TIDMUEN
RNS Number : 3146C
Urals Energy Public Company Limited
28 September 2018
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulations (EU) No. 596/2014 ("MAR"). With the
publication of this announcement via a Regulatory Information
Service, this inside information is now considered to be in the
public domain.
28 September 2018
Urals Energy Public Company Limited
("Urals Energy", the "Company" or the "Group")
2018 Half Year Results
Urals Energy PCL (AIM: UEN), the independent exploration and
production company with operations in Russia, is pleased to
announce its half-year results for the six months ended 30 June
2018.
Key Points of the Company's activity for the six months ended 30
June 2018:
* Developed reserves for continuing operations and
potential reserves for new developments assessed at a
total of 178 million barrels of 2P by Blackwatch
Petroleum Services
* Successful drilling of South Dagi workover well No 7
and subsequent potential discovery at first
exploration well No1, aimed at gradual offset of
natural decline of Petrosak production, though this
has now stabilised through additional work overs at
approx 900 bbls/day
* Investment in the main port of Sakhalin Island, aimed
at improving margins for fuel oil and providing extra
storage for Petrosak production
* Production at Articneft continues at approx 900
bbls/d, but first tanker loading of the year delayed
until after the interim period end
* Profits and cash flow for the period affected by the
decline in Petrosak production, increased Russian
production taxes and exchange rate movements, as well
as the delay in the sailing of the first tanker
loading, affecting revenues and stock levels at
period end
* Board confident for the year as a whole, and has
confirmed intention to recommend to shareholders at
the AGM to be held in November a dividend for the
year to 31 December 2017 that is equivalent to the
first dividend paid last year
Key statistics for the six months ended 30 June 2018 compared
with the same period in 2017:
Six months Six months % change
ended ended
30 June 30 June
2017 2016
Total production (barrels) 324,392 388,889 -17%
Gross revenue before excise and US$13.1 US$28.0
export duties m m -53%
Gross profit after excise, export US$ 1.0
duties and VAT m US$ 2.8m -64%
Operating profit/(loss) US$(1.4) US$(0.2)m
m
Normalised EBITDA (see definition
below - non IFRS) US$1.1 m US$3.4 m -68%
Net profit/(loss) pre-tax and foreign US$(2.2) US$(0.9)
exchange effects m m
Profit/(loss) for the period US$(3.6) US$(0.8)
m m
Operational highlights
* Total production at Arcticneft during the six months
ended 30 June 2018 reached 156,227 barrels, including
production of 53,424 from Arctic Oil Company Limited
("ANK") (H1-2017: 186,831 barrels, including ANK
production of 55,691 barrels)
* Total production at Petrosakh during the period
reached 168,165 barrels (H1-2017: 202,058 barrels)
* Current daily production at Arcticneft and Arctic Oil
Company is 907 barrels of oil per day ("BOPD")
compared with an average of 863 BOPD for the six
months ended 30 June 2018
* Current daily production at Petrosakh is 920 BOPD
compared with an average of 929 BOPD for the six
months ended 30 June 2018
* In June 2018 Blackwatch Petroleum Services Ltd
("Blackwatch") completed their assessment of the
Company's "Remaining Reserves and Resources
Potential". As of 31 December 2017 the estimated net
attributable Remaining Proved and Probable Reserves
of the Company were 107.0 million barrels. Blackwatch
have also recognised Prospective Resources at the
Company's Ordymsky licence ("RK Oil") in the Komi
Republic. Blackwatch estimated the Company's mean
total 2P reserves to be approximately 178.0 million
barrels
* In June 2018 the Company has completed and tested a
workover of an existing well located on the South
Dagi licence area (Well 7). During well tests, the
daily oil volumes achieved from Well 7 were
approximately 225 bbls/day
* In May 2018 the Company appointed Brandon Hill
Capital Limited as the Group's Financial Adviser for
the purposes of introducing strategic partners such
as oilfield services companies and investors, with
the aim of forming joint venture partnerships or
other suitable structures, and/or raising capital for
our development projects for Articneft and in Komi
* In June 2018 the Company acquired a 23% voting
interest in the Kholmsk commercial seaport, which is
situated on the Western side of Sakhalin Island. The
seaport has bunkering facilities to supply fuel oil
to local fishing fleets and ferries, which are the
main users of the seaport. The Company believes that
the investment in the seaport will allow marketing
its fuel oil directly to clients and therefore
enhancing the margins of its bunker fuel sales
operations. This investment will provide the Company
with greater strategic flexibility in terms of
storage capacity relating to both the importation and
exportation of products from Sakhalin Island
Financial highlights
* Gross profit (after excise, export duties and VAT)
decreased by 64% to US$1.0 million (H1-2017: US$2.8
million)
* Operating loss of US$1.4 million for the period
(H1-2017: loss of US$0.2 million)
* Net loss before income tax of US$4.0 million
(H1-2017: loss of US$0.4 million). The increase in
net loss before income tax was caused by exchange
rate movements during the reporting period. Foreign
currency loss represents 44% of the total amount of
loss
* Underlying net loss before income tax and foreign
exchange effects of US$2.2 million (H1-2017: US$0.9
million)
* EBITDA* decreased to US$1.1 million for the period
from US$3.4 million for the six months ended 30 June
2017, a decrease of 68% with a simultaneous decrease
in EBITDA margins from 15.3% to 9.9%
* Negative net working capital position on 30 June 2018
of US$3.5 million (2017: negative US$1.8 million)
* The Company finished the period with a net debt
position of US$14.6 million (31 December 2017: US$7.1
million) with a year-on year basis Debt/EBITDA ratio
of 3.4 as at 30 June 2018 (31 December 2017:
Debt/EBITDA ratio 1.3)
* On 31 January 2018 Petrosakh entered into a
twelve-month revolving credit facility with the
Sakhalin branch of PJSC Sberbank of Russia
("Sberbank") for a total amount of 300 million
Russian Roubles (representing approximately US$5.2
million at prevailing exchange rates) available to
Petrosakh for working capital financing. This loan
replaced a previous loan which was settled in 2018
* In May 2018, the Company and its subsidiary
Arcticneft entered into a short-term loan agreement
with Petraco Oil Company Limited ("Petraco"). Under
the terms of this agreement, Petraco advanced the
Company US$5.0 million as export shipment
pre-financing. This indebtedness was repaid in August
2018
*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 July 2018, the Company successfully completed a
tanker shipment of 158,191 barrels of crude oil from
Arcticneft. The Company is planning to make a second
tanker shipment later this year in beginning of
November. The estimated volume to be shipped based on
the current volume of crude left in stock and
expected levels of production is around 20,000 tons
(equivalent to 157,400 barrels)
* Ahead of the anticipated November 2018 tanker
shipment, in September the Company has entered into a
pre-export short term loan finance arrangement with
Petraco Oil Company Limited ("Petraco"), under which
Petraco has advanced the sum of US$5.0 million to the
Company
* In August 2018, Arcticneft has settled indebtedness
with Kamchatcomagroprombank in the amount of 175
million Russian Roubles (representing approximately
US$2.8 million at prevailing exchange rates)
* In August 2018, the Company finalized a merger of
Arctic Oil Company (ANK) with Arcticneft. The process
was initiated in the beginning of 2018 following
reregistration of the ANK license
* In September 2018, the drilling of the Group's
planned exploration well (Well 1) at the South Dagi
field on Sakhalin Island has reached the target depth
of 2,207 meters. The casing of Well 1 has been
completed and the next stage of the well's
development is the testing of the discovered object
layers, which has recently been delayed for a least
two months
Mr Andrew Shrager, Chairman, commented: "The results for
the first half of 2018 have been affected by a combination
of lower production volumes as we see the continued natural
decline of our production at Petrosak, increased production
taxes, and having to hold large stocks valued just at cost,
as our first tanker was not loaded until after the period
end. Nevertheless, EBITDA was positive at over US$1 million,
and even after some US$5 million of capital expenditure,
our term debt position remains comfortable."
"The most important events of the period were the successful
work over of well No 7 and the potential discovery well
No 1 at South Dagi, which should progressively help to
offset the decline at Petrosak. The acquisition of a shareholding
in the most important port on Sakhalin Island is part of
the strategy. The objective for this investment is to secure
the future of our refinery at Petrosak, improving throughput
and margins, which we expect to see over the coming months."
"We have initiated a plan that could allow us to acquire
our own fracking fleet for Articneft and continue to investigate
partnerships to develop our Komi reserves and resources."
"We remain confident that we can build a long term future
for the Company, but believe that shareholders should share
in our results, and so are pleased to confirm the intention
to propose at the AGM in November that a dividend should
be paid for the period to 31 December 2017 that is equivalent
to last year's dividend."
For further information, please contact:
Urals Energy Public Company Limited
Andrew Shrager, Chairman Tel: +7 495 795 0300
Leonid Dyachenko, Chief Executive
Officer
Sergey Uzornikov, Chief Financial www.uralsenergy.com
Officer
Allenby Capital Limited
Nominated Adviser and Broker
Nick Naylor / Alex Brearley Tel: +44 (0) 20 3328
5656
www.allenbycapital.com
Copies of this announcement and the financial statements for the
six months ended 30 June 2016 will shortly be available from the
Company's website www.uralsenergy.com in accordance with AIM Rule
26.
Chief Executive Officer's Statement
Operating environment
The six months ended 30 June 2018 were characterised by
continuing increases in crude oil prices in the market. During the
period, oil prices averaged US$68 per barrel (H1-2017: US$52 per
barrel) with the Russian Rouble devaluating on average by 2%
compared with the same period in 2017. Domestic prices for oil
products ranged over the period from US$50 to US$120 per barrel
(H1-2017: US$37 to US$97 per barrel).
Operating results
Period ended
US$'000 30 June
-----------------
2018 2017
------------------------------------------------ -------- -------
Gross revenues before excise and export duties 13,086 27,989
Net revenues after excise, export duties and
VAT 11,187 22,433
Gross profit 997 2,819
Operating (loss)/profit (1,438) (211)
Normalised management EBITDA 1,111 3,433
Total net finance (expense)/benefits (2,539) (212)
(Loss) / profit for the period (3,628) (759)
------------------------------------------------ -------- -------
Period ended
Production 30 June
------------------
2018 2017
----------------------------------- -------- --------
Petrosakh bbls 168,165 202,058
Arcticneft bbls 102,803 131,140
Arctic Oil Company bbls 53,424 55,691
Petrosakh BOPD (average) 929 1,116
Arcticneft BOPD (average) 568 725
Arctic Oil Company BOPD (average) 295 308
Summary table: Gross Revenues before excise and export duties
($'000)
Period ended
30 June
----------------------------------------------- ----------------
2018 2017
----------------------------------------------- ------- -------
Crude oil 676 11,065
Export sales - 10,237
Domestic sales (Russian Federation) 676 828
Petroleum (refined) products - domestic sales 12,401 16,842
Other sales 9 82
----------------------------------------------- ------- -------
Total gross revenues before excise and export
duties 13,086 27,989
----------------------------------------------- ------- -------
For the six months ended 30 June 2018, total gross revenues
decreased by US$14.9 million. This decrease was due to a US$4.7
million decrease in gross revenue form the local market and US$10.2
million of export revenue from Arcticneft as the first 2018 export
shipment from Arcticneft was completed in July 2018, outside of the
interim accounting reference period. A 26% decrease in gross
revenues from the local market was the result of a 27% decrease in
sales volumes, combined with a 4% average increase in refined
products prices in Russian Rouble equivalent. The 2% average
devaluation of the Russian Rouble versus the US Dollar was also a
negative factor in terms of gross revenues during the period.
Stable net back prices for crude oil domestic sales are broadly
in line with the 3% increase in domestic sales price and the 2%
average devaluation of the Russian Rouble versus the US Dollar.
A 3% increase in net back prices for refined products during the
six months ended 30 June 2018 is the result of a combination of a
variety of trends, being: a 4% average increase in sales prices for
refined products and decrease in refinery cost which was partially
offset by a 9% increase of Excise Tax for gasoline and diesel
fractions combined with the devaluation of the Russian Rouble. The
net back for domestic product sales is defined as gross product
sales minus VAT, transportation costs, Excise Tax and refining
costs.
Summary table: Net backs (US$/bbl)
Period ended
30 June
----------------------------------------------- ---------------
2018 2017
----------------------------------------------- ------- ------
Crude oil 48.64 32.07
Export sales - 30.90
Domestic sales (Russian Federation) 48.64 48.48
Petroleum (refined) products - domestic sales 52.63 51.24
Gross profit (net revenues less cost of sales) for the first
half of 2018 decreased by 64% to US$1.0 million (H1-2017: US$2.8
million). The main driver for this decrease was the falling of
sales volumes by 27% and the increase in cost of sales, mainly due
to the higher Unified Production Tax which is linked to increased
Brent crude oil prices as well as the FOREX rate (devaluation of
the Russian Rouble).
Cost of sales for the six months ended 30 June 2018 totaled
US$10.1 million, as compared with US$19.6 million for the six
months ended 30 June 2017, of which US$3.1 million and US$3.2
million respectively represented non-cash items, principally
depreciation, amortisation and depletion.
Without taking into consideration changes in finished goods (the
difference between the cost of finished goods at the end and
beginning of the period) the Company increased its operating costs
in Russian Rouble equivalent by 8% compared with that during the
first half of 2017. The increase of operating cost in Russian
Rouble equivalent is a combination of:
-- a 30% increase in Unified Production Tax, which was caused
by: a 1% legislative increase due to a change in the basis of the
tax calculation, a 31% increase in average Brent oil price and the
2% devaluation of the Russian Rouble (with the last two indicators
being inputs for the production tax rate calculation);
-- a 23% increase in the cost of materials caused by anextensive
workover program at Arcticneft and the planned repair of the
refinery at Petrosakh.
-- A 50% decrease in the cost of additive, caused by decreases in the volume of the refinery; and
-- a 25% decrease in the costs of oil treatment, storage and
other services due to the absence of export shipment during the
first half of 2018 from Arctic Oil Company.
Selling, general and administrative expenses decreased during
the first half of 2018 to US$2.4 million from US$2.8 million during
the same period of 2017. Apart from the Russian Rouble devaluation,
the Company had an average decrease of 13% in Russian Rouble
denominated selling, general and administrative costs in the
period, as compared with the previous period. The main driver of
this decrease was lower loading, transportation and storage
expenses due to the decreased volume of sales from Petrosakh and
the absence of an export shipment at Arcticneft during the
reporting period. This decrease was mitigated by a 16% increase in
employee cost.
The net finance expense for the first half of 2018 was US$(2.5)
million (H1-2017: US$(0.2) million net finance income). This change
was primarily driven by exchange rate movements caused by the
devaluation of the Russian Rouble against the US Dollar in the
first half of 2018 and the interest accrued on the loans in
effect.
The decrease in sales volumes in the six months ended 30 June
2018 in combination with increases in excise tax and production tax
expenses resulted in a consolidated normalised EBITDA of US$1.1
million, compared with US$3.4 million for the first half of 2017,
which corresponded to EBITDA margins of 9.9% and 15.3%
respectively.
Management EBITDA (US$'000) - Unaudited
Period ended
30 June
----------------------------------------------------- ----------------
2018 2017
----------------------------------------------------- -------- ------
(Loss) for the period (3,596) (759)
Income tax (charge) 2,539 336
Net interest and foreign currency (gain)/loss (349) 212
Depreciation, depletion and amortisation 2.485 3,246
----------------------------------------------------- -------- ------
Total non-cash expenses 4,675 3,794
Charge of bad debt provision
Other non-recurrent (income)/losses 32 398
----------------------------------------------------- -------- ------
Total non-recurrent and non-cash items
Normalised EBITDA 1,111 3,433
----------------------------------------------------- -------- ------
Net debt Position
As at 30 June 2018, the Company had net debt of US$14.6 million
(calculated as long-term and short-term debt less cash in bank and
less loans issued). As at 31 December 2017, the Company had net
debt of US$7.1 million. As at 30 June 2017, the Company had net
debt of US$12.2 million.
As at 30 June 2018, the total borrowing of the Company was
US$18.1 million (2017: US$9.9 million), including: US$7.7 million
of credit facilities from the Sakhalin branch of PJSC Sberbank of
Russia, US$2.4 million of debt which was acquired with two private
Russian companies, RK-Oil and BVN Oil, US$2.8 million of short term
borrowings from Kamchatcomagroprombank and US$5.1 million of short
term pre-financing received from Petraco Oil Company.
The loans from Kamchatcomagroprombank and Petraco Oil Company
were repaid in August 2018.
Operational update
Petrosakh
During the period the Company continued its focus on minimising
the natural decline in production on Okruzhnoe field. The natural
decline in production is being addressed by the implementation of
standard technological means, water injections and workovers.
After preparatory work the Company spudded its first well, a
planned exploration well (Well 1), at the South Dagi field on
Sakhalin Island. After delays due to the weather conditions and
rig's mobilisation and operational set up, the Company commenced
drilling during the reporting period. In September 2017 the well
reached the target depth of 2,207 meters.
In parallel, in June 2018 the Company completed and tested a
workover of an existing well located on the South Dagi licence area
(Well 7). During well tests, the daily oil volumes achieved from
Well 7 were approximately 225 bbls/day. However, as announced on 27
September 2018, the full testing of Well No 1, will be delayed for
at least two months, due to a collector pipe becoming stuck in the
well below 1,100 meters during the completion process. Removing
this pipe will require special equipment that is manufactured and
available in Russia, which is required to be brought to the
Island.
Downstream
Petrosakh continues to refine 100% of its crude oil production
and sell all of its refined products to the local market.
The highly competitive nature of the refined products market has
caused the Company to constantly reassess its marketing activity.
The flexible pricing policy and rational use of the favourable
competitive advantages allowed the Company to keep net backs on the
sales of oil and oil products stable. During the reporting period
the Company continues to work to increase the customer base in two
main directions i.e. attracting smaller clients and more active
participation in different tenders thus avoiding additional
intermediaries.
During the navigation period, the Company continued to ship fuel
oil by sea. This allowed the Company to be involved in bunkering
activity which is highly profitable in this region, which added an
additional 20% margin on these sales and decreased the Company's
inventory stock of fuel oil.
The Company continues to upgrade its plant equipment to remain
in line with statutory requirements for fuel quality and to
decrease the cost of refining.
Arcticneft
During the period, the main efforts of the Company continued be
a focus on minimizing the natural decline in field production
through workovers which were performed on seven wells.
In 2017 the Company decided to shift several wells to artificial
oil lifting using jack pumps. A number of jack pumps were partially
installed in 2017. During the first half of 2018 the Company
actively work on completion of this work.
In 2017 the Company engaged Prokon, a geotechnical analysis
company, to update the model for the development of the
Peschanoozerskoye Field. The Company received detailed
recommendations based on several scenarios in August 2018. After a
final discussion with these consultants the Company intends to
present a new development plan of Peschanoozerskoye Field to the
official authorities in October 2018 for final approval. Following
this approval the Company will apply to extend the period of
licence which belonged previously to Arctic Oil Company and expired
in 2019.
Leonid Dyachenko
Chief Executive Officer
Please click on, or paste the following link into your web
browser, to view the associated consolidated financial statements
for Urals Energy Public Company Limited as of and for the six
months ended 30 June 2018 as a PDF document.
http://www.rns-pdf.londonstockexchange.com/rns/3146C_1-2018-9-28.pdf
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END
IR PGUUWBUPRURR
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