2018 Half Year Results

28 September 2018

Urals Energy PCL ("Urals Energy" or the "Company")
2018 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 2018.

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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 ended 30 June 2017 Six months ended 30 June 2016 % change
       
Total production (barrels) 324,392 388,889 -17%
Gross revenue before excise and export duties US$13.1 m US$28.0 m -53%
Gross profit after excise, export duties and VAT US$ 1.0 m US$ 2.8m -64%
Operating profit/(loss) US$(1.4) m US$(0.2)m  
Normalised EBITDA (see definition below - non IFRS) US$1.1 m US$3.4 m -68%
Net profit/(loss) pre-tax and foreign exchange effects US$(2.2) m US$(0.9) m  
Profit/(loss) for the period US$(3.6) m US$(0.8) 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
Leonid Dyachenko, 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 2016 will shortly be available from the Company's website www.uralsenergy.com in accordance with AIM Rule 26.

 

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