Volga Gas PLC Conclusion of FSP and Operational Update (2389D)
27 January 2015 - 9:35PM
UK Regulatory
TIDMVGAS
RNS Number : 2389D
Volga Gas PLC
27 January 2015
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PART, DIRECTLY OR INDIRECTLY, IN, INTO OR FROM ANY JURISDICTION
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27 January 2015
Volga Gas plc
("Volga Gas", the "Company" or the "Group")
CONCLUSION OF FORMAL SALE PROCESS AND
OPERATIONAL UPDATE
Conclusion of Formal Sale Process
Following the announcement by the Company of a formal sale
process on 5 June 2014 a number of proposals were received from
interested parties. However none of the proposals have been deemed
by the Board to represent a fair value for the Company. In light of
the more recent economic developments, the Board has concluded that
there is unlikely to be an acceptable proposal in the immediate
future. As a result, Volga Gas announces that the formal sale
process has been concluded with immediate effect and, as such,
Volga Gas is no longer in an offer period for the purposes of the
City Code on Takeovers and Mergers.
The Board remains confident in the outlook for the Company and
its potential to continue delivering value to shareholders.
Considerable progress has been made in recent years to bring the
Company's main assets into production, which has resulted in strong
cash generation and profitability. On 10 July 2014 the Company
announced a policy to pay up to 50% of net profits as a cash
dividend, the first payment under which was made to shareholders on
24 October 2014. The Company has a robust balance sheet with no
debt and the Board is confident that it can continue to operate
profitably in spite of the recent strong downturn in oil and gas
prices and the economic conditions currently prevailing in Russia,
and will be capable of continuing with the development of its
assets to the benefit of shareholders.
Operational Update
Group production during 2014 was 4,244 boepd reflecting
continued steady production from the Vostochny Makarovskoye ("VM")
field offset by declines in oil production in the second half and
some plant maintenance downtime during October and December 2014.
Declines in international oil prices during the period have been
accompanied by a similar drop in the US dollar/Ruble exchange rate,
so that while the revenues, as reported in US dollars would be
expected to decline, the major part of the Group's costs, being in
Rubles, have commensurately declined in US dollar terms. During
December 2014 the selling price of its oil and condensate averaged
US$31.50 per barrel compared to the average US$48.00 per barrel
achieved in H1 2014. Gas sales prices, while they have been steady
in Ruble terms have fallen in US dollar terms to US$59.00 per
thousand cubic metres.
Certain changes to the taxes applied to oil and gas in Russia
announced during 2014 have come into effect. The major change
relevant to Volga Gas is the significant increase in the rate of
Mineral Extraction Tax ("MET") that applies to gas condensate,
which has now been brought in line with the MET on crude oil. The
MET formula rate on crude oil also has increased although the
actual rate charged will reflect significantly lower international
oil prices which are used to calculate the rates. Another change
coming into effect in Russia is a significant reduction in oil
export tax rates. While Volga Gas would not directly benefit from
this as it sells all production in domestic markets, it can be
expected that domestic prices would adjust to reflect these lower
export taxes, albeit in the light of the currently lower
international oil prices.
Volga Gas is confident that with its competitive cost base and
strong balance sheet it can continue to operate and provide
positive cash flow and develop its assets with its existing
resources. Having converted much of its cash balances from Rubles
to US dollars, the Group's liquidity position remains healthy.
VM Well #3
Further to the announcement of 11 November 2014, Volga Gas
agreed with the drilling contractor a cost effective means of
completing the VM#3 production well. Operations have recommenced
with the aim of completing it in time to commence production during
the first half of 2015. In addition, a rig is being mobilized to
drill a sidetrack to the VM#4 well which is currently not
producing. Since the drilling contracts are in Roubles, the cost to
the Company of these wells in US Dollars will be significantly
lower than previously budgeted.
The existing wells on the VM field continue to produce strongly
and maintain current group production capacity at a level of
approximately 4,500 boepd.
LPG Project
The Group in undertaking front end engineering and design work
on a further enhancement to the Dobrinskoye Gas Plant to enable it
to extract propane and butane ("LPG") as a separate product stream.
Initial studies suggest that the estimated US$30 million capital
cost could be recovered within 2 to 3 years from the incremental
profits from this project. Further announcements on this project
will be made as it progresses towards a final investment
decision.
For further information, please contact:
Volga Gas plc
+7 495 721 1233
Mikhail Ivanov, Chief Executive Officer +44 (0)20 8622
Tony Alves, Chief Financial Officer 4451
Oriel Securities Limited (Nominated Adviser +44 (0)20 7710
and Broker) 7600
Michael Shaw, Ashton Clanfield
+44 (0)20 3727
FTI Consulting 1000
Edward Westropp, Alex Beagley
Editors' notes:
Volga Gas is an independent oil and gas exploration and
production company operating in the Volga region of Russia. The
company has 100% interests in its four licence areas.
The information contained in this announcement has been reviewed
and verified by Mr. Mikhail Ivanov, Director and Chief Executive
Officer of Volga Gas plc, for the purposes of the Guidance Note for
Mining, Oil and Gas companies issued by the London Stock Exchange
in June 2009. Mr. Mikhail Ivanov holds a M.S. Degree in Geophysics
from Novosibirsk State University. He also has an MBA degree from
Kellogg School of Management (Northwestern University). He is a
member of the Society of Petroleum Engineers.
Glossary
bbl Barrel
Bopd Barrels of oil per day
Bpd Barrels per day
Boepd Barrels of oil equivalent per day, in which 6,000 cubic
feet of natural gas is equated to one barrel of oil
mmcf/d Millions of standard cubic feet per day
This information is provided by RNS
The company news service from the London Stock Exchange
END
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