LONDON (Alliance News) - Volga Gas PLC shares dropped on Friday after it said it swung to a pretax loss in the first half of 2015 due to lower production, the sharp drop in oil prices, the devaluation of the Russian ruble, and disruptions to the regional market for oil products in Russia.
Volga shares were down 16% to 44.0 pence per share on Friday morning.
The Russian gas producer reported a USD1.6 million pretax loss in the first six months of 2015, swinging from the USD8.0 million profit made a year earlier as revenue plummeted to only USD7.8 million from USD23.2 million.
The dramatic drop in revenue resulted in its gross profit totalling USD279,000, compared to USD10.7 million a year ago.
Volga was also hit by a significant rise in mineral extraction tax, which took away 39.1% of its revenue in the first half compared to only 20.7% a year ago after significant increases were made in the formula rates applied to oil and especially to condensate that came into effect on January 1.
Production in the half dropped to an average of 2,624 barrels of oil equivalent per day from 4,419 barrels per day a year ago, as the company had to shut-in fields because of a lack of demand and the was compounded by the fall in oil prices and the devaluation of the ruble. It also was hit by scheduled pipeline maintenance by Gazprom.
Average gas prices in the period dropped to USD28.01 per barrel of condensate, compared to USD48.45 per barrel a year earlier. Average oil prices for Volga Gas's production from the Uzenskoye fields fell to USD29.84 per barrel from USD50.15 per barrel.
"This primarily reflects the fall in international oil prices but also the effect of a wider discount to netback pricing that has occurred in the domestic market in the Volga region experienced particularly during January and February 2015," said the company.
"As a consequence of the market disruptions, total production reported for first half of 2015 is well below the capabilities of our existing wells and revenue for the period is significantly below that reported in the first half of 2014," said Volga.
Lower production also resulted in its production cost per unit to rising to USD6.44 per barrel from USD6.23 per barrel as the devaluation of the ruble was offset by the production and demand problems. Its costs for the Uzenskoye oilfield rose to USD3.10 per barrel from USD2.99 per barrel.
However, the company said production during March and April 2015 averaged 4,163 barrels of oil equivalent per day, which is much closer to the company's actual well capacity.
Volga spent USD2.1 million in capital expenditure in the half, down from USD2.4 million a year ago. In the second half of 2015, Volga is expecting capital expenditure to total around USD8.6 million, taking full year expenditure up to USD11.0 million.
"The current cash resources combined with cash generated from operations are expected to be sufficient to meet these expenditures," it said.
In the first half, the expenditure was mostly spent on the VM4 well that is currently being drilled. It has also recently completed the VM3 well, which together will increase production to over 6,000 barrels of oil equivalent per day.
Volga's production is currently shipped through Gazprom's regional pipeline system from the processing plant, which is running at a rate of 500.0 million cubic metres per day, or 17.7 million cubic feet per day.
Volga said the plant has the capacity to process 750.0 million cubic metres per day, meaning there is capacity for the expected increase in production from the VM3 and VM4 wells.
Volga reported a cash balance of USD11.5 million at the end of June, down from USD15.8 million at the end of December. Volga does not currently have any debt.
Although its current capital expenditure plans are funded, Volga said it will need to source a further USD10.0 million to carry out its proposed plan to redevelop its existing gas processing plant. It plans to source debt financing for this.
"Since the start of 2015, the business environment has been very challenging for a small, domestically oriented Russian oil gas and condensate producer like Volga Gas. It is fortunate that the group entered this challenging period in robust financial condition so that it has been able to continue with the development of its assets," said newly-appointed Chief Executive Andrey Zozulya.
"Now, with the majority of the current capital programme executed, the group should be able to benefit from its increased production capacity and has a solid base from which to grow its production," he added.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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