of the Group believes that there is no further
credit provision required in excess of the allowance for doubtful
debts.
As at 30 June 2017, other receivables included $13,135 thousand
of advance payment for property, plant and equipment, which was
made during the six months ended 30 June 2017 and refunded in July
2017, due to the amendments in construction contract (Note 11).
14. other assets
As at
-------------------------
30 June 2017 31 December
2016
------------ -----------
$'000 $'000
Prepayments (net of provision of $466
thousand (31 December 2016: $450 thousand)) 829 615
Prepaid expenses 319 123
Other urrent assets 1,148 738
============ ===========
15. provision for decommissioning
As at
--------------------------
Note 30 June 2017 31 December
2016
------------ -----------
$'000 $'000
Balance at the beginning of the
period 10,351 7,799
Additions 39 74
Change in estimates 11 (47) 93
Unwinding of the present value
discount 465 796
Translation difference 264 1,684
Write-off - (95)
Balance at the end of the period 11,072 10,351
============ ===========
In accordance with the licence agreements the Group is liable
for site restoration, clean up and abandonment of the wells upon
completion of their production cycle. The provision for future site
restoration relates to obligations to restore the oilfields after
use. All of these costs are expected to be incurred at the end of
the life of wells between 2025 and 2038 (Note 4). They depend on
the estimated lives of the wells, the scale of any possible
contamination and the timing and extent of corrective actions.
The unwinding of the discount related to future site restoration
and abandonment reserve is included within finance costs.
16. trade and other payables
As at
-------------------------
30 June 2017 31 December
2016
------------ -----------
$'000 $'000
Trade payables 9,203 10,403
Advances received 7,525 9,815
Salary payable 967 679
Other payables 6,642 7,943
Current trade and other payables 24,337 28,840
============ ===========
Trade and other payables are non-interest bearing. As at 30 June
2017, advances of $7,525 thousand (31 December 2016: $9,815
thousand) relate to the receipts from customers for sales in July
2017 (31 December 2016: January 2017).
17. borrowings
As at
-------------------------
30 June 2017 31 December
2016
------------ -----------
$'000 $'000
Gazprombank JSC 124,561 -
Less: current portion - -
Credit Suisse - 7,716
Less: current portion - (7,716)
Long-term portion 124,561 -
============ ===========
There is no material difference between the carrying amount and
fair value of borrowings.
Gazprombank JSC - On 7 April 2017, Kayumneft JSC entered into
facility agreements for an aggregate principal amount of up to
$206,000 thousand, nominated in US dollars and repayable in full on
28 September 2018. During the six months ended 30 June 2017,
Kayumneft JSC received $125,000 thousand. The facility agreements
provide an interest rate at LIBOR plus 5.3%. The interest is
payable monthly with the first payment made in April 2017.
As at 30 June 2017, the outstanding balance of $124,561 thousand
was recognized net of the unamortized amounts of borrowing costs of
$439 thousand. The amortisation of borrowing costs for the first
six months of 2017 was $76 thousand. The undrawn facilities
amounted to $81,000 thousand and available until March 2018.
Under the terms of the facility agreements, the Group is subject
to two financial covenants and a number of general covenants. The
financial covenants will be tested for the year ended 31 December
2017.
Exillon Energy plc and its subsidiaries guarantee and secure the
obligations of Kayumneft JSC under the facility agreements. The
facility agreements are secured by a pledge of the 100% shares of
certain Group's subsidiaries (Note 22): Komi Resources CJSC, Nem
Oil CJSC, Aslador Oil CJSC, Kayumneft JSC, Ucatex Ugra LLC, Ucatex
Oil LLC and Setera LLC.
Credit Suisse - On 14 March 2017 the principal of $7,692
thousand has been repaid in compliance with the repayment schedule,
being the last principal payment under this loan facility.
18. Share capital
The issued share capital of the Company at the date of these
consolidated financial statements is as follows:
Number Share capital Share Premium
(allotted and
called up)
$'000 $'000
As at 31 December 2015 161,510,911 1 272,116
Issuance of shares - - -
As at 31 December 2016 161,510,911 1 272,116
Issuance of shares - - -
As at 30 June 2017 161,510,911 1 272,116
The total number of allotted ordinary shares is 161,510,911 with
a par value of $0.0000125 each. As of 30 June 2017 shares issued
include 1,195,702 shares (31 December 2016: 1,195,702 shares),
which are not paid and held by the Employee Benefit Trust within
the Group for further allocation to employees. There were no new
share awards granted to employees during the six months ended 30
June 2017.
19. Risk management
The Group's activities expose it to a variety of financial
risks: market risk (including foreign currency risk and interest
rate risk), credit risk and liquidity risk.
The interim condensed consolidated financial statements do not
include all financial risk management information and disclosures
required in the annual financial statements, and should be read in
conjunction with the Group's annual financial statements as at 31
December 2016.
Major categories of financial instruments - The Group has
various financial assets such as trade and other accounts
receivable, cash and cash equivalents and interest receivable on
bank deposits. The Group's principal financial liabilities comprise
borrowings, trade and other accounts payable, advances received and
salary payable.
As at
---------------------------
Note 30 June 2017 31 December
2016
------------- ------------
$'000 $'000
Financial assets
Cash and cash equivalents 21 43,455 146,529
Trade and other receivables 13 15,464 3,645
Interest receivable on bank
deposits 13 - 195
Total financial assets 58,919 150,369
============= ============
Financial liabilities
Trade and other payables 16 15,845 18,346
Advances received 16 7,525 9,815
Salary payable 16 967 679
Borrowings 17 124,561 7,716
------------- ------------
Total financial liabilities 148,898 36,556
============= ============
The major part of cash is held on short-term and long-term
deposits placed in financial institutions incorporated in the
Russian Federation, which provide premium deposit rates. The
financial ability of financial institutions and overall market
circumstances are continuously monitored by management based on the
information provided by independent rating agencies or other
publicly available financial information.
As of 30 June 2017, cash and cash equivalents amounted to
$43,139 thousand were held in one financial institution (31
December 2016: cash and cash equivalents of $146,346 thousand and
the interest receivable of $195 thousand).
On 28 July 2017, the Central Bank of Russia has withdrawn Bank
Ugra's licence. As of that date, outstanding amount of cash held in
Bank Ugra was $848 thousand. Currently the major part of cash is
held in other financial institutions incorporated in the Russian
Federation.
As of 30 June 2017, US dollars account for approximately 4% of
cash and cash equivalents with the remaining 96% held in Russian
Roubles (31 December 2016: US dollars account for approximately 21%
of our cash with the remaining 79% held in Russian Roubles).
Foreign currency risk - new loan facility agreements are
nominated in US dollars and were taken out by a Russian Rouble
functional currency subsidiary (Note 17). Consequently, these loan
facilities are exposed to foreign currency risk, which can
adversely impact the consolidated financial results of the Group.
The Group does not use any derivatives to manage foreign currency
risk exposure, although there is a detailed budgeting and cash
forecasting process in place to help ensure that the Group has
adequate cash available to meet its payment obligations under the
facility agreements.
Fair value of financial instruments - Management believes that
the carrying values of financial assets and liabilities recorded at
amortised cost in these financial statements approximate their fair
values.
20. COMMITMENTS and contingencies
Capital commitments - The Group has capital commitments
outstanding against major contracts:
As at
-------------------------
Nature of contract: 30 June 2017 31 December
2016
------------ -----------
$'000 $'000
Construction of wells and infield
infrastructure 39,227 5,931
Oil reserves development work 413 494
Other 187 191
Total 39,827 6,616
============ ===========
As at 30 June 2017, capital commitments for construction of
wells and infield infrastructure relate to outstanding amounts
under contracts concluded in 2017 under the Group's investment
program for the years 2017-2021, which was approved by the Board of
Directors.
Leases - the Group leases three oil wells and associated land
plots from government agencies in the Russian Federation. The
initial terms on all leases have expired. The lease terms allow for
continued lease renewal after expiry of the initial term. In
continuing to use these wells, the Group relies on Article 621(2)
of the civil code of the Russian Federation, which states that such
leases are renewed for an indefinite term if the tenant continues
to use the property after the term of the lease has expired in the
absence of objections from the lessor, although either party is
entitled to terminate the lease upon three months' notice. The
Group believes that the Russian authorities are unlikely to
exercise this termination right as the Group has the exclusive
right to extract the oil resources underlying the wells and
continues to make lease payments. Management expects to continue to
pay for the leases until the expiry of relevant subsoil licences,
in a range between 2025 and 2027.
Taxes - overall, management believes that the Group has paid or
accrued all taxes that are applicable. For taxes where uncertainty
exists, the Group has accrued tax liabilities based on management's
best estimate of the probable outflow of resources embodying
economic benefits, which will be required to settle these
liabilities.
Possible liabilities which were identified by management at the
reporting date as those that can be subject to different
interpretations of the tax laws and regulations and are not accrued
in the consolidated financial statements amount to approximately
$2,651 thousand (31 December 2016: nil). The possible liabilities
relate to the deduction of certain expenses for income tax purposes
by Exillon TP.
21. TRANSACTIONS WITH RELATED PARTIES
In considering each possible related party relationship,
attention is directed to the substance of the relationship, not
merely the legal form.
The Group's outstanding balances with related parties
attributable to cash and cash equivalents balances and interest
receivable on bank deposits:
As at
---------------------------
30 June 2017 31 December
2016
------------- ------------
$'000 $'000
Other related party:
Bank Ugra
Cash and cash equivalents 43,139 146,346
Interest receivable on bank deposits - 195
Total 43,139 146,541
============= ============
On 30 December 2015, the Company purchased bank bills of
exchange from Bank Ugra for the total amount of $26,322 thousand
bearing interest of 2.5% per annum. On 26 October 2016, the
interest rate was increased to 3.5% per annum. As at 31 December
2016, bank bills of exchange were included within cash and cash
equivalents in the consolidated statement of financial position.
During the six months ended 30 June 2017 these bank bills of
exchange were redeemed.
On 28 July 2017, the Central Bank of Russia has withdrawn Bank
Ugra's licence. As of that date, outstanding amount of cash held in
Bank Ugra is $848 thousand.
Transactions with related parties during the period were as
follows:
Six months ended 30 June
---------------------------
2017 2016
------------- ------------
$'000 $'000
Other related party:
Bank Ugra
Interest income 4,254 812
Banking services (57) (48)
Total 4,197 764
============= ============
Bank Ugra became a related party to the Company on 25 December
2015, when Mr. Khotin (having a significant influence over Exillon
as an ultimate controlling party of Seneal International Agency
Ltd, which held a 29.99% interest in the Company's share capital),
obtained control over the bank.
Compensation of key management personnel - Key management
personnel consist of independent non-executive directors, executive
directors, directors and presidents of operational subsidiaries.
Compensation of key management personnel is set by senior
executives of the Group and includes only basic salary. Total
compensation to key management personnel included in administrative
expenses in the consolidated statement of comprehensive income was
$537 thousand for the six months ended 30 June 2017 (2016: $694
thousand).
22. controlled entities
A list of the Company's principal subsidiaries is set out
below:
Ownership/proportion
of ordinary shares
as at
-----------------------
Name Country of incorporation Principal activity 30 June 31 December
2017 2016
------------------------ -------------------------- -------------------- --------- ------------
Kayumneft JSC Russian Federation Subsoil user 100% 100%
Nem Oil CJSC Russian Federation Subsoil user 100% 100%
Komi Resources CJSC Russian Federation Subsoil user 100% 100%
Aslador Oil CJSC Russian Federation Subsoil user 100% 100%
Ucatex Oil LLC Russian Federation Operator company 100% 100%
Ucatex Ugra LLC Russian Federation Operator company 100% 100%
Setera LLC Russian Federation Administration 100% 100%
Silo Holdings LLC BVI Oil trading 100% 100%
Actionbrook Limited Cyprus Administration 100% 100%
Claybrook Limited Cyprus Administration 100% 100%
Diamondbridge Limited Cyprus Administration 100% 100%
Lanach Limited Cyprus Administration 100% 100%
Halescope Limited Cyprus Administration 100% 100%
Vitalaction Limited Cyprus Administration 100% 100%
Corewell Limited Cyprus Administration 100% 100%
Touchscope Limited Cyprus Administration 100% 100%
Lexgrove Limited Cyprus Administration 100% 100%
Plusgrove Limited Cyprus Administration 100% 100%
Exillon Finance
LLC Isle of Man Treasury 100% 100%
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR BDGDCUXGBGRB
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September 01, 2017 09:33 ET (13:33 GMT)
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