TIDMUEN
RNS Number : 7635K
Urals Energy Public Company Limited
27 June 2014
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 1(st) 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 Tel: +7 495 795 0300
Officer
Sergey Uzornikov, Chief Financial www.uralsenergy.com
Officer
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$145 per barrel thus securing the
Company's operating cash flows at a level sufficient to maintain
its operations and comply with license requirements at both
fields.
The tanker from Arcticneft was shipped at the beginning of
November 2013.
Operating Results
Year ended
US$'000 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
------------------------------------------ -------- -------
Year ended
Production 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
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END
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