Working capital update
23 October 2018
Urals Energy PCL ("Urals Energy" or the "Company")
Working capital update
Dissemination of a Regulatory Announcement that contains inside information according to REGULATION (EU) No 596/2014 (MAR).
Further to the announcements made on 15 October 2018 and 10 October 2018, the board of Urals Energy (AIM:UEN), the independent exploration and production company with operations in Russia, provides the following update on the Group's working capital position and other matters.
The Company's announcements of 15 October 2018 and 10 October 2018 cautioned that unless a solution to the Group's current working capital deficit can be put in place by the end of this month, then the Board will have to take steps to protect the interests of the Group's creditors. The board will shortly appoint an independent firm of accountants to perform a short-term working capital review and a review of any transactions by its 98.56% owned subsidiary, JSC Petrosakh, since 30 June 2018 that are outside of the ordinary course of business (the "Accountants' Review").
As stated in the Company's announcement of 10 October 2018, the proceeds from the next tanker shipment from Arcticneft this year will be of critical importance to the Group's shorter to medium-term working capital position. The tanker is expected to arrive at Kolguev Island on or around 27 October 2018. The board estimates that the Group will receive the proceeds from this shipment on or around the middle of November 2018. The Board notes that local weather conditions may have a significant influence on the achievement of the above timings.
The estimated volume to be shipped from Arcticneft is around 20,000 tons of special light crude oil (equivalent to 157,400 barrels). The gross price per barrel for the coming tanker shipment will be based on an average of the quotations for 'Brent DTD' over a period after the date of the bill of lading. The proceeds from the coming tanker shipment will be subject to deductions for export tax and other duties, the repayment of the pre-export short term loan finance arrangement (as announced on 10 September 2018), transport costs and demurrage costs.
The Group has a number of pressing payment obligations which need to be made by the end of November 2018, some of which are very significant in the context of the Group's current working capital position. In particular, the payment of Arcticneft's accumulated mineral extraction tax liabilities and the payments associated with the logistical resupply of Articneft (food and spare parts) and its wages for October 2018, represent a significant aggregate payment obligation.
As indicated in the Company's announcement of 10 October 2018, the Group had originally earmarked funds in order to satisfy its short-term payment obligations. However, due to the unauthorised actions of Mr Kononov, as detailed in the Company's announcement of 15 October 2018, the board estimates that even after the net cash inflow from the coming tanker shipment the Group will continue to face a working capital deficit of approximately US$3 million.
The renewal of certain of the Group's loan facilities over the coming months is also critical to the Group's medium-term future and the support of the Group's banks will be essential in this process.
The board is in dialogue with Mr Kononov, via his legal advisers, regarding actions to reverse the Group's working capital deficit. Such actions could involve measures to effectively reverse the transactions authorised by Mr Kononov and/or the return of a certain amount of working capital from the Kholmsk commercial seaport (further details of which can be found in the Company's announcement of 15 October 2018). Alternatively, Mr Kononov, or an entity connected with him, could provide interim financial support to the Group. The board caveats, however, that whilst discussions are ongoing, no definitive agreement has been reached with Mr Kononov in respect of any of the potential remedial actions described above (and there can be no guarantee that any such agreement will ultimately be reached) and that such actions may take time to implement. Thus far, there has not been progress on alternative third-party financing solutions.
The Group's working capital position remains highly constrained and is subject to a number of variables, several of which are described above. The board believes that the Accountants' Review is an essential step in determining the financial requirements of the Group, although, in the event that the Group fails to reach agreement on potential solutions to the Group's current working capital deficit (as described above), an outcome of the Accountants' Review could ultimately be that the board is required to take actions to protect the interest of creditors, which could result in part or all of the Group entering into an insolvency process.
Further announcements will be made as appropriate.
For further information, please contact:
Urals Energy Public Company Limited
Andrew Shrager, Chairman
Leonid Dyachenko, Chief Executive 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
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