TIDMZOL
RNS Number : 5580D
Zoltav Resources Inc
30 June 2021
30 June 2021
Zoltav Resources Inc.
("Zoltav" or the "Company")
Final Results for the Year Ended 31 December 2020
Zoltav (AIM: ZOL), the Russia-focused oil and gas exploration
and production company, announces final results for the year ended
31 December 2020.
Financial Summary
-- Revenues increased by 2% to RUB 1.24 billion (2019: RUB 1.22 billion)
-- Total cost of sales was 22% lower at RUB 833 million (2019: RUB 1.07 billion)
-- Operational and G&A costs increased by 20.7% to RUB 289.2
million (2019: RUB 241.6 million), mainly due to increases in staff
costs as a result of the strengthening of the management team
-- Other expenses decreased by 71% to RUB 34 million (2019: RUB
118 million) as a result of a positive change in the
decommissioning and environmental restoration provision
-- Operating loss reduced by 69% to RUB 913 million (2019:
operating loss of RUB 2.98 billion) mainly due to the change in
depreciation and depletion as a result of 2019's significant
impairment of non-current assets and lower impairment charge
-- Loss before tax reduced by 66% to RUB 1.04 billion (2019: loss before tax of RUB 3.1 billion)
-- Net cash generated from operating activities increased by 39%
to RUB 383 million (2019: RUB 276 million)
-- Total cash at the end of the period was RUB 26 million (2019: RUB 4 million)
Operational Summary
-- Average net daily production (sold to customers) in 2020 was:
o 26.8 mmcf/d (0.76 mmcm/d) of gas (2019: 24.5 mmcf/d (0.69
mmcm/d))
o 204 bbls/d (26 t/d) of oil and condensate (2019: 246 bbls/d
(31 t/d))
-- The Western Gas Plant continued to operate efficiently
throughout 2020 with one planned shutdown for works which were
completed efficiently
o Operations at the plant have continued throughout the COVID-19
pandemic without interruption
o Safety and precautionary measures have been implemented to
reduce risk of infection
o A Hazard and Operability study to identify potential
operational hazards of the production process was carried out
-- A development drilling programme, initiated in May 2019,
continued apace throughout 2020 and included the drilling of three
side-track wells on existing well stock and two new wells
-- Feasibility study on East Bortovoy continued throughout 2020
o A substantial feasibility study was completed in the
period
o Well operations and technical analysis have been completed and
the project has been successfully reviewed by an independent
technical consulting firm
o The design of the gas pipeline has been completed in the
period, and the Company has received the necessary construction
permit
o Technological studies and contractor selection processes have
been undertaken
o Project final investment decision remains subject to
financing
Lea Verny, Independent Non-executive Chairman, commented:
"We are pleased to report that production for sale at the
Bortovoy Licence grew by 8% in 2020. The growth of production is
due to the successful implementation of geological and technical
measures including the continuation of a substantial development
drilling programme on West Bortovoy. I would like to acknowledge
the work undertaken by our teams to deliver this improved
production performance safely and efficiently.
"During 2020, the Company also completed a substantial
feasibility study on the East Bortovoy fields. A substantial amount
of planning work has been undertaken on the project, for which a
final investment decision remains subject to finance.
"I would like to thank our major shareholder ARA Capital
Holdings for its continued financial support of the Company by way
of a loan facility which has enabled the Company to advance its
strategy of continued development of the West Bortovoy fields while
progressing a potential future development of the East Bortovoy
fields."
The full annual report is available to download from the
Investor Relations section of the Company's website at
www.zoltav.com.
Enquiries:
Zoltav Resources Inc. Tel. +44 (0)20 7390
0234
Lea Verny, Non-executive Chairman (via Vigo Consulting)
SP Angel Corporate Finance LLP (Nomad Tel. +44 (0)20 3470
and Broker) 0470
John Mackay / Jeff Keating / Adam Cowl
Vigo Consulting Tel. +44 (0)20 7390
Ben Simons / Fiona Hetherington 0234
zoltav@vigoconsulting.com
Market Abuse Regulation (MAR) Disclosure
The information contained within this announcement is deemed to
constitute inside information as stipulated under the Market Abuse
Regulation ("MAR") (EU) No. 596/2014, as incorporated into UK law
by the European Union (Withdrawal) Act 2018. Upon the publication
of this announcement, this inside information is now considered to
be in the public domain.
About Zoltav
Zoltav is an oil and gas exploration and production company
focused on Russia . The Company holds the Bortovoy Licence in the
Saratov region of South Western Russia, a 3,215 sq km area along
the northern margin of the Pre-Caspian basin, one of the largest
hydrocarbon basins in the CIS. The Bortovoy Licence contains a
number of productive gas fields in the west of the Licence and a
processing plant. The Company is currently evaluating strategies to
commercialise the eastern fields of the Bortovoy Licence. For
further information on Zoltav, or to sign up for our news alert
service, visit: www.zoltav.com.
Glossary
bbls Barrels
bbls/d Barrels per day
bcf Billion cubic feet
km Kilometre
mcf Thousand cubic feet
mcm Thousand cubic metres
mmbbls Million barrels of oil
mmboe Million barrels of oil equivalent
mmcf Million cubic feet
mmcf/d Million cubic feet per day
mmcm Million cubic metres
mmcm/d Million cubic metres per day
mtoe Thousand tonnes of oil equivalent
RUB Russian Ruble
t Tonnes
t/d Tonnes per day
Chairman's Statement
Average production for sale from the Bortovoy Licence, Saratov
increased by 8% during 2020. The growth of production is due to the
successful implementation of geological and technical measures in
2020, including the continuation of a substantial development
drilling programme on the Zhdanovskoye and Karpenskoye fields of
West Bortovoy, and operating efficiencies.
I would like to acknowledge the work undertaken by our teams
both on the fields and generally within the production
infrastructure to deliver this improved production performance
safely and efficiently, and against the background of the COVID-19
pandemic.
Revenues in 2020 increased by 2 % to RUB 1.24 billion,
reflecting the impacts of both stronger gas production but also
lower oil and condensate sales prices. Overall, the performance
helped the Company to reduce the net loss reported in 2019 of RUB
2.9 billion (including a RUB 2.8 billion non-current assets
impairment charge) to RUB 64 million in 2020.
During 2020, the Company also completed a substantial
feasibility study on the East Bortovoy fields, which began in 2019.
Technical analysis has also been completed and the project has been
successfully reviewed by an independent technical consulting firm.
A substantial amount of planning work has been undertaken on the
project including completion of the gas pipeline design and
successful application for a construction permit, as well as a
range of technological studies and contractor selection
processes.
A project final investment decision on East Bortovoy remains
subject to successful negotiations of binding terms for project
finance from major Russian banks and the ability to secure a
necessary equity contribution to support the project finance.
Management remains in discussions with potential providers of
project finance.
Finally, I would like to thank our major shareholder ARA Capital
Holdings for its continued financial support of the Company by way
of a loan facility which has enabled the Company to advance its
strategy of continued development of the West Bortovoy fields while
progressing a potential future development of the East Bortovoy
fields.
Lea Verny
Non-executive Chairman
29 June 2021
Review of Operations
Production
Production for sale from the Bortovoy Licence, Saratov, averaged
4,678 boepd (638 toepd) during 2020, an 8% increase when compared
to 4,321 boepd (589 toepd) in 2019. The growth of production is due
to the successful implementation of geological and technical
measures in 2020, including the drilling of development wells on
the Zhdanovskoye and Karpenskoye fields, and operating
efficiencies.
Average net daily production (sold to customers) during 2020 was
26.8 mmcf/d (0.76 mmcm/d) of gas and 204 bbls/d (26 t/d) of oil and
condensate (2019: 24.5 mmcf/d (0.69 mmcm/d) of gas and 246 bbls/d
(31 t/d) of oil and condensate).
Overall, in 2020, the Company produced approximately:
-- Natural gas: 10 bcf (278 mmcm) or 1.6 mmboe (223 mtoe) (2019:
9 bcf (253 mmcm) or 1.5 mmboe (203 mtoe))
-- Oil and condensate: 74,706 bbls (9,517 t) (2019: 89,618 bbls (11,416 t))
The Western Gas Plant continued to operate efficiently
throughout 2020 with one planned shutdown, for which works were
completed efficiently in 51 hours.
During 2020, the Company introduced new processes for
undertaking maintenance and repairs at the Western Gas Plant. A
complete inspection of all technical equipment was carried out
which identified certain equipment requiring replacement. As a
result, the Company has designed, and begun to implement, a
three-year equipment replacement programme. By upgrading
inefficient equipment, the Company has already reduced its own gas
consumption.
Operations at the plant have continued throughout the COVID-19
global pandemic without interruption. Additional measures to
mitigate the risk of infection, including additional cleaning and
personal protective equipment, continued to be implemented during
the course of the year.
In line with Zoltav's commitment to maintaining high safety
standards, the Company also carried out a Hazard and Operability
Study to identify potential operational hazards of the production
process.
Development
West Bortovoy
The well stock producing from the two currently producing
Permian fields (Zhdanovskoye and Karpenskoye) consists of 16 gas
wells and two oil wells working via artificial lift. A development
drilling programme, initiated in May 2019, continued apace
throughout 2020 and included the drilling of three side-track wells
on existing well stock and two new wells. A summary of operations
in the period appears below:
-- Zhdanovskoye sidetrack Well 8 was spudded in late 2019 and put on production in January 2020.
-- Karpenskoye sidetrack Well 19 was spudded in January 2020 and
was completed in February 2020. The well encountered water cut and
will require intervention.
-- Karpenskoye Well 5D underwent a workover in February 2020 to
transition to the overlying horizon.
-- The depth of Zhdanovskoye Well 108 was increased in March
2020, resulting in the opening of a productive formation that had
not previously been penetrated.
-- Zhdanovskoye Well 19 underwent a workover in May 2020 to transition to the overlying horizon.
-- Karpenskoye Well K1-10 was transferred to mechanical production in November 2020.
-- From June 2020 to December 2020, a number of repair and
insulation works were undertaken at Karpenskoye Wells 100, 19 and
13.
-- Karpenskoye sidetrack Well 13 was spudded in November 2020
and put on production in December 2020.
-- Two standalone vertical wells, together with a 7.2 km looping
pipe to avoid bottlenecking, were drilled in 2020:
o Zhdanovskoye Well 106 was spudded in May 2020, and was put on
production in July 2020.
o Zhdanovskoye Well 105 was spudded in August 2020, and was put
on production in September 2020.
o These wells both exceeded expectations after being put on
production.
As a result of the successful operations, the Company increased
gas production compared to 2019.
East Bortovoy
During 2020, the Company completed a substantial feasibility
study on the East Bortovoy fields, which began in 2019. The final
field operations, including the retesting of Nepriyakhinskoye Well
1 and further well re-entries on the Pavlovskoye field to obtain
geological data and confirm the technical condition of the wells,
were completed in the period. Technical analysis was completed and
the project has been successfully reviewed by an independent
technical consulting firm.
At the Pavlovskoye field, the Company completed a study of the
old well stock . As a result, Zoltav has undertaken further
preparatory work relating to the commissioning of five gas wells
and one oil well . Furthermore, the Company has identified two
candidate wells to address the issue of utilising associated water
during further development of the field.
For the Nepryakhinskoye field, technology was selected and work
was carried out to retest the Biysk and Koyven horizons at Well 1 .
The results of the testing confirmed the potential of the field ,
and the inclusion of this field in the development programme of the
project.
The design of the gas pipeline was completed in the period. The
Company also received a positive conclusion from the GGE
(Glavgosexpertiza - the applicable government agency for such
construction projects), resulting in the receipt of a construction
permit . Contractors have been selected to design the
reconstruction of the gas treatment unit, a booster compressor
station, and a demercaptinisation unit.
Pilot studies were carried out on the choice of technology for
reducing the content of mercaptan sulfur in gas, resulting in a
decision to implement Merox technology (alkaline purification ).
The Company has put out a tender for the manufacture and supply of
tubular products, shut-off and control valves, and equipment for a
long production cycle , in addition to a tender to select a
contractor for construction and installation works of linear
facilities .
A project final investment decision remains subject to
successful negotiations of binding terms for project finance from
major Russian banks and the ability to secure a necessary equity
contribution to support the project finance. Management remains in
discussions with prospective providers of project finance.
Should the Company ultimately take a positive final investment
decision, subject to financing, the progress which is being made on
pre-selecting suppliers and contractors, and other aspects of
project development, is expected to improve project implementation
timelines.
Koltogor
The Koltogor Licences in the Khantiy Mansisk Autonomous Okrug,
Western Siberia are not currently a focus of investment, however,
management continues to seek out potential routes to monetise these
licences.
Tigran Tagvoryan
Chief Executive Officer
29 June 2021
Group Reserves under PRMS as per latest report of DeGolyer and
MacNaughton (May 2014):
Proved and
Proved Probable probable Possible
Bortovoy Licence
Gas bcf 352.9 396.8 749.7 640.0
Oil & liquids mmbbls 2.0 1.8 3.8 2.4
Gas, oil and liquids mmboe 62.0 69.2 131.2 111.2
Koltogor Licences
Gas bcf 0.5 23.5 24.0 55.7
Oil mmbbls 1.6 73.5 75.1 174.0
Total mmboe 1.7 77.5 79.2 183.5
Total
Gas bcf 353.4 420.3 773.7 695.7
Oil & liquids mmbbls 3.6 75.3 78.9 176.4
Gas, oil and liquids mmboe 63.7 146.7 210.4 294.7
Note on conversion rates
Tonnes of crude oil produced are translated into barrels using
conversion rates reflecting oil density from each of the fields.
Crude oil and liquid hydrocarbons expressed in barrels are
translated from tonnes using a conversion rate of 7.85 barrels per
tonne. Translations of cubic feet to cubic metres are made at the
rate of 35.3 cubic feet per cubic metre. Translations of barrels of
crude oil and liquid hydrocarbons into barrels of oil equivalent
("boe") are made at the rate of 1 barrel per boe and of cubic feet
into boe at the rate of 290 cubic feet per boe.
Financial Review
Revenue
The Group's revenues in 2020 increased by 2% to RUB 1.24
billion, compared to RUB 1.22 billion in 2019.
89% of revenues were derived from gas sold to Mezhregiongaz, a
Gazprom subsidiary, at the transfer point on entry to the Central
Asia - Centre gas pipeline system. The gas prices are fixed in a
contract with Mezhregiongaz and are subject to indexation. The
Russian Government approved a 3% gas price increase and accordingly
the Company signed an addendum to its contract with Mezhregiongaz
resulting in an average price in 2020 of RUB 3,968 per mcm compared
to RUB 3,882 per mcm in 2019.
Most of the remaining revenue was from oil and condensate sold
directly at the Western Gas Plant through a tender process to a
small number of different buyers. Oil and condensate prices were
RUB 1,837/bbl (RUB 14,417/t) in 2020 compared to RUB 2,554/bbl (RUB
20,049/t) in 2019, reflecting the impact of the COVID-19 global
pandemic on oil prices.
Cost of sales and G&A costs
The Group's operational and G&A costs increased by 20.7% to
RUB 289.2 million (2019: RUB 241.6 million), mainly due to
increases in staff costs as a result of the strengthening of the
management team in relation to the potential implementation of the
East Bortovoy project.
Total cost of sales was RUB 833 million (2019: RUB 1,065
million). This comprised RUB 272 million of mineral extraction tax
(MET) (2019: RUB 285 million), RUB 159 million of depreciation and
depletion of assets (2019: RUB 419 million) and RUB 402 million of
other cost of sales (2019: RUB 361 million).
Other expenses decreased to RUB 34 million (2019: RUB 118
million) as a result of a positive change in the decommissioning
and environmental restoration provision.
Operating loss
Zoltav reported an operating loss for 2020 of RUB 913 million
compared to an operating loss of RUB 2.98 billion in 2019, mainly
due to the change in depreciation and depletion as a result of
2019's significant impairment of non-current assets and lower
impairment charge.
Adjusted EBITDA (1) decreased by 3% to RUB 306 million (2019:
RUB 316 million) due to an increase in both cost of goods sold and
G&A expenses, partially compensated by the revenue increase and
decrease in MET expenses.
Finance costs of RUB 127 million (2019: RUB 155 million) are
mainly represented by decreased interest on the refinanced debt of
RUB 1.32 billion with PromSvyazbank.
(1) Adjusted EBITDA: EBITDA is adjusted for non-cash items such
as provisions, write-offs and foreign exchange.
Loss before tax
Zoltav generated RUB 1.04 billion loss before tax in 2020,
compared to a loss before tax of RUB 3.1 billion in 2019.
Taxation
Production based tax for the period was RUB 272 million (2019:
RUB 285 million) which is recognised in the cost of sales. The MET
tax formula is based on multi-component gas composition, average
gas prices and reservoir complexity and maturity. The effective MET
rate applicable for the period is RUB 27/mcf or RUB 938/mcm (2019:
RUB 30/mcf or RUB 1,069/mcm).
The Company had an income tax charge for the year of RUB 59
million (2019: RUB 242 million income tax benefit).
Net loss
Zoltav delivered a significantly reduced net loss in 2020 of RUB
980 million (2019: net loss of RUB 2.9 billion).
Cash
Net cash generated from operating activities was RUB 383 million
(2019: RUB 276 million).
The Bortovoy Licence operating subsidiary, Diall Alliance,
successfully serviced its credit facility with Promsvyazbank and
repaid a further RUB 288 million during the period. The loan
facility contains a technical covenant requiring 75 mmcm of natural
gas production per quarter. The covenant does not contain any
penalties and provides legal grounds for the bank to have a formal
discussion with the Company's management regarding a breach. The
Company breached the production covenant for H1 2020 due to the
delay in the development drilling programme on West Bortovoy. The
bank accepted the Company's explanation on the covenant breach.
Going forward the Company complied with all relevant covenants.
Total cash at the end of the period was RUB 26 million (2019:
RUB 4 million).
Loan Agreement Update
Zoltav announced on 14 July 2020 that it had entered into a loan
agreement with ARA Capital Holdings under which ARA Capital
Holdings provided a revolving loan facility for up to USD 9 million
(the "Loan"). The Loan was due for repayment by 31 March 2021
(unless otherwise extended or converted into equity by mutual
agreement). ARA Capital Holdings agreed in June 2021 to extend the
repayment date to 30 September 2021 (the "Loan Extension") and
increase the Loan facility up to a maximum principal amount of USD
19 million.
The Loan continues to be interest-free save for in the event of
a failure to repay on time, in which circumstances the Loan will
accrue interest from the date of the Loan disbursement at a reduced
rate of 10 percent per annum rather than the 15 percent per annum
that was defined in the original Loan agreement announced on 12
March 2020.
It was further been agreed that should the Loan not be repaid by
30 September 2021 or be subject to a further extension by mutual
agreement, ARA Capital Holdings will be entitled to request that
the Loan (including accrued interest) be converted into new
ordinary shares in the Company at the lower price of 27 pence per
share or the volume weighted average price of the Company's shares
between 1 September 2021 and 29 September 2021, with such
conversion taking place no later than 31 December 2021.
Tigran Tagvoryan
Chief Executive Officer
29 June 2021
Independent Auditor's Report
To the Shareholders and Board of Directors of
Zoltav Resources Inc.
Qualified opinion
We have audited the consolidated financial statements of Zoltav
Resources Inc. and its subsidiaries (the Group), which comprise the
consolidated statement of financial position as at 31 December
2020, and the consolidated statement of comprehensive income,
consolidated statement of changes in equity and consolidated
statement of cash flows for 2020, and notes to the consolidated
financial statements, including a summary of significant accounting
policies (the consolidated financial statements).
In our opinion, except for the possible effects of the matter
described in the Basis for qualified opinion section of our report,
the accompanying consolidated financial statements present fairly,
in all material respects, the consolidated financial position of
the Group as at 31 December 2020 and its consolidated financial
performance and its consolidated cash flows for 2020 in accordance
with International Financial Reporting Standards (IFRSs).
Basis for qualified opinion
Since we were engaged to audit the consolidated financial
statements in 2021, we were unable to observe the counting of
physical inventories at 31 December 2020 or satisfy ourselves
concerning those inventory quantities by alternative means. We were
also unable to observe the counting of physical inventories at 31
December 2019 or satisfy ourselves concerning those inventory
quantities by alternative means. Since inventory balances at the
end of the period affect the gross profit, we were unable to
determine whether adjustments are required for the Group's gross
profit for 2020 and 2019 and the accumulated losses at 31 December
2020 and as at 31 December 2019.
We conducted our audit in accordance with International
Standards on Auditing (ISAs). Our responsibilities under those
standards are further described in the Auditor's responsibilities
for the audit of the consolidated financial statements section of
our report. We are independent of the Group in accordance with the
International Ethics Standards Board for Accountants' (IESBA)
International Code of Ethics for Professional Accountants
(including International Independence Standards) (IESBA Code)
together with the ethical requirements that are relevant to our
audit of the consolidated financial statements in the Russian
Federation, and we have fulfilled our other ethical
responsibilities in accordance with these requirements and the
IESBA Code. We believe that the audit evidence we have obtained is
sufficient and appropriate to provide a basis for our qualified
opinion.
Material uncertainty related to going concern
We draw attention to Note 2.2 Going concern in the consolidated
financial statements, which indicates that the Group incurred a net
loss of 980,086 thousand Russian rubles during the year ended 31
December 2020 and, as of that date, the Group's current liabilities
exceeded its current assets by 2,127,357 thousand Russian rubles.
As stated in Note 2.2, these events or conditions, along with other
matters, indicate that a material uncertainty exists that may cast
significant doubt on the Group's ability to continue as a going
concern. Our opinion is not modified in respect of this matter.
Key audit matters
Key audit matters are those matters that, in our professional
judgment, were of most significance in our audit of the
consolidated financial statements of the current period. In
addition to the matters described in the Basis for Qualified
Opinion section and in Material uncertainty related to going
concern section we have determined the matters described below to
be the key audit matters to be communicated in our report. These
matters were addressed in the context of our audit of the
consolidated financial statements as a whole, and in forming our
opinion thereon, and we do not provide a separate opinion on these
matters. For each matter below, our description of how our audit
addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the
Auditor's responsibilities for the audit of the consolidated
financial statements section of our report, including in relation
to these matters. Accordingly, our audit included the performance
of procedures designed to respond to our assessment of the risks of
material misstatement of the consolidated financial statements. The
results of our audit procedures, including the procedures performed
to address the matters below, provide the basis for our audit
opinion on the accompanying consolidated financial statements.
Key audit matter How our audit addressed the
key audit matter
------------------------------------------ ------------------------------------------
Impairment of non-current assets
Due to the existence of impairment As part of our audit procedures,
indicators in respect of non-current we have considered the assumptions
assets attributable to the Western and methodologies applied by
part of Bortovoy license field the Group, in particular, those
cash generating unit ("CGU") relating to projected oil and
as of 31 December 2020, the Group gas exploration volumes at the
performed impairment testing Western part of Bortovoy license
of this CGU. field, gas prices, inflation,
operating and capital expenditures
The impairment testing of property, and discount rates. We tested
plant and equipment and exploration the arithmetic accuracy of the
and evaluation assets attributable model used to determine the
to the Western part of Bortovoy recoverable amount in the impairment
license field CGU was one of test of property, plant and
the most significant matters equipment and exploration and
in our audit because the property, evaluation assets. We involved
plant and equipment and exploration our valuation specialists to
and evaluation assets balance analyze the model used to determine
of this CGU forms a significant the recoverable amount in the
part of the Group's assets at impairment test of property,
the reporting date, and because plant and equipment and exploration
management's assessment of the and evaluation assets. We analysed
value-in-use is complex and largely the Group's disclosures of assumptions
subjective and is based on assumptions, on which the results of impairment
in particular, on discount rate, testing largely depend.
projected gas exploration volumes
and prices, projected inflation,
as well as operating and capital
expenditures that depend on the
expected future market or economic
conditions in the Russian Federation.
Information on the results of
the impairment analysis of non-current
assets is disclosed by the Group
in Note 13 to the consolidated
financial statements.
Estimation of gas reserves and resources at Bortovoy license
field
This matter to be one of most We have considered the assumptions
significance in the audit, because used by the Group to estimate
the estimate of gas reserves volumes of gas reserves and
at Bortovoy license field has resources at Bortovoy license
a significant impact on depreciation, field and compared them with
depletion and amortization (DD&A) current macroeconomic forecasts
charges, impairment of property, and the Group's plans. We also
plant and equipment and exploration compared gas production, for
and evaluation assets test results which the Group adjusts its
and decommissioning provision gas reserves to calculate DD&A
calculation. As the last external with internal production reports
estimation of gas reserves for and sales volumes. We compared
Bortovoy license field was made gas estimation report data with
in 2014, the estimation of gas information used by the Group
reserves as of the end of 2020 to analyze non--current assets
required significant management's for impairment, to calculate
estimation. DD&A and updated estimates of
reserves and resources to the
Information about estimation estimates included in the consideration
of gas reserves and resources of impairment, depreciation,
is disclosed in Note 3.4 of the depletion and decommissioning
notes to the consolidated financial provision.
statements, section critical
accounting estimates and judgements.
Other information included in Annual Report of Zoltav Resources
Inc. for 2020
Other information consists of the information included in Annual
Report of Zoltav Resources Inc. for 2020, other than the
consolidated financial statements and our auditor's report thereon.
Management is responsible for the other information.
Our opinion on the consolidated financial statements does not
cover the other information and we do not express any form of
assurance conclusion thereon.
In connection with our audit of the consolidated financial
statements, our responsibility is to read the other information
and, in doing so, consider whether the other information is
materially inconsistent with the consolidated financial statements
or our knowledge obtained in the audit or otherwise appears to be
materially misstated. 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 management and the Board of Directors for
the consolidated financial statements
Management is responsible for the preparation and fair
presentation of the consolidated financial statements in accordance
with IFRSs, and for such internal control as management determines
is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to
fraud or error.
In preparing the consolidated financial statements, management
is 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
management either intends to liquidate the Group or to cease
operations, or has no realistic alternative but to do so.
The Board of Directors is responsible for overseeing the Group's financial reporting process .
Auditor's responsibilities for the audit of the consolidated
financial statements
Our objectives are to obtain reasonable assurance about whether
the consolidated 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 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
consolidated financial statements.
As part of an audit in accordance with ISAs, we exercise
professional judgment and maintain professional skepticism
throughout the audit. We also:
Identify and assess the risks of material misstatement of the
consolidated financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide
a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal
control.
Obtain an understanding of internal control relevant to the
audit in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Group's internal control.
Evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures made
by management.
Conclude on the appropriateness of management's use of the going
concern basis of accounting and, based on the audit evidence
obtained, whether a material uncertainty exists related to events
or conditions that may cast significant doubt on the Group's
ability to continue as a going concern. If we conclude that a
material uncertainty exists, we are required to draw attention in
our auditor's report to the related disclosures in the consolidated
financial statements or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence
obtained up to the date of our auditor's report. However, future
events or conditions may cause the Group to cease to continue as a
going concern.
Evaluate the overall presentation, structure and content of the
consolidated financial statements, including the disclosures, and
whether the consolidated financial statements represent the
underlying transactions and events in a manner that achieves fair
presentation.
Obtain sufficient appropriate audit evidence regarding the
financial information of the entities or business activities within
the Group to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and
performance of the group audit. We remain solely responsible for
our audit opinion.
We communicate with the Board of Directors regarding, among
other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
We also provide the Board of Directors with a statement that we
have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and
other matters that may reasonably be thought to bear on our
independence, and where applicable, actions taken to eliminate
threats or safeguards applied.
From the matters communicated with the Board of Directors , we
determine those matters that were of most significance in the audit
of the consolidated financial statements of the current period and
are therefore the key audit matters. We describe these matters in
our auditor's report unless law or regulation precludes public
disclosure about the matter or when, in extremely rare
circumstances, we determine that a matter should not be
communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public
interest benefits of such communication.
The partner in charge of the audit resulting in this independent
auditor's report is T.L. Okolotina.
T.L. Okolotina
Partner
Ernst & Young LLC
29 June 2021
Details of the audited entity
Name: Zoltav Resources Inc.
Record made in the Registar of Companies, Cayman Islands on 18
November 2003, Registration Number 130605.
Address: PO Box 10008, Willow House, Cricket Square, Grand
Cayman KY1-1001, Cayman Islands.
Details of the auditor
Name: Ernst & Young LLC
Record made in the State Register of Legal Entities on 5
December 2002, State Registration Number 1027739707203.
Address: Russia 115035, Moscow, Sadovnicheskaya naberezhnaya,
77, building 1.
Ernst & Young LLC is a member of Self-regulatory
organization of auditors Association "Sodruzhestvo". Ernst &
Young LLC is included in the control copy of the register of
auditors and audit organizations, main registration number
12006020327.
Consolidated statement of comprehensive income
For the year ended 31 December 2020
(in '000s of Russian rubles, unless otherwise stated)
Note 20 20 2019
-------- ------------ ------------
Revenue from contracts with customers 5 1,243,815 1,218,879
Cost of sales 6 (833,075) (1,065,441)
------------ ------------
Gross profit 410,740 153,438
Administrative and selling expenses 7 (289,225) (241,634)
Other income 9 44,080 26,017
Other expenses 9 (33,520) (117,611)
12, 13,
Impairment of non-current assets 2 5 (1,045,442) (2,801,914)
------------ ------------
Operating loss (913,367) (2,981,704)
Finance income 10 1,031 12,194
Finance costs 10 (126,907) (154,553)
------------ ------------
Loss before tax (1,039,243) (3,124,063)
Income tax benefit 11 59,157 242,455
------------ ------------
Loss for the year attributable
to owners of
the parent being total comprehensive
loss (980,086) (2,881,608)
============ ============
RUB RUB
------------ ------------
Loss per share attributable to
owners of the parent
Basic 20 (6.90) (20.30)
Diluted 20 (6.90) (20.30)
Tigran Tagvoryan
Chief Executive Officer
29 June 2021
The accompanying notes are an integral part of these
consolidated financial statements.
Consolidated statement of financial position
As at 31 December 2020
(in '000s of Russian rubles, unless otherwise stated)
As at As at 31
31 December December
Note 2020 2019
----- ------------- ------------
Assets
Non-current assets
Exploration and evaluation assets 12 3,609,700 3,510,216
Property, plant and equipment 13 664,063 1,110,275
Right-of-use assets 2 5 15,365 15,043
Deferred tax assets 23 4,400 -
------------- ------------
Total non-current assets 4,293,528 4,635,534
------------- ------------
Current assets
Inventories 14 14,069 24,556
Trade and other receivables 15 158,233 159,811
Other current non-financial assets 15 33,231 43,550
Cash and cash equivalents 16 25,857 3,629
------------- ------------
Total current assets 231,390 231,546
------------- ------------
Total assets 4,524,918 4,867,080
============= ============
Equity and liabilities
Share capital 17 970,218 970,218
Share premium 5,498,009 5,498,009
Other reserves 1,343,566 1,343,566
Accumulated losses (6,311,947) (5,331,861)
------------- ------------
Total equity 1,499,846 2,479,932
------------- ------------
Non-current liabilities
Decommission provision 2 2 645,406 591,558
Other payables 2 4 - 73,841
Lease liabilities 2 5 20,919 21,634
Deferred tax liabilities 2 3 - 63,297
------------- ------------
Total non-current liabilities 666,325 750,330
------------- ------------
Current liabilities
Trade and other payables 2 4 551,746 262,849
Contract liabilities 5,880 4,431
Other taxes payables 19 100,089 79,467
Borrowings 2 1 1,656,896 1,256,457
Lease liabilities 2 5 6,115 4,081
Income tax payable 38,021 29,533
------------- ------------
Total current liabilities 2,358,747 1,636,818
------------- ------------
Total liabilities 3,025,072 2,387,148
------------- ------------
Total equity and liabilities 4,524,918 4,867,080
============= ============
The accompanying notes are an integral part of these
consolidated financial statements.
Consolidated statement of cash flows
For the year ended 31 December 2020
(in '000s of Russian rubles, unless otherwise stated)
Note 2020 2019
----- ------------ ------------
Cash flows from operating activities
Loss before tax (1,039,243) (3,124,063)
Adjustments for:
6 ,
Depreciation, depletion and amortization 7 168,920 429,279
12,
13,
Impairment of non-current assets 2 5 1,045,442 2,801,914
Finance costs 10 126,907 154,553
Finance income 10 (1,031) (12,194)
Loss on disposal of property, plant
and equipment, net of income from
sale of property, plant and equipment 9 11,604 38,005
Net foreign exchange differences 14,384 (548)
Change in the estimates of decommissioning
and environmental restoration provision 10 (2,185) 67,254
Other income and expenses 1,223 (141)
------------ ------------
Operating cash inflows before working
capital changes 326,021 354,059
Change in inventories 14,861 3,339
Change in trade and other receivables
and other current non-financial assets 11,888 (14,726)
Change in trade and other payables
and contract liabilities 91,705 46,741
Change in other taxes payable 20,622 (16,814)
------------ ------------
Net cash flows from operating activities
before income tax and interests 465,097 372,599
Interest received 1,040 14,345
(82, 976
Interest paid 26 ) (110,536)
Income tax paid (52) (149)
------------ ------------
Net cash flows from operating activities 383,109 276,259
------------ ------------
Cash flows from investing activities
Proceeds from sale of property, plant
and equipment 2,609 1,442
Capital expenditure on exploration
and evaluation activities (104,927) (225,439)
Purchase of property, plant and equipment (647,378) (295,784)
------------ ------------
Net cash used in investing activities (749,696) (519,781)
------------ ------------
Cash flows from financing activities
Payment of principal portion of lease
liabilities 2 6 (4, 78 0) (3,309)
2 1
Proceeds from borrowings ,26 793,134 1,320,000
2 1
Repayment of borrowings ,26 (410,000) (1,329,548)
------------ ------------
Net cash flows from/(used) in financing
activities 378,354 (12,857)
------------ ------------
Net change in cash and cash equivalents 11,767 (256,379)
Net foreign exchange difference 10,461 (628)
Cash and cash equivalents at the beginning
of the year 3,629 260,636
------------ ------------
Cash and cash equivalents at the end
of the year 16 25,857 3,629
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
Consolidated statement of changes in equity
For the year ended 31 December 2020
(in '000s of Russian rubles, unless otherwise stated)
Attributable to owners of the Parent
--------------------------------------------------------------
Share Share Other Accumula-ted Total
capital premium reserve losses equity
--------- ---------- ---------- ------------- ------------
At 1 January 2019 970,218 5,498,009 1,343,566 (2,450,253) 5,361,540
--------- ---------- ---------- ------------- ------------
Loss for the year - - - (2,881,608) (2,881,608)
--------- ---------- ---------- ------------- ------------
Total comprehensive
loss - - - (2,881,608) (2,881,608)
--------- ---------- ---------- ------------- ------------
At 31 December
2019 970,218 5,498,009 1,343,566 (5,331,861) 2,479,932
========= ========== ========== ============= ============
At 1 January 2020 970,218 5,498,009 1,343,566 (5,331,861) 2,479,932
--------- ---------- ---------- ------------- ------------
Loss for the year - - - (980,086) (980,086)
--------- ---------- ---------- ------------- ------------
Total comprehensive
loss - - - (980,086) (980,086)
--------- ---------- ---------- ------------- ------------
At 31 December
2020 970,218 5,498,009 1,343,566 (6,311,947) 1,499,846
========= ========== ========== ============= ============
The accompanying notes are an integral part of these
consolidated financial statements.
Notes to the consolidated financial statements
1. Background
1.1 The Company and its operations
Zoltav Group (the Group) comprises Zoltav Resources Inc. (the
Company), together with its subsidiaries:
Share of
the Company
in a subsidiary
as of 31
December
Place of 2020 and
Name incorporation Function 2019
-------------------------------------- ---------------- -------------------- -----------------
CenGeo Holdings Limited (hereinafter
"CenGeo Holdings") Cyprus Holding company 100%
CJSC SibGeCo (hereinafter
"SibGeCo") Russia Operating company 100%
Royal Atlantic Energy (Cyprus)
Limited (hereinafter "Royal") Cyprus Holding company 100%
Diall Alliance LLC (hereinafter
"Diall") Russia Operating company 100%
Zoltav Resource LLC Russia Management company 100%
The Company was incorporated in the Cayman Islands on 18
November 2003. The principal activities of the Company and its
subsidiaries is the acquisition, exploration, development and
production of hydrocarbons in the Russian Federation. The Company's
shares are listed on the Alternative Investment Market of the
London Stock Exchange.
1.2 Russian business environment
The Group's operations are primarily located in the Russian
Federation.
Russia continues economic reforms and development of its legal,
tax and regulatory frameworks as required by a market economy. The
future stability of the Russian economy is largely dependent upon
these reforms and developments and the effectiveness of economic,
financial and monetary measures undertaken by the government.
The Russian economy has been negatively impacted by sanctions
imposed on Russia by a number of countries. This resulted in
reduced access to capital, a higher cost of capital and uncertainty
regarding economic growth, which could negatively affect the
Group's future financial position, results of operations and
business prospects. Management believes it is taking appropriate
measures to support the sustainability of the Group's business in
the current circumstances.
The coronavirus (COVID-19) pandemic in 2020 has caused financial
and economic tension in the world markets, and a decrease in
consumption expenditure and business activities. A drop in demand
in oil, natural gas and crude products together with a higher
supply of oil due to the cancellation of the OPEC+ oil production
agreement have caused a fall in hydrocarbon world prices. The stock
exchange, currency and commodity markets have shown significant
volatility since March 2020.
Many countries as well as the Russian Federation have imposed
quarantine measures. Social distancing and isolation measures have
resulted in discontinued operations in retail, transport, travel
and tourism, foodservice and many other areas.
The impact of the pandemic on economics in countries
individually and globally has had no historical analogies ever when
governments took measures to save the economies. Various forecasts
of changes in the macroeconomic indicators both in the short- and
long-term horizon, the extent of the impact of the pandemic on
businesses including the estimation of how long the crisis and
recovery from it will last, display different views.
The Group considers the influence of the events on the Group's
operations as limited taking into consideration the following
factors:
Systemic nature and position of the industry where the Group
operates (gas extraction);
The means and volume of use of the Group's production assets
have not changed;
Limited currency risk (the majority of the Group's revenues and
expenditures as well as monetary
assets and liabilities are denominated in RUB);
Absence of direct adverse effect on the main operational
activities of the Group from the regulatory
changes aimed at preventing the spread of COVID-19.
However, the uncertainty about the future operating environment
of the Group and of its counterparties remains: another risk is a
possible long nature of the pandemic, the duration and effect of
which cannot be reliably estimated now.
2. Significant accounting policies
2.1 Basis of preparation
The consolidated financial statements of the Group have been
prepared in accordance with International Financial Reporting
Standards (IFRS), as adopted by the European Union (EU),
International Financial Reporting Interpretations Committee (IFRIC)
interpretations, and the Companies Act 2006 applicable to companies
reporting under IFRS. The consolidated financial statements have
been prepared under the historical cost convention, as modified by
the revaluation of financial assets and financial liabilities
(including derivative instruments) at fair value through profit or
loss.
The preparation of financial statements in conformity with IFRS
requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of
applying the Group's accounting policies. The areas involving a
higher degree of judgement or complexity, or areas where
assumptions and estimates are significant to the consolidated
financial statements are disclosed in Note 3.
2.2 Going concern
As of 31 December 2020, the Group's current liabilities exceed
its current assets by 2,127,357. The Group incurred a net loss in
the amount of 980,086 in 2020. The net working capital deficit was
mainly caused by the fact that the Group breached a covenant,
stipulated in the loan agreement (see Note 11). In accordance with
a loan agreement terms, in case of a covenant breach the bank can
demand for a settlement of a full amount due ahead of schedule,
stated in the loan agreement. This circumstance constitutes a
significant liquidity risk for the Group which causes a material
uncertainty and casts significant doubt on the Group's ability to
continue as a going concern, and therefore the Group may be unable
to realise its assets and discharge its liabilities in the normal
course of business.
In assessing whether the going concern basis for preparing the
financial statements is still appropriate given the above
circumstances, the management has considered the following
factors:
As of the date of these consolidated financial statements issue
the bank has not demanded settlement of a full amount due ahead of
schedule. The Group expects that no ahead of schedule settlement
will take place and all loan repayments will be made in accordance
with the loan agreement schedule. The management of the Group is in
the constant contact with the bank, providing it with all necessary
explanations and supporting documentation;
As described in Note 21 and Note 30, during 2020 the Group
received a loan from ARA Capital Holdings, related party, in the
amount of USD 9 million (664,881 using RUB/USD exchange rate as at
31 December 2020). In June 2021 this loan agreement was extended
and increased to a maximum principal size of USD 19 million
(1,403,638 using RUB/USD exchange rate as at 31 December 2020). The
loan is due on 30 September 2021. In the event the loan is not
repaid by 30 September 2021 or not subject to a further extension
by mutual agreement, ARA Capital Holdings will be entitled to
request that the Loan (including accrued interest) be converted
into new ordinary shares in the Company;
The Group is in process of negotiating project finance for
developing Eastern part of Bortovoy licen e field with several
financial institutions;
The Group generated net cash inflow from operating activities in
2020 and budgeted net cash inflow from operating activities for
2021.
Considering the above factors and plans of the Group, management
believes that a going concern basis for preparing these
consolidated financial statements is appropriate.
2.3 Disclosure of impact of new and future accounting standards
Adoption of new and amended standards
In the preparation of these consolidated financial statements,
the Group followed the same accounting policies and methods of
computation as compared with those applied previously, except for
the adoption of new standards and interpretations and revision of
the existing standards as of 1 January 2020. The Group has not
early adopted any other standard, interpretation or amendment that
has been issued but is not yet effective.
Effective for annual
New/revised standards and interpretations periods beginning
adopted as of 1 January 2020 on or after
---------------------------------------------- ---------------------
Amendments to IFRS 9, IAS 39, IFRS 7, IFRS
4 and IFRS 16 Interest Rate Benchmark Reform
- Phase 2 1 January 2020
Amendments to IFRS 4 Insurance Contracts
- deferral of IFRS19 1 January 2020
These new amendments applied for the first time in 2020 did not
have a material impact on the consolidated financial statements of
the Group.
New accounting pronouncements
The new and amended standards and interpretations that are
issued, but not yet effective, up to the date of issuance of the
Group's financial statements are disclosed below. The Group intends
to adopt these new and amended standards and interpretations, if
applicable, when they become effective.
Effective for annual
Standards issued but not yet effective in periods beginning
the European Union on or after
--------------------------------------------------- ---------------------
Amendments to IAS 1 Presentation of Financial
Statements and IFRS Practice Statement 2
Disclosure of Accounting Policies* 1 January 2023
Amendments to 1 January 202 2
IFRS 3 Business Combinations*;
IAS 16 Property, Plant and Equipment*;
IAS 37 Provisions, Contingent Liabilities
and Contingent Assets*; and
Annual improvements 2018-2020*
Amendments to IAS 8 Accounting Policies,
Changes in Accounting Estimates and Errors:
Definition of Accounting Estimates* 1 January 2023
Amendment to IFRS 16 Leases: Covid 19-Related
Rent Concessions 1 June 2020
Amendments to IFRS 16 Leases: Covid-19-Related
Rent Concessions beyond 30 June 2021* 1 April 2021
Amendments to IAS 12 Income Taxes: Deferred
Tax Related to
Assets and Liabilities Arising from a Single
Transaction* 1 January 2023
Amendments to IAS 1 Presentation of Financial
Statements:
Classification of Liabilities as Current
or Non-current and Classification of Liabilities
as Current or Non-current - Deferral of Effective
Date* 1 January 2023
IFRS 17 Insurance Contracts* 1 January 2023
Amendments to IFRS 9, IAS 39, IFRS 7, IFRS
4 and IFRS 16
Interest Rate Benchmark Reform - Phase 2* 1 January 2021
Amendments to IFRS 4 Insurance Contracts
- deferral of IFRS 19 1 January 2021
* Subject to EU Endorsement.
Property, Plant and Equipment: Proceeds before Intended Use -
Amendments to IAS 16
In May 2020, the IASB issued Property, Plant and Equipment -
Proceeds before Intended Use, which prohibits entities deducting
from the cost of an item of property, plant and equipment, any
proceeds from selling items produced while bringing that asset to
the location and condition necessary for it to be capable of
operating in the manner intended by management. Instead, an entity
recognises the proceeds from selling such items, and the costs of
producing those items, in profit or loss.
The amendment is effective for annual reporting periods
beginning on or after 1 January 2022 and must be applied
retrospectively to items of property, plant and equipment made
available for use on or after the beginning of the earliest period
presented when the entity first applies the amendment.
The amendments are not expected to have a material impact on the
Group.
Onerous Contracts - Costs of Fulfilling a Contract - Amendments
to IAS 37
In May 2020, the IASB issued amendments to IAS 37 to specify
which costs an entity needs to include when assessing whether a
contract is onerous or loss-making.
The amendments apply a "directly related cost approach". The
costs that relate directly to a contract to provide goods or
services include both incremental costs and an allocation of costs
directly related to contract activities. General and administrative
costs do not relate directly to a contract and are excluded unless
they are explicitly chargeable to the counterparty under the
contract.
The amendments are effective for annual reporting periods
beginning on or after 1 January 2022. The Group will apply these
amendments to contracts for which it has not yet fulfilled all its
obligations at the beginning of the annual reporting period in
which it first applies the amendments.
IFRS 9 Financial Instruments - Fees in the '10 per cent' test
for derecognition of financial liabilities
As part of its 2018-2020 annual improvements to IFRS standards
process the IASB issued amendment to IFRS 9. The amendment
clarifies the fees that an entity includes when assessing whether
the terms of a new or modified financial liability are
substantially different from the terms of the original financial
liability. These fees include only those paid or received between
the borrower and the lender, including fees paid or received by
either the borrower or lender on the other's behalf. An entity
applies the amendment to financial liabilities that are modified or
exchanged on or after the beginning of the annual reporting period
in which the entity first applies the amendment.
The amendment is effective for annual reporting periods
beginning on or after 1 January 2022 with earlier adoption
permitted. The Group will apply the amendments to financial
liabilities that are modified or exchanged on or after the
beginning of the annual reporting period in which the entity first
applies the amendment. The amendments are not expected to have a
material impact on the Group.
Amendments to IAS 1 Classification of Liabilities as Current or
Non-current
In January 2020, the IASB issued amendments to paragraphs 69 to
76 of IAS 1 to specify the requirements for classifying liabilities
as current or non-current. The amendments clarify:
What is meant by a right to defer settlement;
That a right to defer must exist at the end of the reporting
period;
That classification is unaffected by the likelihood that an
entity will exercise its deferral right;
That only if an embedded derivative in a convertible liability
is itself an equity instrument would the terms of a liability not
impact its classification.
The amendments are effective for annual reporting periods
beginning on or after 1 January 2023 and must be applied
retrospectively. The Group is currently assessing the impact the
amendments will have on current practice and whether existing loan
agreements may require renegotiation.
The other new and amended standards and interpretations are not
expected to have a significant impact on the Group's consolidated
financial statements.
2.4 Basis of consolidation
The consolidated financial statements comprise the financial
statements of the Group and its subsidiaries as at 31 December
2020. Control is achieved when the Group is exposed, or has rights,
to variable returns from its involvement with the investee and has
the ability to affect those returns through its power over the
investee.
Specifically, the Group controls an investee if, and only if,
the Group has:
Power over the investee (i.e., existing rights that give it the
current ability to direct the relevant activities of the
investee);
Exposure, or rights, to variable returns from its involvement
with the investee;
The ability to use its power over the investee to affect its
returns.
Generally, there is a presumption that a majority of voting
rights results in control. To support this presumption and when the
Group has less than a majority of the voting or similar rights of
an investee, the Group considers all relevant facts and
circumstances in assessing whether it has power over an investee,
including:
The contractual arrangement(s) with the other vote holders of
the investee;
Rights arising from other contractual arrangements;
The Group's voting rights and potential voting rights.
The Group re-assesses whether or not it controls an investee if
facts and circumstances indicate that there are changes to one or
more of the three elements of control. Consolidation of a
subsidiary begins when the Group obtains control over the
subsidiary and ceases when the Group loses control of the
subsidiary. Assets, liabilities, income and expenses of a
subsidiary acquired or disposed of during the year are included in
the consolidated financial statements from the date the Group gains
control until the date the Group ceases to control the
subsidiary.
When necessary, adjustments are made to the financial statements
of subsidiaries to bring their accounting policies into line with
the Group's accounting policies. All intra-group assets and
liabilities, equity, income, expenses and cash flows relating to
transactions between members of the Group are eliminated in full on
consolidation.
A change in the ownership interest of a subsidiary, without a
loss of control, is accounted for as an equity transaction.
If the Group loses control over a subsidiary, it derecognises
the related assets (including goodwill), liabilities and components
of equity, while any resultant gain or loss is recognised in profit
or loss. Any investment retained is recognised at fair value.
2.5 Acquisitions, asset purchases and disposals
Transactions involving the purchases of an individual field
interest, or a group of field interests, that do not qualify as a
business combination are treated as asset purchases, irrespective
of whether the specific transactions involved the transfer of the
field interests directly or the transfer of an incorporated entity.
Accordingly, no goodwill or deferred tax gross up arises. The
purchase consideration is allocated to the assets and liabilities
purchased on an appropriate basis. Proceeds from the disposal are
applied to the carrying amount of the specific intangible asset or
development and production assets disposed of and any surplus is
recorded as a gain on disposal in the statement of comprehensive
income.
2.6 Business combinations
Business combinations are accounted for using the acquisition
method. The cost of an acquisition is measured as the aggregate of
the consideration transferred, which is measured at acquisition
date fair value, and the amount of any non-controlling interests in
the acquiree. For each business combination, the Group elects
whether to measure the non-controlling interests in the acquiree at
fair value or at the proportionate share of the acquiree's
identifiable net assets. Acquisition-related costs are expensed as
incurred and included in administrative expenses.
When the Group acquires a business, it assesses the financial
assets and liabilities assumed for appropriate classification and
designation in accordance with the contractual terms, economic
circumstances and pertinent conditions as at the acquisition date.
This includes the separation of embedded derivatives in host
contracts by the acquiree.
Any contingent consideration to be transferred by the acquirer
will be recognised at fair value at the acquisition date.
Contingent consideration classified as an asset or liability that
is a financial instrument and within the scope of IFRS 9 Financial
Instruments, is measured at fair value with the changes in fair
value recognised in the statement of profit or loss in accordance
with IFRS 9.
Goodwill is initially measured at cost being the excess of the
aggregate of the consideration transferred and the amount
recognised for non-controlling interests and any previous interest
held over the net identifiable assets acquired and liabilities
assumed. If the fair value of the net assets acquired is in excess
of the aggregate consideration transferred, the Group re-assesses
whether it has correctly identified all of the assets acquired and
all of the liabilities assumed and reviews the procedures used to
measure the amounts to be recognised at the acquisition date. If
the reassessment still results in an excess of the fair value of
net assets acquired over the aggregate consideration transferred,
then the gain is recognised in profit or loss.
After initial recognition, goodwill is measured at cost less any
accumulated impairment losses. For the purpose of impairment
testing, goodwill acquired in a business combination is, from the
acquisition date, allocated to each of the Group's cash-generating
units that are expected to benefit from the combination,
irrespective of whether other assets or liabilities of the acquiree
are assigned to those units.
Where goodwill has been allocated to a cash-generating unit
(CGU) and part of the operation within that unit is disposed of,
the goodwill associated with the disposed operation is included in
the carrying amount of the operation when determining the gain or
loss on disposal. Goodwill disposed in these circumstances is
measured based on the relative values of the disposed operation and
the portion of the cash-generating unit retained.
2.7 Segment reporting
Segment reporting follows the Group's internal reporting
structure.
Operating segments are defined as components of the Group where
separate financial information is available and reported regularly
to the chief operating decision maker ("CODM"), which is determined
to be the Board of Directors of the Company. The Board of Directors
decides how to allocate resources and assesses operational and
financial performance using the information provided.
The CODM receives monthly IFRS-based financial information for
the Group and its development and operating entities. The Group has
other entities that engage as either head office or in a corporate
capacity, or as holding companies. Management has concluded that,
due to the application of aggregation criteria, separate financial
information for segments is not required. No geographic segmental
information is presented, as all of the companies' operating
activities are based in the Russian Federation.
Management has therefore determined that the operations of the
Group comprise one operating segment and the Group operates in only
one geographic area - the Russian Federation.
2.8 Foreign currency translation
a) Functional and presentation currency
The functional currency of the Group entities is the Russian
ruble ("RUB"), the currency of the primary economic environment in
which the Group operates.
The presentation currency is RUB, which the Board considers more
representative for users of these consolidated financial statements
to better assess the performance of the Group.
b) Transactions and balances
Transactions in foreign currencies are initially recorded by the
Group's entities at their respective functional currency spot rates
at the date the transaction first qualifies for recognition.
Monetary assets and liabilities denominated in foreign
currencies are translated at the functional currency spot rates of
exchange at the reporting date.
Differences arising on the settlement or translation of monetary
items are recognised in profit or loss.
Non-monetary items that are measured in terms of historical cost
in a foreign currency are translated using the exchange rates at
the dates of the initial transactions.
c) Group companies
Loans between Group entities and related foreign exchange gains
or losses are eliminated upon consolidation.
Any goodwill arising on the acquisition of a foreign operation
and any fair value adjustments to the carrying amounts of assets
and liabilities on the acquisition are treated as assets and
liabilities of foreign operation and translated at the spot rate of
exchange at the reporting date.
The period-end exchange rates and the average exchange rates for
the respective reporting periods are indicated below.
2020 2019
-------- --------
RUB/USD as at 31 December 73.8757 61.9057
RUB/USD average for the year ended 31 December 72.1464 64.7362
2.9 Exploration and evaluation assets
The Company and its subsidiaries apply the full capitalization
method of accounting for Exploration and Evaluation ("E&E")
costs, in accordance with IFRS 6 Exploration for and Evaluation of
Mineral Resources. Costs are accumulated on a field-by-field
basis.
a) Drilling, seismic and other costs
Costs directly associated with an exploration well, including
certain geological and geophysical costs, and exploration and
property leasehold acquisition costs, are capitalised until the
reserves are evaluated. If it is determined that a commercial
discovery has not been achieved, these costs are charged to expense
after the conclusion of appraisal activities. Exploration costs
such as geological and geophysical that are not directly related to
an exploration well are expensed as incurred.
Capital expenditure is recognised as property, plant and
equipment or intangible assets in the financial statements in
accordance with the nature of the expenditure and the stage of
development of the associated field, i.e. exploration, development,
or production. Once commercial reserves are found, exploration and
evaluation assets are tested for impairment and transferred to
development property, plant and equipment or intangible assets. No
depreciation or amortisation is charged during the exploration and
evaluation phase.
b) Sub-soil licences
Costs incurred prior to the award of oil and gas licences,
concessions and other exploration rights are expensed in profit or
loss. Costs incurred on the acquisition of a licence interest are
initially capitalised on a licence by licence basis and are
capitalised within exploration and evaluation assets and held
un-depleted until the exploration phase of the licence is complete
or commercial reserves have been discovered at which time the costs
are transferred to development assets as part of property, plant
and equipment - oil and gas assets.
2.10 Property, plant and equipment
i) Property, plant and equipment - oil and gas assets
Oil and gas assets are stated at cost less accumulated depletion
or accumulated depreciation and, where relevant, impairment
costs.
Expenditure on the construction, installation or completion of
infrastructure facilities such as platforms and pipelines, as well
as on the drilling of development wells into commercially proved
reserves, is capitalised within property, plant and equipment. When
development is completed on a specific field, it is transferred to
producing assets within property, plant and equipment. No
depreciation or amortisation is charged during the development
phase.
Development and production assets are accumulated generally on a
field by field basis and represent the cost of developing the
commercial reserves discovered and bringing them into production,
together with E&E expenditures incurred in finding commercial
reserves and transferred from intangible E&E assets as
described above. The cost of development and production assets also
includes the cost of acquisitions and purchases of such assets,
directly attributable overheads, any costs directly attributable to
bringing the asset into operation, and the cost of recognising
provisions for future restoration and decommissioning, if any.
Major facilities may be capitalised separately if they relate to
more than one field or to the licence area as a whole. Subsequent
expenditure is capitalised only if it either enhances the economic
benefits of the development/production asset or replaces part of
the existing development/ production asset. Any costs remaining
associated with the part replaced are expensed. Directly attributed
overheads are capitalised where they relate to specific exploration
and development activities.
ii) Depletion
Oil and gas properties in production, including wells and
directly related pipeline costs, are depreciated using the
unit-of-production method. Sub-soil licences and other licen es
capitalised as part of oil and gas properties in production are
amortised also using the unit-of-production method.
Unit-of-production rates are based on proved reserves of the field
concerned, which are oil, gas and other mineral reserves estimated
to be recovered from existing facilities using current operating
methods. The unit-of-production rate for the amortisation of field
development costs takes into account expenditures incurred to
date.
iii) Depreciation
Major oil and gas facilities that have a shorter useful life
than the lifetime of the related fields are depreciated on a
straight-line basis over the expected useful life of the facility.
Depreciation of items of such assets is calculated using the
straight-line method to allocate their cost to their residual
values over their estimated useful lives:
Buildings and constructions 15-30 years
Machinery and equipment 5 years
The asset's residual values and useful lives are reviewed, and
adjusted as appropriate, at the end of each reporting period.
iv) Property, plant and equipment - other business and corporate assets
Property, plant and equipment are stated at cost less
accumulated depreciation and impairment losses. The cost of an
asset comprises its purchase price and any directly attributable
costs of bringing the asset to the working condition and to the
location for its intended use. Subsequent costs are included in the
asset's carrying amount or recognised as a separate asset, as
appropriate, only when it is probable that future economic benefits
associated with the item will flow to the Group and the cost of the
item can be measured reliably. All other costs, such as repairs and
maintenance are charged to the income statement during the
financial period in which they are incurred.
The gain or loss arising from a retirement or disposal is
determined as the difference between the sales proceeds and the
carrying amount of the assets, and is recognised in the income
statement.
Depreciation is provided on buildings and facilities, motor
vehicles, office equipment and furniture at rates calculated to
write off the cost, less estimated residual value, evenly over the
asset's expected useful life.
For depreciation purposes, useful lives are estimated as
follows:
Other equipment and furniture 5 years
Motor vehicles 5 years
2.11 Impairment of non-current assets
i) Impairment indicators
The Group assesses, at each reporting date, whether there is an
indication that an asset may be impaired. If any indication exists,
or when annual impairment testing for an asset is required, the
Group estimates the asset's recoverable amount. An asset's
recoverable amount is the higher of an asset's or CGU's fair value
less costs of disposal and its value in use. The recoverable amount
is determined for an individual asset, unless the asset does not
generate cash inflows that are largely independent of those from
other assets or groups of assets. When the carrying amount of an
asset or CGU exceeds its recoverable amount, the asset is
considered impaired and is written down to its recoverable
amount.
In assessing value in use, the estimated future cash flows are
discounted to their present value using a pre-tax discount rate
that reflects current market assessments of the time value of money
and the risks specific to the asset. In determining fair value less
costs of disposal, recent market transactions are taken into
account. If no such transactions can be identified, an appropriate
valuation model is used. These calculations are corroborated by
valuation multiples, quoted share prices for publicly traded
companies or other available fair value indicators.
The Group bases its impairment calculation on detailed budgets
and forecast calculations, which are prepared separately for each
of the Group's CGUs to which the individual assets are allocated.
These budgets and forecast calculations generally cover a period of
five years. A long-term growth rate is calculated and applied to
project future cash flows after the fifth year.
Impairment losses of continuing operations are recognised in the
statement of profit or loss in expense categories consistent with
the function of the impaired asset.
For assets excluding goodwill, an assessment is made at each
reporting date to determine whether there is an indication that
previously recognised impairment losses no longer exist or have
decreased. If such indication exists, the Group estimates the
asset's or CGU's recoverable amount. A previously recognised
impairment loss is reversed only if there has been a change in the
assumptions used to determine the asset's recoverable amount since
the last impairment loss was recognised. The reversal is limited so
that the carrying amount of the asset does not exceed its
recoverable amount or the carrying amount that would have been
determined, net of depreciation, had no impairment loss been
recognised for the asset in prior years. Such reversal is
recognized in the statement of profit or loss.
ii) Calculation of recoverable amount
The recoverable amount of assets is the greater of their value
in use and fair value less costs to sell. In assessing value in
use, the estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks
specific to the asset.
iii) Cash generating units
For an asset that does not generate cash inflows largely
independent of those from other assets, the recoverable amount is
determined for the cash generating unit to which the asset belongs.
The Group's cash generating units are the smallest identifiable
groups of assets that generate cash inflows that are largely
independent of the cash inflows from other assets or groups of
assets.
For the purposes of assessing impairment, exploration and
evaluation assets subject to testing are grouped with existing cash
generating units of production fields that are located in the same
geographical region. For development and production assets the cash
generating unit applied for impairment test purposes is generally
the field. For shared infrastructure a number of field interests
may be grouped together where surface infrastructure is used by
several fields in order to process production for sale.
iv) Reversals of impairment
An impairment loss is reversed to the extent that the factors
giving rise to the impairment charge are no longer prevalent. An
impairment loss is reversed only to the extent that the asset's
carrying amount does not exceed the carrying amount that would have
been determined, net of depletion, depreciation or amortisation, if
no impairment loss had been recognised.
2.12 Inventories
Unsold natural gas and hydrocarbon liquids and sulphur in
storage are stated at the lower of cost of production or net
realisable value. Net realisable value is the estimated selling
price in the ordinary course of business, less the estimated costs
of completion and selling expenses.
Materials and supplies inventories include chemicals necessary
for production activities and spare parts for the maintenance of
production facilities. Materials and supplies inventories are
recorded at cost and are carried at amounts which do not exceed the
expected recoverable amount from use in the normal course of
business. Cost of inventory is determined on a weighted average
basis. Cost of finished goods comprises direct materials and, where
applicable, direct labour plus attributable overheads based on a
normal level of activity and other costs associated in bringing
inventories to their present location and condition, but excludes
borrowing costs.
2.13 Financial instruments
A financial instrument is any contract that gives rise to a
financial asset of one entity and a financial liability or equity
instrument of another entity.
Financial assets
The Group classifies all of its financial assets based on the
business model for managing the assets and the assets contractual
terms, measured at either: amortised cost, fair value through other
comprehensive income (FVOCI), and fair value through profit or loss
(FVPL).
The classification of financial assets at initial recognition
depends on the financial asset's contractual cash flow
characteristics and the Group's business model for managing them.
With the exception of trade receivables that do not contain a
significant financing component, the Group initially measures a
financial asset at its fair value plus, in the case of a financial
asset not at fair value through profit or loss, transaction costs.
Trade receivables that do not contain a significant financing
component are measured at the transaction price determined under
IFRS 15.
The Group's business model for managing financial assets refers
to how it manages its financial assets in order to generate cash
flows. The business model determines whether cash flows will result
from collecting contractual cash flows, selling the financial
assets, or both.
For purposes of subsequent measurement, financial assets are
classified in four categories:
-- Financial assets at amortised cost (debt instruments);
-- Financial assets at fair value through OCI with recycling of
cumulative gains and losses (debt
instruments);
-- Financial assets designated at fair value through OCI with no
recycling of cumulative gains and losses upon derecognition (equity
instruments);
-- Financial assets at fair value through profit or loss.
Financial assets at amortised cost
This category is the only relevant to the Group as of 31
December 2019. The Group measures financial assets at amortised
cost if both of the following conditions are met:
-- The financial asset is held within a business model with the
objective to hold financial assets in order to collect contractual
cash flows; and
-- The contractual terms of the financial asset give rise on
specified dates to cash flows that are solely payments of principal
and interest on the principal amount outstanding.
Financial assets at amortised cost are subsequently measured
using the effective interest (EIR) method and are subject to
impairment. Gains and losses are recognised in profit or loss when
the asset is derecognised, modified or impaired.
The Group's financial assets at amortised cost includes trade
and other receivables, cash and cash equivalents.
Impairment of financial assets
At each balance sheet date, the Group recognises a loss
allowance for expected credit losses (ECL) on financial assets
measured at amortised cost. The loss allowance for financial asset
at amortised cost is recognised in profit or loss in correspondence
with a balance sheet account reducing the carrying amount of the
financial asset.
Expected credit losses for cash in banks are determined based on
banks' credit rating and relevant probability of default. For
receivables, the Group applies a simplified approach in calculating
ECLs. Therefore, the Group does not track changes in credit risk,
but instead recognises a loss allowance based on lifetime ECLs at
each reporting date. The Company has established a provision matrix
that is based on its historical credit loss experience, adjusted
for forward-looking factors specific to the debtors and the
economic environment.
Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as
financial liabilities at fair value through profit or loss, loans
and borrowings, payables, or as derivatives designated as hedging
instruments, as appropriate.
All financial liabilities are recognised initially at fair value
and, in the case of loans and borrowings and payables, net of
directly attributable transaction costs.
The Group's financial liabilities include trade and other
payables, loans and borrowings including bank overdrafts.
Subsequent measurement
The measurement of financial liabilities depends on their
classification, as described below:
Loans and borrowings
This is the only category relevant to the Group as of 31
December 2020. After initial recognition, interest-bearing loans
and borrowings are subsequently measured at amortised cost using
the EIR method. Gains and losses are recognised in profit or loss
when the liabilities are derecognised as well as through the EIR
amortisation process.
Amortised cost is calculated by taking into account any discount
or premium on acquisition and fees or costs that are an integral
part of the EIR. The EIR amortisation is included as finance costs
in the statement of profit or loss.
2.14 Provisions
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past event, and
it is probable that an outflow of economic benefits will be
required to settle the obligation and a reliable estimate of the
amount of the obligation can be made. Where the time value of money
is material, provisions are stated at the present value of the
expenditure expected to settle the obligation.
All provisions are reviewed at each reporting date and adjusted
to reflect the current best estimate.
Where it is not probable that an outflow of economic benefits
will be required, or the amount cannot be estimated reliably, the
obligation is disclosed as a contingent liability, unless the
probability of outflow of economic benefits is remote. Possible
obligations, whose existence will only be confirmed by the
occurrence or non-occurrence of one or more future uncertain events
not wholly within the control of the Group are also disclosed as
contingent liabilities unless the probability of outflow of
economic benefits is remote.
A provision for decommissioning is made for the cost of
decommissioning assets at the time when the obligation to
decommission arises. Such provision represents the estimated
discounted liability for costs which are expected to be incurred in
removing production facilities and site restoration at the end of
the producing life of each field. A corresponding item of property,
plant and equipment is also created at an amount equal to the
provision. This is subsequently depreciated as part of the capital
costs of the production facilities. Any change in the present value
of the estimated expenditure attributable to changes in the
estimates of the cash flow or the current estimate of the discount
rate used are reflected as an adjustment to the provision and the
property, plant and equipment. The unwinding of the discount is
recognised as a finance cost.
Provisions for environmental restoration, restructuring costs
and legal claims are recognised when: the group has a present legal
or constructive obligation as a result of past events; it is
probable that an outflow of resources will be required to settle
the obligation; and the amount has been reliably estimated.
Restructuring provisions comprise lease termination penalties and
employee termination payments. Provisions are not recognised for
future operating losses.
Where there are a number of similar obligations, the likelihood
that an outflow will be required in settlement is determined by
considering the class of obligations as a whole. A provision is
recognised even if the likelihood of an outflow with respect to any
one item included in the same class of obligations may be
insignificant.
Provisions are measured at the present value of the expenditures
expected to be required to settle the obligation using a pre-tax
rate that reflects current market assessments of the time value of
money and the risks specific to the obligation. The increase in the
provision due to passage of time is recognised as interest
expense.
2.15 Share capital, share premium and capital reserves
Ordinary shares are classified as equity. Share capital is
determined using the nominal value of shares that have been issued.
Any transaction costs associated with the issuing of shares are
deducted from the share premium (net of any related income tax
benefit) to the extent they are incremental costs directly
attributable to the equity transaction. Any discount on the issue
of ordinary shares is deducted from the share premium account.
The share premium is recognised on the difference between the
par value of a share and its selling price.
The other reserves arose on the disposal of all the subsidiaries
to its former holding company (Crosby Capital Limited), reverse
acquisition of Crosby Capital Limited and on a group reorganization
during the years ended 31 December 2010, 31 December 2004 and 31
December 2000 respectively.
2.16 Revenue recognition
The Group is in the business of exploration and sale of natural
gas and oil products. Revenue from contracts with customers is
recognised when control of the goods or services is transferred to
the customer at an amount that reflects the consideration to which
the Group expects to be entitled in exchange for those goods.
i) Sale of goods
Revenue from the sale of gas and oil condensate is recognised at
the point in time when control of the asset is transferred to the
customer. The normal credit term is 30 days.
ii) Interest income
Interest income is recognised on a time-proportion basis using
the effective interest method.
iii) Contract liabilities
A contract liability is the obligation to transfer goods or
services to a customer for which the Group has received
consideration (or an amount of consideration is due) from the
customer. If a customer pays consideration before the Group
transfers goods or services to the customer, a contract liability
is recognised when the payment is made or the payment is due
(whichever is earlier). Contract liabilities are recognised as
revenue when the Group performs under the contract.
2.17 Mineral extraction tax (MET)
In the Russian Federation MET is payable on the extraction of
hydrocarbons, including natural gas, crude oil and condensate, and
is levied based on quantities of natural resources extracted
multiplied by the applicable MET rate for the product and field in
question. MET is a production based tax (as opposed to income) and
is accrued as a tax on production and recorded within cost of
sales.
2.18 Current and deferred income tax
The tax expense for the period comprises current and deferred
tax. Tax is recognised in the statement of comprehensive income,
except to the extent that it relates to items recognised in other
comprehensive income or directly in equity. In this case the tax is
also recognised in other comprehensive income or directly in
equity, respectively.
The current income tax charge is calculated on the basis of the
tax laws enacted or substantively enacted at the end of the
reporting period in the countries where the Company's subsidiaries
operate and generate taxable income. Management periodically
evaluates positions taken in tax returns with respect to situations
in which applicable tax regulation is subject to interpretation. It
establishes provisions where appropriate on the basis of amounts
expected to be paid to the tax authorities.
Deferred income tax is recognised, using the liability method,
on temporary differences arising between the tax bases of assets
and liabilities and their carrying amounts in the consolidated
financial statements. However, deferred income tax is not accounted
for if it arises from the initial recognition of an asset or
liability in a transaction other than a business combination that
at the time of the transaction affects neither accounting nor
taxable profit or loss. Deferred income tax is determined using tax
rates (and laws) that have been enacted or substantively enacted by
the end of the reporting period and are expected to apply when the
related deferred income tax asset is realised or the deferred
income tax liability is settled.
Deferred income tax assets are recognised to the extent that it
is probable that future taxable profit will be available against
which the temporary differences can be utilised.
Deferred income tax assets and liabilities are offset when there
is a legally enforceable right to offset current tax assets against
current tax liabilities and when the deferred income tax assets and
liabilities relate to income taxes levied by the same taxation
authority on either the same taxable entity or different taxable
entities where there is an intention to settle the balances on a
net basis.
2.19 Employee benefits
Retirement benefit schemes
No pension contributions were payable in the year. The Group
participated only in defined contribution pension schemes and paid
contributions to independently administered funds on a mandatory or
contractual basis. The assets of these schemes are held separately
from those of the Group in independently administered funds. The
retirement benefit schemes are generally funded by payments from
employees and by the relevant company. The Group has no further
payment obligations once the contributions have been paid. The
contributions are recognised as an employee benefit expense on an
accrual basis.
Bonus plans
The Group recognises a liability and an expense for bonuses
where contractually obliged or where there is a past practice that
has created a constructive obligation.
Social obligations
Wages, salaries, contributions to the Russian Federation state
pension and social insurance funds, paid annual leave, sick leave
and bonuses are accrued in the year in which the associated
services are rendered by the employees of the Group.
2.20 Leases
The Group assesses at contract inception whether a contract is,
or contains, a lease. That is, if the contract conveys the right to
control the use of an identified asset for a period of time in
exchange for consideration.
Group as a lessee
The Group applies a single recognition and measurement approach
for all leases, except for short--term leases and leases of
low-value assets. The Group recognises lease liabilities to make
lease payments and right-of-use assets representing the right to
use the underlying assets.
i) Right-of-use assets
The Group recognises right-of-use assets at the commencement
date of the lease (i.e., the date the underlying asset is available
for use). Right-of-use assets are measured at cost, less any
accumulated depreciation and impairment losses, and adjusted for
any remeasurement of lease liabilities. The cost of right-of-use
assets includes the amount of lease liabilities recognised, initial
direct costs incurred, and lease payments made at or before the
commencement date less any lease incentives received. Right-of-use
assets are depreciated on a straight-line basis over the shorter of
the lease term and the estimated useful lives of the assets, as
follows:
Buildings 3 to 10 years
Motor vehicles 3 years
If ownership of the leased asset transfers to the Group at the
end of the lease term or the cost reflects the exercise of a
purchase option, depreciation is calculated using the estimated
useful life of the asset.
ii) Lease liabilities
At the commencement date of the lease, the Group recognises
lease liabilities measured at the present value of lease payments
to be made over the lease term. The lease payments include fixed
payments (including in-substance fixed payments) less any lease
incentives receivable.
Variable lease payments that do not depend on an index or a rate
are recognised as expenses (unless they are incurred to produce
inventories) in the period in which the event or condition that
triggers the payment occurs.
In calculating the present value of lease payments, the Group
uses its incremental borrowing rate at the lease commencement date
because the interest rate implicit in the lease is not readily
determinable. After the commencement date, the amount of lease
liabilities is increased to reflect the accretion of interest and
reduced for the lease payments made. In addition, the carrying
amount of lease liabilities is remeasured if there is a
modification, a change in the lease term, a change in the lease
payments (e.g., changes to future payments resulting from a change
in an index or rate used to determine such lease payments) or a
change in the assessment of an option to purchase the underlying
asset.
iii) Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition exemption to
its short-term leases of machinery and buildings (i.e., those
leases that have a lease term of 12 months or less from the
commencement date and do not contain a purchase option). It also
applies the lease of low-value assets recognition exemption. Lease
payments on short-term leases and leases of low value assets are
recognised as expense on a straight-line basis over the lease
term.
3. Critical accounting estimates and judgements
The preparation of consolidated financial statements in
conformity with IFRS requires management to make judgements,
estimates and assumptions that affect the application of accounting
policies and the reported amounts of assets, liabilities, income
and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in the year
in which the estimates are revised and in any future years
affected. The estimates and assumptions that have a significant
risk of causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year are discussed
below:
3.1 Income taxes
The Group is subject to income and other taxes. Significant
judgement is required in determining the provision for income tax
and other taxes due to the complexity of tax legislation of the
Russian Federation. The taxation system in the Russian Federation
continues to evolve and is characterised by frequent changes in
legislation, as well as official pronouncements and court decisions
which are sometimes contradictory and subject to varying
interpretation by different tax authorities. Taxes are subject to
review and investigation by a number of authorities which have the
authority to impose severe fines, penalties and interest charges. A
tax year remains open for review by the tax authorities during the
three subsequent calendar years; however, under certain
circumstances a tax year may remain open longer.
Deferred tax assets are recognised to the extent that it is
probable for each subsidiary to generate enough taxable profits to
utilise deferred income tax recognised. Significant management
judgement is required to determine the amount of deferred tax
assets recognised, based upon the likely timing and the level of
future taxable profits. Management prepares cash-flow forecasts to
support the recoverability of deferred tax assets. Cash flow models
are based on a number of assumptions relating to oil prices,
operating expenses, production volumes, etc. These assumptions are
consistent with those used by independent reserve engineers.
Management also takes into account uncertainties related to future
activities of the subsidiaries and going concern considerations.
When significant uncertainties exist, deferred tax losses are not
recognised even if the recoverability of these is supported by cash
flow forecasts.
3.2 Provision for decommissioning and environmental restoration
This provision is significantly affected by changes in
technology, laws and regulations which may affect the actual cost
of decommissioning and environmental restoration to be incurred at
a future date. The estimate is also impacted by the discount rates
used in the provisioning calculations. The discount rates used are
the Russian government bond rates.
Under the current levels of enforcement of existing legislation,
management believes there are no significant liabilities in
addition to amounts which are already accrued and which would have
a material adverse effect on the financial position of the
Group.
The Group's exploration, development and production activities
involve the use of wells, related equipment and operating sites.
Generally, licen es and other regulatory acts require that such
assets be decommissioned upon the completion of production.
According to these requirements, the Group is obliged to
decommission wells, dismantle equipment, restore the sites and
perform other related activities. The Group's estimates of these
obligations are based on current regulatory or licen e
requirements, as well as actual dismantling and other related
costs. These liabilities are measured by the Group using the
present value of the estimated future costs of decommissioning of
these assets. The discount rate is reviewed at each reporting date
and reflects risk free rate. The Group adjusts specific cash flows
for a risk.
3.3 Impairment of assets
Exploration and evaluation
An impairment exercise will be performed at the end of the
exploration and evaluation process.
When, at the end of the exploration and evaluation stage,
commercial reserves are determined to exist in respect of a
particular field, the Group performs an impairment test in relation
to costs capitalised. Where reserves are determined in sufficient
quantity to justify development, the associated assets are
transferred to property, plant and equipment.
If no potentially commercial hydrocarbons are discovered, the
exploration asset is written off through the statement of profit or
loss and other comprehensive income as a dry hole. If extractable
hydrocarbons are found and, subject to further appraisal activity
(e.g., the drilling of additional wells), it is probable that they
can be commercially developed, the costs continue to be carried as
an exploration and evaluation asset while sufficient/continued
progress is made in assessing the commerciality of the
hydrocarbons. Costs directly associated with appraisal activity
undertaken to determine the size, characteristics and commercial
potential of a reservoir following the initial discovery of
hydrocarbons, including the costs of appraisal wells where
hydrocarbons were not found, are initially capitalised as an
exploration and evaluation asset.
Development and production
When the fields enter the production phase, the recoverable
amounts of cash-generating units and individual assets will be
determined based on the higher of value-in-use calculations and
fair values less costs to sell. These calculations will require the
use of estimates and assumptions. It is reasonably possible that
the market oil price (and related natural gas price) assumption may
change which may then impact the estimated life of the field and
may then require a material adjustment to the carrying value of
non-current assets.
The Group monitors internal and external indicators of
impairment relating to its tangible and exploration and evaluation
assets.
3.4 Evaluation of reserves and resources
Estimates of proved reserves are used in determining the
depletion and amortization charge for the period and assessing
whether any impairment charge or reversal of impairment is required
for development and producing assets. As of 31 December 2020 and
2019 proved reserves were estimated by reference to an independent
international oil and gas engineering firm report dated 22 May
2014, by reference to available geological and engineering data,
and only include volumes of extraction for which access to market
is assured with reasonable certainty.
When the fields enter the development and production phase,
estimates of reserves are inherently imprecise, require the
application of judgments and are subject to regular revision,
either upward or downward, based on new information such as results
of the drilling of additional wells and changes in economic
factors, including product prices, contract terms or development
plans. Changes to the Group's estimates of proved reserves affect
prospectively the amounts of the depletion and amortization charge,
decommissioning assets and provisions where changes in reserve
estimates cause the estimated useful lives of assets to be
revised.
Depletion is provided for based on the production profile on a
field by field basis, which may exceed the existing licence period.
Licence extensions are generally awarded by the licen e authorities
in Russia as a matter of course, provided that production plans
demonstrate that additional time is required to economically
produce at the field and that the development and production
requirements of the initial licen e grant have been met.
3.5 Determining the lease term of contracts with renewal and termination options
The Group determines the lease term as the non-cancellable term
of the lease, together with any periods covered by an option to
extend the lease if it is reasonably certain to be exercised, or
any periods covered by an option to terminate the lease, if it is
reasonably certain not to be exercised.
The Group has several lease contracts that include extension and
termination options. The Group applies judgement in evaluating
whether it is reasonably certain whether or not to exercise the
option to renew or terminate the lease. That is, it considers all
relevant factors that create an economic incentive for it to
exercise either the renewal or termination. After the commencement
date, the Group reassesses the lease term if there is a significant
event or change in circumstances that is within its control and
affects its ability to exercise or not to exercise the option to
renew or to terminate (e.g., construction of significant leasehold
improvements or significant customisation to the leased asset).
4. Determination of fair value
Fair values have been determined for measurement and/or
disclosure purposes based on the following methods. When
applicable, further information about the assumptions made in
determining fair values is disclosed in the notes specific to that
asset or liability.
Other receivables
The fair value of other receivables is estimated as the present
value of future cash flows, discounted at the market rate of
interest at the reporting date. This fair value is determined for
disclosure purposes.
Non-derivative financial liabilities
Fair value, which is determined for disclosure purposes, is
calculated based on the present value of future principal and
interest cash flows, discounted at the market rate of interest at
the reporting date. Fair value of the non-derivative financial
assets is disclosed below.
Assets and liabilities not measured at fair value but for which
fair value is disclosed
Fair values analysed by level in the fair value hierarchy of
assets and liabilities of the Group not measured at fair value are
as follows:
31 December 2020 31 December 2019
------------------------ -----------------------
Carrying Carrying
Fair value value Fair value value
------------ ---------- ----------- ----------
Financial assets
Trade and other receivables 158,233 158,233 159,811 159,811
------------ ---------- ----------- ----------
Total assets 158,233 158,233 159,811 159,811
============ ========== =========== ==========
Financial liabilities
1 , 643 ,
Borrowings 670 1,656,896 1,243,576 1,256,457
Trade and other payables 551,746 551,746 262,849 262,849
Other non-current
payables - - 73,745 73,841
------------ ---------- ----------- ----------
Total liabilities 2, 195 ,416 2,208,642 1,580,170 1,593,147
============ ========== =========== ==========
As of 31 December 2020, the fair value of borrowings and is
based on cash flows discounted using a market rate of 6.71%. As of
31 December 2019, the fair value of borrowings and other payables
is based on cash flows discounted using a market rate of 8.33%. The
fair values of borrowings and other non-current payables are within
level 2 of the fair value hierarchy. The fair value of trade and
other receivables is within level 3 hierarchy.
5. Revenue from contracts with customers
The Group's operations comprise one class of business being oil
and gas exploration, development and production and all revenues
are from one geographic region, the Saratov Region in the Russian
Federation. Companies incorporated outside of Russia provide
support to the operations in Russia.
Revenue from contracts with customers comprises sale of the
following products:
2020 201 9
---------- ----------
Gas sales 1,104,397 981,640
Condensate sales 57,836 91,880
Oil sales 79,364 137,003
Sulphur sales 2,218 8,356
---------- ----------
Total revenue from contracts with customers 1,243,815 1,218,879
========== ==========
All gas sales are made to one customer, Gazprom Mezhregiongaz
Saratov LLC, under a contract effective until 31 December 2027 with
terms reviewed annually. Condensate and oil are sold to local
buyers. The sales of all products are denominated in RUB.
6. Cost of sales
2020 2019
-------- ----------
Depreciation and depletion 159,230 418,819
Mineral extraction tax 272,137 285,419
Wages and salaries 116,889 100,908
Materials and supplies 84,259 80,897
Other taxes and charges 62,096 54,519
Repair and maintenance 51,087 39,690
Compensation benefits to operating personnel 26,524 28,235
Other 60,853 56,954
-------- ----------
Total cost of sales 833,075 1,065,441
======== ==========
7. Administrative and selling expenses
2020 2019
-------- --------
Wages and salaries including director's
fee 224,903 158,244
Accountancy, legal and consulting services 24,832 22,928
Depreciation and amortization 9,690 10,460
Audit services 4,447 10,923
Insurance 3,226 2,870
Computers and software 2,583 2,273
Travelling 2,181 3,784
Office expenses 1,986 1,515
Rent expense 1,691 1,155
Field development costs 414 9,989
Other 13,272 17,493
-------- --------
Total administrative, selling expense 289,225 241,634
======== ========
8. Salaries and other employee benefits
2020 2019
-------- --------
Salaries and other employee benefits 368,316 287,387
-------- --------
Total 368,316 287,387
======== ========
Salaries and other employee benefits are included in other cost
of sales and operating, administrative and selling expenses.
Average monthly number of employees for the year (including
executive directors):
2020 2019
---------- ----------
Employees Employees
---------- ----------
Administrative 82 67
Operating 181 174
---------- ----------
Total 263 241
========== ==========
9. Other income and expenses
2020 2019
--------- ----------
Income from services 30,337 23,936
Net income from currency purchase and sale 7,973 -
Net income from sale of property, plant
and equipment 2,610 1,371
Change in decommissioning and environmental
restoration provision 2,185 -
Net foreign exchange difference - 548
Other 975 162
--------- ----------
Other income 44,080 26,017
========= ==========
Loss on disposal of property, plant and
equipment (14,214) (39,376)
Net foreign exchange difference (14,384) -
Charitable contributions (1,706) (2,660)
Penalties accrued (868) (6,009)
Change in decommissioning and environmental
restoration provision - (67,254)
Other (2,348) (2,312)
--------- ----------
Other expenses (33,520) (117,611)
========= ==========
10. Finance income and finance costs
2020 2019
---------- ----------
Finance income
Interest on bank deposits 1,031 12,194
---------- ----------
Total finance income 1,031 12,194
========== ==========
Finance costs
Interest on borrowings (Note 21) (78,842) (111,176)
Unwinding of the discount on decommissioning
and environmental restoration provision
(Note 22) (39,109) (35,150)
Unwinding of the discount on recognition
non-current payables (6,264) (5,760)
Interest on lease liabilities (Note 25) (2,692) (2,467)
Total finance costs (126,907) (154,553)
========== ==========
11. Income tax benefit
The tax charge for the year comprises:
2020 2019
-------- ---------
Deferred tax benefit 67,697 253,032
Current tax expense (52) (149)
Tax risk provisions (8,488) (10,428)
-------- ---------
Total income tax benefit 59,157 242,455
======== =========
Reconciliation between theoretical and actual taxation charge is
provided below.
2020 2019
------------ ------------
Loss before income tax (1,039,243) (3,124,063)
------------ ------------
Theoretical tax benefit at applicable income
tax rate of 20% (2019: 20%) 207,849 624,813
Effect of different foreign tax rates (6,404) (4,662)
(13 3 , 479
Effect of unrecognised deferred tax assets ) (361,195)
Tax effect of expenses not deductible for
tax purposes ( 321 ) (6,073)
Tax risk provisions (8,488) (10,428)
------------ ------------
Total income tax benefit 59,157 242,455
============ ============
The Group's income was subject to tax at the following tax
rates:
2020 2019
------ ------
The Russian Federation 20.0% 20.0%
The Republic of Cyprus 12.5% 12.5%
Cayman Islands 0% 0%
The Group is subject to Cayman income tax, otherwise the
majority of the Group's operations are located in the Russian
Federation. Thus 20% tax rate is used for theoretical tax charge
calculations.
12. Exploration and evaluation assets
Exploration
and evaluation
works capitalised,
including
Sub-soil seismic
licences works Total
---------- -------------------- ----------
Balance at 1 January 2019 1,037,510 2,440,003 3,477,513
Additions - 228,891 228,891
Transfer from property, plant
and equipment - 8,544 8,544
Change in the estimates of decommissioning
provision - 3,815 3,815
Impairment (1,325) (205,159) (206,484)
Amortization (2,063) - (2,063)
---------- -------------------- ----------
Balance at 31 December 2019 1,034,122 2,476,094 3,510,216
Additions - 159,674 159,674
Transfer from property, plant
and equipment - 4,712 4,712
Change in the estimates of decommissioning
provision - (2,526) (2,526)
Disposals - (9,108) (9,108)
Impairment (337) (52,174) (52,511)
Amortization (757) - (757)
---------- -------------------- ----------
Balance at 31 December 2020 1,033,028 2,576,672 3,609,700
========== ==================== ==========
In management's opinion, as at 31 December 2020 there were no
non-compliance issues in respect of the licences that would have an
adverse effect on the financial position or the operating results
of the Group.
The impairment is described in Note 13.
13. Property, plant and equipment
Construction
Oil and Motor Other equipment work in
gas assets vehicles and furniture progress Total
------------ ---------- ---------------- ------------- ------------
Cost at 1 January
2019 5,303,261 16,886 9,821 61,221 5,391,189
Additions 13,653 3,583 2,132 390,993 410,361
Reclassification 128,660 - - (128,660) -
Transfer to exploration
and evaluation assets - - - (8,544) (8,544)
Transfer to current
assets - - - (4,381) (4,381)
Change in the estimates
of decommissioning
provision 94,115 - - - 94,115
Disposals (83,130) (2,807) (607) (3,169) (89,713)
------------ ---------- ---------------- ------------- ------------
Cost at 31 December
2019 5,456,559 17,662 11,346 307,460 5,793,027
Additions 351,722 3,345 1,583 367,140 723,790
Reclassification 132,134 - - (132,134) -
Transfer to exploration
and evaluation assets - - - (4,712) (4,712)
Transfer to current
assets - - - (4,244) (4,244)
Change in the estimates
of decommissioning
provision 31 - - - 31
Disposals (16,413) (371) (589) (3,462) (20,835)
------------ ---------- ---------------- ------------- ------------
Cost at 31 December
2020 5,924,033 20,636 12,340 530,048 6,487,057
------------ ---------- ---------------- ------------- ------------
Accumulated depreciation,
depletion and impairment
Balance at 1 January
2019 (1,704,913) (14,032) (5,408) - (1,724,353)
Depreciation and
depletion (418,748) (3,523) (877) - (423,148)
Impairment (2,420,298) (1,920) (2,968) (160,331) (2,585,517)
Disposals 46,886 2,807 573 - 50,266
------------ ---------- ---------------- ------------- ------------
Balance at 31 December
2019 (4,497,073) (16,668) (8,680) (160,331) (4,682,752)
Depreciation and
depletion (162,767) (1,684) (771) - (165,222)
Impairment (934,063) (854) (1,689) (54,144) (990,750)
Disposals 14,770 371 589 - 15,730
------------ ---------- ---------------- ------------- ------------
Balance at 31 December
2020 (5,579,133) (18,835) (10,551) (214,475) (5,822,994)
------------ ---------- ---------------- ------------- ------------
Net book value at
1 January 2019 3,598,348 2,854 4,413 61,221 3,666,836
============ ========== ================ ============= ============
Net book value at
31 December 2019 959,486 994 2,666 147,129 1,110,275
============ ========== ================ ============= ============
Net book value at
31 December 2020 344,900 1,801 1,789 315,573 664,063
============ ========== ================ ============= ============
The gross carrying amount of fully depreciated property, plant
and equipment that is still in use at 31 December 2020 was 345,244
(2019: 266,186).
Impairment
In 2019 the Group determined its development strategy of
Bortovoy licen e field. The main focus of this strategy became the
exploration of the Eastern part of Bortovoy licen e field, while no
further development of the Western part of Bortovoy licen e field
is planned. This and drop in gas volumes extraction in 2019 became
a trigger to analyse the Western part of Bortovoy gas field for
impairment. As a result of this analysis the impairment of the
Western part of Bortovoy gas field cash-generating unit (CGU) was
recognised.
In 2020 the Group updated analysis the impairment of the Western
part of Bortovoy gas field CGU and recognised additional
impairment.
The impairment was allocated between Exploration and evaluation
assets (Note 12), Property, plant and equipment and Right-of-use
assets (Note 25) of the CGU.
In assessing the impairment amount, the carrying value of the
CGU is compared with its recoverable amount. The recoverable amount
used in assessing the impairment charges described below is fair
value less costs of disposal (FVLCD). The Company generally
estimates FVLCD using the income approach, specifically the
discounted cash flow ("DCF") method. Discounted cash flows of the
Western part of Bortovoy licen e field were built based on the
long-term business plan the Group. The period: 2020-2027 for
analysis as 31 December 2019, and 2021-2025 for analysis as 31
December 2020.
As of 31 December 2019 the recoverable amount of the Western
part of Bortovoy licence field comprised 722,096. The future cash
flows were discounted to their present values using a discount rate
of 15.23% (pre-tax), that reflects current market assessments of
the time value of money and the risks specific to the asset.
Increasing discount rate on 1% would result in additional
impairment charge of 18,486.
As of 31 December 2020 the recoverable amount of the Western
part of Bortovoy licence field comprised 13,806. The future cash
flows were discounted to their present values using a discount rate
of 14.09% (pre-tax), that reflects current market assessments of
the time value of money and the risks specific to the asset.
Increasing discount rate on 1% would result in additional
impairment charge of 4,038.
The following key assumptions were used to determine the
recoverable amount of the Western part of Bortovoy licence
field:
As of 31 December 2019:
Cumulative volumes of gas extractions for the period 2020-2027:
1,588 mln of m(3) ;
Annual inflation in the Russian Federation for the period
2021-2027: within 3.7-3.6%;
Cumulative capital expenditure for the period 2020-2027 in
nominal prices: 1,219,366.
As of 31 December 2020:
Cumulative volumes of gas extractions for the period 2021-2025:
924 mln of m(3) ;
Annual inflation in the Russian Federation for the period
2021-2025: within 3.8-4.0%;
Cumulative capital expenditure for the period 2021-2025 in
nominal prices: 884,760.
14. Inventories
31 December 31 December
2020 2019
------------ ------------
Natural gas and hydrocarbon liquids (at
lower of cost and net realizable value 4,940 4,432
Materials and supplies (at cost) 9,129 20,124
------------ ------------
Total inventories at the lower of cost and
net realizable value 14,069 24,556
============ ============
Materials and supplies mainly comprised of liquid feedstock and
maintenance spare parts.
15. Trade and other receivables and other current non-financial assets
31 December 31 December
2020 2019
------------ ------------
Trade receivables, gross 153,045 161,281
Other accounts receivable, gross 6,800 939
Expected credit loss (1,612) (2,409)
Total trade and other receivables 158,233 159,811
============ ============
Prepayments 25,311 30,329
VAT receivable 5,876 10,000
Other taxes prepaid 2,044 3,221
------------ ------------
Total other current non-financial assets 33,231 43,550
============ ============
Trade and other receivables are non-interest bearing and are
generally on settlement terms of 30--45 days. In 2020, null (2019:
13) was recognised as provision for expected credit losses on trade
and other receivables.
Prepayments are advance payments for services to be rendered
within the next twelve months.
Current VAT receivable is expected to be recovered within the
next twelve months.
Set out below is the movement in the allowance for expected
credit losses of trade and other receivables:
2020 2019
-------- --------
The opening balance in the provision for
expected credit losses on 1 January under
IFRS 9 (2,409) (2,396)
Charge for the period - (13)
Reversal 797 -
-------- --------
As at 31 December (1,612) (2,409)
======== ========
The information about the credit exposures are disclosed in Note
27.
16. Cash and cash equivalents
Cash and cash equivalents consist of cash at bank and the
majority of cash held is denominated in RUB.
The Group's exposure to credit risk and impairment losses
related to cash and cash equivalents are disclosed in Note 27.
17. Share capital
Number of
ordinary Nominal value, Nominal value,
At 31 December 2020 and 2019 shares, pieces USD'000 RUB'000
---------------------------------- ---------------- --------------- ---------------
Authorised (par value of USD
0.20 each) 250,000,000 50,000 1,708,672
Issued and fully paid (par value
of USD 0.20 each) 141,955,386 28,391 970,218
18. Dividends
In accordance with the relevant legislation applicable to the
Group, the Group's distributable reserves are limited to the
balance of retained earnings as recorded in the Company's statutory
financial statements prepared in accordance with local Financial
Reporting Standards. No dividends were declared or paid in 2020 and
2019.
19. Other taxes payable
31 December 31 December
2020 2019
------------ ------------
VAT 49,140 25,239
Mineral extraction tax 28,146 34,150
Property tax 10,564 7,364
Other taxes 12,239 12,714
------------ ------------
Total 100,089 79,467
============ ============
20. Earnings per share
Basic earnings per share is calculated by dividing the profit
attributable to owners of the Company by the weighted average
number of ordinary shares in issue during the year.
Diluted earnings per share is calculated by adjusting the
weighted average number of ordinary shares outstanding to assume
conversion of all dilutive potential ordinary shares. As of 31
December 2019 all share options have expired and do not have any
effect on the loss per share as of 31 December 2020 also.
2020 2019
---------- ------------
Loss attributable to owners of the Company
- basic and diluted (980,086) (2,881,608)
Number of Number of
shares shares
------------ ------------
Weighted average number of shares for calculating
basic earnings per share 141,955,386 141,955,386
Weighted average number of shares for calculating
diluted earnings per share 141,955,386 141,955,386
RUB RUB
------- --------
Basic loss per share (6.90) (20.30)
Diluted loss per share (6.90) (20.30)
21. Borrowings
2020 2019
------ ------------
Non-revolving credit facility with Sberbank
PJSC -
liability, as at 1 January - 1,262,898
Including current liability - 570,400
Interest accrued - 40,352
Interest paid - (45,702)
Repayment - (1,257,548)
Non-revolving credit facility with Sberbank
PJSC -
as at 31 December - -
====== ============
Including current liability - -
In 2014, the Group entered into a non-revolving credit facility
agreement with Sberbank of Russia PJSC with a maximum facility
amount of 2,400,000. The facility was drawn down in full in 2014.
The original maturity date of the credit facility was 30 April 2021
but the Group repaid the loan during 2019 ahead of schedule.
On 13 May 2019 the Group signed a credit line agreement with
Promsvyasbank PJSC. The credit line limit is 1,320,000. The purpose
of the credit line was the refinancing of the loan from Sberbank
PJSC and financing of current activities. The interest rate equals
Russian Key rate plus 1.7%. Payment terms depend on the amount of
the credit line used and the final payment is no later than 29
April 2024. Under the agreement the Group has pledged its property,
plant and equipment items with carrying value as of 31 December
2020 amounting to 5,640 to secure the loan. The agreement contains
certain loan covenants. The Group was not in compliance with
certain of such covenants as 31 December 2020 and accordingly the
entire outstanding balance has been reclassified to a short-term
liability.
2020 2019
---------- ----------
Credit facility with Promsvyazbank PJSC
-
liability, as at 1 January 1,256,457 -
Including current liability 1,256,457 -
Interest accrued 74,635 70,824
Interest paid (78,254) (62,367)
Proceeds - 1,320,000
Repayment (288,000) (72,000)
---------- ----------
Credit facility Promsvyazbank PJSC -
liability, as at 31 December 964,838 1,256,457
========== ==========
Including current liability 964,838 1,256,457
On 14 July 2020, the Company announced that it has entered into
a loan agreement dated by 12 March 2020 with ARA Capital Holdings
Limited under which ARA Capital Holdings Limited provided a
revolving loan facility for up to USD 9,000,000 (the "Loan"). ARA
Capital Holdings Limited is the parent company of ARA Capital
Limited, both are the Group's shareholders.
The Loan has been made available for drawdown in two instalments
of:
(1) USD 2,000,000, which is provided unconditionally and has
been drawn down by the Company; and
(2) USD 7,000,000, which is secured against the shares of Royal
Atlantic Energy (Cyprus) Limited (of which Diall Alliance, which
holds and operates the Bortovoy Licence, is a wholly owned
subsidiary) and has been drawn down by the Company.
The Loan was originally due for repayment by 31 December 2020.
The final repayment date was extended to 31 March 2021 in December
2020 and subsequently extended further to 30 September 2021 in June
2021. The Loan is interest-free. In the event of the Company's
failure to repay on time, interest at a rate of 10 percent per
annum will be accrued.
Proceeds from the Loan are being used for general working
capital purposes and in support of operational activities,
including the development drilling programme ongoing at West
Bortovoy and the East Bortovoy project. As described in Note 30,
the amendment to the Loan agreement made in June 2021 states that
in the event the Loan is not repaid by 30 September 2021 or not
subject to a further extension by mutual agreement, ARA Capital
Holdings will be entitled to request that the Loan (including
accrued interest) be converted into new ordinary shares in the
Company.
2020 2019
-------- -----
Credit facility with ARA Capital Holdings
Limited -
liability, as at 1 January - -
Including current liability - -
Interest accrued - -
Interest paid - -
Proceeds 646,134 -
Net foreign exchange difference 18,747
Repayment - -
-------- -----
Credit facility ARA Capital Holdings Limited
-
liability, as at 31 December 664,881 -
======== =====
Including current liability 664,881 -
Also during 2020, the Group received loans from third parties in
the total amount of 147,000. The final maturity date for these
loans is 31 December 2021.The loans are denominated in rubles,
interest rate is fixed (9.5% and 20% for different tranches).
2020 2019
---------- -----
Credit facility with third parties - liability,
as at 1 January - -
Including current liability - -
Interest accrued 4,207 -
Interest paid (2,030) -
Proceeds 147,000 -
Repayment (122,000) -
---------- -----
Credit facility third parties - liability,
as at 31 December) 27,177 -
========== =====
Including current liability 27,177 -
2 2 . Decommission provision
The decommissioning and environmental restoration provision
represents the net present value of the estimated future
obligations for abandonment and site restoration costs which are
expected to be incurred at the end of the production lives of the
gas and oil fields which is estimated to be within 20 years.
2020 2019
-------- --------
Provision as at 1 January 591,558 390,428
Additions 19,419 796
Unwinding of discount 39,109 35,150
Change in estimate of decommissioning and
environmental restoration provision (4,680) 165,184
Provision as at 31 December 645,406 591,558
======== ========
This provision has been created based on the Group's internal
estimates. Assumptions based on the current economic environment
have been made which the directors believe are a reasonable basis
upon which to estimate the future liability. These estimates are
reviewed regularly to take into account any material changes to the
assumptions. However, actual decommissioning costs will ultimately
depend upon future market prices for the necessary dismantlement
works required, which will reflect market conditions at the
relevant time. Furthermore, the timing is likely to depend on when
the fields cease to produce at economically viable rates. This in
turn will depend upon future oil prices and future operating costs,
which are inherently uncertain.
The provision reflects two liabilities: one is to dismantle the
property, plant and equipment assets and the other is to restore
the environment. The decommissioning part of the provision is
reversed when an oil well is abandoned and corresponding
capitalised costs are expensed. The environmental part of the
provision is reversed when the expenses on restoration are actually
incurred.
The provision is reversed when the corresponding capitalised
costs directly attributable to an exploration and evaluation asset
are expensed as it is determined that a commercial discovery has
not been achieved and the restoration of the corresponding
environment has been completed.
The Group reviews the application of inflation rates used for
the provision estimation each half-year end. The inflation rate
used in the estimation of the provision as of 31 December 2020 was
4.50% in 2020, decreasing to 4.0% in 2036 (as of 31 December 2019:
4.20% in 2020, decreasing to 4.10% in 2036). The discount rates
used to determine the decommissioning and environmental restoration
provision are based on Russian government bond rates. As of 31
December 2020, the discount rate varies from 5.93% to 6.39% (as of
31 December 2019: from 6.34% to 6.52%) depending on expected period
of abandonment and site restoration for each gas and oil
fields.
2 3 . Deferred tax liabilities
Movements in temporary differences during the year:
Recognised
31 December in profit 31 December
2020 or loss 2019
------------ ----------- ------------
Property, plant and equipment 251,702 67,014 184,688
Decommissioning provision 78,553 8,065 70,488
Other current assets and liabilities 41,302 14,894 26,408
Tax loss carry-forwards 4,400 (23,548) 27,948
------------ ----------- ------------
Deferred tax assets 375,957 66,425 309,532
------------ ----------- ------------
Exploration and evaluation assets (371,557) 1,272 (372,829)
Deferred tax liabilities (371,557) 1,272 (372,829)
------------ ----------- ------------
Net deferred tax assets/(liabilities) 4,400 67,697 (63,297)
============ =========== ============
Recognised
31 December in profit 31 December
2019 or loss 2018
------------ ----------- ------------
Property, plant and equipment 184,688 184,688 -
Decommissioning provision 70,488 23,871 46,617
Other current assets and liabilities 26,408 10,884 15,524
Tax loss carry-forwards 27,948 (289,417) 317,365
------------ ----------- ------------
Deferred tax assets 309,532 (69,974) 379,506
------------ ----------- ------------
Exploration and evaluation assets (372,829) 29,732 (402,561)
Property, plant and equipment - 292,574 (292,574)
Borrowings - 700 (700)
------------ ----------- ------------
Deferred tax liabilities (372,829) 323,006 (695,835)
------------ ----------- ------------
Net deferred tax liabilities (63,297) 253,032 (316,329)
============ =========== ============
Deferred income tax assets are not fully recognised for
impairment of exploration and evaluation assets and tax losses to
the extent that the utilisation of the related tax benefit through
future taxable profits is not probable. As of 31 December 2020 the
Group has not recognised deferred income tax assets of 1,095,707
(31 December 2019: 962,228). The Group has tax losses that are
available indefinitely for offsetting against future taxable
profits of the companies in which the losses arose.
Deferred tax assets for deductible temporary differences arising
from investments in subsidiaries are not recognised by the Group,
as it is not probable that the temporary difference will reverse in
the foreseeable future, since the Group has no intention of selling
its subsidiaries. The Group has not recognised such deferred tax
assets of 580,782 (2019: 517,024).
Management assessed that recognised deferred tax assets will be
fully offset against future taxable profits in 2021-2026.
2 4 . Trade and other payables
31 December 31 December
2020 2019
------------ ------------
Current trade payables 429,446 217,133
Payables to employees 104,217 30,920
Accrued expenses 18,083 14,796
------------ ------------
Total current payables 551,746 262,849
============ ============
Non-current other payables - 73,841
------------ ------------
Total non-current payables - 73,841
============ ============
2 5 . Leases
The Group has lease contracts for various items of buildings and
motor vehicles. Leases of buildings generally have lease terms
between 3 and 10 years, while motor vehicles generally have lease
terms between 3 and 5 years.
The Group also has certain leases of machinery and buildings
with lease terms of 12 months or less and equipment with low value.
The Group applies the 'short-term lease' and 'lease of low-value
assets' recognition exemptions for these leases.
Set out below are the carrying amounts of right-of-use assets
recognised and the movements during the period:
Buildings Motor vehicles Other Total
---------- --------------- -------- ---------
Cost at 1 January 2019 13,576 - - 13,576
Additions 9,900 822 4,726 15,448
---------- --------------- -------- ---------
Cost at 31 December 2019 23,476 822 4,726 29,024
Additions 443 5,656 - 6,099
---------- --------------- -------- ---------
Cost at 31 December 2020 23,919 6,478 4,726 35,123
---------- --------------- -------- ---------
Accumulated depreciation
, depletion and impairment
balance at 1 January 2019 - - - -
Depreciation (3,187) (14) (867) (4,068)
Impairment (9,913) - - (9,913)
---------- --------------- -------- ---------
Accumulated depreciation
, depletion and impairment
balance at 31 December 2019 (13,100) (14) (867) (13,981)
Depreciation (2,293) (358) (945) (3,596)
Impairment (2,181) - - (2,181)
---------- --------------- -------- ---------
Accumulated depreciation,
depletion and impairment balance
at 31 December 2020 (17,574) (372) (1,812) (19,758)
---------- --------------- -------- ---------
Net book value at 1 January
2019 13,576 - - 13,576
========== =============== ======== =========
Net book value at 31 December
201 9 10,376 808 3,859 15,043
========== =============== ======== =========
Net book value at 31 December
2020 6,345 6,106 2,914 15,365
========== =============== ======== =========
Set out below are the carrying amounts of lease liabilities and
the movements during the period:
2020 2019
-------- --------
Balance as at 1 January 25,715 13,576
Additions 6,099 15,448
Interest expense 2,692 2,467
Payments (7,472) (5,776)
-------- --------
Balance as at 31 December 27,034 25,715
======== ========
Current 6,115 4,081
Non-current 20,919 21,634
The following are the amounts recognised in profit or loss:
2020 2019
------ -------
Depreciation expense of right-of-use assets 3,596 4,068
Interest expense on lease liabilities 2,692 2,467
Expense relating to leases to explore for
or use minerals,
oil, natural gas and similar non-regenerative
resources
(included in cost of sales) - 5,281
Expense relating to leases of low-value
or short-term assets
(included in administrative and selling
expenses) 1,691 1,155
------ -------
Total amount recognised in profit or loss 7,979 12,971
====== =======
2 6 . Changes in liabilities arising from financing activities
Current
interest- Current Non-current Non-current
bearing lease interest-bearing lease
borrowings liabilities borrowings liabilities
------------ ------------- ------------------ -------------
As of 1 January 2020 1,256,457 4,081 - 21,634
------------ ------------- ------------------ -------------
Cash changes
Proceeds from borrowings 793,134 - - -
Repayment of borrowings (410,000) - - -
Payment of principal portion
of lease liabilities - (4,780) - -
Interest paid (80,284) (2,692) - -
------------ ------------- ------------------ -------------
Total cash changes 302,850 (7,472) - -
------------ ------------- ------------------ -------------
Non-cash changes
Finance costs 78,842 2,692 - -
New leases - 2,163 - 3,936
Reclass from non-current to
current - 4,651 - (4,651)
Exchange differences 18,747 - - -
------------ ------------- ------------------ -------------
Total 97,589 9,506 - (715)
------------ ------------- ------------------ -------------
As of 31 December 2020 1,656,896 6,115 - 20,919
============ ============= ================== =============
Current Current Non-current
interest- finance Non-current finance
bearing lease interest-bearing lease
borrowings liability borrowings liability
------------ ----------- ------------------ ------------
As of 1 January 2019 570,400 1,022 692,498 12,554
------------ ----------- ------------------ ------------
Cash changes
Proceeds from borrowings 1,320,000 - - -
Repayment of borrowings (1,329,548) - - -
Payment of principal portion
of lease liabilities - (3,309) - -
Interest paid (108,069) (2,467) - -
------------ ----------- ------------------ ------------
Total cash changes (117,617) (5,776) - -
------------ ----------- ------------------ ------------
Non-cash changes
Finance costs 111,176 2,467 - -
New leases - 2,783 - 12,665
Reclass from non-current to
current 692,498 3,585 (692,498) (3,585)
------------ ----------- ------------------ ------------
Total 803,674 8,835 (692,498) 9,080
------------ ----------- ------------------ ------------
As of 31 December 2019 1,256,457 4,081 - 21,634
============ =========== ================== ============
The Group classifies interest paid as cash flows from operating
activities.
2 7 . Financial instruments and financial risk management
The Group has exposure to the following risks from its use of
financial instruments:
Liquidity risk;
Market risk;
Credit risk.
This note presents information about the Group's exposure to
each of the above risks, the Group's objectives, policies and
processes for measuring and managing risk, and the Group's
management of capital. Further quantitative disclosures are
included throughout these consolidated financial statements.
The Group's risk management policies deal with identifying and
analysing the risks faced by the Group, setting appropriate risk
limits and controls, and monitoring risks and adherence to limits.
Risk management policies and systems are reviewed regularly to
reflect changes in market conditions and the Group's activities.
The Group, through its internal policies, aims to develop a
disciplined and constructive control environment in which all
employees understand their roles and obligations.
27.1 Liquidity risk
Liquidity risk is the risk that the Group will not be able to
meet its financial obligations as they fall due. The Group monitors
the risk of cash shortfalls by means of current liquidity planning.
The Group's approach to managing liquidity is to ensure, as far as
possible, that it will always have sufficient liquidity to meet its
liabilities when due, under both normal and stressed conditions,
without incurring unacceptable losses or risking damage to the
Group's reputation. This approach is used to analyse payment dates
associated with financial assets, and also to forecast cash flows
from operating activities. The contractual maturities of financial
liabilities are presented including estimated interest
payments.
The Group's current liabilities exceed its current assets by
2,127,357 as at 31 December 2020. The implications are described in
Note 2.2.
The table below summarises the maturity profile of the Group's
financial liabilities based on contractual undiscounted
payments:
Less than
Total 1 year 1-3 years Over 3 years
---------- ---------- ---------- -------------
Financial liabilities
as at 31 December
2020
Borrowings 1,699,812 1,699,812 - -
Trade and other payables 551,746 551,746 - -
Lease liabilities 33,850 8,066 15,258 10,526
---------- ---------- ---------- -------------
Total 2,285,408 2,259,624 15,258 10,526
========== ========== ========== =============
Less than
Total 1 year 1-3 years Over 3 years
---------- ---------- ---------- -------------
Financial liabilities
as at 31 December
2019
Borrowings 1,333,854 1,333,854 - -
Trade and other payables 344,538 262,849 81,689 -
Lease liabilities 34,680 6,382 12,603 15,695
---------- ---------- ---------- -------------
Total 1,713,072 1,603,085 94,292 15,695
========== ========== ========== =============
2 7 .2 Market risk
Market risk includes interest risk and foreign currency exchange
rate risk.
a) Interest risk
The Group is exposed to interest rate risk because it has a loan
from Promsvyazbank PJSC with a variable interest rate denominated
in RUB, interest rate on which is key rate of the Central Bank of
Russia + 1.6%.
The following table demonstrates the sensitivity to a reasonably
possible change in interest rates on that portion of loans and
borrowings affected. With all other variables held constant, the
Group's profit before tax is affected through the impact on
floating rate borrowings, as follows:
Increase/
decrease Effect on
in loss before
basis points tax
-------------- -------------
2020 +50 (4,800)
-50 4,800
2019 +50 (6,240)
-50 6,240
b) Foreign currency risk
Foreign currency risk is the risk that the fair value or future
cash flows of an exposure will fluctuate because of changes in
foreign exchange rates. The Group's exposure to the risk of changes
in foreign exchange rates relates primarily to the Group's
operating activities.
The Group is exposed to currency exchange rate risk due to the
fact that some of its trade payables and loans are denominated in
foreign currencies. The carrying amounts of the Group's monetary
assets and monetary liabilities denominated in foreign currencies
at the reporting date are as follows:
As of 31 December 2020 As of 31 December 2019
---------------------------------- ----------------------------------
Assets Liabilities Net effect Assets Liabilities Net effect
------- ------------ ----------- ------- ------------ -----------
USD 11,827 (680,676) (668,848) - (15,465) (15,465)
EUR 522 (4,434) (3,911) 455 (3,576) (3,121)
GBP - (5,979) (5,979) - (2,072) (2,072)
------- ------------ ----------- ------- ------------ -----------
Total 12,350 (691,088) (678,739) 455 (21,114) (20,659)
======= ============ =========== ======= ============ ===========
The Group is mainly affected by changes in the USD exchange
rate.
Foreign currency sensitivity
The following tables demonstrate the sensitivity to a reasonably
possible change in USD exchange rate, with all other variables held
constant. The impact on the Group's profit before tax is due to
changes in the fair value of monetary assets and liabilities. The
Group's exposure to foreign currency changes for all other
currencies is not material.
Effect on
Change in loss before
USD rate tax
---------- -------------
2020 16% (107,016)
-16% 107,016
2019 13% (2,010)
-13% 2,010
27.3 Credit risk
Credit risk is the risk that a counterparty will not meet its
obligations under a financial instrument or customer contract,
leading to a financial loss. The Group is exposed to credit risk
from its operating activities (primarily trade receivables) and
from its financing activities, including deposits with banks and
financial institutions, foreign exchange transactions and other
financial instruments.
Customer credit risk is managed by each business unit subject to
the Group's established policy, procedures and control relating to
customer credit risk management. Credit quality of a customer is
assessed based on a credit rating scorecard and individual credit
limits are defined in accordance with this assessment. Outstanding
customer receivables are regularly monitored.
The Group is largely dependent on one customer (Gazprom
Mezhregiongaz Saratov LLC) for a significant portion of earned
revenues. Gazprom Mezhregiongaz Saratov LLC accounted for 88.8% and
80.5% of the Group's total revenue in 2020 and 2019 respectively.
The loss or the insolvency of this customer for any reason, or
reduced sales of the Group's principal product, could significantly
reduce the Group's ongoing revenue and/or profitability, and could
materially and adversely affect the Group's financial condition.
The credit rating assigned to Gazprom by Standard & Poor's is
BBB-. To manage credit risk and exposure to the loss of the key
customer, the Group has entered into a contract with Gazprom
Mezhregiongaz Saratov LLC, effective till 31 December 2027. As for
the smaller customers, the Group imposes minimum credit standards
that the customers must meet before and during the sales
transaction process.
An impairment analysis is performed at each reporting date using
a provision matrix to measure expected credit losses. The provision
rates are based on days past due for groupings of various customer
segments with similar loss patterns (i.e., by product type,
customer type and rating). The calculation reflects the
probability-weighted outcome, the time value of money and
reasonable and supportable information that is available at the
reporting date about past events, current conditions and forecasts
of future economic conditions. Generally, trade receivables are
written-off if past due for more than one year and are not subject
to enforcement activity. The Group does not hold collateral as
security.
Set out below is the information about the credit risk exposure
on the Group's trade and other receivables using a provision
matrix:
Days past due
-------- -------- ----------------------------------
180-360
Total Current 45-180 days days >360 days
-------- -------- ------------ -------- ----------
31 December 2020
Expected credit
loss rate 0% - - 100%
Estimated total
gross carrying
amount at default 159,845 158,233 - - 1 , 612
Expected credit
loss 1,612 - - - 1 , 612
Days past due
-------- -------- ----------------------------------
180-360
Total Current 45-180 days days >360 days
-------- -------- ------------ -------- ----------
31 December 2019
Expected credit
loss rate 0% - 100% 100%
Estimated total
gross carrying
amount at default 162,220 159,811 - 13 2,396
Expected credit
loss 2,409 - - 13 2,396
Credit risk related to cash and cash equivalents is reduced by
placing funds with banks with acceptable credit ratings.
To limit exposure to credit risk on cash and cash equivalents
management's policy is to hold cash and cash equivalents in
reputable financial institutions with low credit risk. During 2020
cash was held mainly with Promsvyasbank PJSC, Alfa Bank, PJSC
"Sovcombank" and Sberbank. Banks are regularly evaluated by
International and Russian agencies and are considered reliable
banks with low credit risk (ratings at the reporting date are
presented below).
To limit exposure to credit risk on cash and cash equivalents
management's policy is to hold cash and cash equivalents in
reputable financial institutions.
31 December 31 December
2020 2019
------------ ------------
Ba1.ru, Moody's 1,017 108
Ba2.ru, Moody's 10,983 89
Ba 3.ru, Moody's 13,326 1,869
Ba3.ru, Moody's - 1,101
Other 531 462
------------ ------------
Total cash and cash equivalents 25,857 3,629
============ ============
Capital management
The Group considers its capital and reserves attributable to
equity shareholders to be the Group's capital. In managing its
capital, the Group's primary long-term objective is to provide a
return for its equity shareholders through capital growth. Going
forward, the Group may seek additional investment funds and also
maintain a gearing ratio that balances risks and returns at an
acceptable level, while maintaining a sufficient funding base to
enable the Group to meet its working capital needs. Details of the
Group's capital are disclosed in the statement of changes in
equity.
There have been no significant changes to management's
objectives, policies or processes in the period, nor has there been
any change in what the Group considers to be capital.
The Group companies are in compliance with externally imposed
capital requirements as of 31 December 2020 and 31 December
2019.
2 8 . Commitments and contingencies
28.1 Capital commitments
Capital expenditure contracted for at the end of the reporting
period but not yet incurred at 31 December 2020 was 38,873, net of
VAT (31 December 2019: 292,279, net of VAT).
28.2 Insurance
The insurance industry in the Russian Federation is in a
developing state and many forms of insurance protection common in
other parts of the world are not generally available. The Group's
insurance currently includes cover for damage to or loss of assets,
third-party liability coverage (including employer's liability
insurance), in each case subject to excesses, exclusions and
limitations. However, there can be no assurance that such insurance
will be adequate to cover losses or exposure to liability, or that
the Group will continue to be able to obtain insurance to cover
such risks. Until the Group obtains adequate insurance coverage
there is a risk that the loss or destruction of certain assets
could have a material adverse effect on the Group's operations and
financial position.
28.3 Litigation
The Group has been involved in a number of court proceedings
(both as a plaintiff and as a defendant) arising in the normal
course of business. In the opinion of management there are no
current legal proceedings or other claims outstanding which could
have a material adverse effect on the results of operations,
financial position or cash flows of the Group and which have not
been accrued or disclosed in these financial statements.
28.4 Taxation
Russian tax, currency and customs law allows for various
interpretations and is subject to frequent changes. Management's
interpretation of legislation as applied to the Group's
transactions and activities may be challenged by regional or
federal authorities.
The Group operates in a number of foreign jurisdictions besides
Russian Federation. The Group includes companies established
outside the Russian Federation that are subject to taxation at
rates and in accordance with the laws of jurisdictions in which the
companies of the Group are recognised as tax residents. Tax
liabilities of foreign companies of the Group are determined on the
basis that foreign companies of the Group are not tax residents of
the Russian Federation, nor do they have a permanent representative
office in the Russian Federation and are therefore not subject to
income tax under Russian law, except for income tax deductions at
the source.
In 2020, there was further implementation of mechanisms aimed at
avoiding tax evasion using low-tax jurisdictions and aggressive tax
planning structures. In particular, these changes included the
definition of the concept of beneficial ownership, the tax
residence of legal entities at the place of actual activities, as
well as the approach to taxation of controlled foreign companies in
the Russian Federation.
The Russian tax authorities continue to actively cooperate with
the tax authorities of foreign countries in the international
exchange of tax information, which makes the activities of
companies on an international scale more transparent and requires
detailed study in terms of confirming the economic purpose of the
organization of the international structure in the framework of tax
control procedures.
These changes and recent trends in applying and interpreting
certain provisions of Russian tax law indicate that the tax
authorities may take a tougher stance in interpreting legislation
and reviewing tax returns. The tax authorities may thus challenge
transactions and accounting methods that they have never challenged
before. As a result, significant taxes, penalties and fines may be
accrued. It is not possible to determine the amounts of
constructive claims or evaluate the probability of a negative
outcome. Tax audits may cover a period of three calendar years
immediately preceding the audited year. Under certain
circumstances, the tax authorities may review earlier tax
periods.
In addition, tax authorities have the right to charge additional
tax liabilities and penalties on the basis of the rules established
by transfer pricing legislation, if the price/profitability in
controlled transactions differs from the market level. The list of
controlled transactions mainly includes transactions concluded
between related parties. Requirements for tax control of prices and
preparation of transfer pricing documentation apply to cross-border
transactions between related parties (without applying any
threshold), individual transactions in the field of foreign trade
in goods of world exchange trade and transactions with companies
located in low-tax jurisdictions, as well as transactions between
related parties in the domestic market in some cases.
Tax authorities may carry out a price/profitability check in
controlled transactions and, in case of disagreement with the
prices applied by the Group in these transactions, may additionally
charge additional tax liabilities if the Group is unable to justify
the market nature of pricing in these transactions by providing
transfer pricing documentation (national documentation) in
accordance with the requirements of the legislation.
Management believes that it has provided adequately for tax
liabilities based on its interpretations of applicable tax
legislation, official pronouncements and court decisions. However,
the interpretations of the relevant authorities could differ and
the impact on these consolidated financial statements if the
authorities were successful in enforcing their interpretations
could be significant.
28.5 Environmental matters
The Group's operations are in the upstream oil and gas industry
in the Russian Federation and its activities may have an impact on
the environment. The enforcement of environmental regulations in
the Russian Federation is evolving and the enforcement stance of
government authorities is continually being reconsidered. The Group
periodically evaluates its obligations related thereto. The outcome
of environmental liabilities under proposed or future legislation,
or as a result of stricter interpretation and enforcement of
existing legislation, cannot reasonably be estimated at present,
but could be material.
Under the current levels of enforcement of existing legislation,
management believes there are no significant liabilities in
addition to amounts already accrued as a part of the
decommissioning provision and which would have a material adverse
effect on the financial position or results of the Group.
29 . Related party transactions
Note 1.1 provides information about the Group's structure,
including details of the subsidiaries and the holding company. The
following table provides the total amount of transactions that have
been entered into with related parties for the relevant financial
year.
31 December 31 December
2020 2019
------------ ------------
Borrowings from shareholder, who has significant
influence
over the Group
ARA Capital Holdings Limited 664,881 -
------------ ------------
Total borrowings 664,881 -
============ ============
Trade and other receivables from related parties are presented
as follows:
31 December 31 December
2020 2019
------------ ------------
Operations with companies under the control
of
a shareholder with significant influence
Artamira LLC 18,117 -
Chalyk-Nafta LLC 21 -
Saratov Geoneft LLC 20 -
Neftepoisk LLC 20 -
Engels Nafta LLC 20 -
------------ ------------
Total trade and other receivables 18,198 -
============ ============
The income items for transactions with related parties for the
year ended 31 December 2020 and 31 December 2019 are presented
below:
2020 2019
------ -----
Operations with companies under the control
of a shareholder with significant influence
Artamira LLC (Management and operational
services) 9,740 -
Chalyk-Nafta LLC (Management services) 18 -
Saratov Geoneft LLC (Management services) 17 -
Neftepoisk LLC ( M anagement services) 17 -
Engels Nafta LLC (Management services) 17 -
------ -----
Total income items 9,809 -
====== =====
Key management comprises members of the Board of Directors.
The remuneration of key management comprised of salary and
bonuses in the amount 9,588 (2019: 8,613).
3 0 . Events after the reporting date
In June 2021 the Group concluded an amendment to the loan
agreement with ARA Capital Holdings Limited, a shareholder and
related party, who has significant influence over the Company. The
amendment extended the final repayment date to 30 September 2021
and increased the maximum principal amount of the Loan to USD 19
million. The amendment to the loan agreement also stated that in
the event the Loan is not repaid by 30 September 2021 or not
subject to a further extension by mutual agreement, ARA Capital
Holdings will be entitled to request that the Loan (including
accrued interest) be converted into new ordinary shares in the
Company.
3 1 . Availability of annual report and financial statements and General Meeting
Copies of the Group's annual report and consolidated financial
statements will be sent to Registered Shareholders but may not be
sent to holders of Depositary Interests. The annual report and
financial statements will be available for inspection at the
Group's registered office and may also be viewed on the Group's
website at: www.zoltav.com. Notice of a General Meeting will be
sent to shareholders in due course.
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END
FR SEFFUUEFSEIM
(END) Dow Jones Newswires
June 30, 2021 02:00 ET (06:00 GMT)
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