Shelton Petroleum AB : Interim report January - September 2012

Production exceeded 500 barrels per day in the third quarter

January-September 2012

• Total revenue for the period: SEK 76 (25) million
• Operating result for the period: SEK 23 (-1) million
• Result for the period after tax: SEK 18 (-3) million
• One-off item affects revenue and profit by SEK 7 (11)* million
• Basic earnings per share: SEK 1.70 (-0.33)
• Diluted earnings per share: SEK 1.63 (-0.33)   

July-September 2012

• Revenue during the quarter: SEK 24 (21) million
• Operating result during the quarter: SEK 5 (10) million
• One-off item affects revenue and profit by SEK 0 (11)* million

* Relates to payment from the shareholding in Tomsk Refining

Statement from the CEO

Shelton Petroleum reached an important milestone during the third quarter. For the first time, we are able to report a production level exceeding 500 barrels per day for a full quarter. Both the Rustamovskoye field in Russia and Lelyaki field in Ukraine produced record volumes.

The results from the fracking of the wells at Rustamovskoye performed during the third quarter are encouraging and strengthen our confidence in the potential of this and the company's adjacent fields. We are looking forward to pursuing this through the drilling of additional wells in the area. In November, a drilling contract was concluded and mobilization of the rig has commenced. Spudding of the first of up to two wells in the first stage of development drilling is expected to take place early next year. We will develop the field step by step in order to manage geological risks and balance investments against the financial resources available to the company. 

The workover program at the Lelyaki field continued to raise production volumes during the quarter on the very profitable Ukrainian market. In October, the second of two new wells for the year was spudded with the objective of further increasing daily production.

This week, the Shelton Petroleum share commenced trading at NASDAQ OMX Stockholm's main market. Migration to an internationally well-recognized stock exchange will open up new opportunities for the company as well as for our shareholders.

In summary, we continue to grow our profitable oil production and have established a stable platform for future investments and partnerships. I am looking forward to further pursuing the company's potential in the quarters to come.

Robert Karlsson

January - September 2012

Financial development

Revenue from oil sales amounted to SEK 69 (14) million. During the period, Shelton Petroleum sold 129,100 (51,900) barrels of oil. The average price per barrel in 2012 was higher than in 2011.

Production during the period amounted to 128,700 (38,500) barrels, which is significantly higher compared to the same period last year. The production has increased in both Russia and Ukraine compared to last year.

The average daily production during the first nine months 2012 amounted to 470 barrels compared to 141 barrels for the same period 2011.

Operating expenses in the period amount to SEK 56 (29) million and consist primarily of production costs, personnel costs and other external expenses.

The operating result for the period January - September 2012 amounted to SEK 23 (-1) million, which is a significant improvement compared to the same period last year. The result for the period amounted to SEK 18 (-3) million.

Shelton Petroleum reports other revenue of SEK 7 (11) million. The majority of other revenue relates to a capital gain on the investment in Tomsk Refining AB (TRAB) due to the voluntary liquidation. In the beginning of April 2012 the company received the final payment, SEK 18 million, from TRAB. In total, together with the first payment received in 2011, the company has received approximately SEK 69 million from the liquidation and has reported a total gain of SEK 18 million.

An adjustment of the fair value of the investment in Pan European Terminals (PAN, previously Baltic Oil Terminals) of SEK -2 million and translation differences of SEK -9 million related to intra-group loans in foreign currency are included in other comprehensive income. The adjustment to fair value and translation differences do not affect cash flow.

The group held SEK 50 million in cash and cash equivalents at the end of the period compared to SEK 56 million at 30 September 2011 and SEK 46 million at 31 December 2011. Cash flow for the period was SEK 4 (-34) million. Investments in exploration and development activity in Russia and Ukraine amounted to a total of SEK 17 (11) million in the period. During the period the company repaid SEK 8 million to those holders of the convertible loan that chose not to exchange it for the new convertible loan, which was issued in December 2011.

Financial fixed assets amounted to SEK 22 million at the end of the period compared to SEK 35 million at 31 December 2011. The decrease is related to the final payment from TRAB and the adjustment of fair value of PAN mentioned above.

Shareholders' equity per share at 30 September 2012 was SEK 24.54 (23.96) and the equity to assets ratio was 81 (78) per cent.

July - September 2012

Russian operations

Shelton Petroleum's production of oil in Russia during the third quarter amounted to 14,150 (17,400) barrels. Production per day amounted to 154 (189) barrels. Due to the fracking program described below, the wells produced for approximately two months out of three months in the third quarter 2012. 

On the Rustamovskoye field in Russia, measures were implemented during the quarter to counteract the natural depletion that all wells are exposed to and also to maximize information on reservoir characteristics in order to determine drill locations and optimize drilling technology. The company completed a vertical seismic profile (VSP) and fracking of two wells. As a direct result of the fracking, the field's production increased to over 200 barrels per day, compared to 120 in June.

The results from the work performed during the summer are encouraging and strengthen the company's confidence in the potential of Rustamovskoye and the company's adjacent Aysky and Suyanovskoye fields. Based on analyses and modeling of available data, the company has initiated a production drilling program. In November, the drilling company commenced mobilization of the rig. Spudding of the first well is expected to take place early next year. Drilling and evaluation of the first well is expected to take up to 90 days to complete. The field will be developed step by step in order to manage geological risks and balance investments against the financial resources available to the company. Shelton Petroleum has therefore entered into a contract that allows it to drill one well with an option to drill one more well. Following the first stage of drilling, the company will review drilling data and geological information to develop a new project design on how to optimally target and extract the pool's reserves. The new design will encompass the possibility of horizontal drilling, which, given suitable geological conditions, allow for enhanced well economics.

The Rustamovskoye field is covered by a production license on the northern part of the block and an exploration license on the southern part of the block. The company is currently producing oil from the northern part and the production license is valid until 2030. The exploration license on the southern part of the block, previously valid until 31 December 2012, has recently been prolonged by the license authority for three more years.

Ukrainian operations

Production in the third quarter amounted to 32,250 (7,000) barrels. Production per day amounted to 351 (76) barrels. The average daily production during the third quarter was 25 per cent higher compared to the fourth quarter 2011. The Lelyaki field production generates a strong USD 40 per barrel in operating profit and contributes financially to the development of Shelton Petroleum's other oil assets.