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(Alliance News) - Nostrum Oil & Gas PLC on Thursday posted a widened annual loss resulting from a USD1.35 billion impairment charge over the Rostoshinskoye and Darinskoye fields.
Nostrum's shares were up 5.8% at 8.81 pence in London in afternoon trading.
The company reported a pretax loss of USD1.34 billion for 2019, many times its USD92.2 million loss the year before.
As at December 31, the reserves in the Rostoshinskoye and Darinskoye fields had been moved to the contingent resource category - having previously been considered probable reserves. This has resulted in an impairment charge of USD1.35 billion, far beyond 2018's USD150,000 in impairments.
Nostrum had disclosed back on March 31 that such an impairment was expected.
At that time, Chief Executive Kaat Van Hecke said: "The reduction in reserves follows a significant amount of work carried out both internally and by third parties during 2019 to better understand the productivity of our reservoirs. We will continue to try to recover as many hydrocarbons as possible from Chinarevskoye field, but the focus for filling our infrastructure has moved to obtaining more third-party volumes. This reserve downgrade will lead to a significant impairment being taken when we release our full-year results."
Revenue in 2019 decreased to USD332.1 million from USD389.9 million due to decreased revenue from export sales.
Nostrum has put a halt to all 2020 drilling and plans to operate with just one workover rig on an as-needed basis. Average 2020 sales volumes are expected to be 19,000 barrels of oil equivalent per day, with average daily production 20,000 boepd.
In its annual report on Thursday, Nostrum said: "After reviewing the results of various third-party studies conducted in 2019, including the Schlumberger report and in-house work to analyse drilling and production performance, the company has concluded that whilst significant discovered resources exist within its reservoirs, well productivity in certain areas remains challenging.
"The company has therefore decided to halt all drilling in 2020 whilst it carries out further analysis to identify viable technologies to mitigate sub-surface risk. The company will continue to operate a workover rig and focus on investigating which technologies could be appropriate to increase well productivity in the future."
In light of very low recent oil prices, Nostrum is considering reducing its operational expenditure and capital expenditure in the short-term so as to maintain liquidity. It is though that this lower capex should not hurt production in any material way since no new wells are planned for 2020.
Van Hecke said: "2019 has been an extremely challenging year. We are working hard to try and reposition the company as a low-cost producer which maximises the value of its infrastructure assets by filling our spare capacity with third party volumes. The transformation of the business away from being a pure E&P company towards a mid-stream processing company will take time. We are working hard to achieve this goal as quickly as possible and hope to make concrete progress during 2020. In the meantime, we are looking to bring costs down as low as possible and maximise production from our existing wells. With the recent fall in the oil price we need to further reduce costs over and above the savings achieved in 2019."
Separately, Nostrum posted an operational update for the first quarter of the year, showing average production after treatment for the three months ended March 31 of 24,006 boepd and average sales volumes of 22,903 boepd.
First quarter revenue is forecast to exceed USD60 million, down from USD95.4 million the prior year.
The company's cash position on March 31 was more than USD66 million, down from USD93.9 million at the end of 2019.
Van Hecke commented Thursday: "The company is embarking on its strategy to commercialise its world class infrastructure and we are continuing our ongoing discussions with third parties to try and secure additional volumes to fill the spare capacity at our gas treatment facility. As discussed during our full year results, we have suspended our drilling programme during 2020 to further reduce costs as well as gain further insight into the productivity of our reservoirs. We continue to work towards these goals, whilst adapting our operations to ensure the welfare of all our staff is maintained by complying with all government guidelines in relation to Covid-19 in the countries in which we operate."
By Anna Farley; annafarley@alliancenews.com
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