The Board of Cadogan Petroleum plc, (“Cadogan”), is pleased to announce the Company’s annual results for the year ended 31 December 2022.
Key Financial Highlights of 2022:
- Loss for the year: $1.6 million (2021: loss of $5.1 million)
- Average realized price: $73.4/boe (2021: $55.7/boe)
- Gross revenues: $8.5 million (2021: $8.8 million)
- G&A: $3.4 million (2021: $3.7 million)
- Loss per share: 0.6 cents (2021: loss of 2.1 cents)
- Cash at year end: $13.9 million (2021: $15.0 million)
Key Operational Highlights of 2022:
- Production: 117,793 bbl (2021: 127,662 bbl), a 8% decrease year-on-year
- Gas trading profit is nil million (2021: profit of $0.6 million)
- No LTI/TRI
- ISO 14001 and 45001 certifications were re-validated by respective authority for one year.
Group overview
In 2022, the Group continued to maintain exploration and production assets, and to operate an oil services business in Ukraine. Cadogan’s assets are concentrated in the West of the country. The oil services business focuses on workover operations, civil works services and other services to satisfy Cadogan intra-group operational needs.
Our business model
We aim to increase value through:
- Maintaining a robust balance sheet, monetising the remaining value of our Ukrainian assets and supplementing E&P cash flow with revenues from gas trading and oil services
- Pursuing farm-out to progress investments in Ukrainian license
- Diversify Cadogan’s portfolio, both geographically and operationally
Ukraine
2022 has been extremely challenging for Cadogan due to the invasion of Ukraine by Russia and its direct and derived consequences on the operational activities in the Country.
West Ukraine
The Group continued to produce oil from its production Blazhiv license located in the West of Ukraine. In March 2022, the production was suspended for 3 weeks and was resumed after securing the employees, the assets, the financial transactions, and the sales process. In the second half of 2022, there have been several production stoppages due to the reduction of crude oil consumption by oil refineries caused mainly by the Russian air strikes or by power outage due to similar strikes on electricity infrastructure. As a result, the average net daily production in 2022 was 323 bbl, which is 8% below the production of the previous year.
In 2020, Usenco Nadra filed two claims with the Kyiv Administrative Court to acknowledge inaction of the State Service of Geology (SGS) as unlawful, in particular their refusal to issue the Bitlyanska 20-year exploration and development license in the regulatory period and requested the Court to carry out commercial activities, at the area, effective from December 2019. This decision was taken by the subsoil controlling authority notwithstanding that Cadogan had fulfilled all license obligations, obtained all regulatory approvals and timely submitted the application on 19 August 2019, well ahead the license expiry date of 23 December 2019 and the new regulatory framework. After the rejection of its claims in February 2022, Usenco Nadra exercised its right for appeal against this decision. In 2022, the Appeal Court and further on the Supreme Court did not take into consideration the Company’s arguments regarding the Bitlyanska license award approval and rejected the claims.
East Ukraine
In 2020, LLC AstroInvest-Energy, a fully owned subsidiary of Cadogan, introduced a claim against the State fiscal authority regarding additional tax assessment and related penalties. The Company won in the Court of First Instance and in the Court of Appeal. The State fiscal authority filed an appeal with the Supreme Court. In September 2022, the Supreme Court cancelled all decisions of the State fiscal authority and issued a decision in favor of the position defended by Cadogan.
Subsidiary businesses
Due to high market volatility caused by military escalation in Ukraine, no trading activities were conducted in 2022.
Astroservice LLC, the oil services subsidiary, continued to support Blazhiv license wells’ operations.
Italy
The Group owns a 90% interest in Exploenergy s.r.l., an Italian company, which has filed applications for two exploration licenses (Reno Centese and Corzano), located in the Po Valley region (Northern Italy).
In February 2019, the Italian Parliament approved a moratorium of 18 months in the award of new licenses and a 25-fold increase of license fees. Exploenergy subsequently reduced its activity to the minimum required to fulfil its statutory obligations. It has also identified areas which can be voluntarily released in order to mitigate the impact of higher fees, when licenses are awarded, with a minimum impact on their exploration potential.
In 2020, the moratorium was extended. In February 2022, the Plan for the Sustainable Energy Transition of Suitable Areas (“PITESAI”) was approved by the Ministry for Environmental Transition. It delivers a new framework for the possible resumption of exploration and production activities on land and at sea. Exploenergy was notified in 2022 that its projects (Reno Centese and Corsano) were located in compatible areas identified by the PITESAI. The Company is currently in the qualification process as gas operator.
In February 2019, the Group entered in a 2-year loan agreement with Proger Management & Partners Srl (“PMP”) with an option which Cadogan could exercise, with no obligation, to get a 33% equity interest in Proger Ingegneria Srl which in turn held at 31 December 2020 a 75.95% equity interest in Proger Spa. Proger is an Italian engineering company providing services in Italy and in different international areas.
Cadogan did not exercise the Call Option. In February 2021, Cadogan notified PMP that according to the Loan Agreement, the Maturity Date occurred on 25 February 2021, and as the Call Option was not exercised, PMP must fulfill the payment of EUR 14,857,350, being the reimbursement of the Loan in terms of principal and the accumulated interest at this Maturity Date. PMP is in default since 25 February 2021. End of March 2021, PMP requested an arbitration to have the Loan Agreement recognized as an equity investment contract, which is rejected by Cadogan as the terms of the Loan Agreement are clear and include the right to repayment at maturity if the Call Option is not exercised.
The Arbitration proceeding ended in July 2022.
The Arbitral Committee:
- Rejected Proger’s principal claim, and declared that the Loan Agreement is valid and effective,
- Deemed to qualify the Call Option as a preliminary contract under condition, but
- Rejected Proger’s claim ex art. 2932 Italian Civil Code, stating that it is impossible to give an award producing the same effects of a final contract ex art. 2932 Italian Civil Code,
- This because of the duties established by the rules of the London Regulatory Authority and because of the need, possibly by both parties, to comply with the due proceedings before the formalization of the entry of Cadogan into the capital of Proger Ingegneria,
- Subordinated the stipulation of the final contract to the precedent completion of the proceeding and bureaucratic process as per the British rules, stating that, otherwise,
- There is the obligation on Proger Ingegneria to return the money received under the Loan Agreement.
Strategic Report
The Strategic Report has been prepared in accordance with Section 414A of the Companies Act 2006 (the “Act”) and presented hereunder. Its purpose is to inform stakeholders 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.
Section 172 Statement
The Company’s section 172 statement is presented on page 35 and 37 and forms part of this strategic report.
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; the Company also conducts gas trading and provides services. In November 2022, the shareholders approved the change of name and the strategy to expand its activities along the energy value chain to new forms of energy with a reduced impact on the environment.
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.
Key performance indicators
The Group monitors its performance through five key performance indicators (“KPIs”):
- to increase oil, gas and condensate production measured on the number of barrels of oil equivalent produced per day (“boepd”);
- to decrease administrative expenses;
- to increase the Group’s basic earnings per share;
- to maintain no lost time incidents; and
- to grow geographically and operationally diversify the portfolio.
The Group’s performance in 2022 against these KPI’s is set out in the table below, together with the prior year performance data.
Average production (working interest basis) 2022: 323boepd 2021: 350boepd 2022 vs 2021: (8)%
Overhead (G&A) 2022: (3.4)$ million 2021: (3.7)$ million 2022 vs 2021:(7)%
Basic loss per share 2022: (0.6)cents 2021: (2.1)cents 2022 vs 2021: (71)%
Lost time incidents 2022: - incidents 2021:- incidents 2022 vs 2021: -
Geographic diversification 2022: - new assets 2021:- new assets 2022 vs 2021: -
Chairman’s Statement
2022 was the most dramatic year in the independent history of Ukraine. The full-scale invasion of the Russian army has brought severe destructions and huge suffering. All the Board stands in solidarity with the Ukrainian population in their fight for freedom.
The safety of our people is our highest priority. The Group is taking all possible actions to preserve the safety of its employees and meet their needs.
2022 will remain another challenging year. From the very first days of the war and onwards Cadogan has immediately implemented required actions that have allowed to protect our staff and keep the Group’s activities ongoing. The effectiveness of these measures and the dedication of everyone have been essential to mitigate the negative consequences of the war. Moreover, the Group is proud to report zero fatalities, injuries among its staff since the beginning of the invasion.
For the existing operations in Ukraine, Cadogan continue to be committed to the territory and the communities where we operate and has fully financed social programs commitment for 2022 as agreed before with the Lviv Regional Administration and the local communities. Realizing the importance of unstoppable oil production to satisfy increased Ukrainian’s demand - Cadogan has put maximum efforts to achieve this target. Despite all the difficulties imposed by the war situation, Cadogan stands confidently on its feet and continues to work.
During 2022, the oil and gas markets of Ukraine witnessed severe volatility which was not correlated with world’s trends. The oil prices have changed unpredictably and in different directions during the year. The quick response of the Group and the measures that were put in place have allowed the Group to mitigate the operational and the economic challenges.
Despite all these challenges, the Group was able to improve its fundamentals and operate at high industry standards. This was possible thanks to the commitment of all with a competent and strong management. The Board remains focused on maximizing value from our assets and on our strategy based on the future diversification of our activities towards sectors providing lower impacts on environment. Michel Meeus, Non-Independent Non-Executive Chairman
