2017 Half Year Results

28 September 2017

Urals Energy PCL ("Urals Energy" or the "Company")
2017 Half Year Results

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.

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 2017.

Key statistics for the six months ended 30 June 2017 compared with the same period in 2016:

Six months
30 June 2017
Six months
30 June 2016
Total production (barrels)                          388,889 362,634 +7%
Gross revenue before excise and export duties US$ 28.0 m US$ 8.9 m +215%
Gross profit after excise, export duties and VAT US$ 2.8 m US$ 2.3 m +22%
Operating profit/(loss) US$ (0.2) m US$0.6 m -133%
Normalised EBITDA (see definition below - non IFRS) US$ 3.4 m US$2.2 m +55%
Net profit/(loss) pre-tax and foreign exchange effects  US$ (0.9) m US$0.3 m -400%
Profit/(loss) for the period US$ (0.8) m US$3.4 m -123%

Operational highlights

  • Total production at Arcticneft during the period reached 186,831 barrels, including production of 55,691 barrels from Arctic Oil Company Limited ("ANK") (H1-2016 production at Arcticneft alone: 122,491 barrels)
  • Total production at Petrosakh during the period reached 202,058 barrels (H1-2016: 240,143 barrels)
  • Current daily production at Arcticneft and Arctic Oil Company is 985 barrels of oil per day ("BOPD") compared with an average of 1,032 BOPD for the six months ended 30 June 2017
  • Current daily production at Petrosakh is 1,072 BOPD compared with an average of 1,116 BOPD for the six months ended 30 June 2017
  • In June 2017, the Company successfully completed a tanker shipment of 240,232 barrels of crude oil from Arcticneft (2016: 225,283 barrels)
  • During the period, the Company actively worked in the South Dagi area on the preparation of the field development plan, an exploration drilling project and a trial production project involving new exploration wells
  • The majority of work at the South Dagi area has been completed. The Board expects the development plan documentation to be finalized during the fourth quarter of 2017
  • In April 2017, the Company spudded Well 102, which is located on the main Petrosakh licence area. The testing has now been completed
  • The location of Well 102 is at an area of the reservoir where porosity is relatively low compared with other areas of the reservoir and its flow on completion was 25 BOPD
  • In April 2017, the Company spudded its first well on its Ordymskiy block in the Komi Republic. Our contactor, Vis-Mos Llc, made slow progress and poor performance in drilling and in July 2017 the Company gave the contactor notice of termination
  • The Company is in discussions with new drilling contractors and expects to spud a new well at the Komi site in December 2017
  • In June 2017, the Company signed a rig delivery contract with Jereh Group, a Chinese company. The rig will be deployed to drill our first well at South Dagi
  • Extraordinary General Meeting held on 26 May 2017, which resulted in a share consolidation and the approval for a reduction of the Company's share premium account which was completed in August 2017

Financial highlights

  • Gross profit (after excise, export duties and VAT) increased by 22% to US$2.8 million (H1-2016: US$2.3 million)
  • Operating loss of US$(0.2) million for the period (H1-2016: operating profit US$0.6 million)
  • Net loss before income tax of US$(0.4) million (H1-2016: US$3.3 million net profit). The fluctuation in net profit before income tax was partly caused by exchange rate movements during both periods
  • Underlying net loss before income tax and foreign exchange effects of US$(0.9) million (H1-2016: profit of US$0.3 million)
  • EBITDA* increased to US$3.4 million for the period from US$2.2 million for the six months ended 30 June 2016, an increase of 55% with a simultaneous decrease in EBITDA margins from 30.1% to 15.3%
  • Improved net working capital position at 30 June 2017 of US$6.2 million (31 December 2016: US$5.6 million)
  • The Company finished the period with a net debt position of US$12.3 million (31 December 2016: US$5.1 million) with a debt/EBITDA ratio of 3.8 as at 30 June 2016 (31 December 2016: Debt/EBITDA ratio 0.9)
  • In February 2017, the Company entered into a new 24 month non-revolving CAPEX credit facility with the Sakhalin branch of OJSC Sberbank of Russia. Under this loan, Sberbank provided the sum of 50 million Russian Roubles (representing approximately US$0.85 million at prevailing exchange rates)
  • In April 2017, 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 s advanced the Company US$3.0 million as export shipment pre-financing. This indebtedness was repaid in July 2017

*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

  • The Company is planning to make a second tanker shipment this year in October. The estimated volume to be shipped based on the current volume of crude left in stock and expected levels of production is around 24,500 tons (equivalent to 193,550 barrels)
  • In August 2017, the representative of Blackwatch Petroleum Services, the Competent Person firm engaged by the Company to carry out an update of the Company's reserves, started work on the Competent Person's Report on the Company's portfolio of licences. The Company expects that the evaluation of reserves will be finalized before the end of 2017  
  • In August 2017, the new rig that had been acquired for South Dagi licence area arrived on the Island of Sakhalin and was delivered to the oil field
  • The Company currently anticipates that the first well at South Dagi will be spudded by the end of October. All regulatory approvals have been recently received
  • In September 2017, the Company entered into a pre-export short term loan finance arrangement with Petraco Oil Company Limited ("Petraco") under which Petraco will advance the sum of US$3.0 million to the Company ahead of the anticipated October 2017 tanker shipment from Kolguev Island
  • The Company has recently entered into a new 36 month non-revolving credit facility with the Sakhalin branch of OJSC Sberbank of Russia. Under this loan, Sberbank provided the sum of 70 million Russian Roubles (representing approximately US$1.2 million at prevailing exchange rates)
  • In September 2017, the Company signed an umbrella contract with a supplier of condensate from the Kamchatka region. Approximately 90,000 barrels of condensate are to be delivered to Petrosakh and processed at our refinery. The Company believes that having this additional volume available for processing will lead to a positive effect on the Company's operating cash flow during the upcoming winter period
  • On 9 November 2017, the Company plans to hold its Annual General Meeting where shareholder approval for a first dividend payment will be sought, equivalent to a gross payment of US$0.062 per ordinary share, payable in December 2017

Mr Shrager, Chairman commented: "The results for the first half of 2017 were affected by the fact that Mineral Extraction Tax payable on our Kolgyuev Island shipment in June was determined by the oil price in April to May. The oil price had stayed in a range of US $50 to 55 bbl. between April and May, but fell to around $44 bbl. in June around the time of loading, which is the basis for our contractual terms.

Despite this, we achieved a significant increase in normalized EBITDA, although with a lower margin than expected due to the weak oil price, as noted above.

We remain determined to continue with our strategy of developing our expanded portfolio. On Sakhalin Island, we will spud our first well on the South Dagi licence in October. Production here should help offset the decline at Petrosak and allow for higher utilisation of our refinery - the only one on the Island.

On Kolgyuev Island, we are completing our development plan and assuming that the oil price remains around current levels, the implementation of our plans should lead to improved cash flows and thus an ability to step up work overs and introduce further techniques to expand production.

We continue to review the acquisition of new licences, especially where there are potential synergies with our existing operations.

Our maiden dividend, expected to be approved by shareholders at our forthcoming AGM and paid in December, is a sign of the Board's confidence in the potential of our portfolio."


Full Interim Results Announcement


For further information, please contact:

Urals Energy Public Company Limited
Andrew Shrager, Chairman
Leonid Dyachenko, Interim Chief Executive Officer
Sergey Uzornikov, Chief Financial Officer
Tel: +7 495 795 0300, www.uralsenergy.com

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 2017 will shortly be available from the Company's website www.uralsenergy.com in accordance with AIM Rule 26.


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