TIDMGDL
RNS Number : 9168T
Greka Drilling Limited
06 July 2018
6 July 2018
Greka Drilling Limited
("Greka Drilling" or the "Company")
Annual results for the year ended 31 December 2017
Greka Drilling Limited (AIM: GDL), the largest independent and
specialized unconventional gas driller in Asia, is pleased to
announce its annual results for the year ended 31 December
2017.
OPERATIONAL HIGHLIGHTS:
-- 48 wells were drilled in 2017 (2016: 33 wells), of which:
- 41 wells drilled in China (2016: 5 wells)
- 7 wells drilled in India (2016: 28 wells)
- 13 wells drilled for G3 Exploration ("G3E") (2016: 5 wells)
- 28 wells drilled for other clients in China (2016: none)
- 7 wells were drilled for Essar Oil in India (2016: 28 wells)
-- A total of 64,192 metres were drilled in 2017, compared to
39,553 metres in 2016, of which:
- 56,531 metres were drilled in China
- 7,661 metres were drilled in India
- 81% of the metres in China involved the use of the Company's
in house MWD (measurement while drilling) directional tools (i.e.
were lateral or directional wells using measurement-while
drilling); (2016: 13%)
FINANCIAL HIGHLIGHTS:
-- Annual revenue of US$11.6m (2016: US$7.2m)
-- Losses before tax curtailed to US$1.4m (2016: loss before tax
US$9.6m) due to increase in revenue and controlled operational
costs resulting in gross profit of US$3.4m (2016: gross loss of
US$1.0m), further supported by decrease in administrative
expenses
-- Year-end cash and bank deposits of US$0.6m (2016: US$2.1m)
Randeep S. Grewal, Chairman & CEO of Greka Drilling,
commented:
"While the year presented challenges in India and some in China,
Greka Drilling concluded the year with a 61% increase in revenues
to US$11.6m from US$7.2m in the previous year. The gross profit
increased to US$3.4m from a loss of US$1m in 2016. A total of 48
wells were completed with 64,192 metres being successfully being
drilled, a 45% and 62% increase over 2016, respectively.
In China the government continued its strong support for the
development of its Coal Bed Methane (CBM) resources. We were
beneficiaries of the continued drilling programs by state-owned
China National Petroleum Corporation (CNPC) on its large acreage in
southern Shanxi province on multiple blocks.
Among the significant number of state-owned drilling companies,
Greka Drilling stands out as the only independent foreign drilling
contractor sustainably providing services within the CBM sector in
China and India."
For further information on Greka Drilling, please refer to the
Company's website at www.grekadrilling.com or contact:
Dr Azhic Basirov / David Jones / Ben
Jeynes
Nominated Adviser and Broker
Smith & Williamson +44 (0)20 7131 4000
CHAIRMAN'S STATEMENT
We were pleased with the continued stability of our service
contracts in China while we faced challenges in India. The
Company's dual geography strategy for stability has proven itself
since being implemented five years ago. This year, the Chinese
clients provided for the stability and growth.
While the year presented challenges in India and some in China,
Greka Drilling concluded the year with a 61% increase in revenues
to US$11.6m from US$7.2m in the previous year. The gross profit
increased to US$3.4m from a loss of US$1m in 2016. A total of 48
wells were completed with 64,192 metres being successfully being
drilled, a 45% and 62% increase over 2016, respectively.
In China the government continued its strong support for the
development of its Coal Ben Methane (CBM) resources. We were
beneficiaries of the continued drilling programs by state-owned
China National Petroleum Corporation (CNPC) on its large acreage in
southern Shanxi province on multiple blocks. Greka Drilling has
been accepted as a CBM drilling expert and routinely provided
drilling mandates. Specifically, we are always awarded the more
complex horizontal or directional wells to drill by CNPC. We expect
CNPC to continue its drilling campaigns and include Greka Drilling
as its service provider going forward.
Additionally in China, Greka Drilling delivered on a challenging
drilling campaign by G3 Exploration (LSE: G3E) in the fourth
quarter. G3E mandated the Company to drill twelve wells in their
Guizhou province block and further required the program to be
completed prior to year end. Notwithstanding, multiple challenges
on attaining land access, midst of a torrential rainy season and a
difficult mountainous terrain, Greka Drilling successfully
completed this difficult mandate timely. The completed program
provided G3E the necessary accomplishments by yearend and helped it
conclude that their block continue onto development from the
exploration phase. As a result of the timely and proficient
execution, we expect to drill a significant inventory of wells over
the next five years across the large acreage.
Furthermore, the Company concluded 52 work-overs for G3E during
the course of the year. The work-overs are continual requirements
on their producing wells due to the intermittent well failures on
the large population of wells operated by G3E. We expect such
workload to continue in the years ahead.
As a result of the drilling campaign and work-overs, the G3E
intercompany payable reduced by 52% to US$6.3m at yearend. We
expect this balance to be reduced further in 2018 from similar
activities.
While in China we continued to stabilize and expand our
operations, the sole Indian contract with ONGC was terminated.
Greka Drilling was fully committed to Oil and Natural Gas
Corporation's (ONGC's) proposed drilling campaign at Bokaro and had
designated rigs and resources and had made the best workforce
available for the project. Unfortunately, the development plan
concluded by ONGC was determined not to be in the best interests of
the Company and its shareholders. Greka Drilling wishes the best
for ONGC in this drilling campaign.
The curtailed Indian team continues its focus on business
development activities with potential clients with CBM ownership
interests. We continue to be optimistic of the long term Indian CBM
drilling service market, notwithstanding the current challenges
being faced.
Among the significant number of state-owned drilling companies,
Greka Drilling stands out as the only independent foreign drilling
contractor sustainably providing services within the CBM sector in
China and India. The contracted drilling services are recognition
of the niche drilling expertise within the Company.
I look forward to providing further updates of the Company's
continued progress.
Randeep S. Grewal
Chairman
6 July 2018
Consolidated Statement of Comprehensive Income
Year Ended Year Ended
31 December 31 December
2017 2016
Note US$'000 US$'000
------------------------------------------- ------ ------------- -------------
Revenue 3 11,585 7,154
Cost of sales (8,161) (8,168)
------------------------------------------- ------ ------------- -------------
Gross profit/(loss) 3,424 (1,014)
Administrative expenses (3,936) (6,167)
------------------------------------------- ------ ------------- -------------
Loss from operations 4 (512) (7,181)
Finance income 5 393 73
Finance costs 6 (1,562) (2,451)
------------------------------------------- ------ ------------- -------------
Loss before income tax (1,681) (9,559)
Income tax (expense)/credit 9 (884) 1,815
------------------------------------------- ------ ------------- -------------
Loss for the year (2,565) (7,744)
Other comprehensive expense, net of
tax:
Exchange differences on translation
of foreign operations* 3,402 2,402
------------------------------------------- ------ ------------- -------------
Total comprehensive income/(loss)
for the year 837 (10,146)
------------------------------------------- ------ ------------- -------------
(Loss)/profit for the period attributable
to:
- Owners of the company (2,687) (7,838)
- Non-controlling interests 122 94
------------------------------------------- ------ ------------- -------------
(2,565) (7,744)
------------------------------------------- ------ ------------- -------------
Total comprehensive (expense)/ income
attributable to:
- Owners of the company 774 (10,212)
- Non-controlling interests 63 66
------------------------------------------- ------ ------------- -------------
837 (10,146)
------------------------------------------- ------ ------------- -------------
Earnings per share
- Basic and diluted (in US$) 8 (0.0064) (0.0194)
============= =============
*Items that may be reclassified to profit or loss
Consolidated Statement of Financial Position
As at 31 December As at 31 December
2017 2016
Note US$'000 US$'000
-------------------------------- ----- ------------------- ------------------
Non Current Assets
Property, plant and equipment 79,040 79,601
Intangible assets 236 292
Other non current assets 470 292
Deferred tax assets 10 377
-------------------------------- ----- ------------------- ------------------
79,756 80,270
-------------------------------- ----- ------------------- ------------------
Current assets
Inventories 5,309 5,981
Trade and other receivables 10 5,590 3,759
Cash and bank balances 11 649 2,135
-------------------------------- ----- ------------------- ------------------
11,548 11,875
-------------------------------- ----- ------------------- ------------------
Total assets 91,304 92,145
-------------------------------- ----- ------------------- ------------------
Liabilities
Current liabilities
Trade and other payables 12 20,460 25,045
Loans and borrowings 13 5,681 3,604
26,141 28,649
-------------------------------- ----- ------------------- ------------------
Non-current liabilities
Loan and borrowings 13 8,520 7,298
Derivative financial liability 14 466 858
-------------------------------- ----- ------------------- ------------------
8,986 8,156
-------------------------------- ----- ------------------- ------------------
Total liabilities 35,127 36,805
-------------------------------- ----- ------------------- ------------------
Net assets 56,177 55,340
-------------------------------- ----- ------------------- ------------------
Capital and reserves
Share capital 4 4
Share premium account 77,186 77,186
Invested capital (1,533) (1,533)
Reserve fund 917 917
Foreign exchange reserve 1,942 (1,519)
Retained (deficit) (22,179) (19,492)
-------------------------------- ----- ------------------- ------------------
Total equity attributable to
owners of the Company 56,337 55,563
Non-controlling interests (160) (223)
-------------------------------- ----- ------------------- ------------------
Total equity 56,177 55,340
-------------------------------- ----- ------------------- ------------------
Consolidated Statement of Changes in Equity
Equity
attributable
Foreign Retained to owners
Share Share Invested Reserve exchange (deficit)/ of the Non-controlling
capital premium capital fund reserve earnings Company interests Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
At 1 January 2016 4 77,186 (1,533) 917 855 (11,654) 65,775 (289) 65,486
Profit/(Loss) for
the year (7,838) (7,838) 94 (7,744)
Other
comprehensive
expense
- Exchange
difference on
translation of
foreign
operations - - - - (2,374) - (2,374) (28) (2,402)
--------- -------- --------- -------- --------- ----------- ------------- ---------------- ---------
Total
comprehensive
(expense)/income
for the year - - - - (2,374) (7,838) (10,212) 66 (10,146)
At 31 December
2016 4 77,186 (1,533) 917 (1,519) (19,492) 55,563 (223) 55,340
Profit/(Loss) for
the year (2,687) (2,687) 122 (2,565)
Other
comprehensive
income:
- Exchange
difference on
translation of
foreign
operations - - - - 3,461 - 3,461 (59) 3,402
Total
comprehensive
(expense)/income
for the year - - - - 3,461 (2,687) 774 63 837
At 31 December
2017 4 77,186 (1,533) 917 1,942 (22,179) 56,337 (160) 56,177
========= ======== ========= ======== ========= =========== ============= ================ =========
The following describes the nature and purpose of each reserve
within owners' equity.
Share capital: Amount subscribed for share capital at nominal
value.
Share premium: Amount subscribed for share capital in excess of
nominal value.
Invested capital: Amount represents the difference between the
nominal value of the Company's share of the paid-up capital of the
subsidiaries acquired and the Company's cost of acquisition of the
subsidiaries under common control.
Reserve fund: The rules and regulations of the People's Republic
of China require that one tenth of profits as determined in
accordance with China Accounting Standards for Business Enterprises
in each period be reserved for making good previous years' losses,
expanding business, or for bonus issues, provided that the balance
after such issue is not less than 25% of the registered capital.
The amount is non-distributable.
Foreign exchange reserve: Foreign exchange differences arising
on translating the financial statements of foreign operations into
the reporting currency.
Retained (deficit)/earnings: Cumulative net gains and losses
recognised in profit or loss.
Consolidated Statement of Cash Flows
Year ended Year ended
31 December 31 December
2017 2016
US$'000 US$'000
---------------------------------------------- ------------- -------------------------
Operating activities
Loss before income tax (1,681) (9,559)
Adjustments for :
Depreciation 2,813 2,445
Amortisation of other intangible assets 72 71
Loss on disposal of property, plant and
equipment - 152
Finance exchange loss 355 1,482
Finance income (393) (73)
Finance costs 1,207 969
---------------------------------------------- ------------- -------------------------
Operating cash flows before changes in
working capital 2,373 (4,513)
Decrease in inventories 672 1,157
(Increase)/decrease in trade and other
receivables (1,831) 396
Decrease in trade and other payables (4,203) (1,014)
---------------------------------------------- ------------- -------------------------
Cash generated from operations (2,989) (3,974)
Income tax payment (54) (216)
---------------------------------------------- ------------- -------------------------
Net cash from operating activities (3,043) (4,190)
---------------------------------------------- ------------- -------------------------
Investing activities:
Payments for purchase of property, plant
and equipment (278) (318)
Movement in restricted cash - 2,068
Interest received 1 59
---------------------------------------------- ------------- -------------------------
Net cash generated from investing activities (277) 1,809
---------------------------------------------- ------------- -------------------------
Financing activities:
Proceeds from promissory notes 2,500 8,000
Proceeds of short term loan 3,061 3,604
Repayment of short term loan (3,604) (5,852)
Finance costs paid (240) (738)
---------------------------------------------- ------------- -------------------------
Net cash used in financing activities 1,717 5,014
---------------------------------------------- ------------- -------------------------
Net (decrease)/increase in cash and cash
equivalents (1,603) 2,633
Cash and cash equivalents at beginning
of the year 2,135 353
---------------------------------------------- ------------- -------------------------
532 2,986
Effect of foreign exchange rate changes 117 (851)
---------------------------------------------- ------------- -------------------------
Cash and cash equivalents at end of the
year 649 2,135
============================================== ============= =========================
INDEPENT AUDITORS' REPORT TO THE DIRECTORS OF GREKA DRILLING
LIMITED
Opinion
We have audited the financial statements of Greka Drilling
Limited (the 'company') and its subsidiaries (the 'group') for the
year ended 31 December 2017 which comprise the consolidated
statement of financial position, the consolidated statement of
comprehensive income, the consolidated statement of changes in
equity and the consolidated statement of cash flows for the year
then ended, and notes to the financial statements, including a
summary of significant accounting policies.
The financial reporting framework that has been applied in the
preparation of the financial statements is applicable law and
International Financial Reporting Standards (IFRSs) as adopted by
the European Union.
In our opinion:
-- the financial statements give a true and fair view of the
state of the group's affairs as at 31 December 2017 and of its loss
for the year then ended; and
-- the financial statements have been properly prepared in
accordance with IFRSs as adopted by the European Union.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
Auditor's responsibilities for the audit of the financial
statements section of our report. We are independent of the company
and the group in accordance with the ethical requirements that are
relevant to our audit of the financial statements in the UK,
including the FRC's Ethical Standard as applied to listed entities,
and we have fulfilled our other ethical responsibilities in
accordance with these requirements. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide
a basis for our opinion.
Material uncertainty related to going concern
We draw attention to Note 2 to the financial statements
concerning the company's and the group's ability to continue as a
going concern which shows that the group will need to raise
sufficient funds in order to repay the group's US$2.5 million
promissory notes financing from Grecap Ltd and US$5 million
promissory notes financing from Guaranty Finance Investors LLC
("GFI"). As disclosed in note 2, these loans are due within the
next 12 months.
The matters explained in note 2 indicate that a material
uncertainty exists that may cast significant doubt on the group's
ability to continue as a going concern. The financial statements do
not include the adjustments that would result if the group was
unable to continue as a going concern. Our opinion is not modified
in respect of this matter.
Given the conditions and uncertainties noted above we considered
going concern to be a Key Audit Matter.
Our audit procedures in response to this key audit matter
included:
-- We critically assessed management's financial forecasts and
the key underlying assumptions, including drilling plans, pricing,
expenditure and the loan facilities currently available to the
Group. In doing so, we considered factors such as past
performances, new contracts entered into, revenue from related
parties and existing loan facilities being rolled forward
subsequent to year end. This also included consideration of the
group's ability to extend or refinance the promissory notes to meet
the group's liabilities as they fall due.
-- Our assessment also included making enquiries of management
of the future financing plans and options and performing
sensitivity analysis in respect of key assumptions underpinning the
forecasts.
-- We evaluated the adequacy of disclosure made in the financial
statements in respect of going concern.
-- We discussed these matters with management and the Audit
Committee and sought representations from the Board in respect of
the future plans of the group.
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) we identified, including those which had the greatest effect
on: the overall audit strategy, the allocation of resources in the
audit; and directing the efforts of the engagement team. These
matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters. In addition to
the matter described in the Material uncertainty related to going
concern section, we have determined the matter described below to
be the key audit matter to be communicated in our report.
Key audit matter How we addressed the key audit matter
in the audit
Carrying value of non-current
assets * We reviewed management's assessment of indicators of
As detailed in note 3, the assessment impairment and evaluated the discounted cash flow
of impairment to the carrying model and critically challenged the key estimates and
value of non-current assets requires assumptions used by management.
significant estimates by management.
The estimation of the recoverable
amount of the non-current assets, * Our testing included comparison of revenue and
mainly consisting of drilling margins to current contracts and drilling plans,
rigs and related equipment, is expected rig life to industry benchmarks, discount
a key judgement. rate applied and growth rate to that of underlying
market growth.
The carrying value of the drilling
rigs and related equipment represented
a risk for our audit given the * We challenged the group's ability to achieve forecast
significant judgements required growth and considered factors such as rigs' capacity
in respect of future trading and dependence on revenue from a major customer.
and revenue growth given the
sensitivity of the carrying value
to these assumptions. * We performed our own sensitivity analysis over
individual key inputs, together with a combination of
sensitivities over such inputs.
-------------------------------------------------------------
Our application of materiality
The materiality for the group financial statements as a whole
was set at US$1.3 million (2016: US$500,000). This was based on
1.5% of total assets which we consider to be an appropriate
benchmark due to the focus of stakeholders being the assets of the
Group. The significant components of the group were audited to a
lower materiality.
Performance materiality was set at US$975,000 (2016: US$375,000)
which represents 75% of the above materiality levels.
We agreed with the Audit Committee that we would report to them
all uncorrected audit differences in excess of US$65,000 (2016:
US$10,000), which was set at 5% of materiality, as well as
differences below that threshold that, in our view, warranted
reporting on qualitative grounds. We evaluated any uncorrected
misstatements against both quantitative measures of materiality
discussed above and in light of other relevant qualitative
considerations when forming our opinion.
We apply the concept of materiality both in planning and
performing our audit, and in evaluating the effect of
misstatements. We consider materiality to be the magnitude by which
misstatements, including omissions, could influence the economic
decisions of reasonable users that are taken on the basis of the
financial statements. Importantly, misstatements below these levels
will not necessarily be evaluated as immaterial as we also take
account of the nature of identified misstatements, and the
particular circumstances of their occurrence, when evaluating their
effect on the financial statements as a whole.
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the
group and its environment, including the group's system of internal
control, and assessing the risks of material misstatement in the
financial statements at the group level. Whilst Greka Drilling
Limited is a Company registered in the Cayman Islands and listed on
the Alternative Investment Market in UK, the Group's principal
operations are located in China and India. In approaching the audit
we considered how the Group is organised and managed. We assessed
the business to be made up of two significant components, being
Greka (Zhengzhou) CBM Technical Service Co Ltd and Greka India
Drilling Limited. The Group audit team performed the audits of all
the significant components, along with the consolidation. The
remaining non-significant holding companies were principally
subject to analytical review procedures.
Other information
The directors are responsible for the other information. The
other information comprises the information included in the annual
report, other than the financial statements and our auditor's
report thereon. Our opinion on the financial statements does not
cover the other information and, except to the extent otherwise
explicitly stated in our report, we do not express any form of
assurance conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated. If we
identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a
material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact. We
have nothing to report in this regard.
Responsibilities of directors
As explained more fully in the directors' responsibilities
statement, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true
and fair view, and for such internal control as the directors
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the directors are
responsible for assessing the group's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the group or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial
statements.
A further description of our responsibilities for the audit of
the financial statements is located on the Financial Reporting
Council's website at: www.frc.org.uk/auditorsresponsibilities. This
description forms part of our auditor's report.
Use of our report
This report is made solely to the company's members as a body,
in accordance with our engagement letter. Our audit work has been
undertaken so that we might state to the company's members those
matters we are required to state to them in an auditor's report and
for no other purpose. To the fullest extent permitted by law, we do
not accept or assume responsibility to anyone other than the
company and the company's members as a body, for our audit work,
for this report, or for the opinions we have formed.
BDO LLP
Chartered Accountants
London, United Kingdom
06 July 2018
BDO LLP is a limited liability partnership registered in England
and Wales (with registered number OC305127).
Notes
1 GENERAL
Greka Drilling Limited (the "Company") was incorporated in the
Cayman Islands on 1 February 2011 under the Companies Law (2010
Revision) of the Cayman Islands. The registered office and
principal place of business of the Company are located at PO Box
472, Harbour Place 2nd Floor, 103 South Church Street, George Town,
Grand Cayman KY1-1106, Cayman Islands and 29th Floor, Landmark
Plaza, No. 1 Business Outer Ring Road, Central Business District,
Henan Province, Zhengzhou 450000, PRC respectively.
The Company was established as an investment holding company for
a group of companies whose principal activities consist of the
provision of coal bed methane drilling services in China and India.
The Company and its subsidiaries are hereinafter collectively
referred to as the "Group".
The financial statements are presented in United States dollars
which is same as the functional currency of the Company. The
functional currencies of the subsidiaries are Renminbi (RMB) for
China and Rupee for India.
2 BASIS OF PREPARATION
The financial statements have been prepared in accordance with
IFRS as adopted by the European Union, that are effective for
accounting periods beginning on or after 1 January 2017. The
principal accounting policies adopted in the preparation of the
consolidated financial statements are set out below. The policies
have been consistently applied to all the years presented, unless
otherwise stated.
The financial statements have been prepared under the historical
cost basis.
The preparation of financial statements in conformity with IFRS
requires the use of certain critical accounting estimates. It also
requires management to exercise its judgment in the process of
applying the Group's accounting policies. The areas involving a
higher degree of judgment or complexity or areas where assumptions
and estimates are significant to the consolidated financial
statements are disclosed in note 3 to the financial statements.
Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision only
affects that period or in the period of revision and future periods
if the revision affects both current and future periods.
Going concern
The Directors have prepared cashflow forecasts which show the
company will generate positive cash flows from operations at least
for the next 12 months, these will be used to settle overdue trade
payables but will not be sufficient to repay the loan notes to
Guarantee Finance LLC and Grecap Ltd when they fall due. The loan
note holders are also significant shareholders and whilst it is
expected they will extend the repayment terms in due course there
are no legally binding agreements currently in place to do so.
These conditions indicate that a material uncertainty exists
that may cast significant doubt on the company's and the group's
ability to continue as a going concern and therefore that the
company and group may be unable to realise their assets and
discharge their liabilities in the normal course of business. The
financial statements do not include the adjustments that would
result if the company or group was unable to continue as a going
concern. The directors are nevertheless confident that sufficient
funds will be made available and that the use of the going concern
basis remains appropriate for the preparation of the financial
statements.
3 REVENUE AND SEGMENT INFORMATION
The Group determines its operating segment based on the reports
reviewed by the chief operating decision-makers ("CODMs") that are
used to make strategic decisions.
The Group reports its operations as two reportable segments: the
provision of contract drilling services in the PRC and India. The
division of contract drilling operations into two reportable
segments is attributable to how the CODMs manage the business.
The accounting policies of the reportable segments are the same
as those described in the summary of principal accounting policies
(see Note 2). We evaluate the performance of our operating segments
based on revenues from external customers and segmental
profits.
Drilling services revenue and management services revenue
represent the net invoiced value of contracted drilling services
and management services provided to three major customers, two in
the PRC of which one is a related party and the other in India.
100% of revenue in India was derived from one single customer. 43%
of revenue in the PRC was derived from the third party customer
with the remaining from the related party customer. Please refer to
note 23 for details of the revenue derived from the related party
customer.
For the Year Ended 31 December 2017
PRC India Intercompany Consolidated
--------------------- -------- -------- ------------- -------------
US$'000 US$'000 US$'000 US$'000
Revenue 10,788 959 (162) 11,585
Cost of sales (7,207) (1,116) 162 (8,161)
Gross (loss)/profit 3,581 (157) - 3,424
Depreciation 2,732 82 - 2,814
Amortisation 72 - - 72
For the Year Ended 31 December 2016
PRC India Intercompany Consolidated
--------------------- --------------- --------------- --------------- ---------------
US$'000 US$'000 US$'000 US$'000
Revenue 3,433 3,913 (192) 7,154
Cost of sales (5,504) (2,856) 192 (8,168)
Gross (loss)/profit (2,071) 1,057 - (1,014)
Depreciation 2,194 251 - 2,445
Amortisation 71 - - 71
As at 31 December 2017
PRC India Intercompany Consolidated
--------------------- -------- ----------- ------------- -------------
Segment assets 178,834 19,764 (106,794) 91,304
Segment liabilities 123,126 4,672 (92,671) 35,127
PPE 62,429 16,611 - 79,040
PPE additions 256 22 - 278
As at 31 December 2016
PRC India Intercompany Consolidated
--------------------- ------------ ----------- ------------- -------------
Segment assets 86,613 19,699 (14,167) 92,145
Segment liabilities 9,517 4,096 23,192 36,805
PPE 62,929 16,672 - 79,601
PPE additions 44 274 - 318
4 LOSS FROM OPERATIONS
Loss from operations is stated after charging:
2017 2016
US$'000 US$'000
Auditors' remuneration:
Fees payable to the Company's auditors
for the audit of
the annual financial statements
Fees payable to the Company's auditors 119 127
for the review of
the interim results - 15
Cost of inventories recognised as expense 2,120 1,231
Staff costs (note 7) 3,956 5,294
Depreciation of property, plant and
equipment 2,814 2,445
Operating lease expense (property) 627 900
Amortisation of intangible assets 72 71
Loss on disposal of property, plant
and equipment - 152
5 FINANCE INCOME
2017 2016
US$'000 US$'000
Bank interest 1 59
Decrease in fair value of warrants (Note
14) 392 14
-------- --------
393 73
======== ========
6 FINANCE COSTS
2017 2016
US$'000 US$'000
Foreign exchange gains/loss (355) (1,482)
Interest expense on loans (1,207) (969)
(1,562) (2,451)
======== ========
7 STAFF COSTS
2017 2016
US$'000 US$'000
Staff costs (including directors' remuneration
) comprise:
Wages and salaries 3,515 4,088
Employer's national social security
contributions 390 1,102
Other benefits 51 104
-------- --------
3,956 5,294
======== ========
8 EARNINGS PER SHARE
The calculation of the basic and diluted earnings per share
attributable to the owners of the Company is based on the following
data:
2017 2016
US$'000 US$'000
Loss for the year (2,565) (7,744)
Number of shares 398,245,758 398,245,758
Weighted average number of ordinary
shares for the purposes of basic earnings
per share (thousands) 398,246 398,246
Weighted average number of ordinary
shares for the purposes of diluted earnings
per share (thousands) 398,246 398,246
============== ==============
Basic and diluted loss per share (US$) (0.0064) (0.0194)
============== ==============
There were 56,000,000 warrants outstanding at the end of the
year that could potentially dilute basic earnings per share in the
future. As the Group is in a loss making position, the potential
ordinary shares are anti-dilutive and therefore a diluted loss per
share has not been calculated. No additional potentially dilutive
instruments have been issued between 31 December 2017 and the date
of the approval of these financial statements.
9 TAXATION
2017 2016
US$'000 US$'000
Current tax charge 45 162
Deferred tax charge/(credit) 839 (1,977)
Tax charge/(credit) recognised in the
income statement 884 (1,815)
======== =========
The reasons for the difference between the actual tax charge for
the years and the standard rate of corporation tax in the PRC
applied to the loss) for the year are as follows:
2017 2016
US$'000 US$'000
Loss before income tax (1,681) (9,559)
======== ========
Expected tax charge based on the standard
rate of corporation tax in the PRC of
25% (2016: 25%) (420) (2,390)
Effect of:
Income tax in overseas jurisdictions 688 575
Foreign exchange effect originating 616 -
in overseas companies
-------- --------
Income tax charge/(credit) 884 (1,815)
======== ========
Taxation for the Group's operations in the PRC is provided at
the applicable current tax rate of 25% on the estimated assessable
profits for the year. Taxation for operations in India is taxed at
4.326% of gross revenue.
10 TRADE AND OTHER RECEIVABLES
2017 2016
US$'000 US$'000
Trade receivables 3,116 1,415
Prepayments 662 902
Other receivables 1,812 1,442
5,590 3,759
======== ========
The fair values of trade and other receivables approximate their
respective carrying amounts at the end of each reporting period due
to their short maturities. There is no allowance for impairment of
receivables.
The ageing analysis of trade receivables prepared based on
allowed credit terms that are past due but not impaired as of the
end of the reporting period is set out below. The debtors are not
considered to be impaired given post year end receipts.
2017 2016
US$'000 US$'000
Less than 60 days past due 3,116 1,415
======== ========
11 CASH AND BANK BALANCES
2017 2016
US$'000 US$'000
Cash and cash equivalents 649 2,135
======== ========
12 TRADE AND OTHER PAYABLES
2017 2016
US$'000 US$'000
Trade payables 10,011 8,557
Other current liabilities 3,669 3,561
Amounts due to related parties 6,780 12,927
-------- --------
20,460 25,045
======== ========
Trade and other payables are expected to be settled within one
year. The fair values approximate their respective carrying amounts
at the end of each reporting period due to their short
maturities.
13 LOANS AND BORROWINGS
2017 2016
US$'000 US$'000
Current liabilities
Bank loans (1) 3,061 3,604
Promissory notes (2) 2,620 -
-------- --------
5,681 3,604
Non-current liabilities
Promissory notes (2) 8,520 7,298
Total loans and borrowings 14,201 10,902
======== ========
(1) Bank loans
The banks loans are all secured. The detailed information
regarding loan maturity dates and interest rates is below:
Bank name Balance as at Dec Expiry Balance as at Expiry
31,2017 Date Dec 31,2016 Date
------------ --------------------- ---------- --------------------- ------------
Interest USD Interest USD
rate rate
------------ --------- ---------- ---------- --------- ---------- ------------
CITIC Bank 6.960% 1,530,409 5/4/2018 6.600% 1,729,854 11-May-2017
--------- ---------- ---------- --------- ---------- ------------
SPD Bank 6.960% 1,530,409 1/17/2018 6.960% 1,874,009 17-Jan-2017
--------- ---------- ---------- --------- ---------- ------------
Total 3,060,818 3,603,863
--------- ---------- ---------- --------- ---------- ------------
The loans due to SCITIC Bank and SPD Bank have been renewed post
year-end.
(2) Promissory notes
During the year 2017, Greka Drilling Limited secured US$2.5
million in loan financing from Grecap Ltd. Maturity date of the
promissory notes is 30 November 2018. The notes bear an interest
rate of 7% per annum.
During the year 2016, Greka Drilling Limited secured US$5
million and US$3 million in loan financing from Guaranty Finance
Investors LLC ("GFI"). The promissory notes are repayable on 30
March 2019 and 30 September 2019 respectively. The notes bear an
interest rate of 7% per annum and are unsecured. On initial
recognition, financing costs of US$872,000 were deducted from the
promissory notes balance.
14 DERIVATIVE FINANCIAL LIABILITY
2017 2016
US$'000 US$'000
Derivative financial liability 466 858
During the year ended 31 December 2016, 35,000,000 and
21,000,000 warrants, at a subscription price of 5 pence per share,
were granted to Guaranty Finance Investors LLC as part of the
financing agreements entered into in March 2016 and September 2016
respectively. The warrants have an exercise period of 2 years from
1 April 2017 to 31 March 2019 and 30 September 2017 to 30 September
2019 respectively
The fair values on the grant date and reporting date were
determined using the Black Scholes Model. The fair values were
based on the following assumptions:
Grant date 31 December 31 December
2016 2017
Share price 0.035/0.030 0.037 0.022
------------- ------------- -------------
Expected volatility 83% 87% 130%
------------- ------------- -------------
Option life 2 1.5 1
------------- ------------- -------------
Expected dividends 0 0 0
------------- ------------- -------------
Risk free rate 0.18% 0.18% 0.68%
------------- ------------- -------------
The fair value of the 35,000,000 and 21,000,000 warrants on the
grant date was US$605,000 and US$267,000 respectively. On initial
recognition the warrants' cost was deducted from the promissory
notes balance as it represents the cost of obtaining the financing.
Subsequent changes in the fair value of the warrants are recognised
through profit or loss. The warrants were valued at US$466,000
(2016: US$858,000) at year end with the change of fair value of
US$392,000 (2016: US$14,000) recognised through profit or loss
(Note 5).
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR UNSSRWNABRAR
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July 06, 2018 10:47 ET (14:47 GMT)
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