Half-year Report

RNS Number : 1698S

Petroneft Resources PLC

29 September 2017

 



29 September 2017

2017 Interim Results

PetroNeft (AIM: PTR) an oil & gas exploration and production company operating in the Tomsk Oblast, Russian Federation, and 50% owner and operator of Licences 61 and 67 is pleased to report its results for the 6 months ended 30 June 2017.

Highlights

•      Gross production from Licence 61 in H1 2017 was 2,347 bopd (1,174 bopd net to PetroNeft).

•      Testing of S-375s well continuing

o  Inflow rate of 15 m3/day (94 bopd) achieved

o  Testing will continue for several weeks

o  Electric submersible pump to be installed

David Golder, Chairman of PetroNeft Resources plc, commented:

"The first part of the year has seen encouraging results so far from the S-375s well and testing is continuing.

We are also actively looking at business development opportunities and are in detailed discussions in relation to same. We will update shareholders on this at the appropriate time."

For further information, contact:

Dennis Francis, CEO, PetroNeft Resources plc	[phone]
Paul Dowling, CFO, PetroNeft Resources plc	[phone]
John Frain/Brian Garrahy, Davy (NOMAD and Joint Broker)	[phone]
Henry Fitzgerald-O'Connor, Canaccord Genuity Limited (Joint Broker)	[phone]
Joe Heron / Douglas Keatinge, Murray Consultants	[phone]

The information contained in this announcement has been reviewed and verified by Mr. Dennis Francis, Director and Chief Executive Officer of PetroNeft, for the purposes of the Guidance Note for Mining and Oil & Gas Companies issued by the London Stock Exchange in June 2009. Mr. Francis holds a B.S. Degree in Geophysical Engineering and a M.S. Degree in Geology from the Colorado School of Mines. He has also graduated from the Harvard University Program for Management Development. He is a member of the American Association of Petroleum Geologists and the Society of Exploration Geophysicists. He has over 40 years' experience in oil and gas exploration and development.

Forward Looking Statements

This report contains forward-looking statements. These statements relate to the Group's future prospects, developments and business strategies. Forward-looking statements are identified by their use of terms and phrases such as 'believe', 'could', 'envisage', 'potential', 'estimate', 'expect', 'may', 'will' or the negative of those, variations or comparable expressions, including references to assumptions.

The forward-looking statements in this report are based on current expectations and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by those statements. These forward-looking statements speak only as at the date of these financial statements.

Chairman's Statement

Dear Shareholder,

I am pleased to report on the activities of the Group for the six months to 30 June 2017 and provide an update on recent progress. 2017 to date has seen the drilling of the S-375 and S-375s delineation well at the Sibkrayevskoye oil field. While the result at the initial location was below expectations we are very satisfied with the result from the sidetracked location.

Production and Sales

Gross production at Licence 61 in the six months to 30 June 2017 averaged 2,347 bopd, a small decrease compared to the same period in 2016 (2,366 bopd). We sold 430,421 (gross) barrels of oil in the six months to 30 June 2017 (H1 2016: 421,714 bbls) and achieved an average Russian Domestic oil price of $32.07 (H1 2016: $20.56). The rise in price was partly offset by higher taxes and a stronger Rouble but did lead to additional operating cashflows for the Licence 61 joint venture.

Licence 61 Gross Production	H1 2017	Q2-2017	Q1-2017	H1 2016
Total gross production	424,812	200,208	224,604	430,693
Gross bopd	2,347	2,200	2,496	2,366
PetroNeft 50% share bopd	1,174	1,100	1,248	1,183

Sibkrayevskoye

In 2016 we sought to ascertain the full potential of Sibkrayevskoye through the drilling of a 10 km step out well, S-374. The well, which was a significant step out from the existing discovery, was drilled in July and August 2016 but unfortunately did not encounter commercial oil and was plugged and abandoned. The result led to the decision to drill an additional delineation well, S-375, in 2017.

The objective of the S-375 well was to determine the sand distribution and confirm the oil water contact at the southern edge of the field.  The well was drilled as a deviated well from the Pad 2 surface position to a targeted location 1.5 km to the south.  The wireline logs indicated there is about 4.8 m of net oil pay in the well with the top of the Jurassic J1 interval located at -2,346 m tvdss, which was on prognosis, and the oil-down-to confirmed at -2,357 m tvdss.

The well was then sidetracked (S-375s) from the surface casing to a location about 400 m north of the Pad 2 surface position.  The log and core evaluation of the primary Jurassic J1 reservoir indicates there is about 14.8 m of net oil pay and the top of the J1 interval is located at -2,334 m tvdss which is about 3 m high to prognosis.  The net pay is thicker than encountered at other wells drilled at the northern part of Sibkrayevskoye, which typically had about 10 m of net oil pay.  This increased reservoir thickness is encouraging. 

The S-375s well has been cased and cemented and testing is continuing. So far, we have achieved an inflow rate of 15 m3/day (94 bopd) of clean oil which is similar in character to the oil produced by the S-373 well. It is expected that testing will continue for several weeks and will also include the installation of an electric submersible pump to assess the full potential of the well.

The reserve estimate and Development Plan for the field will be updated with the S-375 and S-375s drilling results in the coming months in conjunction with our joint venture partner Oil India.  This data will help to shape our plans for drilling Sibkrayevskoye in 2018 and beyond.

Review of PetroNeft loss for the period

The loss for the period was US$1.6m (H1 2016: US$2.3m). The loss includes PetroNeft's share of the losses on the joint ventures relating to Licences 61 and 67 of US$2.2m and US$0.2m respectively (H1 2016: US$2.4m and US$0.2m). The loss relating to the Licence 61 joint venture is discussed in more detail below. Finance revenue of US$1.7m (H1 2016: US$1.6m) relates primarily to interest receivable on loans to the joint ventures.

PetroNeft Key Financial Metrics		Unaudited				Audited
		6 months ended 30 June 2017		6 months ended 30 June 2016		Year ended 31 December 2016
		US$'000		US$'000		US$'000
Continuing operations
Revenue		1,008		1,362		2,280
Cost of sales		(938)		(1,235)		(2,038)
Gross profit		70		127		242
Administrative expenses		(580)		(1,073)		(2,155)
Exchange gain on intra-Group loans		32		23		77
Operating loss		(478)		(923)		(1,836)
Share of joint venture's net loss - WorldAce Investments Limited		(2,219)		(2,408)		(5,721)
Share of joint venture's net loss - Russian BD Holdings B.V.		(184)		(173)		(288)
Finance revenue		1,710		1,596		3,248
Loss for the period for continuing operations before taxation		(1,171)		(1,908)		(4,597)
Income tax expense		(437)		(410)		(830)
Loss for the period		(1,608)		(2,318)		(5,427)

 

Licence 61 joint venture - WorldAce Group

The metrics below are an extraction from the financial statements of the WorldAce Group which demonstrate the performance of Licence 61:

		PetroNeft's share		PetroNeft'share		PetroNeft's share
		6 months ended 30 June 2017		6 months ended 30 June 2016		Year ended 31 December 2016
		US$'000		US$'000		US$'000
Continuing operations
Revenue		6,903		4,339		11,604
Cost of sales		(6,373)		(4,259)		(11,200)
Gross profit		530		80		404
Administrative expenses		(847)		(917)		(1,614)
Operating loss		(317)		(837)		(1,210)
Loss on disposal of oil and gas properties		-		-		(438)
Write-off of exploration and evaluation assets		(13)		-		(710)
Finance revenue		11		4		10
Finance costs		(1,900)		(1,575)		(3,373)
Loss for the period for continuing operations before taxation		(2,219)		(2,408)		(5,721)
Income tax		-		-		-
Loss for the period for continuing operations before taxation		(2,219)		(2,408)		(5,721)

WorldAce Analysis (PetroNeft's share)		50% of WorldAce
		6 months ended 30 June 2017		6 months ended 30 June 2016		Year ended 31 December 2016
		US$'000		US$'000
Revenue
Oil sales		6,897		4,335		11,594
Other sales		6		4		10
Total revenue		6,903		4,339		11,604
Cost of Sales
Mineral Extraction Tax		3,333		2,047		5,570
Pipeline tariff		872		820		1,948
Staff costs		494		402		818
Depreciation and amortisation		772		600		1,708
Other cost of sales		902		390		1,156
Total cost of sales		6,373		4,259		11,200

The detailed Income Statement and Balance Sheet of WorldAce Investments Limited is disclosed at note 8 to these condensed financial statements. Improved oil prices in H1 2017 have strengthened the margin in 2017 as compared to the same period last year.

In March 2017 Oil India agreed to provide 100% of the funding required to carry out the agreed work programme at Licence 61 in 2017 by way of a US$4 million shareholder loan to WorldAce.

Licence 67

We continue to consider all options in relation to this Licence with our joint venture partner Belgrave Naftogas (Arawak Energy). During 2015, we agreed an exploration programme for Licence 67 for the five years to 2020 with the Russian authorities; based on this, the first significant expenditure required will be in 2018. We view Licence 67 as having considerable long-term potential particularly at the Cheremshanskaya oil field.  

Finance

As reported at our recent AGM and previously, due to the delay in the development of Sibkrayevskoye, Company finances are significantly constrained.  Management have developed a number of potential solutions, which include potential farm down of Licence 67, debt finance or the acquisition of producing and non-producing assets in share for share type transactions.  We are currently in detailed discussions with counterparties in this regard and will update shareholders as appropriate. Further information is provided at Note 2.

Outlook

The first half of 2017 has yielded positive results from the S-375s well at Sibkrayevskoye and some improvement in oil price.  We will now work with our partner Oil India to update reserves and the Development Plan and confirm the route forward. We are in detailed discussions regarding growing the company through acquisitions and will update shareholders when appropriate to do so. 

David Golder

Non-Executive Chairman

 

Interim Condensed Consolidated Income Statement

For the 6 months ended 30 June 2017

			Unaudited				Audited
			6 months ended 30 June 2017		6 months ended 30 June 2016		Year ended 31 December 2016
	Note		US$		US$		US$
Continuing operations
Revenue			1,007,929		1,362,158		2,279,585
Cost of sales			(937,686)		(1,234,712)		(2,038,209)
Gross profit			70,243		127,446		241,376
Administrative expenses			(579,892)		(1,073,236)		(2,154,699)
Exchange gain on intra-Group loans			31,901		22,522		77,458
Operating loss			(477,748)		(923,268)		(1,835,865)
Share of joint venture's net loss - WorldAce Investments Limited	8		(2,218,754)		(2,407,781)		(5,721,232)
Share of joint venture's net loss - Russian BD Holdings B.V.	9		(184,674)		(172,677)		(288,198)
Finance revenue	5		1,710,060		1,595,944		3,247,876
Loss for the period for continuing operations before taxation			(1,171,116)		(1,907,782)		(4,597,419)
Income tax expense	6		(436,788)		(409,925)		(830,241)
Loss for the period attributable to equity holders of the Parent			(1,607,904)		(2,317,707)		(5,427,660)
Loss per share attributable to ordinary equity holders of the Parent
Basic and diluted - US dollar cent			(0.23)		(0.33)		(0.77)

Interim Condensed Consolidated Statement of Comprehensive Income

For the 6 months ended 30 June 2017

			Unaudited				Audited
			6 months ended 30 June 2017		6 months ended 30 June 2016		Year ended 31 December 2016
			US$				US$
Loss for the period attributable to equity holders of the Parent			(1,607,904)		(2,317,707)		(5,427,660)
Other comprehensive income to be reclassified to profit or loss in subsequent years:
Currency translation adjustments - subsidiaries			(19,620)		61,935		25,298
Share of joint ventures' other comprehensive income - foreign exchange translation differences			1,405,547		5,467,539		7,741,440
Total comprehensive (loss)/profit for the period attributable to equity holders of the Parent			(221,977)		3,211,767		2,339,078

Interim Condensed Consolidated Balance Sheet

As at 30 June 2017

			Unaudited		Audited
			30 June 2017		31 December 2016
	Note		US$		US$
Assets
Non-current Assets
Property, plant and equipment	7		116,717		143,466
Equity-accounted investment in joint ventures - WorldAce Investments Limited	8		-		-
Equity-accounted investment in joint ventures - Russian BD Holdings B.V.	9		-		-
Financial assets - loans and receivables	10		48,407,536		47,713,421
			48,524,253		47,856,887
Current Assets
Inventories	11		19,679		28,973
Trade and other receivables	12		825,267		1,143,904
Cash and cash equivalents	13		152,130		319,618
			997,076		1,492,495
Total Assets			49,521,329		49,349,382
Equity and Liabilities
Capital and Reserves
Called up share capital			9,429,182		9,429,182
Share premium account			140,912,898		140,912,898
Share-based payments reserve			6,796,540		6,796,540
Retained loss			(81,810,354)		(80,202,450)
Currency translation reserve			(29,732,483)		(31,118,410)
Other reserves			336,000		336,000
Equity attributable to equity holders of the Parent			45,931,783		46,153,760
Non-current Liabilities
Deferred tax liability			2,545,004		2,113,541
			2,545,004		2,113,541
Current Liabilities
Trade and other payables	14		1,044,542		1,082,081
			1,044,542		1,082,081
Total Liabilities			3,589,546		3,195,622
Total Equity and Liabilities			49,521,329		49,349,382

Interim Condensed Consolidated Statement of Changes in Equity

For the 6 months ended 30 June 2017

	Called up share capital		Share premium account		Share-based payment and other reserves		Currency translation reserve		Retained loss		Total
	US$		US$		US$		US$		US$		US$
At 1 January 2016	9,429,182		140,912,898		7,132,540		(38,885,148)		(74,774,790)		43,814,682
Loss for the year	-		-		-		-		(5,427,660)		(5,427,660)
Currency translation adjustments - subsidiaries	-		-		-		25,298		-		25,298
Share of joint ventures' other comprehensive income - foreign exchange translation differences	-		-		-		7,741,440		-		7,741,440
Total comprehensive profit for the year	-		-		-		7,766,738		(5,427,660)		2,339,078
At 31 December 2016	9,429,182		140,912,898		7,132,540		(31,118,410)		(80,202,450)		46,153,760
At 1 January 2017	9,429,182		140,912,898		7,132,540		(31,118,410)		(80,202,450)		46,153,760
Loss for the period	-		-		-		-		(1,607,904)		(1,607,904)
Currency translation adjustments - subsidiaries	-		-		-		(19,620)		-		(19,620)
Share of joint ventures' other comprehensive income - foreign exchange translation differences	-		-		-		1,405,547		-		1,405,547
Total comprehensive loss for the period	-		-		-		1,385,927		(1,607,904)		(221,977)
At 30 June 2017	9,429,182		140,912,898		7,132,540		(29,732,483)		(81,810,354)		45,931,783

Interim Condensed Consolidated Cash Flow Statement

For the 6 months ended 30 June 2017

		Unaudited				Audited
		6 months ended 30 June 2017		6 months ended 30 June 2016		Year ended 31 December 2016
		US$				US$
Operating activities
Loss before taxation		(1,171,116)		(1,907,782)		(4,597,419)
Adjustment to reconcile loss before tax to net cash flows
Non-cash
Depreciation		31,899		36,970		68,568
Share of loss in joint ventures		2,403,428		2,580,458		6,009,430
Finance revenue	5	(1,710,060)		(1,595,944)		(3,247,876)
Working capital adjustments
Decrease/(increase) in trade and other receivables		352,199		(322,891)		860,444
Decrease in inventories		9,295		24,626		25,330
(Decrease)/increase in trade and other payables		(83,173)		292,234		(59,474)
Income tax paid		(6,980)		(12,771)		(16,650)
Net cash flows used in operating activities		(174,508)		(905,100)		(957,647)
Investing activities
Loan facilities advanced to joint venture undertakings		-		-		(10,000)
Interest received		532		1,480		2,449
Net cash received from/(used in) investing activities		532		1,480		(7,551)
Net decrease in cash and cash equivalents		(173,976)		(903,620)		(965,198)
Translation adjustment		6,488		1,954		604
Cash and cash equivalents at the beginning of the period		319,618		1,284,212		1,284,212
Cash and cash equivalents at the end of the period	13	152,130		382,546		319,618

Notes to the Interim Condensed Consolidated Financial Statements

For the 6 months ended 30 June 2017

1.         Corporate Information

The interim condensed consolidated financial statements of the Group for the six months ended 30 June 2017 were authorised for issue in accordance with a resolution of the Directors on 28 September 2017.

PetroNeft Resources plc ('the Company', or together with its subsidiaries, 'the Group') is a Company incorporated in Ireland. The Company is listed on the Alternative Investment Market ('AIM') of the London Stock Exchange and the Enterprise Securities Market ('ESM') of the Irish Stock Exchange. The address of the registered office and the business address in Ireland is 20 Holles Street, Dublin 2. The Company is domiciled in the Republic of Ireland.

The principal activities of the Group are oil and gas exploration, development and production. 

2.         Going Concern

As described in the 2016 Annual Report PetroNeft is facing a potential funding shortfall in 2018 due to the delay in the commencement of the Sibkrayevskoye oil field development. The effect of this delay is to also delay the commencement of payments to PetroNeft of interest due to it under shareholder loan agreements with WorldAce.  The effect of this is that PetroNeft will require additional funding to meet its operating costs during the next 12 months.

The Group has analysed its cash flow requirements through to 31 December 2018 in detail. The cash flow includes estimates for a number of key variables including timing of cash flows of expenditure and management of working capital, and the Directors believe that the Group's cash flow forecasts represent the best estimate of the actual cash flows over the forecast period at the date of approval of the financial statements. The cash flow is stress tested to assess the adverse effect arising from reasonable changes in circumstance. The cash flow projections for the period to 31 December 2018 indicate a potential shortfall of funds by the end of quarter one in 2018.

The Company is currently in detailed confidential discussions pursuing several options in order to meet this potential shortfall. These include the potential sale or farmout of Licence 67, short term debt financing from a related corporate entity and the acquisition of producing and non-producing assets in share for share type transactions. The Board believe that the first two options can be completed in a short timeframe. In relation to the latter option, the Company has signed non-disclosure agreements and opened data rooms. The Board is also putting in place cost cutting measures, including significant salary cuts for the Board and management to minimise the potential shortfall. As there are delaying factors, including regulatory requirements, around transferring licences and in a share for share type transaction, the timeframe to close such a successful transaction could be at least six months following binding agreement between the parties. The Board is confident that one of these options will bring a solution.

The successful development of S-375 and the potential shortfall in funds represent material uncertainties that may cast significant doubt upon the Group and the Company's ability to continue as a going concern. Nevertheless, after making enquiries, and considering the uncertainties described above, the Directors are confident that the Group and the Company will have adequate resources to continue in operational existence for the foreseeable future. For these reasons, they continue to adopt the going concern basis in preparing the annual report and accounts.

Accordingly, these financial statements do not include any adjustments to the carrying amount or classification of assets and liabilities that would result if the Group or Company was unable to continue as a going concern.

 3.        Accounting Policies

3.1       Basis of Preparation

The interim condensed consolidated financial statements for the six months ended 30 June 2017 have been prepared in accordance with IAS 34 Interim Financial Reporting.

The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial statements as at 31 December 2016 which are available on the Group's website - www.petroneft.com.

The interim condensed consolidated financial statements are presented in US dollars ("US$").

3.2       Significant Accounting Policies

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2016.

4.         Segment information

At present the Group has one reportable operating segment, which is oil exploration and production through its joint venture undertakings. As a result, there are no further disclosures required in respect of the Group's reporting segment.

The risk and returns of the Group's operations are primarily determined by the nature of the activities that the Group engages in, rather than the geographical location of these operations.  This is reflected by the Group's organisational structure and the Group's internal financial reporting systems.

Management monitors and evaluates the operating results for the purpose of making decisions consistently with how it determines operating profit or loss in the consolidated financial statements.

Geographical segments

Although the joint venture undertakings WorldAce Investments Limited and Russian BD Holdings B.V. are domiciled in Cyprus and the Netherlands, the underlying businesses and assets are in Russia. Substantially all of the Group's sales and capital expenditures are in Russia.

Assets are allocated based on where the assets are located:

				Unaudited		Audited
				30 June 2017		31 December 2016
	Non-current assets			US$		US$
	Russia			48,522,473		47,854,604
	Ireland			1,780		2,283
				48,524,253		47,856,887

5.	Finance revenue		Unaudited				Audited
			6 months ended 30 June 2017		6 months ended 30 June 2016		Year ended 31 December 2016
			US$		US$		US$
	Bank interest receivable		532		1,480		2,449
	Interest receivable on loans to Joint Ventures		1,709,528		1,594,464		3,245,427
			1,710,060		1,595,944		3,247,876

6.	Income tax
			Unaudited						Audited
			6 months ended 30 June 2017			6 months ended 30 June 2016			Year ended 31 December 2016
			US$			US$			US$
	Current income tax
	Current income tax charge		5,398			2,968			3,078
	Total current income tax		5,398			2,968			3,078
	Deferred tax
	Relating to origination and reversal of temporary differences			431,390			406,957		827,163
	Total deferred tax		431,390			406,957			827,163
	Income tax expense reported in the Consolidated Income Statement			436,788			409,925		830,241

7.	Property, Plant and Equipment
	Group			Plant and machinery
				US$
	Cost
	At 1 January 2016			800,400
	Translation adjustment			145,468
	At 1 January 2017			945,868
	Translation adjustment			26,556
	At 30 June 2017			972,424
	Depreciation
	At 1 January 2016			618,697
	Charge for the year			68,568
	Translation adjustment			115,137
	At 1 January 2017			802,402
	Charge for the period			31,899
	Translation adjustment			21,406
	At 30 June 2017			855,707
	Net book values
	At 30 June 2017			116,717
	At 31 December 2016			143,466

8.          Equity-accounted Investment in Joint Venture - WorldAce Investments Limited

PetroNeft Resources plc has a 50% interest in WorldAce Investments Limited, a jointly controlled entity which holds 100% of LLC Stimul-T, an entity involved in oil and gas exploration and the registered holder of Licence 61. The interest in this joint venture is accounted for using the equity accounting method. WorldAce Investments Limited is incorporated in Cyprus and carries out its activities, through LLC Stimul-T, in Russia.

				Share of net assets
				US$
	At 1 January 2016			-
	Elimination of unrealised profit on intra-Group transactions			(157,876)
	Retained loss			(5,721,232)
	Translation adjustment			7,149,140
	Debited to loans receivable from WorldAce Investments Limited (Note 10)			(1,270,032)
	At 1 January 2017			-
	Elimination of unrealised loss on intra-Group transactions			(17,532)
	Retained loss			(2,218,754)
	Translation adjustment			1,296,301
	Credited against loans receivable from WorldAce Investments Limited (Note 10)			939,985
	At 30 June 2017			-

8.          Equity-accounted Investment in Joint Venture - WorldAce Investments Limited (continued)

The balance sheet position of WorldAce Investments Limited shows net liabilities of US$27,759,908 following a loss in the period of US$4,437,507 together with a positive currency translation adjustment of US$2,592,601. PetroNeft's 50% share is included above and results in a negative carrying value of US$9,186,571. Therefore, the share of net assets is reduced to Nil and, in accordance with IAS 28 Investments in Associates and Joint Ventures, the amount of US$9,186,571 is deducted from other assets associated with the joint venture on the Balance Sheet which are the loans receivable from WorldAce Investments (see Note 10).

Additional financial information in respect of PetroNeft's 50% interest in the equity-accounted joint venture entity is disclosed below:

		Unaudited				Audited
		6 months ended 30 June 2017		6 months ended 30 June 2016		Year ended 31 December 2016
		US$		US$		US$
	Continuing operations
	Revenue	6,903,472		4,339,111		11,604,182
	Cost of sales	(6,373,066)		(4,259,206)		(11,199,845)
	Gross profit	530,406		79,905		404,337
	Administrative expenses	(847,477)		(916,886)		(1,614,435)
	Impairment of oil and gas properties	-		-		-
	Operating loss	(317,071)		(836,981)		(1,210,098)
	Loss on disposal of oil and gas properties	-		-		(438,034)
	Write-off of exploration and evaluation assets	(13,051)		-		(710,047)
	Finance revenue	11,142		3,475		9,421
	Finance costs	(1,899,774)		(1,574,275)		(3,372,474)
	Loss for the period for continuing operations before taxation	(2,218,754)		(2,407,781)		(5,721,232)
	Income tax expense	-		-		-
	Loss for the period	(2,218,754)		(2,407,781)		(5,721,232)
	Loss for the period	(2,218,754)		(2,407,781)		(5,721,232)
	Other comprehensive income to be reclassified to profit or loss in subsequent years:
	Currency translation adjustments	1,296,301		5,042,837		7,149,140
	Total comprehensive (loss)/profit for the period	(922,453)		2,635,056		1,427,908

The currency translation adjustment results from the revaluation of the Russian Rouble during the period. All Russian Rouble carrying values in Stimul-T, the 100% subsidiary of WorldAce are converted to US Dollars at each period end. The resulting gain or loss is recognised through other comprehensive income and transferred to the currency translation reserve. The Russian Rouble appreciated slightly against the US Dollar during the period from RUB61.00:US$1 at 31 December 2016 to RUB59.74:US$1 at 30 June 2017.

8.          Equity-accounted Investment in Joint Venture - WorldAce Investments Limited (continued)

		Unaudited		Audited
		30 June 2017		31 December 2016
		US$		US$
	Non-current Assets
	Oil and gas properties	38,872,902		37,945,273
	Property, plant and equipment	193,258		199,338
	Exploration and evaluation assets	7,906,187		7,556,920
	Assets under construction	1,344,426		932,631
		48,316,773		46,634,162
	Current Assets
	Inventories	455,405		536,685
	Trade and other receivables	275,942		176,318
	Cash and cash equivalents	132,292		40,415
		863,639		753,418
	Total Assets	49,180,412		47,387,580
	Non-current Liabilities
	Provisions	(485,039)		(433,573)
	Interest-bearing loans and borrowings	(60,147,497)		(56,686,519)
		(60,632,536)		(57,120,092)
	Current Liabilities
	Trade and other payables	(2,427,830)		(3,224,989)
		(2,427,830)		(3,224,989)
	Total Liabilities	(63,060,366)		(60,345,081)
	Net liabilities	(13,879,954)		(12,957,501)

9.         Equity-accounted Investment in Joint Venture - Russian BD Holdings B.V.

PetroNeft Resources plc has a 50% interest in Russian BD Holdings B.V., a jointly controlled entity which holds 100% of LLC Lineynoye, an entity involved in oil and gas exploration and the registered holder of Licence 67. The interest in this joint venture is accounted for using the equity accounting method. Russian BD Holdings B.V. is incorporated in the Netherlands and carries out its activities, through LLC Lineynoye, in Russia.

				Share of net assets
				US$
	At 1 January 2016			-
	Retained loss			(288,198)
	Translation adjustment			592,300
	Debited against loans receivable from Russian BD Holdings BV (Note 10)			(304,102)
	At 1 January 2017			-
	Retained loss			(184,674)
	Translation adjustment			109,246
	Credited against loans receivable from Russian BD Holdings BV (Note 10)			75,428
	At 30 June 2017			-

The balance sheet position of Russian BD Holdings B.V. shows net liabilities of US$1,216,232 following a loss in the year of US$369,348 together with a currency translation adjustment (gain) of US$218,492. PetroNeft's 50% share is included above and results in a negative carrying value of US$608,116. Therefore, the share of net assets is reduced to Nil and, in accordance with IAS 28 Investments in Associates and Joint Ventures, the amount of US$608,116 is deducted from other assets associated with the joint venture on the Balance Sheet which are the loans receivable from Russian BD Holdings B.V. (Note 10).

9.         Equity-accounted Investment in Joint Venture - Russian BD Holdings B.V. (continued)

Additional financial information in respect of PetroNeft's 50% interest in the equity-accounted joint venture entity is disclosed below:

		Unaudited				Audited
		6 months ended 30 June 2017		6 months ended 30 June 2016		Year ended 31 December 2016
		US$		US$		US$
	Revenue	-		-		-
	Cost of sales	-		-		-
	Gross profit	-		-		-
	Administrative expenses	(45,987)		(56,435)		(66,718)
	Operating loss	(45,987)		(56,435)		(66,718)
	Finance revenue	228		204		294
	Finance costs	(138,915)		(116,446)		(239,079)
	Loss for the period for continuing operations before taxation	(184,674)		(172,677)		(305,503)
	Taxation	-		-		17,305
	Loss for the period	(184,674)		(172,677)		(288,198)
	Loss for the period	(184,674)		(172,677)		(288,198)
	Other comprehensive income to be reclassified to profit or loss in subsequent years:
	Currency translation adjustments	109,246		424,702		592,300
	Total comprehensive (loss)/ profit for the period	(75,428)		252,025		304,102

			Unaudited		Audited
			30 June 2017		31 December 2016
			US$		US$
	Non-current assets		4,230,634		4,069,104
	Current assets		15,462		198,788
	Total assets		4,246,096		4,267,892
	Non-current liabilities		(4,651,703)		(4,512,667)
	Current liabilities		(202,509)		(287,913)
	Total liabilities		(4,854,212)		(4,800,580)
	Net liabilities		(608,116)		(532,688)

10.	Financial assets - loans and receivables
				Unaudited			Audited
	Group			30 June 2017			31 December 2016
				US$			US$
	Loans to WorldAce Investments Limited (Note 15)				53,814,552			52,235,829
	Less: share of WorldAce Investments Limited loss (Note 8)				(9,186,571)			(8,246,586)
				44,627,981			43,989,243
	Loans to Russian BD Holdings B.V. (Note 15)				4,387,671			4,256,866
	Less: share of Russian BD Holdings B.V. loss (Note 9)				(608,116)			(532,688)
				3,779,555			3,724,178
				48,407,536			47,713,421

The Company has granted a loan facility to its joint venture undertaking WorldAce Investments Limited of up to US$45 million. This loan facility is US$ denominated and unsecured. Interest currently accrues on the loan at USD LIBOR plus 6.0% but the Company has agreed not to seek payment of interest until 2018 at the earliest. The loan is set to mature on 31 December 2022. As at 30 June 2017 the loan was fully drawn down. The loan from the Company to Russian BD Holdings is repayable on demand. Interest currently accrues on the loan at LIBOR plus 5.0% per annum.

11.	Inventories			Unaudited		Audited
				30 June 2017		31 December 2016
				US$		US$
	Materials			19,679		28,973
				19,679		28,973

12.	Trade and other receivables		Unaudited		Audited
			30 June 2017		31 December 2016
			US$		US$
	Other receivables		25,232		155,651
	Receivable from jointly controlled entity (Note 15)		745,539		920,390
	Advances to contractors		2,437		8,047
	Prepayments		52,059		59,816
			825,267		1,143,904

              Other receivables are non-interest-bearing and are normally settled on 60-day terms.

 

13.	Cash and Cash Equivalents
				Unaudited		Audited
	Group			30 June 2017		31 December 2016
				US$		US$
	Cash at bank and in hand			152,130		319,618
				152,130		319,618

              Bank deposits earn interest at floating rates based on daily deposit rates. Short-term deposits are made for varying periods of between one day and one month depending on the immediate cash requirements of the Group, and earn interest at the respective short-term deposit rates.

14.	Trade and other payables
				Unaudited		Audited
				30 June 2017		31 December 2016
				US$		US$
	Trade payables			292,269		337,208
	Trade payables to jointly controlled entity (Note 15)			231,078		108,338
	Corporation tax			55,816		55,750
	Oil taxes, VAT and employee taxes			58,602		56,165
	Other payables			116,293		318,074
	Accruals			290,484		206,546
				1,044,542		1,082,081

              The Directors consider that the carrying amount of trade and other payables approximates their fair value.

              Trade and other payables are non-interest-bearing and are normally settled on 60-day terms.

              Trade payables and accruals principally comprise amounts outstanding for trade purchases and ongoing costs.

15.        Related party disclosures

Transactions with subsidiaries

Transactions between the Group and its subsidiaries, Granite and Dolomite, have been eliminated on consolidation.

Transactions with joint ventures

PetroNeft Resources plc had the following transactions with its joint ventures during the six months ended 30 June 2017 and year ended 31 December 2016:

	Group	Russian BD Holdings BV Group		WorldAce Investments Limited Group
		US$		US$
	Receivable by PetroNeft Group at 1 January 2016	3,389,708		40,883,592
	Advanced during the year	10,000		-
	Transactions during the year	159,260		2,622,188
	Interest accrued in the year	234,402		3,011,025
	Payments for services made during the year	(10,821)		(3,426,007)
	Share of joint venture's translation adjustment	304,102		1,270,032
	Translation adjustment	(5,769)		83,761
	At 1 January 2017	4,080,882		44,444,591
	Advanced during the period	-		-
	Transactions during the period	66,883		1,073,548
	Interest accrued in the period	130,805		1,578,723
	Payment for services made during the period	(160,472)		(1,300,206)
	Share of joint venture's translation adjustment	(75,428)		(939,985)
	Translation adjustment	18,392		4,269
	At 30 June 2017	4,061,062		44,860,940
	Balance at 31 December 2016 comprised of:
	Loan facility advanced	3,724,178		43,989,243
	Trade and other receivables	356,704		563,686
	Trade Payables	-		(108,338)
		4,080,882		44,444,591
	Balance at 30 June 2017 comprised of:
	Loans receivable	3,779,555		44,627,981
	Trade and other receivables	281,502		464,037
	Trade and other payables	-		(231,078)
		4,061,057		44,860,940

 

END

 

 

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