Half-yearly Report

CADOGAN PETROLEUM PLC Half Yearly Report for the Six Months ended 30 June 2014 (Unaudited and Unreviewed)______________________________________________________________________________ Highlights Cadogan Petroleum plc ("Cadogan" or the "Company"), an independentoil and gas exploration, development and production company with onshore gas,condensate and oil assets in Ukraine, announces its unaudited results for thesix months ended 30 June 2014. - Significant, further reductions to the Company's cost base tomaintain financial strength pending results from operations. - Cadogan's shale gas joint venture Westgasinvest ("WGI") isimplementing the procurement and permitting with a view to field activity in2015. - Monastyretska production surpassed previous levels and continuedto rise further. - Continued production from the Debeslavetska and Cheremkivskalicences at a combined rate of about 14 mcm/day of gas and on Blazhiv field ofthe Bitlyanska licence about 45-50 bopd of oil. - Coordinates for drilling in Debeslavetska have been determinedahead of drilling, which is expected to commence November 2014, with a furthertwo wells to be drilled thereafter. - Ukrainian Hryvnia, functional currency of the Group's Ukrainiansubsidiaries, depreciated against the USD, reporting currency of the Group, byaround 40%, resulting in significant decrease of USD reported values ofExploration and Evaluation assets ("E&E") and Property Plant and Equipment("PPE"). - Net cash and cash equivalents at 30 June 2014 of $47.9 million(31December 2013: $56.5 million) excluding $1.0 million (31 December 2013:$0.2 million) of Cadogan's share of cash and cash equivalents in joint venturesand excluding $5.0 million of yield generating investment. Enquiries: Cadogan Petroleum Plc +380 (44) 591 0390 Bertrand des Pallieres Chief Executive OfficerLaurence Sudwarts Company Secretary Cantor Fitzgerald Europe +44 (0) 20 7894 7000 David PorterRichard Redmayne Introduction During the first half of 2014 the Group continued to focus ondeveloping and reassessing its assets in Ukraine, while remaining vigilant tothe continuing political uncertainty. Significant, further reductions weremade to the Company's cost base to maintain its financial strength pendingresults from operations. Pursuant to management's focus on productioninitiatives, the significant re-evaluation and re-assessment of our assets bythe Group's technical team has resulted in the identification of new prospectsand horizons in existing licences. LLC Westgasinvest, a joint venture with Eni S.p.A. ("Eni") and NAKNadra ("Nadra") in which Cadogan has a 15% shareholding, currently holdssubsoil rights to nine unconventional (shale) gas licence areas in the LvivBasin of Ukraine, which cover approximately 3,800 square kilometres ofacreage. The Lviv Basin is considered to be one of the most attractive basinsin Europe for the exploration of unconventional gas. Procurement andpermitting activity continues in line with the agreed programme of activityand drilling activity start-up is expected by mid 2015. Cadogan remains the operator for its existing conventionalactivities at Debeslavetska and Cheremkhivska and will retain the economicbenefit from the conventional activities on these two licences. Operations The Company is pleased to reiterate that there have been nodisruptions to its operations or to the effective management of its licencesduring the recent period of instability. Recent changes to the fiscal regimein Ukraine will not have any material impact on the Group's financialposition, operations or work programme. The Company's eastern licences analysis showed great promise in theupper intervals, in particular in Pirkovskoe. Following a thorough study ofDirect Hydrocarbon Indicators (DHI) and 3D Amplitude Versus Offset (AVO)reconnaissance, a new lead has been identified and its characterization to adrillable prospect is currently underway, showing good prospectivity andsignificant potential size. In the Pirkovskoe licence, following an initial period of rig-lesstesting on Pirk 1, work-over activity - comprising deep, high pressure andtemperature testing, logging and shooting of intervals in the upperTournaisian interval down to 5,100m - commenced on 20th May 2014. Work-overactivity is expected to conclude in September 2014. Over in the west of the country in Debeslavetska, all the updatedDHI reconnaissance technologies were similarly applied with interestingresults. Following minor delays due to instability in the region, planned 2Dseismic acquisition was completed at the end of March 2014. Four new drillableprospects were identified with the best of these, comprising 3 differentlevels down to a depth of approximately 350m, targeted for drilling tocommence in November 2014. A second prospect was already selected and permitting for rig sitepreparation is ongoing in parallel. If drilling on the first drillableprospect proves successful, the Company anticipates drilling to commencebefore the end of 2014. Analysis continues on the remaining 2 identifiedprospects. Some relatively deeper (circa. 600m) potential horizons also appearlikely and if the Company's analysis proves correct, these will significantlyimprove potential resources in the area. In Monastyretska the planned formation light stimulation wassuccessfully completed in mid March 2014, immediately increasing production from20 to 30 bopd. Installation of a sucker rod pump on 13 May 2014 resulted in afurther increase in production to 40-45 bopd. Stable production subsequentlyincreased further to approximately 50 bopd. Performance tests continue andoptions to further optimise production are being investigated. Negotiations with local operators for the acquisition of twoadditional, existing wells, are continuing with the intention being to bring themback to production. Performance monitoring of these three wells is expected togive the Company a better understanding of the reservoir characteristics andbehaviour, allowing it to formulate future plans to further increaseproduction. Financial position At the date of this report, the Group had cash and cash equivalentsof approximately $46.8 million excluding $0.9 million of Cadogan's share ofcash and cash equivalents in the joint ventures and excluding $5.0 million ofyield generating investment. The Directors believe that the capital availableat the date of this report is sufficient for the Company and the Group tocontinue operations for the foreseeable future. Outlook Following extensive re-evaluation and de-risking of current assetsand work programmes allied to significant reductions to its cost base, theCompany maintains its strong financial position while Ukraine continues toprovide many opportunities for the Company to put its capital and expertise towork. The Board remains confident that the democratic process in Ukraine willovercome any short term obstacles and believes that the Group's establishedpresence in Ukraine, its skilled staff and its adherence to transparency andthe highest standards of corporate governance, leave it ideally positioned tomake full use of its existing human and financial resources. The Companyremains uniquely placed to afford international oil companies an opportunityto commence or expand their presence in Ukraine in a secure environmentworking alongside people who know and understand the country, its people andits culture. At the same time the Company continues to leverage on itsexpanding, international relationships and remains responsive to newopportunities that continue to arise inside and outside of Ukraine. At 30 June 2014 the Group held working interests in eight(2013:nine) gas, condensate and oil exploration and production licences in the Eastand West of Ukraine; out of those, Zagoryanska expired in April 2014 and theGroup is assessing possibilities to renew this licence. All these assets areoperated by the Group and are located in either the Carpathian basin or theDnieper-Donets basin, in close proximity to the Ukrainian gas distributioninfrastructures. The Group's primary focus during the period continued to beon the re-evaluation of the existing assets to define the best drillableprospects. Summary of the Group's licences (as of 30 June 2014) Working Licence Expiry Licence type(1) interest (%) Major licences 70.0 Pokrovskoe August 2016 E&D 100.0 Pirkovskoe October 2015 E&D 99.8 Bitlyanska December 2014 E&D Minor licences 99.2 Debeslavetska(2) November 2026 Production 99.2 Debeslavetska(2) September 2016 E&D 53.4 Cheremkhivska(2) May 2018 Production 100.0 Slobodo-Rungerska April 2016 E&D 99.2 Monastyretska November 2014 E&D (1) E&D = Exploration and Development. (2) Debeslavetska and Cheremkhivska licences are held by WGI, inwhich the Group has a 15% interest. The Group has 99.2% and 53.4% of economicbenefit in conventional activities in Debeslavetska and Cheremkhivska licencesrespectively through Joint Activity Agreements ("JAA"). In addition to the above licences the Group has a 15% interest inWGI, which holds the Reklynetska, Zhuzhelianska, Cheremkhivsko-Strupkivska,Debeslavetska Exploration, Debeslavetska Production, Baulinska, Filimonivska,Kurinna, Sandugeyivska and Yakovlivska licences for unconventional activities. The following is an update to the full Operations Review contained in theAnnual Financial Report for 2013 published on 30 April 2014[1]: Zagoryanska licence The Group had a 40 per cent working interest in the Zagoryanskalicence area, the remainder held by Eni pursuant to a joint venture formed inJuly 2011 (the "JV"). The exploration and development licence covers 49.6square kilometres and expired in April 2014. The work obligations have beenfulfilled. Following disappointing results in 2012, an extensive revision andre-interpretation of the 3D seismic and Geology and Geophysics ("G&G") studiesis still on-going to assess and value all the possible reserves potential, aswell as the re-entry in the wells Zagoryanska 3 and 11, subject to licencerenewal. Cadogan is interested in re-entering the licence and further actionsare under evaluation. Pokrovskoe licence The Group holds a 70 per cent working interest in the Pokrovskoelicence which holds 51.1 mmboe of 3P Total Prospective Resources (2012:51.1 mmboe), with the remainder held by Eni pursuant to the JV. The explorationlicence covers 49.5 square kilometres and the initial licence was extendeduntil August 2016. Our investigation of the area continues after the successfulconclusion of the 3D seismic re-interpretation. The Pokrovskoe licence showsfive interesting objects: one, already defined as a drillable prospect, is2,200m deep, bearing 5 Bcf (P50) while the preliminary volumetric definitionof the other four identified leads amounts up to 18Bcf (P50). Pirkovskoe licence The Group has a 100 per cent working interest in the Pirkovskoelicence which holds 2.5 mmboe of Proved and Probable Reserves. Thisexploration and appraisal licence covers 71.6 square kilometres. Following thepromising results obtained in Pokrovskoe and the knowledge acquired by thestudy of Direct Hydrocarbon Indicators (DHI) and 3D Amplitude Versus Offset(AVO) reconnaissance our recent analysis shows great promise in the upperintervals. A very attractive lead has been identified and its characterizationis currently underway to be proposed as a drillable prospect. Initialvolumetric estimation is quite exciting, in the range of over 2,000 Bscf inplace (P50). In Pirk 1 the well re-entry activity continues and currently thework-over for testing the intervals around 5,000m depth is ongoing. Bitlyanska licence area The Bitlyanska exploration and development licence covers an areaof 390 square kilometres and the Group's interest approximates to 99.8 percent, varying with production. There are three hydrocarbon discoveries in thislicence area; namely Bitlyanska, Borynya and Vovchenska. The Borynya andBitlyanska fields hold 219.2 mmboe (100 per cent - 2013: 219.2 mmboe) and117.3 mmboe (100 per cent - 2013: 117.3 mmboe) of Contingent Resourcesrespectively, while no Reserves and Resources have been attributed to thedepleted Vovchenska field. Borynya 3 well re-entry and Krasno 1 interval testing confirmed thepresence of several interesting gas bearing zones. The decision was made toput the fracturing job on hold due to lack of data from the previous drillingactivity. Minor fields The Group has a number of minor licence areas located in westernUkraine. These include the following: - Debeslavetska Production licence area A production licence, containing 0.2 mmboe of Proved, Probable andPossible (`3P') Reserves (2013: 0.2 mmboe). The field is currently producing11,500 scm of gas per day (68 boepd). The new compressor unit and dehydrationfacilities are reducing fuel consumption and air emissions. - Debeslavetska Exploration licence area An exploration licence surrounding the Debeslavetska Productionlicence area is considered quite promising in shallow gas productionpotential. Following the positive G&G results (AVO & Inversion Analysis), fourprospects at depths in the range of 150 to 350m have been identified, out ofwhich two are planned for drilling. Expected producible reserves per prospectare in the range of 120 to 150 Million scm of gas. The first one is scheduledfor drilling by November 2014 and the second will be drilled immediately afterif the first proves successful. - Cheremkhivska Production licence area A production licence, containing 0.1 mmboe of 3P Reserves (2013:0.1 mmboe). This licence is currently producing 3,000 scm of gas per day(18 boepd). This licence presents the same targets opportunities asDebeslavetska and its further shallow gas exploration potential is underevaluation. - Slobodo-Rungerska licence area This licence includes several old shallow oil wells, now abandonedor temporarily shut-in. The same formation chemical wash technologysuccessfully applied in Blazh 1 seems appealing for the shallow depleted oilreservoirs in Slobodo and possible candidates for intervention are underscrutiny. - Monastyretska licence area An exploration and development licence, with no booked Reserves orResources (2013: nil). The Blazhiv 1 well was re-entered and a sucker rod pumpwas installed; after a chemical wash intervention production increased to45 bopd and following pump adjustments for production optimization it iscurrently producing at a rate of 50 bopd, among the highest rate sinceinception. To better understand the reservoir characteristics and eventuallyplan further actions, negotiations with a local operator for the acquisitionof two further, existing wells, with the aim to bring them back to production,are continuing. (1)All reserves and Resources stated herein are made with reference to theindependent report by Gaffney Cline and Associates of February 2010, adjustedfor volumes produced and changes in working interest since the date of publication. Service Company activities Astroservice LLC, a 100 % owned subsidiary, successfullyparticipated in several tenders with local and major international companies.Due to the uncertain political situation in Ukraine, operators' plans arecurrently being kept on hold and are planned to restart during the next year. AstroserviceLLC continues to develop its servicing and supportingstrategies to be competitive and proactive. Overview Income statement Loss before tax was $3.7 million (30 June 2013: $2.0 million, 31December 2013: $14.4 million). Revenues of $1.6 million (30 June 2013:$1.9 million, 31 December 2013: $3.8 million) comprised sales of gas from theDebeslavetska and Cheremkhivska fields, and oil sales from Monastyretskafield,operated by the Group and the service business. Cost of sales, whichrepresents production royalties and taxes, depreciation and depletion ofproducing wells and direct staff costs amounted to $1.2 million (30 June 2013:$1.3 million, 31 December 2013: $3.0 million)resulting in a gross profit of$0.4 million (30 June 2013: $0.6 million, 31 December 2013: $0.8 million). - Other administrative expenses of $3.6 million (30 June 2013:$4.5 million, 31 December 2013: $8.9 million) comprise staff costs, professionalfees, Directors' remuneration, and depreciation charges on non-producingproperty, plant and equipment. - Share of losses in joint ventures of $0.9 million (30 June 2013:$1.9 million, 31 December 2013: $6.6 million) relates to the result ofoperations of joint ventures LLC Astroinvest-energy, LLC Gazvydobuvannya andLLC Westgasinvest, which have been accounted for using the equity method inaccordance with IFRS 11: it was previously accounted for using theproportionate consolidation method. - Other operating loss of $1.1 million (30 June 2013: income of$3.7 million, 31 December 2013: loss of $0.3 million) mainly relates to netforeign exchange losson the translation of the USD denominated monetary assetsof the Group's UK entities which have GBP as the functional currency and UAHdenominated monetary assets of the Group's Ukrainian assets. Cash flow statement Net cash outflow from operations was $1.3 million during the sixmonths ended 30 June 2014 (30 June 2013: inflow of $29.7 million, 31 December2013: inflow of $25.6 million mainly as a result of the cash received fromsettlement with GPS in April 2013). Capital expenditures were $0.3 million (30 June 2013: $0.3 million,31 December 2013: $3.0 million) on intangible Exploration and Evaluationassets (E&E) and $0.7 million (30 June 2013: $0.4 million, 31 December 2013:$0.8 million) on Property, plant and equipment (PP&E). In addition, the Groupinvested $2.8 million (30 June 2013: $4.3 million, 31 December 2013:$4.7 million) into its joint ventures LLC Astroinvest-energy and LLCGazvydobuvannya. A large proportion of the funds invested into the JointVentures were used to repay to the Group the outstanding management charges.During the reported period the Group has made a yield generating investment of$5.0 million which amortises during 2 years from the investment date. Theoutstanding principle and interest receivable from OAGSG in the amount of$1.3 million was repaid in full during six months ended 30 June 2014. Balance sheet As at 30 June 2014 intangible E&E assets of $4.6 million (30 June2013: $3.4 million, 31 December 2013: $6.0 million) represent the carryingvalue of the Group's investment in exploration and appraisal assets, mainlyfor the Bitlyanska licence. The PP&E balance of $31.1 million (30 June 2013:$44.3 million, 31 December 2013: $43.9 million), comprised of the cost ofdeveloping fields with commercial reserves and bringing them into productionand mainly includes the Pirkovskoe, Debeslavetskoe and Cheremkhivske licences.The decrease in both E&E and PP&E assets is mainly a result of the localcurrency in Ukraine devaluation and subsequent translation from UAH, thefunctional currency of the Ukrainian subsidiaries, into USD which is thereporting currency of the Group. Investments in joint ventures of $52.5million (30 June 2013: $70.7 million, 31 December 2013: $66.0 million)represents Group's share of net assets of joint ventures LLCAstroinvest-energy, LLC Gazvydobuvannya and LLC Westgasinvest, that the Groupjointly owns with its partner, Eni. The decrease in Investments in jointventures is mainly a result of the Ukrainian local currency devaluation andsubsequent translation of JVs E&E and PP&E assets from UAH, the functionalcurrency of the Ukrainian subsidiaries, into USD which is the reportingcurrency of the Group. Other financial assets of $3.7 million represent thenon-current portion of the yield generating investment made during thereported period. Trade and other receivables of $5.3 million (30 June 2013:$6.8 million, 31 December 2013: $6.9 million) includes $2.1 which is a currentportion of a yield generating investment and $1.8 million receivables from thejoint ventures. The Group had net cash and cash equivalents of $47.9 million(30 June 2013: $63.4 million, 31 December 2013: $56.5 million), this amountexcludes the funds held by the jointly controlled entities which are accountedusing equity method.$2.5 million of trade payables and other payables includetrade payables, payables to the JV and other current liabilities. Related party transactions From 1 January 2013, the Group has implemented the new IFRS 11standard, under which joint ventures must be accounted for using the equitymethod. This resulted in disclosing operations with LLC Astroinvest-energy andLLC Gazvydobuvannya as transactions with related parties (for details pleaserefer to note 9 of this report). Commitments There has not been any significant change to the commitments andcontingencies reported as at 31 December 2013 (refer to page 86 of the AnnualReport). Key performance indicators The Group monitors its performance in implementing its strategywith reference to clear targets set out for four key financial and one keynon-financial performance indicators (`KPIs'): - to increase oil, gas and condensate production measured on numberof barrels of oil equivalent produced per day (`boepd'); - to increase the Group's oil and gas reserves by de-riskingpossible resources and contingent reserves into 2P Reserves. This is measuredin million barrels of oil equivalent (`mmboe'); - to increase the realised price per 1,000 cubic metres; - to increase the Group's basic and diluted earnings per share; and - to reduce the number of lost time incidents. The Group's performance during the six months ended 30 June 2014against these targets is set out in the table below, together with the prioryear performance data. No changes have been made to the source of data or thecalculation used in the period/year. Unit 30 June 2014 30 June 2013 31 December 2013Financial KPIs Average production (workinginterest basis) (1) boepd 93 90 88 2P reserves (2) mmboe 2.6 2.6 2.6 Realised price per 1,000 cubic $ 418.1 485.4 483.8metres (3) Basic and diluted loss per share cent (1.6) (0.9) (6.3)(4) Non-financial KPIs Lost time incidents (5) incidents - - - (1) Average production is calculated as the average dailyproduction during the period. (2) Quantities of 2P reserves as at 30 June 2014 and 31 December2013 are based on Gaffney, Cline & Associates' independent reserves report on2P Reserves as at 31 December 2009, dated 16 March 2010, as adjusted for theactual production until 30 June 2014, 30 June 2013 and 31 December 2013respectively. (3) This represents the average price received for gas sold duringthe period (including VAT), the realised price in May and June went back up tothe level of $460/mcm including VAT. (4) Basic and diluted loss per Ordinary share is calculated bydividing the net loss for the period attributable to Ordinary equity holder ofthe parent by the weighted average number of Ordinary shares during theperiod. (5) Lost time incidents relate to injuries where an employee/contractor isinjured and has time off work. Treasury The Group continually monitors its exposure to currency risk. Itmaintains a portfolio of cash and cash equivalent balances mainly in USdollars (`USD') held primarily in the UK. Production revenues from the sale ofhydrocarbons are received in the local currency in Ukraine (`UAH'), howeverthe hydrocarbon prices are linked to the USD denominated gas and oil prices.To date funds from such revenues have been held in Ukraine for further use inoperations rather than being remitted to the UK. Funds are transferred to theCompany's subsidiaries in USD to fund operations at which time the funds areconverted to UAH. Going concern After making enquiries, the Directors have a reasonable expectationthat the Company and the Group have adequate resources to continue inoperational existence for the foreseeable future. Accordingly, they continueto adopt the going concern basis in preparing the Condensed Consolidated andCompany Financial Statements. For further detail refer to the detaileddiscussion of the assumptions outlined in note 2(a) to the CondensedConsolidated Financial Statements. There are a number of potential risks and uncertainties inherent inthe oil and gas sector which could have a material impact on the long-termperformance of the Group and which could cause the actual results to differmaterially from expected and historical results. The Company has takenreasonable steps to mitigate these where possible. Full details are disclosedon pages 14 to 15 of the 2013 Annual Financial Report. There have been nochanges to the risk profile during the first half of the year. These aresummarised below: Operational risks - Health, safety, and environment - Drilling operations - Production and maintenance - Work over and abandonment - Subsurface risks Financial risks - Recoverability of the Group's assets - Liquidity risk, management and going concern assumption - Regulatory and tax compliance risk - Fraud risk - Foreign exchange risk - Inflation risk - Credit risk - Commodity price risk Corporate risks - Regulatory and licence issues - Ukrainian political risk - Ukraine has experienced heightenedpolitical instability in recent months. These events have not affected theGroup's operations to date - Insurance risk We confirm that to the best of our knowledge: (a) the Condensed set of Financial Statements has been prepared inaccordance with IAS 34 `Interim Financial Reporting'; (b) the interim management report includes a fair review of theinformation required by DTR 4.2.7R (indication of important events during thefirst six months and description of principal risks and uncertainties for theremaining six months of the year); (c) the interim management report includes a fair review of theinformation required by DTR 4.2.8R(disclosure of related parties' transactionsand changes therein); and (d) the condensed set of financial statements, which has beenprepared in accordance with the applicable set of accounting standards, givesa true and fair view of the assets, liabilities, financial position and profitor loss of the issuer, or the undertakings included in the consolidation as awhole as required by DTR 4.2.4R. This Half Yearly Report has been approved by the Board and signed on its behalf by: Laurence SudwartsCompany Secretary26 August 2014 Cautionary Statement The business review and certain other sections of this Half YearlyReport contain forward looking statements that have been made by the directorsin good faith based on the information available to them up to the time oftheir approval of this report. However they should be treated with caution dueto inherent uncertainties, including both economic and business risk factors,underlying any such forward-looking information and no statement should beconstrued as a profit forecast. Six months ended Year ended 30 June 31 December 2014 2013 2014 $'000 $'000 $'000 Notes (Unaudited) (Unaudited) (Audited)CONTINUING OPERATIONS Revenue 1,573 1,919 3,772 Cost of sales (1,215) (1,281) (3,019) Gross profit 358 638 753 Administrative expenses:Other administrative expenses (3,585) (4,451) (8,919) Reversal of impairment /(Impairment) of 609 (112) 234other assets (2,976) (4,563) (8,685) Share of losses in joint ventures (834) (1,854) (6,630) Other operating (expenses)/income 4 (1,136) 3,746 (266) Operating loss (4,588) (2,033) (14,828) Investment revenue 179 87 434 Finance income/(costs) 667 (7) (6) Loss before tax (3,742) (1,953) (14,400) Tax credit/(charge) 112 (144) (289) Loss for the period/year 5 (3,630) (2,097) (14,689) Attributable to:Owners of the Company (3,609) (2,079) (14,660) Non-controlling interest (21) (18) (29) (3,630) (2,097) (14,689) Loss per Ordinary share cent cent cent Basic and diluted 6 (1.6) (0.9) (6.3) Six months ended Year ended 30 June 31 December 2014 2013 2013 $'000 $'000 $'000 (Unaudited) (Unaudited) (Audited) Items that may be reclassified subsequently toprofit and loss Loss for the period/year (3,630) (2,097) (14,689) Unrealised currency translation differences (29,590) (7,121) (3,551) Total comprehensive loss for the period/year (33,220) (9,218) (18,240) Attributable to:Owners of the Company (33,199) (9,200) (18,211) Non-controlling interest (21) (18) (29) (33,220) (9,218) (18,240) Six months ended Year ended 30 June 31 December 2014 2013 2013 $'000 $'000 $'000 Notes (Unaudited) (Unaudited) (Audited)ASSETS Non-current assets Intangible exploration andevaluation assets 4,637 3,367 5,958 Property, plant and equipment 31,169 44,316 43,886 Investments in joint ventures 52,522 70,741 65,965 Other financial assets 3,763 - - 92,091 118,424 115,809Current assetsInventories 2,196 3,164 2,951 Trade and other receivables 7 5,329 6,761 6,879 Cash and cash equivalents 47,908 63,426 56,484 55,433 73,351 66,314 Total assets 147,524 191,775 182,123 LIABILITIES Non-current liabilities Deferred tax liabilities (447) (534) (675) Long-term provisions (512) (573) (195) (959) (1,107) (870)Current liabilitiesTrade and other payables (2,475) (4,308) (3,442) Current provisions (12) (58) (513) (2,487) (4,366) (3,955) Total liabilities (3,446) (5,473) (4,825) Net assets 144,078 186,302 177,298 EQUITY Share capital 13,337 13,337 13,337 Retained earnings 279,262 295,341 282,871 Cumulative translation reserves (150,428) (124,408) (120,838) Other reserves 1,589 1,682 1,589 Equity attributable to equity 143,760 185,952 176,959holders of the parentNon-controlling interest 318 350 339 Total equity 144,078 186,302 177,298 Six months ended Year ended 30 June 31 December 2014 2013 2013 $'000 $'000 $'000 Note (Unaudited) (Unaudited) (Audited) Net cash (outflow)/inflow from operating activities 8 (1,339) 29,667 25,554 Investing activities Investments in joint ventures (2,800) (4,267) (4,687) Purchases of property, plant and equipment (670) (439) (783) Purchases of intangible exploration and evaluation assets (310) (349) (3,069)Proceeds from sale of property, plant and equipment 108 15 127 Acquisition of financial assets (5,000) (1,666) (2,590) Proceeds from financial assets 1,295 - 1,030 Interest received 179 87 434 Net cash used in investing activities (7,198) (6,619) (9,538) Net (decrease)/increasein cash and cash equivalents (8,537) 23,048 16,016 Effect of foreign exchange rate changes (39) (99) (9) Cash and cash equivalents at beginning of period/year 56,484 40,477 40,477 Cash and cash equivalents at end of period/yearperiod/year 47,908 63,426 56,484 Other reserves Cumulative Share Retained translation Share-based Re- Non-controlling capital earnings reserves payment organisation interest Total $'000 $'000 $'000 $'000 $'000 $'000 $'000 As at 1 January 2013 13,337 297,438 (117,287) 93 1,589 368 195,538Net loss for the period - (2,079) - - - (18) (2,097)Exchange translationdifferences on foreignoperations - - (7,121) - - (7,121)As at 30 June 2013 13,337 295,359 (124,408) 93 1,589 350 186,320Net loss for the period - (12,581) - - - (11) (12,592)Exchange translationdifferences on foreignoperations - - 3,570 - - - 3,570Share-based payments - 93 - (93) - - -As at 1 January 2014 13,337 282,871 (120,838) - 1,589 339 177,298Net loss for the period - (3,609) - - - (21) (3,630)Exchange translationdifferences on foreignoperations - - (29,590) - - - (29,590)As at 30 June 2014 13,337 279,262 (150,428) - 1,589 318 144,078 1. General information Cadogan Petroleum plc (the `Company', together with itssubsidiaries the `Group'), is incorporated in England and Wales under theCompanies Act 2006. The address of the registered office is 1st Floor, 40 DukesPlace, London, EC3A 7NH. The nature of the Group's operations and itsprincipal activities are set out in the Operations Review on pages 4to 6 andthe Financial Review on pages 7 to 9. The financial information for the year ended 31 December 2013 doesnot constitute statutory accounts as defined in section 434 of the CompaniesAct 2006, but is derived from those accounts. Statutory accounts for the yearended 31 December 2013 have been delivered to the Registrar of Companies. Theauditor's report on those accounts was not qualified. The auditor's report didnot contain a statement under section 498(2) (unable to determine whetheradequate accounting records had been kept) or 498(3) (failure to obtainnecessary information and explanations) of the Companies Act 2006. The reportof the auditor on those accounts was unqualified and contained an emphasis ofmatter paragraph relating to significant uncertainty over political andeconomic turmoil in Ukraine. This Half Yearly Report has not been audited or reviewed inaccordance withthe Auditing Practices Board guidance on `Review of InterimFinancial Information'. A copy of this Half Yearly Report has been published and may befound on the Company's website. 2. Basis of preparation The annual financial statements of the Group are prepared inaccordance with International Financial Reporting Standards (`IFRS') as issuedby the International Accounting Standards Board (`IASB') and as adopted by theEuropean Union (`EU'). These Condensed Financial Statements have been preparedin accordance with IAS 34 Interim Financial Reporting, as issued by the IASB. The same accounting policiesandmethods of computation are followedin the condensed financial statements as were followed in the most recentannual financial statements of the Group, which were included in the AnnualReport issued on 28 April 2014. The Group has not early adopted any amendment, standard orinterpretation that has been issued but is not yet effective. It is expectedthat where applicable, these standards and amendments will be adopted on eachrespective effective date. A number of other amendments to accounting standards issued by theInternational Accounting Standards Board also apply for the first time in2014. These do not have a significant impact on the accounting policies,methods of computation or presentation applied by the Group. The nature and the impact of each new amendment, standard orinterpretation are described below: (a) Going concern The Directors have continued to use the going concern basis inpreparing these condensed financial statements. The Group's businessactivities, together with the factors likely to affect future development,performance and position are set out in the Operations Review on pages 4to6.The financial position of the Group, its cash flow and liquidity position aredescribed in the Financial Review on pages 7 to 9. The Group's cash balance as at 30 June 2014was $47.9 million(31 December 2013: $56.5 million) excluding $1.0 million (31 December 2013:$0.2 million) of Cadogan's share of cash and cash equivalents in joint ventureswith no external debt and the Directors believe that the funds available at thedate of issue of this financial information is sufficient for the Group tomanage its business risks successfully. The Group's forecasts and projections, taking into accountreasonably possible changes in operational performance, start dates and flowrates for commercial production and the price of hydrocarbons sold toUkrainian customers, show that there are reasonable expectations that theGroup will be able to operate on funds currently held and those generatedinternally, for the foreseeable future, without taking into accountreceivables from litigation and without the requirement to seek externalfinancing. After making enquiries and considering the uncertainties describedabove, the Directors have a reasonable expectation that the Company and theGroup have adequate resources to continue in operational existence for theforeseeable future and consider the going concern basis of accounting to beappropriate. Thus they continue to adopt the going concern basis of accountingin preparing the financial information. (b) Foreign currencies The individual financial statements of each Group company are presented in thecurrency of the primary economic environment in which it operates (itsfunctional currency). The functional currency of the Company is poundssterling. For the purpose of the consolidated financial statements, theresults and financial position of each Group company are expressed in USdollars, which is the presentation currency for the consolidated financialstatements. The relevant exchange rates used were as follows: Year ended1 US$ = £ Six months ended 30 June 31 Dec 2013 2014 2013 Closing rate 1.7048 1.5216 1.6491 Average rate 1.6692 1.5449 1.5648 Year ended1 US$ = UAH Six months ended 30 June 31 Dec 2013 2014 2013 Closing rate 11.8333 8.2992 8.3920 Average rate 10.6536 8.2332 8.2545 The effect of foreign currency sensitivity on shareholders' equityis equal to that reported in the statement of comprehensive income. During thesix months ended 30 June 2014, the Ukrainian Hryvnia depreciated against theUSD by 41.0%. As a result, during the six months ended 30 June 2014 the Grouprecognized a net foreign exchange loss in the amount of $29.6 million in theconsolidated statement of comprehensive income, which arose mostly ontranslation of E&E and PP&E assets from functional currency UAH to the Group'sreporting currency USD in the amount of $14.1 million and on translation ofE&E and PP&E assets of JV from functional currency UAH to the Group'sreporting currency USD in the amount of $15.5 million. (c) Dividend The Directors do not recommend the payment of a dividend for theperiod (30 June 2013: $nil;31 December 2013: $nil). 3. Business and geographical segments The Directors continue to consider there to be only one businesssegment, the exploration and development of oil and gas revenues and only onegeographical segment, being Ukraine. 4. Other operating (expenses)/income Six months ended 30 Year ended June 31 December 2014 2013 2013 $'000 $'000 $'000 Out of court settlements - - 65 Transactions with JV partner 321 (362) (60) Net foreign exchange (losses)/gains (1,457) 4,108 (271) (1,136) 3,746 (266) Net foreign exchange loss of $1.5 million mainly relates to therevaluation of the USD-denominated monetary assets of the Group's UK entitieswhich have GBP as a functional currency. 5. Profit/(Loss) for the period/year The profit/(loss) for the period/year is stated aftercrediting/(charging): Six months ended 30 Year ended June 31 December 2014 2013 2013 $'000 $'000 $'000 Depreciation of property, plant and equipment (394) (562) (1,352) Loss on disposal of property, plant and equipment (157) (427) (227) Reversal of impairment of other assets 609 394 234 Staff costs (2,103) (2,441) (4,790) Net foreign exchange (loss)/gain (1,457) 4,108 (271) 6. Loss per Ordinary share Loss per Ordinary share is calculated by dividing the net loss for theperiod/year attributable to Ordinary equity holders of the parent by theweighted average number of Ordinary shares outstanding during the period/year.The calculation of the basic and diluted loss per share is based on thefollowing data: Six months ended 30 June Year ended 31 December 2014 2013 2013Loss attributable to owners of the Company $'000 $'000 $'000 Loss for the purposes of basic profit per sharebeing net loss attributable to owners of theCompany (3,609) (2,079) (14,660) Number Number NumberNumber of shares `000 `000 `000 Weighted average number of Ordinary shares forthe purposes of basic loss per share 231,092 231,092 231,092Effect of dilutive potential ordinary shares:Options and warrants outstanding - 88 -Weighted average number of Ordinary shares for thepurposes of diluted profit per share 231,092 231,179 231,092 cent cent centLoss per Ordinary share Basic (1.6) (0.9) (6.3) Diluted (1.6) (0.9) (6.3) 7. Trade and other receivables Six months ended 30 Year ended June 31 December 2014 2013 2013 $'000 $'000 $'000 Loans issued 2,185 1,666 1,559 Receivable from joint venture 1,798 3,667 4,077 Other receivables 682 881 591 Prepayments 322 381 401 VAT recoverable 342 166 251 5,329 6,761 6,879 Loans issued of $2.2 million as at 30 June 2014 includes: - $0.3 million of the loan issued in June 2013 to Oil and GasManagement Services Group Limited ("OAGSG"), as part of $3 million LoanFacility on a fully secured basis against receivables due to OAGSG with theterm of loan of 24 months and annual interest of 15%. This loan has beenrepaid in full on 9 July 2014. - $1.9 million of the present value of short-term portion of a $5million fully secured 24 month term loan made in April 2014 to a third partyin the European energy sector. The loan bears a fixed coupon plus aproduction-linked return based on certain minimum annual production targets.The Group has accounted for the loan as financial asset at amortised cost.Long-term portion of the loan is recognised as non-current other financialasset in the amount of $3.8 million. Effective interest rate is 19%. $1.8 million (30 June 2013: $3.7 million, 31 December 2013: $4.1million) of receivables from joint venture relate to the recharged costs fromthe Group to the joint ventures, LLC Astroinvest-energy and LLCGazvydobuvannya. $0.3 million prepayments (30 June 2013: $0.4 million, 31 December2013: $0.4 million) mostly relate to prepayments made to contractors inUkraine in the course of the Group's operational activity. The Directors consider that the carrying amount of the remainingother receivables approximates their fair value and none of which are pastdue. 8. Notes to the condensed cash flow statement Six months ended 30 Year ended June 31 December 2014 2013 2013 $'000 $'000 $'000 (Unaudited) (Unaudited) (Audited) Operating loss (4,588) (2,033) (14,828)Adjustments for: Depreciation of property, plant and equipment 394 562 1,201 Share of losses in joint ventures 834 1,924 6,630 Reversal of impairment/(Impairment) of inventories 32 (25) (97) Reversal of impairment of VAT recoverable (641) (369) (137) Loss on disposal of property, plant and equipment 157 427 103 Effect of foreign exchange rate changes (243) (5,620) (1,571) Operating cash flows before movements in working capital (4,055) (5,134) (8,699)Decrease in inventories 882 343 628 Decrease in receivables 2,803 32,072 34,439 (Decrease)/Increase in payables and provisions (967) 2,538 (645) Cash (used in)/received from operations (1,337) 29,819 25,723 Income taxes paid (2) (152) (169) Net cash (outflow)/inflowfrom operating activities (1,339) 29,667 25,554 9. Related party transactions Transactions between the Group and its subsidiaries, which arerelated parties, have been eliminated on consolidation and are not disclosedin this note.The application of IFRS 11 has resulted in the existing jointventuresLLC Astroinvest-energy, LLC Gazvydobuvannya and LLC Westgasinvestbeing accounted for under the equity method and disclosed as related parties.During the period, Group companies entered into the following transactionswith related parties who are not members of the Group: Six months ended 30 Year ended June 31 December 2014 2013 2013 $'000 $'000 $'000 Revenues from services provided and 460 1,332 1,892sales of goods Purchases of goods 16 75 22 Amounts owed by related parties 1,798 3,667 4,077 Amounts owed to related parties 110 130 801 The amounts outstanding are unsecured and will be settled in cash.No provisions have been made for doubtful debts on the amounts owed by relatedparties. 10. Post balance sheet events No post balance sheet events requiring adjustment or disclosure inthese consolidated financial statements have taken place after 30 June 2014. 11. Commitments and contingencies There have been no significant changes to the commitments andcontingencies reported on page 86 of the Annual Report.