Urals Energy: H1 Results – Workover Program to Continue to Maintain Production, Working Capital Doubled

Urals Energy PCL (AIM: UEN), the independent exploration and production company with operations in Russia, is pleased to announce its half-year results for the six months ended 30 June 2015.

Operational highlights

Total production at Arcticneft during the period reached 124,697 barrels (H1-2014: 118,958 barrels)

– Total production at Petrosakh during the period reached 196,890 barrels (H1-2014: 210,435 barrels)
– Current daily production at Arcticneft is 716 BOPD, 4% higher than the average of 689 BOPD for the six months ended 30 June 2015
– Current daily production at Petrosakh is 1,110 BOPD compared with an average of 1,088 BOPD for the six months ended 30 June 2015
– In June 2015 the Company completed drilling of well 112 at Petrosakh, resulting in the daily production rate stabilizing in Petrosakh
– In June 2015 the Company completed the installation and testing of new control equipment in the Petrosakh refinery after theaccident which occurred at the beginning of the year

In January 2015 the Company signed a comprehensive settlement agreement with Mr V Rovneiko, a former Director of the Company, on all outstanding litigation and pending or threatened disputes. This resulted in a material decrease in consulting services costs in the period

Financial highlights

· Positive net working capital position at 30 June 2015 of US$3.1 million (30 December 2014: US$1.6 million)
· In May 2015 the Company and its subsidiary Petrosakh entered into a short-term loan agreement with Petraco Oil Company Limited (“Petraco”). Under the terms of this agreement, Petraco has advanced the Company US$6.0 million and the Board expect to repay the loan with the proceeds of the September 2015 Arcticneft tanker shipment (expected to be received shortly). In addition the Company has entered into an 18 month revolving credit facility with the Sakhalin branch of OJSC Sberbank of Russia, under which Sberbank will provide, by way of several tranches, the sum of 300 million Russian Roubles. The loans are being used by the Company to both progress its 2015 CAPEX plan and as working capital financing
· Gross profit reduced by 45% to US$2.0 million (H1-2014: US$3.5 million)
· Operating loss decreased to US$0.1 million for the period (H1-2014: US$0.4 million)
· Loss for the period of US$0.1 million (H1-2014: US$1.2 million)
· EBITDA* decreased to US$1.3 million from US$3.3 million in H1 -2014
· Continuous successful implementation of cost reduction programme and effective cost management in the period allowed the Company to decrease the operating costs and SG&A costs in Russian Rouble equivalent by 8% and 10% respectively

*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

· On 1 September the planned annual tanker shipment for export from Arcticneft was successfully completed. The Company shipped 217,282 bbls (2014: 207,940 bbls). Preparatory maintenance work and changing the timing of the shipment allowed the Company to complete the shipment in less than four days without any demurrage charges. Payment for the tanker shipment is expected to be received shortly
· In July 2015 the Company commenced drilling of well 54. The target depth has been reached and the results of this drilling are expected shortly
· The Company successfully continues to rationalise its marketing policy. In anticipation of the winter period Petrosakh has rented several tanks near Yuzhno – Sakhalinsk and started small wholesales activity that will increase net backs by at least 5 %

Outlook

At Arcticneft, the Company will continue to implement the workover programme on an additional eight wells in the second half of 2015. The aim of these programmes is to keep production at Arcticneft at an average of 700 to 720 bbls/day by the end of 2015.

At Petrosakh, with the completion of well #54, the Company will evaluate the results and take an economically justified decision on drilling well #61.

Having completed the evaluation of the cost structure at Petrosakh, the Company decided that increasing capital expenditure, with a four to six months payback period, will allow Petrosakh to avoid using services provided at unreasonably high monopolistic prices by external providers and consequently optimise its operating and transportation expenses. The Company started this programme during the first half of 2015 and will expect to finalise it by the end of the year.

In the downstream area at Petrosakh the Company is now concentrating on potential technical improvements of the refinery, which will allow increasing oil conversion depth at relatively reasonable cost. In parallel the Company is actively looking for the opportunity to load the capacity of the refinery by external crude oil shipment.

Leonid Dyachenko
Interim Chief Executive Officer