Final results for the year ended 31 December 2017
29 June 2018
Urals Energy PCL ("Urals Energy" or the "Company")
Final results for the year ended 31 December 2017
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 audited financial results for the year ended 31 December 2017.
Key statistics for the year ended 31st December 2017 compared with the year ended 31 December 2016:
|Total production (barrels)
|Gross revenue before excise and export duties
||US$ 35.3 m
|Gross profit after excise, export duties and VAT
||US$ 7.3 m
|Normalised EBITDA (see definition below - not audited)
|Net profit pre-tax and FOREX effects
|Profit for the year
- Total 2017 production at Arcticneft was 362,074 barrels, with Arctic Oil Company Limited ("ANK") producing 106,526 barrels (2016 total production of Arcticneft alone: 250,169 barrels)
- Total 2017 production at Petrosakh was 394,643 barrels (2016: 466,721 barrels)
- Average daily production at Arcticneft (without ANK) for the first five months of 2018 was 610 barrels of oil per day ("BOPD"), compared with an average of 700 BOPD for the twelve months ended 31 December 2017
- Average daily production at ANK for the first five months of 2018 was 301 BOPD, compared with an average of 292 BOPD for the twelve months ended 31 December 2017
- Average daily production at Petrosakh for the first five months of 2018 was 923 BOPD, compared with an average of 1,081 BOPD for the twelve months ended 31 December 2017
- In June and October 2017 the Company successfully completed two tanker shipments of a total of 429,445 barrels of crude oil from Arcticneft and ANK (2016: 225,283 barrels)
- During the period, the Company actively worked at 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
- In April 2017 the Group completed an internal reorganisation of its subsidiaries, which was intended to streamline the management of the Group and allow the Group to take advantage of modest tax advantages
- 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 demonstrated poor drilling performance and in July 2017 the Company gave the contactor notice of termination. The Company is in the process of seeking an independent supervisor and a new contractor to continue the drilling
- On 9 November 2017 the Company's first dividend of US$0.062 per ordinary share was approved by shareholders and paid in December 2017
- In December 2017 the Company spudded its first well, a planned exploration well (Well 1), at the South Dagi field on Sakhalin Island. The well's target pay horizons are the Okobycay horizon and the Daginsky neogenic horizon, with the target depth being 2,200 meters. As of 28 June 2018 the drilling had reached a depth of 700 meters and it is anticipated that Well 1 will be completed by the end of July 2018
- In December 2017 the Company received estimated reserves data on South Dagi from Blackwatch Petroleum Services. Blackwatch Petroleum Services estimated the mean total 2P reserves to be approximately 20.9 million barrels of oil across six reservoirs, when assessed under the International Society of Petroleum Engineers classification
- In December 2017 the Company completed the process of reregistration of the Arctic Oil Company license to Arcticneft. At the end of the period Arcticneft was the sole owner of the license on Kolguev Island
- Gross profit (after excise, export duties and VAT) increased by 16% to US$8.5 million (2016: US$7.3 million)
- Operating profit of US$2.4 million for the year (2016: US$2.3 million)
- Profit before income tax of US$1.8 million (2016: US$6.2 million). The fluctuation in net profit before income tax was largely caused by exchange rate movements during both years. Underlying net profit before income tax and FOREX effects was US$0.8 million (2016: profit of US$1.3 million)
- Normalized EBITDA* of US$7.7 million (2016: US$7.8 million), a decrease of 1% combined with a decrease in normalized EBITDA margins to 17.3% from 26.8%
- Negative net working capital position on 31 December 2017 of US$1.8 million (2016: US$5.6 million positive)
- The Company finished 2017 with a net debt position of US$7.1 million (2016: US$5.1 million) with Debt/EBITDA ratio of 1.3 as at 31 December 2017 (2016: Debt/EBITDA ratio 0.87)
*Earnings before interest, taxation, depreciation and amortisation (hereafter - "Normalised EBITDA" or "EBITDA") is a non-IFRS unaudited measure which the Group uses to assess its performance. It is defined as earnings before interest and taxation.
Post-period end and outlook
- 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
- At the beginning of 2018 following reregistration of the ANK license the Company initiated a merger of Arctic Oil Company with Arcticneft, which is intended to simplify and streamline its operational structure
- 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 May 2018 the Company and its subsidiary Arcticneft entered into a secured short-term loan agreement with Petraco Oil Company Limited ("Petraco"). Under the terms of this agreement, Petraco advanced US$5.0 million to the Company as export shipment pre-financing. The proceeds of this loan will be used for working capital financing
- The first tanker shipment in 2018 of approximately 20,000 tons of oil (158,000 barrels) is scheduled for the first ten days of July 2018. The estimated date of tanker's arrival to Murmansk is 3 July 2018
- 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
- The Board intends to recommend the payment of a dividend of US 6.2 cents per share for the year to 31 December 2017, for approval at the Company's AGM in November, provided that there is no substantial change in conditions in the intervening period.
Andrew Shrager, Chairman of Urals Energy, commented:
In 2017, we maintained our production at a similar level to that of 2016 at 756,717 bbls, and benefitted from increased net backs due to higher prices. While costs and taxes have increased, we achieved EBITDA of US$7.7 million compared with US$7.8 million in 2016. During the year, we increased our capital spending to just under US$8 million, starting our development programmes for Komi and South Dagi. In the case of Komi, we had a serious set back with our drilling contractor, as announced in May 2017, and with South Dagi, we encountered delays in the mobilisation and start up of our new rig. The drilling programme at South Dagi is now proceeding satisfactorily as announced on 19 June 2018, and we expect to complete the first well before the end of July 2018.
Net profit before tax and FOREX effects remains disappointing at approximately US$834,000, compared with a profit of US$1.3 million in 2016. Profit after tax at US$14.0 million, but this is due to the recognition of accumulated tax losses of Urals Energy LLC (the former management company of the Group), following its merger with Petrosakh. It remains the case that for companies operating in Russia, the oil tax regime remains a concern as it is based on production levels as opposed to profitability. The Russian Government has announced that it intends to undertake a trial for some large companies of a new regime based on profitability, but there is no certainty as to whether it will be widened to all companies or when.
Nevertheless, given our continued strong EBITDA, the Board intends to recommend to shareholders for their approval the payment of a dividend for the year to 31 December 2017 at the equivalent of the same rate per share as paid last year, being US 6.2 cents per share, representing a dividend yield of approximately 5% at the closing mid market price of the Company's shares quoted on AIM yesterday and at current exchange rates, provided that there is no substantial change in conditions in the intervening period. If approved at the Company's AGM in November, it is likely the dividend will be paid shortly after the AGM.
In pursuit of our strategic development, 2017 was a transition year for the Company, following our acquisitions and the new licences achieved in 2015 and 2016, as we prepare to open discussions with potential partners for our major development opportunities on Kolguyev Island and Komi. The completion of the Blackwatch Petroleum Services Competent Person's Report was an important step in our preparations and this has confirmed our total Remaining Proven and Probable Reserves at 107.0 million bbls as at 31 December 2017. This exercise has been thorough, and assisted us in upgrading our data rooms. Brandon Hill were appointed in May 2018 to assist us in identifying partners for these developments. With this substantial reserve base, we have the potential to increase our production substantially in partnership with oil service companies. We will update the market as discussions develop.
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
The accounts for the year ended 31 December 2017 will shortly be available from the Company's website www.uralsenergy.com in accordance with AIM Rule 20.
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