TIDMUEN
RNS Number : 1122T
Urals Energy Public Company Limited
29 June 2018
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.
29 June 2018
Urals Energy PCL ("Urals Energy" or the "Company")
Final results for the year ended 31 December 2017
Urals Energy PCL (AIM: UEN), the independent exploration and
production company with operations in Russia, is pleased to
announce its audited financial results for the year ended 31
December 2017.
Key statistics for the year ended 31st December 2017 compared
with the year ended 31 December 2016:
2017 2016 Change
Total production (barrels) 756,717 756,708 0%
Gross revenue before excise US$54.3 US$ 35.3
and export duties m m +54%
Gross profit after excise, US$8.5 US$ 7.3
export duties and VAT m m +16%
US$2.4 US$2.3
Operating profit m m +4%
Normalised EBITDA (see
definition below - not US$7.7 US$7.8
audited) m m -1%
Net profit pre-tax and US$1.3
FOREX effects US$0.8m m -38%
US$14.0 US$8.3
Profit for the year m m +69%
Operational highlights
* Total 2017 production at Arcticneft was 362,074
barrels, with Arctic Oil Company Limited ("ANK")
producing 106,526 barrels (2016 total production of
Arcticneft alone: 250,169 barrels)
* Total 2017 production at Petrosakh was 394,643
barrels (2016: 466,721 barrels)
* Average daily production at Arcticneft (without ANK)
for the first five months of 2018 was 610 barrels of
oil per day ("BOPD"), compared with an average of 700
BOPD for the twelve months ended 31 December 2017
* Average daily production at ANK for the first five
months of 2018 was 301 BOPD, compared with an average
of 292 BOPD for the twelve months ended 31 December
2017
* Average daily production at Petrosakh for the first
five months of 2018 was 923 BOPD, compared with an
average of 1,081 BOPD for the twelve months ended 31
December 2017
* In June and October 2017 the Company successfully
completed two tanker shipments of a total of 429,445
barrels of crude oil from Arcticneft and ANK (2016:
225,283 barrels)
* During the period, the Company actively worked at 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
* In April 2017 the Group completed an internal
reorganisation of its subsidiaries, which was
intended to streamline the management of the Group
and allow the Group to take advantage of modest tax
advantages
* 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
demonstrated poor drilling performance and in July
2017 the Company gave the contactor notice of
termination. The Company is in the process of seeking
an independent supervisor and a new contractor to
continue the drilling
* On 9 November 2017 the Company's first dividend of
US$0.062 per ordinary share was approved by
shareholders and paid in December 2017
* In December 2017 the Company spudded its first well,
a planned exploration well (Well 1), at the South
Dagi field on Sakhalin Island. The well's target pay
horizons are the Okobycay horizon and the Daginsky
neogenic horizon, with the target depth being 2,200
meters. As of 28 June 2018 the drilling had reached a
depth of 700 meters and it is anticipated that Well 1
will be completed by the end of July 2018
* In December 2017 the Company received estimated
reserves data on South Dagi from Blackwatch Petroleum
Services. Blackwatch Petroleum Services estimated the
mean total 2P reserves to be approximately 20.9
million barrels of oil across six reservoirs, when
assessed under the International Society of Petroleum
Engineers classification
* In December 2017 the Company completed the process of
reregistration of the Arctic Oil Company license to
Arcticneft. At the end of the period Arcticneft was
the sole owner of the license on Kolguev Island
Financial highlights
* Gross profit (after excise, export duties and VAT)
increased by 16% to US$8.5 million (2016: US$7.3
million)
* Operating profit of US$2.4 million for the year
(2016: US$2.3 million)
* Profit before income tax of US$1.8 million (2016:
US$6.2 million). The fluctuation in net profit before
income tax was largely caused by exchange rate
movements during both years. Underlying net profit
before income tax and FOREX effects was US$0.8
million (2016: profit of US$1.3 million)
* Normalized EBITDA* of US$7.7 million (2016: US$7.8
million), a decrease of 1% combined with a decrease
in normalized EBITDA margins to 17.3% from 26.8%
* Negative net working capital position on 31 December
2017 of US$1.8 million (2016: US$5.6 million
positive)
* The Company finished 2017 with a net debt position of
US$7.1 million (2016: US$5.1 million) with
Debt/EBITDA ratio of 1.3 as at 31 December 2017
(2016: Debt/EBITDA ratio 0.87)
*Earnings before interest, taxation, depreciation and
amortisation (hereafter - "Normalised EBITDA" or "EBITDA") is a
non-IFRS unaudited measure which the Group uses to assess its
performance. It is defined as earnings before interest and
taxation.
Post-period end and outlook
* On 31 January 2018 Petrosakh entered into a twelve
month revolving credit facility with the Sakhalin
branch of PJSC Sberbank of Russia ("Sberbank") for a
total amount of 300 million Russian Roubles
(representing approximately US$5.2 million at
prevailing exchange rates) available to Petrosakh for
working capital financing. This loan replaced a
previous loan which was settled in 2018
* At the beginning of 2018 following reregistration of
the ANK license the Company initiated a merger of
Arctic Oil Company with Arcticneft, which is intended
to simplify and streamline its operational structure
* In June 2018 Blackwatch Petroleum Services Ltd
("Blackwatch") completed their assessment of the
Company's "Remaining Reserves and Resources
Potential". As of 31 December 2017 the estimated net
attributable Remaining Proved and Probable Reserves
of the Company were 107.0 million barrels. Blackwatch
have also recognised Prospective Resources at the
Company's Ordymsky licence ("RK Oil") in the Komi
Republic. Blackwatch estimated the Company's mean
total 2P reserves to be approximately 178.0 million
barrels
* In May 2018 the Company and its subsidiary Arcticneft
entered into a secured short-term loan agreement with
Petraco Oil Company Limited ("Petraco"). Under the
terms of this agreement, Petraco advanced US$5.0
million to the Company as export shipment
pre-financing. The proceeds of this loan will be used
for working capital financing
* The first tanker shipment in 2018 of approximately
20,000 tons of oil (158,000 barrels) is scheduled for
the first ten days of July 2018. The estimated date
of tanker's arrival to Murmansk is 3 July 2018
* In May 2018 the Company appointed Brandon Hill
Capital Limited as the Group's Financial Adviser for
the purposes of introducing strategic partners such
as oilfield services companies and investors, with
the aim of forming joint venture partnerships or
other suitable structures, and/or raising capital for
our development projects for Articneft and in Komi
* The Board intends to recommend the payment of a
dividend of US 6.2 cents per share for the year to 31
December 2017, for approval at the Company's AGM in
November, provided that there is no substantial
change in conditions in the intervening period.
Andrew Shrager, Chairman of Urals Energy, commented:
In 2017, we maintained our production at a similar level to that
of 2016 at 756,717 bbls, and benefitted from increased net backs
due to higher prices. While costs and taxes have increased, we
achieved EBITDA of US$7.7 million compared with US$7.8 million in
2016. During the year, we increased our capital spending to just
under US$8 million, starting our development programmes for Komi
and South Dagi. In the case of Komi, we had a serious set back with
our drilling contractor, as announced in May 2017, and with South
Dagi, we encountered delays in the mobilisation and start up of our
new rig. The drilling programme at South Dagi is now proceeding
satisfactorily as announced on 19 June 2018, and we expect to
complete the first well before the end of July 2018.
Net profit before tax and FOREX effects remains disappointing at
approximately US$834,000, compared with a profit of US$1.3 million
in 2016. Profit after tax at US$14.0 million, but this is due to
the recognition of accumulated tax losses of Urals Energy LLC (the
former management company of the Group), following its merger with
Petrosakh. It remains the case that for companies operating in
Russia, the oil tax regime remains a concern as it is based on
production levels as opposed to profitability. The Russian
Government has announced that it intends to undertake a trial for
some large companies of a new regime based on profitability, but
there is no certainty as to whether it will be widened to all
companies or when.
Nevertheless, given our continued strong EBITDA, the Board
intends to recommend to shareholders for their approval the payment
of a dividend for the year to 31 December 2017 at the equivalent of
the same rate per share as paid last year, being US 6.2 cents per
share, representing a dividend yield of approximately 5% at the
closing mid market price of the Company's shares quoted on AIM
yesterday and at current exchange rates, provided that there is no
substantial change in conditions in the intervening period. If
approved at the Company's AGM in November, it is likely the
dividend will be paid shortly after the AGM.
In pursuit of our strategic development, 2017 was a transition
year for the Company, following our acquisitions and the new
licences achieved in 2015 and 2016, as we prepare to open
discussions with potential partners for our major development
opportunities on Kolguyev Island and Komi. The completion of the
Blackwatch Petroleum Services Competent Person's Report was an
important step in our preparations and this has confirmed our total
Remaining Proven and Probable Reserves at 107.0 million bbls as at
31 December 2017. This exercise has been thorough, and assisted us
in upgrading our data rooms. Brandon Hill were appointed in May
2018 to assist us in identifying partners for these developments.
With this substantial reserve base, we have the potential to
increase our production substantially in partnership with oil
service companies. We will update the market as discussions
develop.
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 www.uralsenergy.com
Financial Officer
Allenby Capital Limited
Nominated Adviser and Broker
Nick Naylor Tel: +44 (0) 20
3328 5656
Alex Brearley www.allenbycapital.com
The Company's accounts for the year ended 31 December 2017 will
shortly be available from the Company's website www.uralsenergy.com
in accordance with AIM Rule 20 and will be sent to shareholders
shortly.
Chief Executive Officer's Statement
Year ended 31 December 2017
Operating environment
The twelve months ended 31 December 2017 were characterised by
continuing high volatility in the crude oil market. During the
period, oil prices averaged US$54 per barrel (2016: US$44), with
the Russian Rouble strengthening on average by 13% compared with
the same period in 2016. Domestic prices for oil products ranged
over the period from US$43 to US$115 per barrel (2016: US$32 to
US$92).
Operating results
Year ended
US$'000 31 December
----------------
2017 2016
------------------------------------ ------- -------
Gross revenues before excise and
export duties 54,254 35,309
Net revenues after excise, export
duties and VAT 44,176 29,052
Gross profit 8,515 7,257
Operating profit 2,388 2,305
Normalised EBITDA (unaudited) 7,651 7,773
Total net finance (expense)/income (566) 3,886
Profit for the year 14,048 8,316
------------------------------------ ------- -------
Year ended
Production 31 December
------------------
2017 2016
----------------------------------- -------- --------
Petrosakh barrels 394,643 466,721
Arcticneft barrels 255,548 250,169
Arctic Oil Company barrels 106,526 39,818
Petrosakh BOPD (average) 1,081 1,275
Arcticneft BOPD (average) 700 684
Arctic Oil Company BOPD (average) 292 326
Summary table: Gross revenues before excise and export duties
(US$'000)
Year ended
31 December
----------------------------------------- ----------------
2017 2016
----------------------------------------- ------- -------
Crude oil 23,373 11,817
Export sales 21,567 9,831
Domestic sales (Russian Federation) 1,806 1,986
Petroleum (refined) products - domestic
sales 30,797 23,349
Other sales 84 143
----------------------------------------- ------- -------
Total gross revenues before excise
and export duties 54,254 35,309
----------------------------------------- ------- -------
In 2017, total gross revenues increased by US$18.9 million. This
increase was due to a US$7.2 million increase in gross revenues in
the local market and a US$11.7 million increase in revenues from
export shipments. The 29% increase in gross revenues in the local
market was a result of a 1% decrease in sales volumes and a 13%
average increase in refined products selling prices in Russian
Rouble equivalent. The Russian Rouble strengthening versus the US
Dollar had also a positive impact on the increase in gross revenue.
A 119% increase in gross revenue from export shipments was the
result of a 15% increase in crude oil sales price (2017: US$50 per
barrel, vs 2016: US$44 per barrel) and a 91% increase in the volume
shipped in 2017 due to the acquisition of Arctic Oil Company.
An increase in market prices for oil and oil products and the
strengthening of the Russian Rouble led to an increase in average
net back prices for both export and domestic sales of crude oil and
petroleum (refined) products.
A 17% increase in net back prices for crude oil domestic sales
was broadly in line with the 13% average strengthening of the
Russian Rouble versus the US Dollar and a 2% increase in the
domestic market price of crude oil.
A 19% increase in net back prices for refined products in 2017
is a combination of a variety of trends, being: a 13% average
increase in sales prices for refined products, the Russian Rouble
strengthening which was partially offset by a 7% increase of Excise
Tax for gasoline and diesel fractions combined with increases in
refinery and transportation costs. The net back for domestic
product sales is defined as gross product sales minus VAT,
transportation costs, Excise Tax and refining costs.
Summary table: Net backs (US$/barrel)
Year ended
31 December
----------------------------------------- ---------------
2017 2016
----------------------------------------- ------- ------
Crude oil 37.89 33.15
Export sales 36.98 31.42
Domestic sales (Russian Federation) 48.42 41.29
Petroleum (refined) products - domestic
sales 48.68 41.02
----------------------------------------- ------- ------
Gross profit (net revenues less cost of sales) in 2017 increased
by 16% to US$8.5 million, from a gross profit of US$7.3 million in
2016. The growth in sales volumes by 2% and the increase in average
sales prices in the local market by 13% were offset by the
increases in Excise tax, Export duty and cost of sales.
Cost of sales in 2017 totaled US$35.7 million, as compared with
US$21.8 million in 2016, of which US$4.3 million and US$5.3 million
respectively represented non-cash items, principally depreciation,
amortisation and depletion. Two factors influenced the operating
costs of the Company in 2017: the strengthening of the Russian
Rouble versus the US Dollar; and Rouble denominated costs. Without
taking into consideration changes in finished goods (the difference
between the cost of finished goods at the end and beginning of the
period) the Company increased its operating costs in Russian Rouble
equivalent by 40% compared with that in 2016. The increase of
operating cost in Russian Rouble equivalent is a combination
of:
-- a 36% increase in Unified Production Tax cost (51% of the
total increase in operating cost). This increase was caused by
changes in tax legislation (an increase in the base for tax rate
calculation) and increase in Brent (Urals) prices which also made a
negative contribution to tax; and
-- an 18% increase in employee costs at production entities (16%
of the total increase in operating cost) mainly caused by the
Arctic Oil Company acquisition and indexation; and
-- a 44% increase in the cost of materials (33% of total
increase in operating cost). This increase was mainly caused by gas
condensate purchases by Petrosakh for further refining and the
acquisition of additional additive for this purpose.
The other part of the increase was due the additional operating
cost related to production of the acquired Arctic Oil Company and
the intensive workover program on Kolguev Island.
Selling, general and administrative expenses increased during
2017 to US$6.0 million from US$4.4 million in 2016. The Company had
an average increase of 21% in Russian Rouble denominated selling,
general and administrative costs in the reporting period, as
compared with the previous period. The main driver of this rise was
increased storage and transportation expenses related to
small-scale wholesale activities at Petrosakh (including the cost
of fuel used for transportation), increases in loading services
related to having two export shipments per year from Kolguev Island
and increases, in employee costs (including a one-off severance
payment to Alexey Ogarev, the former Vice-President and Board
member of the Company).
Net finance expense during 2017 was US$0.6 million (2016: US$3.9
million net finance income). Net finance expenses for the period
primarily consisted of exchange rate movements from the
strengthening of Russian Rouble vs US Dollar at the end of 2017,
offset by the interest accrued on the borrowings.
Operating profit, net of finance expenses and the recognition of
deferred tax benefit of US$12.2 million in 2017 resulted in a net
profit for the year of US$14.0 million (2016: US$8.3 million).
The increase in sales volumes and prices in 2017 and the
strengthening of the Russian Rouble vs the US Dollar offset by
increases in both Excise Tax expenses and cost of sales and selling
expenses, resulted in a consolidated normalised EBITDA of US$7.7
million, compared with US7.8 million in 2016, with EBITDA margins
of 17.3% and 26.8% respectively.
Management EBITDA (US$'000) - Unaudited
Year ended
31 December
----------------------------------- -------------------
2017 2016
----------------------------------- --------- --------
Profit for the year 14,048 8,316
Income tax benefit (12,226) (2,125)
Net interest and foreign currency
(gain)/loss 566 (3,886)
Bargain gain from acquisition
of subsidiary - (259)
Depreciation, depletion and
amortization* 4,176 4,730
----------------------------------- --------- --------
Total non-cash income (7,484) (1,540)
Release of provision on claims - 138
Other non-recurrent losses 1,087 859
----------------------------------- --------- --------
Total non-recurrent and non-cash
items 1,087 997
Normalised EBITDA 7,651 7,773
----------------------------------- --------- --------
* Depreciation, depletion and amortisation ("DDA") expense as
presented here is different from the amount presented in the
consolidated financial statements, due to the share in DDA included
in the cost of finished goods unsold as of the balance sheet
date.
Net debt position
As at 31 December 2017, the Company had net debt of US$7.1
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.
As at 31 December 2017, the total borrowing of the Company was
US$9.9 million (2016: US$6.8 million), including: US$4.3 million of
credit facilities from the Sakhalin branch of PJSC Sberbank of
Russia, US$2.6 million of debt which was acquired with two private
Russian companies, RK-Oil and BVN Oil and US$3.0 million of short
term borrowings from Kamchatcomagroprombank.
Operational update
Petrosakh
In April 2017, the Company spudded Well 102, which is located on
the main Petrosakh licence area. 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. 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.
During 2017 the Company actively worked on the preparation of a
field development plan, an exploration drilling project and a trial
production project involving new exploration wells for the South
Dagi area. The Company's initial South Dagi development programme
currently consists of the drilling of four new wells (Well 1, Well
2, Well 3 and Well 5).
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. After preparatory work
the Company spudded its first well, a planned exploration well
(Well 1), at the South Dagi field on Sakhalin Island. After delays
due to the weather conditions and rig's mobilisation and
operational set up, the Company commenced drilling and as of 23
June 2018 drilling had reached 500 metres (the target depth of Well
1 is 2,200 metres).
In parallel, in June 2018 the Company completed and tested a
workover of an existing well located on the South Dagi licence area
(Well 7). During well tests, the daily oil volumes achieved from
Well 7 were approximately 225 bbls/day.
Downstream
Petrosakh continues to refine 100% of its crude oil production
and sells all of its refined products into 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 and increase its
customer base.
In 2017 the Company successfully made a shipment of fuel oil by
sea. The Directors believe that this will allow the Company to
become involved in bunkering activity which is highly profitable in
this region and will decrease its inventory stock of fuel oil.
To allow for the most efficient usage of its spare plant
capacity, the Company commenced purchases of condensate form
external suppliers. This allows for increases in both production
volumes and profitability at the local level.
The Company continues to upgrade its plant equipment to remain
in line with statutory requirements for fuel quality and to
decrease the cost of refining.
Arcticneft
During the period, the Company continued to focus on minimising
the natural decline in field production through workovers as a
matter of priority. During the period, the Company continued
perforation work on five wells at Arcticneft and Arctic Oil
Company. This led to a stablised production level during the
period.
After a preliminary analysis of the well stock, the Company
decided to implement artificial oil lifting using jack pumps at
several wells. A number of jack pumps were partially installed in
2017, with this process due to be completed during 2018.
In June 2017 the Company engaged Prokon, a geotechnical analysis
company, to update the model for the development of the
Peschanoozerskoye Field. This work is now at a final stage and the
Board expects to receive detailed recommendations based on several
scenarios, 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 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. There are currently a limited number
of vacant drilling rigs and qualified drilling crews in the Komi
republic and the Company is still in the process of seeking an
independent supervisor and new contractor to continue the
drilling.
Taxation
In June 2018, taking into account the significant tax burden on
the oil and gas sector, the Russian government adopted further
changes in tax policy for the coming six years. These changes
provide for a gradual increase in mineral extraction tax until the
year 2021, in combination with a simultaneous decrease in export
duty until 2024 from the current 30% to 0%. These changes should
provide for decreased excise tax on refined products. The Company
is currently in the process of evaluating the impact of anticipated
changes on its financial and trading prospects.
Strategy
Our strategy is to exploit our expanded portfolio of proven and
probable reserves through planned field developments over the next
couple of years. We intend to explore partnerships with oil service
companies as well as possible co-operation with companies with
complimentary operations, for example in the Komi region.
Our plans for 2018 are as follows:
Kolguev Island:
-- continue work overs and the installation of jack pumps with
the aim of keeping production stable at approximately 1,000
bbls/day;
-- consider and assess a new programme of deviated wells and/or
fracking to increase production significantly from existing
horizons; and
-- apply for additional licences on the Island, in order to take
advantage of our unique position as the only operator with oil
processing, tank farm availability and its own tanker
terminals.
Sakhalin Island:
-- continue well work overs at Petrosakh, thus seeking to
maintain production at approximately 1,200 bbls/day;
-- upgrade refinery equipment to increase the yield and quality of products;
-- obtain a marine terminal licence for the sale of bunker fuel to local ship operators;
-- deploy our newly acquired rig to drill three further new
wells at our new South Dagi licence; and
-- workover two existing wells on South Dagi.
Komi Republic:
-- additional seismic interpretation for the two oil fields held by RK Oil and BVN Oil; and
-- following the cancelation of the first drilling contract at
RK Oil, seek a partnership, ideally with a major oil service
company to manage the development of the large proven and probable
reserves, potentially coordinated with adjacent oil fields that
have necessary infrastructure and transit connections.
Leonid Dyachenko
Chief Executive Officer
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 year
ended 31 December 2017 as a PDF document.
http://www.rns-pdf.londonstockexchange.com/rns/1122T_1-2018-6-29.pdf
This information is provided by RNS, the news service of the
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END
FR XKLFLVQFLBBK
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