VGAS.L Regulatory News (VGAS)

17 Sep 2007 07:01

Volga Gas PLC17 September 2007 17 September, 2007 VOLGA GAS PLC Interim results for the six months ending 30 June 2007 Volga Gas, the oil and gas exploration and production company which holds threesubsoil licences in the Volga Region of European Russia, announces it maideninterim results for the 6 months ending 30 June 2007, following its admission toAIM on 29 April 2007, when it raised $135 million (before expenses). Highlights In the period since Admission, Volga Gas has: O Drilled Uzenskaya Well #1 on the Karpenskiy Licence Area ("KLA"),which flowed 2.5 cubic meters of oil for just less than 30 minutes of testing(125 m3 a day or 788 bbls of oil per day) at API of 34 in a drillstem test. O Uzenskaya #2 flowed water at good rates, confirming good collectorproperties. The well has now been liquidated. O Completed the acquisition of 107km2 of 3D seismic over theYuzhny-Ershovskoye and 160km2 on the Yuzhny-Mokrousovskoye structure. The datais now being processed and interpreted by Schlumberger. O The seismic crew will return to the Karpenskiy Licence Area laterthis year to acquire 140 km2 of 3-D seismic, in aggregate, over six identifiedsupra-salt structures. O BK Eurasia to spud first well over for the Vostochny-MakarovskoyeLicence Area end-September. O Acquiring 20km2 of 3-D seismic over the Vostochny-MakarovskoyeLicence Area. Processing and interpretation will follow once the acquisition iscomplete. O Entered into a memorandum of understanding with ZAO Trans Naftafor the development and construction of surface infrastructure for theVostochny-Makarovskoye and Dobrinskoye gas-condensate fields. O Entered into a contract with Saratovneftegeophysika to acquire1,500km of 2-D seismic over the Pre-Caspian Licence Area over the next threeyears. Mikhail Ivanov, Chief Executive Officer of Volga Gas, said: "The highlight of the first half of the year was the Company's IPO. With theproceeds we have focused on our two core areas of operations: ongoingexploration of the Yuzhny-Ershovskoye and Yuzhny-Mokrousovskoye structures onthe Karpenskiy Licence Area and the development of a surface infrastructure planfor Vostochny-Makarovskoye Licence Area so that we can commence production onschedule before end 2008. In addition, we were delighted with the results ofUzenskaya Well #1, which came in ahead of expectations and which will allow usto have first revenues late this year." - Ends - For additional information please contact: Financial DynamicsJonathon Brill / Billy Clegg / Ekaterina Alferova +44 (0)20 7269 7170 KBC Peel Hunt (Nominated Adviser) +44 (0)20 7418 8900Jonathan Marren Alina Savych Chairman's Statement The highlight of the first half of the year was the Company's successfuladmission to AIM on April 25th where we raised $135 million, before expenses,including a $10 million over-allotment option. With significant cash on hand, Volga Gas is now focused on its two mainoperational areas: sub-salt exploration on the Karpenskiy Licence Area ("KLA")and bringing the Vostochny-Makarovskoye Licence Area into production. Theancillary shallow drilling programme on the KLA commenced with the successfulUzenskaya #1 well and will bring early, unanticipated, cash flow by the end of2007. The Urozhainoye-2 licence, which was acquired at auction, demonstratesmanagement's ability to grow opportunistically through the acquisition ofundervalued assets either via auctions or mergers and acquisitions. The price inflation and concomitant rig scarcity in the Russian oilfieldservices sector sees little sign of abating. Volga Gas is seeking, wherepossible, to enter into long-term fixed price contracts and is investigating theopportunity to acquire some limited drill rig capacity. Despite the priceinflation, Volga Gas has entered into high quality contracts to provide servicesacross its three licence areas which are, in aggregate, less than its initialforecasts. Operational Update Karpenskiy Licence Area Sub-Salt Saratovneftegeophysika has now completed 107km2 of 3-D seismic onYuzhny-Ershovskoye and 160km2 on Yuzhny-Mokrousovskoye. The data from bothstructures has been delivered to Schlumberger and interpretation and processingis ongoing. The results will be ready early next year to allow for commencementof field operations during the first half of 2008. Supra-Salt The initial drill stem tests from Well Uzenskaya #1 were promising. The wellflowed at an equivalent of 788 barrels of oil per day in a drill stem test.Management does not believe that these flow rates will be replicated inproduction. Nonetheless, we expect that we will be able to bring the first wellin to production by the end of 2007. Volga Gas' first revenues, albeit limited,will be a year ahead of the forecast we made at the time of the IPO.Unfortunately, Uzenskaya #2 tested high rates of water in the Jurassic andTriassic layers, confirming good collector properties, and has been liquidated. Six potential supra-salt structures have been identified on the Karpenskiylicence area. Saratovneftegeophysika will acquire 140km2 of 3-D seismic in 4Q2007 and the drilling programme will continue in 2008 once this data has beenprocessed and interpreted. Vostochny-Makarovskoye Licence Area The Company entered into a drilling contract with BK Eurasia for the first of alimited number of wells to be drilled on Vostochny-Makarovskoye. The rig isbeing constructed and will commence drilling operations by the end of September.Consecutively, we are continuing to acquire 20 km2 of 3-D seismic. Theseismic acquisition programme is designed to update some of the older 2-Dseismic in order to design the most efficient drilling programme. Our newly-hired Production Director, Asgad Khabibullin, is approaching the endof the planning process, with Trans Nafta, for the development of a gas andcondensate processing facility. We are confident that the facility will beoperational to meet our end-2008 expected first significant revenue date. Pre-Caspian Licence Area Volga Gas has contracted with Saratovneftegeophysika to acquire 1,500km of 2-Dseismic. Acquisition is expected to commence in late 4Q 2007. Urozhainoye-2 On 7 September the Company won the auction for the Urozhainoye-2 licence in theSaratov Oblast for RUR 4.4 million (US$ 1.7 million). This licence covers354km2 and is located some 15km to the north of the KLA. The licence hasRussian category C1 recoverable reserves of 0.8 million barrels of oil. Thereare no C2 or C3 reserves as no seismic was previously acquired across thelicence area however, D1 recoverable resources of 49 million barrels of oilequivalent were estimated. This acquisition is in line with the Company's strategy to utilise management'slocal knowledge to identify, acquire and exploit undervalued assets which areclose to existing markets and infrastructure. Financial Perfomance The loss after tax for the 6 months ending 30 June 2007 was US$ 1.233 million.The net cash balance at 30 June 2007 of US$ 111.454 million was in line with ourexpectations. As explained in the notes to the accounts, during the six monthsended 30 June 2007, the Company had very limited operations and the historicnumbers for the other companies in the current Group extant at that time are notconsidered to be representative. For these reasons no comparative figures forthe six months ended 30 June 2006 have been presented. Outlook Following Volga Gas' successful admission to AIM the management team has startedto secure the contracts to complete the exploration of Yuzhny-Ershovskoye andYuzhny-Mokrousovskoye on the KLA and bring Vostochny-Makarovskoye in toproduction by end 2008. Our ancillary supra-salt drilling programme on the KLAhas begun encouragingly and is expected to deliver first revenue beforeyear-end. Volga Gas remains on the look out for suitable acquisition targets toenhance our portfolio. I look forward to the remainder of 2007 and beyond with confidence. Alexei Kalinin Chairman 14 September 2007 Condensed Consolidated Income Statement (presented in US$ 000) Notes Half year ended 26 October 2005 to 30 June 2007 31 December 2006Continuing operationsRevenueOperating expensesAdministrative expenses 3, 4 (1,644) (979)Operating loss (1,644) (979)Other gains and losses 20 740 5Finance costs 12 (373) (414)Loss for the period before tax (1,277) (1,388)Tax 14 44 117Loss for the period (1,233) (1,271)Loss per ordinary share-Basic and diluted 6 0.03 4.72 Condensed Consolidated Balance Sheet (presented in US$ 000) Notes 30 June 31 December 2007 2006Non-current assetsGoodwill 21 107 105Deferred tax 14 168 117Exploration and evaluation assets 10 27,636 25,190Other non-current assets 11 734 332Property, plant and equipment 9 31 38 28,676 25,782Current assetsDerivative financial assets 18 271 -Other receivables 7 832 1,070Cash and cash equivalents 16 111,454 3,328 112,557 4,398Total assets 141,233 30,180EquityShare capital 13 1,034 579Share premium (net of issue costs) 13 140,515 15,251Other reserves 19 992 1,048Accumulated deficit (2,504) (1,271)Total equity 140,037 15,607Non-current liabilitiesLong term loans 12 - 13,012Current liabilitiesTrade and other payables 8 1,196 1,147Current portion of long term debt 12 - 414 1,196 1,561Total liabilities and shareholders' equity 141,233 30,180 Condensed Consolidated Cash Flow Statement(presented in US$ 000) Notes Six months ended 26 October 2005 to 30 June 2007 31 December 2006 Net cash outflow from operating activities 17 (1 100) (458) Investing activitiesPurchase of intangible assets 10 (1 949) (4,309)Purchase of property, plant and equipment 9 - (38)Net cash used in investing activities (1 949) (4,347) AcquisitionsPurchase of subsidiary undertakings - (21,297) Financing activitiesProceeds from issue of shares (net of issue costs) 13 125 190 15,830(Repayment) /advance of long term borrowings 12 (14 015) 13,600Net cash from financing activities 111 175 29,430 Net increase in cash and cash equivalents 108 126 3,328Cash and cash equivalents at beginning of the 3 328 -period Cash and cash equivalents at end of the period 111 454 3,328 Consolidated Condensed statement of changes in shareholders equity (presented in US$ 000) Notes Share Share Other Currency Accumulated Total Capital Premium Reserves Translation Deficit Reserve Opening equity as at 26 - - - - - -October 2005 Loss for the period - - - - (1,271) (1,271)Share capital issued 579 15 251 - - - 15,830Discount on long term debt - - 588 - - 588Adjustments on translation - - - 460 - 460of non-Dollar subsidiariesClosing equity 579 15 251 588 460 (1,271) 15 607attributable to thecompany's equity holdersat 31 December 2006 Opening equity as at 01 579 15 251 588 460 (1 271) 15 607January 2007 Loss for the period - - - - (1 233) (1 233)Share capital issued 13 450 134 550 - - - 135 000Expense of issue 13 - (9,810) - - - (9 810)Discount on long term debt - - (588) - - (588)Share based payments 4,13 5 524 - - - 529Adjustments on translation - - - - 532 - 532of non-Dollar subsidiariesClosing equity 1 034 140 515 - 992 (2 504) 140 037attributable to thecompany's equity holdersat 30 June 2007 VOLGA GAS PLC AND ITS SUBSIDIARIESCONDENSED INTERIM FINANCIAL STATEMENTSFOR THE PERIOD ENDED 30 JUNE 2007 NOTES 1. Organisation and Principal Activities Volga Gas plc (the "Company" or "Volga") is a limited company registered inEngland and Wales. The principal activities of the Company and its subsidiaries(the "Group") are the acquisition, exploration and development of hydrocarbonsin the Volga Region of the Russian Federation. Its registered office is at 7thfloor, Phoenix House, 18 King William Street, London, EC4N 7HE. 2. Basis of Preparation of the Financial Statements and SignificantAccounting Policies Basis of Preparation These condensed interim financial statements for the half year ended 30 June2007 has been prepared in accordance with IAS 34, "Interim financial reporting".The interim condensed financial report should be read in conjunction with theannual financial statements for the year ended 31 December 2006. Comparativefigures are given for the period from 26 October 2005 to 31 December 2006. Nocomparative figures for the six months ended 30 June 2006 are given as minimalactivity had commenced by that date. Accounting Policies The interim financial statements have been prepared in accordance withaccounting policies set out in the Financial Statements for the year ended 31December 2006. The description of existing accounting policies has been expandedonly to clarify presentation of certain new transactions. Derivative Financial Instruments Derivative financial assets and financial liabilities are financial instrumentswhose value changes in response to an underlying variable, require little or noinitial investment and are settled in the future. The Company uses derivativessuch as foreign exchange forward contracts to minimize risks of changes inforeign exchange rates. The Group does not apply hedge accounting in respect offorward foreign exchange contracts as the management believe that existingderivative does not qualify for hedge accounting. Consequently, movements in thefair value of derivative instruments are immediately recognized in the profitand loss account. Share-based Payment A share-based payment is a transaction in which the entity receives or acquiresgoods or services either as consideration for its equity instruments or byincurring liabilities for amounts based on the price of the entity's shares orother equity instruments of the entity. The Company measures the equityinstruments granted to employees at the fair value at grant date. Fair value offully vested shares is expensed immediately. Fair value of shares with vestingrequirements is estimated using Black-Scholes option pricing model. This valueis recognized as an expense over the vesting period on straight-line basis. 3. Operating Loss Operating loss is stated after charging; 30 June 2007 31 December 2006US$ 000 Directors' emoluments and other benefits 796 164Consultancy 498 -Salaries 110 224Rent & Communications 44 40Public relations 13 -Legal 18 106Audit fees 39 45Travel and transport 38 45Taxes (excluding payroll taxes) 34 -Other 54 355Total Administration Costs 1 644 979 4. Directors' emoluments and other benefits Amounts in table below represent directors' emoluments and other benefits from01 January 2007 to 30 June 2007. Salary Share based Other(b) compensation(a) US$ 000 US$ 000 US$ 000Executive directors:Mikhail Ivanov 157 313 -Alistair Stobie 80 156 50Non executive directors:Ronald Freeman 15 30 -Steven Ogden 15 30 - 267 529 50 a) Details of directors' interests in the share capital of the Companyare provided in Note 13 b) Alistair Stobie received a special bonus in respect of theCompany's admission to AIM. This bonus is included within costs associated withthe issue of capital. Shares issued to non-executive directors have no vesting conditions, they werevalued at the placing price of US$ 6 each and were fully-expensed during thereporting period. The fair value of restricted shares issued to Mikhail Ivanov and Alistair Stobiewas measured by use of the Black-Scholes pricing model with the followingassumptions: Current share price US$ 6Exercise price US$ 0.02Expected volatility 3.36%Expected life 2.66 yearsRisk free rate 5.6%Expected dividends None 5. Staff Costs The average monthly number of employees employed by the Group was: 30 June 2007 31 December 2006Exploration and Production 7 5Administration and Support 7 5 14 10Their aggregate remuneration comprised* US$ 000Wages and salaries 83 181Payroll taxes & social contribution 27 43 110 224 * Executive directors' remuneration is not included. For details of Directors'remuneration see separate disclosure in note 4. 6. Loss per ordinary share 30 June 2007 31 December 2006 US$ US$ Net loss attributable to equity shareholders (per share) 0.03 4.72 Basic weighted number of shares 42 582 168 269 085 7. Other Receivables 30 June 2007 31 December 2006 US$ 000 US$ 000 Prepayments relating to proposed AIM listing - 769Trade accounts receivable 8 6Prepayments to suppliers and contractors 824 295 832 1 070 8. Trade and Other Payables 30 June 2007 31 December 2006 US$ 000 US$ 000 Trade and other payables 1 196 1 147 1 196 1 147 9. Property, Plant and Equipment Land & Production Office furniture Vehicles Total Buildings machinery & & equipment equipment US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 Gross value at 01 January 2007 - - - 38 38Additions - - - - -Disposals - - - - -Transfers - - - - -Gross value at 30 June 2007 - - - 38 38Accumulated depreciation at 01 - - - - -January 2007Additions - - - (7) (7)Disposals - - - - -Accumulated depreciation at 30 - - - (7) (7)June 2007Net value at 30 June 2007 - - - 31 31 10. Exploration and evaluation assets At 30 June 2007 E & E assets consisted of intangible assets such as licenses,studies and exploratory drilling. Karpensky Vostochny Pre Caspian Other Total license and Makarovskoye license license and evaluation & and evaluation & evaluation & exploration exploration exploration US$ 000 US$ 000 US$ 000 US$ 000 US$ 000 Value at 01 January 2007 2 264 21 215 1 489 222 25 190Additions 1 879 70 - - 1 949Disposals - - - -Transfers - - - -Translation to presentation 46 421 30 - 497currencyValue at 30 June 2007 4 189 21 706 1 519 222 27 636 11. Other non-current assets 30 June 2007 31 December 2006 US$ 000 US$ 000 VAT recoverable 734 332 734 332 12. Loans On 27 April 2007 the Group repaid US$ 14 388 900 of principal amount plusaccrued interest to Cavendish Nominees Ltd. This loan obligation was settled infull. 30 June 2007 31 December 2006 US$ 000 US$ 000 Interest accrued on loans from Cavendish Nominees Ltd 373 414Total interest expense 373 414 All inter-Group borrowings are eliminated on consolidation. 13. Shareholders' Equity On 22 March 2007, the authorized share capital of the Company was increased toGBP 3 307 201 by the creation of 3 000 000 shares of GBP 1 each. On the same day each Volga Gas issued share ofGBP 1 was subdivided into 100 shares of GBP 0.01 each. In April and May 2007 the Company, to finance its work programme in Russia,issued 22 500 000 new ordinary shares of GBP 0.01 at GBP 3(US$ 6) each. Costsassociated with issue of these shares were US$ 9.8 million. The following table summarises the movement in the share capital and sharepremium of the Company during the six months of 2007 Share capital and share premium Share capital Share premium Number of shares US$ 000 US$ 000At 01 January 2007 307 201 579 15 251Number of shares before subdivision 307 201 - -Subdivision of shares 30 720 100 - -Issue of shares: - - -public placement (net of expenses) 22 500 000 450 124 740-shares issued to directors (a) 272 564 5 524At 30 June 2007 53 492 664 1 034 140 515 a) The following table summarises directors' interests in the share capital ofthe Company. Directors At 1 January 2007 At 30 June 2007 Number of shares Allotted during Total number of allotted the period shares allottedExecutive directors: Mikhail Ivanov - 175 032 175 032 Alistair Stobie - 87 532 87 532Non executive directors: Ronald Freeman - 5 000 5 000 Steven Ogden - 5 000 5 000 - 272 564 272 564 At their date of appointment on 14 March 2007 the two non executive directorswere granted 10 000 shares. The Company entered into restricted share agreements with Mikhail Ivanov andAlistair Stobie, executive directors of the Company. Under these agreementsMikhail Ivanov is granted 525 100 shares of the Company and Alistair Stobie isgranted 262 600 shares of the Company. Shares are issued in 6 tranches from 19March 2007 to 15 May 2009. At 30 June 2007 two tranches had been issued to theexecutive directors and further tranches are conditional on their continuedemployment with the Company. The exercise price of these share grants is equalto share nominal price of GBP 0. 01. Measurement of directors' share based payments is disclosed in Note 4. 14. Taxes The movement in deferred tax assets and liabilities in the period ended 30 June2007 was as follows: US$ 000 Carrying amount at 01 January 2007 117Increase for the period 44Translation to presentation currency 7Carrying amount at 30 June 2007 168 15. Related Party transactions Related Party Nature of Nature of Business Transaction Transaction Transaction Value Relationship DateGranite Affiliated with Services Company 31-Mar-2007 Salaries, rent, US$507 771Consulting Controlling services ShareholderCavendish Controlling Holding Company 27-Apr-2007 Repayment of loan US$14 388 900Nominees Shareholder 16. Cash and Cash Equivalents Included in cash and cash equivalents is an interest bearing deposit of US$ 5.5million with the Royal Bank of Scotland. The Company is required to have thisdeposit in order to secure its obligations under the forward currency contractwith the Royal Bank of Scotland (for details of this contract refer to Note 18). Currency Analysis Denominated in US$ 000US$ 95 360GBP 530Russian Roubles 15 564 111 454 17. Cash flows used in operating activities 01 January 2007 to 30 June 26 October 2005 to 2007 31 December 2006 US$ 000 US$ 000 Loss for the period before tax (1 277) (1,388)Adjustments for:Depreciation 7 -Gain on forward contract (271) -Share grant expense 529 -Operating cash prior to working capital (1 012) (518)Increase in trade and other receivables (902) -Increase in payables 814 -Net cash outflow from operating activities (1 100) (458) 18. Forward currency contract In June 2007 the Company entered into a non-deliverable forward currencycontract to sell US$ 50 million for 1 290 500 000 Russian Roubles with the RoyalBank of Scotland. The contact settlement date is 4 February 2008. At 30 June2007 an unrealized gain of US$ 271 000 relating to the contract was credited tothe income statement. 19. Other Reserves - Group 30 June 2007 31 December 2006 US$ 000 US$ 000Discount on long term loan from related party - 588Adjustments on translation of non-Dollar subsidiaries 992 460 992 1 048 20. Other Gains and Losses 30 June 2007 31 December 2006 US$ 000 US$ 000 Interest income 473 -Gain on forward currency contract 271 -Depreciation charge (7) -Foreign exchange gain 3 5Total other gains and losses 740 5 21. Goodwill US$ 000 Carrying amount at 01 January 2007 105Translation to presentation currency 2Carrying amount at 30 June 2007 107 22. Subsequent Events On 7 September the Company won a government-mandated auction for Urozhainoye-2licence area with a total bid of RUR 44 400 000 (US$ 1.7 million). The licencecovers 354km2 in the Saratov Oblast and includes 0.8 million barrels of RussianCategory C1 reserves. This information is provided by RNS The company news service from the London Stock Exchange