PETROGRAND AB 27 November 2015
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Oil production in Ripiano attributed to Petrogrand increased in the third quarter by 14% to 84 274 barrels of oil or an average of 916 bopd compared to the previous quarter
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During the third quarter, the Group had no operating income (-). The operating result for the third quarter amounted to TSEK -4 400 (-5 665).
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Net financial items in the third quarter amounted to TSEK 843 (5 318), including currency effects of TSEK 976 (5 115).
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Net result after tax for continuing operations in the third quarter amounted to TSEK
-3 557 (-347).
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Net result from the share interest in the associated company Ripiano in the third quarter 2015 amounted to TSEK -13 286 (-).
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Net result in the third quarter including discontinued operations was TSEK -103 068 (-347).
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Earnings per share for the third quarter amounted to SEK -2.56 (-0.01).
January - September 2015 -
During the first three quarters of 2015, the Group had no operating income (-). The operating result for the period amounted to TSEK - 19 674 (-26 942).
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Net financial items in the period amounted to TSEK 23 125 (6 695), including currency effects of approximately TSEK 22 928 (4 840).
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Net result after tax for continuing operations in the period amounted to TSEK -3 451 (-20 248).
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Net result from the share interest in the associated company Ripiano in the period amounted to TSEK -7 798 (-).
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Net result in the period including discontinued operations was TSEK -90 572 (-20 248).
- Earnings per share for the period amounted to SEK -2.25 (-0.50).
The figures in brackets represent the corresponding period 2014
CEO's reportDear Shareholders,
In the third quarter we managed to meet our operational targets set for the quarter: to work on enhancing our new assets by increasing production in our Komi oil fields, to continue implementing cost cutting measures and to solve the cross-ownership issue with Shelton Petroleum.
The total Ripiano production in the third quarter amounted to 171 988 barrels of oil, corresponding to an average 1 869 barrels of oil per day (bopd). Petrogrand's 49% share of the production amounted to 84 274 barrels of oil, corresponding to an average of 916 bopd, with the Revenue of TSEK 19 744 and Operating Income of TSEK 2 692 at healthy 13.6% Operating Margin. Net profit was, however, negatively influenced by a depreciation of the RUB against the USD and amounted to TSEK -13 286. Through implementation of low-cost production enhancement techniques such as, acidizing, hot oil treatment, identifying and perforating new intervals within existing wells, the production increased by 14% compared to the second quarter average of 1 645 bopd of which 806 bopd was Petrogrand's share. Going forward, there is solid progress on the investment program on the Sosnovskoye field. In October, preparatory works to support an efficient drilling campaign were completed and the drilling contract was tendered, the drilling is expected to commence by the end of the fourth quarter 2015.
Through our continuing implementation of rigorous cost cutting measures, we were able to materially reduce our monthly operational costs. Group Administration costs in the third quarter were reduced by 22% or TSEK 1 265 compared to the same quarter in 2014 and by 40% or TSEK 3 033 compared to the previous quarter.
An important achievement for the new board and management team during the third quarter was to solve the cross-ownership with Shelton Petroleum. I am happy to say that on 9 November 2015 the Extraordinary General Meeting approved the proposal by the board of directors to enter into a business combination with Shelton Petroleum. In accordance with the agreement Petrogrand receives 17 500 000 newly issued B shares of Shelton Petroleum after Shelton Petroleum divesting of its assets in Ukraine for a contribution by Petrogrand of its 49% ownership of Ripiano which owns our oil assets in Komi and USD 4 million of cash. The enlarged company will take the name Petrosibir and will have a combined license portfolio consisting of Shelton Petroleum's assets in Bashkiria and Petrogrand's assets in Komi, with a net production of about 1 350 barrels of oil per day and 32 million barrels of recoverable 2P reserves. As a part of the agreement Petrogrand will distribute all current and new shares of Shelton Petroleum to its shareholders by the end of 2015. The company will then change its focus to the real estate sector which it believes is a sector with strong growth dynamics.
We keep facing a declining Brent oil price, which generates overall market volatility. Since the end of the second quarter the oil price has decreased by nearly 30% up until the date of the report. However, this fall is partially offset by a reduction of oil production taxes and by a depreciation of the Ruble from 55.7 RUB for USD as of 30 June to 64.9 as of 21 November 2015. Calculation of MET (Mineral Extraction Tax) and export duties in Russia is directly linked to the Brent oil price and acts as a natural hedge against falling oil prices resulting in a healthy, yet slightly lowered, operating margin.
To summarize, starting in the second quarter we have established a strong, experienced and resilient management team in Petrogrand. The team under support of the board of directors managed to make a step change in the governance of operations and to achieve the ambitious goals. I am confident in the future of the Company and the ability to deliver the best value for shareholders even in this volatile market environment.
Sincerely,
Dmitry Zubatyuk,
Chief Executive Officer
Comments on the Group's result and financial position as per 30 September 2015.The Group had no operating income during the period January-September 2015 (-) and did not have any production related operating expenses (-).
The Group did not have any costs for sales and distribution during the period (-). Administration costs, which consist of personnel related expenses, professional consultancy services and other operational charges, amounted to TSEK -19 674 (-26 942).
Financial income amounted to TSEK 2 906 (1 936). Net financial items amounted to TSEK 23 125
(6 695), which includes currency effects of TSEK 22 928 (4 840) mainly due to the revaluation of the investment in USD over the period January-September 2015 closing date.
Result before tax amounted to TSEK 3 451 (-20 248). There was no tax charged for the period.
Petrogrand holds interest in three producing oil fields in Russia. The interests are held through its 49% holding in Ripiano Holdings Ltd. While the 49% owned associated company Ripiano Holdings Ltd is not consolidated in the Petrogrand group, the pro-rata share of the net result in Ripiano Holdings Ltd is however included in Petrogrand's profit and loss account as 'result from participation in associated company'.
The Extraordinary General Meeting in Petrogrand, held on 9 November 2015, approved the agreement with Shelton Petroleum (see below the section 'Business combination with Shelton Petroleum'). This event has triggered a reclassification of the shares in Ripiano from financial assets to 'Assets held for sale' in the Group's balance sheet in accordance with IFRS 5; consequently, the Group has revalued holding in Ripiano to TSEK 86 323. This revaluation is based on the value of 17 500 000 B-Shares in Shelton Petroleum on 30 September 2015 (SEK 6.85 per share) less the value of TUSD 4 000 that will be injected into Petrogrand's subsidiary Sonoyta Ltd prior to the settlement of the deal.
Furthermore, the participation in Ripiano, according to IFRS 5, is regarded as participation in discontinued operations in the Group's financial statements. The result from discontinued operations includes the net result from participation in Ripiano, which amounted to TSEK -7 798 and the result of revaluation of holdings in Ripiano which is presented as 'Revaluation of assets held for sale' amounted to TSEK -86 225 for the period April-September 2015.
It is important to note, that this negative revaluation effect does not have an impact on the cash flow and it does not change the fairness of the deal, because Petrogrand shareholders are expected to benefit from an increase of cumulative net assets they will own as a result of the business combination.
Total Net result amounted to TSEK -90 572 (- 20 248).
Earnings per share for the period amounted to SEK -2.25 (-0.50).
Petrogrand in April 2015 acquired a 49% interest in the Cyprus company Ripiano Holdings Ltd. The total acquisition price amounted to MUSD 21.5 and the final payment was made on 9 April 2015. Petrogrand's interest in Ripiano is held through the Cyprus subsidiary Sonoyta Ltd. Ripiano holds 100% interests in the Russian companies Dinyu LLC and CNPSEI LLC. Dinyu LLC is the licence holder of the Ivanshorskiy block, including the Dinyu-Savinoborskoye oil field. CNPSEI LLC is the license holder of Sosnovskoye oil field and Yuzhno-Tebukskoye oil field. At the time of the acquisition, the total oil production from 26 production wells amounted to about 1,600 barrels per day.
The reserves are estimated at 36.6 million barrels according to Russian reserve standard (C1+C2, Russian statutory reserve classification differs somewhat from corresponding Western classifications).
As of 30 September 2015 the Group's available liquid assets in total amounted to TSEK 74 185 (238 857).
At the end of the reporting period, Petrogrand group held 4 700 000 B-shares in Shelton Petroleum AB (publ) ('Shelton'). The shares were held by the Cyprus subsidiary Tenaziltan Ltd, and market price per Shelton share at the end of the period was SEK 6.85. The value of the investment based on the market price amounted to TSEK 32 195.
Total financial assets, including shares in Shelton, on 30 September 2015 amounted to TSEK 106 380 (329 562).
As described under Investments above, Petrogrand acquired a 49% interest in Ripiano Holdings Ltd in early April 2015. Ripiano holds three oil fields in the Komi republic of Russia: Dinyu- Savinoborskoye, Sosnovskoye and Yuzhno-Tebukskoye oil fields. The licenses have year-round access to Transneft via third party. The Komi Republic is located in north east corner of the European part of Russia. The area is one of the biggest oil and gas producers in the European part of Russia and among Russia's top ten producers.
Dinyu-Savinoborskoye oil field was discovered in 2001 and put into production in 2002. There are five oil pay zones producing high quality 35° API crude with good reservoir properties.
Sosnovskoye oil field was discovered in 1982 and put into production in 1992. There are four oil pay zones in the Devonian layer, producing high quality oil 34° API with excellent reservoir properties.
Yuzhno-Tebukskoye oil field was discovered in 1978 and put into operation in 1992. There are two oil deposits in the Devonian formation with excellent reservoir properties. The oil quality is 32° API.
Recoverable reserves according to Russian reserve standards as per 1 January 2015
C1 (Mbbls) | C2 (Mbbls) | |
Dinyu-Savinoborskoye | 9.37 | 8.69 |
Sosnovskoye | 12.31 | 3.30 |
Yuzhno-Tebukskoye | 2.91 | 0.00 |
The total production in Ripiano Holdings during the third quarter amounted to 171 988 barrels of oil, corresponding to 1 869 barrels of oil per day. During the third quarter, Ripiano focused on improving operational efficiency and increasing production from the existing well fund through application of simple low-cost production enhancement techniques: acidizing, hot oil treatment, identifying and perforating new intervals. This set of measures resulted in 14% production growth compared to the average 1 649 barrels of oil per day produced in the second quarter 2015. In the course of the third quarter Ripiano continued such infrastructure projects as roads, well pad construction and gas utilisation, which will allow substantial savings on electricity costs as well as additional income from the sales of excess electricity to the local market. Looking forward we are continuously working on plans to optimise our infrastructure and to reduce transportation costs.
Production volume in the third quarter resulted in TSEK 40 293 Revenue (for 100% of Ripiano) and TSEK 5 494 Operating Income at a healthy Operating Margin of 13.6%. Net profit for the period was, however, negatively influenced by a TSEK -38 300 unfavourable FX effect deriving from appreciation of USD denominated borrowing against RUB, serving as functional currency of Ripiano, and amounted to TSEK -27 033.
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