Volga Gas plc: Interim Results
Volga Gas, the oil and gas exploration and production group operating in the Volga region of Russia, announces its interim results for the six months ended 30 June 2020.
COVID-19 IMPACT
· Operations were quickly adapted to minimise the risk of Covid-19 infections to staff, contractors and customers, as detailed in the Preliminary announcements of 2019 results.
· Since the start of the pandemic, we are pleased to report that none of the Group’s members of staff or contractors have been tested positive for Covid-19.
· Apart from the impact on global oil prices and a seven day production impact caused by temporary reduction in demand for condensate, the impact of Covid-19 on the business has not been significant.
OIL, GAS AND CONDENSATE PRODUCTION
· Group production averaged 3,593 boepd in H1 2019 (H1 2019: 5,634), a 36% decrease.
· Gas and condensate production were 8.8 mmcf/d, and 1,437 bpd, respectively (H1 2019: 20.0 mmcf/d, a 56% decrease and 1,525 bpd, a 6% decrease).
· LPG production contributed a further 188 boepd (H1 2019 352 boepd).
· Oil production averaged 493 bopd (H1 2019: 419 bopd), a 18% increase.
FINANCIAL RESULTS
· Revenues decreased 49% to US$13.4million (H1 2019: US$26.3 million). Revenues net of selling expenses decreased 43% to US$13.3 million (H1 2019: US$23.4 million).
· EBITDA decreased 67% to US$3.1 million (H1 2019: US$9.3 million).
· The Group is recognising a US$7.8 million asset impairment charge (H1 2019: US$3.2 million) primarily reflecting the decline in oil prices between 1 January and 30 June 2020. [].
· With increased unit DD&A charges resulting from the reserve revision recognised in 2019 in addition to the above mentioned charges, the Group is reporting an operating loss of US$8.1 million (H1 2019: operating loss of US$2.6 million).
· Loss before tax of US$7.9 million (H1 2019: loss before tax of US$3.0 million) and net loss after tax of US$8.0 million (H1 2019: net loss of US$2.5 million.
· Cash flow from operations was US$ 3.2 million (H1 2019: US$9.7 million) before working capital outflow of US$0.6 million (H1 2019: outflow of US$0.7 million) and payment of US$1.0 million in income taxes (H1 2019: US$1.6 million).
· Cash used in capital expenditure was US$4.6 million (H1 2019: US$3.3 million) was primarily utilised in the slim hole drilling campaign.
· Cash balance decreased to US$10.6 million as at 30 June 2020 (31 December 2019: US$14.1 million).
· There were no outstanding borrowings as at 30 June 2020 (31 December 2019: nil).
DEVELOPMENT & EXPLORATION ACTIVITY
· In light of the significant reduction in commodity prices experienced during 1H 2020, the Board of Volga Gas decided to focus activity on development of the Uzen field and surrounding prospects using its cost effective slim hole drilling rigs.
· 11 new oil production wells were drilled (8 of which have been completed for production) in the proved areas of the Uzen field, both in the mature Aptian reservoir (where there remain small pockets of untapped oil) and in the less developed and shallower Albian reservoir;
· 3 exploration and appraisal wells close to the Uzen field. These confirmed the presence of oil in a previously unevaluated Upper-Aptian reservoir and also confirmed hydrocarbons in a separate geological block to the east of the existing field as well as a separate structure to the North of Uzen;
DIVIDEND
· In light of the current outlook and the need to target its financial resources towards stabilizing and rebuilding future production levels, the Board has decided to suspend cash dividends for the time being.
POST PERIOD UPDATE
· During July and August 2020, Group production averaged 3,954 boepd. Management guidance of 4,000 boepd for the remainder of 2020.
· At 31 August 2020, the Group net cash balance was at US$12.1 million. The Group remains debt free.
OUTLOOK
· Full year production guidance of 3,850 boepd.
· Slim hole development drilling campaign on the Uzen field and adjacent structures is to continue with the aim of further increasing oil production.
· Exploration on three of the undrilled prospects within its Karpensky Licence is planned during H2 2020.
· Capital expenditure plans for H2 2020 total US$3.1 million.
FORMAL SALE PROCESS
· As announced on 28 September 2020, the Company is continuing to engage in active discussions with a number of parties regarding the sale of the Company (or its entire business and assets). There can be no certainty that an offer will be made, nor as to the terms on which any offer will be made.
Andrey Zozulya, Chief Executive Officer of Volga Gas, said:
“Whilst the financial results are dominated by an additional impairment charge on the holding value of the Group’s assets as a result of the reduction in international oil prices, I am pleased that the Group’s operations have remained resilient in the face of the Covid-19 pandemic and continue to generate positive net cash flow. Management would like to pay tribute to the hard work and professionalism of our employees and contractors in maintaining a safe and effective operating environment in this period.
“We are pleased to report continued progress with the slim hole drilling operations, which have more than reversed the declines in oil production from the mature wells on the Uzen field, and look forward to providing the results of the new exploratory wells that will be drilled between now and the end of 2020.”
