TIDMUEN
RNS Number : 9188S
Urals Energy Public Company Limited
30 September 2014
Press Release 30 September 2014
Urals Energy Public Company Limited
("Urals Energy" or the "Company")
2014 Half Year Results
Urals Energy PCL (AIM:UEN), the independent exploration and
production company with operations in Russia, is pleased to
announce its half-year results for the six months ended 30 June
2014.
Operational highlights
-- Total production at Arcticneft reached 118,958 barrels
(H1-2013: 125,651 barrels)
-- Total production at Petrosakh reached 210,435 barrels
(H1-2013: 240,533 barrels)
-- Current daily production at Arcticneft is 690 BOPD -
slightly higher than the average of 660 BOPD for the
six months ended 30 June 2014
-- Current daily level of production at Petrosakh is 1,202
BOPD compared with an average of 1,163 BOPD for the six
months ended 30 June 2014
-- Measures to halt natural decline at Petrosakh and Arcticneft,
including the completion of successful workovers have
stabilised production
-- New well drilling and existing well optimisation programs
in place and being implemented on both fields
Financial highlights
-- In H1-2014 gross profit was reduced by 28% to US$3.5
million (H1-2013: US$4.9 million), as a result the Company
achieved an operating loss of US$0.5 million for the
period (H1-2013: US$1.0 million profit)
-- EBITDA increased to US$3.3 million from US$2.8 million
in H1-2013, an increase of 19%
The Company continued to improve its net working capital
position with positive net working capital on 30 June
2014 of US$3.8 million (2013: US$2.0 million positive
working capital)
-- In May 2014, the Company entered into a secured short-term
loan agreement with Petraco Oil Company Limited ("Petraco")
under which Petraco has advanced the Company US$7.6 million.
The Loan is being used by the Company to both progress
its 2014 drilling plan and working capital financing
Post-period end and outlook
-- The annual planned tanker shipment for export from Arcticneft
is expected in the middle of October 2014
-- Repayment of all loans from Petraco expected to be made
by end of November 2014
-- Expected release of charge over the Company's Arcticneft
assets by Petraco
-- Miller and Lents, Ltd. reserves report recently finalised
as at 1 January 2014. The Company is currently undertaking
an initial review of this and will announce details of
the reserves report later this week
Alexei Maximov, Chief Executive, commented:
"2014 started with the threat of significant management change
initiated by Alpcot Capital Management Ltd ("Alpcot") and Fire East
Corporation ("Fire East"), which was defeated at an EGM by the
majority of shareholders who voted in support of the existing
management and Board. Simultaneously Adler Impex S.A. ("Adler"),
which bought Alpcot and Fire East's shareholdings in the Company
became the largest shareholder in Urals. Since acquiring its
shares, Adler has entered into discussions with Urals in relation
to increasing Adler's involvement in the Company at board level
and/or an executive appointment. An announcement will be made once
an agreement has been concluded with Adler.
"During 2014 the Company continued its activities at both fields
aimed at stabilising production in an attempt to curb the natural
decline by implementation of workovers and drilling of new wells,
which are planned to be finished by the year-end. The Company has
made substantial personnel changes both at Petrosakh and at its
head-office. At Petrosakh we have hired a new General Director and
Chief Engineer, both of whom have impressive backgrounds in oil
production and management. On the corporate level we have hired a
new Chief Geologist and Processing Manager both of whom are focused
particularly on improving operations at Pterosakh in addition to
determining potential new drilling locations, increasing the
margins of refined products and the introduction of a new product
mix.
"At Arcticneft the annual tanker shipment is planned for
mid-October. Final preparations are being implemented, contracts
have been signed and the vessel has been chartered.
"The Company still has to commit resources to the case regarding
Vyatcheslav Rovneiko's claim to the Company in relation to the
Alleged Debt Repayment Agreement (the "ADRA") which is being
defended in two jurisdictions, Russia and Cyprus. Whilst the Board,
as has been stated previously, believes that the ADRA is a forgery
and represents no substantive threat to the Company, Rovneiko
continues in his attempts to extend the process in order to limit
the effect of the London arbitration award against him. In
addition, the Company has initiated legal proceedings against
Komineftegeofizika ("KNGF") in Russia regarding the non-payment of
a loan. The Board is confident that the Company will prevail in
both cases; however, to do so will require time and additional
legal costs.
"The Board continues in its search for possible acquisition
opportunities and has evaluated a number of such potential
acquisitions in 2014. Given the overall investing climate towards
Russian companies and the overall industry slow-down, we have still
not found the "right fit" and will continue to seek new
opportunities. We will continue looking at production and
exploration opportunities in Russia, with the goal of adding
cash-generating assets to the Company's portfolio.
"Aside from the macro-economic environment in Russia caused by
the geo-political crisis in Ukraine, the Board does not consider
that this will have any immediate impact on the Company's
day-to-day operations. Since 2009 the Company's management has made
strenuous efforts to rid the Company of its legacy issues primarily
stemming from the Taas-Yuriah deal, which to date have been mostly
settled (with the exclusion of the Rovneiko situation). We also do
not believe that the continued consolidation of the Russian oil
sector has had a direct effect on the Company. The Board believes
it is in a firm position to move the Company forwards with its
operations and is committed to delivering shareholder value."
- Ends -
For further information, please contact:
Urals Energy Public Company Limited
Alexei Maximov, Chief Executive Tel: +7 495 795 0300
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 Price www.allenbycapital.com
Media enquiries:
Abchurch
Henry Harrison-Topham / Quincy Allan Tel: +44 (0) 20 7398
7710
henry.ht@abchurch-group.com www.abchurch-group.com
Chief Executive Officer's Statement
Operating Environment
The six months ended 30 June 2014 were characterised by a stable
crude oil market price at an average level of US$109 per barrel
(H1-2013: US$108). Domestic prices for light oil products ranged
from US$113 to US$137 per barrel (H1-2013: US$110 to US$142). High
and stable domestic prices secured the Company's operating cash
flows at a level sufficient to maintain its operations and comply
with license requirements at both fields.
There were no deliveries of crude oil exported from Arcticneft
during the reporting period. The tanker from Arcticneft is expected
in mid-October 2014.
Operating Results
US$'000 Period ended 30 June:
------------------------
2014 2013
--------------------------------------------- ----------- -----------
Gross revenues before excise, export duties 18,909 17,775
Net revenues after excise, export duties
and VAT 16,605 15,881
Gross profit 3,531 4,930
Operating (loss)/profit (438) 1,023
Management EBITDA 3,306 2,780
Total net finance benefits/(costs) (715) (3,296)
Profit for the period (1,167) (2,537)
--------------------------------------------- ----------- -----------
Gross Revenues (US$'000)
Period ended 30 June:
----------------------------------------- -------------------------
2014 2013
----------------------------------------- ------------ -----------
Crude oil 1,236 1,707
Export sales - -
Domestic sales (Russian Federation) 1,236 1,707
Petroleum (refined) products - domestic
sales 17,503 15,905
Other sales 170 163
Total gross revenues 18,909 17,775
----------------------------------------- ------------ -----------
For the six months ended 30 June 2014, total gross revenues
increased by US$1.1 million as a result of increase of sales
volumes totalling 209,564 barrels (compared with 184,861 barrels
for the six months ended 30 June 2013). The increase was partially
off-set by decline of average net back prices for petroleum
(refined) products of US$65.41 per barrel (US$73.86 for the six
months ended 30 June 2013) and a slightly lower crude oil net back
price of US$58.30 per barrel (US$59.46 per barrel for the six
months ended 30 June 2013). Netback, in the case of domestic crude
oil sales, is the gross sales net of VAT. Netback for domestic
product sales is defined as gross product sales minus VAT,
transportation, excise tax and refining costs.
For the six months ended 30 June 2014 all domestic sales of
crude oil and almost all petroleum (refined) products related to
Petrosakh. During the six months ended 30 June 2014, Arcticneft
sold petroleum (refined) products to FGUP
"ArcticMorNefteGazRazvedka" ("AMNGR") for US$540,000 (US$474,000
for the six months ended 30 June 2013).
Summary table: Net backs (US$/bbl)
Period ended 30
June:
----------------------------------------------- -------------------
2014 2013
----------------------------------------------- ------ -----------
Crude oil 58.30 59.46
Export sales - -
Domestic sales (Russian Federation) 58.30 59.46
Petroleum (refined) products - domestic sales 65.41 73.86
----------------------------------------------- ------ -----------
Gross profit (net revenues less cost of sales) for the first
half of 2014 decreased 28% to US$3.5 million (H1-2013: US$4.9
million). The main driver of the decrease was the lower
netbacks.
Cost of sales during the first half of 2014 totalled US$13.0
million as compared with US$11.0 million in 2013 of which US$3.8
million and US$3.1 million respectively represented non-cash items,
principally depreciation, amortisation and depletion. Increase in
operating costs mainly explained by the increase in sales volume
and decrease in crude oil and oil products inventory levels
respectively. At the same time as a result of the strong monitoring
procedures implemented, the Company managed to keep all other
operating costs in line with the level achieved during the first
half of 2013.
Decrease of average netback for petroleum products for the six
months ended 30 June 2014 as well as net finance cost resulted in a
net loss of US$1.2 million (H1-2013: net loss of US$2.5
million).
Consolidated normalised management EBITDA in the six months
ended 30 June 2014 increased to US$3.3 million as compared with
US$2.8 million during the six months ended 30 June 2013.
Management EBITDA (US$'000) - Unaudited
Year ended
30 June
--------------------------------------------------------- -------------------------
2014 2013
---------------------------------------------------------------- -------- ---------------
Loss for the year (1,167) (2,537)
Income tax charge 14 264
Net interest and foreign currency loss 715 3,296
Depreciation, depletion and amortisation 2,803 1,443
--------------------------------------------------------- --------------- ---------------
Total non-cash expenses 3,532 5,003
Charge of bad debt provision 389 352
Other non-recurrent and non-cash expense/(income) 552 (38)
--------------------------------------------------------- --------------- ---------------
Total non-recurrent and non-cash items 941 314
Normalised EBITDA 3,306 2,780
--------------------------------------------------------- --------------- ---------------
Net debt position
As at 30 June 2014, the Company had net debt of US$0.2 million
(calculated as long-term and short-term debt less cash in bank and
less loans issued to related parties). As at 31 December 2013 net
cash was US$6.0 million.
In June 2014 the Company received a loan of US$2.1 million from
Petraco. As at 30 June 2013, the long-term and short-term part
amounted to US$2.5 million (31 December 2013: nil).
During the first half of 2014 the Group additionally impaired a
loan to a formerly related party by $0.4 million (for the six
months ended 30 June 2013: $0.4 million). This amount relates to an
overdue loan to a shareholder and former member of management of
the Group. The Board demanded repayment of the full amount by 20
May 2011. By 20 May 2011 the Board did not receive any response
from the related party and the Company therefore filed the claim to
the London Court of International Arbitration. This arbitration has
confirmed the Company's legal rights, vindicated its position and
issued a final award that the sum in the amount of US$6.3 million
(including loan amount and interest) and legal cost in the amount
of US$1.3 million must be repaid to Urals Energy together with a
daily accumulating interest. The Company has formally demanded
payment from Mr Rovneiko and is committed to using all appropriate
means to collect the outstanding amount. For accounting purposes
management has reassessed the carrying value of the loan and has
impaired this fully. However, this does not reduce the validity of
the legal claim against this related party.
Operational update
Petrosakh
During the period under review the Company continued its focus
on minimising the natural decline in production, and improving the
Company's drilling programme. The natural decline in production is
being addressed by the implementation of standard technological
means, sidetracks and workovers. The drilling programme has been
re-evaluated by the new management, both at Petrosakh and head
office, as a result of which two new wells are being planned for
drilling by the current year-end.
Downstream
As the only local refinery on the island, the Company is under
constant pressure from the local authorities to supply those
refined products that are of particular interest to the local
users. However, the Company is slowly reducing the production of
low-margin products to be replaced by higher margin products. With
the recent hiring of the new Processing Manager the product mix and
technological aspects of the refining process have been assessed
with the goal of increasing profitability and capacity utilisation
of the plant. The seasonal aspect has also been taken into
consideration, as well as the list of buyers with the aim to limit
the dependence on both and increasing the flexibility and speed of
product inventory turnover.
Arcticneft
As at Petrosakh, in 2014 the Company continued to focus on
reducing natural decline and ensuring stable production in
preparation for the annual tanker shipment.
Petraco loan
In May 2014, the Company entered into a new short-term loan
agreement with Petraco under which Petraco advances the sum of up
to US$7.6 million to the Company. The proceeds of the loan will be
used by the Company to both progress its 2014 drilling plan and
working capital financing.
As at 30 of June 2014, total debt to Petraco was US$2.1 million.
The repayment of all this debt coincides with the shipment of the
tanker from Arcticneft.
ADRA
After receiving for the first time the ADRA in late 2013, the
Board conducted an internal investigation of the "document" and the
details of its materialisation and concluded that the ADRA is a
forgery, which does not comply with any of the corporate procedures
employed by the Company since its inception. It further does not
comply with corporate procedures in Cyprus, and represents an
attempt by its former director Vyatcheslav Rovneiko to avoid paying
back the loan he took from the Company along with other monies
awarded by the London Court of International Arbitration in
2012.
The Company has continued legal proceedings against Rovneiko and
his companies both in Russia and Cyprus as well as criminal
investigation.
Reserves report
Miller and Lents, Ltd. reserves report recently finalised as at
1 January 2014. The Company is currently undertaking an initial
review of this and will announce details of the reserves report
later this week.
Outlook
The Company anticipates loading the tanker for export from
Arcticneft, in Q4 2014.
Going forward, the Board is aware of the direct and possible
difficulties connected with the sanctions against Russia, overall
economic slowdown, continued consolidation process in the Russian
oil sector, as well as possible unfavourable changes in access to
international capital and introduction of new taxation of
natural/energy resources in Russia. Nevertheless, the Company will
continue its focus on cash generation and increasing production at
both fields.
Alexei Maximov
Chief Executive Officer
Consolidated Statement of Financial Position
(presented in US$ thousands)
Note 30 June 30 June 31 December
2014 2013 2013
---------- ---------- ------------
Assets
Current assets
Cash in bank and on hand 1,584 1,369 5,207
Accounts receivable and prepayments 3,527 2,615 3,988
Inventories 5 19,448 19,474 13,429
------------------------------------- ----- ---------- ---------- ------------
Total current assets 24,559 23,458 22,624
------------------------------------- ----- ---------- ---------- ------------
Non-current assets
Property, plant and equipment 6 107,112 112,029 112,500
Supplies and materials for
capital construction 2,994 2,636 3,110
Other non-current assets 7 409 1,329 892
------------------------------------- ----- ---------- ---------- ------------
Total non-current assets 110,515 115,994 116,502
------------------------------------- ----- ---------- ---------- ------------
Total assets 135,074 139,452 139,126
------------------------------------- ----- ---------- ---------- ------------
Liabilities and equity
Current liabilities
Accounts payable and accrued
expenses 8 3,829 4,191 3,801
Provisions 2,604 2,199 2,519
Income tax payable 5,275 5,010 5,301
Other taxes payable 5,648 4,926 6,767
Short-term borrowings and
current portion of long-term
borrowings 9 2,150 5,511 -
Advances from customers 1,246 879 2,235
------------------------------------- ----- ---------- ---------- ------------
Total current liabilities 20,752 22,716 20,263
------------------------------------- ----- ---------- ---------- ------------
Long-term liabilities
Long term finance lease obligations 1,367 1,493 1,461
Dismantlement provision 1,762 1,603 1,700
Deferred income tax liabilities 11,921 13,529 12,741
------------------------------------- ----- ---------- ---------- ------------
Total long-term liabilities 15,050 16,625 15,902
------------------------------------- ----- ---------- ---------- ------------
Total liabilities 35,802 39,341 36,525
------------------------------------- ----- ---------- ---------- ------------
Equity
Share capital 1,589 1,589 1,589
Share premium 656,855 656,855 656,855
Translation difference (33,486) (31,597) (31,350)
Accumulated deficit (526,928) (527,894) (525,747)
------------------------------------- ----- ---------- ---------- ------------
Equity attributable to shareholders
of Urals Energy Public Company
Limited 98,030 98,953 101,347
------------------------------------- ----- ---------- ---------- ------------
Non-controlling interest 1,242 1,158 1,254
------------------------------------- ----- ---------- ---------- ------------
Total equity 10 99,272 100,111 102,601
------------------------------------- ----- ---------- ---------- ------------
Total liabilities and equity 135,074 139,452 139,126
------------------------------------- ----- ---------- ---------- ------------
Approved on behalf of the Board of Directors on 29 September
2014.
A.D. Maximov S.E. Uzornikov
Chief Executive Officer Chief Financial Officer
Consolidated Statement of Comprehensive Income
(presented in US$ thousands)
Six months ended
30 June
--------------------------
Note 2014 2013
------------------------------------------- ----- ------------ ------------
Revenues after excise taxes and export
duties 11 16,605 15,881
Cost of sales 12 (13,074) (10,951)
Gross profit 3,531 4,930
------------------------------------------- ----- ------------ ------------
Selling, general and administrative
expenses 13 (3,844) (3,945)
Other operating income/(loss) (125) 38
Operating profit/(loss) (438) 1,023
Interest income 9 468 379
Interest expense 9 (201) (203)
Foreign currency loss (982) (3,472)
Total net finance costs (715) (3,296)
Loss before income tax (1,153) (2,273)
Income tax (expenses)/benefit (14) (264)
Loss for the period (1,167) (2,537)
------------------------------------------- ----- ------------ ------------
(Loss)/profit for the period attributable
to:
- Non-controlling interest 14 15
- Shareholders of Urals Energy Public
Company Limited (1,181) (2,552)
------------------------------------------- ----- ------------ ------------
Loss per share from profit attributable
to shareholders of Urals Energy Public
Company Limited: 10
- Basic loss per share (in US dollar
per share) (0.00) (0.01)
- Diluted loss per share (in US dollar
per share) (0.00) (0.01)
Weighted average shares outstanding
attributable to:
- Basic shares 252,446,060 252,446,060
- Diluted shares 253,414,431 253,414,431
Loss for the period (1,167) (2,537)
Other comprehensive loss:
- Effect of currency translation (2,163) (4,915)
Total comprehensive loss for the period (3,330) (7,452)
------------------------------------------- ----- ------------ ------------
Attributable to:
- Non-controlling interest (12) (73)
- Shareholders of Urals Energy Public
Company Limited (3,317) (7,379)
------------------------------------------- ----- ------------ ------------
Consolidated Statements of Cash Flows
(presented in US$ thousands)
Six months ended
30 June
-------------------
Note 2014 2013
--------------------------------------------- ----- --------- --------
Cash flows from operating activities
Loss before income tax (1,153) (2,273)
Adjustments for:
Depreciation, amortisation and depletion 12 3,807 3,158
Interest income 9 (468) (379)
Interest expense 9 201 203
Foreign currency loss, net 982 3,472
Other non-cash transactions 389 353
Operating cash flows before changes
in working capital 3,758 4,534
Increase in inventories (6,348) (9,128)
Decrease in accounts receivables and
prepayments 1,000 831
Increase/(decrease) in accounts payable
and accrued expenses 368 (25)
Decrease in advances from customers (956) (398)
Decrease in other taxes payable (971) (612)
--------------------------------------------- ----- --------- --------
Cash used in operations (3,149) (4,798)
Interest received - 8
Interest paid - -
Income tax paid (506) -
--------------------------------------------- ----- --------- --------
Net cash used in operating activities (3,655) (4,790)
Cash flows from investing activities
Purchase of property, plant and equipment
and intangible assets (1,936) (1,757)
Proceeds on loans issued - 103
Net cash used in investing activities (1,936) (1,654)
Cash flows from financing activities
Proceeds from borrowings 2,142 2,500
Finance lease principal payments (133) (150)
Net cash generated from/(used in) financing
activities 2,009 2,350
Effect of exchange rate changes on
cash in bank and on hand (41) 49
--------------------------------------------- ----- --------- --------
Net decrease in cash in bank and on
hand (3,623) (4,045)
Cash in bank and on hand at the beginning
of the year 5,207 5,416
--------------------------------------------- ----- --------- --------
Cash in bank and on hand at the end
of the period 1,584 1,369
--------------------------------------------- ----- --------- --------
Consolidated Statements of Changes in Shareholders's Equity
(presented in US$ thousands)
Equity
attributable
Difference to
from Shareholders
conversion of Urals
of share Energy
capital Cumulative Public
Share Share into Translation Accumulated Company Non-controlling Total
Notes capital premium US$ Adjustment deficit Limited interest equity
Balance at 1 January
2013 1,589 656,968 (113) (26,770) (525,342) 106,332 1,231 107,563
------------------------ -------- -------- ----------- ------------ ------------ ------------- ---------------- --------
Effect of currency
translation - - - (4,827) - (4,827) (88) (4,915)
Loss for the year - - - (2,552) (2,552) 15 (2,537)
-------- -------- ----------- ------------ ------------ ------------- ---------------- --------
- - - (4,827) (2,552) (7,379) (73) (7,452)
Total
comprehensive
loss
Balance at 30 June 2013 1,589 656,968 (113) (31,597) (527,894) 98,953 1,158 100,111
------------------------ -------- -------- ----------- ------------ ------------ ------------- ---------------- --------
Balance at 1 January
2014 1,589 656,968 (113) (31,350) (525,747) 101,347 1,254 102,601
Effect of currency
translation - - - (2,136) - (2,136) (26) (2,162)
Loss for the year - - - (1,181) (1,181) 14 (1,167)
-------- -------- ----------- ------------ ------------ ------------- ---------------- --------
- - - (2,136) (1,181) (3,317) (12) (3,329)
Total
comprehensive
loss
Balance at 30 June 2014 1,589 656,968 (113) (33,486) (526,928) 98,030 1,242 99,272
------------------------ -------- -------- ----------- ------------ ------------ ------------- ---------------- --------
Notes to the Consolidated Financial Statements (presented in US$
thousands)
1 Activities
Urals Energy Public Company Limited ("Urals Energy" or the
"Company" or "UEPCL") was incorporated as a limited liability
company in Cyprus on 10 November 2003. 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.
The registered office of Urals Energy is at 31 Evagorou Avenue,
Suite 34, CY-1066, Nicosia, Cyprus. UEPCL's shares are traded on
the AIM Market operated by the London Stock Exchange.
The Group comprises UEPCL and the following main
subsidiaries:
Effective ownership interest at
------------------------------- ----------------- ----------------------------------
Entity Jurisdiction 30 June 2014 31 December 2013
------------------------------- ----------------- -------------- ------------------
Exploration and production
ZAO Petrosakh ("Petrosakh") Sakhalin 97.2% 97.2%
ZAO Arcticneft ("Arcticneft") Nenetsky Region 100% 100%
Management company
OOO Urals Energy Moscow 100% 100%
------------------------------- ----------------- -------------- ------------------
2 Summary of Significant Accounting Policies
Basis of preparation.
The consolidated financial statements of the Group have been
prepared in accordance with International Financial Reporting
Standards (IFRS) as adopted by the European Union (EU) under the
historical cost convention as modified by the change in fair value
of financial instruments.
The preparation of consolidated financial statements in
conformity with IFRS requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities at the reporting date and the reported amounts of
revenues and expenses during the reporting period. These policies
have been consistently applied to all the periods presented, unless
otherwise stated. Critical accounting estimates and judgments are
disclosed in Note 4. Actual results could differ from the
estimates.
Functional and presentation currency
The United States dollar ("US dollar or US$ or $") is the
presentation currency for the Group's operations as management have
used the US dollar accounts to manage the Group's financial risks
and exposures, and to measure its performance. Financial statements
of the Russian subsidiaries are measured in Russian Roubles, their
functional currency.
The functional currency of the Company is the US Dollar as
substantially all the cash flows affecting the Company are in US
Dollars.
Translation to functional currency
Monetary assets and liabilities denominated in foreign
currencies are retranslated into the functional currency at the
rate of exchange ruling at the reporting date. Any resulting
exchange differences are included in the profit or loss component
of the consolidated statement of comprehensive income. Non-monetary
assets and liabilities that are measured at historical cost and
denominated in a foreign currency are translated into the
functional currency using the rates of exchange as at the dates of
the initial transactions. The US dollar to Russian Rouble exchange
rates were 33.63 and 32.73 as of 30 June 2014 and 31 December 2013,
respectively.
Translation to presentation currency
The Group's consolidated financial statements are presented in
US dollars in accordance with IAS 21, The Effects of Changes in
Foreign Exchange Rates. The results and financial position of each
group entity having a functional currency different from the
presentation currency are translated into the presentation currency
as follows:
(i) Assets and liabilities for each statement of financial
position presented are translated at the closing rate at the date
of that statement of financial position. Monetary assets and
liabilities denominated in foreign currencies are translated into
the functional currency at the rate of exchange ruling at the
reporting date. Any resulting exchange differences are included in
the profit or loss component of the consolidated statement of
comprehensive income. Non-monetary assets and liabilities that are
measured at historical cost and denominated in a foreign currency
are translated into the functional currency the Company using the
rates of exchange as at the dates of the initial transactions.
Goodwill and fair value adjustments arising on the acquisitions are
treated as assets and liabilities of the acquired entity.
(ii) Income and expenses for each statement of comprehensive
income are translated to the functional currency of the Company at
average exchange rates (unless this average is not a reasonable
approximation of the cumulative effect of the rates prevailing on
the transaction dates, in which case income and expenses are
translated at the dates of the transactions).
(iii) All resulting exchange differences are recognised as a
separate component of equity.
When a subsidiary is disposed of through sale, liquidation,
repayment of share capital or abandonment of all, or part of, that
entity, the exchange differences deferred in other comprehensive
income are reclassified to the profit and loss.
Uncertain tax positions
The Group's uncertain tax positions are reassessed by management
at the end of each reporting period. Liabilities are recorded for
income tax positions that are determined by management as more
likely than not to result in additional taxes being levied if the
positions were to be challenged by the tax authorities. The
assessment is based on the interpretation of tax laws that have
been enacted or substantively enacted by the end of the reporting
period, and any known court or other rulings on such issues.
Liabilities for penalties, interest and taxes other than on income
are recognised based on management's best estimate of the
expenditure required to settle the obligations at the end of the
reporting period.
Accounting standards adopted during the period
In the current period, the Group has adopted all of the new and
revised Standards and Interpretations issued by the International
Accounting Standards Board (the IASB) and the International
Financial Reporting Interpretations Committee (the IFRIC) of the
IASB that are relevant to its operations and effective for
reporting periods beginning on 1 January 2014.
3 Going Concern
A significant portion of the Group's consolidated net assets of
US$98.0million (31 December 2013: US$101.3 million) comprises
undeveloped mineral deposits requiring significant additional
investment. The Group is dependent upon external debt to fully
develop the deposits and realise the value attributed to such
assets.
The Group had net current assets of US$3.8 million as of 30 June
2014 (31 December 2013: net current assets of US$2.0 million). The
most significant creditor as of 30 June 2014 was US$2.2 million
loan from Petraco (31 December 2013: nil) (Note 9).
Management have prepared monthly cash flow projections for
periods throughout 2014 and 2015. Judgements which are significant
to management's conclusion that no material uncertainty exists for
going concern this year include future oil prices and planned
production which were required for the preparation of the cash flow
projections and model. Positive overall cash flows are dependent on
future oil prices (a price of US$100 per barrel has been used for
2014 and for 2015). Despite the above matters, the Group still has
funding and liquidity constraints, though these are less severe
than in the prior year. Despite the uncertainties and based on cash
flow projections performed, management considers that the
application of the going concern assumption for the preparation of
these consolidated financial statements is appropriate.
4 Critical Accounting Estimates and Judgments in Applying Accounting Policies
The Group makes estimates and assumptions that affect the
amounts recognised in the consolidated financial statements and the
carrying amounts of assets and liabilities within the next
financial year. Estimates and judgments are continually evaluated
and are based on management's experience and other factors,
including expectations of future events that are believed to be
reasonable under the circumstances. Management also makes certain
judgments, apart from those involving estimations, in the process
of applying the accounting policies. Judgments that have the most
significant effect on the amounts recognised in the consolidated
financial statements and estimates that can cause a significant
adjustment to the carrying amount of assets and liabilities within
the next financial year include:
Tax legislation
Russian tax and customs legislation is subject to varying
interpretations, and changes, which can occur frequently.
Management's interpretation of such legislation as applied to the
transactions and activity of the Group may be challenged by the
relevant authorities.
Initial recognition of related party transactions
In the normal course of business the Company enters into
transactions involving various financial instruments with its
related parties. IAS 39, Financial Instruments: recognition and
measurement, requires initial recognition of financial instruments
based on their fair values. Judgment was applied in determining if
transactions are priced at market or non-market interest rates,
where there is no active market for such transactions. This
judgment was based on the pricing for similar types of transactions
with unrelated parties and effective interest rate analyses.
Estimation of oil and gas reserves
Engineering estimates of hydrocarbon reserves are inherently
uncertain and are subject to future revisions. Accounting measures
such as depreciation, depletion and amortisation charges,
impairment assessments and asset retirement obligations that are
based on the estimates of proved reserves are subject to change
based on future changes to estimates of oil and gas reserves.
Proved reserves are defined as the estimated quantities of
hydrocarbons which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known
reservoirs under existing economic conditions. Proved reserves are
estimated by reference to available reservoir and well information,
including production and pressure trends for producing reservoirs.
Furthermore, estimates of proved reserves only include volumes for
which access to market is assured with reasonable certainty. All
proved reserves estimates are subject to revision, either upward or
downward, based on new information, such as from development
drilling and production activities or from changes in economic
factors, including product prices, contract terms or development
plans. In some cases, substantial new investment in additional
wells and related support facilities and equipment will be required
to recover such proved reserves. Due to the inherent uncertainties
and the limited nature of reservoir data, estimates of underground
reserves are subject to change over time as additional information
becomes available.
The Group last obtained an independent reserve engineers report
as at 1 January 2014.
In general, estimates of reserves for undeveloped or partially
developed fields are subject to greater uncertainty over their
future life than estimates of reserves for fields that are
substantially developed and depleted. As those fields are further
developed, new information may lead to further revisions in reserve
estimates. Reserves have a direct impact on certain amounts
reported in the consolidated financial statements, most notably
depreciation, depletion and amortisation as well as impairment
expenses. Depreciation rates on production assets using the
units-of-production method for each field are based on proved
developed reserves for development costs, and total proved reserves
for costs associated with the acquisition of proved properties.
Assuming all variables are held constant, an increase in proved
developed reserves for each field decreases depreciation, depletion
and amortisation expenses. Conversely, a decrease in the estimated
proved developed reserves increases depreciation, depletion and
amortisation expenses. Moreover, estimated proved reserves are used
to calculate future cash flows from oil and gas properties, which
serve as an indicator in determining whether or not property
impairment is present. The possibility exists for changes or
revisions in estimated reserves to have a significant effect on
depreciation, depletion and amortisation charges and, therefore,
reported net profit/(loss) for the year.
Deferred income tax asset recognition
The recognised deferred tax asset represents income taxes
recoverable through future deductions from taxable profits and is
recorded in the statement of financial position. Deferred income
tax assets are recorded to the extent that realisation of the
related tax benefit is probable. The future taxable profits and the
amount of tax benefits that are probable in the future are based on
the medium term business plan prepared by management and
extrapolated results thereafter. The business plan is based on
management expectations that are believed to be reasonable under
the circumstances. Key assumptions in the business plan are an
average oil price of US$100 for 2014 and US$100 in real terms for
future sales.
Impairment provision for receivables
The impairment provision for receivables (including loans
issued) is based on management's assessment of the probability of
collection of individual receivables. Significant financial
difficulties of the debtor/lender, probability that the
debtor/lender will enter bankruptcy or financial reorganisation,
and default or delinquency in payments are considered indicators
that the receivable is potentially impaired. Actual results could
differ from these estimates if there is deterioration in a
debtor's/lender's creditworthiness or actual defaults are higher
than the estimates.
When there is no expectation of recovering additional cash for
an amount receivable, the expected amount receivable is written off
against the associated provision.
Future cash flows of receivables that are evaluated for
impairment are estimated on the basis of the contractual cash flows
of the assets and the experience of management in respect of the
extent to which amounts will become overdue as a result of past
loss events and the success of recovery of overdue amounts. Past
experience is adjusted on the basis of current observable data to
reflect the effects of current conditions that did not affect past
periods and to remove the effects of past conditions that do not
exist currently.
Asset retirement obligations
Management makes provision for the future costs of
decommissioning hydrocarbon production facilities, pipelines and
related support equipment based on the best estimates of future
cost and economic lives of those assets. Estimating future asset
retirement obligations is complex and requires management to make
estimates and judgments with respect to removal obligations that
will occur many years in the future. Changes in the measurement of
existing obligations can result from changes in estimated timing,
future costs or discount rates used in valuation.
Useful lives of non-oil and gas properties
Items of non-oil and gas properties are stated at cost less
accumulated depreciation. The estimation of the useful life of an
asset is a matter of management judgment based upon experience with
similar assets. In determining the useful life of an asset,
management considers the expected usage, estimated technical
obsolescence, physical wear and tear and the physical environment
in which the asset is operated. Changes in any of these conditions
or estimates may result in adjustments to future depreciation
rates. Useful lives applied to oil and gas properties may exceed
the license term where management considers that licenses will be
renewed. Assumptions related to renewal of licenses can involve
significant judgment of management.
Impairment
Management have estimated the recoverable amount of cash
generating units. Changes in the assumptions used can have a
significant impact on the amount of any impairment charge.
5 Inventories
30 June 30 June 31 December
2014 2013 2013
-------------------------- --------- --------- ------------
Crude oil 11,202 11,005 4,943
Oil products 4,059 3,930 3,284
Materials and supplies 4,187 4,539 5,202
-------------------------- --------- --------- ------------
Total inventories 19,448 19,474 13,429
-------------------------- --------- --------- ------------
6 Property, Plant and Equipment
Oil and
gas Refinery and Assets under
Cost at properties related equipment Buildings Other Assets construction Total
--------------------- ------------ -------------------- ---------- ------------- --------------------- ---------
1 January 2013 161,850 8,630 933 5,843 5,815 183,071
Translation
difference (11,565) (617) (66) (450) (462) (13,160)
Additions 81 - - 630 864 1,575
Capitalised
borrowing costs - - - - 14 14
Transfers - - - - - -
Disposals (161) - - - - (161)
--------------------- ------------ -------------------- ---------- ------------- --------------------- ---------
30 June 2013 150,366 8,013 867 6,023 6,231 171,500
--------------------- ------------ -------------------- ---------- ------------- --------------------- ---------
Average capitalisation rate of capitalised interest expense for
the period ended 30 June 2013 is 5.5%.
Oil and gas Refinery and Other Assets under
properties related equipment Buildings assets construction Total
-------------------- -------------------- ------------------- ---------- -------- -------------------- ---------
Accumulated
Depreciation,
Amortisation and
Depletion at
1 January 2013 (53,253) (3,274) (634) (3,610) - (60,771)
Translation
difference 3,941 245 46 271 - 4,503
Depreciation (2,645) (222) (24) (312) - (3,203)
Disposals - - - - - -
-------------------- -------------------- ------------------- ---------- -------- -------------------- ---------
30 June 2013 (51,957) (3,251) (612) (3,651) - (59,471)
-------------------- -------------------- ------------------- ---------- -------- -------------------- ---------
Oil and Refinery and Assets
gas related Other under
properties equipment Buildings Assets construction Total
--------------------- ------------ ------------- ---------- -------- -------------- --------
Net Book Value at
1 January 2013 108,597 5,356 299 2,233 5,815 122,300
--------------------- ------------ ------------- ---------- -------- -------------- --------
30 June 2013 98,409 4,762 255 2,372 6,231 112,029
--------------------- ------------ ------------- ---------- -------- -------------- --------
Oil and gas Refinery and Assets under
Cost at properties related equipment Buildings Other Assets construction Total
------------------- ------------------- ------------------ ---------- ------------- ------------------- --------
1 January 2014 153,595 8,008 867 5,585 6,670 174,725
Translation
difference (4,101) (215) (23) (151) (126) (4,616)
Additions 145 - - 50 1,447 1,642
Capitalised
borrowing costs - - - - - -
Transfers 133 - - - (133) -
Disposals - - - (75) - (75)
30 June 2014 149,772 7,793 844 5,409 7,858 171,676
------------------- ------------------- ------------------ ---------- ------------- ------------------- --------
Average capitalisation rate of capitalised interest expense for
the period ended 30 June 2014 is 5.5%.
Accumulated
Depreciation,
Amortisation and Oil and gas Refinery and Assets under
Depletion at properties related equipment Buildings Other Assets construction Total
------------------- ------------------- ------------------ ---------- ------------- ------------------ ---------
1 January 2014 (54,497) (3,459) (634) (3,635) - (62,225)
Translation
difference 1,316 84 16 104 - 1,520
Depreciation (3,548) (197) (21) (162) - (3,928)
Disposals - - - 69 - 69
30 June 2014 (56,729) (3,572) (639) (3,624) - (64,564)
------------------- ------------------- ------------------ ---------- ------------- ------------------ ---------
Refinery and
Oil and gas related Assets under
properties equipment Buildings Other Assets construction Total
Net Book Value at
1 January 2014 99,098 4,549 233 1,950 6,670 112,500
30 June 2014 93,043 4,221 205 1,785 7,858 107,112
------------------- ------------------- ------------------ ---------- ------------- ------------------ ---------
Included within oil and gas properties at 30 June 2014 and 31
December 2013 were exploration and evaluation assets:
Cost at
31 Cost at
December Translation 30
2013 Additions difference June 2014
------------------------------- ---------- ---------- ------------ -----------
Exploration and evaluation
assets
Arcticneft 15,745 - (421) 15,324
Petrosakh 28,661 - (768) 27,893
------------------------------- ---------- ---------- ------------ -----------
Total cost of exploration and
evaluation assets 44,406 - (1,189) 43,217
------------------------------- ---------- ---------- ------------ -----------
The Group's oil fields are situated in the Russian Federation on
land owned by the Russian government. The Group holds production
mining licenses and pays production taxes to extract oil and gas
from the fields. The licenses expire between 2037 and 2067, but may
be extended. Management intends to renew the licenses as the
properties are expected to remain productive subsequent to the
license expiration date.
Estimated costs of dismantling oil and gas production
facilities, including abandonment and site restoration costs,
amount to US$0.1 million and US$0.1 million at 30 June 2014 and 31
December 2013, respectively, are included in the cost of oil and
gas properties. The Group has estimated its liability based on
current environmental legislation using estimated costs when the
expenses are expected to be incurred.
7 Other Non-Current Assets
30 June 30 June 31 December
2014 2013 2013
---------------------------------- -------- -------- ------------
Advances to contractors and
suppliers for construction in
process 184 565 292
Loans issued to related parties
(Note 14) 155 734 494
Intangible assets 70 30 106
Total other non-current assets 409 1,329 892
---------------------------------- -------- -------- ------------
8 Accounts Payable and Accrued Expenses
30 June 30 June 31 December
2014 2013 2013
-------------------------------------- -------- -------- ------------
Trade payables 553 440 550
Accounts payable for construction
in process 106 72 359
Short-term finance lease obligations 100 102 91
Other payable and accrued expenses 1,647 1,887 1,371
-------------------------------------- -------- -------- ------------
Total financial liabilities 2,406 2,501 2,371
-------------------------------------- -------- -------- ------------
Wages and salaries 1,423 1,690 1,430
-------------------------------------- -------- -------- ------------
Total accounts payable and accrued
expenses 3,829 4,191 3,801
-------------------------------------- -------- -------- ------------
9 Borrowings
Short-term borrowings
Short-term borrowings were as follows at 30 June 2014 and 31
December 2013:
30 June 30 June 31 December
2014 2013 2013
----------------------- -------- -------- ------------
Short-term borrowings
Petraco
* Principal 2,142 2,500 -
* Interest 8 3,011 -
Total borrowings 2,150 5,511 -
----------------------- -------- -------- ------------
Petraco
In June 2014 the Company entered into a short-term loan
agreement with Petraco under which Petraco will advance the sum up
to US$7.6 million. The key terms of the loan are that:
- it is repayable immediately following the loading of the next
tanker shipment, scheduled for mid- October 2014 or 30 November
2014 (whichever is earlier);
- interest is chargeable at the rate of 5% over LIBOR until the
date of the bill of lading of the tanker at
which point it reduces to 2% over LIBOR; and
- the Company pledged 100% of the shares it currently holds in
Arcticneft to Petraco as security against the Loan.
Weighted average interest rate
The Group's weighted average interest rates on borrowings were
nil and 5.5% at 30 June 2014 and 31 December 2013,
respectively.
Interest income and expense
Interest income and expense for the six months ended 30 June
2014 and 30 June 2013, respectively, comprised the following:
Six months ended 30
June
----------------------
2014 2013
------------------------------------------- ---------- ----------
Interest income
Related party loans issued (Note 14) 468 379
------------------------------------------- ---------- ----------
Total interest income 468 379
------------------------------------------- ---------- ----------
Interest on loan from Petraco Oil Company
Limited (8) (7)
Finance leases (90) (93)
Change in dismantlement provision due to
passage of time (103) (103)
Total interest expense (201) (203)
Net finance income/(expense) 267 176
------------------------------------------- ---------- ----------
10 Equity
At 30 June 2014 authorised share capital was US$1,890 thousand
divided into 300 million shares of US$0.0063 each.
Restricted Stock Plan
As of 30 June 2014, the number of unvested restricted stock
grants and their respective vesting dates are presented in the
table below.
January January January
Date of grant 2009 2010 2011 Total
---------------------- ---------- ---------- ---------- ----------
Unvested Restricted
stock granted as
of 31 December 2013 354,096 354,095 260,180 968,371
Vested in the six - - - -
months ended 30
June 2014
---------------------- ---------- ---------- ---------- ----------
Total Restricted
Stock Granted as
of 30 June 2014 354,096 354,095 260,180 968,371
---------------------- ---------- ---------- ---------- ----------
Profit/(loss) per share
Basic profit/(loss) per share is calculated by dividing the
profit/(loss) attributable to equity holders of the company by the
weighted average number of ordinary shares in issue during the
year.
Six months ended
30 June
---------------------
2014 2013
-------------------------------------------- ---------- ---------
Loss attributable to equity holders of
the Company (1,181) (2,552)
Weighted average number of ordinary shares
in issue (thousands) 252,446 252,446
-------------------------------------------- ---------- ---------
Basic loss per share (in US dollar per
share) (0.00) (0.01)
-------------------------------------------- ---------- ---------
11 Revenues
Six months ended
30 June
----------------------------------------- -------------------
2014 2013
----------------------------------------- --------- --------
Petroleum (refined) products - domestic
sales 17,503 15,905
Crude oil - domestic sales 1,236 1,707
Other sales 170 163
----------------------------------------- --------- --------
Total proceeds from sales 18,909 17,775
----------------------------------------- --------- --------
Less: excise taxes (2,304) (1,894)
Revenues after excise taxes 16,605 15,881
----------------------------------------- --------- --------
12 Cost of Sales
Six months ended
30 June
------------------------------------------ -------------------
2014 2013
------------------------------------------ --------- --------
Unified production tax 7,520 7,890
Wages and salaries 4,209 4,706
Depreciation, depletion and amortisation 3,807 3,158
Materials 2,728 2,736
Oil treating, storage and other services 1,062 918
Rent, utilities and repair services 379 395
Other taxes 204 233
Other 120 102
Change in finished goods (6,955) (9,187)
Total cost of sales 13,074 10,951
------------------------------------------ --------- --------
13 Selling, General and Administrative Expenses
Six months ended
30 June
------------------------------------------------------ -------------------
2014 2013
------------------------------------------------------ --------- --------
Wages and salaries 1,300 1,319
Professional consultancy fees 629 601
Transport and storage services 584 722
Office rent and other expenses 386 430
Charge of provision for doubtful accounts receivable 389 352
Trip expenses and communication services 133 187
Other expenses 193 334
------------------------------------------------------ --------- --------
Total selling, general and administrative expenses 3,844 3,945
------------------------------------------------------ --------- --------
14 Balances and transactions with Related Parties
Parties are generally considered to be related if one party has
the ability to control the other party, is under common control, or
can exercise significant influence over the other party in making
financial or operational decisions as defined by IAS 24 Related
Party Disclosures. Key management personnel are considered to be
related parties. In considering each possible related party
relationship, attention is directed to the substance of the
relationship, not merely the legal form.
Balances and transactions with related parties
Six months ended
30 June
---------------------
2014 2013
-------------------------------------------------------- -------- -----------
Transactions with related parties
Interest income 468 379
Impairment of loans issued to a shareholder
and interest receivable from a shareholder 389 352
-------------------------------------------------------- -------- -----------
31
30 June 30 June December
2014 2013 2013
------------------------------------------ -------- ------------ -----------
Balances with related parties
Loans issued to related parties 354 476 578
Interest receivable from other related
parties 419 382 363
-------- ------------ -----------
Total of loans and interest receivable
from related parties 773 858 941
-------- ------------ -----------
Provision on claims 2,604 2,199 2,599
As of 30 June 2014 and 31 December 2013 the Group has an
impairment provision against a loan to a related party of US$8.9
million and US$8.2 million, respectively. This amount relates to a
loan to shareholder and former member of management of the Group.
This loan is overdue. For accounting purposes management reassessed
the carrying value of the loan and impaired this fully. However,
this does not reduce the validity of the legal claim against this
related party. Management formally demanded repayment of the full
amount by 20 May 2011. By 20 May 2011 management did not receive
any response from the related party. Considering that according to
the loan agreement all disputes shall finally be resolved by
arbitration under the Rules of Arbitration of the London Court of
International Arbitration (the LCIA) the Company filed a claim to
the LCIA in June 2011. This arbitration has confirmed the Company's
legal rights, vindicated its position and issued a final award that
the sum in the amount of US$6.3 million (including loan amount and
interest) and legal cost in the amount of US$1.2 million must be
repaid to Urals Energy together with a daily accumulating interest.
The Company has formally demanded payment from Mr Rovneiko and is
committed to using all appropriate means to collect the outstanding
amount.
Loans receivable include amounts due by OOO Komineftegeophysica
in the amount of US$0.8 million (31 December 2013: US$0.8 million),
where shareholders of the Group hold the majority of shares. The
loans bear interest 10%. Loans in the amount of US$0.6 million is
short term in nature. Loans in the amount of US$0.2 million mature
on 31 December 2015. These loans are not secured.
- Ends -
This information is provided by RNS
The company news service from the London Stock Exchange
END
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