25 Sep 2015 07:00
Press Release | 25 September 2015 |
Urals Energy Public Company Limited
("Urals Energy" or the "Company")
2015 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 2015.
Operational highlights
Total production at Arcticneft during the period reached 124,697 barrels (H1-2014: 118,958 barrels) |
Total production at Petrosakh during theperiod reached 196,890 barrels (H1-2014: 210,435 barrels) |
Current daily production at Arcticneft is 716 BOPD, 4% higher than the average of 689 BOPD for the six months ended 30 June 2015 |
Current daily production at Petrosakh is 1,110 BOPD compared with an average of 1,088 BOPD for the six months ended 30 June 2015 |
In June 2015 the Company completed drilling of well 112 at Petrosakh, resulting in the daily production rate stabilizing in Petrosakh |
In June 2015 the Company completed the installation and testing of new control equipment in the Petrosakh refinery after theaccident which occurred at the beginning of the year |
In January 2015 the Company signed a comprehensive settlement agreement with Mr V Rovneiko, a former Director of the Company, on all outstanding litigation and pending or threatened disputes. This resulted in a material decrease in consulting services costs in the period |
Financial highlights
· Positive net working capital position at 30 June 2015 of US$3.1 million (30 December 2014: US$1.6 million) |
· In May 2015 the Company and its subsidiary Petrosakh entered into a short-term loan agreement with Petraco Oil Company Limited ("Petraco"). Under the terms of this agreement, Petraco has advanced the Company US$6.0 million and the Board expect to repay the loan with the proceeds of the September 2015 Arcticneft tanker shipment (expected to be received shortly). In addition the Company has entered into an 18 month revolving credit facility with the Sakhalin branch of OJSC Sberbank of Russia, under which Sberbank will provide, by way of several tranches, the sum of 300 million Russian Roubles. The loans are being used by the Company to both progress its 2015 CAPEX plan and as working capital financing |
· Gross profit reduced by 45% to US$2.0 million (H1-2014: US$3.5 million) |
· Operating loss decreased to US$0.1 million for the period (H1-2014: US$0.4 million) |
· Loss for the period of US$0.1 million (H1-2014: US$1.2 million) |
· EBITDA* decreased to US$1.3 million from US$3.3 million in H1 -2014 |
· Continuous successful implementation of cost reduction programme and effective cost management in the period allowed the Company to decrease the operating costs and SG&A costs in Russian Rouble equivalent by 8% and 10% respectively
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*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
· On 1 September the planned annual tanker shipment for export from Arcticneft was successfully completed. The Company shipped 217,282 bbls (2014: 207,940 bbls). Preparatory maintenance work and changing the timing of the shipment allowed the Company to complete the shipment in less than four days without any demurrage charges. Payment for the tanker shipment is expected to be received shortly · In July 2015 the Company commenced drilling of well 54. The target depth has been reached and the results of this drilling are expected shortly · The Company successfully continues to rationalise its marketing policy. In anticipation of the winter period Petrosakh has rented several tanks near Yuzhno - Sakhalinsk and started small wholesales activity that will increase net backs by at least 5 % |
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- Ends -
For further information, please contact:
Urals Energy Public Company Limited |
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Andrew Shrager, Chairman Leonid Dyachenko, Interim Chief Executive Officer | Tel: +7 495 795 0300 |
Sergey Uzornikov, Chief Financial Officer | www.uralsenergy.com |
Allenby Capital Limited Nominated Adviser and Broker |
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Nick Naylor / Alex Brearley | Tel: +44 (0) 20 3328 5656 |
| www.allenbycapital.com |
Media enquiries:
Abchurch |
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Quincy Allan | Tel: +44 (0) 20 7398 7710 |
uralsenergy@abchurch-group.com | www.abchurch-group.com |
The accounts for the six months ended 30 June 2015 will shortly be available from the Company's website www.uralsenergy.com in accordance with AIM Rule 20.
Interim Chief Executive Officer's Statement
Operating environment
The six months ended 30 June 2015 was a challenging period for the Company, characterised by continuing high volatility in the crude oil market price at an average level of US$58 per barrel (H1-2014: US$109) as well as high volatility in the Russian FOREX market. Domestic prices for light oil products ranged from US$82 to US$106 per barrel (H1-2014: US$113 to US$137).
Due to the fire that occurred at the Petrosakh refinery at the beginning of the year, the Company was forced to stop the production of oil products for a period of time. This led to a reduction in processing volumes during January and February 2015, resulting in decreased sales volume and increasing stock. At the end of the reporting period the Company had 26,985 barrels of crude oil and 52,905 barrels of refined product in stock (H1-2014: 16,680 bbls and 48,735 bbls respectively). Subsequently the refinery has recommenced production.
There were no deliveries of crude oil exported from Arcticneft during the reporting period, resulting in 182,885 barrels of commercial crude oil that remained in stock. The tanker shipment from Arcticneft was completed at the beginning of September 2015, payment from the shipment is expected to be received shortly.
Operating Results
US$'000 | Period ended 30 June | |
| 2015 | 2014 |
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Gross revenues before excise and export duties | 7,715 | 18,909 |
Net revenues after excise, export duties and VAT | 7,214 | 16,605 |
Gross profit | 1,950 | 3,531 |
Operating profit | (57) | (438) |
Normalised management EBITDA | 1,323 | 3,306 |
Total net finance (expense)/benefits | 282 | (715) |
(Loss) / profit for the year | (48) | (1,167) |
Production | Period ended 30 June | |
| 2015 | 2014 |
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Petrosakh bbls | 196,890 | 210,435 |
Arcticneft bbls | 124,697 | 118,958 |
Petrosakh BOPD (average) | 1,088 | 1,163 |
Arcticneft BOPD (average) | 689 | 660 |
Summary table: Gross Revenues before excise and export duties ($'000)
| Period ended 30 June | |
2015 | 2014 | |
Crude oil | 1,337 | 1,236 |
Export sales | - | - |
Domestic sales (Russian Federation) | 1,337 | 1,236 |
Petroleum (refined) products - domestic sales | 6,257 | 17,503 |
Other sales | 121 | 170 |
Total gross revenues before excise and export duties | 7,715 | 18,909 |
For the six months ended 30 June 2015, total gross revenues decreased by US$11.2 million as a result of a decrease of sales volumes to 133,034 barrels for the six months ended 30 June 2015 (H1-2014: 209,564) and a 39% average devaluation of Russian Rouble vs US dollar. These negative factors were partly offset by a 5% average increase in refined products prices in Russian Rouble equivalent.
High volatility in crude oil prices and FOREX rates during the reporting period led to a decrease in average net back prices for domestic sales of petroleum (refined) products. At the same time a 26% decrease in excise rate for gasoline in Russian Rouble equivalent and slight increase in the prices had a positive effect on net back for refined products. Net back for domestic product sales is defined as gross product sales minus VAT, transportation costs, excise tax and refining costs.
Summary table: Net backs (US$/bbl)
| Period ended 30 June | |
2015 | 2014 | |
Crude oil | 46.43 | 58.30 |
Export sales | - | - |
Domestic sales (Russian Federation) | 46.43 | 58.30 |
Petroleum (refined) products - domestic sales | 49.25 | 65.41 |
Other sales | - | - |
Gross profit (net revenues less cost of sales) for the first half of 2015 decreased 45% to US$2.0 million (H1-2014: US$3.5 million). The main drivers for this decrease were the decline of sales volumes and the lower netbacks.
Cost of sales for the six months ended 30 June 2015 totalled US$5.3 million as compared with US$13.1 million for the six months ended 30 June 2014 of which US$2.1 million and US$3.8 million respectively represented non-cash items, principally depreciation, amortisation and depletion. The decrease in operating costs was mainly due to exchange rate fluctuation. However, it was also as a result of the Company decreasing its operating costs in Russian Rouble equivalent by 8% (adjusted for 2.5% production decrease and 11% unified production tax increase) compared with that achieved for the six months ended 30 June 2014. This was despite the depreciation of the Russian Rouble and an official inflation level around 16% (1H-2015 vs 1H-2014).
Selling, general and administrative expenses decreased during the first half of 2015 by US$2.0 million to US$1.9 million (H1-2014: US$3.8 million). Apart from Russian Rouble depreciation, the Company achieved an average decrease in Russian Rouble denominated SG&A cost in the reporting period in the amount of 10% compared with the previous period. Professional and consultancy fees are mainly denominated in US dollars and represent quite a significant portion of the total SG&A costs. A material amount of the fees in 2014 were represented by professional fees related to the requisitioned EGM, and non-recurrent expenses relating to legal action and the criminal investigation of the ADRA and Vyatcheslav Rovneiko in Cyprus and Russia. At the end of 2014 the Company settled all outstanding litigation and pending or threatened disputes and this resulted in a US$0.6 million decrease in SG&A cost.
The net finance income for the first half of 2015 was US$0.3 million (H1-2014: net finance cost of US$0.7 million). Net finance income for the period primarily consisted of exchange rate movements caused by a slight strengthening in the first half of 2015 of the US$ vs the Russian Rouble.
The decrease in sales volumes and net backs in the six months ended 30 June 2015 resulted in a consolidated normalised management EBITDA decrease of US$2.0 million to US$1.3 million for the first half of 2015, compared with US$3.3 million in for the first half of 2014, with EBITDA margins of 18.3% and 19.9% respectively.
Management EBITDA (US$'000) - Unaudited
| Period ended 30 June | |||
2015 | 2014 | |||
(Loss) for the year | (48) | (1,167) | ||
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Income tax (charge) | 273 | 14 | ||
Net interest and foreign currency (gain)/loss | (282) | 715 | ||
Depreciation, depletion and amortisation | 1,232 | 2,803 | ||
Total non-cash expenses | 1,223 | 3,532 | ||
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Charge of bad debt provision | - | 389 | ||
Other non-recurrent (income)/losses | 148 | 552 | ||
Total non-recurrent and non-cash items | 148 | 941 | ||
Normalised EBITDA | 1,323 |
3,306 | ||
Net debt Position
As at 30 June 2015, the Company had net debt of US$4.9 million (calculated as long-term and short-term debt less cash in bank and less loans issued). As at 31 December 2014, the Company had net cash of US$4.4 million.
In May 2015 the Company received a loan of US$6.0 million from Petraco. In June 2015 it also received the first tranche of US$1.3 million (RR$70 million) of a 300 million Russian Roubles 18 month revolving credit facility from the Sakhalin branch of OJSC Sberbank of Russia.
Operational update
Petrosakh
The Company completed the drilling and testing of well #112 in July 2015. Due to difficult geological conditions, well # 112 has not yet achieved the final expected production rate. However, time this lower volume of oil well gas received from the well allowed for an increase in reservoir pressure resulting in an improved production rate from existing wells.
The Company commenced the drilling of well #54 in July 2015. This well is now at the final stage of completion and testing. The Company is planning to complete the drilling of well #54 and start to drill a third well by the end of 2015.
During the first half 2015 the Company continued its focus on optimising the cost structure at Petrosakh. During the first stage, Management's main efforts were concentrated on transport and storage services. This included, replacement of an external contractor through the purchase of Company owned fuel trucks resulted in a significant reduction in these costs.
Downstream
Petrosakh continues to refine and sell 100% of its crude oil production to a highly competitive local refined products market.
Despite the price stability and even some decline in the refined product prices on the local market during the reporting period, the flexible pricing policy allowed the Company to keep Russian Rouble net backs on the sales of oil and oil products stable. Although US dollar net backs decreased during the reporting period, the Russian Rouble net back increased by 5% adjusted for a decrease in Excise rate.
Оn 9 January 2015 a fire occurred at the Petrosakh refinery. The fire was caused by an accident which occurred during adverse weather conditions, and electrical control equipment was damaged. This accident did not have a significant impact on the refining activity of Petrosakh. The plant was out of operation for approximately a month and a half and was brought back into operation via a manual regime. The Company finished the installation of replacement automated equipment in July 2015, without any material effect on the production process.
At the same time the decrease in refining volumes in January - February 2015, which is the most favorable period in terms of demand, led to the short-term loss of some customers, resulting in dropping sales volume and increasing stock. At present the Company has stabilised the situation and even increased its customer base by attracting smaller customers, participating in tenders and developing small wholesale activity.
Arcticneft
Current production at Arcticneft is stable and stands at 716 BOPD.
Due to the weakness of the oil markets the Company decided to focus on minimising the natural decline in production through workovers and re-entering old existing wells. During the period the Company perforated, re-entered and performed acid stimulation of seven wells in total. This resulted in the stabilision of Arcticneft and the production of an additional 56 bbls per day when compared to the average level of production during the six months ended 30 June 2014.
Arcticneft is in the final stage of the working with the regulatory authorities to expand the boundaries of the license area and update the scheme for the development of the oil field. The expected time of completion is the fourth quarter of 2015.
Borrowings
In May 2014 the Company entered into a pre-export short-term loan finance arrangement with Petraco Oil Company Limited ("Petraco") under which Petraco has advanced the sum of US$6.0 million to the Company ahead of its anticipated August 2015 tanker shipment from Arcticneft. The proceeds of the loan were used by the Company for working capital financing of Arcticneft. The loan, including the accrued interest, will be fully repaid via non-cash settlement transactions against trade receivables due in respect of crude oil sales to Petraco in September 2015.
In June 2015 Petrosakh entered into an 18 month revolving credit facility with the Sakhalin branch of OJSC Sberbank of Russia under which Sberbank will provide, by way of several tranches, the sum of 300 million Russian Roubles to Petrosakh for working capital financing.
Owing to the uncertainty about the direction of the oil price, even though there is significant benefit from the Russian Rouble exchange rate offsetting much of the recent fall in the price, the Board will follow a cautious policy to maintain a cash positive position in the coming months.
Strategy
Our strategy is to:
· Continue work overs at our two operations so as to maintain production levels as far as possible
· Enhance refinery margins at Petrosakh by adjusting product mix for local sales of products, and preparing to be able to import crude to increase refinery throughputs
· Seeking economies where possible to offset Russian Rouble cost inflation
· Delaying major capex to exploit undeveloped reserves at Arcticneft until there is more confidence in the oil market
· Look to acquire exploration licences for modest consideration and limited initial spending obligations
· Assessing the potential to secure long term funding so that we are able to proceed with development of the Arcticneft reserves and drilling on the new licences we are seeking, as soon as market conditions allow
The Board remains confident that with this low risk approach, we will be in a strong position to grow the Company as conditions in the Oil markets inevitably adjust.
Outlook
At Arcticneft, the Company will continue to implement the workover programme on an additional eight wells in the second half of 2015. The aim of these programmes is to keep production at Arcticneft at an average of 700 to 720 bbls/day by the end of 2015.
At Petrosakh, with the completion of well #54, the Company will evaluate the results and take an economically justified decision on drilling well #61.
Having completed the evaluation of the cost structure at Petrosakh, the Company decided that increasing capital expenditure, with a four to six months payback period, will allow Petrosakh to avoid using services provided at unreasonably high monopolistic prices by external providers and consequently optimise its operating and transportation expenses. The Company started this programme during the first half of 2015 and will expect to finalise it by the end of the year.
In the downstream area at Petrosakh the Company is now concentrating on potential technical improvements of the refinery, which will allow increasing oil conversion depth at relatively reasonable cost. In parallel the Company is actively looking for the opportunity to load the capacity of the refinery by external crude oil shipment.
Leonid Dyachenko
Interim Chief Executive Officer
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