TIDMUEN
RNS Number : 9395H
Urals Energy Public Company Limited
23 August 2016
Dissemination of a Regulatory Announcement that contains inside
information according to REGULATION (EU) No 596/2014 (MAR).
23 August 2016
Urals Energy PCL
("Urals Energy" or the "Company")
Acquisition of ANK Limited
Urals Energy (AIM:UEN), the independent exploration and
production company with operations in Russia, is pleased to
announce that it has agreed to purchase the entire share capital of
Arctic Oil Company Limited ("ANK") from JSC
ArcticMorNefteGazRazvedka ("AMNGR"), a subsidiary of JSC
Zarubezhneft, a Russian State owned oil company. The acquisition
will be made by Urals Energy's subsidiary, JSC Arcticneft
("Arcticneft").
ANK's sole asset is the central part of the Peschanoozerskoe oil
field on Kolguyev Island. The eastern and western parts of the
Peschanoozerskoe field are already owned by Arcticneft.
ANK produces 340 bbls/day and has recoverable reserves
registered with the Russian State Authorities of 16 million barrels
of C1 plus C2, equivalent to 2P. These reserves figures have not
been reviewed in accordance with the AIM Guidance Note for Mining,
Oil and Gas Companies and the Company plans to have a review of
ANK's asset within the Peschanoozerskoe oil field undertaken, in
addition to the Company's other assets, in accordance with an
appropriate Standard in an updated Competent Person's report to be
undertaken later this year.
For the year ended 31 December 2015, ANK recorded audited loss
before tax of approximately Russian Rouble 56 million on sales of
approximately Russian Rouble 180 million. In respect of ANK's
reported losses, the Board believes that Urals Energy will be able
to reduce ANK's selling costs and general and administrative costs
post-acquisition, as the operations of the two companies are
combined. The audited total assets of ANK as at 31 December 2015
were approximately Russian Rouble 360 million, with non-current
assets being approximately Russian Rouble 138 million. Given that
Urals Energy is acquiring ANK on a cash free/debt free basis, the
Directors view non-current assets as being the most appropriate
indication of the value of the assets being acquired.
By acquiring ANK, Urals Energy will be able to achieve
significant economies of scale through combining the operations of
ANK with its existing operations on Kolguyev Island. The Directors
believe that the Company's combined production on Kolguyev Island
will be approximately 1,000 bbls/day, and estimates that the
Company's average operating costs per barrel will be reduced
(assuming that the current exchange rate for the Russian Rouble
remains constant). With the increase in production, the Board
expects that Arcticneft will be able to make two rather than one
shipment of crude oil each year, and therefore should improve its
cash flow. By combining the underdeveloped reserves of the total
area, Urals Energy intends to bring forward plans to expand
production as soon as market conditions allow, and will be able to
do so with improved economics.
The Company has entered into a Sale and Purchase Agreement with
AMNGR, which is governed under Russian law, with arbitration at the
Moscow Court of Arbitration. The Company will pay AMNGR a cash
consideration of Russian Rouble 100 million (approximately US$1.56
million), equivalent to US$0.09 per barrel of recoverable reserves,
on a cash free/debt free basis. The consideration will be adjusted
for any net working capital at closing, which is expected to be on
31 August 2016. In addition Urals Energy has agreed that, in the
event that the Company decides to sell its newly combined
operations on Kolguyev Island within two years, then the Company
will pay AMNGR the equivalent to 20% of the increase in value of
the Company's combined operations on Kolguyev Island over US$6
million, less any capital expenditure incurred in the intervening
period.
The Board of Urals Energy anticipates that the majority of the
current contractors at ANK will not have their contracts extended
as they expire over coming months, thus providing short term cost
savings.
As the closing of the acquisition is expected on 31 August 2016,
and with the Company expecting to receive the proceeds for its
recent tanker shipment from Petraco on 8th September, the cash
consideration of Russian Rouble 100 million is to be financed by a
short term loan from Kamchatcomagroprombank ("KKAPB"), a bank in
which Mr Shvets, the shareholder of Adler SA, the Company's largest
shareholder, is a board member and shareholder with 15.4% of the
issued share capital. The principal terms of the KPGBank loan are
as follows:
- principal: Russian Rouble 100 million
- term: 31 December 2016
- interest margin over Central Bank Rate: 6%, equivalent to a
total of 17% on an annualised basis
- security: crude oil produced by ANK
The Board believes these terms compare favourably with possible
terms from other banks, especially as credit is generally difficult
to obtain, as a result of the current financial market conditions
in Russia. The Company is in discussion with banks for a
longer-term corporate development loan to finance the new combined
operation.
Mr Shrager, Urals Energy's Chairman, said:
"This is an acquisition that we have trying to achieve for some
years, since the synergy benefits are significant to Urals Energy.
ANK represents a very small part of the portfolio of the Russian
State Oil company, Zarubezhneft, and we have been able to reach an
agreement which shares the benefits of bringing the operations into
one entity. While Arcticneft has traded at broadly breakeven, ANK
has been loss making for some time. With the cost savings that we
will be able to make, the combination will be cash generative and
the acquisition cost should be recovered in up to 18 months at
current price for oil, taxes and the exchange rate between the US$
and the Russian Rouble. We anticipate that cash flow through the
year will also be improved. The big prize, though, will be the
ability to exploit our increased proven undeveloped reserves as
part of a combined development plan. Nevertheless, we will have to
wait for market conditions to improve. In the meantime, with
workovers, reductions in overall head-count, and improved
practices, we believe that production can be increased steadily and
profitably."
Dr Svyatoslav Bilibin, (Dr.Sci.Tech. and Corresponding Member of
the Russian Academy of Natural Sciences), an independent adviser to
Urals Energy, who meets the criteria of a qualified person under
the AIM Guidance Note for Mining, Oil and Gas Companies, has
reviewed and approved the technical information contained within
this announcement.
- Ends -
For further information, please contact:
Urals Energy Public Company Limited
Andrew Shrager, Chairman Tel: +7 495 795 0300
Leonid Dyachenko, Interim Chief Executive Officer www.uralsenergy.com
Allenby Capital Limited
Nominated Adviser and Broker
Nick Naylor Tel: +44 (0) 20 3328 5656
Alex Brearley www.allenbycapital.com
This information is provided by RNS
The company news service from the London Stock Exchange
END
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