Max Petroleum: Interim Results – Production Up 17% Cash From Ops Up 187%

Max Petroleum, an oil and gas exploration and production company focused on Kazakhstan, today announces its interim results for the six months ended 30 September 2014.

HIGHLIGHTS

Financial highlights:

·      Agreed a conditional strategic investment with AGR Energy that would raise £37.1 million (approximately US$58 million) before expenses and result in AGR Energy holding 51% of the Company’s share capital on completion. This investment remains subject to the approval of the Group’s lender, Sberbank, and the Ministry of Energy of the Republic of Kazakhstan.

·      The investment by AGR Energy will strengthen the Group’s balance sheet and increase its financial resilience as well as enable the Group to fund its planned post-salt capital programme.

·      Revenue of US$54.1 million during the six months ended 30 September 2014, up 17% compared to US$46.3 million during the six months ended 30 September 2013.

·      Cost of sales of US$37.6 million during the six months ended 30 September 2014, compared to US$37.7 million during the six months ended 30 September 2013. Underlying operating costs² were US$35.38 per bbl, down 15% from US$41.40 per bbl during the six months ended 30 September 2013.

·      Administrative expenses of US$4.8 million during the six months ended 30 September 2014, down 37% from US$7.6 million during the six months ended 30 September 2013. Excluding share-based payment charges, administrative expenses were down 24%.

·      Adjusted EBITDA was US$23.1 million for the six months ended 30 September 2014, up 67% compared to US$13.8 million for the six months ended 30 September 2013.

·      Before movements in working capital (see note 19), cash generated from operations was US$20.9 million during the six months ended 30 September 2014, up 51% compared to US$13.8 million during the six months ended 30 September 2013. After movements in working capital, cash generated from operations was US$27.5 million, up 185% compared to US$9.6 million during the six months ended 30 September 2013.

·      Capital expenditure of US$10.8 million during the six months ended 30 September 2014, down 68% compared to US$33.4 million during the six months ended 30 September 2013. Drilling operations have been suspended since June 2014 to preserve cash pending the arrangement of additional finances.

·      Recognised provision for impairment of US$6.8 million in respect of VAT receivable in Kazakhstan.

·      The Group is highly geared, with US$82.8 million outstanding under the Sberbank loan as at 30 September 2014, due to be repaid in quarterly instalments by November 2017. Since July 2014, Brent crude oil prices have fallen significantly, which has had an adverse effect on the Group’s cash flows. If the receipt of proceeds from the investment by AGR Energy is delayed, assuming that Brent crude prices remain at or below current levels, the Group will not be able to continue servicing its interest and principal payments under the Sberbank loan as they fall due, starting with the US$6.8 million principal repayment due in March 2015.

·      The Group is working closely with Sberbank on a loan restructuring and is seeking to agree a moratorium on principal payments due in 2015 and an extension of the maturity of the loan.

² Underlying operating costs are defined as cost of sales less depreciation, depletion and amortisation (see note 6). Underlying operating costs comprise costs of production, mineral extraction tax, selling and transportation costs and export taxes.

Operational highlights:

·      Average daily production of 4,239 barrels of oil per day (“bopd”) during the six months ended 30 September 2014, up 17% compared to 3,630 bopd during the six months ended 30 September 2013 and up 2% compared to 4,170 bopd for the six months ended 31 March 2014.

·      Drilled four post-salt wells, including two successful appraisal wells at East Kyzylzhar I and a successful development well at Zhana Makat.

·      Commissioned a new oil pipeline and associated terminal facility in June 2014 that has resulted in a reduction of transport costs of approximately US$4.0 per bbl for production from the Zhana Makat, Borkyldakty, Sagiz West and East Kyzylzhar I fields.

·      Implemented a cost-cutting initiative to reduce corporate overheads, including headcount reductions, closure of the Group’s Houston office and relocation of the London office.

·      The Asanketken field was granted full field development status in October 2014, allowing the Group to export 80% of the field’s production.

·      The Sagiz West, East Kyzylzhar I and Baichunas West fields are on track to gain trial production status by mid-2015, allowing for continuous production from all wells at those fields, which is expected to bring on stream in excess of 1,500 bopd of production.

Key Performance Indicators (KPIs)

The Group’s key financial and performance indicators during the interim period were as follows:

¹ Underlying operating cost is defined as cost of sales less depreciation, depletion and amortisation (see note 6 to the accompanying financial information).

² Adjusted EBITDA is defined as profit/(loss) before finance costs, income tax expense, depreciation, depletion and amortisation, share-based payment expense, exploration and appraisal costs and impairment losses. Adjusted EBITDA is a non-IFRS performance measure with no standard meaning under IFRS, and is reconciled to the income statement in note 24 to the accompanying financial information.