Petrosibir AB: 2015 Annual Report
Transition of Petrosibir
There have been a number of significant transactions affecting Petrosibir in 2015. In December 2015 Petrosibir distributed the Ukrainian operations to its shareholders and also in December 2015 Petrosibir acquired a 49% interest in certain oil and gas assets in the Russian republic of Komi. Following these significant transactions Petrosibir has an oil production of approximately 1,350 barrels per day and 2P oil and gas reserves of 35 million barrels of oil equivalent. In relation to completing the transactions the company also changed its name to Petrosibir from Shelton Petroleum.
January – December 2015
Continuing Operations*
Total revenue: SEK 29 (44) million
Operating result: SEK 26 (2) million including a negative goodwill of SEK 34 (0) million
Operating result excl one-off items: SEK -1 (2) million
Operating profit Russian segment SEK 9 (19) million
Basic and diluted earnings per share: SEK -2.57 (0.11)
Ukrainian operations distributed in December
49% of oil and gas assets in Komi acquired in December
The disciplinary committee of Nasdaq decided to delist Petrosibir from Nasdaq
October – December 2015
Continuing Operations*
Revenue: SEK 6 (8) million
Operating result: SEK 26 (0) million including a negative goodwill of SEK 34 (0) million
Operating result excl one-off items: SEK -1 (0) million
Operating profit Russian segment SEK 2 (3) million
Basic and diluted earnings per share: SEK – 0.06 (0.00)
* Continuing Operations fully reflect the financial statements in this report and include the Russian and parent company operations but not the Ukrainian operations. Comparative numbers within brackets have been recalculated and does not include Ukrainian operations.
Statement from CEO
Dear fellow Shareholders,
You witnessed extreme volatility in oil and share prices in 2015 and material changes in the business structures of former Shelton Petroleum AB and Petrogrand AB which combined its best assets and human talents under the Petrosibir name. By this letter I would like to highlight how grateful I am for your support and share my vision for the Company’s future.
Being appointed the Managing Director of Petrosibir in January, 2016, I am not new to the Company as in capacities of Board member of both Shelton Petroleum and Petrogrand, Managing Director of Petrogrand I was driving the business combination between these two companies.
Starting from April 2015, you have seen the end of a long and draining battle between Shelton Petroleum and Petrogrand, and the start of new battle for public listing. Despite our numerous efforts including elimination of cross-ownership structure, enhancing transparency, liquidity and production efficiencies, Petrosibir was delisted. However, with the business combination, Petrosibir’s number of shares in the hands of small shareholders materially increased which shall lead to a better liquidity of the shares once the Company will be listed again. Now we are considering different options including listing at new stock exchange.
It makes me very proud to report that our Company passed a significant milestone by completing a complex business combination in the most efficient manner which provided you an access to low risk proved and probable reserves and exploration potential in Bashkiria and Komi Republics and absolute management focus on Russian operations. By the acquisition of 49% in Ripiano, Petrosibir has an oil production of approximately 1,350 barrels per day, proved and probable oil reserves of 35 million barrels and liquid funds to continue its drilling program.
This deal is the first step toward Petrosibir’s strategic goal of turning itself into material independent oil company with production assets in Russia. The current turmoil in financial markets, politics and highly volatile commodity prices create opportunities. I see large international oil and gas companies divesting their Russian assets and some of private Russian producers are overleveraged and struggling to get the access to bank or equity financing. At the same time it is a unique opportunity to increase our scale through add-on acquisitions and new drilling to bring significant value to shareholders.
In addition to the above, I see my key role in bringing a core team who will work relentlessly on cost optimization of the existing and newly acquired oil fields, with material expertise of managing producing oil fields and geological success.
Summarizing all the above, I would like to ask you to be patient and to support the Company in 2016 and beyond. We already started to see the recovery in oil prices as a result of significant investment cuts, project deferrals and production declines.
Dmitry Zubatyuk, CEO
Financial result Russian and Ukrainian Operations excluding one-off items
The tables below are included to facilitate a comparison of the development of the Russian and Ukrainian operations to previous periods. The year-end report includes several non-recurring adjustments of values and reclassifications which were mainly incurred in the third and fourth quarters of 2015. These items are described in detail in this interim report in the section “Adjustments and reclassifications” and note 6. The tables below does not include the one-off adjustments and reclassifications.
* Total production from Komi covers the period 16 – 31 December 2015 and the daily production is thus calculated over that period.
January – December 2015
Financial development of the Russian and Ukrainian Operations
There have been a number of significant transactions affecting Petrosibir in 2015. On 11 December 2015 Petrosibir distributed the Ukrainian operations to its shareholders and on 16 December 2015 Petrosibir acquired Sonoyta Ltd from Petrogrand. Sonoyta owns 49% of Ripiano Holdings Ltd who in turn owns 100% of certain oil and gas assets in the Russian republic of Komi. In the comments below the Ukrainian operations are included up until the date of distribution, 11 December 2015, i.e. in the production and income statement comments for 2015 but not in the balance sheet comments per 31 December 2015.Sonoyta Ltd is included in the production and income statement comments from 16 December 2015 and in the Balance sheet comments per 31 December 2015.
It is recommended that the section “Adjustments and reclassifications” and note 6 below are read in parallel as they cover important items in the Condensed consolidated statement of comprehensive income and Condensed consolidated statement of financial position.
Revenue from oil sales amounted to SEK 78 (113) million. During the year, Petrosibir sold 267,750 (318,180) barrels of oil and produced 270,905 (321,377) barrels of oil. In addition the acquired assets in Komi contributed with 15,190 barrels from 16 December 2015. The prices of oil in USD in both Russia and Ukraine in 2015 were lower compared to 2014.
The average daily production during 2015 amounted to 760 barrels, compared to 880 barrels in 2014. In addition the production from the acquired assets in Komi contributed with a production of 949 barrels per day from 16 December 2015.
The Russian (continuing) and Ukrainian (discontinued) Operations, excluding one-off items, reported an operating result for the period January – December 2015 of SEK 10 (23) million, equivalent to an operating margin of 13% (21%). The operating result was negatively affected by the lower oil prices in 2015 compared to last year. In January to December 2015, the average price of Brent oil was USD 53 per barrel compared to USD 99 per barrel the same period last year.
Cash and cash equivalents amounted to SEK 36 million at the end of the year compared to SEK 14 million at 31 December 2014. Cash flow from operations during the period was SEK 2 million, whereas cash flow from investments in exploration and development activity was SEK -11 million, all related to the oil and gas operations in Russia. Cash flow from financing activities was SEK 4 million, reflecting a loan from Pareto Securities. The company’s shareholding in Petrogrand has been pledged for this loan. The company also received net SEK 30 million in the acquisition of Sonoyta.
The accounts receivable balance amounted to SEK 0 million as of 31 December 2015 compared to SEK 54 million at 31 December 2014. The accounts receivable balance was entirely attributable to the Ukrainian operations which have been distributed and are not included in the balance sheet at the end of the year.
Non-current financial assets, SEK 95 million, relates to the equity investment in Ripiano which was acquired in the Sonoyta acquisition.
Assets held for sale relates to shares in Petrogrand and amounted to SEK 10 million at the end of the year compared to SEK 48 million 31 December 2014. The value of the Petrogrand share has been written down by 38 million during 2015.
In December 2015 Petrosibir distributed the Ukrainian operations to its shareholders. Prior to the distribution the Ukrainian operations were transferred to the newly established wholly owned subsidiary Zhoda Petroleum Ukraine AB. The shareholders received 1 share in Zhoda Petroleum Ukraine for each share in Petrosibir. The distribution affected Petrosibir’s consolidated equity by SEK 43 million.
Shareholders’ equity per share at 31 December 2015 was SEK 8.55 (15.34) and the equity to assets ratio was 94 (85) %.
The Russian and Ukrainian currencies continued to be volatile during the period. The Russian ruble weakened by 17 per cent against the Swedish krona compared to the year-end rate 2014 while the Ukrainian hryvnia weakened by 30 per cent against the Swedish krona. See note 6 for details regarding exchange differences that affects the condensed financial statements.
Adjustments and reclassifications
This year-end report include several non-recurring adjustments of values and reclassifications which mainly are the result of the agreement between Petrosibir and Petrogrand, the development on the oil and gas market, depreciation of the Ukrainian currency and the share price development in Petrogrand. These items are described below and in note 6.
Below is a summary of the reported net result adjusted for the one-off items described below:
Ukrainian operations
Due to the distribution of the Ukrainian operations to the Petrosibir shareholders these operations are accounted for as discontinued operations in accordance with IFRS 5 in the financial reporting. The Ukrainian operations are therefore reported as discontinued operations below those of continuing operations in the Condensed consolidated statement of comprehensive income. The Ukrainian operations were distributed on 11 December 2015.
As can be seen in the tables above, the Ukrainian operations continue to show profitability despite the drop in the oil price. For the period 1 January – 11 December 2015, these operations recorded revenue of SEK 50 million and an operating profit of SEK 11 million, equivalent to an operating margin of 23%. Despite that but considering that the oil price and the geopolitical situation in Ukraine is likely to continue to be volatile, the company recorded an impairment charge attributed to the Ukrainian operations of approximately SEK 43 million in the third quarter 2015 which is reported within discontinued operations.
Furthermore, in relation to the distribution of the Ukrainian operations the accumulated exchange differences previously reported in Other Comprehensive Income were reclassified to financial items within discontinued operations. The amount reclassified from 2014 amounts to SEK -66 million and the accumulated exchange differences incurred in 2015 amounts to SEK -18 million, therefore a total of SEK – 84 million are reported in financial items in discontinued operations.
Shares in Petrogrand
Petrosibir is Petrogrand’s largest shareholder and holds 11,585,308 shares equivalent to approximately 29% of the capital. In 2014 Petrosibir wrote down the value of the shares by SEK -36 million and recorded the write down in other comprehensive income. In the third quarter 2015 the company determined that the share price development of the Petrogrand share was no longer temporary and therefore reclassified the SEK -36 million from other comprehensive income to financial items in continuing operations. During 2015 the value of the shares in Petrogrand has dropped further and an additional write down of SEK -38 million has been recorded in financial items in continuing operations. There are a number of reasons for the drop in the share price of Petrogrand. Petrogrand sold its subsidiary Sonoyta Ltd to Petrosibir in exchange for shares in Petrosibir. The Petrosibir shares have been distributed to the shareholders of Petrogrand. Also the decision by the disciplinary committee of Nasdaq to delist Petrogrand from Nasdaq First North had a negative effect on the share price.
Acquisitions
On 16 December 2015 Petrosibir acquired 100% of the shares in Sonoyta Ltd from Petrogrand. At the date of acquisition Sonoyta held cash of approximately USD 4 million and 49% of the shares in Ripiano Holdings Ltd, a Cypriot company holding 100% of two Russian legal entities with production and exploration licenses in the Russian republic of Komi. Petrosibir issued 17,500,000 shares of series B to Petrogrand as consideration for the shares in Sonoyta. The fair value of the consideration amounted to SEK 96 million. The preliminary purchase price allocation has resulted in a negative goodwill of SEK 34 million which is included in the operating result in continuing operations. If the fair value of the acquired net assets exceeds the consideration it results in a so called negative goodwill which, according to IFRS 3, immediately should be recorded in the income statement. Below are preliminary values of the acquired net assets. Amounts are in SEK million.
As noted above the main asset of Sonoyta is the 49% interest in Ripiano Holding. The interest in Ripiano Holding is reported as an equity investment in the consolidated accounts of Petrosibir.
Impairment test
In accordance with IFRS the company has performed its annual impairment test of the Bashkirian assets and concluded that no adjustment of the carrying value of the assets is required. The main assumptions used in the test were a Brent oil price of USD 30 per barrel for 2016, USD 50 per barrel for 2017 and USD 55 per barrel periods 2018 and onwards, 2P reserves of oil and gas of 27 million barrels in Bashkiria and a discount rate of 15% in Russia.
In 2009 the company completed a reverse acquisition whereby a goodwill of SEK 7 million was recorded. The goodwill was attributed to the stock exchange listing that was included in the reverse acquisition. Due to the delisting of the company from Nasdaq the company has recorded an impairment charge of SEK 7 million in the fourth quarter 2015.
The company made its impairment test of the Ukrainian operations in the third quarter in relation to the decision regarding the distribution. The company recorded an impairment charge related to the Ukrainian operations in the third quarter of SEK 43 million.
The assets in Komi were acquired 16 December 2015 and were therefore not subject to impairment test at 31 December 2015. Preliminary fair values have been assigned to the net assets in relation to the acquisition.
October – December 2015
Russian operations
Bashkiria
Petrosibir’s production of oil in Bashkiria during the fourth quarter amounted to 36,870 (45,740) barrels. Production per day amounted to 401 (497) barrels. The decrease is due to the natural depletion that all wells are subject to as oil is extracted. Revenue in the fourth quarter for the Russian segment amounted to SEK 6.1 (8.4) million and operating profit to SEK 2.1 (2.8) million, corresponding to an operating margin of 34% (33%). The drop in the oil price negatively affected revenue.
Petrosibir has processed and interpreted an additional 142 kilometers of seismic data collected on the Suyanovskoye and Rustamovskoye oil fields to further delineate the previously identified promising structures. The purpose was also to identify future drilling locations.
Federal agencies have approved amendments to the license agreement regarding Suyanovskoye. Once the official documents are released Petrosibir can develop a project of exploration and evaluation of oil and gas reserves. The new license terms increases the flexibility of Petrosibir in terms of timing for drilling of exploration wells.
Komi
Production in Komi in the period 16 -31 December amounted to approximately 15,184 barrels or 949 barrels per day. Petrosibir’s share of the net income in Ripiano Holding for the period was SEK -1.6 million. The negative result from Ripiano Holding is mainly due to exchange losses on loans denominated in USD. The Company continues work with cost efficient production enhancing measures.
Ukrainian operations (discontinued operations)
Production in the fourth quarter up until the operations were distributed amounted to 23,680 (30,100) barrels. Production per day amounted to 328 (327) barrels. Revenue in the fourth quarter in the Ukrainian segment amounted to SEK 10.4 (11.9) million and operating profit to SEK 2.5 (0.9) million, corresponding to an operating margin of 24% (8%). Revenue was negatively affected by the falling prices on oil.
As noted elsewhere in this report the Ukrainian operations were distributed to the shareholders on 11 December 2015.
Change of number of shares
In December 2015 Petrosibir issued 17,500,000 shares of series B to Petrogrand AB in exchange for all of the shares in Sonoyta Ltd, a Cypriot holding company with two main assets consisting of 4 MUSD in cash and 49% of the shares in Ripiano Holding Ltd, which in turn owns 100% of certain oil and gas assets in Komi in Russia via Russian subsidiaries.
Following the share issue the total number of shares of series B amounts to 35,399,347. The total number of shares of series A remains unchanged, 761,900. The total number of votes amounts to 43,018,347. The share capital has increased by SEK 87,500,000 and amounts to SEK 180,806,235.
In December 2015 Petrosibir received 6,387,385 shares of series B in Petrosibir as a result of a dividend from Petrogrand. These shares were cancelled in January 2016.
Significant events occurring after the reporting period
In January 2016 Petrosibir settled the short term loan from Pareto and by doing so became free of interest bearing debt.
In January 2016 the Board appointed Dmitry Zubatyuk as CEO of Petrosibir.
On 4 February 2016 the company was delisted from Nasdaq in accordance with the decision by the Disciplinary Committee of Nasdaq on 4 December 2015.
On 17 February 2016 Petrosibir’s share of series B started trading on the OTC-list arranged by beQuoted.
The parent company
The parent company’s total assets as at the period end amounted to SEK 258 (357) million. Cash and cash equivalents amounted to SEK 1 (7) million. The result after tax January – December 2015 was SEK -172 (-50) million. The negative result is an effect of write down of intra group loans SEK -67 million, shares in Petrogrand SEK -38 million and shares in Shelton Canada Inc SEK -62 million, the legal entity in the group that held the investments in Ukraine which were distributed in December 2015. The equity in the parent company was affected by the dividend of the Ukrainian operations, SEK -32 million, issue of shares in the acquisition of Sonoyta Ltd, SEK 93 million and received shares in Petrosibir when Petrogrand distributed such shares.
In the company’s accounts the Petrosibir shares received as dividend are valued at zero in accordance with IFRS.
Annual General Meeting and dividend
The annual general meeting will be held on 24 May 2016 in Stockholm. The Board proposes that no dividend is paid for the financial year 2015.
Risk factors and uncertainties
A detailed account of the risks facing the company can be found in the 2014 annual report. During the period, there has been no major change in material risk factors or uncertainties for the group or the parent company. Risks include exploration risk, oil price risk, exchange rate risk, liquidity risk, credit risk, interest rate risk and political risk, among others.
Upcoming financial reporting
Annual report 2015 April 2016
Interim Report January – March 2016 20 May 2016
Interim Report April – June 2016 24 August 2016
Interim Report July – September 2016 18 November 2016
Annual General Meeting 2016 24 May 2016
This information was released for publication on 11 March 2016 at 08:30 CET.
This report has not been reviewed by the Company’s auditors.
