RNS Number : 8038X
Sibir Energy PLC
30 June 2008
Sibir Energy ("Sibir")
Sibir Audited Results for the Year to 31 December 2007
2007 Highlights
* Net profit after tax increased over three-fold to $282.4 million
* EBITDA more than doubled to $468.8 million
* Earnings per share nearly tripled to 82.5 cents
* Group production increased 80% to 17.8 million barrels
* Daily oil production up 62% to 63,100 bopd by year end
* Sales of gasoline attributable to Sibir's interest totalled 765 million litres
* Added 55,000 bopd of profitable refining capacity
* Controlling interests in 134 petrol stations
* City of Moscow acquired a strategic 18% stake in Sibir strengthening ties with the
State
* Launched intense exploration drilling programme at the Koltogorsky Blocks
Enquiries:
Henry Cameron, CEO
Moscow +7 495 792 3045
Stuard Detmer, Member of the Board
Moscow +7 495 792 3045
Rory Murphy, Strand Partners Limited
London +44 (0) 20 7409 3494
Nick Miles, M: Communications
London +44 (0) 20 7153 1530
REPORT OF THE CHAIRMAN AND CHIEF EXECUTIVE
Getting the fundamentals right
In September 2007 when we last reported to you we wrote about the importance of the City
of Moscow becoming a strategic shareholder in
Sibir as a result of Sibir acquiring 100% of Moscow Oil and Gas Company ("MOGC"). The
predicted benefits from this development have
continued to accrue as the Sibir share increased 37% in value from £5.11p on the day before
the announcement of the deal to over £7 as we go
to press.
The importance of this development was two fold:
First, we aligned the interests of the Russian Federation and the other shareholders in
Sibir through shared ownership of Sibir, an
essential move in a world where resource nationalism has gained momentum.
Second, we increased the extent to which our vertically integrated company participates in
the full value chain of the sector - from
well head to gasoline pump. With 100,000 barrels a day of refining capacity at Moscow
Refinery, Sibir now holds an enviable position in the
fastest growing and most dynamic fuels markets in Europe. The City of Moscow and the Moscow
Region has a combined population of 17 million,
making it the largest metropolitan area on the continent of Europe. Russia is now poised to
overtake Germany as the largest automotive
market in Europe, something that looked a remote possibility only a handful of years ago.
One challenge remained, namely that strained relations with fellow shareholders at Moscow
Refinery created some anxiety in the financial
markets as to our ability to maintain our position there. We expressed our aspirations and
confidence that we would find a way to operate
the Refinery without shareholder controversy. We confidently predict that we are days away
from announcing that the security of our position
at the Moscow Refinery will be well and truly established in an equitable and evergreen
fashion. Together with Gazprom Neft, the oil
subsidiary of state owned Gazprom, the world's largest gas company, we will agree to operate
the Refinery on a parity basis and through an
independent management team of industry experts. Any agreement entered into will have a
binding mechanism, independent of shareholders, to
deal with deadlock issues should they arise.
Partnering with majors has been a hallmark of Sibir and being able to add Gazprom Neft to
the list of our existing partners - Shell,
TNK-BP and the City of Moscow - is a formidable achievement for your company.
We believe the positive spirit and the professionalism of the negotiations with Gazprom
Neft and recent announcements by the Russian
government about reductions in Mineral Extraction Taxes for oil production, the lowering of
export duties on certain refined products,
coupled with the overall growth rate of the Russian economy have confirmed our optimism in
Russia's long-term prospects and the
opportunities that they provide for Sibir's continued development.
In our view, the investment environment in Russia for Sibir has never been more stable or
predictable. One of the fundamentals by now
must be clear to all. The Russian government wants to see Russian control over its natural
resources through state owned companies or
Russian owned entities. Sibir anticipated these developments many years ago and has
intentionally pursued a strategy of majority Russian
ownership. In 2007 we have strengthened our position in this regard by bringing in an
important arm of the Russian State, namely the City of
Moscow, as a strategic shareholder bringing the total number of Sibir shares in Russian hands
to 67% on a fully diluted basis. As our growth
over the years has shown, this is a strategy which has worked and we believe it will continue
so to do.
With the development of Salym in full swing, and as a sign of our confidence, we embarked
upon our quest for replacement reserves. In
March 2007 we acquired our first exploration asset - the eight Koltogorsky Exploration blocks
- and launched an intensive exploration
drilling programme to be completed by the end of 2008, weather permitting. To date, 3 of the 8
wells have been drilled and we are encouraged
that the wells drilled so far have encountered hydrocarbon-bearing sands.
When we completed the MOGC deal, we agreed with the City of Moscow that we would
undertake, on a best endeavours basis, to seek
admission of Sibir's shares to the Official List of the London Stock Exchange. We are taking
all necessary steps to complete this move by
the end of 2008. However, there are certain opportunities that your company is pursuing that
may delay this move to the first half of 2009.In either case, the move to the Official List is a top priority of your management and will be
completed in the earliest timeframe possible.
We declared our maiden dividend in August last year and re-stated our commitment to pursue
a robust and regular dividend policy. To
achieve this, we are engaged in a restructuring of the Group designed to facilitate this
policy. Further announcements can be expected after
publication of our half year interim report in September.
Production Performance
Upstream production in 2007 rose 80% to a record high of 17.8 million barrels with 15.3
million barrels contributed by SPD and 2.5
million barrels coming from Magma's upstream unit. The Group's total daily production rate
closed the year at 63,100 barrels of oil per day
(bopd), an increase of over 60% compared to year-end 2006 production of 38,900 bopd.
In the downstream sector the Moscow Refinery processed 72.9 million barrels of crude in
2007. Sibir's share of barrels refined averaged
58,630 bopd, as our tolling quota increased from 45,000 bopd to 100,000 bopd following the
completion of the MOGC acquisition. Sibir's
portfolio of three retail fuel networks in Moscow and the Moscow Region sold over 1.5 billion
litres of gasoline and diesel. Approximately
765 million litres of this is attributable to Sibir's interest.
Financial Performance
Sibir presents its 2007 accounts in US dollars as Sibir's primary commercial activities,
the sale of oil and oil products, are dollar
denominated. This will minimise the effect of currency fluctuations of the US dollar versus
the British pound and thus more accurately
reflect the true operating performance of our business.
This is the first time that we present our accounts in accordance with International
Financial Reporting Standards (IFRS) in compliance
with London Stock Exchange regulations.
2007 was the year when Sibir's long held aspirations were realised in hard production and
financial numbers. These include record
results in profits and cash flow created by robust production growth at Salym, strong
downstream trading margins from both our refining and
retail operations, and rising crude prices. In addition, our refining operations at Moscow
Refinery increased in volume in the fourth
quarter of 2007 following our MOGC acquisition. This breakthrough performance is the harvest
of many years of investment and industry and,
as we complete 10 years of a Chairman and Chief Executive team innings, you can well imagine
our pleasure in reporting to you.
Earnings contributions from our upstream operations at Magma and Salym grew over 255% to
$249.6 million bolstered by growing production,
strong oil prices and the realisation of income which had been deferred for accounting
reasons. Downstream oil products trading, retail and
refining operations contributed an additional $148.5 million, a 84% increase over 2006 as we
took full advantage of our increased quota at
the Moscow Refinery and enjoyed strong wholesale and retail refined products margins.
In September, we advised that after years of containing general and administrative costs,
we expected them to increase. We draw your
attention to the Financial Review where you will find an analysis of these costs. You will
appreciate our growth comes at a cost but we have
embarked upon a course of pruning and expect to make reductions through economies of scale in
the second half of 2008.
The net results of these significant developments is that EBITDA more than doubled to
$468.8 million and Net Profit after Tax grew 217%
to $282.4 million compared to $89.0 million in net profit in 2006.
Earnings per Share increased by 169% to 82.5 cents compared to 30.6 cents in 2006.
Legacy Issue
Over time we have had to crave your indulgence in terms of the time it was taking to
pursue restitution of our losses following the
dilution of our interest in Sibneft Yugra. This matter is now being pursued by a Provisional
Liquidator of Yugraneft (the subsidiary of
Sibir which held the Sibneft Yugra interest) appointed by the High Court in England.Preliminary pleadings, essentially on issues of whether
the English Courts have jurisdiction over the defenders and the efficacy of the appointment of
the Provisional Liquidator, are to be heard
over the two weeks beginning 7 July, 2008. We shall report the outcome of these preliminary
issues as and when they are reported by the
Provisional Liquidator
Looking Forward
In September 2007 we wrote in general terms of ambitious plans to double the size of the
company in 18 months. In the same general way
we are pleased to report that these plans to materially increase the size of your company
remain on track save only that if the plan
materialises it is likely to be sooner than later and well within the earlier 18 month
forecast.
None of Sibir's recent achievements or future plans would be possible without the
extraordinary and ordinary contribution of the people
who show up to work every day to make Sibir's business a success. A number of them are being
groomed to carry on the work of the last 10
years thereby ensuring seamless succession. Sibir is a young company, an energetic company and
its people enthusiastically embrace the
opportunities around them in the new Russia. They are a good sign that Sibir's best days are
still ahead.
Upstream Operations Review
Sibir enjoyed excellent performance across its entire upstream asset portfolio as Group
production rose 80% to 17.8 million barrels. Of
the total, 15.3 million barrels was produced by Salym Petroleum Development (SPD), Sibir's
50:50 joint venture with Shell which operates the
Salym oilfileds in the Khanty Mansiysk District of Western Siberia, and the remainder was
produced by Sibir's subsidiary, Magma, which
operates the Yuzhnoye and Orekhovskoye fields in the same region. Total Group production is
expected to reach 25 million barrels in 2008.
The Group's daily production at year end grew 62% to 63,143 barrels of oil per day (bopd)
up from 38,901 bopd at the close of 2006 due
to continued strong production growth at Salym.
SPD and Magma made significant investments to increase utilisation of gas associated with
oil production which would otherwise be flared
wastefully. A 45MW Power Generation Plant was constructed at Salym and is now fully
operational, providing 65% of the field's long-term
electricity needs. In 2007 a wet gas pipe line for sale of gas to Sibur/Gazprom will allow for
cessation of associated gas flaring at
Yuzhnoye and Orekhovskoye fields and will be completed by the end of 2008.
In the spring of 2007 Sibir took its first major steps into exploration with the
acquisition of eight exploration licenses, known
collectively as the Koltogorsky blocks, in the Khanty-Mansiysk District of Western Siberia. By
the end of 2007 the first of eight
exploration wells had already been drilled and six exploration rigs had been contracted to
carry out an aggressive exploration drilling
program in 2008. The Koltogorsky project is now one of the leading exploration programmes in
the region. With its proximity to the Yushnoye
and Orekhovskoye fields, the exploration program is operated by Magma, resulting in many
economies of scale.
Capital and Exploration Expense
The Group's upstream capital expenditure for 2007 totalled $191.7 million of which $172.4
million was attributable to Sibir's share of
capex in the Salym fields and $19.3 million was invested at Magma's Yuzhnoye and Orekhovskye
fields. Exploration expenditure in 2007 for the
Koltogorsky blocks totalled $9.8 million.
The Group's upstream capital expenditure in 2008 is expected to total $164.5 million, with
$128.7 million attributable to Sibir's share
of capex in the Salym fields and $35.8 million attributed to the Yuzhnoye ($9.6 million) and
Orekhovskoye ($26.2 million) oilfields. 2008
exploration expenditure for the Koltogorsky blocks is expected to total $69.8 million, while
SPD's exploration at Salym attributable to
Sibir is $7.5 million. Sibir share of abandonment expenditures in the Salym fields will be
$2.2 million.
Operating Environment
Operations at all operating units were significantly hampered by remarkably mild and short
winters, resulting in record high
flood-waters in the swamp-like fields of western Siberia in 2007 and 2008. Changes in the
Federal permitting process for construction and
development likewise led to delays in the development of the Orekhovskoye oilfield. The
experience of the past several years suggests these
mild weather conditions could become a permanent feature of the operating environment in
Western Siberia and future operations plans will
have to take this into account.
Despite these climatic and administrative challenges, Sibir's upstream team delivered
impressive production results and laid the
groundwork for continued growth in the future as the following detailed report shows.
Magma Oil Company
Magma (95% Sibir owned) is the operator of the Koltogorsky Exploration Blocks on behalf of
the wholly owned Sibir subsidiary licencee
and is also the licence holder and operator of the Yuzhnoye and Orekhovskoye oil fields in
Khanty-Mansiysk District of West Siberia. Magma's
operations in 2007 focused primarily on development of the Orekhovskoye field and the
exploration of the Koltogorsky resource.
Koltogorsky Exploration Blocks
The Koltogorsky exploration blocks cover 2,100 square kilometres and are located some 200
kilometres northeast of Nizhnevartovsk,
Magma's operation base. The licence area comprises a syncline structure and is surrounded by
developed oilfields including the giant
Samotlor oilfield some 70 kilometers to the west. In accordance with Russian GKZ
categorisation the Blocks are estimated to contain a total
of 970 million barrels of Russian category C3 oil resources. These estimates are based on the
interpretation of 2,574 kilometers of 2D
seismic profiles. In total, some 34 structures thought to bear hydrocarbons have been
identified by the seismic profile interpretations.
The Blocks feature excellent available infrastructure including a Transneft oil pipe line,
a Sibur wet gas pipe line, as well as paved
roads and power lines passing through the licence area. This should limit eventual capex
outlays and lead to earlier production should the
exploration program be successful and move to the development stage.
The Koltogorsky exploration licences require Sibir to drill and test eight wells (one per
block) and acquire an additional 180
kilometers of 2D seismic profiles by the end of February, 2009. Should the exploration program
be successful, Sibir will apply for an
extension and conversion of the licenses to 20/25 years exploration, appraisal and development
licences. To meet the tight timeline of the
licence requirements, Magma has engaged three drilling contractors, each providing two rigs,
as well as several construction and testing
services contractors.
The first well (141P) was spudded in Q4 2007 and reached total depth of 3,200 meters on
Christmas Eve. After acquisition of a vertical
seismic profile the rig was disassembled and remobilised to drill the second exploration well.
Koltogorsky Exploration Blocks 2008 Preview
By the end of the 2007-2008 winter season Magma had completed 71 kilometers of permanent
and winter roads, prepared 7 well pads and
mobilised five exploration rigs. The second exploration well (111P) was spudded in early April
2008 and reached total depth of 3,500 meters
by late May. A third well (121P) was spudded at the end of April , and fourth well (151P) is
expected to spud in July. Two additional wells
(71P and 101P) are scheduled for September and the last two (81P and 91P) in December. Sibir
is encouraged by the initial results from the
first three wells as drilling cores and well logs show hydrocarbon saturations in Middle and
Upper Jurassic sandstones.
Yuzhnoye Oil Field
The Yuzhnoye oil field lies 60 kilometers to the southwest of Magma's operations base in
Nizhnevartovsk. In 2007 Yuzhnoye celebrated the
15th anniversary of the start of production during which time it has produced over 24.5
million barrels of oil.
In 2007 Magma completed design documents and land surveys for construction of a 27
kilometer wet gas pipeline from the Yuzhnoye Central
Processing Facility (CPF) to a tie-in point for deliveries to Gazprom affiliate Sibur.Currently under construction, the pipeline will allow
Magma to sell its associated wet gas, thus eliminating flaring in compliance with its licence
obligations.
In 2007 three wells totalling 8,451 linear meters were drilled, ten wells were completed
or recompleted, fifty-seven well workovers were
carried and eighty-five well service jobs performed including nine hydraulic fracturing
treatments. A new modelling and design plan
(Technological Schema) for the Yuzhnoye field was submitted to the authorities for approval.
Yuzhnoye 2008 Preview
Activities at Yuzhnoye in 2008 are focused on completion of the wet gas pipeline to
eliminate flaring. On the basis of results of recent
development drilling (2004 to 2007) a revised Technological Schema will be approved in course
of 2008 and is expected to include further
development drilling in the southern area of Yuzhnoye.
Orekhovskoye Oilfield
The Orekhovskoye field is a greenfield property which lies 22 kilometers to the northwest
of the Yuzhnoye oilfield. Sibir acquired the
licence for Orekhovskoye as part of its purchase of Magma in 1997, but development was delayed
because the economics of the project were
thought to be unattractive in the lower oil price environment that prevailed at the time.Taking into consideration the long term outlook
for crude prices, Magma re-engineered its development scenario based on four well pads and
highly deviated wells. The resulting proposal was
submitted to the authorities who approved it in August of 2006. The approved development
proposal delivers positive economics at oil prices
above $30 a barrel and increases Magma's C1+C2 Russian classification reserves by 54 million
barrels.
In April 2007 the Russian authorities approved the pilot Technological Schema for
Orekhovskoye, allowing for the development of the
field and re-completion of two old exploration wells which produced an incremental 43,877
barrels of oil.
In parallel with approval of pilot Technological Schema Magma submitted for approval
design documents to construct roads, well pads,
infield power and pipe lines. Unfortunately, the local authorities were slow to implement a
recent set of new regulations and the approval
process took much more time than expected, resulting in significant construction delays.
Despite these challenges Magma completed construction of 13 kilometers of permanent road
linking the future Orekhovskoe processing
facilities with Yuzhnoye and 9 kilometers of permanent infield roads. Infield power lines were
laid to one of the well pads, allowing the
start of production from the two re-completed exploration wells described above and the
commencement of drilling operations in the spring of
2008.
Orekhovskoye 2008 Preview
Development drilling on pad 2 commenced in February 2008 and 12 wells, including one water
source well are planned by year-end. The same
rig will continue development of pad 2B, with a further 10 wells to be drilled before the end
of 2008.
2008 will see significant infrastructure buildout at Orekhovskoye, completing the
following projects:
* 4.1 km of infield roads
* 21.3 km of pipe line, linking temporary processing facilities on Orekhovskoye and
the Yuzhnoye CPF;
* 7.5 km of infield pipe lines
* 5.2 km power lines
* Temporary processing facilities
* Power substation
Production and Injection
Total 2007 Magma production reached 2.5 million barrels of which Yuzhnoye contributed
2,460,962 barrels at an average production rate of
6,742 bopd from 44 wells. 5.5 million barrels of water were injected through 23 injector wells
for reservoir pressure maintenance.Orekhovskoye contributed 43,877 thousand barrels of incremental production from two
recompleted exploration wells.
In 2008 Magma expects to produce a total of 2.5 million barrels for an average daily
production rate of 6,850 bopd.
Capital Spending
Capital expenditure for Magma in 2007 totalled $19.3 million of which $14.6 million was
invested in Yuzhnoye projects and $4.7 million
in the Orekhovskoye development.
Projected 2008 capital expenditure is $35.8 million of which $9.6 million has been
allocated to Yuzhnoye and $26.2 million to
Orekhovskoye.
Salym Petroleum Development N.V. (SPD)
SPD is Sibir's 50/50 joint venture between its 100% owned subsidiary Evikhon and Shell
Salym Development B.V. , a member of the Royal
Dutch Shell Group. SPD operates the Salym Group of fields (West Salym, Vadelyp and Upper
Salym) in the Khanty-Mansiysk District in West
Siberia. With 1.1 billion barrels of Russian classification C1+C2 reserves, the Salym
development represents the largest single on-shore
project in Russia with foreign participation. SPD launched production from the Salym fields in
late November of 2005 and has grown
production to over 127,000 bopd as of today.
Salym Fields
2007 was a year of spectacular production growth at Salym as the final key infrastructure
projects were commissioned and drilling
operations developed momentum. SPD's highly efficient drilling programme continued with four
rigs operating in 2007, one heavy duty rig was
replaced with a 200-tonne mobile rig, and six service rigs/hoists were at work on completions
and work-overs. The SPD drilling team
continued to set records for drilling time, completing wells in as few as 6.7 days. Well
completion efficiency has been improved to 4.1 days
per well and well hook-up times have reached technical limits.
Production slowdowns in the first quarter stemming from the failure of water injection
pumps were resolved, first by installation of
Russian modular water injection pumps and later, with the repair and reinstallation of
high-volume mega-pumps getting production back on
track.
SPD drilled four dedicated producing wells and one injector for the pilot development of
the Achimov reservoir. The Achimov is a tight
heterogeneous reservoir that lies beneath the main producing reservoir and has significant
volumes of oil resources in place. The plan is to
perform large volume hydraulic fracturing treatments in 2008 and produce the wells to evaluate
economic potential of large scale development
of the reservoir.
SPD commenced construction of a three-turbine, 45 MW Power Generation Plant (PGP) to
utilise most of Salym's produced associated gas and
provide a material part of the electric power needed to run the project for decades to come.The PGP will also allow SPD to reduce flaring
in line with environmental protection requirements while reducing exposure to anticipated
increases electricity prices resulting from the
deregulation of the power sector. The plant was fully commissioned and operational as of early
April 2008.
Other operational highlights at Salym included:
* Completion of the second phase of Custody Transfer Facilities (CTF) with two 20,000
m3 tanks, transfer pumps and fire pumps;
* Construction of 5 new pads with infield roads, power lines and pipe lines
* Total of 100 new wells drilled, 78 on West Salym, 1 on Upper Salym and 21 on
Vadelyp
* 106 new wells hooked up
* 108 initial well completions
* 118 well workovers and well service jobs
* 8 hydraulic fracturing treatments
* Expansion of the operations base with two accommodation units, office block, car
wash and covered storage area
* Completion of an office block on the Salym CPF
* Construction of phase one of waste handling and processing facilities
* Installation of modular water injection facilities on Upper Salym;
Production and Injection
Total 2007 production at Salym doubled to 30.7 million barrels (15.3 million barrels Sibir
share) up from 14.9 million barrels (7.5
million barrels Sibir share) in 2006. The daily production rate grew 77% from 64,000 bopd at
the beginning of the year to 113,000 bopd by
year end. Water injection for reservoir pressure maintenance totalled 36.4 million barrels
reaching required volumes to balance depletion
and manage reservoir pressure support.
Capital Expenditure
Sibir's share of capital, exploration and abandonment expenses for the period totalled
$172.4 million including $87.9 million for
construction of facilities and infield infrastructure and $79.5 for drilling and completion of
the wells. $1.9 million was spent on
exploration and $3.1 million on abandonment expenditures.
Operational Highlights by Field
West Salym:
West Salym continues to be the focus of SPD's activities as the field contains some 70% of
total Salym reserves. 2007 operational
highlights for West Salym include:
* Three well pads completed, drilling, completions and hook-ups underway, production
commenced;
* Infield infrastructure (oil and injection water pipe lines, roads and power lines)
completed for 3 pads;
* Water Injection facilities fully in place with two big flow serve (15,000 m3/day
each) and back up Russian modular pumps;
* 78 wells drilled;
* 85 wells completed;
* 54 new producing wells brought on stream;
* 5 dedicated Achimov wells drilled and one hydraulically fractured;
* Construction of phase 2 Custody Transfer Facilities (CTF) at the tie in of the
export pipeline to Transneft pipeline system
completed
* Phase one of waste processing facilities completed
Upper Salym
The Upper Salym license area has significant potential. SPD is continuing studies and
investments to fully valuate its upside. 2007
accomplishments at Upper Salym include:
* Completion of modular pump station for water injection;
* Completion of well pad K-2;
* 1 well drilled;
* Preparation of new Technological Schema.
Vadelyp profile
Vadelyp consists of two structures, Vadelyp North and Vadelyp South. The development of
Vadelyp North commenced in 2006, and continued
during 2007.Studies and preparation of the development of Vadelyp South took place in 2007 to
be continued through 2009. In 2007, the
following progress was recorded at Vadelyp:
* new well pad built;
* 21 wells drilled;
* 23 wells completed.
Salym 2008 Preview
Continued development of the Salym fields in 2008 is expected to bring total production of
up to 45 million barrels. Daily production is
expected to reach 130,000 bopd by year-end based on currently approved projects. SPD is
preparing several incremental projects such as
hydraulic fracturing treatments, flank and in-fill drilling which could bring 2008 year-end
production to 140,000 bopd and add incremental
production in the years to come.
Development projects for 2008:
* To support steady production growth SPD plans to drill additional water source wells
to increase water injection capacity
injection of water for reservoir pressure maintenance.
* Exploration and appraisal activities at Salym will continue in 2008, with the
Achimov Pilot Development on West Salym, and the
drilling of exploration wells on Upper Salym and South Vadelyp. SPD plans to drill two more
prospects on Upper Salym (Lebed and Glukhar) in
the winter 2008/2009 and pilot development of Middle Cretaceous BS8 reservoir on Upper Salym.This pilot, consisting of 9 wells, will be
initiated in 2008 and will continue during 2009.
* The CPF on West Salym will be upgraded with two 100m3 inlet separators, one 100 m3
final stage separator and two 5,000 m3 water
skim tanks.
* Two new well pads will be completed, and the three pads already completed in 2007
(21, 25 and 27) will produce first oil in 2008.
* An operations base fuel filling station, sport hall and ambulance garage will be
completed.
* Drilling with four rigs, and completions and well servicing with 6-7 rigs/hoists
will continue.
* To manage remaining volumes of associated gas not utilised by the 45MW power plant,
SPD has entered into an agreement with a third
party which will build and operate an LPG plant next to the Salym CPF. The plant will take wet
gas deliveries from Salym as well as
neighboring producing properties and is expected to be commissioned in 2010.
Group Reserves Summary
The Group's interests in commercial reserves of oil as of 31 December 2007 are included in
the unaudited table below:
Russian reserves classification (1)
Million barrels A+B+C1 C2 Total
Magma's Yuzhnoe and Orekhovskoe Oilfields 125 11 136
Salym Group of Fields (50%) (2) 376 156 532
Total 501 167 668
1. Russian reserves are classified as follows:
A = reserves proved and developed in accordance with approved (by Russian Authorities)
development plan.
B = reserves proved and developed in accordance with early development plan.
C1= reserves tested and mostly proved but not developed.
C2= reserves contiguous to C1 and substantiated by geological data and lie within
probable, possible and contingent.
2. As noted previously, SPD uses a reserves classification known as proven, expected and
scope for recovery reserve estimate based on
the field development plan which total 888 million barrels (or Sibir share - 444 million
barrels). The difference between the SPD estimates
and the Russian reserves numbers are due primarily to the exclusion of the lower reservoirs in
the SPD numbers.
Downstream Operations Review
In the second half of 2007 Sibir successfully completed its acquisition of MOGC,
materially increasing its interests in the downstream
business - truly a landmark event in the history of the company.
The completion of the MOGC deal has also allowed for a resolution of the long-standing
conflicts between shareholders at the Moscow
Refinery, thus clearing the way for long overdue investment to make it a world class facility.Likewise our ownership of the MTK and MNP
retail fuels networks has allowed us to start implementing an aggressive plan to upgrade those
networks to ensure a leadership position in
the marketplace.
In summary, 2007 was a watershed year for Sibir's downstream business and set the stage
for 2008 during which the planning, designing,
securing of building permits, and the building of the management team will allow us to start
to turn our vision into growing operations that
will deliver enhanced earnings quality for years to come.
The Moscow Market
The City of Moscow and the surrounding Moscow Region represent one of the largest and most
dynamic fuels markets in Europe. The region
has a combined population of over 17 million making it the largest metropolitan area on the
continent of Europe. With Russia's economic
revival Moscow has become a magnet for domestic and foreign investment, leading to increases
in living standards and consumer spending which
are reflected in a 10% annual growth rate in the number of automobiles on the road over the
past three years. Russia is now poised to
overtake Germany as the largest automotive market in Europe by the end of 2008 supporting
continued strong growth in fuels demand.
Moscow Refinery
The Moscow Refinery is a 240,000 bopd nameplate capacity facility currently processing
200,000 bopd and supplies over 50% of Moscow's
motor fuel requirements. Located in the southeastern district of the city it receives crude
supply via the Russian national Transneft
pipeline system whilst refined products are supplied to local markets and export customers
through pipelines, rail cars and trucks. Over
3,200 staff are employed at the facility.
The Moscow Refinery is designed to process a high sulphur Urals blend crude slate. The
facility comprises over forty processing units
producing approximately 57% high-value light products including gasoline (RON octane grades
80, 92 and 95), Diesel (winter and summer) and
aviation kerosene (jet fuel). The Refinery is also a leading producer of heating oil, bitumen
and LPG. A large part of the Refinery's output
is sold into the local market, though a significant percentage (up to 50%) of diesel is
exported.
The Refinery operates as a tolling operation and does not buy crude or sell oil products
itself. Trading activities are carried out by
trading companies which supply crude to the Refinery, pay the Refinery a per-barrel tolling
fee to process the crude and then market the
refined product directly. The Refinery's tolling fees are sufficient to cover operating costs,
regular maintenance, on-going capital
expenditure leaving profits sufficient to cover payment of dividends on preferred shares.Thus, the full economic value of the refining
operation is reflected in the results of our trading operation.
Refining Volumes
In 2007 the Moscow Refinery processed 72.9 million barrels of crude. Sibir's share of
total tolling capacity was 21.4 million barrels or
an average 58,630 bopd, an increase over 2006 as Sibir benefited from increased tolling
capacity after the completion of the MOGC
acquisition in September. Refinery production was temporarily reduced by nearly 40% during the
month of October due to routine maintenance.
2008 total crude processing volumes are expected to be 71.4 million barrels of which Sibir
is expected to have tolling access to 35.7
million barrels or 97,800 bopd. Maintenance works are expected to slow processing in April and
May, resulting in lower volumes for the first
half of the year.
Future Development Plans
The Moscow Refinery has recently completed a feasibility study which outlines several
scenarios for upgrading the facility over the next
several years. The most likely option currently under study anticipates a robust, three-stage
investment program to increase light
high-value products yields to 90%, improve capacity utilisation and produce Euro 5
specification motor fuels. Total capital expenditure for
the upgrade is expected to be in excess of $1 billion which will be the shared responsibility
of the shareholders.
Marketing and Distribution
With increasing car ownership, population and affluence, Moscow and the Moscow region are
witnessing record fuel consumption growth.However, due to a lack of available real estate in Moscow suitable for petrol service station
construction, the market remains significantly
under supplied in terms of the number of filling stations (845 in total). The market is thus
characterised by very high and growing
per-station throughput volumes and retail fuels margins well above European averages. This is
not expected to change anytime soon.
Sibir has a significant position in this exciting market with an interest in over 185
petrol service stations in Moscow and surrounding
region. Our retail assets are held through three distinct entities:
Moscow Fuel Company: a network of 71 wholly-owned and operated MTK-branded service
stations in the city of Moscow with sales of over 485
million litres of motor fuels in 2007. It is the largest network of existing stations in the
city. The company also has a 100% interest in a
large oil products storage and distribution terminal in the northwest district of Moscow.
The MTK network is primarily a fuels only network which has had minimal investment over
the past 20 years. Sibir has announced a major
investment program of over $200 million over the next five years to significantly upgrade this
network to international retail standards to
include modern, multi-product fueling facilities, convenience retail stores, ready-to-serve
food offering and automatic carwashes where real
estate dimensions permit. In 2008 the company's activities will focus on planning and securing
the necessary building permits to launch this
ambitious development program.
Mosnefteproduct: A network of 63 NEFTO-branded service stations 51% owned by Sibir in the
economically vibrant region surrounding
Moscow. This region is experiencing tremendous development and growth as Muscovites have
developed a taste for suburban living. This is
leading to increased road construction, development of housing and consumer retail facilities
and local employment. The NEFTO-branded
network is comprised of Soviet-era facilities that have suffered from years of
under-investment as reflected in its 2007 sales volumes of 65
million litres. Approximately half of the network stations are being targeted for demolition
and rebuild over the next 5 years requiring
some $75 million in capital investment. The renewed network will form the basis for
significant expansion to develop a leading position in
the Moscow region and surrounding territory.
STBP: In 2006 Sibir acquired its 25% +1 share interest in this BP-branded service station
network of 51 facilities in Moscow and the
surrounding region. Established over 10 years ago, the BP network is a greenfield development
that has been built to the highest
international retail standards. All facilities feature modern, high-volume fueling facilities,
large convenience stores with in-store
bakeries and cafes. Automatic carwashes are available on approximately fifty percent of
locations. With 2007 sales of over 988 million
litres the BP network is the clear market leader in Moscow. Future development plans call for
the network to grow to between 90 and 120
filling stations over the next 5 years.
Retail Sales Summary
2007 retail fuels sales volumes from all networks totalled 1.5 billion litres of which
765.15 million litres are attributable to Sibir:
Retail Networks Total Sales mltrs Sibir Interest % Net Sibir Share mltrs
MTK Network 485,000 100 485,000
Mosnefteproduct 65,000 51 33,150
STBP 988,000 25 247,000
Total 1,538,000 765,150
Financial Review
In 2007 Sibir's integrated operations produced record financial results driven by
production growth at Salym, higher crude oil prices
combined with increased refined products volumes and refined product and retail margins
downstream.
Key Financial Indicators ($ millions)
2007 2006 % change
EBITDA* $468.8 $163.8 109
Net Profit $282.4 $85.4 231
Net Debt/(Net Cash) $320.4 ($12.8) n/a
Gearing % 29% n/a n/a
*EBITDA comprises the Group's earnings before interest, tax, depreciation and amortisation
and includes the Group's share of EBITDA of
joint ventures
Operating Environment
The average Brent price for the year was $71.66 or 8.8% higher than the $65.38 average
for 2006.
Russian Mineral Extraction Taxes (MET) and export taxes are set every two months based on
average prices for the previous two months.Sibir enjoyed a positive tax effect from this structure throughout the year as lower MET and
export tax calculations trailed rising crude
prices. The reverse will apply in any period if and when the crude oil price is in decline.
General Observations on Accounts
Because Sibir's revenues are denominated primarily in US dollars the dollar is its
functional currency and Sibir reports its results in
US dollars rather than pounds sterling as was done previously. Reporting in US dollars
eliminates the effect of fluctuations in the
dollar/sterling exchange rate and provides a more accurate picture of the company's financial
performance.
Sibir also, for the first time, presents its full-year accounts in accordance with
International Financial Reporting Standards (IFRS).
A guide to the Group Income Statement
In our Group Income Statement, IFRS requires that in line items "Turnover", "Gross
Profit", and "Operating Profit", we show only the
results of those businesses which we control, namely Magma's upstream and downstream
operations and, from 18 September 2007, the business of
MOGC. The line item "Administrative and General Expenses" represents expenses of those
controlled businesses and includes the general
corporate expenses for the Group. The results from SPD, Moscow Refinery and STBP are shown net
of directly related expenses including
profits tax as a separate line item under "Share of Profit from Joint Ventures and
Associates".
Analysis by Business Segment
While the results presented in this manner ensure we comply with IFRS, an analysis of the
same numbers by business segment provides, in
our view, a more helpful explanation to you as shareholders of the Company's performance.
The segment analysis below breaks out contributions to profitability from the key business
segments in upstream and downstream sectors.Administrative expenses of Magma and MOGC are similarly broken out from the corporate expenses
in the IFRS accounts and allocated to the
relevant segment to provide a clear picture of segment profitability.
Profit contribution by segment 2007 2006 %
$000 $000 Change
Upstream
Salym 219,109 49,774 340
Yuzhnoye and Orekhovskoye 30,500 20.537 49
Total Upstream Contribution 249,609 70,311 255
Downstream
Products trading, refining and retail 127,482 80,797 58
Share of net profit from BP retail 21,049 -
Total Downstream Results 148,531 80,797 84
Corporate expenses (31,753) (22,843) 39
Net finance costs (22,715) (16,290) 39
Taxation (61,245) (23,005) 166
Net profit 282,427 88,970 217
Upstream
Total Sibir Group crude oil production in 2007 rose 80% to 17.8 million barrels of which
15.3 million barrels came from Sibir's share of
growing production from SPD and the remainder from the Magma production unit. Sibir's 50%
share of Salym production increased 33% in the
second half of 2007 to 8.77 million barrels from 6.57 million barrels in the first half while
Magma production held steady.
Salym
Salym's contribution to profitability in 2007 increased 340% to $219.1 million and is made
up of three components: $90.3 million, which
represents Sibir's 50% share of SPD's net income after tax; $77.7 million of interest income
before tax earned by Sibir on its outstanding
loans to the SPD joint venture (these loans totalled $598.4 million at year-end); and $51.1
million before-tax gain on the recognition of a
free carry from Shell now realised in 2007.
Production at Salym in 2007 doubled to 30.7 million barrels (15.3 million barrels Sibir
share) up from 14.9 million barrels (7.5 million
Sibir share) in 2006. SPD turnover in 2007 increased to $1,330.5 million and gross profit,
after depletion, grew to $408.6 million from
$165.7 million. Operating Profit rose to $320.9 million from $93.3 million in 2006.
Per barrel production expenses at SPD decreased by 45% to $4.06/barrel compared to
$7.78/barrel in 2006 due to due to a doubling of
production and the achievement of economies of scale associated with such a large production
ramp-up.
Yuzhnoye and Orekhovskoye as operated by Magma
Magma's upstream production unit, comprising the Yuzhnoye and Orekhovskoye fields,
contributed $30.5 million before tax, an increase of
50% from $20.5 million in 2006.
Of Magma's total 2.5 million barrels of production, approximately 43% was exported and the
balance delivered for processing at the
Moscow Refinery. Magma's trading unit (part of the downstream segment) also purchases Sibir's
share of the 29% of Salym production sold
domestically for processing at the Moscow Refinery. Transfer pricing for crude processed at
the Moscow Refinery is calculated on an arm's
length basis.
Production expenses at Magma increased 15% in 2007 due to a $1.7/barrel increase in MET
and an increase in operating expense from an
average of $3.16/barrel in 2006 to $4.38/barrel in 2007. The increase operating expenses
resulted from cost inflation of oil treatment
charges, wages, oil field services, electric power and appreciation of the rouble against the
dollar.
Downstream
Downstream contributions to profitability in 2007 grew 84% to $148.5 million.Contributions to earnings from oil products trading and
crude processing represent $127.5 million, a 58% increase over 2006 and were due to strong
product margins and an increase in our processing
quota from 45,000 bopd to 100,000 bopd (average 58,630 bopd for the year) following the
completion of the MOGC deal. Sibir's share of
earnings from the Moscow Refinery was modest because the Refinery runs as a tolling operation
and the bulk of the profits being captured in
the trading business. The contribution from MOGC to operating profit amounted to a loss of
$8.5 million for the period following completion
of the MOGC deal and includes $19.2 million in corporate expenses and $7.8 million of
depreciation. This level of expense in MOGC is clearly
excessive and a restructuring plan will eliminate such losses in the future.
For the first time, Sibir consolidates earnings from its 25% share of the BP retail joint
venture, consolidating $21.0 million in net
income after tax from this outstanding retail network of only 51 stations. These stations sold
together 988 million litres for the year
making average per-station throughput volumes amongst the highest in the world.
Corporate Expenses
As advised in September corporate expenses (which in this business segment analysis,
exclude expenses of MOGC and Magma) increased 39%
from $22.8 million to $31.8 million due to increases in banking and consulting fees paid in
association with the MOGC acquisition, legal
fees incurred in pursuing legacy issues of the Sibneft-Yugra dilution and increases in
salaries and bonuses for key personnel.
Administrative Expenses in the IFRS income statement amount to $73.2 million. For the
segment analysis referred to above, those were
broken out in the following manner: $35.8 million are attributable directly to Sibir Group
overheads and administrative expenses; $3.5 was
allocated to Magma's Upstream Production units (at Yuzhnoye and Orekhovekoye), $6.9 million
was allocated to Magma's products trading unit;
and $27 million (including depreciation) was attributable to overheads at MOGC.
Finance Costs
Net Interest expense of $22.7 million was up 39% in 2007 from $16.3 million in 2006. Of
the total, $17.6 million was related to interest
receivable from bank deposits, loans to MOGC and Central Fuel Company. The balance was made up
of $38.9 million of interest payable on bank
loans used to finance the MOGC and Koltogorsky acquisitions as well as lines of credit drawn
to finance expanded domestic crude oil
purchases due to Magma's increased processing quota at the Moscow Refinery and increases in
domestic crude prices.
Taxation
The 2007 taxation charge of $61.2 million, predominantly comprises profits tax payable by
our Russian operating subsidiaries, Magma and
MOGC, of $41.0 million (2006: $22.3 million) and $2.9 million respectively, and $17.8 million
payable by Evikhon on the non recurring carry
item of $51.1 million realised during 2007.
Net Profit and Earnings per share (EPS)
Group Net Profit after interest and taxation was $282.4 million in 2007 compared net
profit of $89.0 million in 2006, a 217% increase
and an improvement in financial performance of $193.4 million.
Earnings per share (EPS) increased by 169% to 82.50 cents in 2007 from 30.65 cents in
2006.
Balance Sheet
As at 31 December 2007, the Group's net assets have increased by $1,082 million to $2,124
million reflecting the acquisition of MOGC
group of companies on 18 September 2007.
Net debt for the Group grew to $320.4 million at the end of 2007 from a net cash position
of $12.8 million in 2006 reflecting increased
borrowings to finance the cash portion of the MOGC share acquisition and expanded use of trade
finance to support increased trading activity
arising from the doubling of Magma's processing quota at the Moscow Refinery. Despite this
increase in borrowings, the company's ability to
service its debt is extremely solid, as evidenced by the Group's 2007 EBITDA of $468.8 million
being greater than the Group's net debt of
$320.4 million.
The Group's net current assets for 2007 increased $60.5 million to $291.0 million compared
to $230.5 million as at 31 December 2006 due
predominantly to increases in the Group's cash balances.
Total non-current liabilities increased to $492.0 million from $109.7 million as at 31
December 2006 as a result of increased borrowings
used to finance the Group's acquisitions of MOGC and the Koltogorsky exploration blocks and
expanded cash requirements for crude purchases
arising from the increase in the tolling quota at the Moscow Refinery. The increase in
non-current liabilities also resulted from deferred
tax and other tax provisions included within MOGC group prior to its acquisition by Sibir.
Total assets less current liabilities as at 31 December 2007 was $2,615.8 million compared
with $1,151.3 million as of 31 December 2006.
Total shareholder's equity as at 31 December 2007 was $2,123.9 million compared to
$1,041.6 million as at 31 December 2006.
Cash Flow
Cash flow from operating activities:
In 2007, the Group recorded a net cash inflow from operating activities of $73.8 million
compared to a net cash outflow of $61.5 million
in 2006. This is a reflection of the increased profitability of the Group, coupled with a
significant improvement in the Group's working
capital position.
Cash flow from investing activities:
The Group financed capital expenditure of $13.5 million at Magma, acquired the Koltogorsky
Exploration Blocks for $50.0 million,
incurred subsequent exploration expenditure of $4.4 million, lent $31.0 million to SPD as
payment of cash calls in the early part of 2007
and received loan repayments from SPD in the later part of 2007 in the amount of $76.0
million. The Group also received loan repayments from
other entities in the amount of $43.2 million, received dividends from STBP in the amount of
$16.1 million and spent $293.9 million in
connection with the cash component of the MOGC transaction (net of cash acquired).
Cash flow from financing activities:
The Group paid dividends in the amount of $44.2 million, drew down trade finance and other
loans in the amount of $630.2 million and
repaid borrowings and trade finance lines in the amount of $330.8 million.
The year closed with a cash and cash equivalent balance of $293.3 million compared to
$216.7 million as at 31 December 2006.
Financial Instruments
The Group's financial instruments comprise borrowings, cash and liquid resources, and
various items, such as trade debtors, and trade
creditors which arise directly from its operations. The main purpose of these financial
instruments is to finance the Group's operations. It
is, and has been throughout the period under review, the Group's policy that there be no
trading in financial instruments. The main risks
arising from the Group's financial instruments are foreign currency risk, oil price risk,
interest rate and liquidity risk (further
information is contained in note 3 to the financial statements).
The Board reviews and agrees policies for managing each of these risks and they are
summarized as follows under the following two
headings:
Foreign Currency Policy
Approximately 54% of Sibir's revenue in 2007 was received in dollars, the balance being
received in Russian roubles. As some of the
development, production and taxation expenditures are in roubles, along with some interest
servicing and loan repayments, the risk from
variations in the value of the rouble is not significant.
Sibir continues to transfer funds to and from Russia without incident or impediment.
Interest Rate and Liquidity Policy
The Group finances its operations though its own cash on hand, project finance and trade
finance.
Forward Looking Statements
This report contains certain forward looking statements that involve substantial known and
unknown risks and uncertainties, some of
which are beyond Sibir's control, including the impact of general economic conditions where
Sibir operates, industry conditions, changes in
laws and regulations including the adoption of new environmental laws and regulations and
changes in how they are interpreted and enforced,
increased competition, the lack of availability of qualified personnel or management,
fluctuations in foreign exchange or interest rates,
stock market volatility and market valuations of companies with respect to announced
transactions and the final valuations thereof, and
obtaining required approvals of regulatory authorities. Sibir's actual results, performance or
achievement could differ materially from
those expressed in, or implied by, these forward looking statements and, accordingly, no
assurances can be given that any of the events
anticipated by the forward looking statements will transpire or occur, or if any of them do
so, what benefits, including the amount of proceeds, that Sibir will derive therefrom.
Going Concern
The directors have a reasonable expectation that the Group has adequate resources to
continue its operations for the foreseeable future.For this reason, they continue to adopt the going concern basis in preparing the financial
statements.
Consolidated Group income statement
For the year ended 31 December
2007 2006
$ 000 $ 000
Revenue 1,766,842 1,049,895
Cost of sales (1,572,131) (941,033)
Gross profit 194,711 108,862
Administrative expenses (73,212) (29,785)
Other gains/(losses) - net 54,488 (586)
Operating profit 175,987 78,491
Finance income 95,371 51,216
Finance costs (40,348) (21,092)
Share of profit from joint ventures and associates 112,662 3,360
net of interest and tax
Profit before taxation 343,672 111,975
Taxation (61,245) (23,005)
Profit for the year 282,427 88,970
Attributable to:
Equity holders of the Company 277,784 85,358
Minority interest 4,643 3,612
282,427 88,970
Earnings per share for profit attributable to the
equity holders of the Company during the year
(expressed in cents per share)
- Basic 82.50 30.65
- Diluted 82.39 30.60
Consolidated Group balance sheet
As at 31 December
2007 2006
$ 000 $ 000
Assets
Non-current assets
Property, plant and equipment 173,411 86,586
Intangible assets 472,587 24,753
Investments in joint ventures accounted for using the 967,162 47,486
equity method
Investments in associates 199,260 180,477
Available-for-sale financial assets 54 24,541
Trade and other receivables 508,996 556,892
2,321,470 920,735
Current assets
Inventories 73,673 24,510
Trade and other receivables 432,579 172,555
Cash and cash equivalents 293,265 216,748
799,517 413,813
Assets classified as held for sale 3,313 -
Total assets 3,124,300 1,334,548
Liabilities
Current liabilities
Borrowings (310,380) (134,330)
Trade and other payables (167,854) (47,914)
Income tax payable (30,263) (1,042)
(508,497) (183,286)
Non-current liabilities
Borrowings (303,332) (69,667)
Trade and other payables (242) (13,667)
Deferred income tax liabilities (109,670) (22,854)
Provisions (78,706) (3,478)
(491,950) (109,666)
Net assets 2,123,853 1,041,596
Equity
Capital and reserves attributable to equity holders
of the Company
Called up share capital 100,704 86,766
Share premium 1,609,179 914,371
Other reserves 51,952 1,867
Retained earnings 288,326 27,694
2,050,161 1,030,698
Minority interest in equity 73,692 10,898
Total minority interest and shareholders' equity 2,123,853 1,041,596
The financial statements comprising the consolidated Group income statement, balance
sheet, statement of changes in equity and cash flow
statement were approved and authorised for issue by the Board of Directors on 30 June 2008 and
were signed on its behalf by:
H Cameron A Betsky
Director Director
Statement of changes in shareholders' equity
Share capital Share premium Other reserves Retained
earnings Minority
$ 000 $ 000 $ 000 $
000 interest
Total $ 000 Total
$ 000 $ 000
At 1 January 2006 373,085 207,341 9,317
(362,350) 227,393 8,353 235,746
-Gains on revaluation of
available-for-sale financial - - 2,585
- 2,585 - 2,585
assets
-Currency translation - - (10,035)
- (10,035) - (10,035)
adjustments
-Total income and expense for - - (7,450)
- (7,450) - (7,450)
the period recognised directly
in equity
-Profit/ for the year - - -
85,358 85,358 3,612 88,970
-Total income and expense for - - (7,450)
85,358 77,908 3,612 81,520
the year
-Shares issued 18,367 707,030 -
- 725,397 - 725,397
-Reduction of share capital (304,686) - -
304,686 - - -
-Changes in minority due to - - -
- - (1,067) (1,067)
share acquisitions
At 31 December 2006 86,766 914,371 1,867
27,694 1,030,698 10,898 1,041,596
-Gains / (loss) on revaluation - - (376)
- (376) - (376)
of available-for-sale
financial assets
-Currency translation - - 50,513
- 50,513 2,212 52,725
adjustments
-Recycling foreign currency - - 3,624
- 3,624 - 3,624
translation losses
-Total income and expense for - - 53,761
- 53,761 2,212 55,973
the year recognised directly
in equity
-Profit for the year - - -
277,784 277,784 4,643 282,427
-Total income and expense for - - 53,761
277,784 331,545 6,855 338,400
the year
- Acquisition in subsidairy 13,938 694,808 23,322
- 732,068 55,939 788,007
- Dividends paid
(44,150) (44,150) (44,150)
-Reclassification (26,998)
26,998 - -
At 31 December 2007 100,704 1,609,179 51,952
288,326 2,050,161 73,692 2,123,853
Consolidated Group cash flow statement
For the year ended 31 December
2007 2006
(
restated)
Note $ 000 $ 000
Cash flows from operating activities
Cash generated from operations 1 176,422 (15,097)
Interest received 14,904 3,668
Interest paid (35,806) (24,228)
Tax paid (80,700) (25,828)
Net cash flow from operating activities 74,820 (61,485)
Cash flows from investing activities
Purchase of property, plant and equipment (13,528) (18,679)
Proceeds from disposal of property, plant and 221 37
equipment
Purchase of intangible assets (4,396) -
Purchase of Koltogorsky licences (50,000) -
Loans to joint ventures (31,000) (126,378)
Loans to other entities - (15,919)
Repayment of loans from joint ventures 76,000 -
Repayment of other loans 43,206 -
Purchase of assets held for sale (5,117) -
Dividends received 15,138 -
Redemption of promissory notes - 14,584
Acquisition of subsidaries (293,939) -
Net cash flow from investing activities (263,415) (146,355)
Cash flows from financing activities
Proceeds from issue of shares - 561,692
Dividends paid (44,150) -
Proceeds from loans 630,219 424,685
Repayment of loans (330,757) (602,650)
Finance lease payments (1,049) -
Net cash flow from financing activities 254,263 383,727
Net increase (decrease) in cash and cash 65,668 175,887
equivalents
Opening cash and cash equivalents 216,748 23,609
Effect of exchange rate changes on cash and cash 10,849 17,252
equivalents
Closing cash and cash equivalents 293,265 216,748
Notes to the consolidated financial statements
1. Cash generated from operations
2007 2006
$ 000 $ 000
Profit/(loss) before taxation 343,672 111,975
Add back share of (profit)/losses of joint venture (112,662) (3,360)
Group operating profit/(loss) excluding share of 231,010 108,615
result of joint ventures
Adjustments for:
- Depletion, depreciation and amortisation charge 11,682 6,561
- Loss on disposal of fixed assets 237 320
Fair value gains/(losses) on derivative financial - 1,571
instruments
Finance income (95,371) (51,216)
Finance costs 40,348 21,092
Changes in working capital:
- Inventories (43,521) 11,294
- Trade and other receivables (95,238) (51,173)
- Trade and other payables 127,275 (62,160)
Cash flow from operations 176,422 (15,096)
Non-cash transactions:
The principal non cash transaction is the issue of shares and share options for the
acquisition of MOGC.
2. Status of Financial Information
The consolidated financial information of Sibir Energy plc and its subsidiaries (the
"Group") have been prepared in accordance with
International Financial Reporting Standards ("IFRS") as adopted by the European Union and
Companies Act 1985 as applicable to the year ended
31 December 2007.
The accounting policies adopted in the preparation of the financial information are
consistent with those applied in the Company's 30
June 2007 interim report.
The audited financial information for the years ended 31 December 2007 and 31 December 2006
contained in this document do not constitute
statutory accounts as defined in the Companies Act 1985. The financial information for the
year ended 31 December 2007 has been extracted
from the financial statements of Sibir Energy which will be delivered to the Registrar of
Companies in due course. The auditors have issued
an unqualified opinion on the Group's statutory financial statements for the year ended 31
December 2007. The comparative financial
information is based on the statutory accounts for the financial year ended 31 December 2006,
as adjusted for the adoption of IFRS. Those
accounts, upon which the auditors issued an unqualified opinion, have been delivered to the
Registrar of Companies.
Reconciliations from the published UK GAAP financial information for the year ended 31
December 2006, to the IFRS financial information
presented are consistent with those outlined in the special purpose 31 December 2006 IFRS
financial statements, which are contained on our
website, and upon which the auditors have issued an unqualified opinion.
3. Conversion of 2005 Accounts to IFRS
Under AIM rules the Company was required to adopt IFRS during 2007 with effect from 1st
January 2006. As a result of the Company's
intended move to the Official List, and the resulting requirement to include three years of
historical financial information in its
Prospectus, the Board has elected that the date of transition to IFRS will be with effect from
1 January 2005, one year earlier than
required by the AIM rules. This election was made to enable the Company to present the 2005
financial information on a consistent basis with
the 2006 and 2007 financial information to be included in the Prospectus.
As a result of the Company's date of transition to IFRS being one year earlier than
mandated, the Company has been required to
separately publish its 2006 financial statements, with 2005 presented as comparative financial
information, in accordance with IFRS.
In addition, the Board has also taken the opportunity to change the Company's reporting
currency from pound sterling to US dollars. This
is line with the reporting currency of other companies within Sibir's sector, and also
reflects the fact that the majority of the Group's
businesses are influenced by pricing of commodities with a US Dollar economic environment.
The 2006 US Dollar IFRS financial statements, together with the special purpose audit
report thereon, are available on the Company's
website. Commentary on the accounting differences resulting from the transition from UK GAAP
to IFRS is contained on page 3 of these
financial statements.
4. Copies of the Report and Accounts for 2007
The Annual Report and Financial Statements for 2007 will be posted to shareholders today
and is available both at the Company's
registered office at 17c Curzon Street, London, W1J 5HU, and on the Company's website at
www.sibirenergy.com.
5. Review by Qualified Person
The technical information and opinions in relation to the Company's operations and
reserves presented in this announcement have been
reviewed by Pavle Uroda, the Chief Upstream Operations Officer for Sibir. Mr Uroda is a
Professional Petroleum Engineer (Croatia) and is a
member of the Society of Petroleum Engineers.
news service from the London Stock Exchange
END
FR EALKNALFPEFE
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