TIDMUEN
RNS Number : 4147C
Urals Energy Public Company Limited
28 June 2016
28 June 2016
Urals Energy Public Company Limited
("Urals Energy" or the "Company")
Final results for the year ended 31 December 2015
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 2015.
Key statistics for the year ended 31st December 2015 compared
with same period in 2014:
2015 2014
Total production (barrels) 675,318 662,215 +2%
Gross revenue before excise US$ 31.4 US$58.2
and export duties m m -46%
Gross profit after excise, US$ 7.1 US$8.7
export duties and VAT m m -18%
Operating profit US$3.37m US$ 1.17m +188%
EBITDA (see definition US$7.7 US$8.1
below - not audited) m m - 5%
Net profit pre tax and US$2.9 US$1.6
FX effects m m +81%
US$4.1 US$13.7
Loss for the year m m -70%
Operational highlights
-- Total production at Arcticneft reached 253,592 barrels (2014: 240,865 barrels)
-- Total production at Petrosakh reached 421,726 barrels (2014: 421,350 barrels)
-- Current daily production at Arcticneft is 676 BOPD compared
with an average of 695 BOPD for the twelve months ended 31 December
2015
-- Current daily production at Petrosakh is 1,317 BOPD, 14%
higher than an average of 1,155 BOPD for the twelve months ended 31
December 2015
-- In August 2015 the Company successfully completed the
shipment of 217,282 bbls of crude oil from Arcticneft (2014:
207,940 bbls)
-- In 2015 the Company completed the drilling of two wells and
started to drill a third well at Petrosakh and this has enabled the
Company to maintain stable production during the reporting
period
-- In 2015 the Company successfully implemented a work over
program of re-entering existing wells in Arcticneft which resulted
in a 5.3% increase in yearly production
-- In October 2015 the Company expanded the boundaries of its
license area at Arcticneft and added ABC1 reserves of 1.3 million
tonnes (10.3 million barrels of oil)
-- In November 2015 the Company acquired two companies (RK-Oil
Limited and BVN Oil Limited) which hold licenses in the Komi
region. The licenses presently have indicated oil reserves of 2.0
million tons C1 and C2 (equivalent to 14.9 million barrels), and
possible recoverable resources (D1) of 4.6 million tons (equivalent
to 34.3 million barrels)
Financial highlights
-- Gross profit reduced by 18% to US$7.1 million (2014: US$8.7 million)
-- Operating profit of US$3.3 million for the year (2014: US$1.2 million)
-- Net loss before income tax of US$4.3 million in 2015 (2014:
net loss of US$16.1 million) caused by exchange rate movements
during both 2015 and 2014. Without the foreign currency losses of
US$7.2 million in 2015 and US$17.7 million in 2014, profit before
income tax for the year would have increased in 2015 by US$1.3
million. A significant portion of foreign currency losses relate to
intercompany loans denominated in US$.
-- EBITDA* decreased to US$7.7 million from US$8.1 million in
2014, a decrease of 4.9% with simultaneous growth of EBITDA margins
to 28.5% from 18.2%
-- Negative net working capital position on 31 December 2015 of
US$0.3 million (2014: US$1.6 million positive)
-- Continuous effective cost management in the period allowed
the Company to decrease the operating costs and SG&A costs in
Russian Rouble equivalent by 8.2% and 5% respectively, in addition
to a decrease of 70% in US$ denominated G&A.
-- Net cash generated from operating activities allowed the
Company to finance the acquisition of new exploration licences. At
the same time, in line with its development strategy the Company
entered into an 18 month revolving credit facility for working
capital financing with the Sakhalin branch of OJSC Sberbank of
Russia
-- The Company finished 2015 with a net debt position of US$2.2
million (2014: net cash US$4.4 million) with Debt/EBITDA ratio
equal 0.51 as at 31 December 2015
*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
-- In March 2016 the Company completed Well 109 drilling at
Petrosakh which is now at the stage of testing and workover, bur
requires further intervention
-- The annual planned tanker shipment for export from Arcticneft
to Petraco is expected in July - August
2016. The estimated shipment based on current daily production is around 230,000 bbls
-- In May 2016 the Company entered into a secured short-term
loan agreement with Petraco under which Petraco advanced US$6
million to the Company. The proceeds of the Loan will be used to
working capital financing
-- In June 2016 the Company has been awarded a 25 year
exploration and development licence for the South Dagi oil field on
Sakhalin Island, following an auction by the Russian State
Authorities with Russian State Registered reserves C1 plus C2,
equivalent to 2P (proven and probable) around 17.7 million
barrels
Andrew Shrager, Chairman of Urals, commented: "Our results show
that the Company has weathered a truly extraordinary period of
volatility in the oil price and the FX markets. We have been able
to maintain production, reduce costs substantially, particularly
costs denominated in US dollars, and moderate the fall in our cash
generation which can be seen in the modest fall in EBITDA. Our
strategy continues to be to use our cash generation to invest in
workovers to maintain production and to acquire licences. We now
have a substantial portfolio of additional proven and probable
reserves that can be developed as conditions improve. There has
been little or no competition in acquiring licences as other
companies tend to be either highly leveraged or not generating
cash. We will continue to be cautious in 2016, maintain our
production levels and seek potential acquisitions."
Ends -
For further information, please contact:
Urals Energy Public Company
Limited
Andrew Shrager, Chairman Tel: +7 495 795
Leonid Dyachenko, Interim 0300
Chief Executive Officer
Sergey Uzornikov, Chief www.uralsenergy.com
Financial Officer
Allenby Capital Limited
Nominated Adviser and Broker
Nick Naylor Tel: +44 (0) 20
3328 5656
Alex Brearley www.allenbycapital.com
The accounts for the year ended 31 December 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
Year ended 31 December 2015
Operating environment
In 2015 the Company continued to operate in a challenging
environment with high volatility in the crude oil market price at
an average level of US$52 per barrel (2014: US$98) as well as high
volatility in the Russian FOREX market. Domestic prices for light
oil products ranged from US$38 to US$95 per barrel (2014: US$61 to
US$155).
Operating Results
Year ended
US$'000 31 December
-------------------
2015 2014
------------------------------------------ -------- ---------
Gross revenues before excise and
export duties 31,429 58,204
Net revenues after excise, export
duties and VAT 27,213 44,481
Gross profit 7,115 8,704
Operating profit 3,337 1,170
Normalised management EBITDA (unaudited) 7,743 8,103
Total net finance expense (7,590) (17,271)
Loss for the year (4,055) (13,699)
------------------------------------------ -------- ---------
Year ended
Production 31 December
------------------
2015 2014
--------------------------- -------- --------
Petrosakh bbls 421,726 421,350
Arcticneft bbls 253,592 240,865
Petrosakh BOPD (average) 1,155 1,154
Arcticneft BOPD (average) 695 660
Summary table: Gross Revenues before excise and export duties
($'000)
Year ended
31 December
----------------------------------------- ----------------
2015 2014
----------------------------------------- ------- -------
Crude oil 12,366 19,991
Export sales 10,078 17,883
Domestic sales (Russian Federation) 2,288 2,108
Petroleum (refined) products - domestic
sales 18,868 37,890
Other sales 195 323
----------------------------------------- ------- -------
Total gross revenues before excise
and export duties 31,429 58,204
----------------------------------------- ------- -------
In 2015, total gross revenues decreased by US$26.8 million
caused by a US$18.8 million decrease in gross revenue on the local
market and a US$7.8 million from export shipment. A 47% decrease in
gross revenue on the local market was a result of 59% average
devaluation of Russian Rouble vs US dollar. This was partly offset
by 10% increase in refined products prices in Russian Rouble
equivalent, which was also offset by a decrease in sales volume of
22% due to the fire that occurred at the Petrosakh refinery at the
beginning of the year. A 44% decrease in gross revenue from export
shipment resulted from a 46% decrease in crude oil market price
(2015: US$46 per bbl, vs 2014: US$86 per bbl.). This was also
partially offset by a 5% increase in the volume shipped in 2015, as
well 69% decrease of export duty rate for the period of shipment
from Arcticneft.
Relatively low world oil prices and foreign exchange rates in
2015 led to a decrease in average net back prices, both for crude
oil export and domestic sales of petroleum (refined) products. A
decrease in average net back prices for petroleum (refined)
products was partly offset by 26.4% decrease in excise rates for
gasoline in 2015 in Rouble equivalent. Net back for sales is
defined as gross product sales minus VAT, export duty,
transportation costs, excise tax and refining costs.
Summary table: Net backs (US$/bbl)
Year ended
31 December
----------------------------------------- ---------------
2015 2014
----------------------------------------- ------- ------
Crude oil 34.02 40.90
Export sales 31.65 38.32
Domestic sales (Russian Federation) 43.97 54.98
Petroleum (refined) products - domestic
sales 51.06 65.26
Other sales - -
----------------------------------------- ------- ------
Gross profit (net revenues less cost of sales) in 2015 decreased
by 18% to US$7.1 million from a profit of US$8.7 million in 2014.
The main drivers for this decrease were lower netbacks and the
decline of sales volumes.
Cost of sales in 2015 totalled US$20.1 million as compared with
US$35.8 million in 2014 of which US$4.6 million and US$6.2 million
respectively represented non-cash items, principally depreciation,
amortisation and depletion. The decrease in operating costs is
mainly explained by exchange rate fluctuation. In addition, and
despite the level of inflation of 13% in Russia over 2015, the
Company managed to decrease its operating costs in Russian Rouble
equivalent by 8.2% (adjusted for 1.9% production increase and 9.6%
unified production tax increase) when compared with that achieved
in 2014.
Selling, general and administrative expenses decreased during
2015 to US$3.9 million from US$8.7 million in 2014. The Company
continued to demonstrate an average decrease in Russian Rouble
denominated SG&A cost of 5% in 2015 when compared with
2014.
Professional and consultancy fees incurred were mainly
denominated in US dollars and represented a significant portion of
the previous total SG&A costs. A material amount of such fees
in 2014 were due to the requisitioned EGM, non-recurrent expenses
relating to legal action and the criminal investigation of the ADRA
and Vyatcheslav Rovneiko in Cyprus and Russia and the severance
payment to the former CEO of the Company, Alexei Maximov. At the
end of 2014 the Company had settled all outstanding litigation and
pending or threatened disputes and this resulted in a US$2.2
million decrease in SG&A cost in 2015.
Net finance expenses during 2015 were US$7.6 million (2014:
US$17.3 million). Net finance expenses for the period primarily
consisted of exchange rate movements from the strengthening of US$
vs the Russian Rouble in 2015.
Net finance costs in both 2015 and 2014 resulted in a net loss
for the year attributable to shareholders of US$4.1 million and
US$13.6 million respectively. Without the foreign currency loss of
US$7.2 million in 2015 and US$17.7 million in 2014, profit before
income tax for the year would have been US$2.9 million in 2015
(2014: US$1.6 million).
The decrease in sales volumes and net backs in 2015 largely
offset by stable Rouble denominated costs and a decrease in US$
denominated G&A resulted in a decrease in consolidated
normalised management EBITDA of US$0.4 million to US$7.7 million in
2015, compared with US$8.1 million in 2014. EBITDA margins were
28.5% and 18.2% respectively in 2015 and 2014.
Management EBITDA (US$'000) - Unaudited
Year ended
31 December
------------------------------------------- -------------------
2015 2014
------------------------------------------- -------- ---------
(Loss) for the year (4,055) (13,699)
Income tax (benefit) (198) (2,402)
Net interest and foreign currency
loss 7,590 17,417
Depreciation, depletion and
amortisation 4.329 6,473
------------------------------------------- -------- ---------
Total non-cash expenses 11,721 21,342
Charge of bad debt provision - 913
Charge/(release) of unused
vacation provision 50 (437)
Other non-recurrent (income)/losses 27 (162)
------------------------------------------- -------- ---------
Total non-recurrent and non-cash
items 941 460
Normalised EBITDA 7,743 8,103
------------------------------------------- -------- ---------
Net debt position
As at 31 December 2015, the Company had net debt of US$2.2
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.
As at 31 December 2015, the total borrowing of the Company was
US$3.9 million, including a US$2.2 million 18 month revolving
credit facility from the Sakhalin branch of OJSC Sberbank of
Russia, plus US$1.7 million of debt which was acquired with two
private Russian companies, RK-Oil and BVN Oil.
As at 31 December 2014 the Company was debt free.
Operational update
Petrosakh
In 2015 completed the drilling and testing of two wells: # 112
and # 54. These wells have enabled the subsidiary to keep
production in 2015 broadly stable at the same level as 2014. At the
end of 2015 Petrosakh commenced the drilling of well # 109.
Unfortunately, due to difficult geological conditions, Petrosakh
has continued to experience problems with well # 109, which has
started to produce modest amounts of oil, but needs further
intervention to reduce high pressure water from deeper horizons
flowing to the surface.
The Board has decided to defer drilling of additional wells at
Petrosakh until the completion of further geological
investigations, and will instead focus on minimising the natural
decline in production and exploring new ways of increasing
output.
Downstream
Petrosakh continues to refine and sell 100% of its crude oil
production to a highly competitive local refined products
market.
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 increased stock. At the end
of the reporting period the Company had 49,429 barrels of crude oil
and 30,557 barrels of refined product in stock (2014: 6,193 bbls
and 16,758 bbls respectively).
Downstream strategy of the Company is concentrated now on the
following areas:
-- Follow a flexible pricing policy and a rational use of the
competitive advantages that have allowed the Company to increase
its customer base
-- Keep net backs on the sales of oil and oil products stable by
decreasing selling expenses, concentrating on saving in storage and
transport services and involvement in small wholesale and retail
markets
-- Increase the production yield via equipment upgrades and the use of new additives
-- Find new market niches, both on the island and neighbouring regions
Arcticneft
During the reporting period the main efforts of the Company
continued be a focus on minimising the natural decline in
production through workovers. During the period the Company
perforated, re-entered and performed acid stimulation of seven
wells in total. This resulted in a 5.3% increase in Arcticneft's
production in 2015. These workovers have proven effective and the
Company plans to continue this approach, which the Board believes
should enable production levels to be maintained.
In 2015 the Company was granted an additional license by the
Russian regulatory authorities that expanded the boundaries of its
license area at Arcticneft, which has added 10.3 million barrels of
reserves ABC1 (equivalent to 2P).
The tanker is planned to be loaded and shipped in mid-July, but
may be deferred until late in August, as we negotiate shipping
arrangements.
Taxation
Following the changes adopted by the Russian government at the
end of 2014, there will be a gradual increase in Mineral Extraction
Tax, combined with a simultaneous decrease in Export Duty and
Excise Tax over the next three years. An additional set of changes
in the Russian tax legislation was approved at the end of 2015 and
in the first quarter of 2016.
The main changes are the following:
- Starting in 2016, decreases in Export Duty have been frozen
- At the same time the Excise Tax for EURO - IV gasoline was
increased twice in 2016, by a total of 79.5% starting from the
second quarter of 2016
- Several additional diesel fractions are now subject to Excise Tax.
The Board anticipates that the new changes in the tax
legislation will increase the tax burden on the Company. It is also
clear that the development of oil fields in Russia now requires a
higher net return after taxes.
Borrowings
In May 2015 the Company entered into a short-term loan agreement
with Petraco, under which Petraco agreed to advance the sum of
US$6.0 million to the Company. The Company received US$6.0 million
under the agreement. The loan, including the accrued interest, was
fully repaid in October 2015 as a result of the non-cash settlement
transactions involving trade receivables from crude oil sales to
Petraco.
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 300 million Russian Roubles via several
tranches to Petrosakh for working capital financing.
On 19 November 2015 the Group acquired two private Russian
companies, OOO RK-Oil and OOO BVN Oil. These companies have
long-term and short-term borrowings totalling US$1.8 million, which
include US$1.7 million loans from Transnational Bank which are due
for repayment from November 2018 to January 2019. In April 2015
Transnational Bank lost its Central Bank of Russia license.
Post year end acquisition activity
In June 2016, the Company was awarded a 25 year exploration and
development licence for the South Dagi oil field on Sakhalin
Island, following an auction by the Russian State Authorities. The
licence, with an area of 28.8 sq. kms, was the subject of an
earlier exploration and appraisal programme in the 1970s, followed
by additional seismic work done in the middle of 1990s and 2007.
During these periods two exploratory and six appraisal wells were
drilled. Russian State Registered reserves C1 plus C2, equivalent
to 2P (proven and probable), on the South Dagi license area are
17.7 million barrels, with C3 or possible reserves of 9.0 million
barrels. At shallow levels, the oil is relatively heavy (23.5 -
25.5degAPI), with light oil (36.5 - 37.5degAPI), similar to the oil
at the Company's Petrosakh operation, at lower horizons. The
auction bid price was Russian Roubles 134.6 million, equivalent to
US$2.1 million, and thus approximately 12 cents US per barrel of 2P
reserves.
The Company's plan is to design and seek approval for a
Development Plan for the South Dagi license with the official
authorities, which is expected to involve a drilling program with
the objective of producing up to 2,000 bbls/day over the next five
years. The oil from South Dagi will be transported by road tanker
to the Company's refinery at Petrosakh, a distance of 400 kms,
increasing the utilisation rate of the refinery, which will not
need additional investment to process both the heavy and light oils
produced at South Dagi. The payment for the South Dagi licence was
funded from the Company's existing capital resources, while its
development will be financed on a project basis with a loan from
local banks, which is being negotiated.
It remains the Company's intention to have a reserve report
prepared by a Competent Person later in 2016.
Strategy
Our strategy is to:
-- Continue workovers at our two operations, so as to maintain
production levels to the greatest extent possible
-- Enhance refinery margins at Petrosakh by adjusting its product mix
-- Prepare the Petrosakh refinery so that it is able to
accommodate imported crude oil, to increase refinery throughput
-- Seek economies where possible to offset Russian Rouble cost inflation
-- Delay major capex required to exploit undeveloped reserves at
Arcticneft until there is more confidence in the oil market
-- Look to acquire further exploration licences for modest
considerations and limited initial spending obligations
-- Assess the potential to secure long term funding, so that we
are able to proceed with the development of the Company's
substantial reserve at Arcticneft and drilling at the new licences
that we have acquired, 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.
Leonid Dyachenko
Interim Chief Executive Officer
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