VOLGA GAS PLC. Results for the year ended 31 December 2018
Volga Gas plc (“Volga Gas”, the “Group” or the “Company”), the oil and gas exploration and production group operating in the Volga region of Russia, is pleased to announce its preliminary, unaudited annual results for the year ended 31 December 2018.
During 2018, management’s principal objective was to complete the construction at the Dobrinskoye gas plant of the new unit to capture liquid petroleum gases (“LPG”) from the gas and condensate stream. This was achieved in April 2018. LPG production commenced in May 2018 and built steadily from that point.
Having made adjustments to the Redox based sweetening process early in the year, gas and condensate production remained steady in 2018, compared to 2017. With LPG sales commencing in May 2018, total sales volumes on a barrel of oil equivalent (“boe”) basis increased by 6% in 2018. In addition, thanks to stronger oil prices, revenues in 2018 increased by 24%, resulting in EBITDA and cash flow rising by 93% and 179% respectively. With this strong financial performance and the consequent strengthening in the Group’s financial position, the Board is pleased to recommend a final dividend of US$0.09 per share on top of the US$0.06 per share interim dividend paid in November 2018.
FINANCIAL RESULTS FOR 2018
· Sales volumes up 6% to 4,956 boepd (2017: 4,667 boepd)
· Gross revenues up 24% to US$45.9 million (2017: US$37.1 million).
· Netback revenues (after export taxes and transport costs) up 25% to US$43.4 million (2017: US$34.8 million).
· EBITDA up 92% to US$16.9 million (2017: US$8.8 million).
· EBITDA per barrel of oil equivalent sold up 83% to US$9.36 per boe (2017: US$5.13 per boe)
· Profit before tax of US$10.6 million (2017: US$0.17 million)
· Operating cash flow before working capital movements of US$20.7 million (2017: US$9.1million), in line with EBITDA but including a receipt of US$3.1 million court settlement (2017: US$0.3 million)
· Total cash of US$15.2 million as at 31 December 2018 (31 December 2017: US$8.6 million) after utilising US$2.1 million for capital expenditure (2017: US$12.6 million) and paying US$4.9 million in equity dividends (2017: US$5.0 million). Total borrowings, comprising bank debt, at 31 December 2018 were US$1.7 million (2017: US$4.0 million).
PRODUCTION & DEVELOPMENT
· Group average production in 2018 increased 4.0% to 5,144 boepd (2017: 4,948 boepd).
· Production from VM and Dobrinskoye fields was 4.4% higher at 4,537 boepd in 2018 (2017: 4,346 boepd) with steady gas plant throughput new LPG production starting in May 2018.
· Oil production from the Uzen field averaged at 607 bopd (2017: 545 bopd) as production from the horizontal well Uzen #101 offset declines in the mature producing wells.
· Two successful sidetracks to the VM#2 and Dobrinskoye #26 wells are expected to restore production from these currently non-producing wells and increase the available production capacity for gas and condensate.
DOBRINSKOYE GAS PLANT
· Improvements in the operation of the Redox based gas sweetening enabled steady gas throughput and reduced operational downtime in 2018.
· Construction of the LPG extraction plant was completed in April. Test production commenced in May 2018 and the commissioning process is now close to complete.
DIVIDEND
· The Board regards the distribution policy to be of utmost importance to shareholders therefore it is intending to declare payments of 75% of the free cash generation of the Group.
· The Board declared an Interim dividend of US$0.06 per share in September 2018 and is proposing a final dividend of US$0.065 per share which will be paid on 27 May 2019 to shareholders on the register on 5 May 2019, subject to approval at the Company’s Annual General Meeting on 20 May 2019.
CURRENT TRADING AND OUTLOOK
· Between January and March 2019, Group production averaged 6,117 boepd, in line with management’s plan.
· For the coming months, management expects average daily production of gas, condensate and LPG to be in the region of 5,400 boepd, due to planned maintenance downtime, leading to Group production of approximately 5,900 boepd.
· Oil prices have risen since the start of 2019 and have been relatively stable during the first three months of the year.
· As at 31 December 2018, the Group budgeted capital expenditure of US$3.3 million for 2019, of which US$1.7 million was contracted. The principal uses are for further minor items for the LPG project and drilling of the recently completed sidetrack wells. These sums are less than the anticipated levels of operating cash flow.
Andrey Zozulya, Chief Executive of Volga Gas, commented:
“We are pleased to have delivered on the two key aims; improvement in operational reliability of the Redox gas sweetening and construction of the LPG extraction plant. These have already delivered a higher level of production that is expected be sustainable in the medium to long term. The improvement in profitability achieved in 2018 exceeded management’s expectations and, in a stable oil price environment, would be sustainable.
“The Board is very pleased to be recommending further dividend payments to shareholders.
“We remain excited about the Group’s assets and remain positive about the potential for production from our fields and the potential to discover additional fields in our licences. We will also continue to seek value accretive opportunities, beyond our existing licence areas, building a focused exploration and production business.”
