Shelton Petroleum: Q1 Results – Margin Up, Production Up, Petrogrand Relationship Down
Shelton Petroleum continues to record strong profitability. The operating margin in the first quarter amounted to 29%, which is a significant improvement compared to 25% in the first quarter last year. The improved profitability is a direct effect of the increase in production by over 80% from 519 to 942 barrels per day following the successful drilling in Bashkiria.
Over 80% increase in Q1 production compared to last year
• Total revenue for the period: SEK 32 (23) million
• Operating result for the period: SEK 9 (6) million
• Operating margin: 29% (25%)
• Basic earnings per share: SEK 0.55 (0.35)
• Diluted earnings per share: SEK 0.53 (0.35)
In February, Shelton Petroleum published a geologic update highlighting the very encouraging implications of the latest #12 well on the Rustamovskoye oil field in Russia. The new well demonstrated a significantly larger net pay compared to previous wells. It also extended the known oil column to 45 meters. If the thickening pay can be demonstrated in new wells, then the economics of future wells and total field potential in terms of reserves and resources will improve significantly.
The production at Lelyaki amounted to 370 barrels per day net to Shelton Petroleum, which is the highest that the company has recorded since the acquisition of its interest in the field. The operations at Lelyaki are unaffected by the recent geopolitical events in Ukraine. The Russian annexation of Crimea, on the other hand, has led to an increased risk regarding potential future benefit from our Joint Investment Agreement (JIA) with Chornomornaftogaz. The JIA accounted for 0% of revenue in the first quarter and 2% of the assets in the balance sheet as of 31 March 2014. The recent presidential election with Petro Poroshenko receiving a majority of the votes in the first round could well be considered an important step in the normalization of the Ukrainian political situation.
In April, Shelton Petroleum completed the public offer to the shareholders in Petrogrand, making it the largest shareholder with 29% of the shares. Petrogrand has in turn announced a cash offer, conditional on certain factors, to the shareholders in Shelton Petroleum expiring 1 July.
The disputes and strained relationship with Petrogrand are negatively affecting Shelton Petroleum and its shareholders. The management and board believe that it is in the interest of both companies to solve our differences and instead focus on developing our respective license portfolios. Having said that, I am pleased with the operational performance during the first quarter with increased production and strong profitability.
Russian operations
Shelton Petroleum’s production of oil in Russia during the first quarter amounted to 51,500 (17,655) barrels. Production per day amounted to 572 (196) barrels, which is an increase of 192% compared to the same quarter last year. Revenue in the first quarter for the Russian segment amounted to SEK 12 (4) million and operating profit to SEK 5 (1) million, corresponding to an operating margin of 42% (25%). The higher operating margin compared to previous periods is due to the economies of scale that the incremental production provides.
During the quarter, Shelton Petroleum announced a geologic update on the company’s new and improved view on its Russian oil fields following the positive drilling results of the recent #12 well. The well demonstrated a net pay of nine meters compared to up to three meters in previous wells. It also extended the known oil column to 45 meters. If the thickening pay can be demonstrated in new wells, then the economics of future wells and total field potential in terms of reserves and resources will improve significantly.
