Ruspetro: 2015 Results – Drilling Costs Down, Geological Understand Up

Ruspetro plc, an independent oil and gas development and production company, with assets in the Western Siberia region of the Russian Federation, announces its Preliminary Results for the year ended 31 December 2015.

Corporate

– Intention to seek shareholder approval to cancel the listing of the Company’s ordinary shares from the premium segment of the Official List and re-register the Company as a private limited company announced (see separate statement issued today at 07.00am)

Operations – Maturing a technical solution for the development of our assets

– Comprehensive internal hydrocarbon resource review completed. Revised 2P oil reserves of 108 mmbbl, 2C oil resources of 223 mmbbl. Appraisal campaign initiated to convert contingent resources into 2P reserves
Encouraging performance from horizontal well 210, which was drilled and completed at a cost of US$5.4 million. Drilling and fracturing services contracts put in place to underpin a future horizontal well cost target of approximately US$4 million
– Average oil production increased by 13% year on year to 3,989 bpd in 2015. Cash production operating costs reduced from US$16/bbl to US$12/bbl
– Following an international tender, two modern mobile hydraulic rigs sourced and commissioned in the field
Extended reach drilling combined with a portfolio of fracturing technologies successfully field tested

Financial – Positive Operating Cash Flow before working capital adjustments despite the Low Oil Price Environment

– 2015 Revenues of US$43.9 million, versus US$55.1 million in 2014. EBITDA of US$2.6 million, versus US$9.6 million in 2014
– US$63.8 million undrawn facility available as at the date of this release
– Met the production covenant required to access the second US$50 million tranche of development funds
– Revised Loan Covenants agreed with our primary lenders following a decision to slow the pace of development drilling in response to the sustained weakness in oil prices
– Net debt increased by US$64.8 million to US$299.9 million at period end
– Net loss of US$99.1 million vs. net loss of US$262.9 million in 2014, with exchange rate related losses contributing to a significant extent in both years
– Group current netback per barrel after Mineral Extraction Tax (MET) is US$19 at a Brent price of US$40 due to the favourable tax regime applicable to the Group’s tight oil reserves

Outlook – Demonstrating an Economically Attractive Growth Proposition

– Intention to double production levels in 2016
– Implement low cost and flexible appraisal campaign to increase 2P reserves
– Establish a benchmark cost for a horizontal development well with 10-15 fractures below US$4 million
– Establish a material production stream from the UK1 (Abalak formation) capitalising on its zero % MET fiscal regime
– Continue drive to lower cash production operating costs
– Continue tight management of cash and obtain the required refinancing of trade finance lines, in the normal course of business

John Conlin, Chief Executive Officer of Ruspetro plc, commented:’Improved geological insight coupled with the application of proven well technologies has, over a programme of only four wells, led to our most prolific horizontal development well to date. More importantly, this has been delivered at previously achievable costs, which we can already anticipate to lower significantly. We remain convinced that understanding the geology of the field is the key to smart investment in building production.

‘Following a comprehensive review of our sub-surface data and field performance, we have completed the first in-house assessment of our reserves and resources. The headline reserves numbers are significantly lower than those previously provided by external consultants and reserves’ auditors. The resources remain substantial but reinforce the need for appraisal to mature areas for future development. This has been initiated with very encouraging early results.

‘In 2015, we have established the technical and cost building blocks for a sustainable operating business in a low cost environment. However, given our balance sheet and development capital requirements, this in itself will not guarantee the long-term sustainability of the business. Today therefore, you will also see the announcement concerning the Company’s proposed delisting and re-registration as a private limited company. This will give the Group the flexibility to source funding that is not available in the public equity markets, using the asset base and production potential of the Group as valuation benchmarks rather than the market capitalisation of the listed entity. Based on the achievements of the last two years, and despite the current harsh macro-environment, we remain positive for the long term prospects of the Group.’