RNS Number:6610R
Urals Energy Public Company Limited
23 September 2005
Urals Energy Public Company Limited
Interim Results for the period ended 30 June 2005
Urals Energy Public Company Limited ("Urals Energy") a leading independent
exploration and production company with operations in Sakhalin Island, Timan
Pechora, Komi Republic and the Republic of Udmurtia, Russia, today announces its
interim results for the half year ended 30 June 2005.
These interim results are prepared under International Financial Reporting
Standards ('IFRS'),
Highlights
Operational Highlights
*Successfully listed on AIM August 2005 raising $131.1 million (gross) at
a price of #2.40
*Increased production rate from 950 BOPD to 4,200 BOPD. Group oil
production has since increased to 5,600 BOPD from acquisitions
*Integrated Petrosakh acquisition and initiated 14 well development
drilling programme
*Successful acquisition of ZAO Arcticneft and OOO Urals Nord
*Nefedovskoye Field drilling programme completed on time and under budget
Financial Highlights
*Loss before tax $689 thousand
*EBITDA $5.997 million
*Net loss of $1.145 million due to seasonal lag in oil sales from largest
producing asset
Outlook
*Appraisal drilling programme targeted at increasing production to c.
11,000 BOPD in the medium term
*Forward focus on exploitation and exploration of asset base targeting 226
MMBOE of risked reserve potential and 943 MMBOE of unrisked reserve
potential
*$41 million exploitation and exploration programme underway
*Current proved and probable reserves of 89.7 MMBOE
*Exploration drilling campaign to test offshore Sakhalin Island license
area with first well due to spud by mid December 2005
*Opportunities for workforce rationalisation and streamlining of
acquisitions
*New senior management hires plus the appointment of Charles Pitman, well
respected and experienced international oil executive, as non-executive
director
*Ongoing opportunities to capitalise on rationalisation in Russia and the
CIS
William R. Thomas, Chief Executive Officer, commented:
"Following our successful IPO, we are in a strong position to fully exploit our
existing asset base and to build the group organically and by acquisition into a
leading player within Russia and the CIS. The outlook is very positive and we
will continue to create long term growth and value for shareholders."
ENQUIRIES:
PELHAM PR
James Henderson
Managing Director
+44-20-7743-6670
TO OUR SHAREHOLDERS:
We are very pleased to issue our first report to you as a public company and
look forward to reporting to you in the future as together we build a leading
independent oil company in Russia and the CIS.
The first half of 2005 was a remarkable period of growth for Urals Energy.
Having just completed the acquisition of ZAO Petrosakh in December 2004, we set
out in January to complete several key objectives:
(i) to integrate Petrosakh into Urals Energy and prepare for
its development and exploration drilling programs;
(ii) to refinance and pay the deferred acquisition payments for Petrosakh;
(iii) to acquire ZAO Arcticneft and OOO Urals Nord; and
(iv) to prepare and launch our Initial Public Offering on the
London Stock Exchange's AIM market.
I am pleased to report we accomplished all of the above and are now positioned
to fully exploit both the organic growth potential of our current asset base as
well as the increasingly active M&A marketplace in Russia and the CIS. Our share
price has also risen by 20% to #2.87 buoyed by not only high oil prices but also
the underlying strength of the business.
The offering of our shares on the AIM resulted in gross proceeds of $131.1
million before fees and expenses. We sold approximately 35% of our equity
capital to new institutional investors principally in Europe. We sincerely
appreciate the support of our new shareholders and pledge to do our very best to
achieve the goals and strategy we discussed during the IPO process.
The consolidated financial performance of the Company for the period ending 30
June 2005 was sound with loss before tax of $689 thousand. Gross revenues from
oil and oil product sales totalled $28 million and we finished the period with a
solid and improving cash position of $8.9 million. EBITDA excluding
extraordinary gains and foreign currency losses for the period was $5.997
million. Although we do not have consolidated mid-year results from 2004 to
provide a comparison, we are encouraged by the results we achieved in the first
half of 2005.
Group oil production for the first six months increased by approximately 3,250
BOPD and averaged approximately 5,600 BOPD including our most recent
acquisition, ZAO Arcticneft. Excluding Arcticneft, production averaged
approximately 4,200 BOPD.
We sell our crude oil into three principal markets, Russian domestic refineries,
other CIS countries (the "Near Abroad"), and world export markets in Europe and
the Far East (the "Far Abroad"). We also sell refined products to local
end-users on Sakhalin Island where we operate the island's only refinery. For
the period, crude export prices realized by the group averaged $49.23 per
barrel, crude Near Abroad prices averaged $28.90 per barrel, domestic crude
prices averaged $21.36 per barrel, and domestic product prices averaged $48.43
per barrel. The combined average price for crude oil and products net of the
cost of transportation, export taxes, VAT and other levies, was approximately
$27.80 per barrel. Prices in all three crude markets and the domestic product
market since the end of June 2005 have continued to rise and we expect to report
a significant improvement in our netback prices at the end of the year based on
current market conditions.
Operations
ZAO Petrosakh
Petrosakh's operations comprise integrated oil producing, processing, refining
and transportation facilities.
The on-shore, producing field, Okruzhnoye, currently produces oil from 14 wells,
and has two injection wells, one water and one gas injection. Five wells are
flowing producers and nine are produced with gas-lift. For the six months ended
June 2005, the field's average daily oil production was 2,388 BOPD. Oil quality
is light, sweet crude with a gravity of approximately 36degrees API (0.84 g/
cm3), sulphur content of 0.28% and produced water of 3%.
At Petrosakh, we initiated a 14 well development drilling program for the
Okruzhnoye Field and completed the first well, No. 43, during early September.
The well encountered two pay zones in the Pileng horizon. The upper Pileng pay
zone is approximately 136 meters in gross thickness, and the lower pay zone is
137 meters thick with evidence of improved reservoir characteristics as compared
to prior wells. The lower Pileng pay zone only was perforated on September 3-6
and is flowing at approximately 360 barrels per day. The bottom six meters of
the upper Pileng zone is currently being perforated and incremental production
is anticipated from this zone. The flow rate from the lower Pileng zone of 360
BOPD is consistent with the total well rate assumed by our independent
engineers, DeGolyer and MacNaughton, in its evaluation of the Okruzhnoye Field
for Pileng development wells, i.e. Well No. 43.
The second well in our Okruzhnoye Field development drilling program, Well No.
44, has also now been drilled to a total depth of 1,856 meters. The well
encountered the Pileng producing horizon at a depth of approximately 1,546
meters and based on wireline electric logs appears to be oil bearing from 1,554
to 1,740 meters for a gross oil column of 186 meters. Preparations for well
perforating and testing have begun.
After completion of Well No. 44, further development drilling of the Okruzhnoye
Field will now be deferred until we have completed the acquisition and
interpretation of an onshore 3D seismic program which is scheduled to begin
shooting over the Okruzhnoye Field in November 2005. We have also decided to
upgrade and convert Petrosakh's Gregory Wilson 120T workover rig for use as a
drilling rig for future development wells. This rig conversion should result in
significant cost savings over the life of the program. We have initiated the
purchase of the necessary equipment and expect development drilling to
re-commence in the second quarter of 2006. In addition, we are working to
evaluate the potential effects of fracture stimulation of the Pileng and Borsky
formations.
Another important project for Petrosakh now underway is the mobilization of
drilling equipment for the exploration of the Pogranichny Block offshore
Sakhalin Island. We have modified our plans to include two drilling rigs, the
Deutag T-2000 rig and a local Russian rig owned by a Sakhalin-based drilling
contractor. This second rig is now being upgraded with improved mud cleaning
equipment, new diesel engines and cement pumps. With this rig, we intend to
drill two wells to test the East Okruzhnoye prospect which DeGolyer and
MacNaughton estimates contains unrisked potential resources of approximately 49
million barrels of oil. By using an upgraded Russian rig, we expect to reduce
mobilization and drilling times and cut well drilling costs significantly.
Mobilization of the rig to location will start by 1 October 2005 and the first
well is scheduled to spud by early December 2005.
The Deutag T-2000 rig is now being mobilized to Sakhalin Island. Approximately
70%of the 165 rail cars carrying the rig components are now enroute by railroad
or already at the Port of Vostochny on the Pacific Coast of Russia. From Port
Vostochny, the rig will be shipped by barge and ferry to Sakhalin Island and the
Okruzhnoye Field site. First deliveries are expected in mid-October 2005 and
mobilization of the T-2000 should be completed by mid-November 2005. The T-2000
will be used first to drill the Vitnitskaya prospect from a well-site
approximately 40 kilometres south of the Okruzhnoye Field. Petrosakh has
completed about 80% of a 40 kilometre temporary road with bridge crossings along
the coastline to the drilling location. DeGolyer and MacNaughton estimate the
Vitnitskaya prospect contains unrisked potential resources of approximately 51
million barrels. Drilling this prospect requires a large land rig like the
T-2000. The Vitnitskaya prospect is located approximately 3.5 kilometres from
the shoreline and total measured depth for the well is expected to be
approximately 5,000 meters. Depending on the results of the Pogranichny Block
exploration program, and following the drilling of the Vitnitskaya prospect, we
intend to move the T-2000 north to a position approximately 15 kilometres south
of the Okruzhnoye Field to test the Severo Rymnikskaya prospect. This prospect
has a DeGolyer and MacNaughton estimated unrisked potential resource of
approximately 196 million barrels.
The advantages of adding a second rig to our exploration program include overall
cost savings, the assurance that we can meet our license drilling requirements,
and deploying our equipment where it is best utilized. The logistics of
mobilizing the T-2000 rig have been a challenge for both us and our contractors.
Our project team's performance has been superb and we fully expect to deliver
the rig in time for this year's drilling season.
Chepetskoye NGDU
ZAO Chepetskoye NGDU was created in 1993 as a stand-alone production company for
the purpose of developing three discovered fields in the Northwestern area of
the Udmurtia Republic, Nefedovskoye, Zotovskoye and Potapovskoye. Development
activities began for these three fields in 2000. On 4 October 2004, the Company
acquired a 100% interest in Chepetskoye from one of its principal shareholders.
For the six months ended June 2005, Chepetskoye's average daily oil production
was 846 BOPD. Oil quality produced is a sweet crude with a gravity of
approximately 29 API.
At Chepetskoye NGDU, the 2005 drilling program for the Nefedovskoye Field was
finished on time and under budget resulting in new oil production of
approximately 361 BOPD. Acquisition of the 3D seismic program for the
Potapovskoye Field is underway and should be completed by the end of the year.
Following the interpretation of the 3D program, development drilling of the
Potapovskoye Field is scheduled to begin in the second quarter 2006.
ZAO Arcticneft
At ZAO Arcticneft, we have moved quickly to integrate this new acquisition into
Urals Energy. Shortly after closing the deal, we installed new management at
Arcticneft and secured control over operations at both the administrative office
in Murmansk and the oilfield located on Kolguyev Island in the Barents Sea. One
of our first actions was to evaluate the power supply for the field and work
camp and order a two megawatt Caterpillar gas-electric generator set so that
Arcticneft can cease burning refined diesel products. The generator is expected
to arrive in November.
We are moving forward with a workforce rationalization at Arcticneft to
streamline the organization and reduce costs. This reduction in force is
expected to be completed by the end of the third quarter.
We are planning to boost production at the Peschanoozerskoye Field through a
combination of improved pressure maintenance, artificial lift installation, well
workovers, development drilling and, eventually, fracture stimulation.
Artificial lift equipment for six wells has been purchased and is being shipped
to Kolguyev Island. Prior to the commencement of our drilling program, we plan
to complete a comprehensive geologic model and reservoir study of the field to
high grade development well locations. We expect the drilling program to
commence early in the third quarter next year.
As was disclosed during the IPO process, we entered a settlement agreement with
OOO Start to resolve certain outstanding litigation and the return of property
of Arcticneft. All payments under this agreement have been made and the final
court orders are now being executed by the relevant government agencies.
New Acquisitions & Corporate Finance
We have used some of the proceeds of the IPO to pay down certain debt and
deferred acquisition payments resulting in a net debt reduction of $46.5
million. Total group debt has consequently been reduced to $26 million. To
maintain balance sheet flexibility and ensure we have adequate financial
capacity for future acquisitions, we are continuing negotiations with lenders
for a stand-by corporate revolving debt facility. We expect this to be in place
by the end of the year.
The Russian and CIS M&A marketplace continues to be very active, and assets that
would have a meaningful impact to Urals Energy are continuing to become
available. We are evaluating several such opportunities and intend to pursue
those that meet our investment criteria.
Corporate
As our Chairman has announced separately, we are very pleased that Charles
Pitman has agreed to join the Board of Directors. Charles is a highly
experienced oil executive with an international reputation and adds considerable
depth to the board. He is the former President and Chairman of Amoco Eurasia
Petroleum Company, and Regional President - BP Amoco Caspian/Middle East/Egypt/
India. Today, Charles also serves as a member of the board of directors of
Apache Corporation.
We have significantly strengthened our senior management team since the IPO. Two
of our most important appointments are Henry A. Wolski as Senior Vice President
- Exploration & Production and Grigory B. Kazakov as Vice President - Finance &
Accounting.
Henry Wolski has 14 years operating experience in Russia and Kazakhstan and
speaks fluent Russian. Most recently he was responsible for operations with
PetroKazakhstan. He is well-prepared to manage our very active drilling and
production operations. Since his arrival in July, he has enhanced our existing
operating group with several new managers with whom he has worked before and who
collectively represent the kind of professionals we seek: Russians with training
and skills that meet international standards.
Grigory Kazakov is a CPA with several years of experience at both YUKOS and
PricewaterhouseCoopers responsible for accounting functions, systems
implementation and transaction services. Grigory is leading the effort to
upgrade our accounting and management reporting systems and provide world-class
MIS capabilities for our Russian activities.
While ensuring that we continue to create a highly skilled and appropriately
resourced management team, we continue to focus on strict control of G&A costs.
Stephen Buscher, Senior Vice President and CFO, will report on our progress on
managing G&A costs at the end of the year.
As we move forward from our IPO, the outlook for Urals Energy and its
shareholders is very positive with development activities proceeding as planned
and an exciting exploration drilling campaign now in preparation on Sakhalin
Island. Our balance sheet is strong and production and cash flow are increasing.
We have excellent assets and an outstanding management team - together they make
us unique and should create long term growth and value for our shareholders.
William R. Thomas
Chief Executive Officer
23 September 2005
Urals Energy Public Company Limited
Management's Discussion and Analysis
of Results of Operations
for the Six Months Ended June 30, 2005
The following management discussion and analysis of operations and financial
results for Urals Energy should be read in conjunction with the unaudited
interim consolidated financial statements for the first six months ended June
30, 2005. The information contained herein is derived from the management
statements prepared in accordance with International Financial Reporting
Standards and International Accounting Standard No. 34, Interim Financial
Reporting. Key methods of our financial reporting are described within the notes
accompanying the financial statements. There are certain forward looking
statements contained herein, however investors are warned that actual results
may differ.
Overview
Activities
Urals Energy and its subsidiaries (the ''Group'') are primarily engaged in oil
and gas exploration and production in the Russian Federation and processing of
crude oil for distribution on both the Russian and international markets.
Urals Energy Holdings Limited (''Urals Energy'', or the ''Company'') was
incorporated as a limited liability company in Cyprus on 10 November 2003. The
Company was formed to act as a holding company for the shareholders' investments
in the Russian oil and gas exploration and production sector.
The registered office of Urals Energy is at 31 Evagorou Avenue, Suite 34,
CY-1066, Nicosia, Cyprus.
In July 2005, the Company changed its name to Urals Energy Public Company
Limited.
At 30 June 2005, the Group employed approximately 585 people, and comprised the
following subsidiaries:
Entity Nature Jurisdiction Economic
interest
at 30 June
2005
ZAO Petrosakh Exploration & Sakhalin 97.2%
production
OOO CNPSEI Exploration & Komi 100.0%
production
ZAO Chepetskoye Exploration & Udmurtia 100.0%
NGDU production
OOO Urals Energy Management Moscow 100.0%
OOO Urals-Nord Exploration Nenetsky 100.0%
Urals Energy (UK) Corporate Services UK 100.0%
Limited
Operations of Group Subsidiaries
ZAO Petrosakh
Petrosakh was founded in 1991 as a Russian-U.S. joint venture to develop the
Okruzhnoye field on the Eastern coast of Sakhalin Island. In 1993 and
subsequently in 1997, Petrosakh was licensed to produce oil from the Okruzhnoye
field for a period of 20 years.
The Administration of Sakhalin Oblast currently controls a 2.84% minority
ownership interest in Petrosakh which is held by its wholly-owned subsidiary,
Sakhalin Oil Company. The Company acquired full control of the other 97.16%
ownership interest in Petrosakh on 19 November 2004 from Alfa Eco. As part of
the agreement to acquire Petrosakh, the Company agreed to pay to the seller,
Alfa, a perpetual royalty payment for any commercial quantities of oil produced
and landed from the currently non-producing offshore areas covered by the
license for the Pogranichniy Block equal to $0.25 per tonne ($0.03 per barrel).
Petrosakh's operations comprise integrated oil producing, processing, refining
and transportation facilities. Most production facilities and equipment were
imported from the United States and Canada. Petrosakh also has a rail terminal
facility at Pervomaisk and its operational centre is located at the Okruzhnoye
field site. Oil is transported by infield pipelines to a central processing
plant with a capacity of 8,200 BOPD. Following processing, oil is either sent to
export oil storage tanks or to Petrosakh's refinery directly adjacent to the
processing plant.
Crude oil is exported by means of a pipeline which runs from the export tank
farm to the sea bed and marine loading facility located approximately half a
kilometre offshore. Marine exports from the Okruznhoye field site are seasonal
depending on the presence of pack-ice which accumulates during the winter
months. The typical navigation season is June through November.
The refinery has a capacity of 4,100 BOPD of diesel, gasoline, kerosene and fuel
oil (mazut). It was originally designed and built by Russell Industries Inc. of
Tulsa, Oklahoma and then re-constructed at the Okruzhnoye field site with Hudson
Engineering of Houston, Texas as primary contractor.
To transport refined products for sale to local markets, Petrosakh owns a fleet
of 12 tanker trucks and a gravel-surfaced road that connects Okruzhnoye to the
Pervomaisk rail terminal. At Pervomaisk, Petrosakh has a tank farm with product
storage of 5,000 barrels, and rail loading racks to transfer products onto
railcars for shipment to its customers, primarily located in Yuzhno-Sakhalinsk.
The on-shore, producing field, Okruzhnoye, currently produces oil from 14 wells,
and has two injection wells, one water and one gas injection. Five wells are
flowing producers and nine are produced with gas-lift. For the six months ended
June 2005, the field's average daily oil production was 2,388 BOPD. Oil quality
is light, sweet crude with a gravity of approximately 36degrees API (0.84 g/
cm3), sulphur content of 0.28% and produced water of 3%.
ZAO Chepetskoye NGDU
ZAO Chepetskoye NGDU was created in 1993 as a stand-alone production company for
the purpose of developing three discovered fields in the Northwestern area of
the Udmurtia Republic, Nefedovskoye, Zotovskoye and Potapovskoye. Development
activities began for these three fields in 2000. On 4 October 2004, the Company
acquired a 100% interest in Chepetskoye NGDU from one of its principal
shareholders.
For the six months ended June 2005, Chepetskoye NGDU's average daily oil
production was 846 BOPD. Oil quality produced is a sweet crude with a gravity of
approximately 29 API. Because Chepetskoye sells its oil into the Transneft
system, all sales volumes are effectively considered as Urals Blend or
approximately 32.8 API. For the six months ended 30 June 2005, the Nefedovskoye
field produced at an average rate of 292 BOPD from 11 producing wells. Since
January 2005, three wells have been re-perforated and three new development
wells drilled, producing at a sustained rate of between 100 to 150 BOPD and cost
an average of approximately $400,000. The field's daily production has increased
to approximately 550 BOPD as of 30 June 2005. For the six months ended 30 June
2005, the Zotovskoye field produced at an average rate of 520 BOPD from 13
producing wells. The Company does not have any plans for further development
drilling at this time. Only one well is currently producing at the Potapovskoye
field, and for the six months ended 30 June 2005, produced at an average rate of
33 BOPD. The Potapovskoye field has significant undeveloped potential and the
Company estimates that a development drilling programme could increase
Potapovskoye field production to a peak rate of approximately 3,000 BOPD by
2010.
Chepetskoye sells its oil into three primary markets as directed by the
Company's marketing coordinator in Moscow: domestic Russian refineries (Moscow
and Ryazan refineries), near-abroad countries (Belarus and Ukraine) and export
destinations (far-abroad) such as Germany and the Black Sea. For 2004,
approximately 55% was sold domestically, 10% to near-abroad destinations, and
35% to export markets.
OOO CNPSEI
OOO CNPSEI was formed in 1990 and is headquartered in Ukhta, Komi Republic,
approximately 750 kilometers northeast of Moscow. Its two subsoil licenses were
re-issued in 2002 for the Yuzhno-Tebukskoye and the Sosnovskoye fields.
Urals Energy acquired control over 100% of the stock of CNPSEI in October 2004.
Management of the Company has substantial operational experience in the Komi
Republic and is confident that further opportunities to expand in the region
will become available to complement its operations at CNPSEI.
For the six months ended June 2005, CNPSEI's average daily oil production was
1,015 BOPD. Oil produced is a sweet crude with a gravity of approximately 35
API. Because CNPSEI sells its oil into the Transneft system, all sales volumes
are effectively considered as Urals Blend or approximately 32.8 API.
CNPSEI sells its oil into three primary markets: domestic Russian refineries
(Moscow and Ryazan refineries), near-abroad countries (Belarus and Ukraine) and
export destinations (far-abroad) such as Germany and the Black Sea. For 2004,
approximately 55% was sold domestically, approximately 10% to near-abroad
destinations, and approximately 35% to export markets. The Company controls the
marketing of oil from CNPSEI as part of its overall oil marketing programme from
the central office in Moscow in order to achieve the highest available price.
The Company believes the Yuzhno-Tebukskoye field to be fully developed and is
working to improve production and recovery factors by optimising the placement
and stroke rate of downhole pumping units and maximizing water injection rates.
For the six months ended 30 June 2005, the field produced an average rate of
approximately 600 BOPD.
For the six months ended 30 June 2005, the Sosnovsky field produced at an
average rate of approximately 415 BOPD. The Company believes the field to be
developed fully and is working to improve production and recovery factors by
optimising the placement and stroke rate of downhole pumping units, and
maximizing water injection rates. The Company's goal through such methods is to
maximise current oil production rates and to increase the overall recovery
factor, thereby increasing the value of the field.
OOO Urals Nord
Urals Nord is a Russian limited liability company that holds geological study
licenses to five blocks in the Northern part of the Timan Pechora Basin:
Alfinsky, Nadezhdinsy, West Sorokin, Fakel and Belugin. The Company acquired
100% of OOO Urals Nord via two separate acquisitions of 50% in March and April
2005.
The Company is currently processing and evaluating seismic surveys to determine
its future exploration programme. A significant amount of 2D seismic data is
available over all blocks. In 2004, the Company re-processed and re-interpreted
a total of 490 kilometres of existing 2D seismic over the Alfinsky block. Based
upon the re-mapping of the structure a quantitative risk analysis and resource
potential calculation is being conducted.
During February 2005, 198 kilometres of new 2D seismic was acquired over the
Nadezhdinsky block. Structure maps are expected to be completed in early summer
which will be used to carry out a risk assessment with the view to drilling an
exploration well in 2006.
Production and Sales
Urals Energy's financial position is dependent on oil prices, both international
where most of the Group production is sold and to a lesser extent domestic and
the Company's ability to produce and sell oil. Export prices realized by the
Group averaged $49.23 per barrel in the first half of 2005. Near abroad crude
prices realized by the Company averaged $28.90 per barrel for the first half of
the 2005, while domestic crude averaged $21.36. Domestic refined product prices
averaged $48.43 per barrel for the same period.
Production of barrels of crude oil by production company for the first six
months ended 30 June 2005 were:
Entity Production
(Bbls)
Petrosakh 432,158
CNPSEI 183,230
Chepetskoye NGDU 153,950
Volumes of refined products at Petrosakh, revenues and prices recieved per
barrel for the first months ended 30 June 2005 were:
Sales Volumes Revenues Revenues
(Bbls) ($ thousands) ($/Bbls)
Fuel Oil 75,375 1,617 21.46
Diesel 22,950 1,458 63.54
Kerosene 24,000 1,214 50.57
Gasoline H-80 16,050 936 58.31
Gasoline B-1 4,350 213 48.98
Gasoline B-2 9,900 501 50.59
Sales of oil and oil products for the first six months of 2005 in thousands of
barrels were:
Entity Crude Crude Near Crude Products Crude and
Export Abroad Domestic Domestic Product Total
Petrosakh 210.2 - 23.0 152.6 385.8
CNPSEI 70.1 5.8 105.2 - 181.1
CNGDU 54.6 7.3 88.6 - 150.5
Total 334.9 13.1 216.7 152.6 717.4
Oil and oil products gross revenues for the first six months of 2005 in $
thousands were:
Entity Crude Crude Crude Products All Crude
Export Near Abroad Domestic Domestic and Product
Petrosakh 11,050 - 744 7,391 19,186
CNPSEI 3,023 162 2,073 - 5,259
CNGDU 2,416 218 1,812 - 4,445
Total 16,489 380 4,629 7,391 28,889
Oil and oil products average gross revenues per barrel for the first six months
of 2005 were:
Entity Crude Crude Near Crude Products All Crude
Export Abroad Domestic Domestic and Product
Petrosakh 52.56 - 32.42 48.43 49.73
CNPSEI 43.14 27.77 19.71 - 29.04
CNGDU 44.25 29.79 20.45 - 29.54
Total 49.23 28.90 21.36 48.43 40.27
Oil and oil products average net-backs per barrel for the first six months of
2005 were:
Entity Crude Crude Near Crude Products All Crude
Export Abroad Domestic Domestic and Product
Petrosakh 33.57 - 25.41 34.95 33.63
CNPSEI 27.26 26.04 16.70 - 29.04
CNGDU 27.51 16.18 17.33 - 29.54
Total 31.26 20.56 17.88 34.95 27.81
Financial Performance for the Six Months Ending June 2005
Investments in Operations
For the period, the Company had gross revenues of $28.0 million, and net
revenues of $22.0 million. The gross margin, net revenues minus the cost of
production, was $8.4 million, or 38.3% of net revenues. Earnings before
interest, corporate income taxes, depreciation, depletion and amortisation
expenses (adjusted for extraordinary gains and foreign currency loss) was $6.0
million, or 27.3% of net revenues. Operating income was $2.2 million, 10% of net
revenues, resulting in a loss before taxes of $689 thousand. The net loss for
the period was $1.1 million.
For the period, the company had negative cash flow from operations of $14
million plus an additional cost of $1.7 million for interest and taxes,
resulting in a net cash flow used in operations of negative $15.7 million. The
negative cash flow from operations was primarily due to a working capital
mismatch of revenues with cash payments in Petrosakh of $12 million and
seasonality in Petrosakh which resulted in an increase in crude oil inventory at
30 June 2005 of $ 1 million. The remainder relates to changes in prepaid
expenses, accounts payable and other.
Net capital expenditures during the period amounted to $4.3 million and were
primarily related to the development work at Petrosakh and Chepetskoye.
Acquisitions
Expenditures for acquisitions, excluding interest charged to deferred payments,
amounted to $14.4 million, related to the Petrosakh, Urals Nord and Arctineft
acquisitions.
The Company agreed to acquire 97.16% of Petrosakh on 19 November 2004. As part
of the sale-purchase agreement the Company agreed to certain deferred payment
obligations including a deferred payment for the purchase of shares for $9.9
million and the guarantee of loans from the seller to Petrosakh of $11.1
million. On 27 April the Company paid $6 million, and on 31 May the Company paid
$3.9 million and with that payment satisfied all remaining obligations to the
sellers.
On 28 March the Company acquired 50% of the participation interests in OOO Urals
Nord from an affiliate of one of the shareholders as part of the contribution by
such shareholder to the equity of the Company pursuant to a shareholders
agreement dated 28 July 2004. On 25 April the Company acquired the remaining 50%
interest in OOO Urals Nord from certain third parties for an agreed
consideration of $14.9 million payable in cash by 27 October 2005. $1.5 million
was paid toward this purchase on 6 June, and the remaining amount was paid in
two tranches of $9.5 and $3 million on 23 August 2005 and 2 September 2005,
respectively. The Group incurred $837 thousand of additional cost due to seismic
interpretation work of the reserves. Urals Nord holds five exploration licenses
for Beluginisky, Zapadno-Sorokinskiy, Fakelniy, Nadezhdinskiy and Alfinskiy oil
fields.
The Company, OAO Arkhangelskgeoldobycha and OOO LUKoilkaliningradmorneft entered
into an agreement on 11 July 2005 for the acquisition of shares in Arcticneft by
the Company. In order to secure an exclusive right to this acquisition, the
Company entered into an agreement with LUKoil on 24 May, at which time it paid
the seller a deposit of $3.0 million. On 11 July, $16.5 million was paid to the
seller. On 25 August an additional $10.3 million was paid into Arcticneft to
refinance its indebtedness to LUKoil. A final payment of $7.2 million must be
repaid on or before 1 October.
Liquidity and Capital Resources
The net figure of negative $34.7 million from net cash flow from operations
combined with capex plus cash paid in support of acquisitions was offset by
increased borrowings of $32.0 million and cash received for the sale of equity
in the amount of $18.4 million.
In March Chepetskoye NGDU and CNPSEI borrowed a combined $12.0 million from Bank
Zenit. The loan is a 5-year bullet amortization loan secured against certain
physical assets of Chepetskoye NGDU and CNPSEI. In June ZAO Petrosakh borrowed
an additional $20.0 million from BNP Paribas. The loan matures on December 31,
2006, and is a pre-payment secured against the export receipts of ZAO Petrosakh.
In May the Company issued 23,585 shares to Nafta (B) NV for a total
consideration of $25 million. The share issuance was settled with a cash
contribution of $18,4 million and a conversion of $6,6 million in existing debt
of the Company to Nafta (B) NV.
Taxes
The Company pays a variety of taxes, these include export duties, excise taxes,
unified production taxes, VAT, Pension, Federal Income and Others. For the first
six months ended 30 June 2005, the taxes paid and accrued in $ thousands were:
Tax Item Accrued First 6 Months Paid First 6 Months
2005 2005
Export Duties 6,047 6,047
Excise Tax 321 388
Value Added Tax 1,834 1,850
Unified Petroleum Tax 5,588 5,357
Pension Fund, Other Social 467 436
Other 201 429
Federal Income 895 317
TOTAL TAXES 15,353 14,824
Export duties are set according to a regressive tax schedule and applied to the
export of all crude oil. For the first six months, the average export duties for
the Company was 36.7%. Excise taxes on domestic refined products sold averaged
4.35%. Accrued income tax expenses for the period are primarily due to income
tax accrued at Petrosakh and Chepetskoye NGDU on standalone bases. The effective
tax rate for those entities is a result of the application of the Russian
Federal statutory income tax rate of 24%. However, due to the consolidation of
other entities having net losses in their individual accounts, plus additional
accrual of expenses related to purchase accounting (primarily revaluing of oil
and gas properties to fair value, resulting in additional depletion charges to
the income statement), there was a loss before taxes. Therefore, for the period
there exists a positive accrual of federal income taxes applied to a net loss
before tax figure.
23 September 2005
CONSOLIDATED BALANCE SHEET AT (unaudited)
in US $ thousands 30 June 31 December
2005 2004
Cash and cash equivalents 8,897 1,421
Accounts receivable and prepayments 15,563 3,706
Inventories 3,511 2,247
TOTAL CURRENT ASSETS 27,971 7,374
Property, plant and equipment 114,210 100,622
Other non-current assets 4,254 292
TOTAL NON-CURRENT ASSETS 118,464 100,914
TOTAL ASSETS 146,435 108,288
Accounts payable and accrued expenses 2,389 3,019
Taxes payable 2,446 1,917
Short-term borrowings and current portion 20,776 38,815
of finance lease obligations
Advances from customers 135 5,102
Amounts due for acquisition of 12,460 9,899
subsidiaries
TOTAL CURRENT LIABILITIES 38,206 58,752
Long-term finance lease obligations and 25,446 1,556
borrowing
Dismantlement provision 920 950
Deferred tax liability 17,961 17,751
TOTAL LONG TERM LIABILITIES 44,327 20,257
TOTAL LIABILITIES 82,533 79,009
TOTAL EQUITY 63,902 29,279
TOTAL EQUITY AND LIABILITIES 146,435 108,288
Appoved on behalf of the Board of Directors on 23 September 2005
William R. Thomas Stephen M. Buscher
Chief Executive Officer Chief Financial Officer
CONSOLIDATED STATEMENT OF OPERATIONS (unaudited)
in US $ thousands
1 January to 30 June
2005
Revenues
Gross revenues 28,002
Less: excise taxes and export duties (6,047)
Net revenues 21,955
Operating Cost
Cost of production (13,544)
Selling expenses (1,966)
General and administration expenses (4,238)
Operating result 2,207
Finance costs (2,727)
Foreign currency losses, net (192)
Other non-operating gains, net 23
Result before tax and minority interests (689)
Income tax (charge)/benefit (456)
Net result (1,145)
Attributable to minority shareholders 77
Attributable to Group shareholders (1,222)
Earnings per share (USD)- basic (0.02)
Diluted earnings per share (USD) (0.02)
CONSOLIDATED STATEMENT OF CASH FLOW (unaudited)
in US $ thousands
1 January to 30 June
2005
Cash flow from operating activities
Result before tax and minority interest (689)
Total Adjustments 4,724
Operating cash flow before changes in 4,035
working capital
Changes in working capital (18,031)
Cash flow from/(used in) operations (13,996)
Interest paid (1,377)
Income tax paid (297)
Net Cash flow used in operating activities (15,670)
Cash flow used for investments
Acquisition of subsidiaries (4,500)
Purchase of property, plant and equipment (4,348)
Net Cash Inflow/ (Outflow) from Investing (8,848)
Activities
Cash flow from financing activities
Proceeds from loans 35,001
Repayment of loans (30,053)
Proceeds from issuance of ordinary shares 26,215
Contributions from shareholders 881
Net Cash Inflow from Financing Activities 32,044
Effect of exchange rate changes (50)
Net increase in cash and cash equivalents 7,476
Cash and cash equivalents at beginning of 1,421
the period
Cash and cash equivalents at end of the 8,897
period
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (unaudited)
Attributable to shareholders of the Group Minority
Interest
in US$ thousands Note Share Share Unpaid Translation Accumulated Total
capital premium capital difference deficit equity
At 31 December 209 42,172 (11,324) 1,236 (4,341) 1,327 29,279
2004
Issue of shares 5 50 24,950 25,000
Contribution from 11,324 11,324
shareholders
Translation (511) (45) (556)
difference for the
period
Net result for the (1,222) 77 (1,145)
period 1 January
2005-30 June 2005
At 30 June 2005 259 67,122 0 725 (5,563) 1,359 63,902
NOTES TO THE INTERIM FINANCIAL INFORMATION (unaudited)
Note 1
Urals Energy Public Company Limited (''Urals Energy'', or the ''Company'') was
incorporated as a limited liability company in Cyprus on 9 November 2003. The
Company was formed to act as a holding company for the shareholders' investments
in the Russian oil and gas exploration and production sector. Pursuant to a
Shareholder Agreement dated 28 July 2004, the Shareholders contributed certain
assets including ZAO Chepetskoye NGDU to the Company. On 26 October 2004, the
Company acquired OOO CNPSEI and on 19 November 2004, acquired ZAO Petrosakh. In
April 2005, the Company acquired the remaining 50 percent of OOO Urals Nord. In
July 2005, the Company completed the acquisition of ZAO Arcticneft.
On 9 August 2005, the Company completed an initial public offering on the London
Alternative Investment Market (AIM).
Urals Energy and its subsidiaries (the ''Group'') are primarily engaged in oil
and gas exploration and production in the Russian Federation and processing of
crude oil for distribution on both the Russian and international markets. At 31
December 2004, the Group employed approximately 585 people.
The Group comprises of the following subsidiaries:
Entity Nature Jurisdiction Economic
interest
at 30 June
2005
ZAO Petrosakh Exploration & Sakhalin 97.2%
production
OOO CNPSEI Exploration & Komi 100.0%
production
ZAO Chepetskoye Exploration & Udmurtia 100.0%
NGDU production
OOO Urals Energy Management Moscow 100.0%
OOO Urals-Nord Exploration Nenetsky 100.0%
Urals Energy (UK) Corporate Services UK 100.0%
Limited
Note 2 The nature of business operations
The Group's largest producing subsidiary, ZAO Petrosakh, operates on Sakhalin
Island and is not connected to the State owned pipeline monopoly - Transneft,
and accordingly, the majority of its production is exported by tanker. Due to
severe weather conditions, shipping tankers can only load during the period of
June through early November. Outside this period, oil is either stored or
processed and sold on the local market. During the period under review Petrosakh
had produced 56 thousand tons of crude oil and sold only 29 thousand tons of
crude oil in late June 2005. The remaining crude oil will be shipped during the
second half of the year.
Note 3 Basis of presentation
The consolidated interim condensed financial information has been prepared in
accordance with International Accounting Standard No. 34, Interim Financial
Reporting ("IAS 34"). This consolidated interim condensed financial information
should be read in conjunction with the Company consolidated financial statements
as of and for the year ended 31 December 2004 prepared in accordance with
International Financial Reporting Standards ("IFRS"). The 31 December 2004
consolidated balance sheet data has been derived from audited financial
statements.
Use of estimates. The preparation of consolidated interim condensed financial
information in conformity with IFRS requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements preparation and the reported amounts of assets,
liabilities, revenues and expenses, and the disclosure of contingent assets and
liabilities during the reporting period. Estimates have principally been made in
respect to fair values of assets and liabilities, impairment provisions and
deferred income taxes. Actual results may differ from such estimates.
Exchange rates, restrictions and controls. The United States Dollar (''US dollar
or US$'') is the presentation currency for the Company's operations as the
majority of the Company's operations is conducted in US dollars and management
have used the US dollar accounts to manage the Company's financial risks and
exposures, and to measure its performance. Financial statements of the Russian
subsidiaries are measured in Russian Roubles and presented in US dollars in
accordance with SIC 30 ''Reporting currency-Translation of Measurement Currency
to Presentation Currency''. Balance sheet items denominated in foreign
currencies have been remeasured using the exchange rate at the respective
balance sheet date. Exchange gains and losses resulting from foreign currency
translation are included in the determination of net income or loss. The US
dollar to Russian Rouble exchange rates were 28.67 and 27.75 as of 30 June 2005
and 31 December 2004, respectively.
Comparative information for the first half of 2004 was not provided as the
Company was not operating at that time.
Note 4 Accounting policies
Except as discussed below, the principal accounting policies followed by the
Company are consistent with those disclosed in the financial statements for the
year ended 31 December 2004.
New accounting developments. In December 2003, the International Accounting
Standards Board ("IASB") released 15 revised International Accounting Standards
("IAS"s) and withdrew one IAS standard. In 2004, the IASB published five new
standards, two revisions and two amendments to existing standards. In addition,
the IFRIC issued six new interpretations in 2004. Significant changes relevant
to the Group are discussed below.
The revisions to IAS 1, Presentation of Financial Statements, clarify certain
presentation requirements. Most significantly, the revised standard requires
that minority interest be presented within equity. The Company has retroactively
reflected the revised presentation standard for equity in the consolidated
interim condensed financial information.
IAS 24, Related Party Disclosures, as revised, requires the disclosure of
compensation of key management personnel and clarifies that such personnel
include non-executive directors.
Other revised and amended standards effective on 1 January 2005 are as follows:
IAS 2, Inventories; IAS 8, Accounting Policies, Changes in Accounting Estimates
and Errors; IAS 10, Events after the Balance Sheet Date; IAS 16, Property, Plant
and Equipment; IAS 17, Leases; IAS 19, Employee Benefits; IAS 21, The Effects of
Changes in Foreign Exchange Rates; IAS 27, Consolidated and Separate Financial
Statements; IAS 28, Investments in Associates; IAS 31, Investments in Joint
Ventures; IAS 32, Financial Instruments: Disclosure and Presentation; IAS 33,
Earnings per Share; IAS 36, Impairment of Assets; IAS 38, Intangible Assets: and
IAS 39, Financial Instruments: Recognition and Measurement. The adoption of
these revised and amended standards has not had a material effect on the Group's
financial position, statements of income or of cash flows.
Accounting policies significant to the Group that were adopted or modified on 1
January 2005 are discussed below.
Business combinations. The Company accounts for business combinations in
accordance with the provisions of IFRS 3, Business Combinations ("IFRS 3"). IFRS
3 applies to accounting for business combinations where the agreement date is on
or after 31 March 2004. Upon acquisition, the Group initially measures both its
share and the share of any minority shareholders in the acquiree's identifiable
assets, liabilities and contingent liabilities at their fair values as at the
acquisition date. For business combinations where the agreement date is on or
after 31 March 2004, goodwill is not amortized but rather tested for impairment
annually at the cash generating unit level unless an event occurs during the
year which requires the goodwill to be tested more frequently. Intangibles with
indefinite useful lives acquired in those business combinations are not
amortized and are tested annually for impairment to ensure the carrying value
does not exceed the recoverable amount regardless of whether an indicator of
impairment is present.
Non-current assets held for sale and discontinued operations. The Group accounts
for non-current assets held for sale and discontinued operations in accordance
with IFRS 5, Non-current Assets Held for Sale and Discontinued Operations. IFRS
5 replaced IAS 35, Discontinuing Operations. Assets or disposal groups that are
classified as held for sale are presented separately on the balance sheet and
are carried at the lower of the carrying amount and fair value less costs to
sell. Additionally, the results of discontinued operations are shown separately
on the face of statement of income.
On 1 January 2005, the Group early-adopted IFRS 6, Exploration for and
Evaluation of Mineral Resources. This standard provides guidance on accounting
for costs incurred in the exploration for and evaluation of mineral resources.
Adoption of the standard did not have a material effect on the Group and did not
result in changes of the Group's accounting policies.
Note 5 Issue of shares
Number of Share capital Share premium
shares US$ thousands US$ thousands
At 31 December 2004 40,000,000 209 42,172
Issuance of shares to Nafta 9,434,000 50 25,950
B - 15 June 2005
At 30 June 2005 49,434,000 259 67,122
Subsequent to 30 June 2005
Conversion of shareholder 3,650,480 19 9,654
loans to equity - 2 August
2005
Placement under the initial 26,666,700 143 113,636
public offering - 9 August
2005
Placement under RP Explorer 2,929,651 16 9,984
Master Fund - 9 August 2005
Placement under Green shoe 4,000,050 22 17,305
arrangements - 17 August
2005
At 23 September 2005 86,681,183 459 217,701
All share numbers are presented after the effect of a 1 for 400 share split
approved on 18 July 2005. In June 2005, the Company issued 9,434,000 ordinary
shares to Nafta (B) NV, a company owned by one of the shareholders for total
consideration of $ 25,000 thousand. The share issuance was settled with a cash
contribution of $ 18,380 thousand and conversion of $ 6,620 thousand in existing
debt of Nafta B.
In July 2005, the Company entered into a convertible preferred note agreement
with RP Explorer Master Fund for up to $ 15.0 million. The Company has issued
$ 10.0 million, 10.0 percent subordinated, unsecured ''A'' notes. The notes are
issued at 100.0 percent and accrete daily up to 117.0 percent on maturity. On 9
August 2005 these notes were converted into 2,929,651 ordinary shares at a 20.0
percent discount to the IPO issue price.
On 2 August 2005, the Company converted its loans with Radwood Business Inc.,
Polaris Business Limited, Citara International Limited, Fantin Finance Limited
and Texas Oceanic Petroleum LLC (who collectively at 31 December 2004, provided
$ 9.3 million, Libor plus 2.0 percent unsecured notes to the Company,) to
3,650,480 ordinary shares.
On 9 August 2005 the Company placed 26,667,000 new ordinary shares at an issue
price of 240 pence per share on an Alternative Investment Market operated by the
London Stock Exchange ("AIM").
On 17 August 2005 Morgan Stanley Securities Limited, the Company's stabilising
manager fully exercised the over-allotment option in the amount of 4,000,050 new
shares. As a result of the exercise, the free float of shares in the Company has
increased from 32% to 35% (upon the expiration of RP Capital's lock-up and
orderly markets restriction, 39%) and the issued share capital of the Company
has increased to a total of 86,681,183 shares. The gross proceeds of the placing
now total approximately $131 million.
Note 6 Segment information
The Group operates in one business segment which is crude oil exploration and
production. The Group assesses its results of operations and makes its strategic
and investment decisions based on the analysis of its profitability as a whole.
The Group operates within one geographical segment, which is the Russian
Federation.
Note 7 Acquisition of subsidiaries
On 25 April 2005, the Company acquired the remaining 50.0% interest in OOO Urals
Nord ("Urals Nord") for the total consideration of $14,837 thousand. On that
date $1,500 thousand was paid immediately in cash and $12,500 thousand is
payable in October 2005. The Group incurred $837 thousand of additional cost
related to seismic review of the license areas. Urals Nord holds 5 exploration
licenses for Beluginisky, Zapadno-Sorokinskiy, Fakelniy, Nadezhdinskiy and
Alfinskiy oil fields. Urals Nord has been consolidated from the date of
acquisition, the purchase price being assigned to unproved oil and gas property
including in property, plant and equipment.
Note 8 Pledged assets and changes in contingent liabilities
The dismantlement provision represents the net present value of the estimated
future obligation for dismantlement, abandonment and site restoration costs
which are expected to be incurred at the end of the production lives of the oil
and gas fields. The discount rate used to calculate the net present value of the
dismantling liability was 13.0 percent.
Environmental regulations and their enforcement are under development by
governmental authorities. Consequently, the ultimate dismantlement, abandonment
and site restoration obligation may differ from the estimated amounts and this
difference could be significant.
Note 9 Cost of sales
1 January 2005 to 30 June 2005
Unified production tax 5,588
Depreciation and depletion 3,790
Wages and salaries including payroll 2,270
taxes
Materials 1,088
Other taxes 416
Exploration expense 251
Other 662
(Reverse)/ write down of inventories (521)
Total cost of sales 13,544
Within the exploration expense line $251 thousand represents a write-off of the
geological and geophysical works performed by Chepetskoye in 2003 and 2004,
which were recorded at 31 December 2004 in the books as a deferred expenses
within the line "Non-current assets".
Note 10 Borrowings and loans
Short term loans
Name of bank Borrower Interest rate Currency 30 June 31 December
2005 2004
Related party loans UEPCL LIBOR +2% $ 12,300 27,493
Current portion of Petrosakh 8.16% fixed 8,000 -
long term debt
Alfa Eco M Petrosakh 9.8% fixed RR - 10,993
Current portion of Petrosakh 13% fixed RR 111 105
finance lease
liability
Accrued interest 365 224
Total 20,776 38,815
Long term debt
Name of bank Borrower Interest Maturity Currency 30 June 31 December
rate date 2005 2004
BNP Paribas Petrosakh 8.16% fixed December $ 20,000 -
2006
Less current (8,000) -
portion of BNP
Paribas
Zenit Chepetskoe 11% fixed March 2010 $ 10,000 -
NGDU
Zenit CNPSEI 11% fixed March 2010 $ 2,000 -
Long term finance Petrosakh 13% fixed 1,557 1,661
lease liability
Less current Petrosakh (111) (105)
portion of lease
liability
Total 25,446 1,556
In June 2005, Petrosakh entered into an 18-month US$ denominated credit facility
for US$ 20,000 thousand with ZAO BNP Paribas Bank to finance Petrosakh for
certain repayment of loans from Alfa-Eco M and fund working capital and various
capital projects of Petrosakh. This variable interest debt facility bears
interest at LIBOR plus 5.0 percent and is repayable through December 2006. The
loan is collateralised by pledge of Petrosakh shares to ZAO BNP Paribas Bank,
assignment of crude oil export contract and a floating pledge over Petrosakh's
crude oil inventories. Further, the facilities contain cross default provisions.
This facility is repayable with the proceeds of the committed export contracts.
As of the date of release of this management statement, the remaining principal
amount due under this loan is US$ 14.2 million.
In March 2005, Chepetskoye NGDU obtained a US$ 10,000 thousand, 5-year US
dollar, denominated, 11.0 percent fixed interest loan from OAO Bank Zenit and
CNPSEI obtained a US$ 2,000 thousand, 5-year US dollar denominated 11.0 percent
fixed loan from OAO Bank Zenit. The bank loans are for funding working capital
and certain capital projects. The loans are secured by liens on various assets
of these subsidiaries and the facilities contain cross default provisions.
Note 11 Capital commitments
Exploration licenses-investment commitments
In accordance with the Pogranichnoye off-shore license agreement, Petrosakh must
conduct certain exploratory work, which includes, but is not limited to,
performing seismic prospecting and drilling two exploratory wells by February
2006. Management currently estimate such expenditure to approximate $ 19,000
thousand.
In accordance with the Pogranichnoye on-shore license agreement, Petrosakh must
conduct exploratory works including drilling two exploration wells in 2007 and
2008.
Other capital commitments
At 30 June 2005, the Company had no other significant contractual commitments
for capital expenditures.
Note 12 Related party transactions
At 30 June 2005 the Group has received unsecured borrowings from shareholders
and companies controlled by shareholders at market rates. The loans form
shareholders were received to purchase Petrosakh.
Name of party Relationship 30 June 31 December Currency Interest Date of
2005 2004 rate repayment
Nafta B NV Controlled by - 6,822 EURO 10% February 2005
shareholder
Nafta B NV Controlled by 3,000 - $ 10% August
shareholder 2005
Radwood Business Shareholder 500 500 $ LIBOR plus August
Inc. 2% 2005
Polaris Business Shareholder 300 300 $ LIBOR plus August
Limited 2% 2005
Citara International Shareholder 5,000 5,000 $ LIBOR plus August
Limited 2% 2005
Fantin Finance Shareholder 3,000 3,000 $ LIBOR plus August
Limited 2% 2005
Texas Oceanic Shareholder 500 1,500 $ LIBOR plus August
Petroleum LLC 2% 2005
UEN Trading Ltd Controlled by - 8,660 $ 10-15% March-December
shareholder 2005
Other accounts Controlled by 848 1,381 $
payable shareholder
Loans payable 12,300 27,493
Interest payable 365 117
Other accounts 848
payable
Total related party 13,513 27,610
borrowings
Nafta B NV loan at 30 June 2005 was repaid on 17 August 2005 and other loans
from shareholders were converted into equity on 2 August 2005. The Nafta B NV
loan at 31 December 2004 was converted to equity (see Note 5).
Other transactions and balances with companies controlled by shareholders are as
follows:
30 June 31 December
2005 2004
Balances with related parties
Accounts receivable
Loans receivable 1,230 723
Accounts payable
Other payable and accrued expenses 61 61
Operations with related parties 1 January 2005
to 30 June
2005
Oil sales
Sales of crude oil 4,399
Associated volumes, tons 13,580
Selling, general and admin expenses
Interest expense - net 559
Management fees received 214
Rental fees paid included in selling, general and 172
administrative expense
Note 13 Subsequent evenets
On 29 July 2005 the Company made a deposit of $5.25 million to KCA Deutag to
secure the T-2000 rig. On 11 July 2005, the Company concluded the acquisition of
a 100.0 percent equity interest in ZAO Arcticneft from OAO LUKOil for
approximately $ 32.5 million. An advance of $ 3.0 million was paid on 24 May
2005 (in accordance with the preliminary term sheet), $16.5 million was paid on
completion and the remaining $13.0 million is payable before September 2005. As
part of this acquisition, approximately $7.6 million in payables of Arcticneft
to LUKoil must be repaid by October 2005. In addition, the Company reached an
agreement to settle a dispute between ZAO Arcticneft and OOO Start, whereby the
Company will acquire certain operating assets from Start for $3.0 million, and
Start will cease any litigation against Arcticneft. Arcticneft is an oil and gas
exploration and production company located on the Kolguyev Island in the
Nenetsky autonomous region of northern Russia. Arcticneft operates the
Peschanoozerskoye onshore oil field. During 2004, it produced 73,136 tons of
crude oil.
Management are currently reviewing their fair value allocations for this
transaction, and consequently believe it is not practicable to disclose such
balances at this time.
On 6 September 2005 the Company paid Petraco $10.0 million plus accrued interest
to settle an outstanding loan.
REVIEW REPORT OF THE AUDITORS
To the Shareholders and Board of Directors of Urals Energy Public Company
Limited
1. We have reviewed the accompanying condensed consolidated interim balance
sheet of Urals Energy Public Company Limited and its subsidiaries(the "Group")
as at 30 June 2005, and the related condensed consolidated interim statements of
operations, cash flows and changes in equity for the six months then ended
presented on pages 13 through 24. This condensed consolidated interim financial
information is the responsibility of the Group's management. Our responsibility
is to issue a report on this condensed consolidated interim financial
information based on our review.
2. We conducted our review in accordance with the International Standard on
Review Engagements 2400. This Standard requires that we plan and perform the
review to obtain moderate assurance about whether the condensed consolidated
interim financial information is free of material misstatement. A review is
limited primarily to inquiries of company personnel and analytical procedures
applied to financial data and thus provides less assurance than an audit. We
have not performed an audit and, accordingly, we do not express an audit
opinion.
3. Based on our review, nothing has come to our attention that causes us to
believe that the accompanying condensed consolidated interim financial
information has not been properly prepared, in all material respects, in
accordance with International Accounting Standard 34 "Interim Financial
Reporting".
PricewaterhouseCoopers
Moscow, Russian Federation
23 September 2005
This information is provided by RNS
The company news service from the London Stock Exchange
END
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