Petrogrand: 9m Results – No Operating Income in the 3rd Quarter
Third quarter of 2015
• Oil production in Ripiano attributed to Petrogrand increased in the third quarter by 14% to 84 274 barrels of oil or an average of 916 bopd compared to the previous quarter
• During the third quarter, the Group had no operating income (-). The operating result for the third quarter amounted to TSEK -4 400 (-5 665).
• Net financial items in the third quarter amounted to TSEK 843 (5 318), including currency effects of TSEK 976 (5 115).
• Net result after tax for continuing operations in the third quarter amounted to TSEK -3 557 (-347).
• Net result from the share interest in the associated company Ripiano in the third quarter 2015 amounted to TSEK -13 286 (-).
• Net result in the third quarter including discontinued operations was TSEK -103 068 (-347).
• Earnings per share for the third quarter amounted to SEK -2.56 (-0.01).
January – September 2015
• During the first three quarters of 2015, the Group had no operating income (-). The operating result for the period amounted to TSEK – 19 674 (-26 942).
• Net financial items in the period amounted to TSEK 23 125 (6 695), including currency effects of approximately TSEK 22 928 (4 840).
• Net result after tax for continuing operations in the period amounted to TSEK -3 451 (-20 248).
• Net result from the share interest in the associated company Ripiano in the period amounted to TSEK -7 798 (-).
• Net result in the period including discontinued operations was TSEK -90 572 (-20 248).
• Earnings per share for the period amounted to SEK -2.25 (-0.50).
Dear Shareholders,
In the third quarter we managed to meet our operational targets set for the quarter: to work on enhancing our new assets by increasing production in our Komi oil fields, to continue implementing cost cutting measures and to solve the cross-ownership issue with Shelton Petroleum.
The total Ripiano production in the third quarter amounted to 171 988 barrels of oil, corresponding to an average 1 869 barrels of oil per day (bopd). Petrogrand’s 49% share of the production amounted to 84 274 barrels of oil, corresponding to an average of 916 bopd, with the Revenue of TSEK 19 744 and Operating Income of TSEK 2 692 at healthy 13.6% Operating Margin. Net profit was, however, negatively influenced by a depreciation of the RUB against the USD and amounted to TSEK -13 286. Through implementation of low-cost production enhancement techniques such as, acidizing, hot oil treatment, identifying and perforating new intervals within existing wells, the production increased by 14% compared to the second quarter average of 1 645 bopd of which 806 bopd was Petrogrand’s share. Going forward, there is solid progress on the investment program on the Sosnovskoye field. In October, preparatory works to support an efficient drilling campaign were completed and the drilling contract was tendered, the drilling is expected to commence by the end of the fourth quarter 2015.
Through our continuing implementation of rigorous cost cutting measures, we were able to materially reduce our monthly operational costs. Group Administration costs in the third quarter were reduced by 22% or TSEK 1 265 compared to the same quarter in 2014 and by 40% or TSEK 3 033 compared to the previous quarter.
An important achievement for the new board and management team during the third quarter was to solve the cross-ownership with Shelton Petroleum. I am happy to say that on 9 November 2015 the Extraordinary General Meeting approved the proposal by the board of directors to enter into a business combination with Shelton Petroleum. In accordance with the agreement Petrogrand receives 17 500 000 newly issued B shares of Shelton Petroleum after Shelton Petroleum divesting of its assets in Ukraine for a contribution by Petrogrand of its 49% ownership of Ripiano which owns our oil assets in Komi and USD 4 million of cash. The enlarged company will take the name Petrosibir and will have a combined license portfolio consisting of Shelton Petroleum’s assets in Bashkiria and Petrogrand’s assets in Komi, with a net production of about 1 350 barrels of oil per day and 32 million barrels of recoverable 2P reserves. As a part of the agreement Petrogrand will distribute all current and new shares of Shelton Petroleum to its shareholders by the end of 2015. The company will then change its focus to the real estate sector which it believes is a sector with strong growth dynamics.
We keep facing a declining Brent oil price, which generates overall market volatility. Since the end of the second quarter the oil price has decreased by nearly 30% up until the date of the report. However, this fall is partially offset by a reduction of oil production taxes and by a depreciation of the Ruble from 55.7 RUB for USD as of 30 June to 64.9 as of 21 November 2015. Calculation of MET (Mineral Extraction Tax) and export duties in Russia is directly linked to the Brent oil price and acts as a natural hedge against falling oil prices resulting in a healthy, yet slightly lowered, operating margin.
To summarize, starting in the second quarter we have established a strong, experienced and resilient management team in Petrogrand. The team under support of the board of directors managed to make a step change in the governance of operations and to achieve the ambitious goals. I am confident in the future of the Company and the ability to deliver the best value for shareholders even in this volatile market environment.
