TIDMUEN
RNS Number : 1249S
Urals Energy Public Company Limited
28 September 2017
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulations (EU) No. 596/2014 ("MAR"). With the
publication of this announcement via a Regulatory Information
Service, this inside information is now considered to be in the
public domain.
28 September 2017
Urals Energy Public Company Limited
("Urals Energy", the "Company" or the "Group")
2017 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
2017.
Key statistics for the six months ended 30 June 2017 compared
with the same period in 2016:
Six months Six months % change
Ended Ended
30 June 30 June
2017 2016
Total production (barrels) 388,889 362,634 +7%
Gross revenue before excise and US$ 28.0 US$ 8.9
export duties m m +215%
Gross profit after excise, export US$ 2.8 US$ 2.3
duties and VAT m m +22%
US$ (0.2)
Operating profit/(loss) m US$0.6 m -133%
Normalised EBITDA (see definition US$ 3.4
below - non IFRS) m US$2.2 m +55%
Net profit/(loss) pre-tax and foreign US$ (0.9)
exchange effects m US$0.3 m -400%
US$ (0.8)
Profit/(loss) for the period m US$3.4 m -123%
Operational highlights
-- Total production at Arcticneft during the period reached
186,831 barrels, including production of 55,691 barrels
from Arctic Oil Company Limited ("ANK") (H1-2016 production
at Arcticneft alone: 122,491 barrels)
-- Total production at Petrosakh during the period reached
202,058 barrels (H1-2016: 240,143 barrels)
-- Current daily production at Arcticneft and Arctic Oil
Company is 985 barrels of oil per day ("BOPD") compared
with an average of 1,032 BOPD for the six months ended
30 June 2017
-- Current daily production at Petrosakh is 1,072 BOPD compared
with an average of 1,116 BOPD for the six months ended
30 June 2017
-- In June 2017, the Company successfully completed a tanker
shipment of 240,232 barrels of crude oil from Arcticneft
(2016: 225,283 barrels)
-- During the period, the Company actively worked in the
South Dagi area on the preparation of the field development
plan, an exploration drilling project and a trial production
project involving new exploration wells
-- The majority of work at the South Dagi area has been
completed. The Board expects the development plan documentation
to be finalized during the fourth quarter of 2017
-- In April 2017, the Company spudded Well 102, which is
located on the main Petrosakh licence area. The testing
has now been completed
-- The location of Well 102 is at an area of the reservoir
where porosity is relatively low compared with other
areas of the reservoir and its flow on completion was
25 BOPD
-- In April 2017, the Company spudded its first well on
its Ordymskiy block in the Komi Republic. Our contactor,
Vis-Mos Llc, made slow progress and poor performance
in drilling and in July 2017 the Company gave the contactor
notice of termination
-- The Company is in discussions with new drilling contractors
and expects to spud a new well at the Komi site in December
2017
-- In June 2017, the Company signed a rig delivery contract
with Jereh Group, a Chinese company. The rig will be
deployed to drill our first well at South Dagi
-- Extraordinary General Meeting held on 26 May 2017, which
resulted in a share consolidation and the approval for
a reduction of the Company's share premium account which
was completed in August 2017
Financial highlights
* Gross profit (after excise, export duties and VAT)
increased by 22% to US$2.8 million (H1-2016: US$2.3
million)
* Operating loss of US$(0.2) million for the period
(H1-2016: operating profit US$0.6 million)
* Net loss before income tax of US$(0.4) million
(H1-2016: US$3.3 million net profit). The fluctuation
in net profit before income tax was partly caused by
exchange rate movements during both periods
* Underlying net loss before income tax and foreign
exchange effects of US$(0.9) million (H1-2016: profit
of US$0.3 million)
* EBITDA* increased to US$3.4 million for the period
from US$2.2 million for the six months ended 30 June
2016, an increase of 55% with a simultaneous decrease
in EBITDA margins from 30.1% to 15.3%
* Improved net working capital position at 30 June 2017
of US$6.2 million (31 December 2016: US$5.6 million)
* The Company finished the period with a net debt
position of US$12.3 million (31 December 2016: US$5.1
million) with a debt/EBITDA ratio of 3.8 as at 30
June 2016 (31 December 2016: Debt/EBITDA ratio 0.9)
* In February 2017, the Company entered into a new 24
month non-revolving CAPEX credit facility with the
Sakhalin branch of OJSC Sberbank of Russia. Under
this loan, Sberbank provided the sum of 50 million
Russian Roubles (representing approximately US$0.85
million at prevailing exchange rates)
* In April 2017, the Company and its subsidiary
Arcticneft entered into a short-term loan agreement
with Petraco Oil Company Limited ("Petraco"). Under
the terms of this agreement, Petraco s advanced the
Company US$3.0 million as export shipment
pre-financing. This indebtedness was repaid in July
2017
*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
* The Company is planning to make a second tanker
shipment this year in October. The estimated volume
to be shipped based on the current volume of crude
left in stock and expected levels of production is
around 24,500 tons (equivalent to 193,550 barrels)
* In August 2017, the representative of Blackwatch
Petroleum Services, the Competent Person firm engaged
by the Company to carry out an update of the
Company's reserves, started work on the Competent
Person's Report on the Company's portfolio of
licences. The Company expects that the evaluation of
reserves will be finalized before the end of 2017
* In August 2017, the new rig that had been acquired
for South Dagi licence area arrived on the Island of
Sakhalin and was delivered to the oil field
* The Company currently anticipates that the first well
at South Dagi will be spudded by the end of October.
All regulatory approvals have been recently received
* In September 2017, the Company entered into a
pre-export short term loan finance arrangement with
Petraco Oil Company Limited ("Petraco") under which
Petraco will advance the sum of US$3.0 million to the
Company ahead of the anticipated October 2017 tanker
shipment from Kolguev Island
* The Company has recently entered into a new 36 month
non-revolving credit facility with the Sakhalin
branch of OJSC Sberbank of Russia. Under this loan,
Sberbank provided the sum of 70 million Russian
Roubles (representing approximately US$1.2 million at
prevailing exchange rates)
* In September 2017, the Company signed an umbrella
contract with a supplier of condensate from the
Kamchatka region. Approximately 90,000 barrels of
condensate are to be delivered to Petrosakh and
processed at our refinery. The Company believes that
having this additional volume available for
processing will lead to a positive effect on the
Company's operating cash flow during the upcoming
winter period
* On 9 November 2017, the Company plans to hold its
Annual General Meeting where shareholder approval for
a first dividend payment will be sought, equivalent
to a gross payment of US$0.062 per ordinary share,
payable in December 2017
Mr Shrager, Chairman commented: "The results for the first
half of 2017 were affected by the fact that Mineral Extraction
Tax payable on our Kolgyuev Island shipment in June was
determined by the oil price in April to May. The oil price
had stayed in a range of US $50 to 55 bbl. between April
and May, but fell to around $44 bbl. in June around the
time of loading, which is the basis for our contractual
terms.
Despite this, we achieved a significant increase in normalized
EBITDA, although with a lower margin than expected due to
the weak oil price, as noted above.
We remain determined to continue with our strategy of developing
our expanded portfolio. On Sakhalin Island, we will spud
our first well on the South Dagi licence in October. Production
here should help offset the decline at Petrosak and allow
for higher utilisation of our refinery - the only one on
the Island.
On Kolgyuev Island, we are completing our development plan
and assuming that the oil price remains around current levels,
the implementation of our plans should lead to improved
cash flows and thus an ability to step up work overs and
introduce further techniques to expand production.
We continue to review the acquisition of new licences, especially
where there are potential synergies with our existing operations.
Our maiden dividend, expected to be approved by shareholders
at our forthcoming AGM and paid in December, is a sign of
the Board's confidence in the potential of our portfolio."
For further information, please contact:
Urals Energy Public Company Limited
Andrew Shrager, Chairman Tel: +7 495 795 0300
Leonid Dyachenko, Chief Executive
Officer
Sergey Uzornikov, Chief Financial www.uralsenergy.com
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 financial statements 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.
Chief Executive Officer's Statement
Operating environment
The six months ended 30 June 2017 were characterised by
continuing high volatility in the crude oil market. During the
period, oil prices averaged US$52 per barrel (H1-2016: US$43 per
barrel) and the Russian Rouble strengthening on average by 17%
compared with the same period in 2016. Domestic prices for oil
products ranged over the period from US$37 to US$97 per barrel
(H1-2016: US$27 to US$80 per barrel).
Operating Results
Period ended
US$'000 30 June
---------------
2017 2016
------------------------------------------------ ------- ------
Gross revenues before excise and export duties 27,989 8,858
Net revenues after excise, export duties and
VAT 22,433 7,525
Gross profit 2,819 2,318
Operating (loss)/profit (211) 592
Normalised management EBITDA 3,433 2,226
Total net finance (expense)/benefits (212) 3,317
(Loss) / profit for the period (759) 3,411
------------------------------------------------ ------- ------
Period ended
Production 30 June
------------------
2017 2016
----------------------------------- -------- --------
Petrosakh bbls 202,058 240,143
Arcticneft bbls 131,140 122,491
Arctic Oil Company bbls 55,691 -
Petrosakh BOPD (average) 1,116 1,319
Arcticneft BOPD (average) 725 673
Arctic Oil Company BOPD (average) 308 -
Summary table: Gross Revenues before excise and export duties
($'000)
Period ended
30 June
----------------------------------------------- ---------------
2017 2016
----------------------------------------------- ------- ------
Crude oil 11,065 802
Export sales 10,237 -
Domestic sales (Russian Federation) 828 802
Petroleum (refined) products - domestic sales 16,842 7,955
Other sales 82 101
Total gross revenues before excise and export
duties 27,989 8,858
----------------------------------------------- ------- ------
For the six months ended 30 June 2016, total gross revenues
increased by US$19.1 million. This increase was due to a US$8.9
million increase in gross revenue form the local market and US$10.2
million of new export revenue from Arcticneft. A 102% increase in
gross revenues from the local market was the result of a 30%
increase in sales volumes, combined with a 26% average increase in
refined products prices in Russian Rouble equivalent. The 17%
average strengthening of the Russian Rouble versus the US Dollar
was also a positive factor in increasing gross revenues during the
period.
The strengthening of the Russian Rouble and increase of average
prices for refined products during the period also had a positive
influence on average net back prices for domestic sales of crude
oil and petroleum (refined) products. At the same time, further
increases in excise tax partly mitigated the overall increase in
net-backs.
A 24% increase in net back prices for crude oil domestic sales
is broadly in line with the 4% increase in domestic sales price and
the 17% average strengthening of the Russian Rouble versus the US
Dollar.
During the six months ended 30 June 2016, net back prices for
refined products increased by 40%. This increase was due to a
combination of factors that exerted different effects,
including:
-- a 26% average increase in refined product prices in Russian Rouble equivalent
-- an 18% further increase in the excise tax for gasoline and diesel fractions
-- a 10% increase in the cost of a newer additive and a 41%
increase in transportation costs due to the changes in the
Company's marketing policy
-- the 17% strengthening of the Russian Rouble, which led to
increases in refined product prices in US dollar equivalent, which
were offset to an extent by increases in transportation and
refinery costs
The net back for domestic product sales is defined as gross
product sales minus VAT, transportation costs, excise tax and
refining costs.
The net back price for export shipments decreased by 1.6% to
US$30.90 per barrel when compared with 2016 export sales (2016:
US$31.42 per barrel). The main factor was the lower Brent oil
prices during the period of shipment.
Summary table: Net backs (US$/bbl)
Period ended
30 June
----------------------------------------------- ---------------
2017 2016
----------------------------------------------- ------- ------
Crude oil 32.07 38.95
Export sales 30.90 -
Domestic sales (Russian Federation) 48.48 38.95
Petroleum (refined) products - domestic sales 51.24 38.65
Gross profit (net revenues less cost of sales) for the first
half of 2017 increased by 22% to US$2.8 million (H1-2016: US$2.3
million). The main driver for this increase was the growth of sales
volumes and prices in the domestic market, as well as the
strengthening of the Russian Rouble.
Cost of sales for the six months ended 30 June 2017 totalled
US$19.6 million, as compared with US$5.2 million for the six months
ended 30 June 2016, of which US$3.2 million and US$2.5 million
respectively represented non-cash items, principally depreciation,
amortisation and depletion.
Several factors influenced the operating costs of the Company
during the period: the strengthening of the Russian Rouble versus
the US Dollar; Russian Rouble costs and the cost of the export
shipment which was previously made in the second part of the year.
During the period, the Company increased its operating costs in
Russian Rouble equivalent by 53% compared with the same period in
2016. The increase in operating costs in Russian Rouble equivalent
is a combination of:
-- a 54% increase in Unified Production Tax, which was caused
by: a 7% increase in production volume, an 8% legislative increase
due to a change in the basis of the tax calculation, a 21% increase
in average Brent oil price and the 17% strengthening of the Russian
Rouble (with the last two indicators being inputs for the
production tax rate calculation);
-- a 32% increase in employee costs at our production entities.
This increase was partly caused by the additional cost of employees
connected with the acquisition of Arctic Oil Company and partly by
the implementation of a new employee motivation system at the
subsidiaries;
-- a 110% increase in the cost of materials. 14% of this
increase was attributable to Arctic Oil Company and inflation, with
86% being due to the cost of a newer additive, which is required in
order to be compliant with the 'EURO-5' requirement that the
Company started to implement in the second half of 2016; and
-- a 45% increase in the costs of oil treating, storage and
other services was attributable to Arctic Oil Company and
additional geophysics work performed during the period to keep
production stable on Kolguev Island.
Selling, general and administrative expenses increased during
the first half of 2017 to US$2.8 million from US$1.6 million during
the same period of 2016. Apart from the Russian Rouble
strengthening, the Company had an average increase of 39% in
Russian Rouble denominated selling, general and administrative
costs in the period, as compared with the previous period. The main
driver of this rise was:
-- a one off increase in employee costs, representing a
severance payment to Alexey Ogarev, the former Vice-President and
Board member of the Company
-- an increase in storage and transportation expenses at
Petrosakh, due to changes in the Company's marketing policy. During
the period, 50% of refined products volumes were sold via the
Yuzhno-Sakhalinsk facility on Sakhalin Island, with 50% being sold
"Ex Works", while during the previous period in 2016 the proportion
was 30% and 70% respectively
-- an increase in loading services related to the export shipment at Arcticneft in June 2017
The net finance expense for the first half of 2017 was US$(0.2)
million (H1-2016: US$3.3 million net finance income). This change
was primarily driven by exchange rate movements caused by the
strengthening of the Russian Rouble against the US Dollar in the
first half of 2017 and the interest accrued on the loans in
effect.
The increase in sales volumes in the six months ended 30 June
2017 was offset by increases in excise tax and production tax
expenses and cost of sales and selling expenses, which resulted in
a consolidated normalised EBITDA of US$3.4 million, compared with
US$2.3 million for the first half of 2016, which corresponded to
EBITDA margins of 15.3% and 30.1% respectively.
Management EBITDA (US$'000) - Unaudited
Period ended
30 June
----------------------------------------------------- ----------------
2017 2016
----------------------------------------------------- ------ --------
(Loss) for the period (759) 3,411
Income tax (charge) 336 498
Net interest and foreign currency (gain)/loss 212 (3,317)
Depreciation, depletion and amortisation 3,246 1,540
----------------------------------------------------- ------ --------
Total non-cash expenses 3,794 (1,279)
Charge of bad debt provision
Other non-recurrent (income)/losses 398 134
----------------------------------------------------- ------ --------
Total non-recurrent and non-cash items
Normalised EBITDA 3,433 2,266
----------------------------------------------------- ------ --------
Accounts receivable and prepayments
As at 30 June 2017, the Company had accounts receivable and
prepayments of US$11.1 million (31 December 2016: US$4.0 million).
The increase of US$7.1 million was mainly represented by: the
balance owed by Petraco Oil Company for crude oil shipped in the
second part of June; prepayments relating to support vessels for
export shipments; and advances in respect of the delivery of a
drilling rig.
Net debt Position and Borrowings
As at 30 June 2017, the Company had net debt of US$12.3 million
(calculated as long-term and short-term debt less cash in bank and
less loans issued). As at 31 December 2016, the Company had net
debt of US$5.1 million.
In February 2017, the Company entered into a new 24 month
non-revolving CAPEX credit facility with the Sakhalin branch of
OJSC Sberbank of Russia. Under this loan Sberbank provided the sum
of 50 million Russian Roubles (representing approximately US$0.85
million at prevailing exchange rates).
In April 2017 the Company entered into a short-term loan
agreement with Petraco Oil Company Limited ("Petraco"), under which
Petraco agreed to advance the sum of US$3.0 million to the Company.
The loan, including the accrued interest, was fully repaid in July
2017 as a result of the non-cash settlement transactions involving
trade receivables from crude oil sales to Petraco.
As at 30 June 2017, the total borrowings of the Company was
US$13.2 million (31 December 2016: US$6.8 million), including a
US$5.9 million of credit facilities from the Sakhalin branch of
OJSC Sberbank of Russia (31 December 2016: US$4.1 million), US$2.3
million of debt which was acquired with two private Russian
companies, RK-Oil and BVN Oil (31 December 2016: US$2.1 million),
US$1.7 million of short term borrowings from Kamchatcomagroprombank
(31 December2016: US$0.5 million) and the US$3.0 million loan from
Petraco.
Post period end, our Petrosakh subsidiary recently entered into
a new 36 month non-revolving credit facility with the Sakhalin
branch of OJSC Sberbank. Under this loan, Sberbank will provide, by
way of several tranches, the sum of 70 million Russian Roubles
(representing approximately US$1.2 million at prevailing exchange
rates) to Petrosakh.
The key terms of this new Sberbank loan are as follows:
-- repayable in 2.8 million Russian Roubles monthly
installments, starting from 25 September 2018. The final date of
repayment is 25 September 2020;
-- interest chargeable at the rate of 11% plus 1%., subject to
Petrosakh meeting monthly turnover more than 150 million Russian
Roubles;
-- secured by way of a pledge over the property of Petrosakh; and
-- the agreement provides for a parent company guarantee from
Urals Energy and a guarantee from Urals Energy's other operating
subsidiary, JSC Arcticneft.
The proceeds of the new Sberbank loan will be used by the
Company for financing its operating and drilling activities,
including primarily the financing of pre-payments for gas
condensate that is being acquired for processing at Petrosakh.
Operational update
Petrosakh
In April 2017, the Company spudded Well 102, which is located on
the main Petrosakh licence area. The Company drilled the well with
caution, to ensure that the problems that the Company had
previously encountered during drilling operations of this nature
were avoided. In August 2017, the testing of the well was
completed. The location of the well is at an area of the reservoir
where porosity is relatively low compared with other areas of the
reservoir. Well 102's flow rate is now 15 barrels of oil per day.
The Company anticipates that the well will flow for three years and
will then be used as a water injector to maintain pressure in the
reservoir.
In June 2017, the Company signed a rig delivery contract with
Jereh Group, a Chinese company, for drilling the first well at
South Dagi. In August 2017, the rig arrived on the Island of
Sakhalin and was delivered to the oil field. Drilling locations for
this rig have been determined. The drilling team moved to the area
and assembling procedures are in progress now. The Company
anticipates that the first well at South Dagi will be spudded by
the end of October. In parallel, the Company is planning to perform
workovers of two former wells on this licence area.
Downstream
Petrosakh continues to refine 100% of its crude oil production
and sell all of its refined products to the local market.
The highly competitive nature of the refined products market has
caused the Company to constantly reassess its marketing activity.
At the beginning of 2017, the Company entered into a new 24 month
non-revolving CAPEX credit facility to secure storage facilities
for refined products in Yuzhno-Sakhalinsk on Sakhalin Island. This
allowed the Company to sell approximately 50% of its refined
products in Yuzhno-Sakhalinsk during the period, which led to an
increase in the volume of sales by 40% when compared with the same
period of 2016.
As stated previously, the Company started the process of
renewing its terminal license, which would allow the Company to
become involved in bunkering activity and potential shipments of
refined products to neighbouring regions. The Board originally
expected to finalize this process in the summer of 2017. However,
due to the complexity of the administrative procedures, there has
been a delay in this process, although the Board believes that the
process will be finalized by the beginning of the 2018 tanker
shipping season.
To allow for the most efficient usage of its spare plant
capacity, the Company started to look for opportunities to buy
crude oil and condensate form external suppliers. This should allow
for increases to both production volumes and profitability at the
local level.
Arcticneft
During the period, the main efforts of the Company continued be
a focus on minimizing the natural decline in field production
through workovers. During the period, the Company continued
perforation work on five wells at Arcticneft and Arctic Oil
Company. This led to a stable production level during the
period.
After a preliminary analysis of the well stock, the Company
decided to shift several wells to artificial oil lifting using jack
pumps. Jack pumps have been ordered and we expect the delivery by
the end of the year.
In June the Company has engaged Prokon, a geotechnical analysis
company, to update the model for the development of the
Peschanoozerskoye Field. The Board expects to receive detailed
recommendations based on several scenarios by the end of November
2017, which will be used to guide our future steps.
RK-Oil
In April 2017, the Company spudded its first exploratory well on
the licence held by RK-Oil. Unfortunately the contractor, Vis-Mos
LLC, made slow progress in drilling progress due to a poorly
managed team. As a consequence, the Company decided to terminate
the drilling contract with this contractor and seek compensation
for the Company's costs. The contract was on a turnkey basis, but
some mobilisation costs were incurred by the Company. The Company
is in discussions with new potential drilling contractors and
expects to spud a new well at the Komi site in December 2017.
Leonid Dyachenko
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 has commissioned in for publication before the end
of 2017.
Please click on, or paste the following link into your web
browser, to view the associated consolidated financial statements
for Urals Energy Public Company Limited as of and for the six
months ended 30 June 2017 as a PDF document.
http://www.rns-pdf.londonstockexchange.com/rns/1249S_1-2017-9-28.pdf
This information is provided by RNS
The company news service from the London Stock Exchange
END
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