Urals Energy Plc Regulatory News (UEN)

23 Feb 2006 07:01

Urals Energy Public Company Limited23 February 2006 Urals Energy Public Company Limited Adjustments to Interim Results to 30 June 2005 Following the announcement of 2 February 2006, regarding minor adjustments tothe Company's previously reported results for the period ended 30 June 2005resulting in a modest reduction of the loss reported for the period, Urals ispublishing restated results for the period ending 30 June 2005. These restatedresults have been approved by the Company's Directors and Auditors. In line with announcement of 2 February 2006 the restated results give a netloss of $800,000 compared with the originally announced net loss of $1.145m forthe six months ended 30 June 2005. 23 February 2006Enquiries Pelham PRJames Henderson 020 7743 6673Archie Berens 020 7743 6679 About the Company: Urals Energy is an independent exploration and production (E&P) company with itsprincipal assets and operations in Sakhalin Island, Timan Pechora (includingareas in the Nenets Autonomous Okrug and Komi Republic) and the Republic ofUdmurtia, Russia. The Company listed on AIM in August 2005. The Company is focused on the integration of its five recently acquiredsubsidiaries and the exploitation of their assets. In addition, it is activelyseeking to continue to grow and diversify its reserve and production portfoliothrough exploration activities and the acquisition of additional E&P companiesor assets by taking advantage of the ongoing rationalisation of E&P assets inRussia. Based on a preliminary 2005 year-end report by DeGolyer & MacNaughton, theCompany's six E&P subsidiaries have Proved and Probable reserves ofapproximately 118 million barrels of oil equivalent (MMBOE). During the secondsix months of 2005, the Company produced approximately 6,237 barrels of oil perday (BOPD). The Company's two largest subsidiaries by reserves and production, Petrosakh andArcticneft, own and operate refining assets with a total refining capacity of5,300 BOPD, which provide the Company with the ability to maximise the value ofthe oil produced by choosing between the sale of oil or of refined productsdepending on market conditions, tax considerations and other factors. INTERIM CONDENSED CONSOLIDATED BALANCE SHEET AT (unaudited) in $ thousands 30 June 2005 31 December (restated) 2004 (restated) Cash and cash equivalents 8,897 1,421Accounts receivable and prepayments 15,563 3,706Inventories 3,587 2,773 TOTAL CURRENT ASSETS 28,047 7,900 Property, plant and equipment 112,906 100,096Other non-current assets 4,254 292 TOTAL NON-CURRENT ASSETS 117,160 100,388 TOTAL ASSETS 145,207 108,288 Accounts payable and accrued expenses 2,020 3,019Taxes payable 2,502 1,917Short-term borrowings and current portion 20,776 38,815of finance lease obligationsAdvances from customers 135 5,102Amounts due for acquisition of subsidiaries 12,460 9,899 TOTAL CURRENT LIABILITIES 37,893 58,752 Long-term finance lease obligations and 25,446 1,556borrowingDismantlement provision 920 950Deferred tax liability 18,251 17,751 TOTAL LONG TERM LIABILITIES 44,617 20,257 TOTAL LIABILITIES 82,510 79,009 TOTAL EQUITY 62,697 29,279 TOTAL EQUITY AND LIABILITIES 145,207 108,288 Approved on behalf of the Board of Directors on 8 February 2006 William R. Thomas Stephen M. BuscherChief Executive Officer Chief Financial Officer INTERIM CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (unaudited) in $ thousands 1 January to 30 June 2005 (restated) RevenuesGross revenues 27,279Less: excise taxes and export duties (6,047)Net revenues 21,232 Operating CostCost of production (12,732)Selling expenses (922)General and administration expenses (4,238)Operating result 3,340 Finance costs (3,217)Foreign currency losses, net (192)Other non-operating gains, net 23Result before tax and minority interests (46) Income tax (charge)/benefit (754) Net result (800)Attributable to minority shareholders 86Attributable to Group shareholders (886)Earnings per share (USD)- basic (0.02)Diluted earnings per share (USD) (0.02) INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW (unaudited) in $ thousands 1 January to 30 June 2005 (restated)Cash flow from operating activitiesResult before tax and minority interest (46) Total Adjustments 3,944 Operating cash flow before changes in 3,898working capital Changes in working capital (17,894) Cash flow from/(used in) operations (13,996) Interest paid (1,377)Income tax paid (297) Net Cash flow used in operating activities (15,670) Cash flow used for investmentsAcquisition of subsidiaries (4,500)Purchase of property, plant and equipment (4,348) Net Cash Inflow/ (Outflow) from Investing (8,848)Activities Cash flow from financing activitiesProceeds from loans 35,001Repayment of loans (30,053)Proceeds from issuance of ordinary shares 26,215Contributions from shareholders 881 Net Cash Inflow from Financing Activities 32,044 Effect of exchange rate changes (50) Net increase in cash and cash equivalents 7,476Cash and cash equivalents at beginning of 1,421the period Cash and cash equivalents at end of the 8,897period INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (unaudited) Attributable to shareholders of the Groupin $ thousands Note Share Share Unpaid Translation Accumulated Minority Total capital premium capital difference deficit interest equity At 31 December 209 42,172 (11,324) 1,236 (4,341) 1,327 29,2792004 Issue of shares 6 50 24,950 25,000Contribution from 11,324 11,324shareholdersTranslation (2,061) (45) (2,106)difference for theperiod (restated)Net result for the (886) 86 (800)period 1 January2005-30 June 2005(restated) At 30 June 2005 259 67,122 0 (825) (5,227) 1,368 62,697 NOTES TO THE INTERIM CONDENCED FINANCIAL INFORMATION (unaudited) Note 1 Activities Urals Energy Public Company Limited (''Urals Energy'', or the ''Company'') wasincorporated as a limited liability company in Cyprus on 9 November 2003. TheCompany was formed to act as a holding company for the shareholders' investmentsin the Russian oil and gas exploration and production sector. Pursuant to aShareholder Agreement dated 28 July 2004, the Shareholders contributed certainassets including ZAO Chepetskoye NGDU to the Company. On 26 October 2004, theCompany acquired OOO CNPSEI and on 19 November 2004, acquired ZAO Petrosakh. InApril 2005, the Company acquired the remaining 50 percent of OOO Urals Nord. InJuly 2005, the Company completed the acquisition of ZAO Arcticneft. In November2005, the Company completed the acquisition of OOO Dinyu (see Note 14,Subsequent Events). On 9 August 2005, the Company completed an initial public offering on the LondonAlternative Investment Market (AIM). Urals Energy and its subsidiaries (the ''Group'') are primarily engaged in oiland gas exploration and production in the Russian Federation and processing ofcrude oil for distribution on both the Russian and international markets. At 30June 2005, the Group employed approximately 622 people. The Group comprises of the following subsidiaries: Entity Nature Jurisdiction Economic interest at 30 June 2005 ZAO Petrosakh Exploration & production Sakhalin 97.2percentOOO CNPSEI Exploration & production Komi 100.0percentZAO Chepetskoye NGDU Exploration & production Udmurtia 100.0percentOOO Urals Energy Management Moscow 100.0percentOOO Urals-Nord Exploration Nenetsky 100.0percentUrals Energy (UK) Limited Corporate Services UK 100.0percent Note 2 Restatement This interim condensed consolidated financial information has been restated togive effect to certain items which were inaccurately reflected in the interimcondensed consolidated financial information as originally issued on 23September 2005. The restatements arise from additional eliminations ofintercompany activities, correction of a depletion calculation and certain otheritems. The effect of restatement on the interim condensed consolidatedfinancial information is summarised below (all amounts in US dollar thousand): Period ended 31 Six months ended 30 December 2004 June 2005 (Decrease) in gross revenues - (723)Decrease in cost of production - 812Decrease in selling expenses - 1,044(Increase) in finance cost - (490)(Increase) in income tax expense - (298)Decrease in net loss - 345Increase in net income attributable to minority shareholders - 9Decrease in net loss attributable to Group shareholders - 336 Change in translation difference - (1,550) 31 December 2004 30 June 2005 Increase in inventories 526 76(Decrease) in property, plant and equipment (526) (1,304)Decrease in accounts payable and accrued expenses - 369(Increase) in taxes payable - (56)(Increase) in deferred tax liability - (290)(Decrease) in total equity - (1,205) Note 3 The nature of business operations The Group's largest producing subsidiary, ZAO Petrosakh, operates on SakhalinIsland and is not connected to the State owned pipeline monopoly - Transneft,and accordingly, the majority of its production is exported by tanker. Due tosevere weather conditions, shipping tankers can only load during the period ofJune through early November. Outside this period, oil is either stored orprocessed and sold on the local market. During the period under reviewPetrosakh had produced 56 thousand tons of crude oil and sold only 29 thousandtons of crude oil in late June 2005. The remaining crude oil was shipped duringthe second half of the year. Note 4 Basis of presentation The consolidated interim condensed financial information has been prepared inaccordance with International Accounting Standard No. 34, Interim FinancialReporting ("IAS 34"). This consolidated interim condensed financial informationshould be read in conjunction with the Company's consolidated financialstatements as of and for the year ended 31 December 2004 prepared in accordancewith International Financial Reporting Standards ("IFRS"). The 31 December 2004consolidated balance sheet data has been derived from audited financialstatements. Use of estimates. The preparation of consolidated interim condensed financialinformation in conformity with IFRS requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities at thedate of the financial statements preparation and the reported amounts of assets,liabilities, revenues and expenses, and the disclosure of contingent assets andliabilities during the reporting period. Estimates have principally been made inrespect to fair values of assets and liabilities, impairment provisions anddeferred income taxes. Actual results may differ from such estimates. Note 4 Basis of presentation (continuation) Exchange rates, restrictions and controls. The United States Dollar (''US dollaror $'') is the presentation currency for the Company's operations as themajority of the Company's operations is conducted in US dollars and managementhave used the US dollar accounts to manage the Company's financial risks andexposures, and to measure its performance. Financial statements of the Russiansubsidiaries are measured in Russian Roubles and presented in US dollars inaccordance with SIC 30 ''Reporting currency-Translation of Measurement Currencyto Presentation Currency''. Balance sheet items denominated in foreigncurrencies have been remeasured using the exchange rate at the respectivebalance sheet date. Exchange gains and losses resulting from foreign currencytranslation are included in the determination of net income or loss. The USdollar to Russian Rouble exchange rates were 28.67 and 27.75 as of 30 June 2005and 31 December 2004, respectively. Comparative information for the first half of 2004 was not provided as theCompany was not operating at that time. Note 5 Accounting policies Except as discussed below, the principal accounting policies followed by theCompany are consistent with those disclosed in the financial statements for theyear ended 31 December 2004. New accounting developments. In December 2003, the International AccountingStandards Board ("IASB") released 15 revised International Accounting Standards("IAS"s) and withdrew one IAS standard. In 2004, the IASB published five newstandards, two revisions and two amendments to existing standards. In addition,the IFRIC issued six new interpretations in 2004. Significant changes relevantto the Group are discussed below. The revisions to IAS 1, Presentation of Financial Statements, clarify certainpresentation requirements. Most significantly, the revised standard requiresthat minority interest be presented within equity. The Company hasretroactively reflected the revised presentation standard for equity in theconsolidated interim condensed financial information. IAS 24, Related Party Disclosures, as revised, requires the disclosure ofcompensation of key management personnel and clarifies that such personnelinclude non-executive directors. Other revised and amended standards effective on 1 January 2005 are as follows:IAS 2, Inventories; IAS 8, Accounting Policies, Changes in Accounting Estimatesand Errors; IAS 10, Events after the Balance Sheet Date; IAS 16, Property, Plantand Equipment; IAS 17, Leases; IAS 19, Employee Benefits; IAS 21, The Effects ofChanges in Foreign Exchange Rates; IAS 27, Consolidated and Separate FinancialStatements; IAS 28, Investments in Associates; IAS 31, Investments in JointVentures; IAS 32, Financial Instruments: Disclosure and Presentation; IAS 33,Earnings per Share; IAS 36, Impairment of Assets; IAS 38, Intangible Assets: andIAS 39, Financial Instruments: Recognition and Measurement. The adoption ofthese revised and amended standards has not had a material effect on the Group'sfinancial position, statements of income or of cash flows. Accounting policies significant to the Group that were adopted or modified on 1January 2005 are discussed below. Business combinations. The Company accounts for business combinations inaccordance with the provisions of IFRS 3, Business Combinations ("IFRS 3").IFRS 3 applies to accounting for business combinations where the agreement dateis on or after 31 March 2004. Upon acquisition, the Group initially measuresboth its share and the share of any minority shareholders in the acquiree'sidentifiable assets, liabilities and contingent liabilities at their fair valuesas at the acquisition date. For business combinations where the agreement dateis on or after 31 March 2004, goodwill is not amortized but rather tested forimpairment annually at the cash generating unit level unless an event occursduring the year which requires the goodwill to be tested more frequently.Intangibles with indefinite useful lives acquired in those business combinationsare not amortized and are tested annually for impairment to ensure the carryingvalue does not exceed the recoverable amount regardless of whether an indicatorof impairment is present. Note 5 Accounting policies (continuation) Non-current assets held for sale and discontinued operations. The Groupaccounts for non-current assets held for sale and discontinued operations inaccordance with IFRS 5, Non-current Assets Held for Sale and DiscontinuedOperations. IFRS 5 replaced IAS 35, Discontinuing Operations. Assets ordisposal groups that are classified as held for sale are presented separately onthe balance sheet and are carried at the lower of the carrying amount and fairvalue less costs to sell. Additionally, the results of discontinued operationsare shown separately on the face of statement of income. On 1 January 2005, the Group early-adopted IFRS 6, Exploration for andEvaluation of Mineral Resources. This standard provides guidance on accountingfor costs incurred in the exploration for and evaluation of mineral resources.Adoption of the standard did not have a material effect on the Group and did notresult in changes of the Group's accounting policies. Note 6 Issue of shares Number of shares Share capital Share premium $ thousands $ thousands At 31 December 2004 40,000,000 209 42,172 Issuance of shares to Nafta B - 15 June 9,434,000 50 24,9502005 At 30 June 2005 49,434,000 259 67,122 Subsequent to 30 June 2005 Conversion of shareholder loans to equity 3,650,480 19 9,654- 2 August 2005Placement by initial public offering - 9 26,667,000 143 113,636August 2005Placement to RP Explorer Master Fund - 9 2,929,653 16 9,984August 2005Placement by over-allotment - 17 August 4,000,050 22 17,3052005 At 23 September 2005 86,681,183 459 217,701 All share numbers are presented after the effect of a 1 for 400 share splitapproved on 18 July 2005. In June 2005, the Company issued 9,434,000 ordinaryshares to Nafta (B) NV, a company owned by one of the shareholders for totalconsideration of $25.0 million. The share issuance was settled with a cashcontribution of $18.4 million and conversion of $6.6 million in existing debt ofNafta B. In July 2005, the Company entered into a convertible preferred note agreementwith RP Explorer Master Fund for up to $15.0 million. The Company has issued$10.0 million, 10.0 percent subordinated, unsecured ''A'' notes. The notes areissued at 100.0 percent and accrete daily up to 117.0 percent on maturity. On 9August 2005 these notes were converted into 2,929,653 ordinary shares at a 20.0percent discount to the IPO issue price. On 2 August 2005, the Company converted its loans with Radwood Business Inc.,Polaris Business Limited, Citara International Limited, Fantin Finance Limitedand Texas Oceanic Petroleum LLC (who collectively at 31 December 2004, provided$9.3 million, Libor plus 2.0 percent unsecured notes to the Company) to3,650,480 ordinary shares. On 9 August 2005 the Company placed 26,667,000 new ordinary shares at an issueprice of 240 pence per share on an Alternative Investment Market operated by theLondon Stock Exchange ("AIM"). On 17 August 2005 Morgan Stanley Securities Limited, the Company's stabilisingmanager fully exercised the over-allotment option in the amount of 4,000,050 newshares. As a result of the exercise, the free float of shares in the Company hasincreased from 32 percent to 35 percent (upon the expiration of RP Capital'slock-up and orderly markets restriction, 39 percent) and the issued sharecapital of the Company has increased to a total of 86,681,183 shares. The grossproceeds of the placing now total approximately $131 million. Note 7 Segment information The Group operates in one business segment which is crude oil exploration andproduction. The Group assesses its results of operations and makes its strategicand investment decisions based on the analysis of its profitability as a whole.The Group operates within one geographical segment, which is the RussianFederation. Note 8 Acquisition of subsidiaries On 25 April 2005, the Company acquired the remaining 50.0 percent interest inOOO Urals Nord ("Urals Nord") for the total consideration of $14.84 million. Onthat date $1.5 million was paid immediately in cash and $12.5 million was paidin October 2005. The Group incurred $0.84 million of additional cost related toseismic review of the license areas. Urals Nord holds 5 exploration licensesfor Beluginisky, Zapadno-Sorokinskiy, Fakelniy, Nadezhdinskiy and Alfinskiy oilfields. Urals Nord has been consolidated from the date of acquisition, thepurchase price being assigned to unproved oil and gas property included inproperty, plant and equipment. Note 9 Pledged assets and changes in contingent liabilities The dismantlement provision represents the net present value of the estimatedfuture obligation for dismantlement, abandonment and site restoration costswhich are expected to be incurred at the end of the production lives of the oiland gas fields. The discount rate used to calculate the net present value of thedismantling liability was 13.0 percent. Environmental regulations and their enforcement are under development bygovernmental authorities. Consequently, the ultimate dismantlement, abandonmentand site restoration obligation may differ from the estimated amounts and thisdifference could be significant. Note 10 Cost of sales 1 January 2005 to 30 June 2005 Unified production tax 5,588Depreciation and depletion 2,706Wages and salaries including payroll taxes 2,270Materials 1,088Other taxes 416Other 664 Total cost of sales 12,732 Note 11 Borrowings and loans Short term loans Name of bank Borrower Interest rate Currency 30 June 2005 31 December 2004 Related party loans UEPCL LIBOR +2% $ 12,300 27,493Current portion of long Petrosakhterm debt 8.16% fixed 8,000 -Alfa Eco M Petrosakh 9.5% fixed RR - 10,993Current portion offinance lease liability Petrosakh 13.0% fixed RR 111 105Accrued interest 365 224 Total short term loans 20,776 38,815 Note 11 Borrowings and loans (continuation) Long term debt Name of bank Borrower Interest rate Maturity date Currency 30 June 31 December 2005 2004BNP Paribas December 2006 20,000 - Petrosakh 8.16% fixed $Less current portion of (8,000) -BNP ParibasZenit Chepetskoye - NGDU 11.0% fixed March 2010 $ 10,000Zenit CNPSEI 11.0% fixed March 2010 $ 2,000 -Long term finance leaseliability Petrosakh 13.0% fixed 1,557 1,661Less current portion oflease liability Petrosakh (111) (105) Total long term debt 25,446 1,556 In June 2005, Petrosakh entered into an 18-month credit facility for $20.0million with ZAO BNP Paribas Bank to finance Petrosakh for certain repayment ofloans from Alfa-Eco M and fund working capital and various capital projects ofPetrosakh. This variable interest debt facility bore interest at LIBOR plus 5.0percent and was repayable through December 2006. The loan was collateralised bya pledge of Petrosakh shares to ZAO BNP Paribas Bank, assignment of crude oilexport contract and a floating pledge over Petrosakh's crude oil inventories. InNovember 2005, this $20.0 million credit facility was repaid from the proceedsof a $100.0 million, 5-year Reserve Based Loan facility underwritten by BNPParibas S.A. In March 2005, Chepetskoye NGDU obtained a $10.0 million, 5-year, 11.0 percentfixed interest loan from OAO Bank Zenit and CNPSEI obtained a $2.0 million,5-year, 11.0 percent fixed loan from OAO Bank Zenit. The bank loans fundedworking capital and certain capital projects. The loans were secured by liens onvarious assets of these subsidiaries. In January 2006, the Bank Zenit loanfacilities were repaid from the proceeds of a $12.0 million, 5-year bulletamortization subordinated loan facility provided by BNP Paribas S.A. Note 12 Capital commitments Exploration licenses-investment commitments In January 2006, the Russian Federal Agency for Natural Resources granted anextension of the Pogranichnoye off-shore license to 1 February 2011. The termsof the license require a total of five exploration wells to be drilled duringthe period 2005-2010. The Company drilled to total depth the first of thesewells in January 2006. Other capital commitments At 30 June 2005, the Company had no other significant contractual commitmentsfor capital expenditures. Note 13 Related party transactions At 30 June 2005 the Group has received unsecured borrowings from shareholdersand companies controlled by shareholders at market rates. The loans formshareholders were received to purchase Petrosakh. Name of party Relationship 30 June 31 December 2004 Currency Interest rate Date of 2005 repayment Nafta B NV Controlled by - 6,822 EURO 10% February 2005 shareholderNafta B NV Controlled by 3,000 - $ 10% August shareholder 2005 Radwood Business Inc. Shareholder 500 500 $ LIBOR plus 2% August 2005 Polaris Business Shareholder 300 300 $ LIBOR plus 2% AugustLimited 2005 Citara International Shareholder 5,000 5,000 $ LIBOR plus 2% AugustLimited 2005 Fantin Finance Limited Shareholder 3,000 3,000 $ LIBOR plus 2% August 2005 Texas Oceanic Petroleum Shareholder 500 1,500 $ LIBOR plus 2% AugustLLC 2005 Hillsilk Limited Shareholder - 330 $ LIBOR plus 2% March 2005UEN Trading Ltd Controlled by - 8,660 $ 10-15% March-December shareholder 2005 Other accounts payable Controlled by 848 1,381 $ shareholder Loans payable 13,148 27,493Interest payable 365 117 Total related partyborrowings 13,513 27,610 Nafta B NV loan at 30 June 2005 was repaid on 17 August 2005 and other loansfrom shareholders were converted into equity on 2 August 2005. The Nafta B NVloan at 31 December 2004 was converted to equity (see Note 6). Other transactions and balances with companies controlled by shareholders are asfollows: 30 June 2005 31 December 2004Balances with related partiesAccounts receivableLoans receivable 1,230 723Accounts payableOther payable and accrued expenses 61 61 Note 13 Related party transactions (continuation) Operations with related parties 1 January 2005 to 30 June 2005 Oil salesSales of crude oil 4,399Associated volumes, tons 13,580Selling, general and admin expensesInterest expense - net 559Management fees received 214Rental fees paid included in selling, general and administrative 172expense Note 14 Subsequent events On 29 July 2005 the Company made a deposit of $5.25 million to KCA Deutag tosecure the services of the T-2000 rig. On 11 July 2005, the Company concluded the acquisition of a 100.0 percent equityinterest in ZAO Arcticneft from OAO LUKoil for approximately $32.5 million. Anadvance of $3.0 million was paid on 24 May 2005, the remaining $16.5 million waspaid on completion in July. As part of this acquisition, $6.8 million inpayables of Arcticneft to LUKoil was repaid on 11 July 2005 and the remaining$13.3 million was paid on 30 August 2005. In addition, the Company reached anagreement to settle a dispute between ZAO Arcticneft and OOO Start, whereby theCompany acquired certain operating assets from Start for $3.0 million, and Startwithdrew all litigation against Arcticneft. Management are currently reviewing their fair value allocations for thistransaction, and consequently believe it is not practicable to disclose suchbalances at this time. On 6 September 2005 the Company paid Petraco $10.0 million plus accrued interestto settle an outstanding loan. On 15 November the Company closed the $70.0 million acquisition of OOO Dinyu.This follows completion of all due diligence and approval from FAS (RussianFederal Antimonopoly Service). The Company acquired 100 percent ownership of OOODinyu and its assets from Lonsdacks Investments Limited. The acquisition was satisfied through a cash consideration of $62.0 millionfunded through a combination of existing cash resources and debt, followingcompletion of a new senior debt facility referred to below. As part of thetransaction, Urals Energy also assumed $8.0 million in debt which was paid offshortly after closing. Subsequent to its purchase of Dinyu, the Company reached an agreement topurchase the 35 percent stake owned by third parties in the 65 percent-ownedsubsidiary of Dinyu, OOO Michayu for $0.2 million. This purchase is in theprocess of legal documentation. In November 2006, the Company closed a five year, revolving Reserve Based LoanFacility with BNP Paribas S.A., underwritten to a maximum commitment of $100.0million. The current available amount of $69.0 million was drawn. The facilityis divided into a senior conforming tranche of $59.0 million bearing interest atLIBOR plus 5.0 percent, and a junior non-conforming tranche of $10.0 millionpriced at LIBOR plus 6.25 percent. In January 2006, the Company obtained a $12.0 million subordinated loan from BNPParibas. The subordinated loan bears interest at LIBOR plus 5.0 percent and isrepayable over five years in one payment on 10 November 2010. Attached to thesubordinated loan were warrants to purchase up to two million of the Company'scommon stock for £3.03 per share. The warrants are exerciseable at any time andexpire in Feburary 2011. The Company used the proceeds from the subordinatedloan to repay its debt to Bank Zenit of $12.0 million. REVIEW REPORT OF THE AUDITORS To the Shareholders and Board of Directors of Urals Energy Public CompanyLimited 1. We have reviewed the accompanying condensed consolidated interim balance sheet of Urals Energy Public Company Limited and its subsidiaries (the "Group") as at 30 June 2005, and the related condensed consolidated interim statements of operations, cash flows and changes in equity for the six months then ended presented on pages 1 through 12. This condensed consolidated interim financial information is the responsibility of the Group's management. Our responsibility is to issue a report on this condensed consolidated interim financial information based on our review. 2. We conducted our review in accordance with the International Standard on Review Engagements 2400. This Standard requires that we plan and perform the review to obtain moderate assurance about whether the condensed consolidated interim financial information is free of material misstatement. A review is limited primarily to inquiries of company personnel and analytical procedures applied to financial data and thus provides less assurance than an audit. We have not performed an audit and, accordingly, we do not express an audit opinion. 3. Based on our review, nothing has come to our attention that causes us to believe that the accompanying condensed consolidated interim financial information has not been properly prepared, in all material respects, in accordance with International Accounting Standard 34 "Interim Financial Reporting". 4. As described in Note 2, this interim condensed consolidated financial information has been restated to give effect to certain items which were improperly reflected in the interim condensed consolidated financial information as originally issued, our report on which was dated 23 September 2005. Moscow, Russian Federation8 February 2006 This information is provided by RNS The company news service from the London Stock Exchange