Nostrum Oil and Gas: 9M Results – Revenue Over $370m, Drilling Program On Target

Nostrum Oil & Gas PLC, an independent oil and gas company engaging in the production, development and exploration of oil and gas in the pre-Caspian Basin, today announces its operational update for the nine month period ended 30 September 2015. This update is being issued in advance of the release of its audited and consolidated accounts for the same period, which will be released on 24 November 2015. The information contained in this update remains subject to review by the independent auditors.

Highlights:

Operational

– Average daily production for first 9 months in 2015 of 44,042 boepd
– GTU3 construction progressing with completion expected on time and on budget before the end of 2016
– On track for 2015 drilling target to complete 8 wells (6 production and 2 appraisal)
– 2015 production guidance of 40,000-42,000 boepd, reduced from 45,000 boepd due to unexpected repair work carried out by Intergas Central Asia (ICA) on the export pipeline operated by ICA that is used by Nostrum to transport its gas. The duration of this repair work by ICA extended beyond the completion of Nostrum’s regular scheduled GTU maintenance, resulting in lower forecasted production for October and reduced guidance for 2015. The repair work is now complete and production is back to normal levels. 2016 production guidance remains at approximately 45,000 boepd

Financial

– 9 month revenue expected to be in excess of US$370m
– Cash position in excess of US$210m (including short-term deposits), total debt remains at US$960m and net debt of approximately US$750m as at 30 September 2015
– Fully funded capex programme both to maintain current production in 2015 and 2016 and to complete the construction of GTU3 on time in 2016
– 32% of liquids production (7,500 bopd) hedged at US$85 until February 2016

Kai-Uwe Kessel, Chief Executive Officer of Nostrum Oil & Gas, commented:

“Nostrum’s operational results reflect another steady quarter for the Company. We have maintained good production levels during Q3 at the Chinarevskoye field whilst also undertaking the bi-annual maintenance at the gas plant. The Intergas Central Asia repair work on their own export pipeline has reduced our October production levels, resulting in a decrease to the overall 2015 production forecast. We remain on track to meet our drilling targets for the year. Our main focus continues to be the completion of the GTU3, which is on track to be delivered on budget before the end of 2016. Whilst we remain in a strong financial position with over US$200m of cash on our balance sheet, we are also continuing to seek to reduce costs across the business and to ensure that we are operating as efficiently as possible in this low oil price environment”.

Operational & Financial Update

– Q3 revenues were reduced from Q2 due to the falling oil price
– We have 21 oil wells and 18 gas condensate wells currently producing at the Chinarevskoye field
– We continue to minimise operating costs and will complete our drilling programme for 2015 with 1 operational rig

Current product destinations
Nostrum’s primary export destinations remain as follows:

Crude Oil – Neste Oil’s refinery in Finland
Condensate – Russian Black Sea port of Taman
LPG – Russian Black Sea ports
Dry Gas – 75% export and 25% domestic
The Company has no current plans to change any of these export destinations.

Drilling
2015 Drilling Overview

21 oil wells and 18 gas condensate wells were producing at the Chinarevskoye field
6 wells drilled over the first three quarters of 2015
1 gas condensate well completed in Q3
2 production wells to be drilled and completed in Q4
1 appraisal well to start drilling in Q4

2016 Drilling schedule
Our 2016 drilling programme will be provided at the end of the year once the 2016 budget is finalised.

Production schedule
Based on the current drilling programme stated above and taking into account the current oil price we can provide the following production guidance. Should oil prices deviate materially the production guidance will be updated accordingly.

2015 – Approximately 40,000 – 42,000 boepd
2016 – Approximately 45,000 boepd
2017 – Approximately 70,000 boepd
2018 – Approximately 100,000 boepd

Progress on development of GTU3

Nostrum’s fully financed expansion plan for GTU3 is being implemented and completion is expected to occur on time and on budget by the end of 2016, with construction costs expected at or below US$500m. Nostrum has concluded the majority of the procurement process in relation to GTU3

Other corporate activity

On 7 October 2015, Nostrum announced that it had withdrawn its proposed offer that was previously announced on 23 September 2015 (the “Proposed Offer”) to acquire the entire issued share capital of Tethys Petroleum Limited (“Tethys”) together with a proposed US $20 million interim funding to Tethys (the “Interim Funding” and, together with the Proposed Offer, the “Proposed Transaction”).

Nostrum and Tethys had worked together to negotiate legally binding agreements implementing the Proposed Transaction during an exclusivity period that began on 23 September 2015 and expired at 11:59 p.m. on 6 October 2015. However, as stated in Nostrum’s announcement of 23 September 2015 it was a condition to entry into those agreements that the three major shareholders of Tethys agree to support the Proposed Offer in form and substance satisfactory to Nostrum. Tethys’ largest shareholder, Pope Asset Management LLC, informed Nostrum that it did not support the Proposed Offer and therefore, despite the progress made by Nostrum and Tethys in preparing transaction documentation, the Proposed Transaction will not proceed.

Nostrum reserves the right to propose alternative transactions to Tethys and/or to make an offer for the share capital of Tethys on different terms to those previously announced.

In addition, Nostrum confirms that it has issued a Notice of Events of Default to Tethys under the US$5m loan agreement dated 10 August 2015 between Nostrum as lender and Tethys as borrower, and confirms that it has also issued an Acceleration Notice to Tethys making such loan immediately due and payable. Nostrum has reserved all its rights and remedies in connection with such loan agreement.

Further information
For further information please visit www.nog.co.uk