TIDMVGAS
RNS Number : 6024F
Volga Gas PLC
19 May 2017
19 May 2017
Volga Gas plc
("Volga Gas", the "Company" or the "Group")
OPERATIONAL UPDATE
Volga Gas plc, the oil and gas exploration and production group
operating in the Volga Region of Russia, is holding its Annual
General Meeting today and is pleased to provide the following
update on its activities and operations:
Highlights
-- Between 1 January and 30 April 2017, Group production
averaged 7,341 barrels of oil equivalent per day ("boepd") and
during April 2017 total production was at 7,553 boepd. Production
is on average 23% above the equivalent levels in 2016.
-- Realised prices after adjusting for export taxes and
transport costs, increased to $34 per barrel during the first four
months of 2017, compared to approximately US$22 per barrel in the
same period of 2016.
-- Commenced drilling of the Uzen #101 horizontal well.
-- Industrial testing of the Redox gas sweetening process is under way.
-- Construction of the LPG project is to commence shortly
-- Group's cash position increased from $19.7 million on 31
December 2016 to $20.2 million on 30 April 2017.
-- Proposed dividend payment of US$5.0 million to be made on 26 May.
Production Update
Between 1 January and 30 April 2016, Group production averaged
7,341 boepd (2016: 5,932 boepd), comprising 30.5 million cubic feet
per day ("mmcf/d") of gas (2016: 23.9 mmcfd), 1,730 barrels per day
("bpd") of condensate (2016: 1,609 bpd) and 522 bpd of oil (2016:
348 bpd). Production increases over the equivalent period reflect
the benefits of higher utilisation of processing capacity at the
Dobrinskoye gas plant and workovers on the Uzen oil field which
took effect during 2H 2016 and have subsequently been
sustained.
The Russian domestic oil market in early 2017 exhibited less
disruption than seen in the previous two years. However, as a
result of management's initiatives undertaken towards the end of
2015 to develop export channels for condensate production of gas
and condensate continued in line with management's plans. Although
more than 50% of condensate was exported in January, more
favourable domestic market conditions led to lower exports and for
the four months, exports were approximately 27% of total condensate
sales.
During the period January to April 2017, as a result of another
abnormally mild winter, ground conditions close to the Group's oil
field resulted in the routes used by our customers' oil tanker
trucks being unpassable, leading to significant periods in which
the oil production was shut in and actual output was below
management's expectations. Given the minor proportion of the
Group's production this represents, the impact on total production
was not significant.
Realisations
International oil prices in early 2017 have been generally
stable, with the Brent oil price trading between $50 and $55 per
barrel. Our realised prices, which track international prices after
adjusting for export taxes and transport costs, were similarly
stable at approximately $34 per barrel. For the equivalent period
in 2016, the average was approximately $22 per barrel.
The change in our gas sales arrangements in 2017, with sales
being made directly to Gazprom's distribution system, led to
improved sales prices in Ruble terms to approximately RUR 3,856 per
thousand cubic metres excluding VAT (2016: RUR 3,559). Combined
with the recovery of the Ruble, the average selling price for gas
for January to April 2017 was the equivalent of US$2.10 per mcf
(2016: US$1.39/mcf).
Field development operations
Drilling operations on our main gas/condensate field, Vostochny
Makarovskoye ("VM") were concluded during 2015. The current
activity on the VM field comprises minor improvements to production
management systems and a planned workover on the VM#2 production
well. There will be a total of five productive wells on the VM
field, although the current output from just three of these, VM#1,
VM#2 and VM#4, is sufficient to supply the gas plant with its
current effective gas processing capacity of 1 million m(3) per
day, equivalent to 35.3 mmcf/d.
More material development activity is under way on the producing
oil field, Uzenskoye. A rig to drill the new horizontal well #101
on the undeveloped Albian reservoir in the Uzen field was mobilised
during April and drilling commenced as planned on 27 April 2017.
Drilling operations are expected to continue for between six and
eight weeks. The results of this operation are expected to be
available during July 2017.
As a result of these activities, the oil production capacity is
expected to increase from approximately 800 bpd to over 1,500 bpd,
depending on the actual results of the horizontal well #101.
Gas plant development
The Dobrinskoye Gas Plant has been running consistently at close
to the maximum processing rate of 1 million m(3) per day of gas
since July 2016.
The key potential change for the gas plant operations will be a
change to a Redox-based gas sweetening process which would
significantly reduce the cost of consumables and effectively
eliminate the need to dispose of bulky spent chemicals. The tests
conducted to date have been encouraging. However, management's
decision to switch fully to Redox will be based on a full scale
industrial trial currently under way. The decision is expected to
be reached by the end of June 2017.
Another key development at the gas plant is the construction of
cryogenic separation of liquid petroleum gases ("LPG"), which is
currently either flared as part of the condensate stabilization
process or included with the sales gas. Deliveries of the long lead
items of equipment have commenced and construction is expected to
start shortly and the LPG project is expected to be commissioned
before the end of 2017. The LPG project will provide an additional
product stream which is expected to increase total sales volumes by
approximately 10% and to enhance profitability. The project is
expected to be completed within the budgeted capital cost of US$5.0
million.
Finance
Mainly as a result of higher production rates and development of
condensate exports which have enabled continuous production through
periods of disrupted domestic markets, the Group's revenue and
EBITDA numbers in the first four months of 2017 are materially
ahead of those experienced in the equivalent period in 2016.
In addition, net of cash outflows on capital expenditure of
approximately US$3.6 million during the first four months of 2017,
the cash position increased slightly to US$20.3 million compared to
US$19.7 million as at 31 December 2016. Total debt is unchanged in
RUR terms but with the revaluation of the Ruble currently stands at
US$4.2 million.
A dividend payment of US$0.062 per share is proposed at the
Company's AGM today. Conditional on shareholder approval, this
dividend, totaling US$5.0 million, will be paid to shareholders on
the register on 5 May 2017 on 26 May 2017.
Andrey Zozulya, Chief Executive of Volga Gas commented:
"I am pleased to report that the assets of the Group are
continuing to perform strongly and that the Group has been able to
deliver significant increases in revenue and cash generation during
the first four months of 2017. Volga Gas has a competitive business
and a robust balance sheet which will provide a strong base for the
current operations and for further growth in the future.
"Management is looking forward to delivering further increases
to the Group's production and profitability through the successful
completion of ongoing projects, to maximising the potential of the
Group's assets and to seek further opportunities to add value."
Market Abuse Regulation (MAR) Disclosure
Certain information contained in this announcement would have
been deemed inside information for the purposes of Article 7 of
Regulation (EU) No 596/2014 until the release of this
announcement.
For further information, please contact:
Volga Gas plc
+7 495 721
Andrey Zozulya, Chief Executive 1233
Officer
Vadim Son, Chief Financial Officer +44 (0)7824
Tony Alves, Investor Relations Consultant 884 342
+44 (0)20 3470
S.P. Angel Corporate Finance LLP 0470
Richard Redmayne, Richard Morrison,
Richard Hail
+44 (0)20 3727
FTI Consulting 1000
Edward Westropp, Alex Beagley
Editors' notes:
Volga Gas is an independent oil and gas exploration and
production company operating in the Volga region of Russia. The
company has 100% interests in its four licence areas.
The information contained in this announcement has been reviewed
and verified by Mr. Andrey Zozulya, Director and Chief Executive
Officer of Volga Gas plc, for the purposes of the Guidance Note for
Mining, Oil and Gas companies issued by the London Stock Exchange
in June 2009. Mr. Andrey Zozulya holds a degree in Geophysics and
Engineering from the Groznensky Oil & Gas Institute and is a
member of the Society of Petroleum Engineers.
Glossary
bbl Barrel
bopd Barrels of oil per day
bpd Barrels per day
boepd Barrels of oil equivalent per day, in which 6,000 cubic
feet of natural gas is equated to one barrel of oil
mcf thousand cubic feet
mmcfd Millions of standard cubic feet per day
This information is provided by RNS
The company news service from the London Stock Exchange
END
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