The first quarter of 2012 was positive both in terms of the macro environment and the performance of the Company’s upstream and downstream segments. The price of Urals increased by 7.5% quarter-on-quarter. The Russian Rouble strengthened against the US Dollar by 3.1%.
Alliance Oil Company’s average daily oil production amounted to 56,400 barrels in the first quarter of 2012. The refinery had a daily run-rate of around 75,000 barrels. The consolidated EBITDA margin amounted to 27% in the reporting period. Net income and diluted earnings per share increased by 17% and 18% respectively compared to the fourth quarter of 2011. Cash flow was in line with the fourth quarter of 2011 while capital expenditures decreased by 40% quarter-on-quarter primarily as a result of lower upstream spending in the Timano-Pechora region and lower downstream capital expenditures associated with the modernization of the Khabarovsk refinery.
— Revenue of MUSD 815.1, up 20% from Q1 2011.
— EBITDA of MUSD 217.8, up 39% from Q1 2011.
— Profit before tax of MUSD 177.4, up 57% from Q1 2011.
— Foreign currency swap revaluation gain of MUSD 11.8 and currency exchange gain of MUSD 18.9 positively affected profit before tax.
— Profit for the period of MUSD 139.7, up 55% from Q1 2011.
In the upstream segment, higher oil prices compensated a decline in sales volumes and resulted in crude oil revenue growth. Segment EBITDA improved further. The Company drilled a total of 18 new wells in the first quarter of 2012, including 3 wells at the Kolvinskoye oil field. At the Kolvinskoye oil field, production gradually declined in the first four months this year. The ongoing well workover program and the recent addition of new production wells at Kolvinskoye are intended to address further reductions in production.
In the downstream segment, oil product revenues were almost flat quarter-on-quarter despite lower sales volumes. Net export prices increased by 23% compared to the previous quarter. Segment EBITDA decreased primarily due to increased domestic crude oil prices, oil products purchased from third parties and higher excise taxes. Construction works at the Khabarovsk oil refinery progressed further towards the launch of the modernized refinery next year.
The balance sheet position of the Company remained solid. The total debt to EBITDA ratio further improved to 2.3 compared to 2.4 in the previous quarter.
In the upstream segment, our main priorities are to address decline rates and the non-performance of certain wells at the Kolvinskoye field while adding new production wells. We are in the process of reviewing the Kolvinskoye field model, including the expected long term production profile. The modeling includes the evaluation of the currently producing Devonian formation and additional reserves and resources in the Perm and Silurian formations and has been expanded to cover all of the license area. The updated models will form the basis for a revised drilling and development plan with updated capital expenditures and production programs for the field applying relevant technical improvements and an optimized pressure maintenance system.
In our joint venture with Repsol, we plan to integrate the new gas acquisition EUROTEK into our operations this year. While broadening the scope of our strategic partnership, Repsol and Alliance are considering additional opportunities in Russia.
As drilling plans are revised, 2012 upstream capital expenditures are forecasted at the lower end of the 380-450 MUSD budget range. 2012 downstream capital expenditures are also projected at the lower end of the 490-540 MUSD budget range with some of the investments shifted to the first quarter 2013.
The upstream production guidance for 2012 is an average daily production of
55,000-60,000 barrels. The downstream volume guidance remains to refine an average of 68,000-73,000 barrels per day in 2012.
The Company’s strategic objectives are to facilitate long-term crude production and reserve growth and to further strengthen the position in the Russian Far East oil products markets. We remain committed to reaching these objectives through the development of the upstream asset base, the joint venture with Repsol and the upgrading of our downstream assets and market position.
Arsen Idrisov, Managing Director