Interim results for the first six months of 2014

Exillon Energy plc

Interim results for the first six months of 2014

29 August 2014

29 August 2014 - Exillon Energy plc (EXI.LN), a London Premium listed independent oil producer with assets in two oil-rich regions of Russia, Timan-Pechora ("Exillon TP") and West Siberia ("Exillon WS"), today issues its interim results for the first six months to 30 June 2014.

Highlights

• Production up 14%, equivalent to average production for H1 2014 of 17,801 bpd

• EBITDA up 77% to US$50.7million (up from US$28.6 million in H1 2013)

• EBITDA per barrel up 53% to US$15.6 per barrel (up from US$10.2 per barrel in H1 2013)

• Net profit up 200% to US$23.8million (up from a net profit of US$7.9 million in H1 2013)

Production

Our oil production increased 14% from 2.83 million to 3.22 million barrels equivalent to an increase from 15,621 bpd to 17,801 bpd compared to H1 2013, and 2% from 3.16 million to 3.22 million barrels equivalent to an increase from 17,164 bpd to 17,801 bpd compared to H2 2013.

We publish monthly production data, and therefore have already announced details of our production for the period. For reference we summarise below the monthly data published during the six month period.

The decrease of production in March 2014 was a consequence of oil pipeline repair works undertaken by Transneft and the temporary suspension of operations by certain oil refineries due to maintenance and repair works.

Dear Shareholders,

Our strategy is to deliver a balance of growth in production, EBITDA and reserves. During the first half of 2014 we continued providing strong financial performance (a 77% increase in EBITDA) and increase in our oil production (a 14% increase over the same period in 2013). We sustain the achieved scale of production, which allow us to generate significant recurring EBITDA and net profit.

Financial Position and Performance

Our EBITDA increased 77% from US$28.6 million to US$50.7 million, with a net profit of US$23.8 million (compared to a net profit of US$7.9 million in H1 2013). Although our revenue decreased from US$161.6 million to US$148.2 million, our netback (which we define as revenue less Mineral Extraction Tax, Export Duty and Transneft charges) rose 31% from US$57.7 million to US$75.6million. The decrease in revenue was the consequence of our sales mix change. In H1 2014, 100% of crude oil was sold through domestic market.

Our EBITDA after allocation of central costs was equivalent to US$15.6 per barrel compared to US$10.2 per barrel in H1 2013 and US$14.2 per barrel in H2 2013. This continuing growth was a function of both the improvements to our infrastructure and maintenance of achieved economies of scale. We have also made progress in controlling our central overhead costs. For example, we have reduced our salary and related taxes (including expenses incurred through outsourcing), consulting services and business trips expenses.

78% of our oil production was from Exillon WS and 22% from Exillon TP. Both units were profitable during H1 2014 although Exillon WS is still larger and enjoys greater economies of scale than Exillon TP. EBITDA per barrel on an operating level (before central costs) was US$17.9 per barrel in Exillon WS (2013: US$13.6 per barrel) and US$13.1 per barrel in Exillon TP (2013: US$9.0 per barrel).

Our balance sheet remains strong with US$124.8 million of cash and cash equivalents as at 30 June 2014. We took out a term loan of US$100.0 million in March 2012, which is our only debt. As at 30 June 2014 debt was US$84.8 million, following the scheduled repayments of principal. Our net cash position was US$40.0 million.

As of 26 August 2014 our cash and cash equivalents had decreased to US$115.8 million and our net cash was therefore US$30.2 million.

Capital expenditure during the period was US$17.6 million (2013: US$66.1 million), with 11% of which was incurred in ETP and 89% in EWS (2013: 45% and 55%, respectively). Of this total, US$0.3 million was attributable to drilling and US$17.3 million to infrastructure (2013: US$17.7 million was attributable to drilling, US$47.6 million to infrastructure and US$0.8 million to seismic data acquisition and interpretation).

Corporate Governance

Fulfilling our commitment to comply with the requirements of the UK Corporate Governance Code, three independent non-executive directors have been appointed to the Board of Directors in May 2014. The new directors were recommended to the Board by a leading international recruitment agency Spengler Fox Ltd. All of them have vast and relevant experience both in the oil industry and financial sectors. Following these appointments, the committees, which were in operation in 2013, have been reestablished in June 2014 to restore the appropriate corporate governance structure and to provide its functional performance.

Details of these appointments and the composition of the committees were announced via RNS, and all announcements can be found on www.exillonenergy.com.

Alexander Suchkov

Chief Executive Officer

FINANCIAL REVIEW

The interim condensed consolidated financial information of Exillon Energy plc for the six month period ended 30 June 2014 has been prepared in accordance with IAS 34 "Interim Financial Statements". The condensed consolidated financial information and notes on pages 7 through to 25 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 2014 and financial performance for the six months then ended.

Revenue

Our revenue for the six months ended 30 June 2014 decreased by 8% compared to the same period in 2013, reaching US$148.2 million (2013: US$161.6 million), of which 100% came from domestic sales of crude oil (2013: US$67.6 million or 42% came from export sales of crude oil and US$94.0 million or 58% came from domestic sales of crude oil). This change in revenue is attributable to:

· An increase in production leading to a 15% increase in sale volumes from 2,811,932 bbl in 2013 to 3,247,256 bbl; and

· A change in average commodity prices: we achieved an average oil price of US$45.7/bbl (2013: US$44.4/bbl) for domestic sales and nil (2013: US$97.5/bbl) for export sales.

The decrease in gross value of our revenue relates to the change in our sales mix. In 2014, 100% of our revenue was derived from domestic sales of crude oil. Our netback for total sales increased by 31% from US$57.7 million for the six months ended 30 June 2013 to US$75.6 million for the same period in 2014.

Operating Results

Cost of sales excluding depreciation and depletion for the first six months of 2014 increased to US$85.9 million compared to US$76.6 million for the same period in 2013. Cost of sales increased following an increase in production of 14% from 2,827,312 bbl to 3,222,006 bbl. The difference between the production volumes and sales volumes (a 15% increase) is due to the change in the oil inventory balance during the period. The increase in production costs is mainly related to the growth of mineral extraction tax from US$60.3 million in 2013 to US$71.7 million in 2014, as a result of higher production volumes and increased tax rate. The decrease in gas flaring penalties was achieved from US$2.8 million in 2013 to US$0.2 million in 2014 due to the enhanced level of gas utilisation.

Depreciation, depletion and amortisation costs primarily relate to the depreciation of proven and probable reserves and other production and non-production assets. These costs totalled US$14.3 million for the six months ended 30 June 2014 compared to US$11.2 million for the same period in 2013. The increase in DD&A costs is driven by higher production volumes and by bringing into operation infield facilities once their construction was completed.

Selling expenses for the six months ended 30 June 2014 of US$3.4 million (2013: US$46.15 million) are represented entirely by transportation services (2013: export duties of US$35.4 million, transportation services of US$10.73 million and other selling expenses of US$0.02 million). Transportation services include services provided by Transneft and transportation services from oil field to oil filling station.

Administrative expenses for the first six months of 2014 (excluding share-based compensation expenses, depreciation and amortization and employee benefits) totalled US$7.6 million in comparison to US$10.5 million for the same period in 2013. In 2014, savings were achieved in salary and related taxes, including expenses incurred through outsourcing, consulting services and business trips expenses.

The share based payment charge for the six months ended 30 June 2014 totalled US$3.5 million (2013: US$3.2 million) reflecting the recognition of the fair value of the employee services received in exchange for the grant of the share awards over the relevant vesting periods.

Interest income increased to US$3.4 million (2013: US$1.8 million) resulting from surplus cash being held on short-term and long-term deposits.

It should be noted that - in accordance with IFRS - a foreign exchange loss of US$3.3 million (2013: US$3.8 million) has been included in our net profit arising from the revaluation of foreign currency monetary items (cash and cash equivalents, accounts receivable and payable, other assets) using the closing rate at the reporting date. The foreign exchange loss recognised during the first six months of 2013 was the result of the exchange rate increase from 30.3727 Russian Roubles to one US dollar (Rouble/US$) as of 31 December 2012 to 32.7090 Rouble/US$ as of 30 June 2013. The foreign exchange loss for the same period in 2014 was a consequence of the exchange rate increase from 32.7292 Rouble/US$ as of 31 December 2013 to 33.6306 Rouble/US$ as of 30 June 2014. A larger foreign exchange loss of US$10.5 million has been recognised in other comprehensive expense for the first six months of 2014 as part of the translation reserve (2013: US$35.5 million). 

As a result of the above, net profit for the first six months of 2014, which includes depreciation costs, foreign exchange translation effects, result from disposal of non-current asset and share-based compensation costs, amounted to US$23.8 million compared to net profit of US$7.9 million for the six months ended 30 June 2013.

Financial position

We ended the period with US$124.8 million of cash and cash equivalents and outstanding borrowings of US$84.8 million (31 December 2013: US$94.6 million and US$100.2 million, respectively). The current portion of borrowings relates to the principal of US$30.8 million and accrued but unpaid interest of US$0.2 million. According to the repayment schedule this portion will be repaid within 12 months after the reporting date, with the principal repayable in equal quarterly instalments. During the six months ended 30 June 2014 principal of US$15.4 million has been repaid in compliance with the repayment schedule.

The additions to the property, plant and equipment of US$18.5 million are attributable to the drilling of oil wells and further development of infield infrastructure in Exillon WS and Exillon TP and the launch of operational development of oil field ETP VI in Exillon TP. This was offset by the depreciation and depletion of US$14.3 million and the translation difference of US$16.3 million, due to the depreciation 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 17 to 19 of the Directors' Report section of the Annual Report for the year ended 31 December 2013, 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 which are set out in the Group's 2013 Annual Report.

For reference we summarise below the principal risks and uncertainties:

· we could be adversely affected by a substantial or extended decline in the prices for crude oil;

· our business depends on exploration and production licences issued by the Russian authorities, which could be suspended, restricted, terminated or not extended;

· significant capital expenditures may be needed to increase production levels and overall efficiency, and any inability to finance these and other expenditures may have a detrimental effect on our business, prospects, financial condition and results of operation;

· drilling and the introduction of new technology involved numerous operational risks, which may result in losses, and we may not achieve our planned production targets;

· we are dependent on senior management personnel and on maintaining a highly qualified skilled workforce;

· Exillon may be unable to manage its growth or to execute or integrate acquisitions;

· fluctuations in currency exchange rates may materially and adversely affect our financial results and condition;

· we rely on the services, including transportation services, of third party providers;

· the crude oil we produce in Exillon WS is transported via a single pipeline system operated by an external provider - Transneft;

· our oil fields are located in areas subject to variable weather conditions which may limit the production during certain times of the year;

· we could be subject to claims and liabilities under environmental, health, safety and other laws and regulations;

· we face drilling, exploration and production risks and hazards which may prevent us from realising profits and may result in substantial losses;

· the oil industry is intensively competitive and may also be adversely affected by global economic conditions;

· we do not carry the types of insurance normally carried by a business of our size and nature;

· negative net assets of some companies in the Group could lead to their forced liquidation;

· social, political and economic instability in the Russian Federation may have a material adverse effect on our business, the results of operations, financial conditions and prospects;

· crime and corruption could disrupt our ability to conduct our business and could materially adversely affect our financial condition and results of operations;

· there are high level of inflation in Russia;

· Russian physical infrastructure is in poor condition, which could disrupt normal business activity;

· changes in the foreign policy of the Russian Government and changes in its key global relationships could adversely affect the Russian political and economic environment in general;

· the Russian legal system and Russian legislation are still being developed and this may create an uncertain environment for investment and business activity;

· we are subject to tax audits by the Russian tax authorities, which may result in additional tax liabilities;

· Russian tax law and practice are not fully developed, are subject to frequent changes, and its transfer pricing regulation is unclear;

· the difficulty of enforcing court decisions and the discretion of governmental authorities to file and join claims and enforce court decisions could prevent the Group or investors from obtaining effective redress in court proceedings;

· foreign and court judgments may not be enforceable against the Group's Russian subsidiaries;

· as a consequence of the international financial crisis and the resulting downturn in Russian economy, an increased presence of the Russian state has been observed in the private sector. In case of the expropriation or nationalisation of any of the Group's or its subsidiaries' assets without fair compensation, it might have a material adverse effect on the Group's business, prospects, financial condition and results of operations;

· wage increases in Russia could increase our costs and negatively affect profitability;

· shareholder liability under Russian legislation could cause the Company to become liable for the obligations of its Russian subsidiaries.

Directors

A full list of Directors is maintained on the Group's website: exillonenergy.com.

Related parties

Related party transactions are given in note 23.

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.

Alexander Suchkov

Chief Executive Officer

Disclaimer

This statement 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.

INDEPENDENT REVIEW REPORT TO Exillon Energy PLC

Introduction

We have been engaged by the Company to review the condensed consolidated set of financial statements in the half-yearly financial report for the six months ended 30 June 2014 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 24. 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 IFRS. 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 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 interim condensed consolidated set of financial statements in the half-yearly financial report for the six months ended 30 June 2014 is not prepared, in all material respects, in accordance with International Accounting Standard 34 and the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct Authority.

Ernst & Young LLC

Chartered Accountants

Douglas

Isle of Man

29 August 2014

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

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 24.

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 registered address is Fort Anne, South Quay, Douglas, Isle of Man, IM1 5PD.

As at 30 June 2014, the largest shareholder has 29.99% (2013: 30.2%) 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 2014 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 2013, 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 Group's business activities, together with the factors likely to affect its future development, performance and position including financial risk factors are set out in Note 21. In carrying out their assessment, the Directors have considered the Group's budget, the cash flow forecasts, trading estimates, contractual arrangements, committed financing and exposure to contingent liabilities. The Directors believe that the Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group is adequately financed and the Group therefore continues to adopt the going concern basis in preparing its consolidated interim 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 2013, except for the adoption of new standards and interpretations effective as of 1 January 2014:

· Recoverable Amount Disclosures for Non-Financial Assets - Amendments to IAS 36 (effective on or after 1 January 2014)

These amendments remove the unintended consequences of IFRS 13 Fair Value Measurement on the disclosures required under IAS 36 Impairment of Assets. In addition, these amendments require disclosure of the recoverable amounts for the assets or cash-generating units (CGUs) for which an impairment loss has been recognised or reversed during the period. These amendments have no impact on the Group's financial position or performance.

· IFRIC 21 Levies (effective on or after 1 January 2014)

IFRIC 21 clarifies that an entity recognises a liability for a levy when the activity that triggers payment, as identified by the relevant legislation, occurs. For a levy that is triggered upon reaching a minimum threshold, the interpretation clarifies that no liability should be anticipated before the specified minimum threshold is reached. This interpretation has no impact on the Group's financial position or performance.

During the six months ended 30 June 2014 the Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

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 2013.

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.

Segmental information for the Group for the six months ended 30 June 2014 is presented below:

Segmental information for the Group for the six months ended 30 June 2013 is presented below:

The transfer prices between operating segments are on an arm's length basis in a manner similar to transactions with third parties.

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). The measure also excludes the effects of equity-settled share-based payments.

Net back is defined as revenue less direct and indirect government taxation. The indicator is calculated as revenue less 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 2014 is presented below:

Reconciliation of profit/(loss) before income tax to EBITDA for the six months ended 30 June 2013 is presented below:

6. revenue

7. cost of sales

8. selling expenses

9. administrative expenses

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:

11. Property, plant and equipment

Decommissioning costs of $10,820 thousand and $9,074 thousand were included within oil and gas properties as of 30 June 2014 and 31 December 2013, respectively.

Cumulative capitalized borrowing costs of $17,370thousand and $16,972 thousand were included within oil and gas properties as of 30 June 2014 and 31 December 2013, respectively. Total borrowing costs incurred during the six months ended 30 June 2014 period amounted to $2,979 thousand of which $398 thousand was capitalised. There is no tax relief related to the capitalised borrowing costs.

Exploration and evaluation assets as of 30 June 2014 comprise the ETP VII licence acquired in December 2011 (31 December 2013: the ETP VI licence acquired in February 2010 and the ETP VII licence acquired in December 2011). The transfer from exploration and evaluation assets to oil and gas properties relates to ETP VI licence following the launch of oil production at the relevant oil field. Construction in progress relates to the construction of infield infrastructure and drilling of oil wells commenced in 2013 and 2014.

12. Inventories

Inventories included no obsolete or slow-moving items as of 30 June 2014 (31 December 2013: nil).

13. trade and other receivables

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.

14. other assets

15. LONG-TERM LOANS ISSUED

During the six months ended 30 June 2014 the Group issued a loan to a third party of $653 thousand maturing in December 2015. The difference between the consideration paid and the carrying value relates to the interest accrued, which is charged at the rate of 6%.

16. provision for decommissioning

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. 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. Management believes that this estimate of the future liability is appropriate to the size of the fields.

17. trade and other payables

Trade and other payables are non-interest bearing. At 30 June 2014, advances of $8,259 thousand (31 December 2013: $9,101 thousand) relate to the receipts from customers for the sales in July 2014 (31 December 2013: January 2014).

18. borrowings

There is no material difference between the carrying amount and fair value of borrowings.

Credit Suisse - On 10 September 2010, the Group agreed a loan facility of $50 million with a term of 3.5 years. Interest was charged at LIBOR plus 7%.

In March 2012 the existing loan facility was replaced by a $100 million loan facility with a term of 5 years. The loan bears an interest rate at LIBOR plus 6% and is repayable in equal quarterly installments with the first repayment made in March 2014. The interest is payable quarterly with the first payment made in June 2012. During the six months ended 30 June 2014principal of $15,385 thousand has been repaid in compliance with the repayment schedule.

The loan is secured by a pledge of the 100% shares of certain Group's subsidiaries (Note 24): Ucatex Oil LLC, Kayumneft CJSC, Nem Oil CJSC, Komi Resources CJSC, Ucatex Ugra LLC, Actionbrook Limited, Claybrook Limited, Diamondbridge Limited, Lanarch Limited, Halescope Limited, Vitalaction Limited, Corewell Limited, Touchscope Limited, Silo Holdings Limited and Exillon Finance Limited.

The loan is also secured with future revenue under export contracts and cash balances from a bank account opened in CJSC Bank Credit Suisse (Moscow).

19. Share capital

The amount of share capital available for issue at the date of these consolidated financial statements and the issued share capital of the Company are as follows:

The total number of allotted ordinary shares is 161,510,911 with a par value of $0.0000125 each.

20. Share-based payment

During the year ended 31 December 2011 3,137,401 share awards were granted to the new senior managers out of the Employee Share Plan, of which 115,377 share awards subject to non-market conditions relating to the satisfactory performance of the duties and a three year vesting period. The remaining3,022,024 share awards are not performance-related but subject to the completion of three year's service with any dealings prohibited during that period.

In June 2013 302,880 shares granted out of the IPO plan vested in compliance with the completion of three years' service by the employees.

In March 2014 early vesting was granted to 238,387 shares out of the Employee Share Plan as part of a redundancy programme.

On 21 March 2014 the Remuneration Committee accelerated vesting of 2,422,664 shares granted out of the Employee Share Plan and the shares were transferred in March 2014.

Movements in the number of share awards outstanding are as follows:

As of 30 June 2014 and 31 December 2013 there were no exercisable share awards.

Share awards outstanding at the end of the period have the following expiry dates:

The total expense arising from share-based payment transactions recognised for the six months ended 30 June 2014 amounted to $3,476 thousand (2013: $3,219 thousand).

21. Risk management

The Group's activities expose it to a variety of financial risks: market risk (including foreign currency risk, interest rate risk and commodity price 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 2013.

Major categories of financial instruments - The Group has various financial assets such as trade and other accounts receivable, cash and cash equivalents, long-term loans made. The Group's principal financial liabilities comprise borrowings, trade and other accounts payable.

In 2014, previously adopted risk management policies in respect of use of temporarily free cash surpluses has been reconsidered. The major part of cash is held on short-term and long-term deposits placed in financial institutions which provide premium deposit rates. The financial ability of financial institutions and overall market circumstances are continuously monitored by management.

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. All fair value measurements are calculated using inputs which are not based on observable market data (unobservable inputs) (Level 2).

The fair value of the long-term loan issued to related party amounts to $310 thousand (Note 23). The gross amount of long-term loan issued is $500 thousand. The difference between the fair value and the gross amount is the result of discounting over the expected timing of the cash collection.

22. COMMITMENTS and contingencies

Capital commitments - The Group has capital commitments outstanding against major contracts: