27 Jun 2014 12:16
Press Release | 27 June 2014 |
Urals Energy Public Company Limited
("Urals Energy" or the "Company")
Final Results
Urals Energy PCL (AIM: UEN), the independent exploration and production company with operations in Russia, is pleased to announce its audited financial results for the year ended 31 December 2013.
Operational highlights
· | Total production at Arcticneft reached 250,426 barrels (2012: 250,394 barrels) |
· | Total production at Petrosakh reached 470,415 barrels (2012: 487,810 barrels) |
· | Current daily production at Arcticneft is 680 BOPD - slightly lower than an average of 686 BOPD for the twelve months ended 31 December 2013 |
· | Current daily production at Petrosakh is 1,168 BOPD compared with an average of 1,289 BOPD for the twelve months ended 31 December 2013 |
· | In November 2013 the Company successfully completed the shipment of 198,537 bbls of crude oil from Arcticneft (2012: 231,594 bbls) |
· | In November 2013 the Company received and reviewed the results of the Passive Seismic Spectroscopy and a separate Micro-Seismic survey, which had been carried out over a selected area in the Western block of Arcticneft. The results showed the possibility of increasing production at Arcticneft from the current horizons with limited capital and operational expenditure. |
Financial highlights
· | In 2013 gross profit improved by 39% to US$12.4 million from US$8.9 million in 2012, and as a result, the Company achieved an operating profit of US$2.8 million for the period, compared with a US$0.1 million in 2012. Net loss of US$0.3 million in 2013 (2012: net profit of US$2.6 million) caused by exchange rate movements during both 2012 and 2013. Without the foreign currency loss US$3.7 million in 2013 and the foreign currency gain of US$2.6 million in 2012, net profit for the year would have increased in 2013 by US$3.4 million |
· | EBITDA increased to US$ 10.5 million from US$ 7.7 million in 2012, an increase of 36% The Company continued to improve its net working capital position with positive net working capital on 31 December 2013 of US$2.0 million (2012: US$1.0 million negative working capital) |
· | Successful implementation of cost reduction program in the previous periods and effective cost management in 2013 resulted in 8% decrease in cost of sales |
· | Significant improvement in net cash generated from operating activities allowed the Company to pay the outstanding interest amount of US$3.0 million to Petraco Oil Company Limited and finish 2013 with a net cash position of US$6.0 million (2012: net cash US$3.0 million). |
Post-period end and outlook
· | The annual planned tanker shipment for export from Arcticneft to Petraco is expected in October / November 2014 |
·
| The Company has appointed a new Chief Geologist, who has undertaken reviews of both Petrosakh and Articneft. As a result, the Company believes that it will be possible to increase daily incremental production, after the successful implementation of this plan, by 6-7%, offsetting some of the decline in production last year. At Articneft, the Company will commence a programme of re-entering existing wells which should allow better recovery at marginal incremental cost, instead of side tracking, which had been the Company's intention. Management in geological and production functions at both Petrosakh and Arcticneft will be reinforced with new hires, and all drilling activity will be contracted out to third party service providers, the selection of which is underway. |
·
| In May 2014 the Company entered into a secured short-term loan agreement with Petraco under which Petraco will advance the sum up to US$7.6 million. The proceeds of the Loan will be used to both progress its 2014 drilling plan and working capital financing |
·
| During the 1st quarter of 2014 the Company performed a series of tests of catalytic equipment for potential instalment in Petrosakh. Preliminary results show that the equipment will allow an increase in the yield of certain light oil products from 20% to 60%. During the second part of the year the Company will evaluate offers of potential providers of equipment in order to make a final decision |
· | Recent works on well 112 at Petrosakh have been suspended due to prolonged and problematic drilling and unacceptable results to date. At present the near-term drilling program is being evaluated |
·
| Before year-end the Company is expecting to issue a new reserve assessment report prepared by Miller and Lents, as well as a reserve report made in accordance with Russian standards |
·
| The management has increased its activity in the M&A field and is evaluating a number of potential assets and licenses that may be of interest either in the form of a merger, acquisition, joint venture or a farm-out, and/or a preceding or unrelated divestiture of an existing asset. |
Alexei Maximov, Chief Executive, commented:
"2013 has been a challenging year for Urals Energy, even though the Company has successfully removed its legacy issues and entered a period of financial stability. The plans of the management were heavily disrupted by a hostile requisition of an EGM by Fire East and Alpcot and their backers, as well as the surfacing of an alleged "debt repayment agreement" ("ADRA") believed by the Company to be concocted by Vyatcheslav Rovneiko in order to get away with not paying the London Court of International Arbitration award. Both issues have taken their toll, in time and resources, and required the full effort of the Board and management (in the latter part of 2013 and first quarter of 2014) in order to be resolved.
The Board received overwhelming support from its shareholders at the EGM, and the ill-driven attempt to take over the management of the Company with detrimental consequences to all the shareholders had been fended off.
The Board reiterates that it believes that the ADRA is a forgery, that the Company has no legal obligation whatsoever in this regard, and has initiated legal action and a criminal investigation of the ADRA and V. Rovneiko in Cyprus and Russia.
For the first time in many years the Company became debt free and was able to fully leverage its existing asset base. This enabled us to proceed with our plans to increase production at both of our assets and improve net backs at Petrosakh. We anticipate continued improvements in EBITDA which will allow us to consider farm-ins and acquisitions, as part of a controlled M & A strategy.
We are also pleased to have solidified our shareholder base and strengthened the Board with two new non-executive directors who are actively assisting management in pursuing new ways to grow the Company."
- Ends -
For further information, please contact:
Urals Energy Public Company Limited | |
Alexei Maximov, Chief Executive Officer | Tel: +7 495 795 0300 |
Sergey Uzornikov, Chief Financial Officer | www.uralsenergy.com |
Allenby Capital Limited Nominated Adviser and Broker | |
Nick Naylor | Tel: +44 (0) 20 3328 5656 |
Alex Price | www.allenbycapital.com |
Media enquiries:
Abchurch | |
Henry Harrison-Topham / Quincy Allan | Tel: +44 (0) 20 7398 7710 |
henry.ht@abchurch-group.com | www.abchurch-group.com |
The annual report and accounts for the year ended 31 December 2013 will today be posted to shareholders and will shortly be available from the Company's website www.uralsenergy.com in accordance with AIM Rule 20.
Chief Executive Officer's Statement
2013 Financial
Operating Environment
2013 was characterised by a stable crude oil market price at an average level of US$110 per barrel. Domestic prices for light oil products ranged from US$100 to US$145 per barrel thus securing the Company's operating cash flows at a level sufficient to maintain its operations and comply with license requirements at both fields.
The tanker from Arcticneft was shipped at the beginning of November 2013.
Operating Results
US$'000 | Year ended 31 December | |
2013 | 2012 | |
Gross revenues before excise and export duties | 64,844 | 64,986 |
Net revenues after excise, export duties and VAT | 50,267 | 49,884 |
Gross profit | 12,423 | 8,854 |
Operating profit | 2,787 | 126 |
Normalised management EBITDA (unaudited) | 10,501 | 7,722 |
Total net finance (expense)/benefits | (3,191) | 2,580 |
(Loss) / profit for the year | (273) | 2,621 |
Production | Year ended 31 December | |
2013 | 2012 | |
Petrosakh bbls | 470,415 | 487,810 |
Arcticneft bbls | 250,426 | 250,394 |
Petrosakh BOPD (average) | 1,289 | 1,336 |
Arcticneft BOPD (average) | 686 | 686 |
Summary table: Gross Revenues before excise and export duties ($'000)
Year ended 31 December | ||
2013 | 2012 | |
Crude oil | 24,703 | 27,335 |
Export sales | 21,607 | 24,960 |
Domestic sales (Russian Federation) | 3,096 | 2,375 |
Petroleum (refined) products - domestic sales | 39,802 | 37,131 |
Other sales | 339 | 520 |
Total gross revenues before excise and export duties | 64,844 | 64,986 |
In 2013, total gross revenues decreased by US$0.1 million as a result of decrease in sales volume offsetted by higher average net back prices for petroleum (refined) products of US$71.94 per barrel (US$63.11 in 2012) and higher crude oil (domestic sales) net back price of US$59.62 per barrel (US$52.38 in 2012). Net back for domestic product sales is defined as gross product sales minus VAT, transportation costs, excise tax and refining costs.
In 2013 all domestic sales of crude oil and almost all petroleum (refined) products were related to Petrosakh. In 2013 Arcticneft sold petroleum (refined) products for US$1.3 million (US$1.5 million in 2012).
Summary table: Net backs (US$/bbl)
Year ended 31 December | ||
2013 | 2012 | |
Crude oil | 53.91 | 54.39 |
Export sales | 52.45 | 54.76 |
Domestic sales (Russian Federation) | 59.62 | 52.38 |
Petroleum (refined) products - domestic sales | 71.94 | 63.11 |
Other sales | - | - |
Gross profit (net revenues less cost of sales) in 2013 increased by 39% to US$12.4 million from a profit of US$8.9 million in 2012. The main driver of the increased profit in 2013 was higher netbacks.
Cost of sales in 2013 totalled US$37.8 million as compared with US$41.0 million in 2012 of which US$5.9 million and US$5.8 million respectively represented non-cash items, principally depreciation, amortisation and depletion. Decrease in operating costs mainly explained by the decrease in sales volume and increase in crude oil and oil products inventory levels respectively. At the same time due to the strong monitoring procedures implemented the Company managed to keep all other operating costs in line with the level achieved in 2012.
Selling, general and administrative expenses increased during the year 2013 by US$0.6 million to US$9.3 million from US$8.7 million in 2012. Without the charge for the provision for doubtful accounts receivable US$0.9 million in 2013 and US$1.6 million in 2012 selling, general and administrative expenses would have increased during the year 2013 by US$1.2 million. This was primarily caused by the increase in professional consultancy fees by US$0.4 million (due to increase of professional fees related to EGM, and non-recurrent expenses related to legal action and a criminal investigation of the ADRA and V. Rovneiko in Cyprus and Russia), and by the increase in transport and shipment services by US$1.1 million, due to the changes in the marketing policy, which led simultaneously to substantial additional mark up in net backs.
The net finance expenses during 2013 were US$3.2 million and net interest income was US$0.5 million (for the 2012: net finance benefits of US$2.6 million and net interest expense of US$0.1 million). Net finance expenses for the period primarily consist of exchange rate movements. In 2013 US$ strengthened vs. Russian Rouble by 8%, while in 2012 there was an opposite situation, and the Russian Rouble strengthened vs. US$ by 6%.
Increase of net finance costs in 2013 resulted in a net loss for the year attributable to shareholders of US$0.4 million (for 2012: net profit of US$2.3 million). Without the foreign currency loss of US$3.7 million in 2013 and foreign currency gain of US$2.6 million in 2012, net profit for the year attributable to shareholder would have increased during the year 2013 by US$3.6 million.
The increase of net backs and the decrease of cost of sales in 2013 resulted in a consolidated normalised management EBITDA increase by US$2.8 million to US$10.5 million in 2013 compared with US$7.7 million in 2012, with EBITDA margins of 20.9% and 15.5% respectively.
Management EBITDA (US$'000) - Unaudited
Year ended 31 December | ||||
2013 | 2012 | |||
(Loss)/profit for the year | (273) | 2,621 | ||
Income tax (benefit)/charge | (131) | 85 | ||
Net interest and foreign currency loss/(gain) | 3,191 | (2,580) | ||
Depreciation, depletion and amortisation | 5,591 | 6,410 | ||
Total non-cash expenses | 8,651 | 3,915 | ||
Charge of bad debt provision | 990 | 1,633 | ||
Charge/(release) of unused vacation provision | 67 | (633) | ||
Other non-recurrent losses | 1,066 | 186 | ||
Total non-recurrent and non-cash items | 2,123 | 1,186 | ||
Normalised EBITDA | 10,501 |
7,722 | ||
Net debt Position
At 31 December 2013 the cash liquidity had improved following the positive cash flows from operating activity in 2013.
As at 31 December 2013 the Company had net cash of US$6.0 million (calculated as long-term and short-term borrowings less cash in bank and loans issued to related parties). As at 31 December 2012 net cash was US$3.4 million.
The Company repaid the remaining interest outstanding in the amount of US$3.0 million to Petraco Oil Company Limited in November 2013.
As at 31 December 2013, the long-term and short-term borrowing of the Company was nil (31 December 2012: US$3.0 million).
During 2013 the Group additionally impaired a loan to a related party by US$1.0 million (during 2012 the Group impaired a loan to the same related party and other receivables from related party by US$1.6 million). This amount relates to an overdue loan to shareholder and former member of management of the Group. The Board demanded repayment of the full amount by 20 May 2011. By 20 May 2011 the Board did not receive any response from the related party and the Company therefore filed the claim to the London Court of International Arbitration. This arbitration has confirmed the Company's legal rights, vindicated its position and issued a final award that the sum in the amount of US$6.3 million (including loan amount and interest) and legal cost in the amount of US$1.3 million must be repaid to Urals Energy together with a daily accumulating interest. The Company has formally demanded payment from Mr Rovneiko and is committed to using all appropriate means to collect the outstanding amount. For accounting purposes management has reassessed the carrying value of the loan and has impaired this fully. However, this does not reduce the validity of the legal claim against this related party.
Operational update
Petrosakh
In 2013 the Company continued its focus on minimising natural decline in production and exploring new ways of increasing output. Unfortunately, due to difficult geological conditions Petrosakh continues to experience problems with drilling new wells. Thus, due to equipment malfunction, collapse of bedrock and sediment, and other technical problems, the expected completion of drilling has been delayed several times, which recently forced the Company to halt all works on well 112 until the conclusion of management restructuring at Petrosakh.
Downstream
Petrosakh refines and sells domestically 100% of its crude oil production. Being the only company on the island, which has a refinery, Urals Energy continues to work in a highly competitive refined products market brought to the island from mainland by the state-owned conglomerate Rosneft.
The flexible pricing policy and rational use of the favourable competitive advantages allowed the Company to increase net backs on the sales of oil and oil products by 13.8% and 14.0% respectively to US$59.62 per barrel and US$71.94 per barrel. This is in spite of the increase in excise rate of 31% from January 2013.
In the fourth quarter of 2013 Petrosakh successfully participated in tenders with State-owned companies and managed to win the contracts with the major local customers for fuel shipment during the winter period. The contracts were signed with JSC "Sakhalinenergo" (the main electricity and heating supplier on the island) and several municipal heating companies.
In October 2013 the Company completed the testing of a new additive for gasoline production. The research showed that the usage of the new additive would lead to increase in the yield of light oil products at a lower cost. The first batch of new additive was purchased in November 2013 and starting from the beginning of 2014 the Company fully adopted the use of the new additive.
At the end of 2013 the passing of new Federal Excise Law provided for further indexation of excise rates for gasoline in 2014 - 2016. For Euro 4 gasoline produced by Petrosakh the increase will be 11% and 9% in 2014 and 2015 respectively. In 2014 the excise rate will be equal to 9,916 Rubles per ton in 2015 - 10,858 Rubles per ton. In 2016 there will be no any changes in excise rate compared with 2015.
Arcticneft
Current production at Arcticneft is stable and stands at 680 BOPD. As in recent years, the tanker is planned to be loaded and shipped in October - November 2014.
During the reporting period the main efforts of the Company were focused on minimising the natural decline in production through workovers. In addition, a passive seismic spectroscopy and micro-seismic survey were carried out in selected areas of the Western block. The results revealed five main trends of hydrocarbon potential consistent with the existing exploration strategy. The Company is planning to use this survey report for new deposit assessment and its future drilling program.
Having analysed the costs and benefits of sidetrack drilling, the Company performed an independent geological analysis of the existing wells stock in Arcticneft. The results of this research show that subject to certain workovers, temporally abandoned wells could be put into operation, which will allow an increase in the production and at lower cost than side-tracks drilling.
Petraco loan
In 2013 the Company settled its remaining indebtedness to Petraco Oil Company ("Petraco") totalling US$8.6 million. This settlement consisted of US$3.0 million of the remaining interest payment outstanding in accordance with the restructuring agreement entered into with Petraco in April 2010 and US$5.6 million repayable under the short term loan received from Petraco in 2013.
ADRA
After receiving for the first time the ADRA in late 2013, the Board conducted an internal investigation of the "document" and the details of its materialisation and concluded that the ADRA is a forgery, which does not comply with any of the corporate procedures employed in the Company since its inception, and represents an attempt by its former director Vyatcheslav Rovneiko to blackmail the Board and the Company in order to avoid paying back the loan he took from the Company along with other monies awarded by the London Court of International Arbitration by its decision of 2012.
The Company has initiated legal proceeding against Rovneiko and his companies both in Russia and Cyprus, as well as criminal investigation thereof.
Outlook
The Board recognises and shares the frustration of our shareholders about the mediocre share price, even though the present market conditions and overall state of trading on AIM, especially among its peers, indicates a general industry trend. Having lost at least six months on the issues related to the EGM, the management is nevertheless committed to continue leading the Company to full recovery and growth by improving its operations, strengthening the Company's balance sheet and pursuing new opportunities for growth.
The Company will continue its thrust to increase production and cash generation at both Arcticneft and Petrosakh. For these purposes the Company is implementing a long needed major management and personnel restructuring at both assets and in the home office, which will cover all aspects of the Company's daily life.
The Company is planning to load and ship a tanker for export from Arcticneft in Q4 2013. We will continue improving our refining capabilities and product offering at Petrosakh with the aim of focusing on cash generation.
The Board is presently evaluating several M&A opportunities and believes that the time has come for actively pursuing an increase in the Company's asset base.
As the Russian saying goes: "A warrior with battle scars is worth two new recruits". The Board believes that it will prevail in fending off all attacks of hostile parties and will bring the Company to the next evolutionary cycle.
Alexei Maximov
Chief Executive Officer
http://www.rns-pdf.londonstockexchange.com/rns/7635K_-2014-6-27.pdf