Cadogan Regulatory News (CAD)

CADOGAN PETROLEUM PLC - Annual Financial Report

PR Newswire

London, April 21

CADOGAN PETROLEUM PLC

ANNUAL FINANCIAL REPORT

2015

OVERVIEW

Summary of 2015

Key highlights of 2015:

LTI/TRI1: 0/0 (2014: 0/0)

Greenhouse gases emissions: 1,295 tonnes CO2 equiv. (2014: 1,620)

Production: 39,680 boe (2014: 39,834 boe)

Realised price at year end: 35.7$/boe (2014: 60.5$/boe)

Gross revenues2: $75.4 million (2014: $32.6 million)

Gross profit: $5.9 million (2014 : $2.8 million)

Loss for the year: $23.3 million (2014: $59.3 million)

Cash and cash equivalent at 31 December 2015 increased by $0.5 million to $49.43million (2014: decreased by $7.6 million to $48.9 million)

Net cash, which included cash and cash equivalents less short-term borrowings, increased to $36.5 million at 31 December 2015 compared to $31.6 million at 31 December 2014.

1LTI Lost Time Incidents; TRI: Total Recordable Incidents

2Gross revenues of $75.4 million (2014: $32.6 million) included $73.3 million (2014: $29.4 million) from trading of natural gas, $1.8 million (2014: $2.4 million) from exploration and production and $0.4 million (2014: $0.8 million) from service

3Excluding $0.9 million (2014: $0.5 million) of Cadogan’s share of cash and cash equivalents in joint ventures

Group Overview

The Group has continued to maintain exploration and production assets in Ukraine, to conduct trading operations, which include the importing of gas from Slovakia and Poland and local purchasing and sales with physical delivery of natural gas, and to operate a service business which includes work-over, civil works services, assistance in obtaining legal permits and other services provided to E&P companies.

The Group’s assets are located in both of the proven hydrocarbon basins in on-shore Ukraine, the Dnieper-Donets basin and the Carpathian basin.

The Group commissioned to an independent third party the assessment of the Reserves and Resources as of 31 December 2015. The evaluation was done according to the SPE “Guidelines for Application of the Petroleum Resources Management System” (PRMS).

The summary of the Group’s Reserves and Resources in the nine licences is reported in the table in page 16.

Borynya and Bitlyanska fields

The Bitlyanska exploration and development licence covers an area of 390 square kilometres, tectonically belonging to the Krosno zone of the folded Carpathians and includes the Borynya, Bitlyanska and Vovchenska structures. It holds Probable and Possible reserves; as well as Contingent and Prospective resources.

Borynya 3 well was re-entered and tested Krosno 1 interval with promising results in 2013. The well is monitored, routinely bled-off, fluid samples extracted, measured and kept on hold for an eventual fracturing job and possible re-entry to the deeper intervals.

Monastyretska field

The Monastyretska licence covers an area of 25.9 square kilometres, located in the Carpathian fold belt (Skuba unit) in Western Ukraine. It includes three structures, one of which is regularly producing oil. It holds Proved, Probable and Possible reserves; as well as Contingent and Prospective resources.

Pokrovskoe field

The Pokrovska licence area covers 49.5 square kilometres and is located in the Dnieper-Donets basin. It holds contingent resources in the Visean and prospective resources in the Permian. Facilities in the Pokrovska area are approximately 10 kilometres away from the UkrTransGas system. The licence will expire on 10 August 2016. The work programme obligation for the licence has been fulfilled.

Zagoryanska field

The Zagoryanska licence expired on 24 April 2014, and covered an area of 49.6 square kilometres located in the Dnieper-Donets basin, with gas being discovered in the Visean and Turnesian reservoirs.

Cadogan alone, as Eni had no interest, has requested via one of its subsidiaries a 20 years production licence covering an area of 34 square kilometres as ENI had no interest to enter into the production phase. All assets on the Group’s Balance Sheet related to this licence were impaired in full in 2013.

Pirkovskoe field

The Pirkovska licence expired on 19 October 2015, and covered an area of 71.6 square kilometres, adjacent to the Group’s Zagoryanska licence. 

It holds contingent resources in the Turnesian and in the Visean; and prospective resources in the Permian.

Cadogan owns the Krasnozayarska gas treatment plant in the Pirkovska licence area which is connected to the UkrTransGas system. The plant is presently under conservation. Cadogan has requested a 20 years production licence. All E&E assets on the Group’s Balance Sheet related to this licence have been impaired in full.

Minor fields

Cadogan owns three exploration, development and production licences either directly or through subsidiaries and joint ventures in other minor fields, of which two are currently in commercial production (Debeslavetska and Cheremkhivska) and one (Slobodo-Rungurska) has no activity ongoing.

Shale gas

In addition to the above licences the Group has a 15% interest in Westgasinvest LLC (“WGI”), which holds the Reklynetska, Zhuzhelianska, Cheremkhivsko-Strupkivska, Debeslavetska Exploration, Debeslavetska Production, Baulinska, Filimonivska, Kurinna, Sandugeyivska and Yakovlivska licences for unconventional activities.

STRATEGIC REPORT

The Strategic Report has been prepared in accordance with Section 414A of the Companies Act 2006 (the “Act”). Its purpose is to inform members of the Company and help them assess how the Directors have performed their legal duty under Section 172 of the Act to promote the success of the Company.

Our business model

We aim to increase value through:

Sourcing additional E&P assets to diversify Cadogan’s portfolio both geographically and operationally; we will pursue exploration and/or near term development assets with significant upside as well as producing assets to cover G&A and provide free cash flow for exploration activities

Pursuing farm-out to contain investments in Ukraine

Maintaining sufficient capital base, complementingE&P cash flow withrevenues from gas trading and oil services businesses

Principal activity and status of the Company

The Company is registered as a public limited company (registration number 05718406) in England and Wales. Its principal activity is oil and gas exploration, development and production and gas trading.

The Company’s shares have a standard listing on the Official List of the UK Listing Authority and are traded on the main market of the London Stock Exchange.

Chairman’s Statement

Though the events of the Euromaidan Revolution are now more than two years behind us, the full extent of the political and economic repercussions have yet to be felt. Ukraine has still not entered a period of real stability and its political leadership is struggling to utilize the broad mandate it was granted to implement the types of changes and reforms most of the citizens expect. 

Within the context of corruption-related scandals and a high-profile cabinet member resignation, implementation of the reform program put forth by the European Community, the United States and financial institutions such as the International Monetary Fund and the European Bank for Reconstruction and Development has been delayed. These delays, coupled with the unresolved tensions with Russia surrounding the annexation of Crimea and ongoing confrontations in eastern Ukraine, have only served to add to the short-term uncertainty plaguing the country.

This unstable environment has led to a further devaluation of the local currency. In the oil and gas sector, delays in the renewal and approval process for licences as well as the extension of the ”temporary” punitive 70% subsoil use tax regime for the remainder of the year, have created additional challenges. For Cadogan, this has translated into a severe cash drain from the E&P gross revenues derived from gas; a reduction of the USD value of its non-current assets accounted in local currency; and the impairment of the Pirkovska licence’s book value as a result of delayed responses to the company’s application for converting this exploration licence into a 20-year production licence.

On a more positive note, some reforms have in fact been initiated and the unwinding of the post-Soviet regulatory system is well on its way. The country has started the adoption of the Third European Energy Package; while its implementation is currently in progress, some delays might be expected due to ongoing discussions on the unbundling model for Naftogaz. Significant progress has also been made in diversifying the supply of imported gas thanks to the implementation of reverse flow from Europe.

Despite the challenging business climate, Cadogan has performed well. Production has been maintained at similar levels to the previous year, CO2 emissions have been reduced, traded volumes of gas have been significantly increased and efforts to streamline and contain costs have turned the company into a cash neutral position, or actually, slightly cash positive. This is a remarkable achievement given the combination of adverse factors -- including the reduction of the oil and gas prices -- which have created havoc for many of Cadogan’s peers. 

Notwithstanding the positive results achieved by Cadogan and its Management, there remains a compelling need to diversify its portfolio geographically. This drive to diversify is one of the cornerstones of the new strategy that was approved by the Board in the second half of the year. Management is pursuing opportunities to diversify while building a more robust production base. With its solid balance sheet, low cost operations, proven resilience to a low price environment and the international experience of its leadership team, Cadogan is poised to leverage its strengths and take advantage of the very real opportunities that lie ahead.

Zev Furst

Non-executive Chairman

25 April 2016

Chief Executive’s Review

2015 has been another challenging year for the oil and gas industry and for Ukraine. Cadogan has weathered the storm by continuing with its cost reduction initiatives, by applying strict discipline to all spending and by reducing the working capital. The result is that cash has been preserved and is available to be used to capture the opportunities that will materialize in a distressed market.

Key developments during the year:

G&A have been further reduced by decreasing the head count, replacing expatriates with Ukrainian nationals and moving Kiev office to smaller, cheaper premises still located in the city centre. Current G&A on annualized basis are 13% lower than what they were in 2014

Work-over on gas wells and production optimization on the oil well allowed Cadogan to meet the production budget notwithstanding a 4 month delay in the renewal of the Monastyretska licence

Applications have been filed to convert Pirkovska from exploration licence into 20 year production licence

Volumes of traded gas have more than tripled over the previous year as a result of broadening both the supplier and the client base

Gross profits, before G&A and taxes, have more than doubled, from $2.8 million in 2014 to $5.9 million this year

Cash and cash equivalents at year-end total $49.4 million (2014: $48.9 million), excluding $0.9 million (2014: $0.5 million) of Cadogan’s share of cash and cash equivalents in joint ventures.. Net cash, which included cash and cash equivalents mostly denominated in USD net of short-term borrowings denominated in UAH, increased to $36.5.

Throughout 2015 Cadogan has protected shareholder value, increased its resilience to a low price environment and has made a step towards becoming more integrated along the business chain by further developing the gas trading business. Its low cost basis combined with the revenues generated by the trading and service businesses have helped preserve the cash that will be used to fuel a strategy of growth and geographic diversification.

I consider this as a positive result given the unfavourable scenario in which Cadogan has operated.

2015 has not been a turning point for both Ukraine and the oil industry. Whilst military confrontation in the East of the country has receded, the country has remained embroiled in a political and economic crisis. Besides, the subsoil use tax has remained enforced at a punitive 70% rate throughout the year despite the anticipation that it would be revoked. Oil and gas prices have continued to fall and this has posed an unprecedented level of strain on all key players, sometime challenging the very business model on which the oil and industry has prospered over the last decade.

In such an extremely challenging context, Cadogan has focused on protecting shareholders’ value by pursing cash neutrality acting on three levers: cost efficient production of its proved reserves, relentless pursuit of all possible cost savings initiatives combined with strict discipline in spending, and gas trading.

All these initiatives successfully brought Cadogan to be slightly cash generative; they have also made Cadogan stronger than most of its peers and well equipped to pursue its strategy of growth and asset diversification in the current challenging context.

Core Operations

Core operations have concentrated on safely and cost efficiently managing the producing assets while taking all necessary actions to preserve the portfolio of licences. Applications for the conversion of Zagoryanska and Pirkovska exploration licences into 20-year production licences have been filed and the outcome of the applications is expected in the first half of 2016. As the award of Pirkovska licence was not received at the time of issuing this report, respective E&E assets were impaired.

A revision of the reserves and resources was requested to a third party to update previous evaluation in light of the recent developments, including the internal prospect generation work of the previous year; its results are encouraging as they have identified volumes of 3P reserves and 2C resources larger than anticipated.

Work-overs on Debeslavetska and production optimization on Monastyretska fields have allowed Cadogan to meet the production budget notwithstanding a four months’ delay in the award of the licence. This remarkable achievement has been somewhat down-played by the subsoil use tax, which has been maintained at 70% throughout the year; higher taxes and lower prices have prevented Cadogan from meeting its production revenue budget.

Opportunities to grow and diversify the portfolio have been pursued in the second part of the year, but none of them has been finalized primarily because of a value gap between market and sellers` expectations; additionally, many potentially interesting opportunities are with companies with heavy debt burden.

Last, but not the least, all activities have been conducted with the utmost attention to safety and environmental protection. No accidents or spills have occurred during 2015 and LTI stands at a remarkable zero since July 23rd 2011 (over 2.2 million worked hours). All Cadogan staff and management deserve to be commended for this outstanding achievement.

Non-E&P Operations

The service business has been penalized by the oil and gas industry crisis in Ukraine, with companies cancelling or deferring the execution of works. While this has negatively impacted 2015 revenues, there are reasonable expectations that some of the work deferred will be executed in 2016.

In 2015 trading business segment generated $73.3 million of revenues and $4.6 million of gross profit. Trading margins have remained healthy through the year, but are expected to be eroded by new legislation, which requires sellers to store 50% of the gas sold to final consumers and to provide financial guarantee for 20% of the traded volumes, as well as by increased competition, with more traders interested in entering the Ukrainian market. We intend to balance this erosion of margins by broadening our client base and leveraging on the competitive advantage of being one of the first companies to have used the reverse flow opportunity to import gas in Ukraine.

Outlook

The management team is of the firm opinion that Cadogan is well positioned to succeed in the current challenging context as it has:

a strong balance sheet, with nearly $50 million of cash, including $20 million of restricted cashpledged for credit line used for trading1;

a low cost operation model which can be replicated both in and outside of Ukraine;

non E&P activities whose net revenues nearly balance the G&A, thus allowing Cadogan to manage this transitional period without burning cash.

1 $12.9 million of the credit line was outstanding as at 31 December 2015 (2014: $17.3 million)

While Ukraine remains the country where Cadogan is rooted, a geographic diversification of the portfolio will be an objective while pursuing value growth. In support of this strategy Cadogan has entered into Technical Service Agreements with reputable consultancy firms to strengthen and broaden its pool of competences.

Guido Michelotti

Chief Executive Officer

Operations Review

25 April 2016 In 2015 the Group held working interests in seven conventional (2014: nine) gas, condensate and oil exploration and production licences in the east and west of Ukraine. All these assets are operated by the Group and are located in either the Carpathian basin or the Dnieper-Donets basin, in close proximity to the Ukrainian gas distribution infrastructures. The Zagoryanska and Pirkovska licences expired and the process to have the licences re-awarded is ongoing.

E&D = Exploration and Development.

Debeslavetska and Cheremkhivska licences are held by WGI, in which the Group has a 15% interest. The Group has 99.2% and 53.4% of economic benefit in conventional activities in Debeslavetska and Cheremkhivska licences respectively through Joint Activity Agreements (“JAA”).

The application for the award of a 20 year production licence has been filed. Though the Group has fulfilled the legal obligations and requirements and applied for the licence before the expiration date delays are expected because of recently introduced changes to the awarding process.

The application for the award of a 20 year production licence has been filed by a wholly owned Cadogan subsidiary as eni was not interested

The licence expired on 11 April 2016

In addition to the above licences the Group has a 15 per cent interest in Westgasinvest LLC (“WGI”), which holds the Reklynetska, Zhuzhelianska, Cheremkhivska, Debeslavetska Exploration, Debeslavetska Production, Baulinska, Filimonivska, Kurinna, Sandugeyivska and Yakovlivska licences for unconventional activities.

Late in the year Cadogan engaged Brend Vik, one of the major Ukrainian G&G consultants, to update its reserves and resources in lights of the developments occurred since the last evaluation of 2009. Brend Vik has recently completed its evaluation and the results are presented on page 17.

In general, 3P reserves and 2C resources increased if compared to in-house evaluation, while the perspective resources decreased. In particular, the Permian and Upper Carboniferous intervals in Pokrovskoe and Pirkovskoe, well identifiable by seismic analysis, were not considered adequately correlated with existing log and wells’ data; supplementary data collection is required from future wells’ re-entry and drilling in order to move these potential volumes back to the prospective status.

Bitlyanska licence area

The Group holds a 99.8 per cent working interest in the Bitlyanska exploration and development licence. The Bitlyanska licence covers an area of 390 square kilometres. Bitlyanska, Borynya and Vovchenska are three hydrocarbon discoveries in this licence area. 

Borynya 3 well, during monitoring and routine bleed-off always flows methane shows.

Monastyretska licence area

The Group holds a 99.2 per cent working interest in Monastyretska licence. A new exploration and development period was granted up to November 2019. The licence has been regularly producing oil at a rate of 48boepd. Evaluation of a re-entry and stimulation of two existing wells is ongoing.

Pokrovska licence

The Group holds a 70 per cent working interest in the Pokrovska exploration and development licence. The Pokrovska licence area covers 49.5 square kilometres.

The licence will expire on 10 August 2016 and Cadogan is preparing to eventually file an application for the award of a new licence.

Zagoryanska licence (expired)

The Zagoryanska licence expired in April 2014. Cadogan, via its subsidiary LLC Zagvydobuvannya, requested the awarding of a 20 years’ production licence, which licence area covers 34 square kilometres. The Ministry of Ecology issued the approval and the process was at the level of the regional authorities, before the final approval. The process has been delayed because of the recent introduction of a new law which re-allocates the authority amongst the involved state entities. The plug and abandonment of wells has started and the activity is being conducted by one of Cadogan’s subsidiaries (Astro-Service LLC) and jointly funded by the former licencees (eni and Cadogan) in proportion to their participating interests.

Pirkovska licence (expired)

The Pirkovska licence expired on 19 October 2015 and Cadogan has requested the award of a 20 years’ production licence. The licence covers an area of 88 square kilometres. Likewise for Zagoryanska licence, the approval process has been delayed by changes introduced by a new law.

Minor fields

These fields are contained in licences located in Western Ukraine, and include the following:

Debeslavetska Production licence area

The field is currently producing 60 boepd (2014: 65 boepd). A work-over activity is ongoing to mitigate the production decline.

Debeslavetska Exploration licence area

In the exploration licence, surrounding the Debeslavetska Production area, two prospects have been identified. The licence holds prospective resources and will expire on 7 September 2016. Cadogan is evaluating whether to apply for a new E&P period after the expiry of the current licence terms.

Cheremkhivska Production licence area

This licence is currently producing 15.7 boepd (2014: 17.4 boepd).

Slobodo-Rungurska exploration and development licence area

The licence expired on 11 April 2016. Cadogan is evaluating whether to apply for a new E&P period after the expiry of the current licence terms.

FINANCIAL REVIEW

Overview

Together with completion of E&P programme, in 2015 the Group continued to approach cash neutrality through a number of cost reduction initiatives, and developing service activities and energy trading businesses.

Revenue has increased from $32.6 million in 2014 to $75.4 million in 2015 due to gas trading operations, which represent $73.3 million (2014: $29.4 million) of total revenues; revenues from production have slightly declined to $1.8 million (2014: $2.4 million) owing to lower realized price.

Revenue from the service business, which includes drilling and civil works services, decreased to $0.4 million (2014: $0.8 million) mainly due to the postponement of service contracts by clients as a result of the situation in Ukraine.

The cash position of $49.4 million at 31 December 2015, including restricted cash of $20 million used as a pledge for credit line, has increased from $48.9 million at 31 December 2014. Net cash, which included cash and cash equivalents mostly denominated in USD net of short-term borrowings denominated in UAH, increased to $36.5 million at 31 December 2015 compared to $31.6 million at 31 December 2014.

The cash position of $49.4 million at 31 December 2015, including restricted cash of $20 million, has increased from $48.9 million at 31 December 2014.

Income statement

Loss before tax was $22.2 million (2014: $59.1 million), of which $10.5 million (2014: $5.1 million) is impairment of oil and gas assets and $12.8 million (2014: $54.7 million) is a share of losses of joint ventures. Share of losses in joint ventures mainly include the impairment of oil and gas assets in joint ventures and losses arising on translation of Balance Sheet items from UAH to the presentation currency of the Group USD.

Revenues of $75.4 million (2014: $32.6 million) are comprised of $73.3 million (2014: 29.4 million) in gas and diesel sales of trading reportable segment, $1.8 million (2014: $2.4 million) gas sales of E&P reportable segment and $0.4 million (2014: $0.8 million) sales of service reportable segment. Cost of sales represents $67.4 million (2014: $26.8 million) of purchases of gas for trading operating segment, $2.2 million (2014: $2.9 million) of production royalties and taxes, depreciation and depletion of producing wells and direct staff costs for exploration and development and service segment. Gross profit has increased to $5.9 million (2014: $2.8 million).

Administrative expenses of $6.1 million (2014: $7.0 million) comprise staff costs, professional fees, Directors’ remuneration and depreciation charges on non-producing property, plant and equipment.

Reversal of impairment of other assets of $1.3 million (2014: $0.9 million) comprised of $0.1 million provision for inventory (2014: $0.3 million) and $1.4 million release in relation to an impairment of Ukrainian VAT (2014: $1.1 million).

Share of losses in joint ventures of $12.8 million (2014: $54.7 million) comprised of loss of: i) $8.8 million in relation to non-cash impairment of non-current assets of Pokrovska licence, $2.6 million (2014: $12.7 million) of translation loss which arose mainly on translation of non-current assets of Gazvydobuvannya LLC (Pokrovska licence) from UAH to USD, being the presentation currency of the Group $0.9 million loss from operations, ii) $0.2 million in relation to Zagoryanska licence; and iii) loss of $0.3 million (2014: $0.7 million) from operations of Westgasinvest LLC.

Net foreign exchange gain of $2.5 million (2014: $3.0 million) mainly relates to the revaluation of the USD-denominated monetary assets of the Group’s UK entities which have GBP as a functional currency.

Finance costs of $2.6 million (2014: $0.5 million) represent $2.4 million (2014: $0.4 million) of interest on credit line used for trading and $0.2 million (2014: $nil) of interest on tax provision.

Cash flow statement

The Consolidated Cash Flow Statement on page 55 shows operating cash outflow before movements in working capital of $1.1 million (2014: $3.9 million). In addition, the Group has incurred capital expenditure of $0.3 million (2014: $0.5 million) on intangible Exploration and Evaluation (“E&E”) assets and $0.2 million (2014: $1.6 million) on Property, Plant and Equipment (“PP&E”). In 2015 the Group contributed $0.7 million (2014: $3.0 million) into joint ventures, to repay its current liabilities.

In 2015 the Group financed its trading operations with short-term borrowings (note 24) with proceeds of $13.2 million and repayments of $12.2 million (2014: proceeds of $17.3 million)

Balance sheet

The cash position of $49.4 million at 31 December 2015, including restricted cash of $20 million used as a pledge for credit line, has increased from $48.9 million at 31 December 2014. Net cash, which included cash and cash equivalents mostly denominated in USD net of short-term borrowings denominated in UAH, increased to $36.5 million at 31 December 2015 compared to $31.6 million at 31 December 2014.

Intangible E&E assets of $2.7 million (2014: $18.3 million) represent the carrying value of the Group’s investment in E&E assets as at 31 December 2015. The PP&E balance was $1.7 million at 31 December 2015 (2014: $3.8 million).

Investments in joint ventures of $2.2 million (2014: $14.3 million) mainly represent the carrying value of the Group’s investments into Pokrovska licences and Westgasinvest LLC (costs related to Zagoryanska licence have been fully impaired (note 19).

Trade and other receivables of $14.4 million (2014: $17.9 million) include $11.7 million (2014: $13.6 million) trading prepayments and receivables, $1.8 million receivable from joint ventures in respect of management charges (2014: $1.9 million).

The $12.9 million outstanding short-term borrowings as of 31 December 2015 (2014: $17.3 million) represents UAH 313.2 million borrowed in UAH to purchase natural gas and diesel (2014: UAH 278.9 million). Borrowings are represented by credit line drawn in UAH at Ukrainian bank, 100% subsidiary of UK bank. Credit line is secured by $20 million of cash balance placed at UK bank. Borrowings are taken in UAH in order to preserve the USD amount of own cash and mitigate a risk related to currency fluctuations in Ukraine. A short-term credit line provide an easy access to quick financings to support the Group’s trading operations.

The $3.7 million of trade and other payables as of 31 December 2015 (2014: $5.1 million) represent $0.9 million (2014: $0.3 million) worth of trading payables for supplies of natural gas, $0.9 million of VAT payable for supplies of natural gas, and $0.2 million (2014: $0.2 million) of interest accrued and $1.7 million (2014: $2.1 million) of other creditors and accruals.

Provisions include $0.7 million of long term provision for decommission costs (2014: $0.1 million of long-term provision and $0.6 million of current provision) and $1.5 million provision for corporate tax for the dispute on the treatment of taxable income and expenses.

Key performance indicators

The Group monitors its performance with reference to clear targets set out through three key financial and one key non-financial performance indicators (“KPIs”):

to increase oil, gas and condensate production measured on number of barrels of oil equivalent produced per day (“boepd”);

to decrease administrative expenses;

to increase the Group’s basic earnings per share; and

to maintain no lost time incidents.

The Group’s performance in 2015 against these targets is set out in the table below, together with the prior year performance data.

Average production is calculated as the average daily production during the year

Basic loss per Ordinary share is calculated by dividing the net loss for the year attributable to equity holders of the parent company by the weighted average number of Ordinary shares during the year

Lost time incidents in million working hours relate to injuries where an employee/contractor is injured and has time off work (IOGP classification)

Related party transactions

Related party transactions are set out in note 30 to the Consolidated Financial Statements. 

Treasury

The Group continually monitors its exposure to currency risk. It maintains a portfolio of cash and cash equivalent balances mainly in US dollars (“USD”) held primarily in the UK. Production revenues from the sale of hydrocarbons are received in the local currency in Ukraine however the hydrocarbon prices are linked to the USD denominated gas and oil prices. To date, funds from such revenues have been held in Ukraine for further use in operations rather than being remitted to the UK.

Risks and uncertainties

There are a number of potential risks and uncertainties, which could have a material impact on the Group’s long-term performance and could cause the results to differ materially from expected and historical results. Executive management review the potential risks and then classify them as having a high impact, above $5 million, medium impact, above $1 million but below $5 million, and low impact, below $1 million. They also assess the likelihood of these risks occurring. Risk mitigation factors are reviewed and documented based on the level and likelihood of occurrence. The Audit Committee reviews the risk register and monitors the implementation of improved risk mitigation procedures via Executive management.

The Group has analysed the following categories as key risks:

Statement of Reserves and Resources

In December 2015, the Group commissioned a third party the Reserves and Resources Evaluation of the Group’s oil and gas assets in Ukraine. The evaluation was assigned to a qualified Ukrainian G&G consulting contractor which delivered its final report in March 2016. The evaluation was conducted in accordance with SPE Petroleum Resources Management System (‘PRMS’). The summary of the Reserves and Resources as per the report issued in March 2016 (as at 31 December 2015) is presented below.

Summary of Reserves1 at 31 December 2015

1 The study has been conducted by third-party Brend Vik and since then Cadogan has entered into a Technical Service Agreement with Brend Vik.

2 Proved, Probable and Possible Reserves at 31 December includes 0.80 mmboe assigned to Pokrovska licence in which the Group holds 70% at 31 December 2015

3 Zagoryanska and Pirkovska licence were expired as at 31 December 2015.

Reserves are assigned to the Bitlyanska, Monastyretska, Debeslavetska, Pokrovskoe fields. The reserves for Zagoryanska and Pirkovska fields were presented separately due to the fact that these licences were under renewal at 31 December 2015.

Brend Vik also estimated resources in its evaluation. In particular 30.1 mmboe of contingent resources were assigned to the Bitlyanska, Monastyretska, Pokrovska licences; 8.8 mmboe were assigned to Zagoryanska and Pirkovska licences which were under renewal at 31 December 2015. In terms of Prospective Resources, 9.5 mmboe were assigned to Bitlyanska, Monastyretska, Debeslavetska, Cheremkhivska, Pokrovska and Slobodo-Rungurska licences and 5.0 mmboe to Pirkovska licence which was under renewal at 31 December 2015.

Corporate Responsibility

The Board recognises the requirement under Section 414C of the Companies Act 2006 (the “Act”) to detail information about employees, human rights and community issues, including information about any policies it has in relation to these matters and the effectiveness of these policies.

The Group considers the sustainability of its business as a key and competitive element of its strategy. Meeting the expectations of our stakeholders is the way in which we secure our licence to operate, and to be recognised in the values we declare is the best added value we can bring in order to profitably prolong our business. The Board recognises that it has an obligation to protect the health and safety of its employees and communities as well as the environment it impacts; these are the key drivers for the sustainable development of the Company’s activity. Our Code of Ethics and the adoption of internationally recognised best practices and standards are our, and our employees’, references for conducting our operations.

Our activities are carried out in accordance with a policy manual, endorsed by the Board, which has been disseminated to all staff. The manual includes policies on business conduct and ethics, anti-bribery, the acceptance of gifts and hospitality and whistleblowing.

The Group’s Health, Safety and Environment Manager reports directly to the Chief Operations Officer. His role is to ensure that the Group has developed suitable procedures, and that operational management have incorporated them into daily operations and that he has the necessary level of autonomy and authority to discharge his duties effectively and efficiently.

The Board believes that health and safety procedures and training across the Group should be to the standard expected in any company operating in the oil and gas sector. Accordingly, it has set up a Committee to review and agree health and safety initiatives and report back on progress. Management is regularly reporting to the Board on health, safety and environment and key safety and environmental issues which are discussed by the Executive Management. The Health, Safety and Environment Committee Report is on page 34.

Health, safety and environment

The Group has developed an integrated Health, Safety and Environmental (“HSE”) management system. The system aims, by a continuous improvement programme, to ensure that a safety and environmental protection culture is embedded in the organisation. The HSE management system ensures that both Ukrainian and international standards are met, with the Ukrainian HSE legislation requirements taken as an absolute minimum although the international requirements are in the main met or exceeded. All the Group’s local operating companies in east and west Ukraine have all the necessary documentation and systems in place to ensure compliance with Ukrainian legislation.

A proactive approach to the prevention of incidents has been in place throughout 2015, which relies on an observation cards system and reliable near-miss reporting. Staff training on HSE matters is recognised as the key factor to generate continuous improvement. In-house training is provided to help staff meet international standards and follow best practice. At present, special attention is being given to training on risk assessments, emergency response, incident prevention, reporting and investigation, as well as hazard and operational (“HAZOP”) studies to ensure that international standards are maintained even if they exceed those required by Ukrainian legislation.

The Board monitors lost time incidents as a key performance indicator of the business, to reasonably verify that the procedures in place are robust. The Board has benchmarked safety performance against the HSE performance index measured and published annually by the International Association of Oil & Gas Producers. In 2015, the Group recorded close to 324,000 man hours worked. There were no Lost Time Incidents (“LTIs”) recorded in 2015 and over two million man hours have been worked without an LTI since the previous incident was recorded in July 2011.

Vehicle safety and driving conduct remain among the Company’s priorities in controlling hazards and preventing injuries. As of the end of 2015, the Company has recorded almost ten million kilometres driven without an LTI.

During the year 2015 the Company continued to monitor the activity’s performances in terms of greenhouse gas emissions reporting, as well as Company-wide collection of statistical data related to consumption of electricity and industrial water and fuel consumption by cars, plants and other work sites. 

Employees

Wellness and professional development is part of the Company’s sustainable development policy and wherever possible local staff is recruited; procedures are in place to ensure that all recruitments are undertaken on a transparent and fair basis with no discrimination against applicants. Each operating company has its own Human Resources staff to ensure that the Group’s employment policies are properly implemented and followed. As required by Ukrainian legislation, Collective Agreements are in place with the Group’s Ukrainian subsidiary companies which provide an agreed level of staff benefits and other safeguards for employees. The Group’s Human Resources policy covers key areas such as equal opportunities, wages, overtime and non-discrimination. All staff is aware of the Group’s grievance procedures.

The contingent E&P industry conditions forced the Group to reduce the level of staffing; the concerned personnel were duly informed and all the necessary procedures for a smooth solution were applied. Local qualified contractors are considered for supplementing the required expertise when and to the extent which is necessary.

Sufficient levels of health insurance are provided by the Group to employees to ensure they have access to good medical facilities. Each employee’s training needs are assessed on an individual basis to ensure that their skills are adequate to support the Group’s operations, and to help them to develop.

Gender diversity

The Board of Directors of the Company comprised of six male Directors throughout the year to 31 December 2015. The appointment of any new Director is made on the basis of merit. See pages 21 to 23 for more information on the composition of the Board.

In 2015 the new nominated Company Secretary is female.

As at 31 December 2015, the Company comprised a total of 84 employees, as follows:

Human rights

Cadogan’s commitment to the fundamental principles of human rights is embedded in our HSE polices and throughout our business processes. We promote the core principles of human rights pronounced in the UN Universal Declaration of Human Rights. Our support for these principles is embedded throughout our Code of Conduct, our employment practices and our relationships with suppliers and partners wherever we do business.

Community

The Group’s activities are carried out in rural areas of Ukraine and the Board is aware of its responsibilities to the local communities in which the Group operates and from which some of the employees are recruited. At current operational sites, management works with the local councils to ensure that the impact of operations is as low as practicable by putting in place measures to mitigate their effect. Key projects undertaken include improvement of the road infrastructure in the area, which provides easier access to the operational sites while at the same time minimising inconvenience for the local population and allowing improved road communications in the local communities. Specific community activities are undertaken for the direct benefit of local kindergartens, schools, sporting facilities and medical services, as well as other community-focused facilities. All activities are followed and supervised by managers who are given specific responsibility for such tasks.

The Group’s local companies see themselves as part of the community and are involved not only with financial assistance, but also with practical help and support. The recruitment of local staff generates additional income for areas that otherwise are predominantly dependent on the agricultural sector.

Approval

The Strategic Report was approved by the Board of Directors on 25 April 2016 and signed on its behalf by:

Marta Halabala

Company Secretary

25 April 2016

CORPORATE GOVERNANCE

Board of Directors

Zev Furst, 68, American

Independent Non-executive Chairman

Appointed to the Board on 2 August 2011, Mr Furst is a leading global business and communications strategist who has advised political leaders, foreign principals and corporate executives of Fortune 100 companies. He is the Chairman and CEO of First International Resources, an international corporate and political consulting firm he founded in 1992. Mr Furst specialises in providing strategic counsel on crisis management, market entry, corporate positioning and personal reputational issues. In recent years, he has also advised and consulted with candidates running for national office in Israel, Japan, Mexico and Ukraine.

In 1986, Mr Furst was a founding partner of Meridian Resources and Development Ltd, an international commodities trading company specialising in chemicals and petroleum products.

Mr Furst currently serves as Chairman of the International Board of the Peres Center for Peace and is a member of the Advisory Board of the Kennan Institute in Washington, DC. He has written and lectured extensively on international affairs, business and political strategy and the role of media in politics and diplomacy.

Mr Furst is Chairman of the Company’s Nomination Committee and a member of the Remuneration Committee.

Guido Michelotti, 61, Swiss

Chief Executive Officer

Mr Michelotti was appointed to the Board of Directors as Chief Executive Officer on 25 June 2015. An Oil & Gas executive with over 30 years’ of international experience across the entire E&P cycle, he spent more than 10 years in senior executive roles with eni, leading E&P companies as well as managing major capital projects.

Prior to joining Cadogan he was CEO of a Luxembourg based Private Equity fund investing in E&P.

Mr Michelotti is a Senior Advisor to the Energy Practice of the Boston Consulting Group, a member of the Society of Petroleum Engineers (SPE) and a former member of SPE’s Industry Advisory Council.

Bertrand des Pallieres, 49, French

Chief Trading Officer

Mr des Pallieres was appointed as Chief Executive Officer on 1 August 2011, having joined the Board as a non-executive Director on 26 August 2010. Mr des Pallieres is also the CEO of SPQR Capital Holdings SA, a major shareholder of the Company. On 22 June 2015, Mr des Pallieres was appointed as Chief Trading Officer.

Previously he was the Global Head of Principal Finance and member of the Global Market Leadership Group of Deutsche Bank from 2005 to 2007. From 1992 to 2005 he held various positions at JPMorgan including Global Head of Structured Credit, European Head of Derivatives Structuring and Marketing, and Co-Head of sales for Europe, Middle East and Africa. He is a non-executive director of Versatile Systems Inc. listed on the Toronto and London Stock Exchanges and Equus Total return, Inc., listed on the NYSE.

Mr des Pallieres is a member of the Nomination Committee.

Adelmo Schenato, 64, Italian

Chief Operating Officer

Mr Schenato was appointed to the Board as Chief Operating Officer on 25 January 2012. He joined the Company after a 35 year career at Eni S.p.A (“Eni”), the Italian integrated energy business, where he served in senior global and regional positions.

His global roles at Eni included Well Operations Research and Development and Technical Management, and Vice President HSE & Sustainability. His regional roles include General Manager of Tunisia, Gabon and Angola as well as CEO of Eni’s Italian gas storage company.

Mr Schenato is a member of the Health, Safety and Environment Committee.

Gilbert Lehmann, 70, French

Senior Independent non-executive Director

Mr Lehmann was appointed to the Board on 18 November 2011. He is currently acting as an adviser to the Executive Board of Areva, the French nuclear energy business, having previously been its Deputy Chief Executive Officer responsible for finance. He is also a former Chief Financial Officer and deputy CEO of Framatone, the predecessor to Areva, and was CFO of Sogee, part of the Rothschild Group. Mr Lehmann is also Deputy Chairman and Chairman of the Audit Committee of Eramet, the French minerals and alloy business. He is Deputy Chairman and Audit Committee Chairman of Assystem SA, the French engineering and innovation consultancy. He was Chairman of ST Microelectronics NV, one of the world’s largest semiconductor companies, from 2007 to 2009, and stepped down as Vice Chairman in 2011.

Mr Lehmann is currently Chairman of the Company’s Audit Committee and a member of the Remuneration and Nomination Committees.

Michel Meeùs, 63, Belgian

Non-Independent non-executive Director

Mr Meeùs was appointed as a Non-executive Director on 23 June 2014. Mr. Meeùs is currently acting as Chairman of the Board of Directors of Theolia, an independent international developer and operator of wind energy projects, of which he is a major shareholder. Since 2007, he has been a director within the Alcogroup SA Company (which gathers the ethanol production units of the homonymous group), as well as within some of its subsidiaries. Before joining Alcogroup, Mr Meeùs carried out a career in the financial sector, at Chase Manhattan Bank in Brussels and London, then at Security Pacific Bank in London, then finally at Electra Kingsway Private Equity in London.

Enrico Testa, 64, Italian

Independent non-executive Director

Appointed to the Board on 1 October 2011, Mr Testa has a long and varied background in the energy market. He was Chairman of the Board of ACEA (the Rome electricity and water utility company) from 1996 to 2002. He was Chairman of the Board of Enel S.p.A, the major Italian electricity supplier, during its privatisation. From 2005 to 2009 he was Chairman of Roma Metropolitane, the Rome council-owned company constructing new underground lines. He was also Chairman of the Organising Committee for the 20th World Energy Congress held in Rome in November 2007, Senior Partner at the Franco Bernabè Group which owns several investments in the IT sector from 2002 to 2005 he was member of the Advisory Board of Carlyle Europe and has been Chairman of the Italian Nuclear Forum since 2010. In addition, between 2004 and August 2012 Mr Testa was Managing Director of Rothschild S.p.A.

He is currently Chairman of the AIM listed telecommunications company Telit Communications Plc, Vice Chairman of Intecs S.p.A and Chairman of E.VA – Energie Valsabbia S.p.A. – a company developing hydropower and solar generating plants.

Mr Testa is Chairman of the Company’s Remuneration Committee and a member of the Audit and Nomination Committees.

Report of the Directors

Directors

The Directors in office during the year and at the date of this report are as shown below:

Non-executive Directors Executive Directors

Zev Furst (Chairman) Guido Michelotti

Gilbert Lehmann Bertrand des Pallieres

Michel Meeùs Adelmo Schenato

Enrico Testa

Directors’ re-election

The Board has decided previously that all Directors must be subject to annual election by shareholders, in accordance with the best practice guidance for FTSE 350 companies contained in the UK Corporate Governance Code that was issued in September 2014 by the Financial Reporting Council (the ”Code”). As such, all of the Directors will be seeking re-election at the Annual General Meeting to be held on 22 June 2016.

The biographies of the Directors in office at the date of this report are shown on pages 20 and 21.

Appointment and replacement of Directors

The Board may appoint any individual willing to act as a Director either to fill a vacancy or act as an additional Director. The appointee may hold office only until the next annual general meeting of the Company whereupon his or her election will be proposed to the shareholders.

The Company’s Articles of Association prescribe that there shall be no fewer than three Directors and no more than fifteen.

Directors’ interests in shares

The beneficial interests of the Directors in office as at 31 December 2015 and their connected persons in the Ordinary shares of the Company at 31 December 2015 are set out below.

Directors’ indemnities and insurance

The Company continues to maintain Directors’ and Officers’ Liability Insurance. The Company’s Articles of Association provide, subject to the provisions of the Companies Act 2006, an indemnity for Directors in respect of any liability incurred in connection with their duties, powers or office. Save for such indemnity provisions, there are no qualifying third party indemnity provisions.

Powers of Directors

The Directors are responsible for the management of the business and may exercise all powers of the Company (including powers to issue or buy back the Company’s shares), subject to UK legislation, any directions given by special resolution and the Articles of Association. The authorities to issue and buy back shares, granted at the 2015 Annual General Meeting, remains unused.

Dividends

The Directors do not recommend payment of a dividend for the year to 31 December 2015 (2014: nil).

Principal activity and status

The Company is registered as a public limited company (registration number 05718406) in England and Wales. Its principal activity is oil and gas exploration, development and production.

Structure of share capital

The authorised share capital of the Company is currently £30,000,000 divided into 1,000,000,000 Ordinary shares of 3 pence each. The number of shares in issue as at 31 December 2015 was 231,091,734 Ordinary shares of 3 pence each with a nominal value of £6,932,752. The Companies (Acquisition of Own Shares) (Treasury Shares) Regulations 2003 allow companies to hold shares in treasury rather than cancel them. Following the consolidation of the issued capital of the Company on 10 June 2008, there were 66 residual Ordinary shares which were transferred to treasury. No dividends may be paid on shares whilst held in treasury and no voting rights attach to shares held in treasury. Total voting rights amount to 231,091,668.

Rights and obligations of Ordinary shares

On a show of hands at a general meeting every holder of Ordinary shares present in person or by proxy and entitled to vote shall have one vote and, on a poll, every member present in person or by proxy, shall have one vote for every Ordinary share held. In accordance with the provisions of the Company’s Articles of Association, holders of Ordinary shares are entitled to a dividend where declared and paid out of profits available for such purposes. On a return of capital on a winding up, holders of Ordinary shares are entitled to participate in such a return.

Exercise of rights of shares in employee share schemes

None of the share awards under the Company’s incentive arrangements are held in trust on behalf of the beneficiaries.

Agreements between shareholders

The Board is unaware of any agreements between shareholders which may restrict the transfer of securities or voting rights.

Restrictions on voting deadlines

The notice of any general meeting of the Company shall specify the deadline for exercising voting rights and appointing a proxy or proxies to vote at a general meeting. It is the Company’s policy at present to take all resolutions at a general meeting on a poll and the results of the poll are published on the Company’s website after the meeting.

Substantial shareholdings

As at 31 December 2015 and 25 April 2016, the Company had been notified of the following interests in voting rights attached to the Company’s shares:

Amendment of the Company’s Articles of Association

The Company’s Articles of Association may only be amended by a special resolution of shareholders.

Disclosure of information to auditors

As required by section 418 of the Companies Act 2006, each of the Directors as at 25 April 2016 confirms that:

(a) so far as the Director is aware, there is no relevant audit information of which the Company’s auditor is unaware; and

(b) the Director has taken all the steps that he ought to have taken as a Director in order to make himself aware of any relevant audit information and to establish that the Company’s auditor is aware of that information.

This confirmation is given and should be interpreted in accordance with section 418 of the Companies Act 2006.

Going concern

After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Consolidated and Company Financial Statements. For further detail refer to the detailed discussion of the assumptions outlined in note 3(b) to the Consolidated Financial Statements.

Change of control – significant agreements

The Company has no significant agreements containing provisions which allow a counterparty to alter and amend the terms of the agreement following a change of control of the Company.

Should a change in control occur then certain Executive directors are entitled to a payment of salary and benefits for a period of six months.

Global greenhouse gas emissions

This section contains information on greenhouse gas (“GHG”) emissions required by the Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013 (the “Regulations”).

Reporting year

The reporting year coincides with the Company's fiscal year, which is 1 January 2015 to 31 December 2015.

Methodology

The principal methodology used to calculate the emissions is drawn from the ‘Environmental Reporting Guidelines: including mandatory greenhouse gas emissions reporting guidance (June 2013)’, issued by the Department for Environment, Food and Rural Affairs (“DEFRA”). Additionally, ‘Petroleum Industry Guidelines for Reporting Greenhouse Gas Emissions (2nd edition, May 2011)’ were used to cover issues specific for the petroleum industry. DEFRA GHG conversion factors for company reporting were utilised to calculate the CO2 equivalent of emissions from various sources. In certain limited cases, where information was available only for a part of the reporting period, the total emissions were extrapolated by extending the available information to cover the full reporting period. This occurred where it was not possible to retrieve information on the amount of heating supplied to one of the Company’s office buildings, due to an office move.

The Company has reported on all of the emission sources required under the Regulations.

The Company does not have responsibility for any emission sources that are not included in its consolidated statement.

Consolidation approach and organisation boundary

An operational control approach was used to define the Company's organisational boundary and responsibility for GHG emissions. All material emission sources within this boundary have been reported upon, in line with the requirements of the Regulations.

Scope of reported emissions

Emissions data from the sources within Scope 1 and Scope 2 of the Company's operational boundaries is detailed below. This includes direct emissions from assets that fall within the Company’s organisational boundaries (Scope 1 emissions), as well as indirect emissions from energy consumption, such as purchased electricity and heating (Scope 2 emissions).

Intensity ratio

In order to express the GHG emissions in relation to a quantifiable factor associated with the Company's activities, wellhead production of crude oil, condensates and natural gas has been chosen as the normalisation factor for calculating the intensity ratio. This will allow comparison of the Company’s performance over time, as well as with other companies in the Company’s peer group.

Total greenhouse gas emissions data for period from 1 January 2015 to 31 December 2015

2016 Annual General Meeting

The 2016 Annual General Meeting (“AGM”) of the Company will be an opportunity to communicate with shareholders and the Board welcomes their participation. Board members constantly strive to keep in touch with shareholder opinion and to discuss strategy and governance issues with them through direct contacts.

The Board looks forward to welcoming shareholders to the AGM and shareholder information will be enclosed as usual with the AGM notice to facilitate voting and feedback in the usual way.

The AGM notice will be issued to shareholders well in advance of the meeting with notes to provide an explanation of all of the resolutions to be put to the AGM. The Board considers that the resolutions to be put to the AGM are in the best interests of the Company and the shareholders as a whole. Accordingly, the Directors unanimously recommend that the shareholders vote in favour of the proposed resolutions at the AGM, as the Directors intend to do in respect of their own beneficial holdings.

Board and committee members will be available for shareholders participation at the AGM. All relevant shareholder information including the annual report for 2015 and any other announcements will be published on our website – www.cadoganpetroleum.com

This Report of Directors comprising pages 22 to 26 has been approved by the Board and signed on its behalf by:

Marta Halabala

Company Secretary

25 April 2016

Viability statement

In accordance with provision C2.2 of the 2014 revision of the UK Corporate Governance Code, the Board has assessed the prospect of the Group over a longer period than the twelve months required by the ‘Going Concern’ provision. The Board selected three-year period as appropriate for the assessment for the reason that the Group’s strategy is aligned with a three-year view and that the current volatility in commodity markets makes confidence in a longer assessment of prospects highly challenging.

The Board has conducted a stress test in three scenarios as well as assessment of the principal risks facing the Group (as set out on pages 13 to 15), including those that would threaten its business model, future performance, solvency or liquidity. These scenarios include:

consideration of potential impact of political situation and renewal of the licences that will expire during following three years

foreign exchange movements to which the Group is exposed as a result of its operations in Ukraine

downturn in the price and demand of hydrocarbon products most impacting Group’s operations

Based on the results of the related analysis and taking account of the Group’s current position, particularly its cash availability, and the principal risks, and the effect of the licences that expired during the year the Board has a reasonable expectation that the Group will be able to continue its operation and meet its liabilities as they fall due over the three-year period of the assessment.

Corporate Governance Statement

The Board of the Company is committed to the highest standards of corporate governance and bases its actions on the principles set out in the Code issued by the Financial Reporting Council (‘FRC’) in September 2014 (the ”Code”). The Code can be found on the FRC’s website at www.frc.org.uk

This statement describes how the Group applies the principles of the Code. On 20 December 2011 the Company’s listing category on the London Stock Exchange was transferred from ‘Premium Listing’ to ‘Standard Listing’. Although companies with a standard listing are subject to less stringent corporate governance requirements, the Board has decided that the Group will continue to govern itself in accordance with the principles of the Code and explain why it has chosen not to comply with any of the provisions of the Code.

During the year under review, the Group has complied with the Code’s provisions with the following exceptions:

Code provision A.4.2 – During the year, the Chairman did not hold meetings with the non-executive Directors without the executives present

Code provision E.1.1 – The Senior Independent Director has not attended meetings with major shareholders

The reasons for these two areas of non-compliance are as follows:

Although the Chairman did not hold formal meetings of the non-executive Directors during the year, regular discussions took place by telephone and email.

The Senior Independent Director, Mr Lehmann, did not attend meetings with major shareholders as this responsibility was undertaken by the Chairman and the Executive Directors. Mr Lehmann is available to shareholders who have concerns that they feel would be inappropriate to raise via the Chairman or Executive Directors.

Board

The Board provides leadership and oversight. The Board comprises a non-executive Chairman, Chief Executive Officer, Chief Trading Officer, Chief Operating Officer, two independent non-executive Directors and one non-executive Director who is not deemed independent. The membership of the Board and biographical details for each of the Directors are incorporated into this report by reference and appear on page 21 and 22.

As at the date of this report, the Chairman had no significant commitments that might affect his ability to allocate sufficient time to the Company to discharge his responsibilities effectively.

Under the Company’s Articles of Association, all Directors must seek re-election by members at least once every three years. However, the Board has agreed that all Directors will be subject to annual election by shareholders, as recommended by the Code in respect of FTSE 350 companies. Accordingly, all members of the Board will be standing for re-election at the 2016 Annual General Meeting due to be held on 22 June 2016.

The Board has a formal schedule of matters specifically reserved for it to decide, including approval of acquisitions and disposals, major capital projects, financial results, Board appointments, dividend recommendations, material contracts and Group strategy.

The Chairman, in conjunction with the Company Secretary, plans the programme for the Board during the year. The agenda for Board and Committee meetings is considered by the relevant Chairman and issued with supporting papers during the week preceding the meeting. For each Board meeting, the Directors receive a Board pack including management accounts, briefing papers on commercial and operational matters and major capital projects including acquisitions. The Board also receives briefings from key management on specific issues. Eight Board meetings took place during 2015.The attendance of those Directors in place at the year end at Board and Committee meetings during the year was as follows:

A procedure exists for the Directors, in the furtherance of their duties, to take independent professional advice if necessary, under the guidance of the Company Secretary and at the Company’s expense. All Directors have access to the advice and services of the Company Secretary, who is responsible to the Chairman for ensuring that Board procedures are complied with and that applicable rules and regulations are followed.

Board independence

The roles and responsibilities of the Chairman and Chief Executive Officer are separate. A formal division of each individual’s responsibilities has been agreed and documented by the Board. Mr Lehmann is the Senior Independent Director.

The non-executive Directors bring an independent view to the Board’s discussions and the development of its strategy. Their range of experience ensures that management’s performance in achieving the business goals is challenged appropriately. Two non-executive Directors, Lehmann and Testa are considered by the Board in accordance with the Code, to be independent. Michel Meeùs, who is a significant shareholder, is not considered to be independent. The letters of appointment for the independent non-executive Directors are available for review at the Registered Office and prior to the Annual General Meeting.

Responsibilities and membership of Board Committees

The Board has agreed written terms of reference for the Nomination Committee, Remuneration Committee and Audit Committee. The terms of reference for all three Board Committees are published on the Company’s website, www.cadoganpetroleum.com, and are also available from the Company Secretary at the Registered Office. A review of the terms of reference, membership and activities of all Board Committees is provided on pages 30 to 37.

Board performance evaluation

Principle B.6 of the Code recommends that boards undertake a formal and rigorous annual evaluation of its own performance and that of its committees and individual directors. The Board is mindful that it needs to continually monitor and identify ways in which it might improve its performance and recognises that board evaluation is a useful tool for enhancing a board’s effectiveness. For the year ended 31 December 2015, the Board opted to undertake self-evaluation by way of a questionnaire designed specifically to assess the strengths of the Board and identify any areas for development.

The process was led by Mr Furst as Chairman and the evaluation of the Chairman’s performance was led by Mr Lehmann as the Senior Independent Director. The Board discussed the evaluation questionnaire findings, which were also used by the Nomination Committee in its annual assessment of the Board’s composition. The Directors are committed to ensuring that the Board continues to represent a broad balance of skills, experience, independence and knowledge and that there is sufficient diversity within the composition of the Board. All appointments are made on merit against objective criteria – which include gender and diversity generally – in the context of the requirements of the business and the overall balance of skills and backgrounds that the Board needs to maintain in order to remain effective.

Internal control

The Directors are responsible for the Group’s system of internal control and for maintaining and reviewing its effectiveness. The Board has delegated responsibility for the monitoring and review of the Group’s internal controls to the Audit Committee. The Group’s systems and controls are designed to safeguard the Group’s assets and to ensure the reliability of information used both within the business and for publication.

Systems are designed to manage, rather than eliminate, the risk of failure to achieve business objectives and can provide only reasonable, and not absolute, assurance against material misstatement or loss.

The key features of the internal control systems which operated during 2015 and up to the date of signing the Financial Statements are documented in the Group’s Corporate Governance Policy Manual and Finance Manual. These manuals have been circulated throughout the Group. In addition, the Company’s joint venture entities adopted policies that mirror the Company’s own, except Westgasinvest LLC (“WGI”), where Eni’s policies are adopted.

Day-to-day responsibility for the management and operations of the business has been delegated to the Chief Executive Officer and senior management.

Certain specific administrative functions are controlled centrally. Taxation, treasury and insurance functions report to the Group Director of Finance who reports directly to the Chief Executive Officer. Trading business is managed by the Chief Trading Officer who reports directly to Chief Executive Officer. The legal function is managed by the General Counsel who reports to the Chief Executive Officer. The Health, Safety and Environment functions report to the Chief Operating Officer. An overview of the Group’s treasury policy is set out on page 13.

The Group does not have an internal audit function. Due to the small scale of the Group’s operations at present, the Board does not feel that it is appropriate or economically viable to have this function in place. The Audit Committee will continue to consider the position annually.

The Board has reviewed the process, which has been in place from the start of the year to the date of approval of this report and which is in accordance with the Code. During the course of its review of the risk management and internal control systems, the Board has not identified nor been advised of any failings or weaknesses which it has deemed to be significant. Therefore a confirmation in respect of necessary actions has not been considered appropriate.

Relations with shareholders

The Chairman and Executive Directors of the Company have a regular dialogue with analysts and substantial shareholders. The outcome of these discussions is reported to the Board and discussed in detail. Mr Lehmann, as the Senior Independent Director, is available to shareholders who have questions that they feel would be inappropriate to raise via the Chairman or Executive Directors.

The Annual General Meeting is used as an opportunity to communicate with all shareholders. In addition, financial results are posted on the Company’s website, www.cadoganpetroleum.com, as soon as they are announced. The Notice of the Annual General Meeting is contained also on the Company’s website, www.cadoganpetroleum.com. It is intended that the Chairmen of the Nomination, Audit and Remuneration Committees will be present at the Annual General Meeting. The results of all resolutions will be published on the Company’s website, www.cadoganpetroleum.com

Board Committee Reports

Audit Committee Report

The Audit Committee is appointed by the Board, on the recommendation of the Nomination Committee, from the non-executive Directors of the Group. The Audit Committee’s terms of reference include all matters indicated by the Code. They are reviewed annually by the Audit Committee and any changes are then referred to the Board for approval. The terms of reference of the Committee are published on the Company’s website, www.cadoganpetroleum.com, and are also available from the Company Secretary at the Registered Office. Two members constitute a quorum.

Responsibilities

To monitor the integrity of the annual and interim financial statements, the accompanying reports to shareholders, and announcements regarding the Group’s results.

To review and monitor the effectiveness and integrity of the Group’s financial reporting and internal financial controls.

To review the effectiveness of the process for identifying, assessing and reporting all significant business risks and the management of those risks by the Group.

To oversee the Group’s relations with the external auditor and to make recommendations to the Board, for approval by shareholders, on the appointment and removal of the external auditor.

To consider whether an internal audit function is appropriate to enable the Audit Committee to meet its objectives.

To review the Group’s arrangements by which staff of the Group may, in confidence, raise concerns about possible improprieties in matters of financial reporting or other matters.

Assessment of the effectiveness of the external auditor

The Committee has assessed the effectiveness of the external audit process. They did this by:

Reviewing the 2015 external audit plan;

Discussing the results of the audit including the auditor’s views on material accounting issues and key judgements and estimates, and their audit report;

Considering the robustness of the audit process;

Reviewing the quality of the service and people provided to undertake the audit; and

Considering their independence and objectivity.

Governance

Mr Testa and Mr Lehmann, who are both independent non-executive Directors under provision B.1.1 of the Code, are the members of the Audit Committee. The Audit Committee is chaired by Mr Lehmann who has recent and relevant financial experience as a former finance director of major European companies as well as holding several non-executive roles in major international entities.

At the invitation of the Audit Committee, the Group Director of Finance and external auditor regularly attend. The Company Secretary attends all meetings of the Audit Committee.

The Audit Committee also meets the external auditor without management being present.

Activities of the Audit Committee

During the year, the Audit Committee discharged its responsibilities as follows:

Financial statements

The Audit Committee examined the Group’s consolidated and Company’s financial statements and, prior to recommending them to the Board, considered the appropriateness of the accounting policies adopted and reviewed critical judgements, estimates and underlying assumptions and whether the financial statements represented a true and fair view.

Significant issues relating to the 2015 financial statements

For the year ended 31 December 2015 the Audit Committee identified the significant issues that should be considered in relation to the financial statements, being areas which may be subject to heightened risk of material misstatement.

Impairment of E&E and D&P

The Audit Committee considered the Group’s intangible exploration and evaluation assets and interests in exploration and evaluation assets held through joint ventures individually for any indicators of impairment, including those indicators set out in IFRS 6 Exploration for and Evaluation of Mineral Resources. The uncertainties on the timing and outcome of the licence renewal and award process and the persistent difficult situation faced by Ukraine have suggested a prudent approach to the treatment of E&E assets. The Audit Committee agreed to the identified indicators of impairment and recognised impairment charge of oil and gas assets of $10.1 million in the financial statements as at 31 December 2015. The Audit Committee has discussed the Group’s exploration and evaluation assets with both management and the auditors and concurs with the treatment adopted.

Following discussions with management and the auditor, including discussing the range of sensitivities, the Committee is satisfied with results of the assessment of the recoverable amount of development and production assets. The recoverability assessment involves the use of significant judgment both in the review of impairment indicators and, in any subsequent impairment test, the consideration of estimates which are dependent on assumptions about the future.

Reserves

Oil and gas reserves, as discussed in the Statement of Reserves and Resources, are based on the Independent Reserves and Resources Evaluation performed by Brend Vik, referred to 31 December 2015 and concluded in March 2016.

However, reserves estimates are inherently uncertain, especially under present market volatility or in the early stages of a field’s life, and are routinely revised over the producing lives of oil and gas fields as new information becomes available and as economic conditions evolve. The Audit Committee acknowledges that such revisions may impact the Group’s future financial position and results, in particular, in relation to impairment testing of oil and gas property, plant and equipment.

Recoverability of investments in joint ventures

Recoverability of the Group’s investments in joint ventures is based on assessment of exploration and evaluation assets impairment which constitute most of the investments in joint ventures cost. As of 31 December 2015 impairment assessment of the joint ventures’ exploration and evaluation assets was based on the value in use of the assets held by each individual joint venture company.

Going concern

After making enquiries and considering the uncertainties described above, the Committee has a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future and consider the going concern basis of accounting to be appropriate. For further detail refer to the detailed discussion of the assumptions outlined in note 3(b) to the Consolidated Financial Statements. The Committee also support the Group’s viability statement presented on page 27.

Political and economic situation in Ukraine

Recent political situation in Ukraine has made it necessary for management to assess the extent of its impact on the Group’s operations and assets.

The Committee reviewed reports from management which considered whether adjustments are required to the carrying values of assets and the appropriateness of the going concern assumption. As a result management have concluded that, other than the impacts derived from the Subsoil use tax and the uncertainties on the timing of the approval process, there were no significant adverse consequences in relation to the Group’s operations, cash flows and assets that impact the 2015 financial statements.

In discussion with management, the Committee acknowledged the inherent difficulty in making any assessment as to the eventual outcome of the present political situation and, as a consequence, the difficulty of making a reliable judgement as to the future impact, if any, on the Group’s business. The Committee concurs with conclusions reached by management summarised in Note 4 and in Note 31 to the financial statements.

Internal controls and risk management

The Audit Committee reviews and keeps under review financial and control issues throughout the Group including the Group’s key risks and the approach for dealing with them.

External auditor

The Audit Committee is responsible for recommending to the Board, for approval by the shareholders, the appointment of the external auditor.

The Audit Committee considers the scope and materiality for the audit work, approves the audit fee, and reviews the results of the external auditor’s work. Following the conclusion of each year’s audit, it considers the effectiveness of the external auditor during the process. An assessment of the effectiveness of the audit process was made, giving consideration to reports from the auditor on its internal quality procedures. The Committee reviewed and approved the terms and scope of the audit engagement, the audit plan and the results of the audit with the external auditor, including the scope of services associated with audit-related regulatory reporting services. Additionally, auditor independence and objectivity were assessed, giving consideration to the auditor’s confirmation that its independence is not impaired, the overall extent of non-audit services provided by the external auditor and the past service of the auditor.

We have also taken account of the latest recommendations of the Code in relation to the regular tendering of the external audit appointment.

Deloitte LLP was first appointed in 2005. Having satisfied itself as to their qualifications, expertise, resources and independence and the effectiveness of the audit process, the Audit Committee has recommended to the Board, for approval by shareholders, the reappointment of Deloitte LLP as the Company’s external auditor.

There is an agreed policy on the engagement of the external auditor for non-audit services to ensure that its independence and objectivity are safeguarded. Work closely related to the audit, such as taxation or financial reporting matters, can be awarded to the external auditor by the executive Directors provided the work does not exceed £50,000 in fees per item. Work exceeding £50,000 requires approval by the Audit Committee. All other non-audit work either requires Audit Committee approval or forms part of a list of prohibited services, where it is felt the external auditor’s independence or objectivity may be compromised.

A breakdown of the non-audit fees is disclosed in note 10 to the Consolidated Financial Statements. The Company’s external auditor, Deloitte LLP, has provided non-audit services (excluding audit related services) which amounted to $113,000 (2014: $63,000). The Audit Committee has reviewed the level of these services in the course of the year and is confident that the objectivity and independence of the auditor are not impaired by the reason of such non-audit work.

The Company is aware that, as a result of the EU Audit Directive and Regulation, companies where the auditor was appointed between 17 June 2003 and 16 June 2006 will need to conduct a tender and either reappoint the existing auditor or appoint new auditors for the audit for the year end at 31 December 2017. Accordingly, the Company intends to conduct a tender following the Annual General Meeting to be held on 22 June 2016.

Internal audit

The Audit Committee considers annually the need for an internal audit function and believes that, due to the size of the Group and its current stage of development, an internal audit function will be of little benefit to the Group.

The Group’s whistleblowing policy encourages employees to report suspected wrongdoing and sets out the procedures employees must follow when raising concerns. The policy, which was implemented during 2008, was refreshed in 2013 and recirculated to staff as part of a manual that includes the Company’s policies on anti-bribery, the acceptance of gifts and hospitality, and business conduct and ethics.

Overview

As a result of its work during the year, the Audit Committee has concluded that it has acted in accordance with its terms of reference and has ensured the independence and objectivity of the external auditor. A formal review of the Audit Committee’s performance was undertaken after the year end and concluded that the Committee is effective in its scrutiny of the accounts and financial reporting process, its oversight of risk management systems and its monitoring of internal control testing.

The Chairman of the Audit Committee will be available at the Annual General Meeting to answer any questions about the work of the Audit Committee.

Gilbert Lehmann

Chairman of the Audit Committee

25 April 2016

Health, Safety and Environment Committee Report

The Health, Safety and Environment Committee (the ”HSE Committee”) is appointed by the Board, on the recommendation of the Nomination Committee. The HSE Committee’s terms of reference are reviewed annually by the HSE Committee and any changes are then referred to the Board for approval. The terms of reference of the Committee are published on the Company’s website, www.cadoganpetroleum.com, and are also available from the Company Secretary at the Registered Office. Two members constitute a quorum, one of whom must be a Director.

Responsibilities

To develop a framework of the policies and guidelines for the management of health, safety and environment issues within the Group.

Evaluate the effectiveness of the Group’s policies and systems for identifying and managing health, safety and environmental risks within the Group’s operation.

Assess the policies and systems within the Group for ensuring compliance with health, safety and environmental regulatory requirements.

Assess the performance of the Group with regard to the impact of health, safety, environmental and community relations decisions and actions upon employees, communities and other third parties and also assess the impact of such decisions and actions on the reputation of the Group and make recommendations to the Board on areas for improvement.

On behalf of the Board, receive reports from management concerning any fatalities and serious accidents within the Group and actions taken by management as a result of such fatalities or serious accidents.

Evaluate and oversee, on behalf of the Board, the quality and integrity of any reporting to external stakeholders concerning health, safety, environmental and community relations issues.

Where it deems it appropriate to do so, appoint an independent auditor to review performance in regard to health, safety, environmental and community relations matters and review any strategies and action plans developed by management in response to issues raised and, where appropriate, make recommendations to the Board concerning the same.

Governance

The HSE Committee was in place throughout 2015. Members of the HSE Committee are Mr Adelmo Schenato (Chief Operating Officer and HSE Committee Chairman), Ms Snizhana Buryak (HSE Manager), Mr Andriy Bilyi (Deputy Operations Manager). The Company Secretary attends meetings of the HSE Committee. The HSE Committee meets monthly to monitor continuously progress by management.

Activities of the Health, Safety and Environment Committee

During the year, the HSE Committee discharged its responsibilities as follows:

The ongoing review of existing HSE policies and procedures, as well as development of new ones, was regularly discussed at the Committee meetings in relation to the current activities.

Compliance with HSE regulatory requirements was ensured through discussion of any inspections, both internal ones and those carried out by the Authorities.

HSE performances, key indicators and statistics were a standing item on the agenda, allowing the HSE Committee to assess the Company’s activities performance by analysing any lost-time incidents (of which there were none during 2013, 2014 and 2015), near misses, HSE training and other indicators.

Interaction with contractors, Authorities, local communities and other stakeholders was discussed among other HSE activities.

Overview

As a result of its work during the year, the HSE Committee has concluded that it has acted in accordance with its terms of reference.

Adelmo Schenato

Chairman of the Health, Safety and Environment Committee

25 April 2016

Nomination Committee Report

The Nomination Committee is appointed by the Board predominantly from the non-executive Directors of the Group. The Nomination Committee’s terms of reference include all matters indicated by the Code. They are reviewed annually by the Nomination Committee and any changes are then referred to the Board for approval. The terms of reference of the Nomination Committee are published on the Company’s website, www.cadoganpetroleum.com, and are also available from the Company Secretary at the Registered Office. Two members constitute a quorum.

Responsibilities

To regularly review the structure, size and composition (including the skills, knowledge and experience) required of the Board compared to its current position and make recommendations to the Board with regard to any changes.

Be responsible for identifying and nominating for the approval of the Board candidates to fill Board vacancies as and when they arise.

Before appointment is made by the Board, evaluate the balance of skills, knowledge, experience and diversity on the Board and, in the light of this evaluation, prepare a description of the role and capabilities required for a particular appointment.

In identifying suitable candidates, the Nomination Committee shall use open advertising or the services of external advisers to facilitate the search and consider candidates from a wide range of backgrounds on merit, taking care that appointees have enough time available to devote to the position.

The Nomination Committee shall also make recommendations to the Board concerning:

Formulating plans for succession for both executive and non-executive Directors and in particular for the key roles of Chairman and Chief Executive Officer.

Membership of the Audit and Remuneration Committees, in consultation with the Chairmen of those committees.

The reappointment of any non-executive Director at the conclusion of their specified term of office, having given due regard to their performance and ability to continue to contribute to the Board in the light of the knowledge, skills and experience required.

The re-election by shareholders of any Director having due regard to their performance and ability to continue to contribute to the Board in the light of the knowledge, skills and experience required.

Any matters relating to the continuation in office of any Director at any time including the suspension or termination of service of an executive Director as an employee of the Company subject to the provisions of the law and their service contract.

Governance

Mr Zev Furst (Board and Nomination Committee Chairman), Mr Bertrand des Pallieres (Chief Trading Officer), and Messrs Gilbert Lehmann and Enrico Testa (independent non-executive Directors) are the members of the Nomination Committee. The Company Secretary attends all meetings of the Nomination Committee.

Activities of the Nomination Committee

The Nomination Committee carried out a review of the size, structure and composition of the Board after the year end and concluded that it had the appropriate balance of skills, knowledge, independence and experience. The Nomination Committee recommends the re-election of each of the Directors at the AGM.

Overview

As a result of its work during the year, the Nomination Committee has concluded that it has acted in accordance with its terms of reference. The Chairman of the Nomination Committee will be available at the Annual General Meeting to answer any questions about the work of the Nomination Committee.

Remuneration Committee

Statement from the Chairman

I am pleased to present the Annual Report on Remuneration for the year ended 31 December 2015.

During 2015 there were no substantial changes made to the Remuneration Policy, nor to the composition of directors' remuneration, and there was no increase to executive and non-executive directors' salary and fees in base currency. During 2015 there were no performance payments made.

In June 2015 Mr Guido Michelotti has replaced Mr Bertrand des Pallieres as a Chief Executive Officer. Mr des Pallieres has been appointed as Chief Trading Officer.

The Remuneration Policy and Annual Report on Remuneration 2014 were presented for an advisory vote and approved at the Annual General Meeting 2015 held on 25 June 2015. No major changes were made to the Remuneration Policy, which can be found at our website. Shareholders at the Annual General Meeting will be asked to approve the Remuneration Policy every three years, unless there is a need to amend the Policy in the interim. The Annual Report on Remuneration 2015 will be presented for a binding vote at the Annual General Meeting 2016 to be held on 22 June 2016.

Given the challenging political situation in Ukraine, the Company’s aim to develop a revised, long-term and balanced Remuneration Policy aligned to strategy and performance and linked to shareholder preferences took second precedence last year to other pressing matters. In my statement last year, I explained that the Company would maintain its current approach to remuneration, already long-term, balanced and aligned to strategy and performance.

Enrico Testa

Chairman of the Remuneration Committee

25 April 2016

Annual Report On Remuneration 2015

Remuneration Committee Report

The Remuneration Committee is committed to principles of accountability and transparency to ensure that remuneration arrangements demonstrate a clear link between reward and performance. In its work, the Remuneration Committee considers fully the principles and provisions of the Code. In designing performance-related remuneration schemes for executive Directors, the Remuneration Committee has considered and applied Schedule A of the Code.

Governance

The Remuneration Committee is appointed by the Board from the non-executive Directors of the Company. The Remuneration Committee’s terms of reference include all matters indicated by the Code. They are reviewed annually by the Remuneration Committee and any changes are then referred to the Board for approval. The terms of reference of the Remuneration Committee are published on the Company’s website, www.cadoganpetroleum.com, and are also available from the Company Secretary at the Registered Office.

The Remuneration Committee consists of Mr Enrico Testa, Mr Zev Furst and Mr Gilbert Lehmann. At the discretion of the Remuneration Committee, the Chief Executive Officer is invited to attend meetings when appropriate, but is not present when his own remuneration is being discussed. None of the directors are involved in deciding their own remuneration. The Remuneration Committee is also supported by the Company Secretary.

Responsibilities

In summary, the Remuneration Committee’s responsibilities, as set out in its terms of reference, are as follows:

To determine and agree with the Board the policy for the remuneration of the executive Directors, the Company Secretary and other members of executive management as appropriate.

To consider the design, award levels, performance measures and targets for any annual or long-term incentives and approve any payments made and awards vesting under such schemes.

Within the terms of the agreed remuneration policy, to determine the total individual remuneration package of each executive Director and other senior executives including bonuses, incentive payments and share options or other share awards.

Overview

As a result of its work during the year, the Remuneration Committee has concluded that it has acted in accordance with its terms of reference. The chairman of the Remuneration Committee will be available at the Annual General Meeting to answer any questions about the work of the Committee. The Chairman and Executive Directors of the Company have a regular dialogue with analysts and substantial shareholders, which includes the subject of Directors’ Remuneration. The outcome of these discussions are reported to the Board and discussed in detail both there and during meetings of the Remuneration Committee. Mr Lehmann, as the Senior Independent Director, is available to shareholders who have concerns that they feel would be inappropriate to raise via the Chairman or Executive Directors.

The Remuneration Committee unanimously recommends that shareholders vote to approve the Annual Report on Remuneration at the 2016 Annual General Meeting.

Remuneration consultants

The Remuneration Committee did not take any advice from external remuneration consultants.

Single total figure of remuneration for executive and non-executive directors (audited)

In 2015 there was no increase in executive and non-executive directors' salary in base currency. The difference in pay represents the change in exchange rate between the base currency and USD as a reporting currency.

Notes to the table

In June 2015 Mr Guido Michelotti was appointed as Chief Executive Officer. Mr Michelotti’s salary is €440,000 ($488,708) per annum.

In June 2015, Mr Bertrand des Pallieres was appointed as Chief Trading Officer. Mr des Pallieres’ salary is £221,400 ($338,498) per annum, comprising £194,400 ($297,218) per annum under a consultancy agreement (the terms of which are reviewed by the Remuneration Committee annually) and £27,000 ($41,280) per annum under a services agreement.

Adelmo Schenato continued as Chief Operating Officer of the Company throughout 2015. Mr Schenato’s basic salary is £184,393 ($281,918) comprising €225,000 per annum under a consultancy agreement and £21,000 under a services agreement.

In 2015 none of the directors participated in an annual bonus and long-term incentives.

In May 2011 the Board agreed that the Chairman’s fee be set at £85,000 ($129,957) and that the fee for acting as an independent non-executive Director be set at £35,000 ($53,512) with an additional £10,000 ($15,289) for acting as Chairman of the Audit Committee. There has been no increase in non-executive Directors’ fees since that time.

Benefits may be provided to the executive directors, in the form of private medical insurance and life assurance.

Scheme interests awarded during the financial year (audited)

There were no scheme interests awarded during the year.

Payments to past directors (audited)

In 2015 there were no payments to past directors.

Payments for loss of office (audited)

No payments were made to directors for loss of office in 2015.

Directors’ interests in shares (audited)

The beneficial interests of the Directors in office as at 31 December 2015 and their connected persons in the Ordinary shares of the Company at 31 December 2015 are set out below.

The Company does not currently operate formal shareholding guidelines.

The Company’s performance

The graph highlights the Company’s total shareholder return (“TSR”) performance for the last seven years compared to the FTSE All Share Oil & Gas Producers index. This index has been selected on the basis that it represents a sector specific group which is an appropriate group for the Company to compare itself against. TSR is the return from a share or index based on share price movements and notional reinvestment of declared dividends. Full text and all diagrams will be available in the published version of the Annual Report on the Company’s website.

Historic Remuneration of Chief Executive

In 2015 none of the directors participated in an annual bonus and long-term incentives.

Percentage change in the remuneration of the Chief Executive

The following table shows the percentage change in the remuneration of the Chief Executive in 2015 and 2014 compared to that of all employees within the Group.

In 2015 none of the directors participated in an annual bonus.

In 2015 there was no increase in executive and non-executive directors' salary in base currency. The difference in pay represents the change in exchange rate between the base currency and USD as a reporting currency. The decrease in employee remuneration is due to a reduction in employees as at 31 December 2015 to 80 (2014: 100).

Loss of Office

In 2015 no loss of office payments were made to the directors.

Relative importance of spend on pay

The table below compares shareholder distributions (i.e. dividends and share buybacks) and total employee pay expenditure of the Group for the financial years ended 31 December 2014 and 31 December 2015.

Shareholder voting at the Annual General Meeting

The Directors’ Remuneration Report for the year ended 31 December 2014 and the Director’s Remuneration Policy were approved by shareholders at the Annual General Meeting held on 25 June 2015.

The Remuneration Policy can be found on the Group’s website.

The votes cast by proxy were as follows:

Implementation of Remuneration Policy in 2016

The Remuneration Committee proposes to continue to implement a Remuneration Policy approved by the shareholders at the 2015 AGM.

Approval

The Directors’ Remuneration Report was approved by the Board on 25 April 2016 and signed on its behalf by:

Zev Furst

Chairman

25 April 2016

FINANCIAL STATEMENTS

Statement of Directors’ Responsibilities in respect of the Annual Report and the Financial Statements

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. The Directors are required by law to prepare the Group financial statements in accordance with International Financial Reporting Standards (“IFRSs”) as adopted by the European Union and Article 4 of the International Accounting Standards (“IAS”) regulation and have also elected to prepare the Parent Company financial statements under IFRSs as adopted by the European Union. Under Company law, the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and Group and of the profit or loss for that period. In preparing the Company and Group’s financial statements, IAS Regulation requires that Directors:

properly select and apply accounting policies;

present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Company’s and Group’s financial position and financial performance; and

make an assessment of the Company’s and Group’s ability to continue as a going concern.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company and Group’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and Group and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors’ Report, Annual Report on Remuneration, Directors’ Remuneration Policy and Corporate Governance Statement that comply with that law and those regulations.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website, www.cadoganpetroleum.com. Legislation in the United Kingdom governing the preparation and dissemination of the financial statements may differ from legislation in other jurisdictions.

Responsibility Statement of the Directors in respect of the Annual Report

We confirm to the best of our knowledge:

(1) the financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation as a whole; and

(2) the Strategic Report, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and

(3) the annual report and the financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for the shareholders to assess the Group’s position, performance, business model and strategy.

On behalf of the Board

Zev Furst

Chairman

25 April 2016

Independant Auditor's Report To The Members Of Cadogan Petroleum Plc

Opinion on financial statements of Cadogan Petroleum Plc

In our opinion:

the financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 December 2015 and of the Group’s loss for the year then ended;

the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union;

the Parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and

the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation.

The financial statements comprise the Consolidated Statement of Comprehensive Income, the Group and Company Balance Sheets, the Group and Company Statement of Changes in Equity, the Group and Company Cash Flow Statements and the related notes 1 - 42.

The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the European Union and, as regards the Parent Company financial statements, as applied in accordance with the provisions of the Companies Act 2006.

Going concern and the directors’ assessment of the principal risks that would threaten the solvency or liquidity of the group

We have nothing material to add or draw attention to in relation to:

We agreed with the Directors’ adoption of the going concern basis of accounting and we did not identify any such material uncertainties. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group’s ability to continue as a going concern.

Independence

We are required to comply with the Financial Reporting Council’s Ethical Standards for Auditors and we confirm that we are independent of the Group and we have fulfilled our other ethical responsibilities in accordance with those standards. We also confirm we have not provided any of the prohibited non-audit services referred to in those standards.

Our assessment of risks of material misstatement

The assessed risks of material misstatement described below are those that had the greatest effect on our audit strategy, the allocation of resources in the audit and directing the efforts of the engagement team:

Although separate impairment assessments have been undertaken and audited, we have aggregated our explanation of risks and the scope for the recoverability of intangible exploration and evaluation (E&E) assets, development of producing oil and gas properties within property, plant and equipment, recoverability of investments in joint ventures into the recoverability of non-current assets.

The description of risks above should be read in conjunction with the significant issues considered by the Audit Committee and discussed on page 32-34.

Our audit procedures relating to these matters were designed in the context of our audit of the financial statements as a whole, and not to express an opinion on individual accounts or disclosures. Our opinion on the financial statements is not modified with respect to any of the risks described above, and we do not express an opinion on these individual matters.

Our application of materiality

We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in evaluating the results of our work.

When determining materiality, among other factors we considered the Group’s pre-tax loss in the current period as well as in recent periods; the occurrence of any non-recurring or fluctuating gains and losses (such as exploration and evaluation assets impairments) and the level of consolidated shareholders’ equity.

We determined our materiality based on the expected consolidated shareholders’ equity as at 31 December 2015. Consistent with the prior year, we used consolidated shareholders’ equity to determine materiality as the entity has a history of operating losses. Materiality was determined to be $2,020,000, which was 3% of expected consolidated shareholders’ equity. Subsequently, a non-current assets impairment of $19.3 million was recognised which impacted consolidated shareholders’ equity and thus the benchmark based on which we determined our materiality initially. We assessed whether the scope of the business had changed as a result of this impairment and determined that it had not. Therefore we consider it appropriate to retain our original materiality of $2,020,000, which is now 3.7% of consolidated shareholders’ equity (2014: $2,700,000 which was 3% of consolidated shareholders’ equity). 

We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of $40,000 (2014: $54,000), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements.

An overview of the scope of our audit

Our Group audit was scoped by obtaining an understanding of the group and its environment, including group-wide controls, and assessing the risks of material misstatement at the group level. Based on that assessment, we have included in the group audit scope the full audit of all significant entities in Ukraine and in the UK. These businesses account for over 90% (2014: over 90%) of the Group’s net assets, revenue and loss before tax. The group audit team was led by the Deloitte UK Senior Statutory Auditor and managers and included junior audit members and senior tax specialists from Deloitte Ukraine as all assets are located there and appropriate knowledge of local legislation and tax regulations is required.

The Senior Statutory Auditor and managers from the Deloitte UK visited the Ukraine during the planning and fieldwork stages of the audit.

At the parent entity level we also tested the consolidation process and carried out analytical procedures to confirm our conclusion that there were no significant risks of material misstatement of the aggregated financial information of the remaining balances not subject to audit or audit of specified account balances.

Opinion on other matter prescribed by the Companies Act 2006

In our opinion:

• the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and

• the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements.

Matters on which we are required to report by exception

Adequacy of explanations received and accounting records

Under the Companies Act 2006 we are required to report to you if, in our opinion:

we have not received all the information and explanations we require for our audit; or

adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or

the Parent Company financial statements are not in agreement with the accounting records and returns.

We have nothing to report in respect of these matters

Directors’ remuneration

Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors’ remuneration have not been made, or the part of the Directors’ Remuneration Report to be audited is not in agreement with the accounting records and returns. We have nothing to report arising from these matters.

Our duty to read other information in the Annual Report

Under International Standards on Auditing (UK and Ireland), we are required to report to you if, in our opinion, information in the annual report is:

materially inconsistent with the information in the audited financial statements; or

apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired in the course of performing our audit; or

otherwise misleading.

In particular, we are required to consider whether we have identified any inconsistencies between our knowledge acquired during the audit and the Directors’ statement that they consider the annual report is fair, balanced and understandable and whether the annual report appropriately discloses those matters that we communicated to the audit committee which we consider should have been disclosed. We confirm that we have not identified any such inconsistencies or misleading statements.

Other matter

Although not required to do so, the directors have voluntarily chosen to make a corporate governance statement detailing the extent of their compliance with the UK Corporate Governance Code. We reviewed the part of the Corporate Governance Statement relating to the company’s compliance with certain provisions of the UK Corporate Governance Code. We have nothing to report arising from our review.

Respective responsibilities of Directors and Auditor

As explained more fully in the Directors’ Responsibilities Statement, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. We also comply with International Standard on Quality Control 1 (UK and Ireland). Our audit methodology and tools aim to ensure that our quality control procedures are effective, understood and applied. Our quality controls and systems include our dedicated professional standards review team and independent partner reviews.

This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and/or those further matters we have expressly agreed to report to them on in our engagement letter and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s and the Parent Company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Timothy Biggs FCA (Senior statutory auditor)

for and on behalf of Deloitte LLP

Chartered Accountants and Statutory Auditor

London, United Kingdom

25 April 2016

FINANCIAL STATEMENTS OF CADOGAN PETROLEUM PLC

Consolidated Income Statement

Consolidated Statement of Comprehensive Income

For the year ended 31 December 2015

Consolidated Balance Sheet

As at 31 December 2015

The consolidated financial statements of Cadogan Petroleum plc, registered in England and Wales no. 5718406, were approved by the Board of Directors and authorised for issue on 25 April 2016. They were signed on its behalf by:

Guido Michelotti

Chief Executive Officer

25 April 2016

The notes on pages 57 to 95 form an integral part of these financial statements.

Consolidated Cash Flow Statement

For the year ended 31 December 2015

Consolidated Statement of Changes in Equity for the year ended 31 December 2015

Notes to the Consolidated Financial Statements

For the year ended 31 December 2015

1.General information

Cadogan Petroleum plc (the “Company”, together with its subsidiaries the “Group”), is registered in England and Wales under the Companies Act 2006. The address of the registered office is c/o Bridgehouse Company Secretaries Ltd, Unit 205, Clerkenwell Workshops, 31 Clerkenwell Close, London EC1R 0AT. The nature of the Group’s operations and its principal activities are set out in the Operations Review on pages 8 to 9 and the Financial Review on pages 10 to 12.

2.Adoption of new and revised Standards

The accounting policies applied are consistent with those adopted and disclosed in the Group financial statements for the year ended 31 December 2014, except for changes arising from the adoption of the following new accounting pronouncements which became effective in the current reporting period:

Amendments to IAS 19 Employee Benefits: Defined Benefit Plans –Employee Contributions.

Annual Improvements to IFRSs 2010-2012 cycle

Annual Improvements to IFRSs 2011-2013 cycle

The adoption of these new accounting pronouncements has not had a significant impact on the accounting policies, methods of computation or presentation applied by the Group. The Group has not early adopted any other amendment, standard or interpretation that has been issued but is not yet effective. It is expected that where applicable, these standards and amendments will be adopted on each respective effective date.

New IFRS accounting standards, amendments and interpretations not yet adopted

The following new IFRS accounting standards in issue but not yet effective are expected to have a significant impact on the Group:

IFRS 15 Revenue from Contracts with Customers

IFRS 15 will replace IAS 18 Revenue and IAS 11 Construction Contracts and establishes a unified framework for determining the timing, measurement and recognition of revenue. The principle of the new standard is to recognise revenue as performance obligations are met rather than based on the transfer of risks and rewards.

The effective date of the standard has been deferred to 1 January 2018 to allow companies more time to deal with transitional issues of application.

The Group is currently reviewing the potential impact of adopting IFRS 15 with the primary focus being understanding those sales contracts where the timing and amount of revenue recognised could differ under IFRS 15, which may occur for example if contracts with customers incorporate performance obligations not currently recognised separately, or where such contracts incorporate variable consideration. As the Group’s revenue is predominantly derived from arrangements in which the transfer of risks and rewards coincides with the fulfilment of performance obligations, the timing and amount of revenue recognised is unlikely to be materially affected for the majority of sales.

IFRS 15 also includes disclosure requirements including qualitative and quantitative information about contracts with customers to help users of the financial statements understand the nature, amount, timing and uncertainty of revenue.

In addition to the potential accounting implications outlined above, the implementation of IFRS 15 is expected to impact the Group’s systems, processes and controls. The Group will start developing a transition plan to identify and implement the required changes during 2016.

IFRS 9 Financial Instruments

IFRS 9 will replace IAS 39 Financial Instruments: Recognition and Measurement and addresses the following three key areas:

Classification and measurement establishes a single, principles-based approach for the classification of financial assets, which is driven by cash flow characteristics and the business model in which an asset is held. This is expected to have a number of presentational impacts on the Group financial statements including changes in the presentation of gains and losses on financial assets and liabilities carried at fair value on the balance sheet.

Impairment introduces a new ‘expected credit loss’ impairment model, requiring expected credit losses to be recognised from when financial instruments are first recognised. The transition to this model is expected to result in changes in the systems and computational methods used by the Group to assess receivables and similar assets for impairment. However, given the profile of the Group’s counterparty exposures, this is not expected to have a material impact on the amounts recorded in the financial statements.

Hedge Accounting aligns the accounting treatment with risk management practices of an entity, including making a broader range of exposures eligible for hedge accounting and introducing a more principles-based approach to assessing hedge effectiveness. The adoption of IFRS 9 will not require changes to existing hedging arrangements but may provide scope to apply hedge accounting to a broader range of transactions in the future.

IFRS 9 is effective for annual reporting periods beginning on or after 1 January 2018.

The Group’s implementation activities to date have principally focused on gaining a high level understanding of the likely effects of IFRS 9 given the nature of financial instruments held by the Group. A more detailed impact analysis and transition activities will be undertaken during 2016.

IFRS 16 Leases

IFRS 16 replaces the following standards and interpretations: IAS 17 Leases and IFRIC 4 Determining whether an Arrangement contains a Lease. The new standard provides a single lessee accounting model for the recognition, measurement, presentation and disclosure of leases. IFRS 16 applies to all leases including subleases and requires lessees to recognise assets and liabilities for all leases, unless the lease term is 12 months or less, or the underlying asset has a low value. Lessors continue to classify leases as operating or finance.

IFRS 16 was issued in January 2016 and applies to annual reporting periods beginning on or after 1 January 2019. The Group will evaluate the potential impact of IFRS 16 on the financial statements and performance measures. This will include an assessment of whether any arrangements the Group enters into will be considered a lease under IFRS 16.

Standards and Interpretations in issue but not effective

The following new amendments and interpretations in issue but not yet effective are not expected to have a significant impact on the Group:

Amendments to IAS 1 Presentation of Financial Statements: Disclosure Initiative provides guidance on the use of judgement in presenting financial statement information, including: the application of materiality; order of notes; use of subtotals; accounting policy referencing and disaggregation of financial and non-financial information.

Amendments to IAS 27 Equity Method in Separate Financial Statements will allow entities to use the equity method in their separate financial statements to measure investments in subsidiaries, joint ventures and associates.

Amendments to IAS 16 Property, Plant and Equipment and IAS 38 Clarification of Acceptable Methods of Depreciation clarify that a revenue based method of depreciation or amortisation is generally not appropriate.

Amendments to IFRS 10 Consolidated Financial Statements and IAS 28 Joint Ventures: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture remove an inconsistency between the two standards on the accounting treatment for gains and losses arising on the sale or contribution of assets by an investor to its associate or joint venture. Following the amendment, such gains and losses may only be recognised to the extent of the unrelated investor’s interest, except where the transaction involves assets that constitute a business.

Amendments to IFRS 11 Accounting for Acquisitions of Interests in Joint Operations and IAS 28 Investments in Associates and Joint Ventures clarify the accounting for the acquisition of an interest in a joint operation where the activities of the operation constitute a business.

Other issued standards and amendments that are not yet effective are not expected to have an impact on the financial statements.

3.  Significant accounting policies

a) Basis of accounting

The financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and as adopted by the European Union (“EU”), and therefore the Group financial statements comply with Article 4 of the EU IAS Regulation.

The financial statements have been prepared on the historical cost convention basis, except for share-based payments, accounting for the WGI transaction and other financial assets and liabilities, which have been measured at fair values and using accounting policies consistent with IFRS.

The principal accounting policies adopted are set out below:

b) Going concern

The Group's business activities, together with the factors likely to affect future development, performance and position are set out in the Strategic Report on pages 3 to 19. The financial position of the Group, its cash flow and liquidity position are described in the Financial Review on pages 10 to 12.

The Group’s cash balance at 31 December 2015 was $49.4 million (2014: $48.9 million) excluding $0.9 million (2014: $0.5 million) of Cadogan’s share of cash and cash equivalents in joint ventures. It includes $20 million of restricted cash held in UK bank which represent security of borrowings (note 24). The Directors believe that the funds available at the date of the issue of these financial statements are sufficient for the Group to manage its business risks successfully.

The Group’s forecasts and projections, taking into account reasonably possible changes in trading activities, operational performance, start dates and flow rates for commercial production and the price of hydrocarbons sold to Ukrainian customers, show that there are reasonable expectations that the Group will be able to operate on funds currently held and those generated internally, for the foreseeable future.

The Group continues to pursue its farm-out campaign, which, if successful, will enable it to farm-out a portion of its interests in its oil and gas licences to spread the risks associated with further exploration and development.

After making enquiries and considering the uncertainties described above, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future and consider the going concern basis of accounting to be appropriate and, thus, they continue to adopt the going concern basis of accounting in preparing the annual financial statements. In making its statement the Directors have considered the recent political and economic situation in Ukraine, as described further in the note 4 (e).

c) Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 December each year. IFRS 10 defines control to be investor control over an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to control those returns through its power over the investee.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring accounting policies used into line with those used by the Group. All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Non-controlling interests in subsidiaries are identified separately from the Group’s equity therein. Those interests of non-controlling shareholders that are present ownership interests entitling their holders to a proportionate share of net assets upon liquidation may be initially measured at fair value or at the non-controlling interests’ proportionate share of the fair value of the acquiree’s identifiable net assets. The choice of measurement is made on an acquisition-by-acquisition basis. Other non-controlling interests are initially measured at fair value.

Subsequent to acquisition, the carrying amount of non-controlling interests is the amount of those interests at initial recognition plus the non-controlling interests’ share of subsequent changes in equity. Total comprehensive income is attributed to non-controlling interests even if this results in the non-controlling interests having a deficit balance.

Changes in the Group’s interests in subsidiaries that do not result in a loss of control are accounted for as equity transactions. The carrying amount of the Group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to the owners of the Company.

When the Group loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), less liabilities of the subsidiary and any non-controlling interests. Amounts previously recognised in other comprehensive income in relation to the subsidiary are accounted for (i.e. reclassified to profit or loss or transferred directly to retained earnings) in the same manner as would be required if the relevant assets or liabilities are disposed of. The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IAS 39 Financial Instruments: Recognition and Measurement or, when applicable, the costs on initial recognition of an investment in an associate or jointly controlled entity.

d) Business combinations

The acquisition of subsidiaries is accounted for using the acquisition method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 Business Combinations are recognised at their fair value at the acquisition date, except for non-current assets (or disposal groups) that are classified as held for resale in accordance with IFRS 5 Non-Current Assets held for sale and Discontinued Operations. These are recognised and measured at fair value less costs to sell.

e) Investments in joint ventures

A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. A joint venture firm recognises its interest in a joint venture as an investment and shall account for that investment using the equity method in accordance with IAS 28 Investments in Associates and Joint Ventures.

Under the equity method, the investment is carried on the balance sheet at cost plus changes in the Group’s share of net assets of the entity, less distributions received and less any impairment in value of the investment. The Group Consolidated Income Statement reflects the Group’s share of the results after tax of the equity-accounted entity, adjusted to account for depreciation, amortisation and any impairment of the equity accounted entity’s assets. The Group Statement of Comprehensive Income includes the Group’s share of the equity-accounted entity’s other comprehensive income.

Financial statements of equity-accounted entities are prepared for the same reporting year as the Group. The Group assesses investments in equity-accounted entities for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If any such indication of impairment exists, the carrying amount of the investment is compared with its recoverable amount, being the higher of its fair value less costs of disposal and value in use. If the carrying amount exceeds the recoverable amount, the investment is written down to its recoverable amount.

The Group ceases to use the equity method of accounting from the date on which it no longer has joint control over the joint venture or significant influence over the associate, or when the interest becomes classified as an asset held for sale.

f) Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for hydrocarbon products and services provided in the normal course of business, net of discounts, value added tax (‘VAT’) and other sales-related taxes. Sales of hydrocarbons are recognised when the title has passed. Revenue from services is recognised in the accounting period in which services are rendered. The main types of services provided by the Group are drilling and civil works services.

Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition.

To the extent that revenue arises from test production during an evaluation programme, an amount is charged from evaluation costs to cost of sales, so as to reflect a zero net margin.

g) Foreign currencies

The individual financial statements of each Group company are presented in the currency of the primary economic environment in which it operates (its functional currency). The functional currency of the Company is pounds sterling. For the purpose of the consolidated financial statements, the results and financial position of each Group company are expressed in US dollars, which is the presentation currency for the consolidated financial statements.

In preparing the financial statements of the individual companies, transactions in currencies other than the functional currency of each Group company (‘foreign currencies’) are recorded in the functional currency at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated into the functional currency at the rates prevailing on the balance sheet date. Non-monetary assets and liabilities carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Foreign exchange differences on cash and cash equivalents are recognised in operating profit or loss in the period in which they arise.

Exchange differences are recognised in the profit or loss in the period in which they arise except for exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur. This forms part of the net investment in a foreign operation which is recognised in the foreign currency translation reserve and in profit or loss on disposal of the net investment.

For the purpose of presenting consolidated financial statements, the results and financial position of each entity of the Group are translated into US dollars as follows:

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

h) Taxation 

The tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the consolidated income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. This is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited in other comprehensive income, in which case the deferred tax is also dealt with in other comprehensive income.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

i) Other property, plant and equipment

Property, plant and equipment (‘PP&E’) are carried at cost less accumulated depreciation and any recognised impairment loss. Depreciation and amortisation is charged so as to write-off the cost or valuation of assets, other than land, over their estimated useful lives, using the straight-line method, on the following bases:

Buildings 4%

Fixtures and equipment 10% to 30%

The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in income.

j) Impairment of development and production assets and other property, plant and equipment

At each balance sheet date, the Group reviews the carrying amounts of its PP&E to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. The recoverable amount is the higher of fair value less costs to sell and value in use. 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 for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately.

k) Intangible exploration and evaluation assets

The Group applies the modified full cost method of accounting for intangible exploration and evaluation (‘E&E’) expenditure which complies with requirement set out in IFRS 6 Exploration for and Evaluation of Mineral Resources. Under the modified full cost method of accounting, expenditure made on exploring for and evaluating oil and gas properties is accumulated and initially capitalised as an intangible asset, by reference to appropriate cost centres being the appropriate oil or gas property. E&E assets are then assessed for impairment on a geographical cost pool basis.

E&E assets comprise costs of (i) E&E activities which are in progress at the balance sheet date, but where the existence of commercial reserves has yet to be determined (ii) E&E expenditure which, whilst representing part of the E&E activities associated with adding to the commercial reserves of an established cost pool, did not result in the discovery of commercial reserves.

Costs incurred prior to having obtained the legal rights to explore an area are expensed directly to the income statement as incurred.

Exploration and Evaluation costs

E&E expenditure is initially capitalised as an E&E asset. Payments to acquire the legal right to explore, costs of technical services and studies, seismic acquisition, exploratory drilling and testing are also capitalised as intangible E&E assets.

Tangible assets used in E&E activities (such as the Group’s vehicles, drilling rigs, seismic equipment and other property, plant and equipment) are normally classified as PP&E. However, to the extent that such assets are consumed in developing an intangible E&E asset, the amount reflecting that consumption is recorded as part of the cost of the intangible asset. Such intangible costs include directly attributable overheads, including the depreciation of PP&E items utilised in E&E activities, together with the cost of other materials consumed during the exploration and evaluation phases.

E&E assets are not amortised prior to the conclusion of appraisal activities.

Treatment of E&E assets at conclusion of appraisal activities

Intangible E&E assets related to each exploration property are carried forward, until the existence (or otherwise) of commercial reserves has been determined. If commercial reserves have been discovered, the related E&E assets are assessed for impairment on individual assets basis as set out below and any impairment loss is recognised in the income statement. Upon approval of a development programme, the carrying value, after any impairment loss, of the relevant E&E assets is reclassified to the development and production assets within PP&E.

Intangible E&E assets that relate to E&E activities that are determined not to have resulted in the discovery of commercial reserves remain capitalised as intangible E&E assets at cost less accumulated amortisation, subject to meeting a pool-wide impairment test in accordance with the accounting policy for impairment of E&E assets set out below.

Impairment of E&E assets

E&E assets are assessed for impairment when facts and circumstances suggest that the carrying amount may exceed its recoverable amount. Such indicators include, but are not limited to, those situations outlined in paragraph 20 of IFRS 6 Exploration for and Evaluation of Mineral Resources and include the point at which a determination is made as to whether or not commercial reserves exist.

Where there are indications of impairment, the E&E assets concerned are tested for impairment. Where the E&E assets concerned fall within the scope of an established full cost pool, they are tested for impairment together with all development and production assets associated with that cost pool, as a single cash generating unit.

The aggregate carrying value of the relevant assets is compared against the expected recoverable amount of the pool, generally by reference to the present value of the future net cash flows expected to be derived from production of commercial reserves from that pool. Where the assets fall into an area that does not have an established pool or if there are no producing assets to cover the unsuccessful exploration and evaluation costs, those assets would fail the impairment test and be written off to the income statement in full.

Impairment losses are recognised in the income statement as additional depreciation and amortisation and are separately disclosed.

Reclassification from development and production assets back to exploration and evaluation

Where development efforts are unsuccessful in the target geological formation of the licence area but the Company see a potential for oil and gas discoveries in other geological formations of the same licence area, reclassification of recoverable amount of assets from development and production assets back to exploration and evaluation is appropriate following the impermanent assessment.

l) Development and production assets

Development and production assets are accumulated 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 transferred from intangible E&E assets.

The cost of development and production assets comprises the cost of acquisitions and purchases of such assets, directly attributable overheads, finance costs capitalised, and the cost of recognising provisions for future restoration and decommissioning.

Depreciation of producing assets

Depreciation is calculated on the net book values of producing assets on a field-by-field basis using the unit of production method. The unit of production method refers to the ratio of production in the reporting year as a proportion of the Proved and Probable Reserves of the relevant field, taking into account future development expenditures necessary to bring those Reserves into production.

Producing assets are generally grouped with other assets that are dedicated to serving the same Reserves for depreciation purposes, but are depreciated separately from producing assets that serve other Reserves.

m) Inventories

Oil and gas stock and spare parts are stated at the lower of cost and net realisable value. Costs comprise direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is allocated using the weighted average method. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.

n) Financial instruments

Recognition of financial assets and financial liabilities

Financial assets and financial liabilities are recognised on the Group’s balance sheet when the Group becomes a party to the contractual provisions of the instrument.

Derecognition of financial assets and financial liabilities

The Group derecognises a financial asset only when the contractual rights to cash flows from the asset expire; or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for the amount it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.

The Group derecognises financial liabilities when the Group’s obligations are discharged, cancelled or expired.

Financial assets

The Group classifies its financial assets in the following categories: loans and receivables; available-for-sale financial assets; held to maturity investments; and financial assets at fair value through profit or loss (“FVTPL”). The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition and re-evaluates this designation at every reporting date.

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for those with maturities greater than twelve months after the balance sheet date which will then be classified as non-current assets. Loans and receivables are classified as “other receivables” and “cash and cash equivalents” in the balance sheet.

Trade and other receivables

Trade and other receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest rate method.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand, on-demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash with three months or less remaining to maturity and are subject to an insignificant risk of changes in value.

Restricted cash balances represent components of cash and cash equivalents that are not available for use by the Group.

Financial assets at FVTPL

Financial assets at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognised in pro?t or loss which is included in the ‘Other gains and losses’ line item in the consolidated income statement.

Impairment of financial assets

Financial assets, other than those at FVTPL, are assessed for indicators of impairment at each balance sheet date. Appropriate allowances for estimated irrecoverable amounts are recognised in profit or loss when there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between the asset’s carrying amount of the financial asset and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition.

Evidence of impairment could include:

significant financial difficulty of the issuer or counterparty;

default or delinquency in interest or principal payments; or

it becoming probable that the borrower will enter bankruptcy or financial re-organisation.

For certain categories of financial assets, such as trade receivables, assets that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis.

The carrying amount of the financial assets is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. 

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

Financial liabilities

Financial liabilities are classi?ed as either ?nancial liabilities ‘at FVTPL’ or ‘other ?nancial liabilities’

Financial liabilities at FVTPL

Financial liabilities at FVTPL are stated at fair value, with any resultant gain or loss recognised in profit or loss and is included in the ‘Other gains and losses’ line item in the income statement. Fair value is determined in the manner described in note 28.

Trade payables and short-term borrowings

Trade payables and short-term borrowings are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method.

o) Provision

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle that obligation and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the balance sheet date, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.

p) Decommissioning

A provision for decommissioning is recognised in full when the related facilities are installed. The decommissioning provision is calculated as the net present value of the Group’s share of the expenditure expected to be incurred at the end of the producing life of each field in the removal and decommissioning of the production, storage and transportation facilities currently in place. The cost of recognising the decommissioning provision is included as part of the cost of the relevant asset and is thus charged to the income statement on a unit of production basis in accordance with the Group’s policy for depletion and depreciation of tangible non-current assets. Period charges for changes in the net present value of the decommissioning provision arising from discounting are included within finance costs.

4. Critical accounting judgements and key sources of estimation uncertainty

In the application of the Group’s accounting policies, which are described in note 3, the Directors are required to make judgements, estimates and assumptions about the carrying amounts of the assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both the current and future periods.

The following are the critical judgements and estimates that the Directors have made in the process of applying the Group’s accounting policies and that have the most significant effect on the amounts recognised in the financial statements:

a) Impairment of E&E

The outcome of ongoing exploration, and therefore the recoverability of the carrying value of intangible exploration and evaluation assets, is inherently uncertain. Management makes the judgements necessary to implement the Group’s policy with respect to exploration and evaluation assets and considers these assets for impairment at least annually with reference to indicators in IFRS 6.

b) Impairment of development and production assets

IAS 36 Impairment of Assets require that a review for impairment to be carried out if events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Management assessed whether any impairment triggers were present at 31 December 2015 and concluded that there were no impairment indicators for the PP&E assets of the Group.

c) Impairment of investment in joint ventures

The Group’s investments in joint ventures are accounted for using the equity method. The carrying value of the Group’s investments is reviewed at each balance sheet date. This review requires estimation of the future cash flows expected to be received by the Group mainly from the joint ventures’ exploration and evaluation assets. As of 31 December 2015 exploration and evaluation assets of the joint venture entity LLC Industrial Company Gazvydobuvannya have been assessed for impairment through calculation of the recoverable amount as a fair value less cost to sell. As a result impairment has been recognised in the accounts of the joint venture and the Group’s share was included in the consolidated financial statements as share of losses in joint ventures. Further details are provided in note 19.

Assessment of political and economic situation in Ukraine impact on Group operations

In 2015, an armed conflict with separatists continued in certain parts of Luhansk and Donetsk regions, and a peaceful resolution of the conflict did not occur as it was foreseen by the Minsk agreements. In 2015, the Ukrainian economy was going through a recession, a gross domestic product has contracted by 10% (2014: 7%), and an annual inflation rate reached 43% (2014: 25%). Unfavourable conditions on markets where Ukraine’s primary commodities where traded were influencing further devaluation of the Ukrainian Hryvnia against major foreign currencies. The Ukrainian companies and banks continued to suffer from lack of funding from domestic and international financial markets. The National Bank of Ukraine (the “NBU”) extended its range of measures that were introduced in 2014 and aimed at limiting the outflow of foreign currency from the country, inter alia, a mandatory sale of foreign currency earnings, certain restrictions on purchases of foreign currencies on the interbank market and on usage of foreign currencies for settlement purposes, limitations on remittances abroad.

In early 2015, the Government of Ukraine agreed with the IMF a four-year program for USD 17.5 billion loan aimed at supporting the economic stabilization of Ukraine. The program defines economic reforms that must be undertaken by the Government of Ukraine to reinstate a sustainable economic growth in the mid-term perspective. In 2015, political and economic relationships between Ukraine and the Russian Federation remained strained that led to a significant reduction in trade and economic cooperation. On 1 January 2016, a free-trade element of Ukraine’s association agreement with the European Union is coming into force. In late 2015, the Russian Federation denounced the free trade zone agreement with Ukraine and further trade restrictions were announced by both countries.

Stabilization of the economic and political situation depends, to a large extent, upon the ability of the Ukrainian Government to continue reforms and the efforts of the NBU to further stabilize the banking sector, as well as upon the ability of the Ukrainian economy in general to respond adequately to changing markets. Nevertheless, further economic and political developments, as well as the impact of the above factors on the Group, its customers, and contractors are currently difficult to predict.

Management is monitoring how the political and economic situation may affect the Group operations, and has considered whether adjustments are required to the carrying values of assets and the appropriateness of the going concern assumption. As a result management have concluded that there were no significant adverse consequences in relation to the Group’s operations, cash flows and assets that impact the 2015 financial statements, apart from continuous uncertainty related to key assumptions used by management in assessment of the recoverable amount of production assets as described above. Management noted that none of the Group’s assets are located in areas of current conflict. Though not predictable and quite improbable, any further escalations of the political crisis may impact the Group’s normal business activities, and increase the risks relating to its business operations, financial status and maintenance of its Ukrainian production licences.

5. Segment information

Segment information is presented on the basis of management’s perspective and relates to the parts of the Group that are defined as operating segments. Operating segments are identified on the basis of internal reports provided to the Group’s chief operating decision maker (“CODM”). The Group has identified its top management team as its CODM and the internal reports used by the top management team to oversee operations and make decisions on allocating resources serve as the basis of information presented. These internal reports are prepared on the same basis as these consolidated financial statements.

Segment information is analysed on the basis of the type of activity, products sold or services provided.

The majority of the Group’s operations are located within Ukraine.

Segment information is analysed on the basis of the types of goods supplied by the Group’s operating divisions. The Group’s reportable segments under IFRS 8 are therefore as follows:

Exploration and Production

E&P activities on the production licences for natural gas, oil and condensate

Service

Drilling services to exploration and production companies

Civil works to exploration and production companies

Trading

Import of natural gas and diesel from European countries

Local purchase and sales of natural gas operations with physical delivery of natural gas

The accounting policies of the reportable segments are the same as the Group’s accounting policies described in Note 3. Sales between segments are carried out at market prices. The segment result represents operating profit under IFRS before unallocated corporate expenses. Unallocated corporate expenses include management remuneration, representative expenses and expenses incurred in respect of the maintenance of office premises. This is the measure reported to the CODM for the purposes of resource allocation and assessment of segment performance.

The Group does not present information on segment assets and liabilities as the CODM does not review such information for decision-making purposes.

As of 31 December 2015 and for the year then ended the Group’s segmental information was as follows:

(1) Impairment loss recognised in 2015 of $10.3 million related to exploration and production segment.

(2) Share of losses in joint ventures includes $9.1 million of impairment loss that relates to exploration and production segment.

As of 31 December 2014 and for the year then ended the Group’s segmental information was as follows:

(1) Impairment loss recognised in 2014 of $5.1 million related to exploration and production segment.

6. Revenue

Other revenues include revenues from services provided to third parties of $0.4 million (2014: $0.8 million).

Information about major customers

Included in revenues for the year ended 31 December 2015 are revenues of $35.7 million (2014: $25.3 million) which arose from sales to the Group’s two largest customer. None other single customers contributed 10% or more to the Group revenue for both 2015 and 2014 years.

7. Other operating income, net

8. Impairment

The carrying value of inventory as at 31 December 2015 and 2014 has been impaired to reduce it to net realisable value (see note 20). During 2015, the Group gross sales of inventory to third parties comprised $0.1 million (2014: $0.1 million).

During the year VAT impairment in the amount of $1.3 million (2014: $1.1 million) has been released mainly as a result VAT recovery of historical balances through offset of VAT liabilities arising on sales.

9. Loss for the year

The loss for the year has been arrived at after (charging)/crediting:

In addition to the depreciation of PP&E of $nil million (2014: $0.9 million) in the year ended 31 December 2015, depreciation of $nil million (2014: $0.04 million) was capitalised to E&E assets being depreciation of tangible assets used in E&E activities.

10. Auditor's remuneration

The analysis of auditor’s remuneration is as follows:

11. Staff costs

The average monthly number of employees (including Executive Directors) was:

Within wages and salaries $0.9 million (2014: $0.8 million) relates to amounts accrued and paid to executive Directors for services rendered.

Included within wages and salaries is $0.1 million (2014: $0.4 million) capitalised to intangible E&E assets and $0.1 million (2014: $nil) capitalised to development and production assets.

12. Investment income

13. Finance costs

14. Tax

The Group’s operations are conducted primarily outside the UK. The most appropriate tax rate for the Group is therefore considered to be 18 per cent (2014: 18 per cent), the rate of profit tax in Ukraine which is the primary source of revenue for the Group. Taxation for other jurisdictions is calculated at the rates prevailing in the respective jurisdictions.

As at 31 December 2015 the Group recognised short-term provision in respect of possible corporate tax obligation in respect of dispute on classification taxable income and expenses (note 26).

The taxation charge for the year can be reconciled to the loss per the income statement as follows:

15. Loss per ordinary share

 Basic loss per Ordinary share is calculated by dividing the net loss for the year attributable to owners of the Company by the weighted average number of Ordinary shares outstanding during the year. The calculation of the basic loss per share is based on the following data:

The Group has no potentially dilutive instruments in issue. Therefore no diluted loss per share is presented above. 

16. Intangible exploration and evaluation assets

During the year additions to the exploration and evaluation assets include $nil million (2014: $0.1 million) of capitalised depreciation of development and production assets used in exploration and evaluation activities.

As at 31 December 2015, due to the expiration of the Pirkovska licence and uncertainty as for the timing for the licence re-awarding due to the change in the legislative process and respective delays in responses from the government authorities, the Group decided to impair E&E assets of Pirkovska licence in the amount of $10.1 million.

The carrying amount of E&E assets as at 31 December 2015 of $2.7 million (2014: $3.6 million) mainly relates to Bitlyanska licence. As of 31 December 2015 management of the Group carried out the assessment of the Bitlyanska licences value in use and recognised no impairment as recoverable amount was higher than the book value of the assets. Key assumptions used in the impairment assessment were as follows:

Future gas price was assumed to be flat $210, real per m3;

The pre-tax discount rate used was 24%, real.

17. Property, plant and equipment

As of 31 December 2015 management of the Group carried out the assessment of the Debeslavetska and Cheremkhivska licences value in use and recognised an impairment of these oil and gas assets of $0.4 million. Recoverable amount was assessed at $nil million as at 31 December 2015.

Key assumptions used in the impairment assessment were as follows:

Future gas price was assumed to be flat $210, real per m3;

The pre-tax discount rate used was 24%, real.

During the year ended 31 December 2015 the depreciation charge of $nil million (2014: $0.1 million) of development and production assets used in exploration and evaluation activities has been capitalised and accounted as additions to the exploration and evaluation assets (note 16).

18. Subsidiaries

The Company had investments in the following subsidiary undertakings as at 31 December 2015, which principally affected the profits and net assets of the Group:

19. Joint ventures 

All of the above joint ventures are accounted for using the equity method in these consolidated financial statements. According to the shareholders’ agreements, which regulate the activities of the jointly controlled entities, all key decisions require unanimous approval from the shareholders, therefore these entities are jointly controlled.

Summarised financial information in respect of each of the Group’s material joint ventures is set out below. The summarised financial information below represents amounts shown in the joint venture’s financial statements prepared in accordance with IFRSs.

LLC Astroinvest-Energy

LLC Industrial Company Gazvydobuvannya

As of 31 December 2015 joint venture LLC Industrial Company Gazvydobuvannya conducted an impairment assessment of its exploration and evaluation assets. The impairment charge of $12.6 million recognised as the result of exploration and evaluation assets value recoverability assessment was included in the loss for the period.

Key assumptions used in the impairment assessment were as follows:

Future gas price was assumed to be flat $210, real per m3;

The pre-tax discount rate used was 24%, real.

LLC Westgasinvest

Notes to the Consolidated Financial Statements (continued)

For the year ended 31 December 2015

The carrying amounts of the Group’s interest in joint ventures recognized in the financial statements of the Group using the equity method are set out in the tables below:

The Group is committed together with ENI to fund LLC Astroinvest-Energy subsequently to the year end with the necessary amount of $2.5 million in order to close current liabilities of the joint venture. Most of the funds will be used to repay the costs charged by the partners.

20. Inventories

The impairment provision as at 31 December 2015 and 2014 is made so as to reduce the carrying value of the obsolete inventories to net realisable value. During 2015 impairment charge $0.1 million (2014: $0.4 million) has been recognised in respect of other inventories. 

21. Trade and other receivables

Trading prepayments represent actual payments made by the Group to suppliers for the January 2016 gas supply.

Trading receivables represent current receivables from customers and are to be repaid within three months after the year end. As of 31 December 2015 there were no past due receivables and no related impairment provision. The Group considers that the carrying amount of receivables approximates their fair value.

VAT recoverable is presented net of the cumulative provision of $1.1 million (2014: $4.4 million) against Ukrainian VAT receivable has been recognised as at 31 December 2015.

Receivable from joint ventures comprise $1.0 million from Astroinvest-Energy LLC (2014: $1.2 million) and $0.8 million from Gazvydobuvannya LLC (2014: $0.7 million).

22. Cash and cash equivalents

Cash and cash equivalents as at 31 December 2015 of $49.4 million (2014: $48.9 million) comprise cash held by the Group. The Directors consider that the carrying amount of these assets approximates to their fair value.

As of 31 December 2015 part of the cash and cash equivalents in amount of $20 million related to security of borrowings and held at UK bank is considered to be restricted cash balance (note 24).

23. Deferred Tax

The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and prior reporting period:

At 31 December 2015, the Group had the following unused tax losses available for offset against future taxable profits:

Deferred tax assets have not been recognised in respect of these tax losses owing to the uncertainty that profits will be available in future periods against which they can be utilised.

The Group’s unused tax losses of $9.1 million (2014: $10.3 million) relating to losses incurred in the UK are available to shelter future non-trading profits arising within the Company. These losses are not subject to a time restriction on expiry.

Unused tax losses incurred by Ukraine subsidiaries amount to $78.9 million (2014: $69.0 million). Under general provisions, these losses may be carried forward indefinitely to be offset against any type of taxable income arising from the same company of origination. Tax losses may not be surrendered from one Ukraine subsidiary to another. However, in the past, Ukrainian legislation has been imposed which restricted the carry forward of tax losses. During 2011 a new tax legislation in Ukraine was implemented which resulted in the restriction to recognition of accumulated losses at 1 April 2011. Starting 1 January 2012 only 25% of accumulated losses as at this date are allowed to be utilised each year for the period from 2012 till 2015 in the calculation of taxable income of the company. Tax losses accumulated after 1 January 2012 have no restrictions.

24. Short-term borrowing

In October 2014 the Group started to use short-term borrowings as a financing facility for its trading activities. Borrowings are represented by credit line drawn in short-term tranches in UAH at Ukrainian bank, 100% subsidiary of UK bank. Credit line is secured by $20 million of cash balance placed at the European bank in the UK.

Outstanding amount as at 31 December 2015 was $12.9 million (2014: $17.3 million) with effective interest rate 20%p.a. (2014: 16%p.a.). Interest is paid monthly and as at 31 December 2015 accrued interest amounted to $0.2 million (2014: $0.2 million).

Outstanding amount as at 31 December 2015 was $12.9 million (2014: $17.3 million) with average effective interest rate 20%p.a. (2014: 16%p.a.). Interest is paid monthly and as at 31 December 2015 accrued interest amounted to $0.2 million (2014: $0.2 million).

25. Trade and other payables

Prepayments received represent payments from the customers for the natural gas to be supplied in January 2016.

Trading payables represent liability to suppliers for the natural gas supply in December 2015.

Trade creditors and accruals principally comprise amounts outstanding for capital work programme purchases and ongoing costs. The average credit period taken for trade purchases is 24 days (2014: 91 days). The Group has financial risk management policies to ensure that all payables are paid within the credit timeframe.

The Directors consider that the carrying amount of trade and other payables approximates to their fair value. No interest is generally charged on outstanding balances.

26. Provisions

The provisions at 31 December 2015 comprise of $2.3 million of probable tax obligation and decommissioning provision.

As at 31 December 2015 the Group recognised short-term provision in respect of possible corporate tax obligation in respect of dispute on classification taxable income and expenses. The Group appealed to the Tribunal, however given the uncertainty around the final position the provision of $1.3 million (£0.9 million) and up to $0.2 million (£0.1 million) of interest was recognised in the financial statements.

Decommissioning

In accordance with the Group’s environmental policy and applicable legal requirements, the Group intends to restore the sites it is working on after completing exploration or development activities. 

A short-term provision of $6 thousand (2014: $0.6 million) has been made for decommissioning costs, which are expected to be incurred within the next year as a result of the demobilisation of drilling equipment and respective site restoration. In addition to that there isa short-term provision for decommissioning costs at Zagoryanska licence of $3.7 million and at Pokrovska licence of $1.9 million in the account of joint ventures (note 19).

The long-term provision recognised in respect of decommissioning reflects management’s estimate of the net present value of the Group’s share of the expenditure expected to be incurred in this respect. This amount has been recognised as a provision at its net present value, using a discount rate that reflects the market assessment of time value of money at that date, and the unwinding of the discount on the provision has been charged to the income statement. These expenditures are expected to be incurred at the end of the producing life of each field in the removal and decommissioning of the facilities currently in place (currently estimated to be between 1 and 17 years).

27. Share capital

Authorised and issued equity share capital

Authorised but unissued share capital of £30 million has been translated into US dollars at the historic exchange rate of the issued share capital. The Company has one class of Ordinary shares which carry no right to fixed income.

Issued equity share capital

28. Financial instruments

Capital risk management

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern, while maximising the return to shareholders.

The capital resources of the Group consists of cash and cash equivalents arising from equity attributable to owners of the Company, comprising issued capital, reserves and retained earnings as disclosed in the Consolidated Statement of Changes in Equity. 

Externally imposed capital requirement

The Group is not subject to externally imposed capital requirements.

Categories of financial instruments

Financial risk management objectives

Management provides services to the business, co-ordinates access to domestic and international financial markets and monitors and manages the financial risks relating to the operations of the Group in Ukraine through internal risks reports which analyse exposures by degree and magnitude of risks. These risks include commodity price risks, foreign currency risk, credit risk, liquidity risk and cash flow interest rate risk. The Group does not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.

The Audit Committee of the Board reviews and monitors risks faced by the Group through meetings held throughout the year.

Interest rate risk

Interest rate risk arises from the possibility that changes in interest rates will affect the value of the financial instruments. The Group is not exposed to interest rate risk because entities of the Group borrow funds at fixed interest rates.

Commodity price risk

The commodity price risk related to Ukrainian gas and condensate prices and, to a lesser extent, prices for crude oil are the Group’s most significant market risk exposures. World prices for gas and crude oil are characterised by significant fluctuations that are determined by the global balance of supply and demand and worldwide political developments, including actions taken by the Organisation of Petroleum Exporting Countries.

These fluctuations may have a significant effect on the Group’s revenues and operating profits going forward. In 2015 the price for Ukrainian gas was mainly based on the current price of the European gas imports. Management continues to expect that the Group’s principal market for gas will be the Ukrainian domestic market.

The Group does not hedge market risk resulting from fluctuations in gas, condensate and oil prices, and holds no financial instruments which are sensitive to commodity price risk.

Foreign exchange risk and foreign currency risk management

The Group undertakes certain transactions denominated in foreign currencies. Hence, exposures to exchange rate fluctuations arise. The Group to date has elected not to hedge its exposure to the risk of changes in foreign currency exchange rates.

The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary liabilities at the reporting date are as follows:

Foreign currency sensitivity analysis

The Group is exposed primarily to movements in currencies against the US dollar as this is the presentation currency of the Group. In order to fund operations, US dollar funds are converted to UAH just before being contributed to the Ukrainian subsidiaries. Sensitivity analyses have been performed to indicate how the profit or loss would have been affected by changes in the exchange rate between the GBP and US dollar. The analysis is based on a weakening of the US dollar by 10 per cent against GBP, a functional currency in the entities of the Group which have significant monetary assets and liabilities at the end of each respective period. A movement of 10 per cent reflects a reasonably possible sensitivity when compared to historical movements over a three to five year timeframe. The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 10 per cent change in foreign currency rates.

A number below indicates a decrease in profit where US dollar strengthens 10 per cent against the other currencies. For a 10 per cent weakening of the US dollar against the other currencies, there would be an equal and opposite impact on the profit or loss, and the balances would be negative.

The Group is not exposed to significant foreign currency risk in other currencies.

The following table details the Group’s sensitivity to a 10 per cent decrease in the US dollar against the GBP.

Inflation risk management

Inflation in Ukraine and in the international market for oil and gas may affect the Group’s cost for equipment and supplies. The Directors will proceed with the Group’s practices of keeping deposits in US dollar accounts until funds are needed and selling its production in the spot market to enable the Group to manage the risk of inflation.

Credit risk management

Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Group. The Group’s credit management process includes the assessment, monitoring and reporting of counterparty exposure on a regular basis. Credit risk with respect to receivables and advances is mitigated by active and continuous monitoring the credit quality of its counterparties through internal reviews and assessment. Trading receivables as at 31 December 2015 have been paid within four months after year end.

The Group makes allowances for impairment of receivables where there is an identified event which, based on previous experience, is evidence of a reduction in the recoverability of cash flows.

The credit risk on liquid funds (cash) is considered to be limited because the counterparties are financial institutions with high and good credit ratings, assigned by international credit-rating agencies in the UK and Ukraine respectively.

The carrying amount of financial assets recorded in the financial statements represents the Group’s maximum exposure to credit risk.

Liquidity risk management

Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has built an appropriate liquidity risk management framework for the management of the Group’s short-, medium- and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate cash reserves and by continuously monitoring forecast and actual cash flows.

The following tables sets out details of the expected contractual maturity of financial liabilities.

29. Commitments and contingencies

Joint activity agreements

The Group has working interests in nine licences to conduct its exploration and development activities in Ukraine. Each licence is held with the obligation to fulfil a minimum set of exploration activities within its term and is summarised on an annual basis, including the agreed minimum amount forecasted expenditure to fulfil those obligations. The activities and proposed expenditure levels are agreed with the government licensing authority.

The required future financing of exploration and development work on fields under the licence obligations are as follow:

The Group has revised its minimum working programmes and resubmitted the required documentation to the government authorities; updated commitments have slightly increased for all licences from $1.1 million to $1.4 million. Licence obligations of the joint ventures as at 31 December 2015 amounted to $0.1 million (2014: $0.5 million) of obligations within one year and $nil million (2014: $0.4 million) of obligations between two and five years.

In addition to licence commitments, the Group is committed together with ENI to fund LLC Astroinvest-Energy subsequently to year end with the necessary amount of $2.2 million (2014: $2.3 million) in order to close current liabilities of the joint venture.

Tax contingent liabilities

The Group assesses its liabilities and contingencies for all tax years open for audit by UK and Ukraine tax authorities based upon the latest information available. For those matters where it is probable that an adjustment will be made, the Group records its best estimate of these tax liabilities, including related interest charges. Inherent uncertainties exist in estimates of tax contingencies due to complexities of interpretation and changes in tax laws.

Whilst the Group believes it has adequately provided for the outcome of these matters, certain periods are under audit by the UK and Ukraine tax authorities, and therefore future results may include favourable or unfavourable adjustments to these estimated tax liabilities in the period the assessments are made, or resolved. The final outcome of tax examinations may result in a materially different outcome than assumed in the tax liabilities.

30. Related party transactions

All transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. The application of IFRS 11 has resulted in the existing joint ventures LLC Astroinvest-Energy, LLC Gazvydobuvannya and LLC Westgasinvest being accounted for under the equity method and disclosed as related parties.

During the period, Group companies entered into the following transactions with joint ventures who are considered as related parties of the Group:

Directors’ remuneration

The remuneration of the Directors, who are the key management personnel of the Group, is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures. Further information about the remuneration of individual Directors is provided in the audited part of the Annual Report on Remuneration 2015 on pages 39 and 44.

The total remuneration of the highest paid Director was $0.4 million in the year (2014: $0.4 million).

The amounts outstanding are unsecured and will be settled in cash. No guarantees have been given or received and no provisions have been made for doubtful debts in respect of the amounts owed by related parties.

31. Events after balance sheet date

Starting 1 January 2016 the new regulations on the gas trading in Ukraine came into force implying the additional requirement of the covered bank guarantee for 20% of trading volumes that will effect cost of supply.

Subsequent to 31 December 2015, in April 2016 the Group has contributed, together with eni, $1 million to LLC Astroinvest-energy as part of commitment to fund its current liabilities.

Political and economic situation in Ukraine

We are monitoring the current political situation in Ukraine carefully and there have been no disruptions to the Company’s operations in either of our operating locations.

We have reassessed the key judgements and critical accounting estimates as at the date of this report and, based on the current status of operations, no adjustments have been made.

Company Balance Sheet

As at 31 December 2015

The financial statements of Cadogan Petroleum plc, registered in England and Wales no. 5718406, were approved by the Board of Directors and authorised for issue on 25 April 2016.

They were signed on its behalf by:

Guido Michelotti

Chief Executive Officer

25 April 2016

The notes on pages 92 to 95 form part of these financial statements.

Company Cash Flow Statement

For the year ended 31 December 2015

Company Statement of Changes in Equity

For the year ended 31 December 2015

Notes to the Company Financial Statements

For the year ended 31 December 2015

32. Significant accounting policies

The separate financial statements of the Company are presented as required by the Companies Act 2006 (the “Act”). As permitted by the Act, the separate financial statements have been prepared in accordance with International Financial Reporting Standards.

The financial statements have been prepared on the historical cost basis. The principal accounting policies adopted are the same as those set out in note 3 to the Consolidated Financial Statements except as noted below.

As permitted by section 408 of the Act, the Company has elected not to present its profit and loss account for the year. Cadogan Petroleum plc reports a loss for the financial year ended 31 December 2015 of $45.5 million (2014: $2.6 million) of which $46.5 million relates to the impairment of receivables from subsidiaries. 

Investments

Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment.

Critical accounting judgements and key sources of estimation uncertainty

The Company’s financial statements, and in particular its investments in and receivables from subsidiaries, are affected by certain of the critical accounting judgements and key sources of estimation uncertainty described in note 4 to the Consolidated Financial Statements.

33. Auditor’s remuneration

The auditor’s remuneration for audit and other services is disclosed in note 10 to the Consolidated Financial Statements.

34. Investments

The Company’s subsidiaries are disclosed in note 18 to the Consolidated Financial Statements. The investments in subsidiaries are all stated at cost less any provision for impairment.

35. Financial assets

The Company’s principal financial assets are bank balances and cash and cash equivalents, prepayments and receivables from related parties none of which are past due. The Directors consider that the carrying amount of receivables from related parties approximates to their fair value.

Receivables from subsidiaries

At the balance sheet date gross amounts receivable from the fellow Group companies were $316.7 million (2014: $329.0 million). The Group recognised impairment of $46.5 million in relation to receivables from subsidiaries in 2015 (2014: $nil). The carrying value of the receivables from the fellow Group companies as at 31 December 2015 was $26.9 million (2014: $73.8 million). There are no past due receivables. 

Trade and other receivables

In December 2015 the Company has made a prepayment for the natural gas on behalf of its Ukrainian subsidiary due to difficulties of currency purchase in Ukraine. In 2016 this prepayment has been settled in full to the Company.

Cash and cash equivalents

Cash and cash equivalents comprise cash held by the Company and short-term bank deposits with an original maturity of three months or less. The carrying value of these assets approximates to their fair value.

As of 31 December 2015 cash and cash equivalents in the amount of $20 million, related to security of the loan provided to the Ukrainian subsidiary and held at UK bank, was restricted (note 24). 

36. Financial liabitlities

Trade and other payables

Trade payables principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases is 126 days (2014: 82 days). 

The Directors consider that the carrying amount of trade and other payables approximates to their fair value. No interest is charged on balances outstanding.

37. Share capital

The Company’s share capital is disclosed in note 27 to the Consolidated Financial Statements.

38. Cumulative translation reserve

The functional currency of the Company is pounds sterling. The financial statements of the Company are expressed in US dollars, which is its presentation currency. Cumulative translation reserve represents the effect of translating the results and financial position of the Company into US dollars.

39. Notes to cash flow statement

40. Financial instruments

The Company manages its capital to ensure that it is able to continue as a going concern while maximising the return to shareholders. Refer to note 28 for the Group’s overall strategy and financial risk management objectives.

The capital resources of the Group consist of cash and cash equivalents arising from equity, comprising issued capital, reserves and retained earnings.

Categories of financial instruments

Interest rate risk

All financial liabilities held by the Company are non-interest bearing. As the Company has no committed borrowings, the Company is not exposed to any significant risks associated with fluctuations in interest rates. 

Credit risk

Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Company. For cash and cash equivalents, the Company only transacts with entities that are rated equivalent to investment grade and above. Other financial assets consist of amounts receivable from related parties.

The Company’s credit risk on liquid funds is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies.

The carrying amount of financial assets recorded in the Company financial statements, which is net of any impairment losses, represents the Company’s maximum exposure to credit risk.

Liquidity risk management

Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has built an appropriate liquidity risk management framework for the management of the Company’s short, medium and long-term funding and liquidity management requirements. The Company maintains adequate reserves, by continuously monitoring forecast and actual cash flows.

The Company’s financial liabilities are not significant and therefore no maturity analysis has been presented.

Foreign exchange risk and foreign currency risk management

The Company undertakes certain transactions denominated in foreign currencies. Hence, exposures to exchange rate fluctuations arise. The Company holds a large portion of its foreign currency denominated monetary assets and monetary liabilities in US dollars. More information on the foreign exchange risk and foreign currency risk management is disclosed in note 28 to the Consolidated Financial Statements.

41. Related parties

Amounts due from subsidiaries

The Company has entered into a number of unsecured related party transactions with its subsidiary undertakings. The most significant transactions carried out between the Company and its subsidiary undertakings are mainly for short and long-term financing. Amounts owed from these entities are detailed below:

Refer to note 35 for details on the Company’s receivables due from subsidiaries.

The remuneration of the Directors, who are the key management personnel of the Group, is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures. Further information about the remuneration of individual Directors is provided in the audited part of the Annual Report on Remuneration 2015 on pages 39 to 44.

The total remuneration of the highest paid Director was $0.4 million in the year (2014: $0.4 million)

Events after the balance sheet date

Events after the balance sheet date are disclosed in note 31 to the Consolidated Financial Statements.

GLOSSARY

IPO Initial public offering

IFRSs International Financial Reporting Standards

JAA Joint activity agreement

UAH Ukrainian hryvnia

GBP Great Britain pounds

$ United States dollars

bbl Barrel

boe Barrel of oil equivalent

mmboe Million barrels of oil equivalent

mboe Thousand barrels of oil equivalent

mboepd Thousand barrels of oil equivalent per day

boepd Barrels of oil equivalent per day

bcf Billion cubic feet

mmcm Million cubic metres

mcm Thousand cubic metres

Reserves Those quantities of petroleum anticipated to be commercially recoverable by application of development projects to known accumulations from a given date forward under defined conditions. Reserves include proved, probable and possible reserve categories.

Proved Reserves Those additional Reserves which analysis of geoscience and engineering data can be estimated with reasonable certainty to be commercially recoverable, from a given date forward, from reservoirs and under defined economic conditions, operating methods and government regulations.

Probable Reserves Those additional Reserves which analysis of geoscience and engineering data indicate are less likely to be recovered than proved Resources but more certain to be recovered than possible Reserves.

Possible Reserves Those additional Reserves which analysis of geoscience and engineering data indicate are less likely to be recoverable than probable Reserves.

Contingent Resources Those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations by application of development projects, but which are not currently considered to be commercially recoverable due to one or more contingencies.

Prospective Resources Those quantities of petroleum which are estimated as of a given date to be potentially recoverable from undiscovered accumulations.

P1 Proved Reserves

P2 Probable Reserves

P3 Possible Reserves

1P Proved Reserves

2P Proved plus probable Reserves

3P Proved plus probable plus possible Reserves

Carboniferous A geological period 295 million to 354 million years before present

Devonian A geological period between 417 million and 354 million years before present

Visean Geological period within the early to middle Carboniferous

Spud To commence drilling, once the cement cellar and conductor pipe at the well-head have been constructed

TD Target depth

Workover The process of performing major maintenance or remedial treatment of an existing oil or gas well

LWD Logging while drilling

SHAREHOLDER INFORMATION

Enquiries relating to the following administrative matters should be addressed to the Company’s registrars:

Capita Asset Services, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU

Telephone number:

UK: 0871 664 0300 (calls cost 10p per minute plus network extras).

International: +44 (0) 371 664 0300

Lines are open 9am – 5.30pm, Monday – Friday, excluding public holidays.

Loss of share certificates.

Notification of change of address.

Transfers of shares to another person.

Amalgamation of accounts: if you receive more than one copy of the Annual Financial Report, you may wish to amalgamate your accounts on the share register.

You can access your shareholding details and a range of other services at the Capita website www.capitashareportal.com.

Information concerning the day-to-day movement of the share price of the Company can be found on the Group’s website www.cadoganpetroleum.com or that of the London Stock exchange www.prices.londonstockexchange.com.

Unsolicited mail

As the Company’s share register is, by law, open to public inspection, shareholders may receive unsolicited mail from organisations that use it as a mailing list. To reduce the amount of unsolicited mail you receive, contact: The Mailing Preference Service, FREEPOST 22, London W1E 7EZ. Telephone: 0845 703 4599. Website: www.mpsonline.org.uk

Financial calendar 2016/2017

Annual General Meeting 22 June 2016

Half Yearly results announced August 2016

Annual results announced April 2017

Investor relations

Enquiries to: info@cadoganpetroleum.com

Registered office

c/o Bridgehouse Company Secretaries Ltd, Unit 205,

Clerkenwell Workshops, 31 Clerkenwell Close, London EC1R 0AT

Registered in England and Wales no. 5718406

Ukraine

48/50A Zhylyanska Street

Business center «Prime», 8th floor

01033 Kyiv

Ukraine

Email: info@cadoganpetroleum.com

Tel: +38 044 594 58 70

Fax: +38 044 594 58 71

www.cadoganpetroleum.com

All references to page numbers in the announcement are to the page numbers in the full Annual Report and Financial Statements which can be found on the Company’s website www.cadoganpetroleum.com