Tanker update

The tanker shipment for export from the Company’s Arcticneft operations on Kolguyev Island has been completed.  The tanker has left Kolguyev Island with a gross volume of 19,946 tons of special light crude oil (an equivalent of approximately 157,111 barrels). 

The Company will, in due course, confirm:

i.        the gross price per barrel for this tanker shipment.  This pricing will be based on the arithmetic average of the quotations for Brent DTD published in “Platts Crude Oil Marketwire” for the and 6th to 10th days following the date of the bill of lading.  The date of the bill of lading is 6 November 2018; and

ii.       the net proceeds from this shipment, after taking into account all duties and taxes, transport costs, demurrage and similar charges (and the repayment of the loans due to Petraco).

As noted in the Company’s announcement of 1 November 2018, the Board cautions that the net cash available to the Group from the tanker shipment is likely to be minimal or marginally negative after repayment of loans from Petraco totaling US$9 million (being the pre-export short term loan of US$5 million announced on 10 September 2018, a further immediate loan of US$4 million provided prior to loading to cover export duty etc) and cash required for operations over the Winter on Kolgyev Island.

Accountants’ reviews

Further to the Company’s announcement of 1 November 2018, the reviews by the independent firm of accountants are ongoing.  The reviews are examining:

i.        any transactions by Urals Energy’s 98.56% owned subsidiary, JSC Petrosakh, since 30 June 2018 that are outside of the ordinary course of business; and

ii.       the short-term working capital requirements of the Group for the forward-looking period to 30 June 2019.

Following completion of the reviews, the Board will seek to agree with Mr Kononov the next steps with regard to rectifying the unauthorised transactions undertaken by JSC Petrosakh, details of which were announced on 1 November 2018 and 15 October 2018.

South Dagi drilling activities

As noted in the Company’s announcement of 27 September 2018, the full testing of Well No 1 was delayed due to a collector pipe becoming stuck in the well.  The removal of this pipe requires special equipment, which has not yet arrived at Sakhalin Island.

Group working capita

The Board believes that the outlook regarding the Group’s working capital position remains substantially unchanged since the Company’s announcement of 1 November 2018.  The Board believes that the Group’s working capital position remains highly constrained and remains subject to a number of variables.  The Board believes that the Group will continue to face a working capital deficit of at least approximately US$3 million in the coming months, unless the unauthorised transactions (as referred to in the Company’s announcements of 1 November 2018 and 15 October 2018) are reversed.

Further announcements will be made as appropriate.

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The Company’s announcements of 15 October 2018 and 10 October 2018 cautioned that unless a solution to the Group’s current working capital deficit can be put in place by the end of this month, then the Board will have to take steps to protect the interests of the Group’s creditors.  The board will shortly appoint an independent firm of accountants to perform a short-term working capital review and a review of any transactions by its 98.56% owned subsidiary, JSC Petrosakh, since 30 June 2018 that are outside of the ordinary course of business (the “Accountants’ Review”).

As stated in the Company’s announcement of 10 October 2018, the proceeds from the next tanker shipment from Arcticneft this year will be of critical importance to the Group’s shorter to medium-term working capital position. The tanker is expected to arrive at Kolguev Island on or around 27 October 2018.  The board estimates that the Group will receive the proceeds from this shipment on or around the middle of November 2018.  The Board notes that local weather conditions may have a significant influence on the achievement of the above timings.

The estimated volume to be shipped from Arcticneft is around 20,000 tons of special light crude oil (equivalent to 157,400 barrels).  The gross price per barrel for the coming tanker shipment will be based on an average of the quotations for ‘Brent DTD’ over a period after the date of the bill of lading. The proceeds from the coming tanker shipment will be subject to deductions for export tax and other duties, the repayment of the pre-export short term loan finance arrangement (as announced on 10 September 2018), transport costs and demurrage costs.

The Group has a number of pressing payment obligations which need to be made by the end of November 2018, some of which are very significant in the context of the Group’s current working capital position.  In particular, the payment of Arcticneft’s accumulated mineral extraction tax liabilities and the payments associated with the logistical resupply of Articneft (food and spare parts) and its wages for October 2018, represent a significant aggregate payment obligation.

As indicated in the Company’s announcement of 10 October 2018, the Group had originally earmarked funds in order to satisfy its short-term payment obligations.  However, due to the unauthorised actions of Mr Kononov, as detailed in the Company’s announcement of 15 October 2018, the board estimates that even after the net cash inflow from the coming tanker shipment the Group will continue to face a working capital deficit of approximately US$3 million.

The renewal of certain of the Group’s loan facilities over the coming months is also critical to the Group’s medium-term future and the support of the Group’s banks will be essential in this process.

The board is in dialogue with Mr Kononov, via his legal advisers, regarding actions to reverse the Group’s working capital deficit.  Such actions could involve measures to effectively reverse the transactions authorised by Mr Kononov and/or the return of a certain amount of working capital from the Kholmsk commercial seaport (further details of which can be found in the Company’s announcement of 15 October 2018).  Alternatively, Mr Kononov, or an entity connected with him, could provide interim financial support to the Group. The board caveats, however, that whilst discussions are ongoing, no definitive agreement has been reached with Mr Kononov in respect of any of the potential remedial actions described above (and there can be no guarantee that any such agreement will ultimately be reached) and that such actions may take time to implement.  Thus far, there has not been progress on alternative third-party financing solutions.

The Group’s working capital position remains highly constrained and is subject to a number of variables, several of which are described above.  The board believes that the Accountants’ Review is an essential step in determining the financial requirements of the Group, although, in the event that the Group fails to reach agreement on potential solutions to the Group’s current working capital deficit (as described above), an outcome of the Accountants’ Review could ultimately be that the board is required to take actions to protect the interest of creditors, which could result in part or all of the Group entering into an insolvency process.

Further announcements will be made as appropriate.

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Operational highlights

· Total production at Arcticneft during the period reached 186,831 barrels, including production of 55,691 barrels from Arctic Oil Company Limited (“ANK”) (H1-2016 production at Arcticneft alone: 122,491 barrels)

· Total production at Petrosakh during the period reached 202,058 barrels (H1-2016: 240,143 barrels)

· Current daily production at Arcticneft and Arctic Oil Company is 985 barrels of oil per day (“BOPD”) compared with an average of 1,032 BOPD for the six months ended 30 June 2017

· Current daily production at Petrosakh is 1,072 BOPD compared with an average of 1,116 BOPD for the six months ended 30 June 2017

· In June 2017, the Company successfully completed a tanker shipment of 240,232 barrels of crude oil from Arcticneft (2016: 225,283 barrels)

· During the period, the Company actively worked in the South Dagi area on the preparation of the field development plan, an exploration drilling project and a trial production project involving new exploration wells

· The majority of work at the South Dagi area has been completed. The Board expects the development plan documentation to be finalized during the fourth quarter of 2017

· In April 2017, the Company spudded Well 102, which is located on the main Petrosakh licence area. The testing has now been completed

· The location of Well 102 is at an area of the reservoir where porosity is relatively low compared with other areas of the reservoir and its flow on completion was 25 BOPD

· In April 2017, the Company spudded its first well on its Ordymskiy block in the Komi Republic. Our contactor, Vis-Mos Llc, made slow progress and poor performance in drilling and in July 2017 the Company gave the contactor notice of termination

· The Company is in discussions with new drilling contractors and expects to spud a new well at the Komi site in December 2017

· In June 2017, the Company signed a rig delivery contract with Jereh Group, a Chinese company. The rig will be deployed to drill our first well at South Dagi

· Extraordinary General Meeting held on 26 May 2017, which resulted in a share consolidation and the approval for a reduction of the Company’s share premium account which was completed in August 2017

Financial highlights

· Gross profit (after excise, export duties and VAT) increased by 22% to US$2.8 million (H1-2016: US$2.3 million)

· Operating loss of US$(0.2) million for the period (H1-2016: operating profit US$0.6 million)

· Net loss before income tax of US$(0.4) million (H1-2016: US$3.3 million net profit). The fluctuation in net profit before income tax was partly caused by exchange rate movements during both periods

· Underlying net loss before income tax and foreign exchange effects of US$(0.9) million (H1-2016: profit of US$0.3 million)

· EBITDA* increased to US$3.4 million for the period from US$2.2 million for the six months ended 30 June 2016, an increase of 55% with a simultaneous decrease in EBITDA margins from 30.1% to 15.3%

· Improved net working capital position at 30 June 2017 of US$6.2 million (31 December 2016: US$5.6 million)

· The Company finished the period with a net debt position of US$12.3 million (31 December 2016: US$5.1 million) with a debt/EBITDA ratio of 3.8 as at 30 June 2016 (31 December 2016: Debt/EBITDA ratio 0.9)

· In February 2017, the Company entered into a new 24 month non-revolving CAPEX credit facility with the Sakhalin branch of OJSC Sberbank of Russia. Under this loan, Sberbank provided the sum of 50 million Russian Roubles (representing approximately US$0.85 million at prevailing exchange rates)

· In April 2017, the Company and its subsidiary Arcticneft entered into a short-term loan agreement with Petraco Oil Company Limited (“Petraco”). Under the terms of this agreement, Petraco s advanced the Company US$3.0 million as export shipment pre-financing. This indebtedness was repaid in July 2017

*Earnings before interest, taxation, depreciation and amortisation (“EBITDA”) is a non IFRS measure which the Group uses to assess its performance. It is defined as earnings before interest and taxation.

Post-period end and outlook

· The Company is planning to make a second tanker shipment this year in October. The estimated volume to be shipped based on the current volume of crude left in stock and expected levels of production is around 24,500 tons (equivalent to 193,550 barrels)

· In August 2017, the representative of Blackwatch Petroleum Services, the Competent Person firm engaged by the Company to carry out an update of the Company’s reserves, started work on the Competent Person’s Report on the Company’s portfolio of licences. The Company expects that the evaluation of reserves will be finalized before the end of 2017

· In August 2017, the new rig that had been acquired for South Dagi licence area arrived on the Island of Sakhalin and was delivered to the oil field

· The Company currently anticipates that the first well at South Dagi will be spudded by the end of October. All regulatory approvals have been recently received

· In September 2017, the Company entered into a pre-export short term loan finance arrangement with Petraco Oil Company Limited (“Petraco”) under which Petraco will advance the sum of US$3.0 million to the Company ahead of the anticipated October 2017 tanker shipment from Kolguev Island

· The Company has recently entered into a new 36 month non-revolving credit facility with the Sakhalin branch of OJSC Sberbank of Russia. Under this loan, Sberbank provided the sum of 70 million Russian Roubles (representing approximately US$1.2 million at prevailing exchange rates)

· In September 2017, the Company signed an umbrella contract with a supplier of condensate from the Kamchatka region. Approximately 90,000 barrels of condensate are to be delivered to Petrosakh and processed at our refinery. The Company believes that having this additional volume available for processing will lead to a positive effect on the Company’s operating cash flow during the upcoming winter period

· On 9 November 2017, the Company plans to hold its Annual General Meeting where shareholder approval for a first dividend payment will be sought, equivalent to a gross payment of US$0.062 per ordinary share, payable in December 2017

Mr Shrager, Chairman commented: “The results for the first half of 2017 were affected by the fact that Mineral Extraction Tax payable on our Kolgyuev Island shipment in June was determined by the oil price in April to May. The oil price had stayed in a range of US $50 to 55 bbl. between April and May, but fell to around $44 bbl. in June around the time of loading, which is the basis for our contractual terms.

Despite this, we achieved a significant increase in normalized EBITDA, although with a lower margin than expected due to the weak oil price, as noted above.

We remain determined to continue with our strategy of developing our expanded portfolio. On Sakhalin Island, we will spud our first well on the South Dagi licence in October. Production here should help offset the decline at Petrosak and allow for higher utilisation of our refinery – the only one on the Island.

On Kolgyuev Island, we are completing our development plan and assuming that the oil price remains around current levels, the implementation of our plans should lead to improved cash flows and thus an ability to step up work overs and introduce further techniques to expand production.

We continue to review the acquisition of new licences, especially where there are potential synergies with our existing operations.

Our maiden dividend, expected to be approved by shareholders at our forthcoming AGM and paid in December, is a sign of the Board’s confidence in the potential of our portfolio.”

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Tanker loading

The planned first annual tanker shipment for export from Arcticneft on Kolguyev Island has been successfully completed. The tanker has left Kolguyev Island with 30,439 tons of crude oil (an equivalent of 240,232 barrels).
As announced on 30 March 2017, the Company is planning to make the second shipment this year in late October. The estimated volume to be shipped based on the current volume of crude left in stock and expected level of production is around 25,500 tons (an equivalent of 201,450 barrels).

Export finance

As announced on 26 April 2017, the Company entered into a secured short-term loan agreement with Petraco Oil Company Limited (“Petraco”). The re-payment date for the US$3.0 million received from Petraco under this agreement is linked to the shipment of the tanker as described above. This indebtedness is anticipated to be settled in the coming few weeks.

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Komi Republic

The Company announced on 10th April 2017 the spudding of its first well on its Ordymskiy block in the Komi Republic, held by its wholly owned subsidiary RK Oil. It had been expected that the target depth of 1,100 meters would be achieved in mid to late May 2017. The Company’s drilling contractor, Vis-Mos Llc, a highly experienced drilling company in the Komi region, has had to proceed in the early stages of drilling more slowly than originally planned, due to hard mineral layers within the geological structure and delays in bringing additional equipment to the site due to the melting of winter roads and slow drying of the access ground roads. Operations can now proceed normally and it is expected that the target depth will be achieved by early July 2017 and completion will occur some two to three weeks later. The drilling contract is on a fixed sum basis and thus the delay will not cause additional expense to the Company.

Petrosakh

The Company announced on 18th April 2017, the spudding of well 130, with an intended target depth of 1,600 meters. Good progress has been made and drilling has reached 1,100 meters.  The Company expects to reach the target depth by mid-June 2017. The drilling operation is being carried out by Urals own team and drilling rig.

Arcticneft

The planned first shipment of approximately 30,000 tons of oil (237,000 barrels), is scheduled for the third week of June 2017.

The post RK Oil: Ordymskiy Block Well Behind Schedule appeared first on ROGTEC.

Following the repayment of the Arctic Oil Company loan, the Company’s subsidiary JSC Arcticneft entered into a new short-term loan finance arrangement with KKAPB. KKAPB is a bank in which Mr Shvets, the shareholder of Adler SA, the Company’s largest shareholder, is a board member and shareholder with 15.4% of KKAPB’s issued share capital.

The principal terms of the new KKAPB loan are as follows:

Principal: Russian Rouble 40 million (approximately US$660,000)
Term: 31 August 2017
Interest margin over Central Bank Rate: 5%, equivalent to a total of 15% on an annualised basis
Security: part of the crude oil produced by Arcticneft

The proceeds of this new KKAPB loan will be used by the Group for the general working capital financing of Arcticneft.

Based on the data available from the Central bank of the Russian Federation, the Board believes that the terms of the new KKAPB loan compare favourably with potential terms from other Russian banks, as credit remains generally difficult to obtain in Russia.

Additionally, the Group is approaching the full repayment of the final tranche of one of its loan facilities with OJSC Sberbank of Russia (“Sberbank”), which was orignally put in place in 2015 (as announced on 30 June 2015). Following the full repayment of the 2015 Sberbank facility, the Group will have a single revolving finance arrangement in place with Sberbank (as originally announced on 20 September 2016). Further announcements will be made as appropriate.

The post Urals Energy: Arctic Oil Purchase Loan Repaid Plus New Credit Open appeared first on ROGTEC.

Komi operations

At RK-Oil, we have completed preparations to re-enter the existing well and this should commence in Q1 2017. At the same time, we are conducting a tender for a contractor to drill a new well, which will commence once approval has been given by the State Authorities, currently expected to be received in late Q2 2017 or early Q3 2017.

Petrosakh

Average daily production at Petrosakh continues at 1,250 bbls/day. We have decided to shut in Well 109. The well continued to flow high pressure water, with modest oil production, despite attempts to slow the water flow. As there is a risk that the water might freeze in surface pipe systems, we believe that it is necessary to shut the well in.  In the Spring of 2017 we will reopen the well and utilise the well as a water injector to maintain pressure in the area. We have decided to defer drilling at Petrosakh itself and concentrate on our workover programme and additional measures to maintain production levels. At the recently acquired South Dagi licence area, which is managed by Petrosakh, we are preparing plans for an exploratory well in Q3 2017 or Q4 2017. Geological studies are in hand, including a micro seismic survey, and on the basis of a development plan we will seek approvals from the State Authorities.

Arcticneft

Production at Arcticneft is being maintained at 1,096 bbls/day, and we plan to make two cargo deliveries from our sea terminal in May/June 2017 and September/October 2017. We are reviewing the well data from the recently acquired Artic Oil and will be preparing a new development plan. We expect to conduct 3 or 4 well workovers at Articneft during 2017. 

Competent Person’s Report

In view of our acquisitions during 2016, we plan to commission a new Competent Person’s Report during 2017. We propose to do so once our new development plans, as mentioned above, are completed.

Andrew Shrager, Chairman, commented: “We are able to commit to these drilling operations across our portfolio due to our continued production efficiency and positive cash generation at current oil prices and FX rates. The one factor which may cause us to slow the rate of drilling is possible changes in the taxation of oil and gas companies operating in Russia for 2017, for which we have to wait for information until next month or early next year.”

The post Urals Energy: Outlines Drilling and Workover Plans for 2017 appeared first on ROGTEC.

Production data for 2015

Total production by the Group during 2015 increased by 2.0% and reached 675,318 barrels. This was made up as follows:
· production at Arcticneft reached 253,592 barrels (2014: 240,865 barrels);
and
· production at Petrosakh reached 421,726 barrels (2014: 421,350 barrels).

Petrosakh

Daily production update
Current daily production at Petrosakh is 1,350 barrels of oil per day (“BOPD”), which is 230 BOPD more than the same period in 2015.

Well 109
Drilling of Well 109 to a depth of 1,842 meters has been completed. At a depth of 1,700 to 1,842 meters, the Well encountered the Pileng formation which is typically an oil-saturated zone. However, during the Well completion (performed via gas injection), the Well flowed high pressured water which may be preventing the flow of oil to the surface.

The Well is still being tested and the team is carrying out downhole logging in order to define the fluid movement profile and its fractional composition. The objective is to determine whether the flow of water can be reduced, and allow oil to flow to the surface. Further announcements will be made as soon as the testing of Well 109 is completed.

The area where Well 109 is situated has a complex geology and the Company has engaged Prokon, a geotechnical analysis company who will be responsible for monitoring the field’s development. Prokon will review the data and advise the Company on whether it should deploy a micro seismic survey and undertake further studies of the area, as well as reviewing Urals Energy’s plan for two further potential wells this year.

Refinery
Weather conditions in recent months have been adverse on Petrosakh Island, which has led to increased demand resulting in the Company seeing good sales volumes at satisfactory prices. The new refinery control system is proving very effective in optimising production.

Arcticneft

Current daily production
Current daily production at Arcticneft is 680 BOPD which is in line with the same period of 2015. Recent work overs have proven effective and the Company plans to work over a further two wells this year, which should enable production levels to be maintained. The Company is expecting to ship the annual cargo in July/August, the same as last year.

Recent acquisitions

RK-Oil Limited
This year the Company plans just one workover on the RK-Oil license, the acquisition of which was announced on 19 November 2015. The objective is to establish reserves to be registered with the Russian State Authorities. Urals Energy will then prepare a development plan which will incorporate development of the license (which is in Russia’s Komi region) on a coordinated and integrated basis with the registered reserves of the license area held by our other recent acquisition, BVN Oil Limited.

Competent Person’s report

As indicated in the Company’s announcements of 7 October 2015 and 19 November 2015, the Company plans to have a review of the licenses held by RK-Oil Limited and BVN Oil Limited undertaken, in addition to the extension of the license area at Arcticneft, in accordance with an appropriate Standard (in accordance with the AIM Guidance Note for Mining, Oil and Gas Companies) in an updated Competent Person’s report to be undertaken later this year. This may also be incorporated into the Group’s overall development plan for its existing license areas, as part of an update of the Company’s reserves.

Acquisition opportunities

The Company continues to look at various M&A opportunities. The Company has engaged Proxima Capital Group, a Moscow advisory firm, to assist in the search on a selective basis.

Andrew Shrager, Chairman, commented: “While the oil price seems to be recovering somewhat and the Rouble exchange rate remains favourable, we have decided to keep capex spending limited, particularly in terms of drilling expenses which require consumables sourced in US dollars. At current prices for crude and domestic sales, given the Rouble exchange rate and the current tax regime, the Company is able to operate on a broadly cash neutral basis, including funding our limited drilling programme.”

The section of this release with respect to Well 109 has been approved by Mr Vasily Nikoluk, Chief Geologist, a graduate of the Ivano Frankivsk University, the former head of department at Gazpromneft and a qualified person, in accordance with the guidance note for Mining, Oil & Gas Companies, issued by the London Stock exchange in respect of AIM companies, which outlines standards for disclosure for oil companies.

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Production data for 2015

Total production by the Group during 2015 increased by 2.0% and reached 675,318 barrels. This was made up as follows:
· production at Arcticneft reached 253,592 barrels (2014: 240,865 barrels);
and
· production at Petrosakh reached 421,726 barrels (2014: 421,350 barrels).

Petrosakh

Daily production update
Current daily production at Petrosakh is 1,350 barrels of oil per day (“BOPD”), which is 230 BOPD more than the same period in 2015.

Well 109
Drilling of Well 109 to a depth of 1,842 meters has been completed. At a depth of 1,700 to 1,842 meters, the Well encountered the Pileng formation which is typically an oil-saturated zone. However, during the Well completion (performed via gas injection), the Well flowed high pressured water which may be preventing the flow of oil to the surface.

The Well is still being tested and the team is carrying out downhole logging in order to define the fluid movement profile and its fractional composition. The objective is to determine whether the flow of water can be reduced, and allow oil to flow to the surface. Further announcements will be made as soon as the testing of Well 109 is completed.

The area where Well 109 is situated has a complex geology and the Company has engaged Prokon, a geotechnical analysis company who will be responsible for monitoring the field’s development. Prokon will review the data and advise the Company on whether it should deploy a micro seismic survey and undertake further studies of the area, as well as reviewing Urals Energy’s plan for two further potential wells this year.

Refinery
Weather conditions in recent months have been adverse on Petrosakh Island, which has led to increased demand resulting in the Company seeing good sales volumes at satisfactory prices. The new refinery control system is proving very effective in optimising production.

Arcticneft

Current daily production
Current daily production at Arcticneft is 680 BOPD which is in line with the same period of 2015. Recent work overs have proven effective and the Company plans to work over a further two wells this year, which should enable production levels to be maintained. The Company is expecting to ship the annual cargo in July/August, the same as last year.

Recent acquisitions

RK-Oil Limited
This year the Company plans just one workover on the RK-Oil license, the acquisition of which was announced on 19 November 2015. The objective is to establish reserves to be registered with the Russian State Authorities. Urals Energy will then prepare a development plan which will incorporate development of the license (which is in Russia’s Komi region) on a coordinated and integrated basis with the registered reserves of the license area held by our other recent acquisition, BVN Oil Limited.

Competent Person’s report

As indicated in the Company’s announcements of 7 October 2015 and 19 November 2015, the Company plans to have a review of the licenses held by RK-Oil Limited and BVN Oil Limited undertaken, in addition to the extension of the license area at Arcticneft, in accordance with an appropriate Standard (in accordance with the AIM Guidance Note for Mining, Oil and Gas Companies) in an updated Competent Person’s report to be undertaken later this year. This may also be incorporated into the Group’s overall development plan for its existing license areas, as part of an update of the Company’s reserves.

Acquisition opportunities

The Company continues to look at various M&A opportunities. The Company has engaged Proxima Capital Group, a Moscow advisory firm, to assist in the search on a selective basis.

Andrew Shrager, Chairman, commented: “While the oil price seems to be recovering somewhat and the Rouble exchange rate remains favourable, we have decided to keep capex spending limited, particularly in terms of drilling expenses which require consumables sourced in US dollars. At current prices for crude and domestic sales, given the Rouble exchange rate and the current tax regime, the Company is able to operate on a broadly cash neutral basis, including funding our limited drilling programme.”

The section of this release with respect to Well 109 has been approved by Mr Vasily Nikoluk, Chief Geologist, a graduate of the Ivano Frankivsk University, the former head of department at Gazpromneft and a qualified person, in accordance with the guidance note for Mining, Oil & Gas Companies, issued by the London Stock exchange in respect of AIM companies, which outlines standards for disclosure for oil companies.

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Andrew Shrager, Chairman commented: “The Board is delighted with the acquisition of both RK and BVN. These acquisitions fit into our strategy of acquiring licenses for exploration selectively at times of low oil prices and undertaking initial exploration, but waiting until conditions improve before further developing such assets. They will add to the Company’s potential pipeline through the ability to develop a further total area of over 947 sq km in the Komi region, an area where the Urals Energy team have considerable expertise. These are the first steps in rebuilding the asset base of Urals Energy.”

BVN holds an exploration license for the Babayevsky area which is valid until 2018. The license covers a total area of 502 sq km and is located 12 km from the nearest oil terminal. One exploratory well was drilled in 2015, leading to a commercial discovery with a tested flow rate of 60 barrels of oil per day over a period of 18 hours from within deposits of the Devonian period. The license presently has indicated oil reserves of 2.02 million tons C1 and C2 (equivalent to 14.9 million barrels) and possible recoverable resources (D1) of 1.256 million tonnes, (equivalent to 9.29 million barrels), both of which have been approved by the State Reserves Committee. The formal procedures for the execution of the Protocol of the State Reserves Committee to effect the transfers of the license are currently under way. Over the coming months, the Company will undertake further studies and prepare a development plan as part of its application for a 25 year development license. Apart from the exploration license BVN holds no other assets.

RK holds an exploration and production license for the Ordymsky area, which is valid until 2040. The license covers a total area of 445 sq km, and is located 7 km from the nearest oil terminal. The license was held by LUKOil from 1995 until it was relinquished in 2000. LUKOil drilled one exploratory well which flowed, but no further studies were undertaken. RK has State registered possible recoverable resources (D1) of 3.385 million tonnes (equivalent to 25.05 million barrels). Apart from the exploration and production license RK holds no other assets.

These reserves and resource figures stated above have not been reviewed in accordance with the AIM Guidance Note for Mining, Oil and Gas Companies and the Company plans to get a review of these new licenses undertaken, in addition to the recent extension of the license area at Arcticneft and the Company’s other assets, in accordance with an appropriate Standard in an updated Competent Person’s report to be undertaken next year.

Dr Svyatoslav Bilibin, (Dr.Sci.Tech. and Corresponding Member of the Russian Academy of Natural Sciences), an independent adviser to Urals Energy, who meets the criteria of a qualified person under the AIM Guidance Note for Mining, Oil and Gas Companies, has reviewed and approved the technical information contained within this announcement.

The two license areas are some 100 km apart, so will be managed together. The Board believes that it will be possible for facilities to be shared, once a full development plan is undertaken.

The total consideration for the acquisitions is US$ 5.275 million, of which US$ 2.7 million is to be settled in cash and US$ 2.525 million is to be satisfied by the assumption of debt and other liabilities. The acquisitions are being funded out of Urals Energy’s cash resources and the new working capital facility from Sberbank, details of which were announced on 30 June 2015.

In the case of BVN, there is a debt of Russian Rubles 19 million (approximately US$ 290,000) owed to Komineftegeofizika (“KNGF”). This is to be offset against the money owed to Urals Energy by KNGF as a result of the arbitration from last year. KNGF has paid a balancing amount to Urals Energy in cash and has therefore now fulfilled its obligations to Urals Energy in full.

Neither RK nor BVN have traded and as a result have generated no revenues. The unaudited net losses of both companies for the period from 1 January 2015 to 15 November 2015 totalled approximately US$ 23,500. The unaudited net assets of both companies as at 15 November 2015 were approximately US$ 287,000. The estimated actual expenditures to date by RK and BVN on acquiring the licenses, undertaking studies and drilling the well have totalled US$ 3.2 million.

These acquisitions bring Urals Energy back to the Komi region where its team has considerable experience. Urals Energy has been providing geological assistance to RK and BVN over the last year, thus giving the Urals Energy Board the confidence to make these acquisitions.

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