Zoltav Resources: Final Results for the Year Ended 31 December 2017

Zoltav (AIM: ZOL), the Russia-focused oil and gas exploration and production company, announces final results for the year ended 31 December 2017.

Financial Highlights

·    Revenues from production declined, in line with expectations, by 10% to RUB 1.79 billion (USD 30.68 million) (2016: RUB 1.99 billion (USD 29.69 million)) 

·     EBITDA increased by 5% to RUB 888 million (USD 15.22 million) (2016: RUB 846 million (USD 12.62 million))

·     EBITDA margin increased to 50% (2016: 43%) 

·    Total cost of sales remained steady at RUB 1.15 billion (USD 19.71 million) (2016: RUB 1.15 billion (USD 17.16 million)) 

·     G&A costs reduced significantly by 38% to RUB 185 million (USD 3.17 million) (2016: RUB 299 million (USD 4.46 million)), mostly achieved through administrative staff reduction, cutting non-strategic costs and maintenance optimisation

·   Operating profit increased by 2% to RUB 450 million (USD 7.71 million) (2016: RUB 441 million (USD 6.58 million)) 

·    Impairment allowance for RUB 1.69 billion (USD 29.34 million) taken in respect of the Koltogor Licences for which development is currently on hold, leading to a loss before tax of RUB 1.43 billion (USD 24.51 million) (2016: RUB 197 million (USD 2.94 million))

·    Net loss including the impairment allowance for the Koltogor Licences was RUB 1.27 billion (USD 21.76 million) (2016: RUB  97 million net profit (USD 1.45 million))

·    Net profit excluding the impairment allowance for the Koltogor Licences increased significantly by 87% to RUB 182 million (USD 3.12 million) (2016: RUB  97 million net profit (USD 1.45 million)) 

·    Reduced borrowings further through repayment of RUB 300 million of PJSC Sberbank debt (USD 5.21 million) – reducing the principal amount to RUB 1.56 billion (USD 27.08 million) at 31 December 2017 (RUB 1.86 billion (USD 30.66 million) as at 31 December 2016) 

·    Net cash generated from operating activities increased by 1% to RUB 728 million (USD 12.64 million) (2016: RUB 719 million (USD 11.85 million)) 

·   Total cash at 31 December 2017 was RUB 286 million (USD 4.97 million) (31 December 2016: RUB 294 million (USD 4.85 million)) 

·    The Group has sufficient liquidity to fund its current seismic programme and entered into an agreement after the year-end with its two largest shareholders for their provision of an unsecured loan facility of up to an aggregate USD 12 million in further support of the exploration programme

Note: USD comparisons are provided in the above Financial Highlights for illustrative purposes only and are calculated using an exchange rate of:

2017: 1 USD = 58.3529 RUB

As at 31 December 2017: 1 USD = 57.6002 RUB

2016: 1 USD = 67.0349 RUB

As at 31 December 2016: 1 USD = 60.6569 RU

Operational Highlights – Bortovoy Licence

·    Net production declined, in line with expectations, by 13% to 2.6 mmboe in 2017 (2016: 3 mmboe), made up of:

o Natural gas: 14.8 bcf (418 mmcm) or 2.5 mmboe (335.5 mtoe) (2016: 16.8 bcf (475.8 mmcm) or 2.8 mmboe (381.9 mtoe))

o Oil and condensate: 122,962 bbls (15,663 t) (2016: 163,967 bbls (20,888 t))

·    Average net daily production was 7,075 boe/d (965 toe/d) (2016: 8,118 boe/d (1,108 toe/d)), made up of:

o Natural gas: 40.4 bcf/d (1.15 mmcm/d) (2016: 46.0 bcf/d (1.3 mmcm/d))  

o Oil and condensate: 337 bbls/d (43 t/d) (2016: 449 bbls/d (57 t/d))

·    High focus on operational efficiency maintained including the reduction of planned plant shutdowns through use of improved chemical agents for the treatment of gas and the re-use of light fractions of hydrocarbons which were previously flared  

·   Strategic decision to transition operational emphasis from production to exploration, while continuing to generate cash from Permian fields already in production – management believes there is potential to yield substantial additional reserves and production from Carbonian and Devonian horizons 

·    Considerable 3D seismic programme over the Carbonian and Devonian (and prospective Permian) structures in the North Mokrous area of the Mokrousovskoye block undertaken in 2017 – preliminary interpretation of the first 180 sq km now complete 

Operational Highlights – Koltogor Licences

·   Koltogor Licences are not currently a focus of investment as the company is channeling capex into the exploration programme on the Bortovoy Licence 

Corporate Highlights

·     Board and management changes

o Lea Verny, previously Independent Non-executive Director, replaced Marcus Rhodes as Independent Non-executive Chairman on 22 March 2017

o Marcus Rhodes, previously Independent Non-executive Chairman and subsequently Senior Independent Director, did not stand for re-election at the Annual General Meeting on 23 May 2017

o Eduard Sleyn appointed as Group CEO on 15 May 2017

o Kirill Suetov appointed as Group Director of Finance on 1 January 2017

Lea Verny, Independent Non-executive Chairman, commented:

“Despite the anticipated decline in production revenues, our rigorous commitment to cost and operational efficiencies, including the limitation of plant shut-downs through the application of new and improved chemical processes in the gas treatment unit, enabled the Company to achieve a 5% increase in EBITDA to RUB 888 million (USD 15.22  million) (2016: RUB 846 million) (USD 12.62  million)).

We took the strategic decision in 2017 to transition the operational emphasis of the Company from production to exploration, while continuing to generate cash from the Permian fields already in production. Zoltav believes there is potential to yield substantial additional reserves and production from the Carbonian and Devonian horizons at Bortovoy which, if proven, would have a transformational impact on the size of the Bortovoy asset.

A considerable 3D seismic acquisition programme was undertaken in these horizons in 2017 and the exploration programme has continued to gather pace in the year to date including with the preliminary interpretation of data and the strengthening of the technical team in support of the work programme. We look forward to reporting further progress as the programme advances.”

The full annual report is available to download from the Investor Relations section of the Company’s website at www.zoltav.com.