CADOGAN ENERGY SOLUTIONS PLC

Annual Results for the year ended 31 December 2023

The Board of Cadogan Petroleum plc, ("Cadogan" or "the Company"), is pleased to announce the Company's annual results for the year ended 31 December 2023.

Key Financial Highlights of 2023:

• Profit for the year: $1.3 million (2022: loss of $1.6 million)
• Average realised price[1]: $59.32/boe (2022: $73.4/boe)
• Gross revenues[2]: $7.6 million (2022: $8.5 million)
• G&A[3]: $3.6 million (2022: $3.4 million)
• Profit per share: 0.5 cents (2022: loss of 0.6 cents)
• Cash at year end: $14.2 million (2022: $13.9 million)

Key Operational Highlights of 2023:

• Production: 119,057 bbl (2022: 117,793 bbl), a 1% increase year-on-year;
• No LTI/TRI[4];
• ISO 14001 and 45001 certifications were re-validated by respective authority for one year;
• Extension of Blazhiv-3 and Blazhiv-Monastyrets-3 wells' lease contracts for a 5-year period;
• Qualification of Exploenergy as gas operator in Italy by the Ministry of Environment and Energy Transition; and
• Launch of the gas-to-power investment in Ukraine with the aim of being an electricity producer in 2025.

Group overview

In 2023, 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
• Developing new activities along the energy value chain with a lower impact on environment
• Diversifying Cadogan's portfolio, both geographically and operationally

Ukraine

2023 remained a highly challenging year for Cadogan due to the ongoing invasion of Ukraine by Russia and its consequences on the operational activities of the Group.

West Ukraine

The Group continued to produce oil from its production Blazhiv license located in the West of Ukraine. The Group could not avoid temporary shutdowns of its production during in the Q1 2023 due to the severe constraints arisen in the country.  Notwithstanding this, production grew up by 1% above the production of 2022. Net oil production was 119,057 bbl corresponding to an average of 326 bpd.

Cadogan has signed with PJSC Ukrnafta the extension of the wells Blazhiv-3 and Blazhiv-Monastyrets-3 lease contracts for a 5-year period (previous contracts were for a 3-year period) ahead the expiry period which allowed to avoid production stoppage and secure cash flows.

In 2023, the Company continued focusing on the subsoil study of Blazhiv field. Cadogan conducted and completed full hydrodynamic surveys of Blazhiv-1, Blazhiv-3, Blazhiv-Monastyrets-3 and Blazhiv-10 wells. The hydrodynamic model as well as the production forecast were updated. In the second half 2023, the Company launched a new assessment of hydrocarbon reserves, by an independent expert, according to PRMS standards. The assessment was completed at the end of February 2024.

Cadogan is expanding into the electricity generation business by using the gas emissions related to oil production. This will allow to significantly reduce atmospheric emissions and ensure additional cash-flow. The Company launched the project to capture non-commercial associated gas during oil production at the Blazhiv field, which will then be used to generate electricity for sale on the grid. This project is anticipated to result in a substantial decrease in Cadogan's annual gas emissions, with the intensity ratio estimated to drop from 126 to approximately 33 tons of CO2 e/Kboe. The project is scheduled to be operational in Q1 2025.

The Company completed the acquisition of the 5% of the share interest in Usenco Nadra LLC and now holds 100% of Usenco Nadra LLC.

Subsidiary businesses

Due to high market volatility caused by military escalation in Ukraine, Cadogan has kept its trading activity low. Despite this, the Company managed to execute few deals, and kept in storage 0.7 million m3 of gas to secure resources.

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 controls two exploration areas (Reno Centese and Corzano), located in the Po Valley region (Northern Italy).

In February 2022, the Plan for the Sustainable Energy Transition of Suitable Areas ("PITESAI") was approved by the Ministry for Environment and Energy 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 were located in compatible areas identified by the PITESAI.  In November 2023, Exploenergy was notified by the Ministry for Environment and Energy Transition, that the procedure for verification of the technical, organizational and economic capacity of Exploenergy as a qualified gas operator resulted in a successful decision. In February 2024, the Regional Administrative Court rejected the PITESAI. Exploenergy is awaiting the decision of the Ministry for Environment and Energy Transition to indicate the way forward. The Italian national interest in the development of gas fields remains confirmed.

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 is 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.

Cadogan introduced an appeal, still pending with a next hearing on September 2025, on the qualification of the Call Option as a preliminary contract. Meanwhile, having taken note of the content of the Award of July 2022, Cadogan repeatedly invited Proger to implement the provisions of the Award. When the invitation remained unsuccessful, Cadogan with a formal notice contested Proger's refusal, arguing that it was in direct contrast with the clear and unequivocal provision of the Award, which expressly subordinates the possible transfer of shareholdings to the prior fulfilment of the formalities required by English law and procedures related to Cadogan as a listed company on the London Stock Exchange; and also opposing Proger for having behaved and continuing to behave in a manner that has made it definitely impossible to the occurrence of the condition precedent referred to in the above-mentioned Award.

According to the provisions of the aforementioned Award, the right to reimbursement of the amount covered by the Loan Agreement has arisen in favour of Cadogan, plus interest accrued, and of which Cadogan then demanded immediate payment.

Last November 2023, Cadogan had to initiate a second arbitration to assert its right to restitution and obtain Proger's condemnation of the consequent payment.

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 36 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. In December 2023, the Company stepped in the electricity generation sector by launching the investment in the gas-to-power project on the Blazhiv field in Ukraine.

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 2023 against these KPI's is set out in the table below, together with the prior year performance data.

1. Average production is calculated as the average daily production during the year
2. Basic profit/(loss) per ordinary share is calculated by dividing the net profit/(loss) for the year attributable to equity holders of the parent company by the weighted average number of ordinary shares during the year
3. Lost time incidents relate to the number of injuries where an employee/contractor is injured and has time off work (IOGP classification)

Chairman's Statement

2023 was another year of unprecedented challenges for Ukraine, as the invasion of Ukraine by Russia continued to cause damages in the country and impact the European stability. The continuous escalation of hostilities and the geopolitical uncertainties still presented significant obstacles for our operations and were threats to the assets of the Group in Ukraine.

Despite these challenges, Cadogan remained steadfast in its commitment to operational excellence, safety, and sustainability. We continued implementing rigorous risk management to safeguard our operations and ensure the well-being of our workforce. 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.

As for existing operations in Ukraine, Cadogan has demonstrated robust performance in oil production maintaining steady output levels exceeding 2022 results. Moreover, the Group has launched an investment in the power generation, showcasing its resilience and commitment to growth and diversification despite stormy weathers adversity in the country.

In 2023, despite the volatility in the oil and gas markets, Cadogan has adapted its strategies to manage these uncertainties. By implementing agile measures, the Group has effectively mitigated the impact of market volatilities, ensuring continuity of its oil production and sales which allowed to minimize the temporary shutdowns of its production activities.

Looking ahead, we recognise that the geopolitical uncertainties and security risks will continue to be high challenges. However, we remain committed to advance through these challenges with resilience, integrity, and determination. This is 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 along the energy value chain.

Michel Meeùs

Non-Independent Non-Executive Chairman

07 May 2024

Chief Executive's Review

With the ongoing war resulting from the Russian invasion of Ukraine in 2022, the Group was compelled to adapt to a drastically altered operating and economic environment. We swiftly implemented measures to mitigate risks, ensuring the safety of personnel and assets while facing the operational, economic, and financial challenges posed. Following these events, in 2023, Cadogan had to operate in a highly complex environment characterised by air shelling of oil & gas and energy infrastructures, oil & gas prices volatilities, martial law restrictions on the financial transactions as well as other associated risks.

The ongoing war and the unpredictable air strikes continue to impact the sector of oil and gas in Ukraine, with uncertainties surrounding production, distribution, and market dynamics. The bombing naturally affected the oil and gas production in the country. Oil refineries as well as energy infrastructure suffer constant air attacks and remain severely damaged.

Cadogan employees in Ukraine have been operating in a combined remote and office work mode, prioritising both safety and productivity. We are pleased to report that all our employees remain safe and uninjured since the beginning of the invasion in February 2022.

The imposition of legislative restrictions on oil and gas exports due to war time has significantly impacted the operations of the industry. This restriction has created challenges for companies operating in the country, limiting their ability to access international markets.

The government pursued the efforts for the modernization of its oil and gas regulatory framework, in particular, by enforcing law #4187 which deregulates the subsoil sector, introduces a free market of licenses and simplifies access to the land.

Against this challenging background, Cadogan's operational activities performed as following:

• a 1% increase in production, from 117,793 bbl in 2022 to 119,057 bbl in 2023;
• a robust balance sheet, with $14.2 million of net cash;
• a significant diversification in electricity generation business by developing a new project in Ukraine;
• the extension of Blazhiv-3 and Blazhiv-Monastyrets-3 wells' lease contracts for a 5-year period; and
• another year without LTIs'.

Core operations

Cadogan has continued to safely produce from its Blazhiv field in the West of Ukraine. Oil production has increased by 1% compared to the previous year despite the temporary production shutdowns caused by severe constraints in the country. This was largely due to our focus on operational efficiency and effective planning and timely implementation of production support measures.

In 2023 Cadogan extended lease contracts with PJSC Ukrnafta for the Blazhiv-3 and Blazhiv-Monastyrets-3 wells, prolonging the agreement from 3 to 5 years ahead of the expiry period. This important move ensured uninterrupted production and allowed securing cash flows. By proactively extending these contracts, the company demonstrates its commitment to stability and long-term sustainability in operations.

In 2023, the company maintained its focus on studying the subsoil of the Blazhiv field. Full hydrodynamic surveys of Blazhiv-1, Blazhiv-3, Blazhiv-Monastyrets-3, and Blazhiv-10 wells were conducted and completed, leading to updates of the hydrodynamic model and production indicators. Additionally, in the latter half of 2023, the company initiated a new reserves assessment conducted by an independent expert, in accordance with PRMS standards. This assessment was successfully completed in February 2024, enhancing the Company's understanding of hydrocarbon reserves and informing strategic decision-making.

Cadogan is expanding its operations into electricity generation activities. The Company has initiated a project focused on capturing non-commercial associated gas during oil production at the Blazhiv field and converting it into electricity for sale on the grid. Expected to be operational in Q1 2025, this project is anticipated to significantly decrease Cadogan's annual gas emissions, with the intensity ratio projected to drop from 126 to approximately 33 tons of CO2 e/Kboe. This project holds significant importance for Ukraine, particularly due to country's shortage of balancing electricity generating facilities caused by the destruction of infrastructure during the war. Cadogan's initiative to convert non-commercial associated gas into electricity will make its contribution to mitigate the gap in generating capacity.

High operational standards of the Group have been confirmed again by zero LTI or TRI, with a total over 1,720,000 manhours since the last incident, and re-validation off ISO 14001 & 45001 certifications by respective authority for the one year.

Exploenergy srl was notified, in November 2023, by the Ministry for Environment and Energy Transition, that the procedure for verification of the technical, organisational, and economic capacity of Exploenergy as a qualified gas operator resulted in a successful decision. This is a significant move for Cadogan. It will allow a geographical diversification of its assets and a significant value creation. In February 2024, the Regional Administrative Court rejected the PITESAI. Exploenergy is awaiting the decision of the Ministry for Environment and Energy Transition to indicate the way forward. The Italian national interest in the development of gas fields remains confirmed.

Non E&P operations

Due to the high market volatility resulting from military escalation in Ukraine, Cadogan has maintained its trading activity at a low level. The Company has cautiously executed few deals in the market while strategically positioning itself for future trading seasons. In preparation for the upcoming 2024 trading season, Cadogan purchased 0.7 million m3 of gas at the end of 2023, The oil services activities were used primarily to serve the Group's wells' operations.

Proger

In February 2019, Cadogan used part of its cash (Euros 13.385 million) to enter into a 2-year Loan Agreement with Proger Managers & Partners, together with a Call Option Agreement which could be exercised by Cadogan, with no obligation, between September 2019 and February 2021, and subject to shareholders' approval, into a 33 % equity interest in Proger Ingegneria which in turn held, a 75.95% equity interest in Proger as at 31 December 2020, and a 96.48% equity interest in Proger as of 31 December 2021.

As at 25 February 2021, being the Maturity Date, the Call Option was not exercised by Cadogan and accordingly to its previous notification Cadogan demanded repayment of the Loan together with the accumulated interest which in total amounted Euro 14,857,350. After five business days, PMP was in default and asked for an additional term that ended on 19 March 2021. The terms of the Loan Agreement provide for an additional default interest of 2%. End of March 2021, PMP contested the default situation and the obligation to reimburse and asked for an Arbitration according to the said Loan Agreement to get the Loan Agreement recognised as an equity investment contract. Cadogan consider PMP's arguments as groundless and consider that they are intended to delay PMP reimbursement obligations. 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.

Cadogan introduced an appeal, still pending with a next hearing on September 2025, on the qualification of the Call Option as a preliminary contract.

Meanwhile, having taken note of the content of the Award of July 2022, Cadogan repeatedly invited Proger to implement the provisions of the Award. When the invitation remained unsuccessful, Cadogan with a formal notice contested Proger's refusal. This refusal was in direct contrast with the clear and unequivocal provision of the Award, which expressly subordinates the possible transfer of shareholdings to the prior fulfilment of the formalities required by English law and procedures related to Cadogan as a listed company on the London Stock Exchange. Furthermore, Proger behaved and continue to behave in a manner that has made it definitely impossible to the occurrence of the condition precedent referred to in the above-mentioned Award.

According to the provisions of the aforementioned Award, the right to reimbursement of the amount covered by the Loan Agreement has arisen in favour of Cadogan, plus interest accrued, and of which Cadogan then demanded immediate payment.

Last November 2023, Cadogan had to initiate a second arbitration, with a first audience fixed for the 3rd May 2024, to assert its right to restitution and obtain Proger's condemnation of the consequent payment.

Outlook

Despite the continuous difficulties and tremendous challenges imposed by the war in Ukraine, the Group has demonstrated its ability to have profitable activities, develop sustainable new activities and diversify in more environmentally friendly activities.

Regarding the Loan provided to Proger in February 2019, Cadogan will continue to engage all necessary legal actions to protect its interests and recover the cumulated amount due by Proger.

The Group is expecting another challenging year and is seeking to mitigate these constraints through several options and solutions. The diversification along the energy value chain will be pursued and accelerated in 2024 with new sustainable initiatives.

This strategy is totally aligned with the Climate Change requirements for sustainability of Cadogan's activities.

Fady Khallouf

Chief Executive Officer

07 May 2024

Operations Review

Overview

At 31 December 2023, the Group held working interests in one conventional gas, condensate and oil exploration and production license in the west of Ukraine.

West Ukraine

E&P activity remained focused on maintaining its license and safely and efficiently producing from the existing wells as well as implementing non-invasive production enhancement scenarios within the Blazhiv oil field.

Blazhivska license

In 2023, the daily average net oil production reached 326 barrels per day, indicating a 1% increase compared to 2022's production of 323 barrels per day. Due to the ongoing war and its impacts on the energy infrastructures and market the company could not avoid temporary production shutdowns.

In 2023, the Company maintained its focus on the subsoil study of the Blazhiv field, building upon the laid in 2022 with the processing and reinterpretation of old 2D seismic data. In 2023, Cadogan completed comprehensive hydrodynamic surveys of Blazhiv-1, Blazhiv-3, Blazhiv-Monastyrets-3, and Blazhiv-10, leading to updates of the hydrodynamic model and production indicators. Furthermore, the Company initiated a new assessment of hydrocarbon reserves conducted by an independent expert, as per to PRMS standards. This assessment was calculated as at 31 December 2023.

Cadogan has signed agreements with PJSC Ukrnafta to extend the lease for wells Blazhiv-3 and Blazhiv-Monastyrets-3, extending the duration from three to five years. These extensions were secured before the contracts expired, ensuring uninterrupted production and steady cash flows for the company. Additionally, the extended lease period, five years instead of three previously, will facilitate more secure planning and assessment for potential interventions on the wells.

Gas trading

Due to the significant market volatility resulting from the ongoing in Ukraine, Cadogan has maintained its trading activity at a low level. Despite this cautious approach, Cadogan executed few deals and secured 0.7 million m3, as resource reserve for future trading activities.

Service

The Group continued to provide services through its wholly owned subsidiary Astroservice LLC. The provided services were primarily focused on serving intra-group operational needs in wells' re-entry/repairs and stimulation operations, well surveys and field on-site activities. In the context of the prevailing situation in Ukraine, the services segment was dedicated totally to supporting the Group's production activities.

Other events

The Company completed the acquisition of the 5% of the share interest in Usenco Nadra LLC and now holds 100% of Usenco Nadra LLC. Such consolidation has allowed to re-engineer the corporate structure in Ukraine and become more efficient.

Financial Review

Overview

In 2023, the Group had few trading operations and its oil production increased by 1%.  The Group's operating divisions delivered a positive contribution of $2.2 million (2022: positive contribution of $2.9 million excluding the impairment of oil and gas assets).

The average realised oil price decreased by 19% from $73.4 to $59.3 per barrel.

The cash position increased to $14.2 million as at 31 December 2023 compared to $13.9 million as at 31 December 2022.

The trading business company bought and sold gas throughout the year, resulting in a negative $61,000 outcome for the year. However, at the end of the year, the company had a gas surplus worth $213,000 in monetary equivalent.

Income statement

The Revenues from production decreased from $8.5 million in 2022 to $7.6 million in 2023. This result is integrating mainly a decrease in oil average realised prices by 19%, and E&P costs of sales almost at the same level: $5.39 million in 2023 and $5.55 million in 2022. These costs include production royalties and taxes, fees paid for the rented wells, depreciations, depletion of producing wells, direct staff costs and other costs for exploration and development. Overall, in 2023, E&P made a positive contribution of $2.2 million (2022: $2.9 million) to gross profit.

The gas trading business contributed with a slightly gross margin of $3,000 in 2023 (2022: $nil).

Administrative expenses ("G&A") remained contained with an increase of 6% compared to year 2022, note 8.

Balance sheet

The Property Plant & Equipment (PP&E) balance was $5.8 million at 31 December 2023 (2022: $6.6 million). It primarily represents the carrying value of the assets invested and engaged in Blazhiv license. The E&E and PP&E are held by Ukrainian subsidiaries with functional currency Ukrainian Hryvna. The Ukrainian Hryvna was devaluated by 3% as at 31 December 2023 compared to 31 December 2022, generating a movement in the E&E and PP&E value presented in the US Dollar.

Trade and other receivables of $0.3 million (2022: $0.3 million) include $0.2 million of recoverable VAT (2022: $0.1 million), which is expected to be recovered through production activities, and $0.1 million (2022: $0.2 million) of other receivables.

Inventories slightly increased from $0.3 million to $0.4million principally due to the increase of gas in the stock.

The Proger loan was held at amortised cost at $17.1 million (2022: $15.8 million). Refer to the Chief Executive's Report for further details together with note 4(d) and 28.

The $1.4 million of trade and other payables as at 31 December 2023 (2022: $1.4 million) consist of $0.8 million (2022: $0.6 million) of accrued expenses and $0.6 million (2022: $0.8 million) of other payables.

Provisions include $0.2 million (2022: $0.4 million) of long-term and current provisions for decommissioning costs which represents the present value of these costs that are expected to be incurred in 2039 for producing assets, when the existing Blazhiv license will expire, and current provision for the decommissioning costs of the Bitlyanska license.

Net cash slightly increased to $14.2 million at 31 December 2023 compared to $13.9 million at 31 December 2022.

Cash flow statement

The Consolidated Cash Flow Statement on page 78 shows operating cash outflow before movements in working capital of $0.6 million (2022: inflow of $0.2 million), which represents mostly cash generated by the E&P net of corporate expenses.

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 mainly in US dollars ("USD") and Euro held primarily in the UK. Production revenues from the sale of hydrocarbons are received in Hryvna, the local currency in Ukraine. Since the martial law established in February 2022 in Ukraine, the cash generated in Ukraine must be kept in Hryvna in Ukraine.

Risks and uncertainties

There are several potential risks and uncertainties that 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 if above $5 million, medium impact if above $1 million but below $5 million, and low impact if 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 risk mitigation procedures via Executive management, who are carrying out a robust assessment of the principal risks facing the Group, including those potentially threatening its business model, future performance, solvency and liquidity.

The Group has analysed the following categories as key risks:

Statement of Reserves and Resources

In 2023, the company conducted routine rig-less production support activities at the Blazhiv-1, Blazhiv-3 and Blazhiv-Monastyrets-3 and Blazhiv-10 wells to maintain sustainable production using sucker rod pumping systems.

Summary of Reserves1

at 31 December 2023

1 The new study was completed end of February 2024 by Brend Vik LTD LLC. The last independent valuation of the Company's oil and gas reserves was carried out by Brend-Vik LTD LLC as at 31 December 2023.

In addition to the tabled reserves, Cadogan has 0.64 million boe of 2C contingent resources associated with the Blazhiv license.

Corporate Responsibility

Under Section 414C of the Companies Act 2006 (the "Act"), the Board is required to disclose information about environmental matters, employees, human rights and community issues, including information about any policies it has in relation to these matters and the effectiveness of these policies.

Being sustainable in our activities means conducting our business with respect for the environment and for the communities hosting us, with the aim of increasing the benefit and value to our stakeholders. We recognize that this is a key element to be competitive and to maintain our license to operate.

The Board recognises that the protection of the health and safety of its employees, the communities, and the environment in which it operates is not just an obligation but is part of the personal ethics and beliefs of management and staff. These are the key drivers for a sustainable development of the Company's activity. Cadogan Petroleum, its management and employees are committed to continuously improve Health, Safety and Environment (HSE) performance; follow our Code of Ethics and apply, in conducting our operations, internationally recognized best practices and standards.

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 a Working with Integrity policy and policies on business conduct and ethics, anti-bribery, the acceptance of gifts and hospitality and whistleblowing. Such policies are subject to regular review.

In August 2018, Cadogan Ukraine LLC obtained ISO 14001 and ISO 45001 certifications for the following scope: "Supervision, coordination, management support, control in the field of oil and gas onshore exploration and production." This provides formal recognition of the process embedded in the Company and demonstrates the commitment and efforts delivered by our employees and management. It is considered a baseline to continue with the efforts to improve the way we conduct the business.

The Board believes that health and safety procedures, and training across the Group should be in line with best practice in the oil and gas sector. Accordingly, it has set up a committee to review and agree on the health and safety initiatives for the Company and to report back to the Board on the progress of these initiatives. Management regularly reports to the Board on HSE and key safety and environmental issues, which are discussed at the Executive Management level. The report of the Health, Safety and Environment Committee can be found on page 40 to 41.

The General Director of Cadogan Ukraine is the acting Chairman of the HSE Committee and is supported in his role by Cadogan Ukraine's HSE Manager. In accordance with the ISO 14001 and ISO 45001, his role is to ensure that the Group continuously develops suitable procedures, that operational management and their teams incorporate them into daily operations and that the HSE management has the necessary level of autonomy and authority to discharge their duties effectively and efficiently.

Health, safety and environment

2023 remained extremely challenging due to the Russian invasion of Ukraine and the resulting subsequent war. Cadogan applied measures to mitigate the risk personnel injuries and loss of well control. Kiev office personnel have been working in the combined office-remote work regime with precise execution of air alert safety requirements, on-field staff as well as all offices have been equipped with satellite means of communication, established internal emergency committee that coordinated the work and liaising with company management of the daily basis. One employee has been demobilized from army during 2023, two remained serving.

Also, the HSE management daily monitors health status of the personnel in terms of covid-19.

The Group has implemented an integrated HSE management system in accordance with the ISO requirements. The system aims to ensure that a safe and environmentally friendly/protection culture is embedded in the organization with a focus on the local community involvement. The HSE management system ensures that both Ukrainian and international standards are met, with the Ukrainian HSE legislation requirements taken as an absolute minimum. All the Group's local operating companies actively participate in the process. ISO 14001 and ISO 45001 certification were re-validated by the respective authority in August 2023 for a new term.

A proactive approach based on a detailed induction process and near miss reporting has been in place throughout 2023 to prevent incidents. Staff training on HSE matters and discussions on near miss reporting are recognised as the key factors to continuously improve. In-house training is provided to help staff meet international standards and follow best practice. The process enacted by the certification, enhances attention to training on risk assessments, emergency response, incident prevention, reporting and investigation, as well as emergency drills regularly run-on operations' sites and offices. This process is essential to ensure that international best practices and standards are maintained to comply with, or exceed, those required by Ukrainian legislation, and to promote continuous improvement.

The Board monitors the main Key Performance Indicators (lost time incidents, mileage driven, training received, CO2 emissions) as business parameters. The Board has benchmarked safety performance against the HSE performance index measured and published annually by the International Association of Oil and Gas Producers. In 2023, the Group recorded over 149,000 man-hours worked with no incidents and over 1,720,000 hours have been worked since the last injury in February 2016.

During 2023 the Group continued to monitor its greenhouse gas emissions and collect statistical data relating to the consumption of electricity, industrial water and fuel consumption by cars, plants, and other work sites, recording a continuous improvement in the efficient use of resources. 

Employees

Wellness and professional development are part of the Company's sustainable development policy and wherever possible, local staff are recruited. The Group's activity in Ukraine is entirely managed by local staff. Qualified local contractors are engaged to supplement the required expertise when and to the extent it is necessary.

Procedures are in place to ensure that recruitment is undertaken on an open, transparent, and fair basis with no discrimination against applicants. Each operating company has its own Human Resources function to ensure that the Group's employment policies are properly implemented and followed. The Group's Human Resources policy covers key areas such as equal opportunities, wages, overtime and non-discrimination. As required by Ukrainian legislation, Collective Agreements are in place with the Group's Ukrainian subsidiary companies, which outline agreed level of staff benefits and other safeguards for employees.

All staff are aware of the Group's grievance procedures. All employees have access to health insurance provided by the Group to ensure that all employees have access to adequate 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.

Diversity

The Board recognises the benefits and importance of diversity (gender, ethnic, age, sex, disability, educational and professional backgrounds, etc.) and strives to apply diversity values across the business.  We endeavour to employ a skilled workforce that reflects the demographic of the jurisdictions in which we operate. The board will review the existing policies and intends to develop a diversity policy.

The Board of Directors acknowledges the significance of diversity in decision-making and the overall success of the company. As such, the company actively collects data on the various dimensions of diversity mentioned, including but not limited to gender, ethnicity, age, and professional backgrounds. This data is gathered through internal surveys, recruitment processes, and employee feedback mechanisms to ensure a diverse and inclusive workplace.

Board diversity

The Board consisted of four male and one female director of three different nationalities and resident in four different jurisdictions.

The Board recognises that gender is only one aspect of diversity, and there are many other attributes and experiences that can improve the Board's ability to act effectively. Our policy is to search for the highest quality people with the most appropriate experience for the requirements of the business, be they men or women.

Gender diversity

The Board of Directors of the Company comprised of five Directors as of 31 December 2023. The appointment of any new Director is made based on merit. See pages 24 and 25 for more information on the composition of the Board.

As at 31 December 2023, the Company comprised a total of 74 persons, as follows:

Human rights

Cadogan's commitment to the fundamental principles of human rights is embedded in our HSE policies and throughout our business processes. We promote the core principles of human rights pronounced in the UN Universal Declaration of Human Rights and 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 it operates and from which some of the employees are recruited. In our operational sites, management work 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. Projects undertaken include improvement of the road infrastructure in the area, which provides easier access to the operational sites while at the same time minimizing inconvenience for the local population and allowing improved road communications in the local communities, especially during winter season or harsh weather conditions. Specific community activities are undertaken for the direct benefit of local communities. All activities are followed and supervised by managers who are given specific responsibility for such tasks.

The Group's companies in the Ukraine see themselves as part of the community and are involved and offer practical help and support. All these activities are run in accordance with our "Working with Integrity" policy and procedures. The recruitment of local staff generates additional income for areas that otherwise are predominantly dependent on the agricultural sector.

The enactment in 2018 of a new legislation which introduces Environmental Impact Assessment studies and public hearings as part of the license's award/renewal processes was anticipated effectively by the Group. The Group is complying with these requirements, building on the recognized competence of its people and advisors as well as on the good communication and relations established with local communities.

Cadogan is committed to the territory and the communities where it operates and has fully financed social programs commitment for 2023 as per signed Memorandum between the Company, Lviv Regional Administration and local communities in 2019.

Approval

The Strategic Report was approved by the Board of Directors on 07 May 2024 and signed by order of the Board by:

Ben Harber

Company Secretary

07 May 2024

Board of Directors

Fady Khallouf, 63, French

Chief Executive Officer

Fady Khallouf was appointed as Director and CEO on 15 November 2019. He has a 35-year experience in the energy, the environment, the engineering, and the infrastructure sectors. He has previously held the position of CEO and CFO of FUTUREN (Renewable Energy, listed on Euronext Paris) where he achieved the restructuring and the turnaround of the group. Prior to that, he was the CEO of Tecnimont group (Petrochemicals and Oil & Gas), the Vice-President Strategy and Development of EDISON group (Electricity and Gas, E&P), the Head of M&A of EDF group (Energy). Fady Khallouf had beforehand held various management positions at ENGIE (Energy), Suez (Environmental Services), and DUMEZ (Construction and Infrastructures).

Michel Meeùs, 71, Belgian

Non-Independent Non-Executive Interim Chairman

Michel Meeùs was appointed as a Non-executive Director on 23 June 2014. Mr. Meeùs was former Chairman of the Board of Directors of Theolia, an independent international developer and operator of wind energy projects. Since 2007, he has been a director within the Alcogroup SA Company (which gathers the ethanol production units of the Group), as well as within some of its subsidiaries. Before joining Alcogroup, Mr Meeùs carved 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.

Mr Meeùs is currently Chairman of the Remuneration and Nomination Committees.

Lilia Jolibois, 59, American

Independent Non-Executive Director

Lilia Jolibois was appointed as Director on 15 November 2019. She is currently a member of three Boards: Cadogan Energy Solutions Plc, INSEAD Foundation, and Tremau SA. She is also a Venture and CEO Advisor at Loyal Venture Capital, a global VC fund. Her career spans Merrill Lynch Investment Banking, Sara Lee, and Lafarge in the USA and Europe. At Lafarge Group, Ms. Jolibois served in numerous positions in finance, strategy, business development, CEO and Chair of the Board for Lafarge Cement and Gypsum in Ukraine, and SVP and Chief Marketing-Sales-Supply Chain Officer for Lafarge Aggregates, Asphalt & Paving.

Lilia is currently Chairman of the Company's Audit Committee and a member of the Remuneration and Nomination Committees.

Gilbert Lehmann, 78, French

Senior Independent Non-Executive Director

Gilbert Lehmann was appointed to the Board on 18 November 2011. He was 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 was 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 a member of the Remuneration and Nomination Committees.

Report of the Directors

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

Non-Executive Directors                        Executive Director

Michel Meeùs (Interim Chairman)                                                     Fady Khallouf

Gilbert Lehmann    

Lilia Jolibois

Jacques Mahaux (resigned 19 April 2024)   

Directors' re-election

The Board has decided previously that all Directors are subject to annual election by shareholders, in accordance with industry best practice and as such, all Directors will be seeking re-election at the Annual General Meeting to be held on 21 June 2024.

The biographies of the Directors in office at the date of this report are shown on page 23.

Appointment and replacement of Directors

The Company's Articles of Association allow the Board to 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 at 31 December 2023 and their connected persons in the Ordinary shares of the Company at 31 December 2023 are set out below.

Conflicts of Interest

The Company has procedures in place for managing conflicts of interest. Should a director become aware that they, or any of their connected parties, have an interest in an existing or proposed transaction with the Company, its subsidiaries or any matters to be discussed at meetings, they are required to formally notify the Board in writing or at the next Board meeting. In accordance with the Companies Act 2006 and the Company's Articles of Association, the Board may authorize any potential or actual conflict of interest that may otherwise involve any of the directors breaching his or her duty to avoid conflicts of interest. All potential and actual conflicts approved by the Board are recorded in register of conflicts, which is reviewed by the Board at each Board meeting.

Directors' indemnities and insurance

The Company's Articles of Association provide that, subject to the provisions of the Companies Act 2006, all Directors of the Company are indemnified by the Company 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. In addition, the Company continues to maintain Directors' and Officers' Liability Insurance for all Directors who served during the year.

Powers of Directors

The Directors are responsible for the management of the business and may exercise all powers of the Company subject to UK legislation and the Company's Articles of Association, which includes powers to issue or buy back the Company's shares given by special resolution. The authorities to issue and buy back shares, granted at the 2023 Annual General Meeting, remains unused.

Dividends

The Directors do not recommend payment of a dividend for the year ended 31 December 2023 (2022: nil).

Principal activity and status

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

Subsequent events

In 2023 Cadogan initiated a new reserves assessment conducted by an independent expert, in accordance with PRMS standards. This assessment was successfully completed at end of February 2024, enhancing the Company's understanding of hydrocarbon reserves and informing strategic decision-making.

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 2023 was 244,128,487 Ordinary shares (each with one vote) with a nominal value of £7,323,854.61. The total number of voting rights in the Company is 244,128,421. 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 attached to shares held in treasury.

Rights and obligations of Ordinary shares

In accordance with applicable laws and the Company's Articles of Association, holders of Ordinary shares are entitled to:

• receive shareholder documentation including the notice of any general meeting;
• attend, speak and exercise voting rights at general meetings, either in person or by proxy; and
• 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. To accurately reflect the views of shareholders, where applicable it is the Company's policy at present to take all resolutions at any general meeting on a poll. Following the meeting, the results of the poll are released to the market via a regulatory news service and published on the Company's website.              

Substantial shareholdings

As at 31 December 2023 and 19 April 2024, being the last practicable date, 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 way of a special resolution of shareholders.

Disclosure of information to auditor

As required by section 418 of the Companies Act 2006, each of the Directors as at 6 May 2024 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.

Going concern

The Group's business activities, together with the factors likely to affect its future development, performance, and position, are set out on pages 14 to 18.

Having considered the Group's financial position and its principal risks and uncertainties, including uncertainties regarding the war in Ukraine. 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 please refer to the detailed discussion of the assumptions outlined in note 3(b) to the Consolidated Financial Statements.

Reporting year

The reporting year coincides with the Company's fiscal year, which is 1 January 2023 to 31 December 2023.

Financial risk management objectives and policies

The Company's financial risk management objectives and policies including its policy for managing its exposure of the Company to price risk, credit risk, liquidity risk and cash flow risk.

Management 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.

Outlook

Future developments in the business of the Company are presented on pages 5 to 10.

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, within a period of six months following the change of control, to a payment of salary and benefits equal to 24 months' base salary plus benefits plus bonus (if any).

Streamlined energy and carbon reporting

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

 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") and DEFRA GHG conversion factors for company reporting were utilised to calculate the CO2 equivalent of emissions from various sources (2018 update). Also, the used methodology was also updated based on methods proposed by DNV GL and in of GHG emissions Inventory referring to the following guidelines and international standards.

The Company has reported on all 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).

Scope 1 emissions in 2023 has insignificantly increased compared to the previous year (14,933 tons in 2023 vs 14,631 tons in 2022). This was caused by the increase of the annual oil production.

Conversely, Scope 2 emissions decreased in 2023 (111 tons in 2023 vs 124 tons in 2022), as a result of the processes started in 2016 to improve the efficiency of the structure, logistic and facilities. Total emissions in 2023 were 15,044 tons versus the 14,755 tons of 2022.

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 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.

The intensity ratio for E&P operations (same reporting perimeter) has insignificantly increased to 126,36tons CO2e/Kboe in 2023 vs 125,26 tons CO2e/Kboe in 2022.

Total greenhouse gas emissions data for the year from 1 January to 31 December.

The company conducted a planned repetition of bottomhole oil sampling and analyses during 2023 hydrodynamic surveys of Blazhiv wells to reconcile the associated gas composition data. The repetitive analyses confirmed an increase in methane levels in the gas composition causing an increase in the reported emissions level last year. As previously mentioned in the report, the implementation of the electricity generation project utilising associated gas will lead to a substantial reduction in the CO2 emissions into the atmosphere starting from 2025.

Energy consumption

The Company started in 2020 to monitor energy consumption in KwH.

Energy consumption in the UK is immaterial.

Task force on climate-related financial disclosures (`TCFD')

Climate change remains one of the Group's principal risks with governance over climate-related transition and physical risks provided at the Board and operational levels. The Board has ultimate accountability for ensuring Cadogan maintains sound climate risk management and internal control systems. The Board is ultimately accountable for Cadogan's strategic response to climate change and the energy transition. Directors are responsible for ensuring they remain sufficiently informed of climate related risks to Cadogan and the broader energy sector. In 2023, the Group has reviewed its administrative and operational process to identify the areas of further improvement in the limitation of its environmental impact. The Group has launched its gas-to-power project on its Blazhiv oil field in Ukraine. The aim of this project is to capture the gas emissions during oil production and use them to generate electricity to be sold on the grid. This project will allow to decrease significantly Cadogan's annual emissions with the intensity ratio emission to drop from 126 to 32 tons of CO2 e/Kboe. The project will be operational in Q1 2025.

TCFD related disclosures

As a company, we acknowledge the increasing significance of comprehending the effects of climate change on our operating environment and its potential implications for our business.

We view this as a chance to expand upon our existing efforts in this area, enhance the quality of our disclosures, and offer clear transparency, while continuing our TCFD reporting roadmap.

The company is actively considering projects to reduce emissions into the atmosphere. In the short term, the company plans to implement a project for electricity generation.

2024 Annual General Meeting

The 2024 Annual General Meeting ("AGM") of the Company provides an opportunity to communicate with shareholders and the Board welcomes their participation. Board members constantly strive to engage with shareholders on strategy, governance, and a number of other issues.

The Board looks forward to welcoming shareholders to the AGM.  The AGM notice will be issued to shareholders well in advance of the meeting with notes to provide an explanation of all resolutions to be put to the AGM.

In addition, shareholder information will be enclosed as usual with the AGM notice to facilitate voting and feedback in the usual way.

The Chairman of the Board and the members of its committees will be available to answer shareholder questions at the AGM. All relevant shareholder information including the annual report for 2023 and any other announcements will be published on our website - www.cadoganenergysolutions.com.

This Report of Directors comprising pages 25 to 31 has been approved by the Board and signed by the order of the Board by:

Ben Harber

Company Secretary

07 May 2024

Corporate Governance Statement

As a Company listed on the standard segment of the London Stock Exchange it is not required to apply a specific corporate governance code and, given its size, has elected not to do so. However, the Board of the Company is committed to the highest standards of corporate governance and believe that the 2018 UK Corporate Governance Code ("the Code") issued by the Financial Reporting Council ("FRC") provides a suitable benchmark for the Company's corporate governance framework.

This Statement outlines how Cadogan Energy Solutions plc ("Cadogan" or the "Company") has applied the relevant principles of the Code and complied with its provisions.

During the year under review, the Company complied with all the provisions of the Code, other than the exceptions noted below or elsewhere in this statement:

• Provision 5 (Workforce Engagement): Given the size of the business, the Board does not consider it appropriate to adopt the suggested methods outlined within the UK Corporate Governance Code 2018 to engage with its employees given the size of the Company. Employee engagement continues to be undertaken by senior management and any issues are escalated to the Board through the Chief Executive Officer. The Board believes that the arrangements in place are effective but will continue to keep this under review.

• Provision 9 (regarding the independence criteria of the Chair on appointment): Under the 2018 Corporate Governance Code, the Company's Chair during the year, Mr Michel Meeùs, was not considered to be independent given the size of his shareholding in the Company. Despite this, the Board considered Mr Meeùs to be independent in character, mindset and judgement.

• Provision 21 (Board Evaluation): Given the size of the Board it was felt that a board evaluation would not provide added value however the Board will continue to assess this provision periodically. 

• Provision 24 (Audit Committee Composition): Given the size and composition of the Board, the Audit Committee does not totally consist of independent non-executive directors. Ms Lilia Jolibois, Independent non-executive director, chaired the Audit Committee whilst Mr Jacques Mahaux, non-independent non-executive director, was a member of the Audit Committee during the year.

• Provision 32 (Remuneration Committee Composition): Given the size and composition of the Board, the Remuneration Committee does not totally consist of independent non-executive directors. The Remuneration Committee consisted of Mr Michel Meeùs, Ms. Lilia Jolibois, Mr Jacques Mahaux and Mr Gilbert Lehmann during the year.

Board Leadership and Company Purpose

The Board provides leadership and oversight, and its role is to ensure the long-term success of the Company by implementing the Company's strategy and business plan, overseeing its affairs, and providing constructive challenge to management as they do this. In addition to this, the Board oversees financial matters, governance, internal controls, and risk management.

The purpose of the Board is to:

• monitor Group activities to see that sustainable value is being created;
• evaluate business strategies and monitor their implementation;
• monitor and review the performance of management;
• provide accountability to shareholders through appropriate reporting and regulatory compliance;
• understand and ensure the management of operational business and financial risks to which the Group is exposed; and
• ensure that the financial controls and systems of risk management are robust and defensible.

The Board comprises a Non-Independent non-executive Chairman, Chief Executive Officer, one Independent Non-Executive Director and one Non-Executive Director. The Board has appointed Mr Lehmann as the Senior Independent Director. The Nomination Committee during 2024 will continue to review the size and composition of the Board and its committees with regard to finding a balance of independent non-executive directors.

The biographical details for each of the Directors and their membership of Committees are incorporated into this report by reference and appear on page 24.

The formal schedule of matters reserved for the Board's decision is available on the Company's website.

The Board recognises the importance of building strong relationships with stakeholders and understanding their views in order to help the Company deliver its strategy and promote the development of the business over the long-term. The Board is committed to having effective engagement with its stakeholders. Our section 172 statement can be found on pages 36 to 37 which summarises the Board's engagement with the Company's main stakeholders and some examples of how their views have been taken into account in the Board's decision-making.

The Company seeks to ensure that it always acts lawfully, ethically and with integrity. The company has in place the following policies which the Board reviews periodically:

• Code of Business Conduct and Ethics
• Anti-Bribery Policy
• Share Dealing Code
• Disclosure Policy
• Health, Safety and Environmental policies.

The Company has procedures in place for managing conflicts of interest. Should a director become aware that they, or any of their connected parties, have an interest in an existing or proposed transaction with the Company, its subsidiaries or any matters to be discussed at meetings, they are required to formally notify the Board in writing or at the next Board meeting. In accordance with the Companies Act 2006 and the Company's Articles of Association, the Board may authorize any potential or actual conflict of interest that may otherwise involve any of the directors breaching his or her duty to avoid conflicts of interest. All potential and actual conflicts approved by the Board are recorded in register of conflicts, which is reviewed by the Board at each Board meeting.

Directors' declarations of interests is a regular Board agenda item. A register of directors' interests (including any actual or potential conflicts of interest) is maintained and reviewed regularly to ensure all details are kept up to date. Authorisation is sought prior to a director taking on a new appointment or if any new conflicts or potential conflicts arise. New Directors are required to declare any conflicts, or potential conflicts, of interest to the Board at the first Board meeting after his or her appointment. The Board believes that the procedures established to deal with conflicts of interest are operating effectively.

Division of Responsibilities

The Directors possess a wide range of skills, knowledge and experience relevant to the strategy of the Company, including financial, legal, governance, regulatory and industry experience as well as the ability to provide constructive challenge to the views and actions of executive management in meeting agreed strategic goals and objectives.

The roles and responsibilities of the Chairman and Chief Executive Officer are separate with a clear and formal division of each individual's responsibilities, which has been agreed and documented by the Board.

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. Ms Lilia Jolibois is considered by the Board to be fully independent.

Mr Gilbert Lehmann, Senior Independent non-executive Director, has served on the Board for longer than 9 years since his appointment, however, the board is of the view that he retains his independent judgement and continues to make a valuable contribution to the board.

Mr Michel Meeùs, who is a significant shareholder is not considered independent as defined within the UK Corporate Governance Code 2018, however the Board believes that Mr Michel Meeùs is independent in character and judgement and free from relationships or circumstances that could affect his judgement.

The Board has access to the advice of the company secretary.

Composition, Succession and Evaluation

The Company has established a nomination committee which leads the process for Board appointments by identifying and nominating candidates for the approval of the Board to fill Board vacancies and making recommendations to the Board on Board's composition and balance. The Company's Nomination Committee Report can be found on page 42.

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 in line with Corporate Governance best practice. Accordingly, all members of the Board will be standing for re-election at the 2023 Annual General Meeting due to be held on 21 June 2024.

All Directors continue to be effective and have sufficient time available to perform their duties. The letters of appointment for the Non-Executive Directors are available for review at the Registered Office and prior to the Annual General Meeting. Each of the Non-Executive Directors independently ensures that they update their skills and knowledge sufficiently to enable them to fulfil their duties appropriately.

The Chairman, in conjunction with the Company Secretary, plans the programme for the Board during the year. While no formal structured continuing professional development program has been established for the non-executive Directors, every effort is made to ensure that they are fully briefed before Board meetings on the Company's business. The agenda for Board and Committee meetings are 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.

Audit, Risk and Internal Control

The Board has delegated certain responsibilities to its committees including its Audit Committee. The Company's Audit Committee Report can be found on pages 37 to 38.

The role of the Audit Committee is to monitor the integrity of the Company's financial reporting, to review the Company's internal control and risk management systems and to oversee the relationship with the Group's external auditors. The Audit Committee focuses particularly on compliance with legal requirements, accounting standards and the rules of the Financial Services Authority. The Audit Committee will meet at least three times a year with further meetings that are determined by the committee. Any member of the committee or the external auditors may request any additional meetings they consider necessary.

The Directors are responsible for the Group's system of internal control and for maintaining and reviewing its effectiveness. 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. The Board has delegated responsibility for the monitoring and review of the Group's internal controls to the Audit Committee.

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 Group's internal control and risk management systems that ensure the accuracy and reliability of financial reporting include clearly defined lines of accountability and delegation of authority, policies and procedures that cover financial planning and reporting, preparing consolidated financial statements, capital expenditure, project governance and information security.

The key features of the internal control systems, which operated during 2023 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 and policies have been circulated and adopted throughout the Group throughout the period.

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 and treasury functions report to the Group Director of Finance who reports directly to the Chief Executive Officer.

The legal function for Ukraine's related assets and activities is managed by the General Counsel, who reports to the General Director of Cadogan Ukraine. The Health, Safety and Environment functions report to the Chairman of the HSE Committee, the HSE Committee Report can be found on pages 39 to 40. 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 an internal audit function in place, however this will be kept under review by the Audit Committee on an annual basis.

The Board has reviewed internal controls and risk management processes, in place from the start of the year to the date of approval of this report. During its review the Board did not identify nor were advised of any failings or weaknesses which it has deemed to be significant.

A summary of the principal risks facing the Company and the mitigating actions in place are contained on pages 14 to 18 of the annual report.

The Company's going concern is contained on page 26 of the annual report.

Further information on the work undertaken by the Committee during the year can be found on pages 38 to 39 of the annual report.

Remuneration

The Board has established a Remuneration Committee and the Company's Remuneration Committee Report can be found on pages 44 to 64 of the annual report.

The role of the Remuneration Committee is to determine and agree with the Board the broad policy for the remuneration of executives and Senior Managers as designated, as well as for setting the specific remuneration packages, including pension rights and any compensation payments of all executive Directors and the Chairman. The Company's remuneration policies and practices are designed to support its long-term strategy and promote the long-term sustainable success of the Company.

Attendance at Meetings

Six Board meetings took place during 2023. The attendance of those Directors in place at the year end at Board and Committee meetings during the year was as follows:

*There was no meetings of the Nomination Committee held during 2023.

Responsibilities and membership of Board Committees

The Board has agreed written terms of reference for the Nomination Committee, Remuneration Committee, Audit Committee and HSE Committee. The terms of reference for the Board Committees are published on the Company's website, www.cadoganenergysolutions.com, and are also available from the Company Secretary at the Registered Office. A review of the Committees including their membership and activities of all Board Committees is provided on pages 38 to 43.

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 at quarterly meetings and discussed in detail. Mr Lehmann, as the Senior Independent Director, is available to meet with 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.cadoganenergysolutions.com, as soon as they are announced. The Notice of the Annual General Meeting is also contained on the Company's website, www.cadoganenergysolutions.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.cadoganenergysolutions.com.

Directors' section 172 statement

The disclosure describes how the Directors have regard to the matters set out in section 172(1)(a) to (f) and forms the Directors' statement required under section 414CZA of The Companies Act 2006.

The matters set out in section 172(1) (a) to (f) are that a Director must act in the way they consider, in good faith, would be most likely to promote the success of the Company for the benefit of its members as a whole, and in doing so have regard (amongst other matters) to:

(a) the likely consequences of any decision in the long term;

(b) the interests of the Company's employees;

(c) the need to foster the Company's business relationships with suppliers, customers and others;

(d) the impact of the Company's operations on the community and the environment;

(e) the desirability of the Company maintaining a reputation for high standards of business conduct; and

(f) the need to act fairly between members of the Company.

Being sustainable in our activities means conducting our business with respect for the environment and for the communities hosting us, with the aim of increasing the benefit and value to our stakeholders. We recognize that this is a key element to be competitive and to maintain our licence to operate.

Further details of how the Directors have regard to the issues, factors and stakeholders considered relevant in complying with S 172 (1) (a)-(f), the methods used to engage with stakeholders and the effect on the Group's decision making can be found throughout the annual report and in particular pages 34 (which outlines how the Company engages with its stakeholders), pages 20 to 23 (which contains Cadogan's corporate responsibility statement) pages 28 to 30 (which contains the Company's report on greenhouse gas emissions) and page 35 (which outlines the ways in which the Company engages with its shareholders).

The Group has implemented an integrated HSE management system aiming to ensure a safe and environmentally friendly culture in the organization (pages 20 to 22). However, regarding the environmental sustainability of the Group's activities, the Directors are fully aware of the need to direct future development in new activities with a lower impact on environment (CEO outlook page 9, 28).

When assessing the Proger Loan, the Directors carefully considered the issues and decisions with their impact on the Group and all its stakeholders (pages 8, 9, 16, 17).

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

In particular, as a consequence of the invasion of Ukraine by Russia in February 2022, and the war situation prevailing in Ukraine the Board discussed the current situation and its consequences on the security of the employees, the organisation of the operations in Ukraine and the potential impacts on its human, financial and operational assets. The Group has been able to implement immediately emergency procedures with safety and protection measures communicated to all employees and put in place for every location. Specific measures have been put in place for the operations on site to ensure the human, the industrial and the environmental safety. The Group is monitoring the situation daily and taking appropriate action to ensure the safety and essential needs of employees.

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 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.cadoganenergysolutions.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; and
• 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.

Governance

Ms Jolibois and Mr Mahaux were both members of the Audit Committee during the period. The Audit Committee is chaired by Ms Jolibois who had relevant financial experience within a major European company 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 meetings. 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:

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 2023 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.

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;
• reviewed critical judgements, estimates and underlying assumptions; and
• assessed whether the financial statements are fair, balanced and understandable.

Going concern

After making enquiries and considering the uncertainties described on pages 14 to 18, the Committee has a reasonable expectation that the Company and the Group has 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 including the basis for the conclusion, please refer to the detailed discussion of the assumptions outlined in note 3 (b) to the Consolidated Financial Statements.

Internal controls and risk management

The Audit Committee reviews and monitors financial and control issues throughout the Group including the Group's key risks and the approach for dealing with them. Further information on the risks and uncertainties facing the Group are detailed on pages 104 to 106 and in note 28 to the financial statements.

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, considering 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, considering 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.  

A breakdown of the non-audit fees is disclosed in note 11 to the Consolidated Financial Statements. The Audit Committee has reviewed the nature, level and timing 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.

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.

Whistleblowing

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 is reviewed periodically.  The Group's policies on anti-bribery, the acceptance of gifts and hospitality, and business conduct and ethics are circulated to staff as part of a combined manual on induction with changes regularly communicated.

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.

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.

Lilia Jolibois

Chairman of the Audit Committee

07 May 2024

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 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.cadoganenergysolutions.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.

Governance

The Committee is chaired by Mr Andrey Bilyi (Cadogan Ukraine General Director) as acting Head of the HSE Committee and its other member is Ms Snizhana Buryak (HSE Manager). The CEO attends meetings of the HSE Committee as necessary. During 2023, the HSE Committee held four meetings to monitor the HSE risks and activities across the business, following which actions were identified for the continuous improvement of the various processes and the mitigation of risk.

Responsibilities

• To regularly maintain and implement the continuous improvement of the HSE Management System with the aim of improving the Company's performances;

• To manage and mitigate the risks of personnel infection with Covid-19 virus. Work-out respective administrative and healthcare measures to provide safe working conditions for the employees. Prevent the spread of Covid-19 as well as ensuring staff reasonable vaccination level.
  • Assessments of the risks to employees, contractors, customers, partners, and any other people who could be affected by the Company's activities with the aim of reducing the global risk of the Company and increasing its level of acceptability;
  • 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; and
  • Where it deems it appropriate to do so, appoint an independent auditor to review performance with 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.

Activities of the Health, Safety and Environment Committee

The HSE Committee in discharging its duties reviewed and considered the following:

• Company activities execution and control over contractors services execution in line with company policies and HSE procedures;
• Monthly statistics and reports on the activity were regularly distributed to the CEO, Management and to the members of the committee;
• Ensured that the implementation of new legislation and requirements were punctually followed-up and promptly updated;
• Compliance with HSE regulatory requirements was ensured through discussion of the results of inspections, both internal inspections and those carried out by the Authorities. The results of the inspections and drills were analysed and commented to assess the need for corrective actions and/or training initiatives;
• A standing item was included on the agenda at every meeting to monitor monthly HSE performance, key indicators and statistics allowing the HSE Committee to assess the Company's performance by analysing any lost-time incidents, near misses, HSE training and other indicators;
• Interaction with contractors, Authorities, local communities and other stakeholders were discussed among other HSE activities;
• Compliance to ISO 14001 and ISO 45001 has been proved by the authorized third party auditor. Also, the Company had its entire data calculation process as well as emissions measurement system re-validated by a different independent third party; and
• Ensuring all the Observation and Actions requested by the Certification Body have been implemented.

Overview

The Company's HSE Management System and the Guidelines and Procedures have been updated to fit with the ISO requirements and are adequate for the proper execution of the Company's operations.

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.

Nomination Committee Report

The Board delegates some of its duties to the Nomination Committee and appoints the members of the Nomination Committee which are non-executive Directors of the Group. The membership of the Committee is reviewed from time to time and any changes to its composition are referred to the Board for approval. The terms of reference of the Nomination Committee are published on the Company's website, www.cadoganenergysolutions.com, and are available from the Company Secretary at the Registered Office. Two members constitute a quorum.

Governance

Mr. Michel Meeùs (Remuneration and Nomination Committee Chairman), Ms. Lilia Jolibois, and Mr. Gilbert Lehmann (Non-Executive Directors) are the members of the Nomination Committee. The Company Secretary attends all meetings of the Nomination Committee.

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 candidates to fill Board vacancies as and when they arise, for the Board's approval;
• Before appointments are made by the Board, evaluate the balance of skills, knowledge, experience and diversity (gender, ethnic, age, sex, disability, educational and professional backgrounds, etc.) on the Board and, in the light of this evaluation, prepare a description of the role and capabilities required for a particular appointment; and
• 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, ensuring 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; and
• 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.

Michel Meeùs

Nomination Committee Chairman

07 May 2024

Remuneration Committee

Statement from the Chairman

I am pleased to present the Annual Report on Remuneration for the year ended 31 December 2023.

Cadogan's Remuneration Policy was approved as proposed by the shareholders at the Annual General Meeting of 25 June 2021 and is attached at the end of the Annual Report on Remuneration. The Remuneration Committee is not proposing to make any changes to the existing Policy however in line with industry best practice and the three-year Policy cycle the Company will be seeking shareholder approval at this year's AGM.

The key elements of the Remuneration Policy are:

• A better long-term alignment of the executives' remuneration with the interests of the shareholders;
• A material reduction in the maximum remuneration level for the Executive Directors, both in terms of annual bonus and of long-term incentive (performance share plan);
• The payment of at least 50% of the Annual Bonus in shares with the remaining 50% to be paid in cash or shares at the discretion of the Remuneration Committee. Shares will be priced for this award based on their market value at closing on the Business Day prior to the Subscription Date;
• The introduction of claw-back and malus provisions on both bonuses and share awards; and
• The expectation that the Executive Directors build a substantial shareholding position in the Company through their mandate.

Michel Meeùs

Chairman of the Remuneration Committee

07 May 2024

ANNUAL REPORT ON REMUNERATION 2023

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.

Governance

The Remuneration Committee is appointed by the Board from the non-executive Directors of the Company. The Remuneration Committee's terms of reference 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.cadoganenergysolutions.com, and are also available from the Company Secretary at the Registered Office.

The Remuneration Committee consists of Mr. Michel Meeùs, Ms. Lilia Jolibois 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 Company Secretary attends the meetings of the Remuneration Committee.

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; and
• To ensure that contractual terms on termination, and any payments made, are fair to the individual and the Company, that failure is not rewarded and that the duty to mitigate loss is fully recognised.

Overview

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 is reported to the Board and discussed in detail both there and during meetings of the Remuneration Committee.

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.

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)

Notes to the table

Mr Fady Khallouf

Mr Khallouf was appointed as Chief Executive Officer on 15 November 2019. Mr Khallouf's salary is €440,000 per annum.

KPIs

The CEO is subject to a performance-related, bonus scheme built around a scorecard with a set of challenging KPI's aligned with the company strategy. Given the current situation in Ukraine and any potential future difficulties for the Company, Mr Fady Khallouf had requested that any annual performance related bonus to be considered and paid by the Remuneration Committee during 2024, in respect of the financial year ended 31 December 2023, be waived.

Benefits

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

The Chairman and Non-Executive Directors

As mentioned above, fees for non-Executive Directors were reduced by 20% on 15 January 2020 with effect from 15 November 2019. The fees are as follows: the Chairman's fee at $89,000 and the fee for acting as a non-executive Director at $38,000 with an additional $10,000 for acting as Chairman of the Audit Committee and an additional $5,000 for a committee membership.

Scheme interests awarded during the financial year (audited)

There were no scheme interests awarded during the year.

Payments to past directors (audited)

In 2023 there were no payments to past directors.

Payments for loss of office (audited)

No notice period was either worked or paid.

Directors' interests in shares (audited)

The beneficial interests of the Directors in office as at 31 December 2023 and their connected persons in the Ordinary shares of the Company at 31 December 2023 are set out below.

Mr Khallouf bought 450,000 shares in June 2023. In December 2023 Mr Meeùs decided to terminate a financial agreement with a collateral over 15,800,000 shares.

The Company does not currently operate formal shareholding guidelines. Whilst there is no specified level, the Company expects that under the new Remuneration Policy, the Executive Director will continue to build up a significant shareholding position in the Company during his mandate.

The Company's performance

The graph below highlights the Company's total shareholder return ("TSR") performance for the last fourteen 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, and has been retained ever since, primarily for continuity purposes TSR is the return from a share or index based on share price movements and notional reinvestment of declared dividends.

Historic Remuneration of Chief Executive

In 2023, the Remuneration Committee, after consultation with the CEO, have decided to postpone any variable performance related bonus for the year ended 31 December 2023.

The annual bonus received by the CEO as a percentage of the maximum opportunity is presented in the following table.

Percentage change in the remuneration of the Chief Executive

The following table shows the percentage change in the remuneration of the Chief Executive in 2023 and 2022 compared to that of all employees within the Group.

In 2023 none of the directors participated in long-term incentive schemes.

In 2023 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.

Percentage change in Non-Executive director remuneration

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 2022 and 31 December 2023.

Shareholder voting at the Annual General Meeting

The Directors' Remuneration Policy was approved by shareholders at the Annual General Meeting held on 25 June 2021 and remains unchanged. The Remuneration Policy can be found on the Group's website and at pages 50 to 63 of this Annual Report on Remuneration. The votes cast by proxy were as follows:

The Directors' Annual Report on Remuneration is approved by shareholders at each Annual General Meeting. A summary of the votes cast by proxy in 2023 and 2022 were as follows:

Implementation of Remuneration Policy in 2023

The performance related elements of remuneration remain unchanged and will be built around a scorecard with a set of KPI's aligned with the Group strategy. The Remuneration Policy can be found on the Group's website and at pages 50 to 63 of this Annual Report on Remuneration.

Approval

The Directors' Annual Report on Remuneration was approved by the Board on 07 May 2024 and signed on its behalf by:

Michel Meeùs

Chairman

07 May 2024

Director's Remuneration Policy

• Introduction

This Directors' Remuneration Policy (the "Policy") contains the information required to be set out as the directors' remuneration policy for the purposes of The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013.

The Policy was approved by shareholders at the 2021 AGM of the Company. The Remuneration Committee is not proposing to make any changes to the existing Policy however in line with industry best practice and the three-year Policy cycle the Company will be seeking shareholder approval at this year's AGM. The effective date of this Policy is the date on which the Policy is approved by shareholders.

The Policy applies in respect of all executive officers appointed to the Board of Directors ("executive directors") and non-executive directors. Other senior executives may be subject to the Policy, including in relation to annual bonus and shares incentive arrangements in particular if and to the extent that the Remuneration Committee determines it is appropriate.

The Remuneration Committee will keep the Policy under review to ensure that it continues to promote the long-term success of the Company by giving the Company its best opportunity of delivering on the business strategy. It is the Remuneration Committee's intention that the Policy be put to shareholders for approval every three years unless there is a need for the Policy to be approved at an earlier date.

The Company aims to provide sufficient flexibility in the Policy for unanticipated changes in compensation practices and business conditions to ensure the Remuneration Committee has appropriate discretion to retain its top executives who perform. The Remuneration Committee reserves the right to approve any payments that may be outside the terms of this Policy, where the terms of that payment were agreed before the Policy came into effect, or before the individual became a director of the Company.

Maximum caps are provided to comply with the required legislation and should not be taken to indicate an intent to make payments at that level. The maximum caps are valid at the time that the relevant employment agreement or appointment letter is entered into and the caps may be adjusted to take into account fluctuations in exchange rates.

• Remuneration policy table: executive directors

Notes to the executive directors' remuneration policy table

The Remuneration Committee's philosophy is that remuneration arrangements should be appropriately positioned to support the Group's business strategy over the longer term and the creation of value for shareholders. In this context the following key principles are considered to be important:

-             remuneration arrangements should align executive and employee interests with those of shareholders;

-             remuneration arrangements should help retain key executives and employees; and

-             remuneration arrangements should incentivise executives to achieve short, medium and long-term business targets which represent value creation for shareholders. Targets should relate to the Group's performance in terms of overall revenue and profit and the executive's own performance. Exceptional rewards should only be delivered if there are exceptional returns.

The Remuneration Committee reserves the right to make any remuneration payments (including satisfying awards of variable remuneration) and payments for loss of office notwithstanding that they are not in line with the Policy set out above, where the terms of that payment were agreed before the Policy came into effect, or before the individual became a director of the Company (provided the payment was not in consideration for the individual becoming a director).

• Performance measures and targets

(a)                Annual Bonus

The performance measures for executive directors comprise of financial measures and business goals linked to the Company's strategy, which could include financial and non-financial measures. The business goals are tailored to reflect each executive director's role and responsibilities during the year. The performance measures are chosen to enable the Remuneration Committee to review the Company's and the individual's performance against the Company's business strategy and appropriately incentivise and reward the executive directors.

Annual bonus targets are set by the Remuneration Committee each year. They are stretching but realistic targets which reflect the most important areas of strategic focus for the Company. The factors taken into consideration when setting targets include the Company's Key Performance Indicators (which are determined annually by the Remuneration Committee), and the extent to which they are under the control or influence of the executive whose remuneration is being determined.

Performance is measured over the financial year against the measures and targets set according to the scorecard. The Remuneration Committee retains the right to exercise its judgement to adjust the bonus outcome for an individual to ensure the outcome reflects any other aspects of the Company's performance that become relevant during the financial year.

The Remuneration Committee used Company operational and financial performances and safety as performance measures for the 2020 scorecard. For years following 2020, the structure of the annual bonus scorecard will be reviewed by the Remuneration Committee.

2023 Annual bonus scorecard measures for executive director

(b)                Share Plans

The Remuneration Committee will make the vesting of a Plan award conditional upon the satisfaction of stretching but realistic performance conditions. These conditions are meant to achieve a long-term alignment of the executives' remuneration with the interest of the shareholders.

EBITDA growth, increase of P1 reserves (in millions boe), and changes to the free cash-flow are the key KPIs to be used by the Remuneration Committee and will be measured over time periods of three financial years. The performance measures are chosen to align the performance of participants with the attainment of financial performance targets over the vesting period of the award. The targets are set by the Remuneration Committee by reference to the Company's strategy and business plan and the results achieved at the time of the vest are determined by the Remuneration Committee.

Under the PSP plan rules, the Board may vary a performance target where it considers that any performance target to which an award is subject is no longer a true or fair measure of the participant's performance, provided that the Board must act fairly and reasonably and that the new performance target is materially no more difficult and no less difficult to satisfy than the original performance target.

• Malus and clawback (applicable to bonuese and share awards)

The Remuneration Committee has the discretion to reduce the bonus before payment or require the executive director to pay back shares or a cash amount in the event of material financial misstatement of the Company or fraud or material misconduct on the part of the executive. The amount that may be clawed back on any such event is limited to the value of the bonus, taking into account the cash paid and the shares delivered to the executive, taking the value of the shares at the time of the clawback, less any income tax or employee social security contributions paid on the bonuses.

• Share ownership guidelines for executives

The Remuneration Committee is planning to implement share ownership guidelines for executive directors to further align the interests of the executive directors with those of shareholders. The share ownership guidelines will include an expectation that executive directors build up their shareholding to 200% of base salary over a period of five years from the later of: the date of adoption of this policy and the date of appointment.

Once the shareholding guideline is reached, executive directors would be expected to maintain it. The intention would be for the shareholding guideline to be reached through the retention of vested shares from share plans (e.g. the deferred share element of the annual bonus and shares vested under the PSP). As such, the Remuneration Committee's discretion may be used to increase the proportion of an annual bonus to be delivered in shares to assist the executive director in meeting this guideline. The deferred share mechanism in the annual bonus and the design of the PSP will assist executive directors in reaching the guidelines. Executive directors will not be expected to top up their shareholding with personal acquisitions of Company shares outside the usual share plans described in the Policy. The Remuneration Committee will monitor the executive directors' shareholdings and may adjust the guideline in special individual and Company circumstances, for example in the case of a share price fall.

• PSP Plan Limits

The PSP may operate over new issue shares, treasury shares or shares purchased in the market. In any ten-calendar year period, the Company may not issue (or grant rights to issue) more than:

(a)                10% of the issued ordinary share capital of the Company under the Plan and any other employee share plan adopted by the Company; and

(b)                5% of the issued ordinary share capital of the Company under the Plan and any other executive share plan adopted by the Company.

Treasury shares will count as new issue shares for the purposes of these limits unless institutional investors decide that they need not count. These limits do not include rights to shares which have been renounced, released, lapsed or otherwise become incapable of vesting, awards that the Remuneration Committee determines after grant to be satisfied by the transfer of existing shares and shares allocated to satisfy bonuses (including pursuant to the Deferred Bonus Plan).

• Remuneration throughout the Group

Differences in the Company's pay policy for executive directors from that applying to employees within the Group generally reflect the appropriate market rate for the individual executive roles.

• Remuneration policy table: non-executive directors

Notes to the Policy Table

The payment policy for non-executive directors is to pay a rate which will secure persons of a suitable calibre. The remuneration of the non-executive directors is determined by the Board. External benchmarking data and specialist advisers are used when setting fees, which will be reviewed at appropriate intervals. The maximum caps are valid at the time that the relevant appointment letter is entered into and the caps may be adjusted to take into account fluctuations in exchange rates. 

Expenses reasonably and wholly incurred in the performance of the role of non-executive director of the Company may be reimbursed or paid for directly by the Company, as appropriate, and may include any tax due on the expense.

The non-executive directors' fees are non-pensionable. The non-executive directors have not to date been eligible to participate in any incentive plans (such as bonuses or share plans); however, the Board considers that it may be appropriate in the future to enable such participation, subject to suitably stretching performance thresholds.

Non-executive directors may receive professional advice in respect of their duties with the Company which will be paid for by the Company. They will be covered by the Company's insurance policy for directors.

• Recruitment

The Company's policy on the recruitment of directors is to pay a fair remuneration package for the role being undertaken and the experience of the individual being recruited. The Remuneration Committee will consider all relevant factors, which include the abilities of the individual, their existing remuneration package, market practice, and the existing arrangements for the Company's current directors.

The Remuneration Committee will determine that any arrangements offered are in the best interests of the Company and shareholders and will endeavour to pay no more than is necessary.

The Remuneration Committee intends that the components of remuneration set out in the policy tables, and the approach to the components as set out in the policy tables, will be equally applicable to new recruits, i.e. salary, annual bonus, share plan awards, pension and benefits for executive directors, and fees for non-executive directors. However, the Company acknowledges that additional flexibility may be required to ensure the Company is in the best position to recruit the best candidate for any vacant roles and, as such, a buy-out arrangement may be required.

• Flexibility

The salary and compensation package designed for a new recruit may be higher or lower than that applying for existing directors. The Remuneration Committee may decide to appoint a new executive director to the Board at a lower than typical salary, such that larger and more frequent salary increases may then be awarded over a period of time to reflect the individual's growth in experience within the role.

Remuneration will normally not exceed those set out in the policy table above. However, to ensure that the Company can sufficiently compete with its competitors, the Remuneration Committee considers it important that the recruitment policy has sufficient flexibility in order to attract and appropriately remunerate the high-performing individuals that the Company requires to achieve its strategy. As such, the Remuneration Committee reserves discretion to provide a buy-out arrangement and benefits (such as a sign-on bonus and additional share awards) in addition to those set out in the policy table (or mentioned in this section) where the Remuneration Committee considers it reasonable and necessary to do so in order to secure an external appointment (see below for more detail in relation to buy-out arrangements).

 

• Buy-out arrangements

The Remuneration Committee retains the discretion to enter into buy-out arrangements to compensate new hires for incentive awards forfeited in joining the Company. The Remuneration Committee will use its discretion in awarding and setting any such compensation, which will be decided on a case-by-case basis and likely on an estimated like-for-like basis. In deciding the appropriate type and quantum of compensation to replace existing awards, the Remuneration Committee will take into account all relevant factors, including the type of award being forfeited, the likelihood of any performance measures attached to the forfeited award being met, and the proportion of the vesting period remaining. The Remuneration Committee will appropriately discount the compensation payable to take account of any uncertainties over the likely vesting of the forfeited award to ensure that the Company does not, in the view of the Remuneration Committee, pay in excess of what is reasonable or necessary.

Compensation for awards forfeited may take the form of a bonus payment or a share award. For the avoidance of doubt, the maximum amounts of compensation contained in the policy table will not apply to such buy-out arrangements. The Company has not placed a maximum value on the compensation that can be paid under this section, as it does not believe it would be in shareholders' interests to set any expectations for prospective candidates regarding such awards.

• Payments for loss of office

Any compensation payable in the event that the employment of an executive director is terminated will be determined in accordance the terms of the employment contract between the Company and the executive, as well as the relevant rules of any share plan and this Policy, and in accordance with the prevailing best practice.

The Remuneration Committee will consider a variety of factors when considering leaving arrangements for an executive director and exercising any discretions it has in this regard, including (but not limited to) individual and business performance during office, the reason for leaving, and any other relevant circumstances (for example, ill health).

In addition to any payment that the Remuneration Committee may decide to make, the Remuneration Committee reserves discretion as it considers appropriate to:

(a)                pay an annual bonus for the year of departure;

(b)                continue providing any benefits for a period of time; and

(c)                 provide outplacement services.

Non-executive directors are subject to one month notice periods prior to termination of service and are not entitled to any compensation on termination save for accrued fees as at the date of termination and reimbursement of any expenses properly incurred prior to that date.

• Share plan awards

The treatment of any share award on termination will be governed by the PSP rules.

Under the PSP, outstanding share awards held by an individual who ceases to be a director or employee of the Company will lapse, unless the cessation is due to death, illness, injury or disability, redundancy, retirement, the Company ceasing to be a member of the Group or the transfer of an undertaking or part of an undertaking to a person who is not a member of the Group, or the Board exercises its discretion otherwise.

Under the PSP, the Board has discretion to decide the period of time for which the award will continue, and whether any unvested award shall be treated as vesting on the date of cessation of employment or in accordance with the original vesting schedule, in both cases have regard to the extent to which the performance targets have been satisfied prior to the date of cessation.

For executive directors, the vesting period will be set by the Remuneration Committee with a minimum three-year period.  The Remuneration Committee will (unless the vesting period is set as a period equal to or longer than five years) impose a holding period on shares (or awards) so that the executive is not able to sell the shares that the executive director acquires through the PSP until the fifth anniversary of the date of the award.   The holding period will not apply to the number of shares equivalent in value to the amount required by the Company or the executive director to fund any income tax and employee social security contributions due on the vesting of the awards or otherwise in connection with the awards.

• Executive director employment agreements

This section contains the key employment terms and conditions of the executive directors that could impact on their remuneration or loss of office payments.

The Company's policy on employment agreements is that executive directors' agreements should be terminable by either the Company or the director on not more than six months' notice. The employment agreements contain provision for early termination, among other things, in the event of a breach by the executive but make no provision for any termination benefits except in the event of a change of control of the Company, where the executive becomes entitled to a lump sum equal to 24 months' base salary plus benefits plus (if any), bonus received on termination by the Company. The employment agreements contain restrictive covenants for a period of 12 months following termination of the agreement. Details of employment agreements in place as at the date of this report are set out below:

Directors' employment agreements are available for inspection at the Company's registered office in London.

• Non-executive directors' letters of appointment

This section contains the key terms of the appointments of non-executive directors that could impact on their remuneration.

Typically, the non-executive directors are appointed by letter of appointment for an initial term of three years which may be extended. All non-executive directors are subject to annual re-election by the Company's shareholders and their appointments may be terminated earlier with one month's prior written notice (or with immediate effect, in the case of specific serious circumstances such as fraud or dishonesty). On termination of appointment, non-executive directors are usually only entitled to accrued fees as at the date of termination together with reimbursement of any expenses properly incurred prior to that date and the company has no obligation to pay further compensation when the appointment terminates. Non-executive directors' letters of appointment are available for inspection at the Company's registered office in London.

• Illustration of the Remuneration Policy

The bar charts below show the levels of remuneration that the CEO could earn over the coming year under the Policy.

CEO: minimum and maximum remuneration

The bar chart shows future possible maximum remuneration.

Pension entitlements were provided in 2023.

• Consideration of shareholder views

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 is reported to the Board and discussed in detail both there and during meetings of the Remuneration Committee.

The Remuneration Committee will take into account the results of the shareholder vote on remuneration matters when making future remuneration decisions. The Remuneration Committee remains mindful of shareholder views when evaluating and setting ongoing remuneration strategy.

• Consideration of employment conditions within the Group

When determining remuneration levels for its executive directors, the Board considers the pay and employment conditions of employees across the Group. The Remuneration Committee will be mindful of average salary increases awarded across the Group when reviewing the remuneration packages of the executive directors.

• Minor changes

The Remuneration Committee may make, without the need for shareholder approval, minor amendments to the Policy for regulatory, exchange control, tax or administrative purposes or to take account of changes in legislation.

Michel Meeùs

Chairman

07 May 2024

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 regulation.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the group and company financial statements in accordance with UK-adopted International Accounting Standards. In preparing the Company and Group's financial statements, IAS Regulation requires that Directors:

• properly select and apply accounting policies;
• make judgements and accounting estimates that are reasonable and prudent;
• present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
• state whether applicable UK-adopted International Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements;
• 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, prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company and Group will continue in business.

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, Report of the Directors, 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 and statements included on the Company's website, www.cadoganenergysolutions.com. Legislation in the United Kingdom governing the preparation and dissemination of the financial statements may differ from legislation in other jurisdictions. The directors' responsibility also extends to the ongoing integrity of the financial statements contained therein.

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 UK-adopted International Accounting Standards in conformity with the requirements of the Companies Act 2006, 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 Annual 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

Michel Meeùs

Chairman

07 May 2024

INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF CADOGAN ENERGY SOLUTIONS PLC

Qualified Opinion

We have audited the financial statements of Cadogan Energy Solutions Plc (the `Parent Company') and its subsidiaries (the Group) for the year ended 31 December 2023 which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Balance Sheet, the Consolidated Cash Flow Statement, the Consolidated Statement of Changes in Equity, the Company Balance Sheet, the Company Cash Flow Statement, the Company Statement of Changes in Equity, the Notes to the Consolidated Financial Statements and the Notes to the Company Financial Statements, including significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and UK adopted international accounting standards and, as regards the Parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.

In our opinion, except for the effect of the matter described in the Basis for qualified opinion paragraph below:

• 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 2023 and of the group's profit for the year then ended;

• the Group financial statements have been properly prepared in accordance with UK adopted international accounting standards;

• the Parent Company financial statements have been properly prepared in accordance with UK adopted international accounting standards 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.

Basis for qualified opinion

In February 2019, the Group advanced a Euro 13,385,000 loan to Proger Managers & Partners Srl ("PMP"), a privately owned Italian company whose only asset is a 72.92% interest in Proger Ingegneria Srl ("Proger Ingegneria"), a privately owned company which itself held a 67.91% participating interest in Proger S.P.A ("Proger") at the date of the loan was advanced. 

The loan carries an entitlement to interest at a rate of 5.5% per year, payable at maturity (which is 24 months after the execution date of February 2019 and assuming that the call option described below was not exercised). The principal of the loan is secured by a pledge over PMP's current participating interest in Proger Ingegneria Srl, up to a maximum guaranteed amount of Euro 13,385,000.

Through the Agreement, the Group was granted a call option to acquire, at its sole discretion, a 33% participating interest in Proger Ingegneria; the exercise of the option would have given Cadogan, through Cadogan Petroleum Holdings BV, an indirect 25% interest in Proger. The call option was granted at no additional cost and could be exercised at any time between the 6th and 24th months following the execution date of the loan agreement.

The call option was not exercised within the relevant timeframe (February 2021) and consequently in accordance with the loan agreement the principal amount and any accrued interest became repayable in full. At that date the Group reclassified the asset from a financial asset held at fair value through profit and loss to a financial asset held at amortised cost.

In March 2021, PMP requested arbitration to have the loan agreement recognised as an equity investment contract. In July 2022, the Arbitra Camera in Rome decided to reject the main claim of PMP to recognise the loan as an equity investment. 

In November 2023, the Group initiated a second arbitration to assert its right to restitution and obtain PMP's condemnation of the consequent payment.

As part of our risk assessment we considered the recoverability of the loan note instrument to be a key audit matter, and in respect of this matter we:

• made enquiries of management and the Audit Committee regarding the structure of the transaction and the latest status of legal proceedings;
• obtained and reviewed the original loan documents including the call option agreement;
• obtained loan workings papers and reviewed the accounting entries;
• met with management to obtain an understanding of their assessment of the recoverable amount of the loan and why management believes no impairment of the carrying value of the loan note is required;
• discussed with management their understanding of the process of assessing recoverability of the loan note;
• requested and received information from Cadogan legal advisors on the current legal status and legal proceedings;
• based on available information to us we critically assessed the ability of the counterparty to repay the amounts due; and
• reviewed the disclosures in relation to financial instruments including the accounting policy, critical judgments and estimates and financial instrument disclosures.

Based on the procedures performed above we were unable to obtain sufficient, appropriate audit evidence regarding the recoverability of the loan note, and accordingly we were also unable to obtain sufficient appropriate audit evidence to enable us to conclude whether the carrying value of the loan note is materially accurate.

In 2022, we were not able to obtain sufficient, appropriate audit evidence as to whether the carrying value of the loan note was materially recoverable as at 31 December 2022 and as a result the audit opinion for the year ended 31 December 2022 was also qualified in respect of this issue. Consequently, we were unable to determine what impact this may have on the profit of the Group for the year ended 31 December 2023.

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the audit of the financial statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC's Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified opinion. Our audit opinion is consistent with the additional report to the audit committee.

Our approach to the audit

We tailored the scope of our audit to ensure we performed sufficient work to be able to express an opinion on the financial statements as a whole, taking into account the structure of the Group and the Company, its environment, including the group's system of internal control, and assessing the risks of material misstatement in the financial statements.  We also addressed the risk of management override of internal controls, including assessing whether there was evidence of bias by the directors that may have represented a risk of material misstatement.

The significant majority of the Group's operations are located in the Ukraine and account for 100% of the Group's revenue. We instructed a component audit team in the Ukraine to perform a full scope audit of the Ukrainian sub-group. In our assessment the group comprises four significant components together with the Ukrainian sub-group. The audit of the Ukrainian sub-group was performed by Crowe Erfolg in the Ukraine under the supervision and direction of the Group audit engagement team, as described in more detail below. The remaining significant components of the Group namely Cadogan Energy Solutions Plc (the Parent Company), Cadogan Petroleum Holdings Limited and Cadogan Petroleum Holdings B.V. were audited by the Group audit engagement team. 

Our involvement with the component auditors

As part of our supervision and direction of the component audit team, we determined the level of involvement needed in order to be able to conclude whether sufficient appropriate audit evidence has been obtained in respect of the Ukraine sub-group as a basis for our opinion on the Group financial statements as a whole. Our involvement with the component auditors included the following:

• We issued detailed Group reporting instructions to the component auditor, which included the significant areas to be covered by the audit (including areas that were considered to be key audit matters as detailed below) and set out the information required to be reported to the Group audit team.
• Due to the travel restrictions resulting from the ongoing war in the Ukraine, the Group audit engagement partner and senior members of the Group audit engagement team were unable to visit the Ukraine to meet with component management and the component audit team during the audit. Accordingly, we performed a remote review of the component audit files in the Ukraine using appropriate technologies and held regular calls and videoconferences with component management and component audit team during the audit.
• The Group audit team performed reviews of relevant working papers and undertook additional procedures where necessary in respect of the significant risk areas that represented Key Audit Matters for the group.

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

In addition to the matter described in the basis for qualified opinion section, we have determined the matters described below to be the key audit matters to be communicated in our report.

Our application of materiality

The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit, the nature, timing and extent of our audit procedures, both individually and in aggregate on the financial statements as a whole. Based on our professional judgement, we determined materiality for the financial statements as follows:

We agreed with the Board and Audit Committee that we would report to them misstatements identified during the audit greater than 5% of overall materiality.  We also agreed to report differences below this threshold that, in our view, warranted reporting on qualitative grounds.

Conclusions relating to going concern

In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate.

Our evaluation of the directors' assessment of the Group's and the Parent Company's ability to continue to adopt the going concern basis of accounting included:

• Review of management's going concern assessment paper and the cash flow forecast prepared by management and approved by the Board.
• We critically assessed the going concern paper and the forecast taking into account key assumptions and various scenarios prepared by management and the impact they would have on the Group's ability to continue operating on going concern basis.
• We performed sensitivity assessments over the key assumptions in the forecast including the impact of severe but plausible scenario and severe but unlikely downside scenario, and extending these beyond the 12 months from the date of approval these financial statements to assess the Group's ability to continue as a going concern.
• As part of our sensitivity assessment of these forecast and scenarios we critically assessed the level of headroom available and the assumptions including, including mitigating actions available to management, potential geopolitical impacts, oil production, oil prices, operating expenditure and capital expenditure.
• We compared production forecasts to historical trends and considered the oil price assumptions against consensus market prices and historical discount levels between Brent oil prices and the local market. We compared forecast costs with historical expenditure.
• We reviewed the adequacy of the disclosures in the financial statements in respect of going concern against the requirements of UK-adopted international accounting standards.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the Group's and Parent company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.

Emphasis of Matter

We draw attention to Note 3 (b) on page 80 to the financial statements which describes the uncertainty related to the outcome of the ongoing war in Ukraine. The Group have included various scenarios that take into account the ongoing war in its cash flow projections. However, due to the unpredictable outcome, length, scale and extent of the conflict its impact on the Group and the Company cannot be predicted with any certainty. Our opinion is not modified in respect of this matter.

Other information

The other information comprises all of the information in the Annual Report, other than the financial statements and our auditors' report thereon. The Directors are responsible for the other information, which includes reporting based on the Task Force on Climate-related Financial Disclosures (`TCFD') recommendations. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

As described in the basis for qualified opinion section of our report, our audit opinion is qualified because we were unable to obtain sufficient appropriate audit evidence in respect of certain loan receivables. We have concluded that where the other information refers to these receivables or to related balances or classes of transactions it may also be materially misstated for the same reason.

Opinions on other matters 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.

Except for the possible effect of the matter described in the basis for the qualified opinion section of our report, in our opinion, based on the work undertaken in the course of the audit:

• 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; and
• the Strategic report and the Directors' report have been prepared in accordance with applicable legal requirements;

Matters on which we are required to report by exception

Except for the possible effect of the matter described in the basis for the qualified opinion section of our report, in the light of the knowledge and understanding of the Group and the Parent Company and its environment obtained in the course of the audit, we have not identified material misstatements in the Strategic report or the Directors' report.

In respect solely of the limitation on our work relating to certain loan receivables, described above:

• we have not received all the information and explanations we require for our audit; and
• we were unable to determine whether adequate accounting records have been kept by the Parent Company

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

• returns adequate for our audit have not been received from branches not visited by us; or
• the Parent Company financial statements and the part of the Directors' remuneration report to be audited are not in agreement with the accounting records and returns; or
• certain disclosures of Directors' remuneration specified by law are not made; or
• a corporate governance statement has not been prepared by the Parent Company.

Responsibilities of directors

As explained more fully in the directors' responsibilities statement set out on page 64, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the group's and the Parent company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so.

Auditor's Responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities is available on the FRC's website at https://wwww.frc.org.uk/auditors/auditor-assurance/auditor-s-responsibilities-for-the-audit-of-the-fi/description-of-the-auditor's-responsibilities-for

Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud is detailed below.

The objectives of our audit in respect of fraud, are; to identify and assess the risks of material misstatement of the financial statements due to fraud; to obtain sufficient appropriate audit evidence regarding the assessed risks of material misstatement due to fraud, through designing and implementing appropriate responses to those assessed risks; and to respond appropriately to instances of fraud or suspected fraud identified during the audit. However, the primary responsibility for the prevention and detection of fraud rests with both management and those charged with governance of the company.

Based on our understanding of the Group and its operations, we identified the principal risks of non-compliance with laws and regulations related to the UK and Ukrainian tax legislation, employment and health and safety regulations, licensing regulations and we considered the extent to which non-compliance might have a material effect on the financial statements. We also considered those laws and regulations that have a direct impact on the financial statements such as the Companies Act 2006 and Listing Rules.

• We obtained an understanding of how the Group and the Parent Company complies with these requirements by discussions with management and those charged with governance;

• Based on this understanding, we designed specific appropriate audit procedures to identify instances of non-compliance with laws and regulations. This included making enquiries of management and those charged with governance and obtaining additional corroborative evidence as required.

• We inquired of management and those charged with governance as to any known instances of non-compliance or suspected non-compliance with laws and regulations.

• We communicated with external legal advisers representing the Group and held calls with management to enquire about known non-compliance with laws and regulations;

• We performed a review of external press releases;

• We assessed the risk of material misstatement of the financial statements, including the risk of material misstatement due to fraud and how it might occur, by holding discussions with management and those charged with governance.

• We challenged assumptions and judgements made by management in relation to the estimates made in respect of development and production assets.

• Identifying and testing journal entries, in particular any journal entries posted with unusual account combinations, and unusual users.

There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-compliance with laws and regulations that are not closely related to events and transactions reflected in the financial statements. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion.

Other matters which we are required to address

We were appointed by the Board of Directors on 17 February 2023 to audit the financial statements for the period ended 31 December 2022. Our total uninterrupted period of engagement is two years, covering the period ended 31 December 2022 and 31 December 2023.

The non-audit services prohibited by the FRC's Ethical Standard were not provided to the Group or the Parent Company and we remain independent of the Group and the Parent Company in conducting our audit.

Our audit opinion is consistent with the additional report to the Audit Committee.

Use of our report

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 for no purpose other than to draw to the attention of the company's members those matters which we are required to include in an auditor's report addressed to them. To the fullest extent permitted by law, we do not accept or assume responsibility to any party other than the company and company's members as a body, for our work, for this report, or for the opinions we have formed.

Matthew Banton (Senior Statutory Auditor)

for and on behalf of Moore Kingston Smith LLP, Statutory Auditor  

9 Appold Street

London 

EC2A 2AP

07 May 2024