TIDMUEN
RNS Number : 9640H
Urals Energy Public Company Limited
13 June 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.
13 June 2017
Urals Energy PCL ("Urals Energy" or the "Company")
Final results for the year ended 31 December 2016
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 2016.
Key statistics for the year ended 31st December 2016 compared
with the year ended 31 December 2015:
2016 2015 Change
Total production (barrels) 756,708 675,318 +12%
Gross revenue before excise and US$ 35.3 US$ 31.4
export duties m m +12%
Gross profit after excise, export US$ 7.3 US$ 7.1
duties and VAT m m +3%
Operating profit US$2.0 m US$3.3 m -39%
Normalized EBITDA (see definition
below - not audited) US$7.8 m US$7.7 m +1%
Net profit pre-tax and FOREX effects US$1.0 m US$2.9 m -65%
Profit (Loss) for the year US$8.0 m US($4.1)
m
Operational highlights
* Total production at Arcticneft reached 289,986
barrels, including four months of Arctic Oil Company
Limited ("ANK") production of 39,818 barrels (2015
total production of Arcticneft alone: 253,592
barrels)
* Total production at Petrosakh reached 466,721 barrels
(2015: 421,726 barrels)
* Average daily production at Arcticneft (without ANK)
for the first five months of 2017 was 738 barrels of
oil per day ("BOPD"), compared with an average of 684
BOPD for the twelve months ended 31 December 2016
* Average daily production at ANK for the first five
months of 2017 was 312 BOPD
* Average daily production at Petrosakh for the first
five months of 2017 is 1,134 BOPD, compared with an
average of 1,275 BOPD for the twelve months ended 31
December 2016
* In August 2016 the Company successfully completed the
tanker shipment of 225,283 barrels of crude oil from
Arcticneft (2015: 217,282 barrels)
* In June 2016 Petrosakh was awarded a 25 year
exploration and development licence for the South
Dagi oil field on Sakhalin Island, following an
auction by the Russian State Authorities, with C1 and
C2 Russian State Registered reserves of approximately
17.7 million barrels
* In August 2016, the Company completed the acquisition
of ANK. At the time of acquisition ANK was producing
340 barrels/day and had 16 million barrels of C1 and
C2 Russian State Registered reserves. The acquisition
is expected to bring substantial future production
economies for the Group
Financial highlights
* Gross profit increased by 3% to US$7.3 million (2015:
US$7.1 million)
* Operating profit of US$2.0 million for the year
(2015: US$3.3 million)
* Net profit before income tax of US$5.9 million (2015:
loss of US$4.3 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 of
US$1.0 million (2015: profit of US$2.9 million)
* Normalized EBITDA* of US$7.8 million (2015: US$7.7
million), an increase of 1.3% with simultaneous
slight decrease of normalized EBITDA margins to 26.8%
from 28.5%
* Positive net working capital position on 31 December
2016 of US$5.6 million (2015: US$0.3 million
negative)
* The Company finished 2016 with a net debt position of
US$5.1 million (2015: US$2.2 million) with
Debt/EBITDA ratio of 0.87 as at 31 December 2016
(2015: Debt/EBITDA ratio 0.51)
*Earnings before interest, taxation, depreciation and
amortisation (hereafter - "Normalised EBITDA" or "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 January 2017 the Company announced the granting of
conditional share awards over a total of 13,127,192
new ordinary shares of US$0.0063 each in the capital
of the Company, pursuant to the Company's performance
share plan
* In February 2017 Petrosakh entered into a new 24
month non-revolving CAPEX credit facility with the
Sakhalin branch of PJSC Sberbank of Russia, under
which Sberbank will provide the sum of 50 million
Russian Roubles (representing approximately US$0.9
million at prevailing exchange rates) to Petrosakh
* In March 2017 Arcticneft entered into a new
short-term non-revolving credit facility with
Kamchatcomagroprombank. Under the loan the bank will
provide a total of 30 million Russian Roubles
(representing approximately US$0.5 million at
prevailing exchange rates) to Arcticneft. The
proceeds of the loan will be used for working capital
financing
* In April 2017 the Group completed an internal
reorganisation of its subsidiaries, which is 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 two wells in its
subsidiaries: its first well on the Ordymskiy block
in the Komi Republic, the second one on the main
Petrosakh licence area on the Eastern coast of
Sakhalin Island
* The planned first shipment of approximately 30,000
tons of oil (237,000 barrels) is scheduled for later
in June 2017. The tanker has recently arrived at
Kolguev Island
* In April 2017 the Company entered into a secured
short-term loan agreement with Petraco under which
Petraco advanced US$3.0 million to the Company. The
proceeds of the loan will be used for working capital
financing
* 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
* 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
Andrew Shrager, Chairman of Urals, commented:
"In 2016, the Company has maintained cash generation, equivalent
to EBITDA, at just under US$8 million, despite continued volatility
in crude oil and product prices and in the Russian Rouble/Dollar
exchange rate, increased production and excise taxes, and local
inflation. This was achieved through significant production and
revenue increases, both rising by 12%.
Our strong financial position has allowed us to acquire Arctic
Oil and also the licence for South Dagi on Sakhalin Island, and
thus continue our strategy of acquisitions to broaden our portfolio
of licences for development.
Further to our announcements of 18 January 2017, 21 April 2017
and 26 May 2017, once we have received Court approval in Cyprus for
the offset of our Cumulative Profit and Loss deficit by our
substantial Share Premium Reserve, we will seek further shareholder
approval at an EGM for a dividend payment to shareholders. Subject
to these approvals, the Board proposes that the maiden dividend
should be approximately 6.2 US cents per share, equivalent to
approximately 10% of our 2016 EBITDA, costing US$780,000
(GBP604,650). This provides shareholders with their first yield
since the listing of the Company, but more importantly it is a
statement of our intent to follow a policy of rewarding
shareholders as we rebuild the Company.
In 2017, we anticipate maintaining production at current levels
on Kolgyev Island and Petrosakh through further work overs. We must
be prepared for continued volatility in crude oil prices and
exchange rates, and already notice that increased excise taxes on
certain refined products may be difficult to pass on to customers.
This places significant importance on our drilling programme for
this year: we have spudded two key wells, one at Petrosakh as a
development well after further studies and one at the Ordymskiy
block in the Komi Republic as an exploration well; and we plan to
drill our first well on the South Dagi licence once the rig we have
leased has been mobilised and deployed. We want to complete our
development plans for Kolgyev Island, the Komi companies and South
Dagi this year, so we are in a good position to increase production
progressively over the next few years. The speed of development
will depend on market conditions, as always, but I believe we can
be confident that Urals Energy has a bright future."
- Ends -
For further information, please contact:
Urals Energy Public Company Limited
Andrew Shrager, Chairman Tel: +7 495 795 0300
Leonid Dyachenko, Chief Executive
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 Brearley www.allenbycapital.com
The accounts for the year ended 31 December 2016 will shortly be
available from the Company's website www.uralsenergy.com in
accordance with AIM Rule 20.
Chief Executive Officer's Statement
Year ended 31 December 2016
Operating environment
In 2016 the Company continued to operate in a challenging
environment with high volatility in the market price of crude oil
(at an average level of US$44 per barrel, 2015: US$52) as well as
high volatility in the Russian foreign exchange market. Domestic
prices for light oil products during the year ranged from US$32 to
US$92 per barrel (2015: US$38 to US$95).
Operating results
Year ended
US$'000 31 December
-----------------
2016 2015
------------------------------------------------ ------- --------
Gross revenues before excise and export duties 35,309 31,429
Net revenues after excise, export duties and
VAT 29,052 27,213
Gross profit 7,257 7,115
Operating profit 2,046 3,337
Normalised EBITDA (unaudited) 7,773 7,743
Total net finance income/(expense) 3,898 (7,590)
Profit/(loss) for the year 8,001 (4,055)
------------------------------------------------ ------- --------
Year ended
Production 31 December
------------------
2016 2015
----------------------------------- -------- --------
Petrosakh barrels 466,721 421,726
Arcticneft barrels 250,169 253,592
Arctic Oil Company barrels 39,818 -
Petrosakh BOPD (average) 1,275 1,155
Arcticneft BOPD (average) 684 695
Arctic Oil Company BOPD (average) 326 -
Summary table: Gross revenues before excise and export duties
(US$'000)
Year ended
31 December
----------------------------------------------- ----------------
2016 2015
----------------------------------------------- ------- -------
Crude oil 11,817 12,366
Export sales 9,831 10,078
Domestic sales (Russian Federation) 1,986 2,288
Petroleum (refined) products - domestic sales 23,349 18,868
Other sales 143 195
----------------------------------------------- ------- -------
Total gross revenues before excise and export
duties 35,309 31,429
----------------------------------------------- ------- -------
In 2016, total gross revenues increased by US$3.9 million. This
increase was primarily due to a US$4.1 million increase in gross
revenue in the local market, which was slightly offset by a US$0.2
million decrease in revenues from export shipments. A 19% increase
in gross revenue in the local market was a result of a 28% increase
in sales volumes and a 7% average increase in refined products
prices in Russian Rouble equivalent. These positive factors were
partly offset by a 10% average devaluation of the Russian Rouble
versus the US Dollar. The lower sales volume in 2015 was due to the
fire that occurred at the Petrosakh refinery at the beginning of
last year. A 2% decrease in gross revenue from export shipment was
the result of a 6% decrease in crude oil sales price (2016: US$44
per barrel, vs 2015: US$46 per barrel) following a decrease in
market prices for oil. This was also partially offset by a 4%
increase in the volume shipped in 2016.
Volatility in foreign exchange rates during the year and changes
in Excise Tax regulations led to a decrease in average net back
prices for domestic sales of crude oil and petroleum (refined)
products.
A 6% decrease in net back prices for crude oil domestic sales is
broadly in line with the 10% average devaluation of the Russian
Rouble versus the US Dollar.
In 2016, there was a substantial increase in the Excise Tax for
gasoline, which represented a total increase of 47.3%. In addition,
several diesel fractions, which represent around 31% of refined
products sales of the Company, became to be subject to Excise Tax.
The combination of this new regulation and a constant sales volume,
led to the overall Excise Tax burden on the Company increasing by
119% in 2016.
This was combined with increases in the cost of a newer additive
and transportation costs, which in total, led to a 20% fall in net
back prices for domestic sales of petroleum (refined) products. The
net back for domestic product sales is defined as gross product
sales minus VAT, transportation costs, Excise Tax and refining
costs.
Summary table: Net backs (US$/barrel)
Year ended
31 December
----------------------------------------------- ---------------
2016 2015
----------------------------------------------- ------- ------
Crude oil 33.15 34.02
Export sales 31.42 31.65
Domestic sales (Russian Federation) 41.29 43.97
Petroleum (refined) products - domestic sales 41.02 51.06
----------------------------------------------- ------- ------
Gross profit (net revenues less cost of sales) in 2016 increased
by 3% to US$7.3 million, from a profit of US$7.1 million in 2015.
The growth in sales volumes by 16% and the increase in average
sales prices in the local market by 7% were offset by the increases
in Excise tax and cost of sales.
Cost of sales in 2016 totaled US$21.8 million, as compared with
US$20.1 million in 2015, of which US$5.3 million and US$4.6 million
respectively represented non-cash items, principally depreciation,
amortisation and depletion. Two factors influenced the operating
costs of the Company in 2016: the devaluation of the Russian Rouble
versus the US Dollar; and Rouble costs. The Company increased its
operating costs in Russian Rouble equivalent by 19% compared with
that in 2015. The increase of operating cost in Russian Rouble
equivalent is a combination of:
-- a 22% increase in employee costs at production entities
(broadly representing inflation for two years and increases due to
the implementation of a new motivation system at the subsidiaries);
and
-- a 105% increase in the cost of materials. This increase was
caused by inflation and also the cost of a newer additive, which is
required in order to be in line with the 'EURO-5' requirement that
the Company implemented during the reporting period.
Selling, general and administrative expenses increased during
2016 to US$4.4 million from US$3.9 million in 2015. The Company had
an average increase of 22% in Russian Rouble denominated selling,
general and administrative costs in the reporting period, as
compared with the previous period. The main driver of this rise was
increased storage and transportation expenses related to
small-scale wholesale activities at Petrosakh (including cost of
fuel used for transportation), and the additional general and
administrative expenses of the two acquired companies, BVN-Oil and
RK-Oil.
Net finance income during 2016 was US$3.9 million (2015: US$7.6
million net finance expenses). Net finance income for the period
primarily consisted of exchange rate movements from the
strengthening of Russian Rouble vs US Dollar at the end of 2016,
offset by the interest accrued on the borrowings.
Operating profit, net of finance income and reversal of an
uncertain tax position provision of US$2.7 million in 2016 resulted
in a net profit for the year of US$8.0 million (2015: US$4.1
million loss).
The increase in sales volumes in 2016 offset by increases in
both Excise Tax expenses and cost of sales and selling expenses
resulted in a consolidated normalised EBITDA of US$7.8 million,
compared with US$7.7 million in 2015, with EBITDA margins of 26.8%
and 28.5% respectively.
Management EBITDA (US$'000) - Unaudited
Year ended
31 December
----------------------------------------------- ------------------
2016 2015
----------------------------------------------- -------- --------
Profit(loss) for the year 8,001 (4,055)
Income tax benefit (2,057) (198)
Net interest and foreign currency (gain)/loss (3,898) 7,590
Depreciation, depletion and amortization* 4,730 4,329
----------------------------------------------- -------- --------
Total non-cash (income)/expense (1,225) 11,721
(Release of)/Charge for provision on
claims 138 (864)
Other non-recurrent losses/(income) 859 941
----------------------------------------------- -------- --------
Total non-recurrent and non-cash items 997 77
Normalised EBITDA 7,773 7,743
----------------------------------------------- -------- --------
*-Depreciation, depletion and amortisation ("DDA") expense is
different from the amount presented in consolidated financial
statements by the share in DDA included in the cost of finished
goods unsold as of the balance sheet date.
Net debt position
As at 31 December 2016, the Company had net debt of US$5.1
million (calculated as long-term and short-term debt less cash in
bank and less loans issued). As at 31 December 2015, the Company
had net debt of US$2.2 million.
As at 31 December 2016, the total borrowing of the Company was
US$6.8 million (2015: US$3.9 million), including a US$4.1 million
18 month revolving credit facility from the Sakhalin branch of PJSC
Sberbank of Russia, US$2.1 million of debt which was acquired with
two private Russian companies, RK-Oil and BVN Oil and US$0.5
million of short term borrowings from Kamchatcomagroprombank.
Operational update
Petrosakh
As stated previously, the Board decided to defer the drilling of
additional wells at Petrosakh until the completion of further
geological investigation. During the first six months of 2016 the
Company focused on minimising the natural decline in production and
exploring new ways of increasing output.
After additional geological assessment the Company spudded a new
well in April 2017, with an intended target depth of 1,600 metres.
This well is located on the main Petrosakh licence area on the
Eastern coast of Sakhalin Island. As of today, good progress has
been made and drilling has reached approximately 1,405 metres.
In the South Dagi area the Company is now actively working on
the preparation of the field development plan, an exploration
drilling project and a trial production project involving new
exploration wells. The most significant element of the development
plan documentation will be finalized by the 4th quarter of
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.
Downstream
Petrosakh continues to refine 100% of its crude oil production
and sell all of its refined products to the local market.
The highly competitive refined products market and changes in
Excise tax regulation have caused the Company to constantly
reassess its marketing activity and diversify its current customer
base, both on the island and in neighbouring regions.
During the year, the Company started the process of renewing its
terminal license and expects to finalize this process in the summer
of 2017. This will allow the Company to be involved in bunkering
activity as well as to partially return to export activity,
depending on potential net backs.
At the beginning of 2017, the Company entered into a new 24
month non-revolving CAPEX credit facility for acquisition of
storage facilities for refined products in Yuzhno-Sakhalinsk on
Sakhalin Island. This acquisition should allow the Company to
increase turnover and net backs in new niche areas, including small
wholesale and retail, as well as obtaining substantial savings in
commercial and transportation expenses.
The Company continues to upgrade its plant equipment to remain
in line with statutory requirements for fuel quality and to
decrease cost of refining.
Arcticneft
During the reporting period, the main efforts of the Company
continued be a focus on minimizing the natural decline in
production through workovers. The acquisition of Arctic Oil Company
has brought additional daily production of 326 barrels/day in 2016.
During the year, the Company perforated, re-entered and performed
acid stimulation of several wells. This led to a stable production
level during the year under report.
After a preliminary analysis of the well stock, the Company
decided to concentrate on re-entering several wells on the new
field with further workovers and shift to artificial oil lifting
using jack pumps.
This approach has proven effective and the Board believes that
it should enable production levels to be maintained.
Taxation
At the end of 2014, the Russian government adopted changes in
tax policy that provided for a gradual increase in mineral
extraction tax, combined with a simultaneous decrease in export
duty for the period 2015-2017. Following this tax policy, an
additional set of changes in the Russian tax legislation were
approved at the end of 2016, which will have an impact on financial
and operating activity of the Group in 2017.
Subject to the current macroeconomic situation, the main effect
of these changes for 2017 is the following:
- Decreases in export duty have been unfrozen. Changes in the
coefficient used for calculations will result in an average
decrease in export duty of 21% per ton of exported oil
- Mineral extraction tax will increase by 7% per ton of oil produced
- Excise tax for 'EURO -V' gasoline will stay at the 2016 level
- Excise tax for several diesel fractions introduced in 2016 will increase by 47%
The Board anticipates that the new changes in the tax
legislation will increase the tax burden on the Group.
Strategy
Our strategy is to exploit our expanded portfolio of proven and
probable reserves through planned field developments over the next
couple of years. We intend to explore partnerships with oil service
companies as well as possible co-operation with companies with
complimentary operations, for example in the Komi region.
Our strong financial position means that we can still take
advantage of opportunities to acquire additional licences in our
three principal areas, as well as undertake work overs and fund
exploratory wells from our own resources. The volatility of
international oil prices and the tendency for it to be somewhat
compensated by the effect on the Rouble/Dollar exchange rate,
combined with the Russian tax regime, does reduce the volatility
that Urals Energy sees in its cash generation per barrel, as
evidenced by our performance over the last two years, and should
allow us to operate with confidence in the Russian market.
The Board remains confident that with this low risk approach, we
will be in a strong position to grow the Company.
Further to the Company's announcements made on 18 January 2017,
21 April 2017 and 26 May 2017, once the Company has received Court
approval in Cyprus for the offset of our Cumulative Profit and Loss
deficit by our substantial Share Premium Reserve, the Company
intends to seek further shareholder approval at an Extraordinary
General Meeting for a dividend payment to shareholders. Subject to
the approval of Shareholder and the Cyprus Courts, the Board
proposes that the maiden dividend should be approximately 6.2 US
cents per share, equivalent to approximately 10% of the Group's
2016 EBITDA, costing approximately US$780,000. Further
announcements will be made as appropriate.
Leonid Dyachenko
Chief Executive Officer
Dr Svyatoslav Bilibin, (Dr.Sci.Tech. and Corresponding Member of
the Russian Academy of Natural Sciences), an independent adviser to
Urals Energy, who meets the criteria of a qualified person under
the AIM Guidance Note for Mining, Oil and Gas Companies, has
reviewed and approved the technical information contained within
this announcement. The reserves figures contained within this
announcement have not been reviewed in accordance with the AIM
Guidance Note for Mining, Oil and Gas Companies and the Company
plans to have a review of the Company's assets, in accordance with
an appropriate Standard in an updated Competent Person's Report,
which the Board has commissioned in for publication in 2017.
Please click on, or paste the following link into your web
browser, to view the associated consolidated financial statements
for Urals Energy Public Company Limited as of and for the year
ended 31 December 2016 as a PDF document.
http://www.rns-pdf.londonstockexchange.com/rns/9640H_-2017-6-13.pdf
This information is provided by RNS
The company news service from the London Stock Exchange
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