TIDMUEN
RNS Number : 2196L
Urals Energy Public Company Limited
29 September 2016
Dissemination of a Regulatory Announcement that
contains inside information according to REGULATION
(EU) No 596/2014 (MAR).
29 September 2016
Urals Energy Public Company Limited
("Urals Energy", the "Company" or the "Group")
2016 Half Year Results
Urals Energy PCL (AIM: UEN), the independent exploration and
production company with operations in Russia, is pleased to
announce its half-year results for the six months ended 30 June
2016.
Financial highlights
-- Gross profit increased by 15% to US$2.3 million (H1-2015:
US$2.0 million)
-- Operating profit of US$0.6 million for the period (H1-2015:
operating loss US$0.1 million)
-- Net profit before income tax of US$3.3 million (H1-2015:
US$0.3 million). Underlying net profit before income tax of US$0.3
million (H1-2015: loss of US$0.2 million). Largely caused by
exchange rate movements during both periods
-- EBITDA* increased to US$2.2 million from US$1.3 million for
the first six months of 2015, an increase of 69%, with simultaneous
growth in EBITDA margins to 30.1% from 18.3%
-- US$6.0 million loan provided by Petraco Oil Company Limited
repaid in full, including accrued interest, post the successful
completion of the annual tanker shipment from Arcticneft
-- New 18 month 300 million Russian Roubles (approximately
US$4.6 million) revolving working capital credit facility with OJSC
Sberbank of Russia
*Earnings before interest, taxation, depreciation and
amortisation ("EBITDA") is a non IFRS measure which the Group uses
to assess its performance.
Operational highlights for the year to date
-- Total production during the period increased by 13% to
362,634 barrels (H1-2015: 321,587 barrels)
-- Total daily production remained broadly flat, as expected, at
1,930 BOPD (average H1-2015: 2,004)
-- Awarded the South Dagi development licence on Sakhalin Island
in June 2016 following a State auction. The South Dagi licence has
Russian State Registered reserves C1 plus C2, equivalent to 2P
(proven and probable) approximately 17.7 million barrels
-- Completed acquisition of Artic Oil Company Limited ("ANK"),
in August, including production of 340bbls/day, 2P equivalent
reserves of 16mmbbls and substantial future production economies
for the Group
-- Successful completion of the annual tanker shipment from
Arcticneft of 28,441 tons of crude oil (an equivalent of 225,283
barrels)
-- RK-Oil Limited and BVN Oil Limited successfully integrated
into the Group's wider business and operations
Mr Shrager, Chairman commented: "The Company performed
well in the first six months of the year, improving
profitability and cash flow, which supports the
Board's strategy.
On Kolguev Island, we have achieved a rapid integration
of the recent acquisition of Artic Oil with AKN.
This has led to increased daily production of
325 bbl/day and we expect a reduction in lifting
costs as well. Through the acquisition, we now
have a modern drilling rig and associated equipment
sufficient for three years of operation, to add
to our existing workover rig. We will now be able
to make two rather than one shipment per year
- the first in May and a second in September.
This half year should therefore be the last in
which our operations on the Island have accumulated
large stock levels by the end of June, with the
associated working capital requirements.
Over the last 12 months, taking advantage of our
financial position, we have transformed the Company's
reserve base through licence extensions and acquisitions
of further licenses, from 50 million bbl 2P to
approximately 100 million bbl 2P equivalent. The
average cost of acquisitions have been approximately
9 cents US /bbl. We will commission a Competent
Persons Report before the end of the year to update
and confirm the numbers. We are preparing development
plans for the new licenses for State Regulatory
Approval, and anticipate that we will be able
to increase overall production substantially.
The pace of increase will depend on market conditions
and thus our own cash generation, but in coming
months we will investigate additional funding
sources, aimed at potentially advancing the rate
of production at individual operations. However,
we remain cautious in the current environment."
- 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 / Alex Brearley Tel: +44 (0) 20
3328 5656
www.allenbycapital.com
Copies of this announcement and the accounts for the six months
ended 30 June 2016 will shortly be available from the Company's
website www.uralsenergy.com in accordance with AIM Rule 26.
Interim Chief Executive Officer's Statement
Operational update
Petrosakh
As stated previously, the Board had decided to defer the
drilling of additional wells at Petrosakh until the completion of
further geological investigation. During the first six months of
2016, the Company focused on minimising the natural decline in
production and exploring new ways of increasing output.
In the South Dagi area the Company is now working on the
preparation of the field development plan. At the same time the
decision was taken to carry out a Passive Micro-Seismic survey over
a selected area of the new oil field, aimed at detailed
interpretation of hydrocarbons.
Downstream
Petrosakh continues to refine and sell 100% of its crude oil
production into a highly competitive local refined products
market.
The six months ended 30 June 2016 was characterised by a 5%
average increase in refined products prices in Russian Rouble
equivalent and an increase in Excise Tax per ton totaling 79.5%.
During the period, the downstream strategy of the Company
concentrated mainly on a flexible pricing policy, which allowed for
an increasing customer base followed in turn by increases in sales
volume.
The Company also started to perform repair works on its
terminal, in preparation for being able to export crude/refined
product, or to develop bunkering activity, subject to ongoing oil
price levels and the taxation policy of the Russian Government.
Arcticneft
During the reporting period, the main efforts of the Company
continued be a focus on minimising the natural decline in
production through workovers. The acquisition of Arctic Oil has led
to increased daily production of 325 bbl/day. After preliminary
analysis of the well stock the Company will concentrate on
re-entering several wells on the new field with further
workovers.
RK-Oil and BVN-Oil
During the reporting period the Company was working on the
preparation and approval of development plans for both fields.
These plans are expected to be approved by the State authorities by
the end of 2016.
At the same time, subject to the ongoing economic situation, the
Company is preparing a programme for the drilling of one
exploration well on the RK-Oil licence area, with drilling to
potentially commence by the end of 2016.
Post period end acquisition activity
In August 2016, the Company purchased the entire share capital
of Arctic Oil Company Limited ("ANK") from AO
ArcticMorNefteGazRazvedka ("AMNGR"). This acquisition was made by
Urals Energy's subsidiary, AO Arcticneft.
ANK's sole asset is the central part of the Peschanoozerskoe oil
field on Kolguyev Island. The eastern and western parts of the
Peschanoozerskoe field are already owned by Arcticneft. ANK
produces 340 bbls/day and has recoverable reserves registered with
the Russian State Authorities of 16 million barrels of C1 plus C2,
equivalent to 2P.
The ANK acquisition's cash consideration of Russian Rouble 100
million was financed by a short-term loan from
Kamchatcomagroprombank ("KKAPB"), a bank in which Mr Shvets, the
owner of Adler SA, the Company's largest shareholder, is a board
member and shareholder (with 15.4% of the issued share capital of
KKAPB).
Operating environment
The six months ended 30 June 2016 was characterised by
continuing high volatility in the crude oil market price at an
average level of US$43 per barrel (H1-2015: average US$58 per
barrel) as well as high volatility in the Russian foreign exchange
market. Domestic prices for oil products ranged from US$27 to US$80
per barrel (H1-2015: US$82 to US$106 per barrel).
There were no deliveries of crude oil exported from Arcticneft
during the reporting period, resulting in 204,850 barrels of
commercial crude oil remaining in stock as at 30 June 2016. The
tanker shipment from Arcticneft was successfully completed post the
period end at the beginning of August 2016.
Operating Results
Period ended
US$'000 30 June
---------------
2016 2015
-------------------------------------- ------- ------
Gross revenues before Excise and
export duties 8,858 7,715
Net revenues after Excise, export
duties and VAT 7,525 7,214
Gross profit 2,318 1,950
Operating profit 592 (57)
Normalised management EBITDA 2,226 1,323
Total net finance (expense)/benefits 3,214 282
(Loss) / profit for the year 3,946 (48)
-------------------------------------- ------- ------
Period ended
Production 30 June
------------------
2016 2015
--------------------------- -------- --------
Petrosakh bbls 240,143 196,890
Arcticneft bbls 122,491 124,697
Petrosakh BOPD (average) 1,319 1,088
Arcticneft BOPD (average) 673 689
Summary table: Gross Revenues before excise and export duties
($'000)
Period ended
30 June
----------------------------------------- ---------------
2016 2015
----------------------------------------- ------- ------
Crude oil 802 1,337
Export sales - -
Domestic sales (Russian Federation) 802 1,337
Petroleum (refined) products - domestic
sales 7,955 6,257
Other sales 101 121
----------------------------------------- ------- ------
Total gross revenues before Excise
and export duties 8,858 7,715
----------------------------------------- ------- ------
For the six months ended 30 June 2016, total gross revenues
increased by US$1.1 million as a result of an increase in sales
volumes to 176,306 barrels for the six months ended 30 June 2016
(H1-2015: 133,034 barrels) and a 5% average increase in refined
products prices in Russian Rouble equivalent. These positive
factors were partly offset by an 18% average devaluation of the
Russian Rouble versus the US Dollar. The lower sales volume for the
six months ended 30 June 2015 was due to the fire that occurred at
the Petrosakh refinery at the beginning of last year.
High volatility in foreign exchange rates during the reporting
period and changes in Excise Tax regulations led to a decrease in
average net back prices for domestic sales of crude oil and
petroleum (refined) products. A 16% decrease in net back prices for
crude oil domestic sales is broadly in line with the 18% average
devaluation of the Russian Rouble versus the US Dollar. During the
first half of 2016, there was a substantial increase in the Excise
Tax for EURO - IV gasoline, which, by the end of the second quarter
represented a total increase of 79.5%. This was combined with
increases in the cost of a newer additive, which in total, led to
21.5% fall in net back prices for domestic sales of petroleum
(refined) products. The net back for domestic product sales is
defined as gross product sales minus VAT, transportation costs,
Excise Tax and refining costs.
Summary table: Net backs (US$/bbl)
Period ended
30 June
----------------------------------------- ---------------
2016 2015
----------------------------------------- ------- ------
Crude oil 38.95 46.43
Export sales -
Domestic sales (Russian Federation) 38.95 46.43
Petroleum (refined) products - domestic
sales 38.65 49.25
Other sales - -
----------------------------------------- ------- ------
Gross profit (net revenues less cost of sales) for the first
half of 2016 increased 15% to US$2.3 million (H1-2015: US$2.0
million). The main driver of this increase was the growth of sales
volumes.
Cost of sales for the six months ended 30 June 2016 totaled
US$5.2 million as compared with US$5.3 million for the six months
ended 30 June 2015, of which US$2.5 million and US$2.1 million
respectively represented non-cash items, principally depreciation,
amortisation and depletion. The stable operating cost was mainly
due to devaluation of the Russian Rouble versus the US Dollar. At
the same time the Company increase its operating costs in Russian
Rouble equivalent by 21% compared with that achieved for the six
months ended 30 June 2015. The increase of operating cost in
Russian Rouble equivalent is a combination of:
-- A 18% decrease in unified production tax, which depends on
foreign exchange rates and the market price for crude oil
-- A 17% increase in wages and salaries in production entities
(broadly representing inflation for one and a half years)
-- A 55% increase in the cost of materials. This increase was
caused by inflation and also the cost of a newer additive, which is
required in order to be in line with the EURO 5 requirement that
the Company implemented during the reporting period
Selling, general and administrative expenses decreased during
the first half of 2016 by US$0.3 million to US$1.6 million
(H1-2015: US$1.9 million). Apart from Russian Rouble depreciation,
the Company had an average increase of 8% in Russian Rouble
denominated sales, general and administrative costs in the
reporting period, as compared with the previous period. The main
driver of this increase was growth in storage and transportation
expenses related to small-scale wholesale activities at Petrosakh,
and the general and administrative expenses of the two acquired
companies BVN-Oil and RK-Oil.
The net finance income for the first half of 2016 was US$3.6
million (H1-2015: US$0.2 million). Net finance income for the
period primarily consisted of exchange rate movements caused by a
strengthening of the Russian Rouble versus the US Dollar in the
first half of 2016.
The increase in sales volumes in the six months ended 30 June
2016 resulted in a consolidated increase in normalised management
EBITDA of US$0.9 million to US$2.3 million for the first half of
2016, compared with US$1.3 million in the first half of 2015, with
EBITDA margins of 30.1% and 18.3% respectively.
Management EBITDA (US$'000) - Unaudited
Period ended
30 June
------------------------------------------- ----------------
2016 2015
------------------------------------------- -------- ------
(Loss) for the year 3,411 (48)
Income tax (charge) 498 273
Net interest and foreign currency
(gain)/loss (3,317) (282)
Depreciation, depletion and
amortisation 1,540 1,232
------------------------------------------- -------- ------
Total non-cash expenses (1,279) 1,223
Charge of bad debt provision - -
Other non-recurrent (income)/losses 134 148
------------------------------------------- -------- ------
Total non-recurrent and non-cash
items - 148
Normalised EBITDA 2,266 1,323
------------------------------------------- -------- ------
Net debt Position and Borrowings
As at 30 June 2016, the Company had net debt of US$9.6 million
(calculated as long-term and short-term debt less cash in bank and
less loans issued). As at 31 December 2015, the Company had net
debt of US$2.2 million.
In May 2016, the Company entered into a short-term loan
agreement with Petraco, under which Petraco agreed to advance the
sum of US$6.0 million to the Company. The loan, including the
accrued interest, was fully repaid in September 2016 as a result of
the non-cash settlement transactions involving trade receivables
from crude oil sales to Petraco.
As at 30 June 2016, the total borrowing of the Company was
US$12.7 million (31 December 2015: US$3.9 million), including a
US$4.7 million 18 month revolving credit facility from the Sakhalin
branch of OJSC Sberbank of Russia (31 December 2015: US$2.2
million), US$1.8 million of debt which was acquired with two
private Russian companies, RK-Oil and BVN-Oil (31 December 2015:
US$1.7 million) and the US$6.0 million loan from Petraco.
Current trading and prospects
Petrosakh continues to refine and sell 100% of its crude oil
production into the local refined products market.
The highly competitive refined products market and changes in
Excise Tax regulation has caused the Company to constantly reassess
its marketing activity. The two main areas under evaluation now
are: involvement in bunkering activity and diversification of the
sales mix. Subject to developments in tax legislation and market
conditions, the Company is currently evaluating the possibility of
a partial return to export activities.
The Company continues to upgrade its plant and equipment, to
remain in line with statutory requirements for fuel quality. The
Company is also seeking and diversify its current customer base,
both on the island and in neighbouring regions.
Strategy
As laid out in the Company's final results for the year ended 31
December 2015, the Board's strategy is to:
-- Continue work overs at our two operations, so as to maintain
production levels to the greatest extent possible
-- Enhance refinery margins at Petrosakh by adjusting its
product mix for local sales of products,
-- Prepare the Petrosakh refinery so that it is able to
accommodate imported crude oil, to increase refinery throughput
-- Seek economies where possible to offset Russian Rouble cost inflation
-- Delay major capex required to exploit undeveloped reserves at
Arcticneft until there is more confidence in the oil market
-- Look to acquire further exploration licences for modest
considerations and limited initial spending obligations
-- Assess the potential to secure long term funding, so that we
are able to proceed with the development of the Company's
substantial reserve at Arcticneft and drilling at the new licences
that we have acquired, as soon as market conditions allow
The Board believes that this strategy is starting to yield
positive results, as demonstrated by the improved profitability and
cash flow reported in the first half of 2016.
Leonid Dyachenko
Interim Chief Executive Officer
Dr Svyatoslav Bilibin, (Dr.Sci.Tech. and Corresponding Member of
the Russian Academy of Natural Sciences), an independent adviser to
Urals Energy, who meets the criteria of a qualified person under
the AIM Guidance Note for Mining, Oil and Gas Companies, has
reviewed and approved the technical information contained within
this announcement. The reserves figures contained within this
announcement have not been reviewed in accordance with the AIM
Guidance Note for Mining, Oil and Gas Companies and the Company
plans to have a review of the Company's assets, in accordance with
an appropriate Standard in an updated Competent Person's Report,
which the Board intends to commission before the end of 2016.
Click on, or paste the following link into your web browser, to
view the associated PDF document.
http://www.rns-pdf.londonstockexchange.com/rns/2196L_-2016-9-29.pdf
This information is provided by RNS
The company news service from the London Stock Exchange
END
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