Urals Energy: 2014 Results – Numbers Hit By Exchange Rates, Cost Cutting Program on Course

Urals Energy PCL, the independent exploration and production company with operations in Russia, is pleased to announce its audited financial results for the year ended 31 December 2014.

Leonid Dyachenko, Interim Chief Executive Officer, commented: “2014 has been a challenging year for Urals characterised by low oil prices and volatility on the Russian FOREX markets. With the Company effectively debt free and the remaining corporate issues resolved during the period there is a strong platform for growth on which to build.

“The reserve assessment report prepared by Miller and Lents has given the Group further opportunity to develop our reserves through a series of work over programmes and the drilling of new wells. With our sound financial strength and desire to seek out suitable acquisitions the Board has reason to be optimistic for the future of Urals Energy.”

Operational highlights

· Total production at Arcticneft reached 240,865 barrels (2013: 250,426 barrels)
· Total production at Petrosakh reached 421,350 barrels (2013: 470,415 barrels)
· Current daily production at Arcticneft is 720 BOPD 9% higher than an average of 660 BOPD for the twelve months ended 31 December 2014
· Current daily production at Petrosakh is 1,095 BOPD compared with an average of 1,154 BOPD for the twelve months ended 31 December 2014
· In October 2014 the Company successfully completed the shipment of 207,940 bbls of crude oil from Arcticneft (2013: 198,537 bbls)
· The Company issued a new reserve assessment report prepared by Miller and Lents. The reserves report was prepared in accordance with Petroleum Resources Management System (PRMS) and aggregate 2P reserves of the Group as at 1 January 2014 represent 46.3 million bbls

Financial highlights

· Gross profit reduced by 30% to US$8.7 million (2013: US$12.4 million)
· Operating profit of US$1.2 million for the period (2013: US$2.8 million)
· Net loss before income tax of US$16.1 million in 2014 (2013: net loss of US$0.4 million) caused by exchange rate movements during both 2014 and 2013. Without the foreign currency loss US$17.7 million in 2014 and US$3.7 million in 2013, profit before income tax for the year would have decreased in 2014 by US$1.6 million
· EBITDA* decreased to US$8.1 million from US$10.5 million in 2013, a decrease of 23%
· Positive net working capital position on 31 December 2014 of US$1.6 million (2013: US$2.0 million)
· Successful implementation of cost reduction programme in the previous periods and effective cost management in 2014 allowed the Company to keep the operating costs in Rouble equivalent in line with the level achieved in 2013 and this resulted in a decrease in Rouble denominated SG&A costs in 2014 to the amount of 5%
· Net cash generated from operating activities allowed the Company to settle the outstanding loan received from Petraco Oil Company Limited and Petraco in 2014 and finish 2014 with a net cash position of US$4.4 million (2013: net cash US$6.0 million)
*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

· In June 2015 the Company completed well 112 drilling at Petrosakh which is now at the stage of testing and completion. Expected rate of production is around 110 bbls per day
· The annual planned tanker shipment for export from Arcticneft to Petraco is expected in August 2015. The Company decided to make the export shipment earlier this year due to bad weather restricting tanker loading in the past (21 November 2013). The estimated shipment based on current daily production is around 200,000 bbls
· The Company successfully continues the work over program of re-entering existing wells adopted in Arcticneft. Four wells which were previously out of operation for several years were perforated. As a result the current daily production in Arcticneft reached 720 bbls per day at a marginal incremental cost
· In May 2014 the Company entered into a secured short-term loan agreement with Petraco under which Petraco advanced US$6 million to the Company. The proceeds of the Loan will be used to both progress its CAPEX program and working capital financing