TIDMUEN
RNS Number : 6269Q
Urals Energy Public Company Limited
19 June 2015
Press Release 19 June 2015
Urals Energy Public Company Limited
("Urals Energy" or the "Company")
Final Results
Urals Energy PCL (AIM: UEN), the independent exploration and
production company with operations in Russia, is pleased to
announce its audited financial results for the year ended 31
December 2014.
Leonid Dyachenko, Interim Chief Executive Officer, commented:
"2014 has been a challenging year for Urals characterised by low
oil prices and volatility on the Russian FOREX markets. With the
Company effectively debt free and the remaining corporate issues
resolved during the period there is a strong platform for growth on
which to build.
"The reserve assessment report prepared by Miller and Lents has
given the Group further opportunity to develop our reserves through
a series of work over programmes and the drilling of new wells.
With our sound financial strength and desire to seek out suitable
acquisitions the Board has reason to be optimistic for the future
of Urals Energy."
Operational highlights
-- Total production at Arcticneft reached
240,865 barrels (2013: 250,426 barrels)
-- Total production at Petrosakh reached 421,350
barrels (2013: 470,415 barrels)
-- Current daily production at Arcticneft
is 720 BOPD 9% higher than an average of
660 BOPD for the twelve months ended 31
December 2014
-- Current daily production at Petrosakh is
1,095 BOPD compared with an average of
1,154 BOPD for the twelve months ended
31 December 2014
-- In October 2014 the Company successfully
completed the shipment of 207,940 bbls
of crude oil from Arcticneft (2013: 198,537
bbls)
-- The Company issued a new reserve assessment
report prepared by Miller and Lents. The
reserves report was prepared in accordance
with Petroleum Resources Management System
(PRMS) and aggregate 2P reserves of the
Group as at 1 January 2014 represent 46.3
million bbls
Financial highlights
-- Gross profit reduced by 30% to US$8.7 million
(2013: US$12.4 million)
-- Operating profit of US$1.2 million for
the period (2013: US$2.8 million)
-- Net loss before income tax of US$16.1 million
in 2014 (2013: net loss of US$0.4 million)
caused by exchange rate movements during
both 2014 and 2013. Without the foreign
currency loss US$17.7 million in 2014 and
US$3.7 million in 2013, profit before income
tax for the year would have decreased in
2014 by US$1.6 million
-- EBITDA* decreased to US$8.1 million from
US$10.5 million in 2013, a decrease of
23%
-- Positive net working capital position on
31 December 2014 of US$1.6 million (2013:
US$2.0 million)
-- Successful implementation of cost reduction
programme in the previous periods and effective
cost management in 2014 allowed the Company
to keep the operating costs in Rouble equivalent
in line with the level achieved in 2013
and this resulted in a decrease in Rouble
denominated SG&A costs in 2014 to the amount
of 5%
-- Net cash generated from operating activities
allowed the Company to settle the outstanding
loan received from Petraco Oil Company
Limited and Petraco in 2014 and finish
2014 with a net cash position of US$4.4
million (2013: net cash US$6.0 million)
*Earnings before interest, taxation, depreciation and
amortisation ("EBITDA") is a non IFRS measure which the Group uses
to assess its performance. It is defined as earnings before
interest and taxation.
Post-period end and outlook
* In June 2015 the Company completed well 112 drilling
at Petrosakh which is now at the stage of testing and
completion. Expected rate of production is around 110
bbls per day
* The annual planned tanker shipment for export from
Arcticneft to Petraco is expected in August 2015. The
Company decided to make the export shipment earlier
this year due to bad weather restricting tanker
loading in the past (21 November 2013). The estimated
shipment based on current daily production is around
200,000 bbls
* The Company successfully continues the work over
program of re-entering existing wells adopted in
Arcticneft. Four wells which were previously out of
operation for several years were perforated. As a
result the current daily production in Arcticneft
reached 720 bbls per day at a marginal incremental
cost
* In May 2014 the Company entered into a secured
short-term loan agreement with Petraco under which
Petraco advanced US$6 million to the Company. The
proceeds of the Loan will be used to both progress
its CAPEX program and working capital financing
- Ends -
For further information, please contact:
Urals Energy Public Company
Limited
Andrew Shrager, Chairman Tel: +7 495 795
Leonid Dyachenko, Interim 0300
Chief Executive Officer
Sergey Uzornikov, Chief www.uralsenergy.com
Financial Officer
Allenby Capital Limited
Nominated Adviser and Broker
Nick Naylor Tel: +44 (0) 20
3328 5656
Alex Price www.allenbycapital.com
Media enquiries:
Abchurch
Henry Harrison-Topham / Tel: +44 (0) 20
Quincy Allan 7398 7710
henry.ht@abchurch-group.com www.abchurch-group.com
The accounts for the year ended 31 December 2014 will shortly be
available from the Company's website www.uralsenergy.com in
accordance with AIM Rule 20.
Interim Chief Executive Officer's Statement
2014 Financial
Operating Environment
2014 was characterised by high volatility in the crude oil
market price at an average level of US$98 per barrel (2013: US$109)
as well as high volatility on the Russian FOREX market. Domestic
prices for light oil products ranged from US$61 to US$155 per
barrel (2013: US$100 to US$145). Despite this, the Company
generated operating cash flow at a level sufficient to maintain its
operation and comply with the license requirements on both
fields.
Operating Results
Year ended
US$'000 31 December
-------------------
2014 2013
------------------------------------------ --------- --------
Gross revenues before excise and
export duties 58,204 64,844
Net revenues after excise, export
duties and VAT 44,481 50,267
Gross profit 8,704 12,423
Operating profit 1,170 2,787
Normalised management EBITDA (unaudited) 8,103 10,501
Total net finance (expense)/benefits (17,271) (3,191)
(Loss) / profit for the year (13,699) (273)
------------------------------------------ --------- --------
Year ended
Production 31 December
------------------
2014 2013
--------------------------- -------- --------
Petrosakh bbls 421,350 470,415
Arcticneft bbls 240,865 250,426
Petrosakh BOPD (average) 1,154 1,289
Arcticneft BOPD (average) 660 686
Summary table: Gross Revenues before excise and export duties
($'000)
Year ended
31 December
----------------------------------------- ----------------
2014 2013
----------------------------------------- ------- -------
Crude oil 19,991 24,703
Export sales 17,883 21,607
Domestic sales (Russian Federation) 2,108 3,096
Petroleum (refined) products - domestic
sales 37,890 39,802
Other sales 323 339
Total gross revenues before excise
and export duties 58,204 64,844
----------------------------------------- ------- -------
In 2014, total gross revenues decreased by US$6.6 million
(caused by a US$2.9 million decrease in gross revenue on the local
market and a US$3.7 million from export shipment). A 7% decrease in
gross revenue on the local market with the stable volume of sales
is a result of a 10% increase in refined products prices in Rouble
equivalent offset by 21% average devaluation of Russian Rouble vs
US dollar. A 17% decrease in gross revenue from export shipment
resulted from a 21% decrease in crude oil market price (2014: US$86
per bbl, vs 2013: US$109 per bbl.) offset by a 5% increase in the
volume shipped in 2014.
High volatility in crude oil prices and FOREX rates in 2014 led
to a decrease in average net back prices both for crude oil export
sales and for petroleum (refined) products domestic sales. More
over an 11% indexation of excise rates for gasoline in 2014 also
partly had a negative effect on net back for refined products. Net
back for domestic product sales is defined as gross product sales
minus VAT, transportation costs, excise tax and refining costs.
Summary table: Net backs (US$/bbl)
Year ended
31 December
----------------------------------------- ---------------
2014 2013
----------------------------------------- ------- ------
Crude oil 40.90 53.91
Export sales 38.32 52.45
Domestic sales (Russian Federation) 54.98 59.62
Petroleum (refined) products - domestic
sales 65.26 71.94
Other sales - -
----------------------------------------- ------- ------
Gross profit (net revenues less cost of sales) in 2014 decreased
by 30% to US$8.7 million from a profit of US$12.4 million in 2013.
The main driver of the decreased profit in 2014 was lower net
backs.
Cost of sales in 2014 totalled US$35.8 million as compared with
US$37.8 million in 2013 of which US$6.2 million and US$5.9 million
respectively represented non-cash items, principally depreciation,
amortisation and depletion. The decrease in operating costs is
mainly explained by exchange rate fluctuation. In addition, and
despite the level of inflation almost doubling in 2014, the Company
managed to keep the operating costs in Rouble equivalent in line
with the level achieved in 2013 (increase in costs amounted to 0.9
%) as a result of the implementation of strong monitoring
procedures.
Selling, general and administrative expenses decreased during
2014 by US$0.6 million to US$8.7 million from US$9.3 million in
2013. The Company demonstrated the average decrease in Rouble
denominated SG&A cost in 2014 in the amount of 5% compared with
2013. Professional and consultancy fees are mainly denominated in
US dollars and represent quite significant portion of the total
SG&A costs. A material amount of the fees in 2014 as well as in
2013 are represented by professional fees related to the
requisitioned EGM, and non-recurrent expenses related to legal
action and a criminal investigation of the ADRA and Vyatcheslav
Rovneiko in Cyprus and Russia. The US$0.1 million increase in 2014
compared with 2013 is caused by the services provided by Miller and
Lents in the course of the new reserve assessment report
preparation. Increase in wages and salaries in 2014 is represented
by severance payment to the former CEO of the Company, Alexei
Maximov.
The net finance expenses during 2014 were US$17.3 million (2013:
US$3.2 million). Net finance expenses for the period primarily
consist of exchange rate movements caused by significant
strengthening in 2014 of US$ vs Russian Rouble.
Increase of net finance costs in 2014 resulted in a net loss for
the year attributable to shareholders of US$13.6 million (2013: net
loss of US$0.4million). Without the foreign currency loss of
US$17.7 million in 2014 and US$3.7 million in 2013, profit before
income tax for the year would represent US$1.6million in 2014
(2013: US$3.2 million).
The decrease in net backs and the decrease of cost of sales in
2014 resulted in a consolidated normalised management EBITDA
decrease of US$2.4 million to US$8.1 million in 2014 compared with
US$10.5 million in 2013, with EBITDA margins of 18.2% and 20.9%
respectively.
Management EBITDA (US$'000) - Unaudited
Year ended
31 December
------------------------------------------- --------------------
2014 2013
------------------------------------------- --------- ---------
(Loss) for the year (13,699) (273)
Income tax (benefit) (2,402) (131)
Net interest and foreign currency
loss 17,417 3,191
Depreciation, depletion and
amortisation 6,473 5,591
------------------------------------------- --------- ---------
Total non-cash expenses 21,342 8,651
Charge of bad debt provision 913 990
Charge/(release) of unused
vacation provision (437) 67
Other non-recurrent (income)/losses (162) 1,066
------------------------------------------- --------- ---------
Total non-recurrent and non-cash
items 460 2,123
Normalised EBITDA 8,103 10,501
------------------------------------------- --------- ---------
Net debt Position
As at 31 December 2014, the Company had net cash of US$4.4
million (2013 net cash was US$6.0 million) calculated as long-term
and short-term debt less cash in bank and less loans issued.
As at 31 December 2014 as well as at 31 December 2013 the
Company was debt free.
Operational update
Petrosakh
In 2014 the Company continued its focus on minimising natural
decline in production and exploring new ways of increasing output.
Unfortunately, as a result of difficult geological conditions,
Petrosakh continued to experience problems with drilling new wells.
After delays in drilling of well #112 the Company finished the
drilling in June 2015. At the moment well #112 is at the stage of
testing and completion. Expected rate of production is around 110
bbls per day.
After current repair and maintenance of the rig and evaluation
of the main problems during previous drilling operations, the
Company is planning to start the drilling of a new well #54 in July
2015. All necessary materials and equipment are in place. At the
moment the Company is planning to complete the drilling of well #54
and start to drill the third well by the end of 2015.
Downstream
Petrosakh continues to refine and sell 100% of its crude oil
production domestically. Being the only Company on the island which
has a refinery, Urals Energy continues to work in a highly
competitive refined products market.
The flexible pricing policy and rational use of the favourable
competitive advantages allowed the Company to keep net backs on the
sales of oil and oil products stable. Although US$ net backs
decreased in 2014 the Rouble net back increased by 10% and this is
in spite of the increase in excise rate of 5% from January
2014.
In 2014 the Company started to use a new additive for gasoline
production. The new additive led to increase in the yield of light
oil products at a lower cost (decrease in cost in 2014 represents
15% compared to 2013).
n 9 January 2015 a fire occurred at Petrosakh refinery caused by
an accident which occurred during adverse weather conditions.
Mainly electrical control equipment was damaged. This accident did
not have a significant impact on the refining activity of
Petrosakh. The plant was out of operation for approximately one
month and was brought back into operation via a manual regime. The
Company expects to finish the installation of replacement automated
equipment in July 2015 without any effect on the production
process.
The Company continues to work to increase the customer base in
two main directions i.e. attracting smaller clients and more active
participation in different tenders thus avoiding additional
intermediaries.
The highly competitive refined products market on the island has
caused the Company to reassess its marketing activity. The two main
areas under evaluation now are the possible rental of tanks nearby
Yuzhno - Sakhalinsk and the acquisition of a petrol station. This
is a new market for the Company and management believe that the
steps described above will allow the Company to take new niches,
small wholesale and retail and increase net backs.
Arcticneft
Current production at Arcticneft is stable and stands at 720
BOPD.
During the reporting period the main efforts of the Company were
focused on minimising the natural decline in production through
workovers. The target of the programme is to perforate new layers.
At the end of 2014 the Company put six temporary abandoned wells
into operation as a first step. The estimated level of production
per well subject to successful workover is up to 50 bbls per day.
The aim of these programmes is to bring production at Arcticneft up
to an average of 700 to 720 bbls/day by the end of 2015.
At the moment Arcticneft is working with the official
authorities on expanding the boundaries of the license area with
subsequent update of the technological scheme of field development.
The expected time of finalisation is September 2015.
Unlike previous years the tanker is planned to be loaded and
shipped in August 2015. Having analysed the previous shipment(s)
the Company came to the conclusion that an earlier shipment is more
favourable both from a weather conditions point of view as well as
expected market conjuncture.
Taxation
At the end of 2014 the Russian government adopted a set of
changes in the tax regime for oil and gas companies. The new
changes provide for the gradual increase of Mineral Extraction Tax
with a simultaneous decrease in Export Duty and Excise Tax for the
nearest three years. The Company evaluated the influence of these
changes on the financial position of its subsidiaries. Following
consideration of varying scenarios, management believes that the
new changes will not have a material negative impact on Arcticneft
as an increase in in Mineral Extraction Tax is mitigated by a
decrease in Export Duty. At Petrosakh given that only 28% of
refined products in are subject to Excise, we anticipate that the
new changes in the tax legislation will increase the tax burden on
the Company.
Petraco loan
In June 2014 the Company entered into a short-term loan
agreement with Petraco under which Petraco agreed to advance the
sum of up to US$7.6 million to the Company. The Company received
US$3.8 million under the agreement and the loan including the
accrued interest was fully repaid as a result of the non-cash
settlement transactions with trade receivables due to crude oil
sales to Petraco in December 2014.
ADRA and settlements with Mr Rovneiko
In October 2013 the Company received a notification informing it
of the existence of a "Debt Repayment Agreement" (the "Alleged
Agreement") claiming that the Company was liable to pay a party the
sum of the US$41,652,000 by 15 December 2013, representing
collateral allegedly provided by the Company in relation to the
party's 8,010,000 pledged shares to Finfund. On 26 December 2014
the Company signed a comprehensive settlement agreement with Mr
Vyatcheslav Rovneiko, a former Director of the Company, on all
outstanding litigation and pending or threatened disputes. All
parties to the dispute are pleased to bring it, and all other
related or unrelated allegations, to a full and final resolution.
As part of the overall settlement, Mr Vyatcheslav Rovneiko agreed
to withdraw his claim for US$41.7 million arising out of the
disputed Alleged Agreement.
Outlook
Operationally 2014 was been a year of some important
improvements:
At Arcticneft, the work over programme led to an increase in
daily production to 720 bbls/d for a marginal increased cost. We
have developed a plan to bring forward significant undeveloped
proven reserves confirmed by the Miller & Lens report completed
in January 2014, but this does require a more stable environment
and improved oil price.
At Petrosakh, with the completion of well #112, we anticipate
stabilising production at an average of approximately 1,100 bbl/d.
We found immediate solutions to the effects of the damage to the
refinery and were able to restore production with better yields of
our key products. We expect the new control equipment to be in
operation by the end of this month.
In terms of financial results, the fall in the Rouble/ Dollar
exchange rate offset to a substantial extent the dramatic fall in
the oil price in the summer, but nevertheless the Company's profits
and EBITDA have fallen compared with 2013. However, as the two
operational companies must be financed in Roubles, there are
translation effects that must be taken through the P & L,
though they do not have cash effects. In terms of our cash position
Urals Energy remains effectively debt free, using trade finance for
a few months each year largely to finance the cash flow effects of
the fact that the Company only sells crude from Arcticneft once a
year. The Board has therefore continued to review and in some cases
submitted bids for acquisition opportunities, but were not prepared
to compromise our investment return criteria and hurdles.
On corporate issues, Urals Energy settled the litigation with Mr
Vyatcheslav Rovneiko and there is little doubt that this has
allowed the Company's management to concentrate effectively on
operations and other corporate matters. Mr Alexei Maximov was
replaced initially by Mr Sergey Uzornikov as interim CEO, but the
pressure of combining this role with that of CFO was excessive. Mr
Leonid Dyachenko therefore agreed to step in as CEO on an interim
basis. We have had discussions with a number of candidates for the
role, but believe that until the financial environment in Russia
and the oil market improve, it would not be prudent to make a new
appointment. Mr S Kononov, a representative of Adler SA, has been
appointed as the President of the Moscow operations company, and is
working closely with Mr Dyachenko, Mr Ogaryov and Mr Uzornikov.
They are supported by an experienced team to manage operations and
corporate matters.
The Company has weathered extremely testing trading and
corporate factors during 2013 and 2014. The Board is confident that
having done so, we can take advantage of our relative financial
strength and the support of our shareholders to develop our own
reserves and conclude acquisitions as the general environment
improves. Russia has the largest oil and gas reserves, talented
engineers, and we have the experience of meeting the challenges of
doing business in this environment.
Leonid Dyachenko
Interim Chief Executive Officer
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